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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, 1997, 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 Identification No.)
of incorporation or organization)
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:
Name of each exchange on
Title of each class which registered
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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. [ ]
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 28, 1997, was
approximately $34,894,898. 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 28, 1997, the Registrant had 14,050,515 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, 1997 (Parts II and IV), and (2)
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on February 25, 1998 (Part III).
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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 $68 million, $26 million and $48
million on capital projects during the fiscal years ended September 30, 1995,
1996 and 1997, 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.
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 which remain to be completed.
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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 costs as the finishing stand equipment is installed and implemented.
Development Venture. The Company has formed a limited liability
company with certain unrelated parties, which in turn has entered into a
cooperative agreement with the United States Department of Energy ("DOE") for
the demonstration of a cokeless ironmaking facility and associated power
generation and air separation facilities. As of September 30, 1997, the Company
had spent approximately $0.9 million (net of DOE reimbursement) in connection
with the project. Expenditures on the project are subject to government cost
sharing arrangements. Completion of the project remains subject to several
contingencies. Under certain circumstances, the Company will be required to
repay some or all of the government cost share funds and expense other funds
included in construction in progress 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 1997, the Company increased its percentage
of pipe products sold and reduced its percentage of 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 continue to
gradually decrease as rolling mill throughput improves. Product mix shifts are
also determined by Geneva's product mix optimization efforts. The Company's
product sales mix as a percent of net sales for fiscal years 1993 through 1997
is shown below:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sheet............................................ 56% 65% 41% 30% 30%
Plate............................................ 31 24 35 45 45
Pipe............................................. 10 7 6 6 10
Slab............................................. -- 1 15 16 12
Non-steel........................................ 3 3 3 3 3
---------- ---------- ---------- ---------- -----------
Total................................ 100% 100% 100% 100% 100%
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</TABLE>
Sheet. The mill produces hot-rolled sheet steel which is sold in
sheet or coil form in thicknesses of .096 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.
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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 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 63% of the Company's finished product
sales (excluding slabs) in fiscal year 1997. 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 1997, the Company sold its products domestically to
approximately 250 customers in 39 states and abroad through exporters to 7
customers in Canada and Mexico.
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 1.3%, 0.7%
and 1.4% of the Company's net sales during fiscal years 1995, 1996 and 1997,
respectively.
The Company's principal direct marketing efforts are in the western
and central United States. Five 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 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 previously provided that Mannesmann make a
production prepayment of up to $15 million. The prepayment arrangement was
terminated during fiscal year 1997. Mannesmann accounted for approximately 31%
and 33% of the Company's net sales in fiscal years 1996 and 1997, 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 fluctuated
widely 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, 1997, the Company had estimated total orders on hand for
approximately 309,000 tons compared to approximately 210,000 tons as of
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November 30, 1996. 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 2,600 full-time
employees, of whom approximately 475 are salaried and approximately 2,125 are
hourly. The Company's 149 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 approximately 15 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 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 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
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spot market. The Company has iron ore deposits at mines in Utah. When used, 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 a minimum of 2,700,000 net tons in each of
the fourth and fifth years of the agreement. 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 three facilities located on the Company's premises. Two of the
facilities were constructed by Air Liquide America Corporation ("Air Liquide")
and the third by Praxair, Inc. ("Praxair"). These facilities are capable of
providing approximately 275, 800 and 550 tons of oxygen per day under contracts
which expire in 2002, 2012 and 2006, respectively.
The Company generates a 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 Company under a
110 megawatt interruptible power contract expiring in 2002. 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 2002 with Utah Power 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 utilizing firm and
interruptible transportation contracts. The Rocky Mountain region has
substantial natural gas reserves.
Other. The Company's mill can be 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 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 Company has experienced and continues to experience a
shortage of railcars which has adversely impacted operating results. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations. 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 or improves yields, management anticipates that increased
amounts of scrap will be purchased.
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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 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 that produce wide plate in coil form, thereby competing with products
produced by the Company. 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 alleged large dumping margins and also set
forth the injury to the U.S. industry caused by dumped imports from the subject
countries. The United States Department of Commerce issued a final affirmative
determination of dumping for each country in
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October 1997, finding substantial dumping margins on cut-to-length steel plate
imports from those countries. In December 1997, the International Trade
Commission ("ITC") voted unanimously that the United States industry producing
cut-to-length carbon steel plate was injured due to imports of dumped
cut-to-length plate from the People's Republic of China, the Russian Federation,
Ukraine and South Africa. The United States has negotiated suspension agreements
that have become effective due to the affirmative injury determination by the
ITC. Those agreements will limit imports of cut-to-length carbon steel plate
from the four countries to a total of approximately 440,000 tons per year for
the next five years, a reduction of about two-thirds from 1996 import levels,
and provide for an average 10-15% increase in import prices to remove the
injurious impact of the imports. Any violation or abrogation of the suspension
agreements will result in immediate imposition of the dumping duties found by
the Commerce Department. Dumped imports from countries not covered by the Plate
Trade Cases continue to suppress plate prices. The Company continues to monitor
cut-to-length plate imports from other countries as well as imports of other of
its products 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 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 $2.3 million for environmental capital improvements in fiscal
years 1998 and 1999. 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.
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.
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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.
On February 25, 1997, the Company filed a complaint in the Fourth
Judicial District Court for Utah County, State of Utah, against Commerce &
Industry Insurance Co. ("C&I"), a New York corporation. A First Amended
Complaint was filed and served on April 9, 1997, alleging that C&I had breached
its insurance contract with Geneva by failing to pay on Geneva's claim for the
loss it incurred on January 25 and 26, 1996 when it lost its internal generator.
C&I removed the case to the United States District Court for the District of
Utah on May 1, 1997. Upon C&I's formal request for additional investigation,
Geneva stipulated with C&I on June 6, 1997, to stay the litigation until October
31, 1997, to provide C&I additional time to review documents and interrogate
witnesses. That investigation continued until September, 1997. During early
October, Geneva had several meetings with C&I in an attempt to resolve the case
and assess the strength of the case.
On October 15, 1997, C&I provided a formal response to the claim in
which it declined coverage as an excluded peril under the policy, relying on,
among other defenses, an exclusion for "power, heating or cooling failure."
Pursuant to the June 1997 stipulation, C&I answered the First
Amended Complaint on October 31, 1997, denying most of the substantive factual
allegations in the First Amended Complaint and asserting as an affirmative
defense, among others, that Geneva's loss was excluded from coverage. On
November 24, 1997, Geneva filed a Second Amended Complaint against C&I, adding
claims seeking relief for breach of contractual implied covenant of good faith
and fair dealing, and bad faith--intentional and outrageous tortious conduct and
oppression. C&I's answer or other response to the Second Amended Complaint must
be filed December 26, 1997. Geneva requested the Court to require that discovery
be completed within approximately six months and the trial be held as soon
thereafter as the Court's schedule would allow. C&I requested the Court to allow
discovery until June 1, 1999 and require that the case be ready for trial after
October 1, 1999. At a Scheduling Conference held on November 21, 1997, the Court
set trial beginning July 2, 1999. The Court has set May 1, 1998 as a deadline
for dispositive motions on initial coverage issues and required that all
discovery be completed by January 15, 1999. The parties are presently involved
in resolving discovery issues and proceeding with discovery. The Company intends
vigorously to pursue its claims.
In addition to the matters described under Item 1.
"Business--Environmental Matters" and the insurance claim described above, 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 financial condition or results
of operation.
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, 1996 HIGH LOW
<S> <C> <C>
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
Fiscal Year Ended September 30, 1997 HIGH LOW
First Quarter ended December 31 $4 1/2 $2 3/4
Second Quarter ended March 31 3 5/8 2
Third Quarter ended June 30 3 1/2 2 1/4
Fourth Quarter ended September 30 4 1/4 2 5/8
</TABLE>
As of November 28, 1997, the Company had 14,050,515 shares of Class
A Common Stock outstanding, held by 644 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 pages 4 through 5 of the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1997.
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 6 through 14 of the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1997.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference
to pages 15 through 39 of the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1997.
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 25, 1998. The
definitive Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after September 30, 1997, 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 25, 1998.
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 25, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference
to the section entitled, "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on February 25, 1998.
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, 1997 are incorporated by
reference in Item 8 of this Report:
- Report of Independent Public Accountants
- Consolidated Balance Sheets at September 30,
1997 and 1996
- Consolidated Statements of Operations for the
years ended September 30, 1997, 1996 and 1995
- Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1997, 1996 and
1995
- Consolidated Statements of Cash Flows for the
years ended September 30, 1997, 1996 and 1995
- Notes to Consolidated Financial Statements
2. Financial Statement Schedule. The following Financial
Statement Schedule of the Company for the years ended
September 30, 1997, 1996 and 1995 is filed as part of
this Report and should be read in conjunction with the
Company's Consolidated Financial Statements and Notes
thereto:
Schedule Page
II - Valuation and Qualifying Accounts 17
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, no (1)
par value
4.2 Specimen Certificate of the Registrant's Series B Preferred Stock, (4)
no par value
4.3 Rights Agreement dated as of May 19, 1997, between Registrant and (5)
Rights Agent
10.1 Asset Sales Agreement between USX and the Registrant dated as of (1)
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 (6)
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, (6)
1996.
10.6 Amended and Restated Sales Representation Agreement between (6)
Mannesmann Pipe & Steel Corporation and the Registrant dated
April 1, 1996.
10.7 Geneva Steel Key Employee Plan* (7)
10.8 Amendment to Geneva Steel Key Employee Plan dated May 12, (8)
1991*
10.9 Form of Non-Statutory Stock Option Agreement* (1)
10.10 Management Employee Savings and Pension Plan, as Amended and (9)
Restated generally effective January 1, 1994, dated as of July 3,
1995*
10.11 Amendment No. 1 to the Geneva Steel Management Employee (10)
Savings and Pension Plan, effective as of January 1, 1997, dated
June 25, 1997.
10.12 Form of revised Executive Split Dollar Insurance Agreement* (11)
10.13 Form of revised Executive Supplemental Retirement Agreement* (11)
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED FILED
NO. EXHIBIT BY REFERENCE HEREWITH
- ------------- ------------------------------------------------------------------------- ------------ --------
<S> <C> <C> <C>
10.14 Union Employee Savings and Pension Plan, as Amended and X
Restated effective January 1, 1995, dated as of August 13, 1997*
10.15 Collective Bargaining Agreement between United Steelworkers of (12)
America and the Registrant ("Collective Bargaining Agreement")
dated March 1, 1995*
10.16 Agreement between Union Carbide Industrial Gases, Inc. and the (7)
Registrant dated July 12, 1990, as amended August 3, 1990 (the
"Union Carbide Agreement")
10.17 Amendment to the Union Carbide Agreement dated December 1, (11)
1992
10.18 Oxygen Supply Agreement between Air Liquide America X
Corporation and the Registrant dated June 10, 1997
10.19 Coilbox License Agreement between Stelco Technical Services (1)
Limited and the Registrant dated August 23, 1989
10.20 License Agreement for the K-OBM Process between (1)
Klockner Contracting and Technologies GmbH and the Registrant
dated November 25, 1989
10.21 Special Use Lease Agreement No. 897 between the State of Utah (11)
and the Registrant dated January 13, 1992 and Amendment thereto
dated June 19, 1992
10.22 Indenture dated as of January 15, 1994 between the Registrant and (13)
Bankers Trust Company, as Trustee, including a form of 9 1/2%
Senior Note due 2004
10.23 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
10.24 License Agreement relating to the desulfurization process between (1)
BS&B Engineering Company, Inc. and the Registrant dated March
1, 1990
10.25 Lo-Cat(R)Licensing Agreement between ARI Technologies, Inc. and (7)
the Registrant dated April 16, 1990
10.26 Agreement relating to the closure of hazardous waste surface (7)
impoundments between USX Corporation, the Registrant and
Duncan Lagnese Associates, Incorporated dated October 22, 1990
10.31 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")
10.32 First Amendment to the Oxbow Coke Agreement dated April 11, (15)
1996
10.33 Agreement for the Sale and Purchase of Coal between the Registrant (16)
and Oxbow Carbon and Minerals, Inc. dated February 19, 1996,
effective as of April 1, 1994
10.34 Warrant Agreement dated as of March 16, 1993 between the (2)
Registrant and The Bank of New York, as Warrant Agent
10.35 Form of Indenture between the Registrant and the Trustee thereunder (3)
related to the Exchange Debentures, including a form of Exchange
Debenture
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED FILED
NO. EXHIBIT BY REFERENCE HEREWITH
- ------------- ------------------------------------------------------------------------- ------------ --------
<S> <C> <C> <C>
10.36 Taconite Pellet Sales Agreement between USX Corporation and (12)
Geneva Steel dated May 31, 1995
10.37 First Amendment to Taconite Pellet Sales Agreement between USX X
Corporation and the Registrant dated July 25,1997.
10.38 Industrial Gas Supply Agreement between Air Liquide America (12)
Corporation and Geneva Steel dated June 8, 1995.
10.39 Geneva Steel Company 1996 Incentive Plan* (17)
10.40 Form of Employment Agreement between Registrant and Certain
Executive Officers. X
13 Selected portions of the Registrant's Annual Report to Shareholders X
for the year ended September 30, 1997 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 Exhibit 99.1 of the
Registration Statement on Form 8-A filed on November 21,
1997.
(6) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1996.
(7) Incorporated by reference to the Registration Statement
on Form S-1 dated November 5, 1990, File No. 33-37238.
(8) Incorporated by reference to the Annual Report on Form
10-K for the fiscal year ended September 30, 1991.
(9) Incorporated by reference to the Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
14
<PAGE> 16
(10) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997.
(11) Incorporated by reference to the Annual Report on Form
10-K for the fiscal year ended September 30, 1992.
(12) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1995.
(13) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31,
1993.
(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 Annual Report on Form
10-K for the fiscal year ended September 30, 1996.
(16) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
(17) Incorporated by reference to the Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1997.
(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 29,
1997. 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 29, 1997
16
<PAGE> 18
GENEVA STEEL COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(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, 1997
Allowance for doubtful accounts $4,031 $6,558 $(6,025) $4,564
====== ====== ======= ======
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
====== ====== ======= ======
</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 26, 1997.
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 26, 1997
- ------------------------------------ Executive Officer (Principal executive officer)
Joseph A. Cannon
/s/ Robert J. Grow President and Chief Operating December 26, 1997
- ------------------------------------ Officer and Director
Robert J. Grow
/s/ Richard D. Clayton Senior Vice President of Marketing December 26, 1997
- ------------------------------------ and Distribution and Director
Richard D. Clayton
/s/ Dennis L. Wanlass Vice President, Treasurer and Chief December 26, 1997
- ------------------------------------ Financial Officer
Dennis L. Wanlass (Principal financial and accounting officer)
/s/ Alan C. Ashton Director December 26, 1997
- ------------------------------------
Alan C. Ashton
/s/ K. Fred Skousen Director December 26, 1997
- ------------------------------------
K. Fred Skousen
/s/ R. J. Shopf Director December 26, 1997
- ------------------------------------
R. J. Shopf
/s/ Kevin S. Flannery Director December 26, 1997
- ------------------------------------
Kevin S. Flannery
/s/ Gregory T. Hradsky Director December 26, 1997
- ------------------------------------
Gregory T. Hradsky
</TABLE>
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 1 TO THE
GENEVA STEEL UNION EMPLOYEE
SAVINGS AND PENSION PLAN
The Geneva Steel Union Employee Savings and Pension Plan (the "Plan"), as
amended and restated generally effective January 1, 1995, is hereby amended
effective (unless otherwise provided below) as of January 1, 1997 as follows:
1. The first sentence of Section 6.1 shall be amended to read as
follows:
6.1 Limitation on Contributions. The Annual Additions allocated or
contributed to a Participant for any Plan Year shall not exceed the lesser
of the following:
(a) $30,000; or
(b) 25% of the Participant's Compensation for such year.
2. Effective August 1, 1997, the first sentence of Section 7.1 shall be
amended to read as follows: The Trust Fund shall be comprised of those
Investment Funds described in Section 7.2.
3. Effective August 1, 1997, Section 7.2 shall be amended to read as
follows:
7.2 Investment Funds. The Trust Fund established under the Plan
shall consist of the Balanced Fund, the Equity Fund, the Short-Term Income
Fund, the Bond Fund, and the Geneva Stock Fund. The Company may change the
available Investment Funds at any time in its sole discretion by adding
Investment Funds, removing Investment Funds, or changing Investment Funds.
The Balanced, Equity, Short-Term Income, Bond, and Geneva Stock Funds
shall be invested and reinvested as follows:
(a) The Balanced Fund shall be invested in those investments
selected by the Company that are designed to achieve a balance between
capital appreciation and preservation of capital and generation of income.
-1-
<PAGE> 2
(b) The Equity Fund shall be invested primarily in equity
securities or in such other types of equity investments as are authorized
by the Trust Agreement.
(c) The Short-Term Income Fund shall be invested in short term
fixed-income investments as are authorized by the Trust Agreement.
(d) The Bond Fund shall be invested primarily in debt instruments
or other types of debt investments as are authorized by the Trust
Agreement.
(e) The Geneva Stock Fund shall be invested primarily in Geneva
Stock, except that small amounts in the Stock Fund may be invested in
interest-bearing short-term debt obligations, money market instruments,
savings accounts or similar investments. The Geneva Stock Fund shall
consist of all Stock Fund investments held by the Trustee and all cash
held by the Trustee which is derived from dividends on Geneva Stock,
interest and other income from Stock Fund investments, Company
Contributions to be invested in the Geneva Stock Fund and proceeds from
sales of Geneva Stock and Stock Fund investments.
4. Effective August 1, 1997, Section 7.4 shall be amended to read as
follows:
7.4 Investment of Accounts. A Participant's Pension Contribution
Account shall be invested in the Balanced Fund, which may consist of a
Balanced Fund that is different from the Balanced Fund for other Accounts.
A Participant's Geneva Stock Account shall be invested solely in the
Geneva Stock Fund, provided, however, that a Participant may, in
accordance with Section 7.5, elect to transfer an amount from the Geneva
Stock Fund to those Investment Funds selected under this Section. A
Participant's Salary Deferral Account, Discretionary Contribution Account,
Matching Contribution Account and Rollover Account, if any, shall be
apportioned among one or more of the Investment Funds in such whole
percentages as the Participant may specify pursuant to the election
procedures prescribed by the Company. If the Company receives no valid
investment directions from the Participant, such Accounts shall be
invested entirely in the Short-Term Income Fund. A Participant may change
the investment instructions with respect to future contributions with such
frequency as shall be established by the Company. Any such change shall be
made in the manner prescribed by the Company; however, any such rules
established by the Company shall permit changes to investment elections to
be effective at
-2-
<PAGE> 3
least as frequent as the first payday in any calendar quarter.
5. Effective August 1, 1997, Section 7.5 shall be amended to read as
follows:
7.5 Transfers Among Accounts. With such frequency as shall be
established by the Company (but no less frequently than once each
quarter), a Participant may elect to transfer all or any part of his or
her Accounts (except for his or her Pension Contribution Account and
Geneva Stock Account) to one or more of the Investment Funds in the manner
prescribed by the Company. Any such transfer shall be applicable as soon
administratively feasible pursuant to the procedure established by the
Company. With respect to the Geneva Stock Account, prior to the end of
each Plan quarter, a Participant may elect to transfer ten percent (10%)
of the vested portion of his or her Geneva Stock Account to one or more of
the Investment Funds as elected under Section 7.4. Such a transfer from
the Geneva Stock Account shall be effective as soon as administratively
feasible following the end of the Plan quarter in which the election is
made. Upon attainment of age 55, a Participant may elect prior to the end
of each Plan quarter to transfer all (or any portion in 10% increments) of
his or her Geneva Stock Account to one or more of the Investment Funds as
elected under Section 7.4. Any transfer from the Geneva Stock Fund shall
be made in accordance with the requirements of this Section 7.5 and such
additional rules as may be prescribed by the Company.
6. Effective August 1, 1997, Section 7.6 shall be amended to read as
follows:
Each Account shall be revalued at fair market value and adjusted each
Valuation Date for contributions, distributions and other items since the
last Valuation Date, to reflect the Participant's share of any realized or
unrealized investment income, gains, losses and investment expenses of the
Fund or Funds in which such Account was invested that have accrued since
the prior Valuation Date. A Participant's share shall be proportionate to
the ratio that the adjusted balance in his or her Account bears to the
total adjusted balances of all Accounts invested in the Funds determined
as of the Valuation Date. For purposes of this Section 7.6, the Company
shall establish a Valuation Date at least as frequent as the last day of
each calendar quarter.
-3-
<PAGE> 4
7. Section 9.4 shall be amended by deleting the third sentence thereof,
and inserting the following in its place:
Notwithstanding any other provision of the Plan to the contrary,
distribution of the Plan Benefit of a Participant shall be made no later
than April 1 of the calendar year following the later of (a) the calendar
year in which the Participant attains age 70 1/2 or (b) the calendar year
in which the employee retires. Notwithstanding the above, Section 9.4(b)
shall not apply to any Participant who is a "5-percent owner" (as defined
in section 416 of the Code) with respect to the Plan Year ending in the
calendar year in which the Participant attains age 70 1/2. To the extent
that the Commissioner of the Internal Revenue Service determines in a
ruling, notice or other document of general authority, that the required
beginning date set forth in the Plan prior to January 1, 1997 for
distributions with respect to Participants who remain Employees on or
after attaining age 70 1/2 constitutes a "protected benefit" within the
meaning of section 411(d)(6) of the Code, the provisions of the Plan in
effect as of December 31, 1996 shall continue to apply, as elected by the
Participant.
8. Effective October 12, 1996, Section 15.8 shall be added to the Plan
as follows:
15.8 Military Service Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with section
414(u) of the Code. Loan payments will be suspended under this Plan as
permitted under section 414(u)(4) of the Code.
9. Section 17.8 shall be amended by deleting the last sentence thereof.
10. Section 17.16 shall be deleted in its entirety and the remaining
sections of the Plan renumbered accordingly. Former Section 17.17 (renumbered
Section 17.16) shall be amended to read as follows:
17.16 "Investment Funds" means the Funds established under the Trust
Fund pursuant to Section 7.2.
-4-
<PAGE> 5
11. Section 1.2 of Appendix I shall be amended by replacing "3.1(c)"
with "3.1(d)."
12. Section 1.3 of Appendix I shall be amended by replacing "2.1(c)"
with "2.1(d)."
13. Section 1.8 of Appendix I shall be amended to read as follows:
1.8 "Highly Compensated Employee" means an active Employee who:
(a) During the look-back year received Total Compensation of more
than $80,000 (or such larger amount as may be adopted by the Commissioner
of Internal Revenue to reflect a cost-of-living adjustment) and was a
member of the Top-Paid Group; or
(b) At any time during the look-back year or the determination
year was a five-percent owner (as defined in section 416(i)(1) of the
Code).
For purposes of this Section, the determination year shall be the
Plan Year. The look-back year shall be the 12-month period immediately
preceding the determination year. The determination of who is a Highly
Compensated Employee, including the determinations of the number and
identity of Employees in the Top-Paid Group and the Total Compensation
that is considered, will be made in accordance with section 414(q) of the
Code and regulations thereunder.
The term "Highly Compensated Employee" shall also include a former
Employee who separated from service (or is deemed to have separated) prior
to the determination year, performs no service for any member of the
Affiliated Group during the determination year, and was a Highly
Compensated Employee as an active Employee for either the separation year
or any determination year ending on or after the Employee's 55th birthday.
14. Section 1.11(e) of Appendix I shall be amended by replacing
"402(a)(8)" with "402(e)(3)."
15. Section 1.12 of Appendix I shall be amended by the addition of the
following at the end thereof:
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<PAGE> 6
The Company may elect, in a consistent and uniform manner, to apply one or
more of the age-and-service- based exclusions above by substituting a
younger age or shorter period of service, or by not excluding individuals
on the basis of age or service.
16. Section 2.1 of Appendix I shall be amended to read as follows:
2.1 Percentage Limitations. The Plan shall satisfy the average
deferral percentage test, as provided in section 401(k)(3) of the Code and
the regulations issued thereunder. Subject to the special rules described
in this Appendix, the Salary Deferral Contributions of Highly Compensated
Employees shall not exceed the limits described below:
(a) A "Deferral Percentage" shall be determined for each Highly
Compensated Employee who, at any time during the Plan Year, is a
Participant or is eligible to participate in the Plan, which Deferral
Percentage shall be the ratio, computed to the nearest one-hundredth of
one percent, of the Highly Compensated Employee's Salary Deferral
Contributions for the Plan Year to the Highly Compensated Employee's
Section 414(s) Compensation for the Plan Year;
(b) For Plan Years beginning prior to January 1, 1997, a Deferral
Percentage shall be determined for each Nonhighly Compensated Employee
who, at any time during the Plan Year, is a Participant or is eligible to
participate in the Plan, which Deferral Percentage shall be the ratio,
computed to the nearest one-hundredth of one percent, of the Nonhighly
Compensated Employee's Salary Deferral Contributions for the Plan Year to
the Nonhighly Compensated Employee's Section 414(s) Compensation for the
Plan Year;
(c) For Plan Years beginning after December 31, 1996, and except
to the extent that the Company elects (in accordance with applicable law)
to apply Subsection (b) rather than this Subsection (c), a Deferral
Percentage shall be determined for each Nonhighly Compensated Employee
who, at any time during the preceding Plan Year, was a Participant or who
was eligible to participate in the Plan, which Deferral Percentage shall
be the ratio, calculated to the nearest one-hundredth of one percent, of
the Nonhighly Compensated Employee's Salary Deferral Contributions for the
preceding Plan Year to the Nonhighly Compensated Employee's Section 414(s)
Compensation for the preceding Plan Year;
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<PAGE> 7
(d) The Aggregate 401(k) Contributions of Highly Compensated
Employees shall constitute Excess Before- Tax Contributions and shall be
reduced, pursuant to Section 2.2 of this Appendix I, to the extent that
the average Deferral Percentage (the "Before-Tax Percentage") of Highly
Compensated Employees exceeds the greater of (i) 125 percent of the
Before-Tax Percentage of Nonhighly Compensated Employees or (ii) the
lesser of (A) 200 percent of the Before-Tax Percentage of Nonhighly
Compensated Employees or (B) the Before-Tax Percentage of Nonhighly
Compensated Employees plus two percentage points.
17. Section 2.2 of Appendix I shall be amended to read as follows:
2.2 Reduction of Salary Deferred Contributions. The reduction of
the Salary Deferral Contributions of Highly Compensated Employees as
required by Section 2.1(d) of this Appendix I shall be made on the basis
of the amount of contributions by or on behalf of each Highly Compensated
Employee. Such reductions in Before-Tax Contributions shall be made in
accordance with applicable regulations and shall constitute "Excess
Before-Tax Contributions." For all affected Highly Compensated Employees
such Excess Before-Tax Contributions shall be eliminated as provided for
in Article 5 of this Appendix I.
18. Section 3.1 of Appendix I shall be amended to read as follows:
3.1 Percentage Limitations. To the extent Matching Contributions
are not treated as Salary Deferral Contributions and tested under Article
2 of this Appendix I, the Aggregate 401(m) Contributions of Highly
Compensated Employees for any Plan Year shall not exceed the limits
described below:
(a) A "Contribution Percentage" shall be determined for each
Highly Compensated Employee who, at any time during the Plan Year, is a
Participant or is eligible to participate in the Plan, which Contribution
Percentage shall be the ratio, computed to the nearest one-hundredth of
one percent, of the Highly Compensated Employee's Aggregate 401(m)
Contributions for the Plan Year to the Highly Compensated Employee's
Section 414(s) Compensation for the Plan Year;
(b) For Plan Years beginning prior to January 1, 1997, a
Contribution Percentage shall be determined
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<PAGE> 8
for each Nonhighly Compensated Employee who, at any time during the Plan
Year, is a Participant or is eligible to participate in the Plan, which
Contribution Percentage shall be the ratio, computed to the nearest
one-hundredth of one percent, of the Nonhighly Compensated Employee's
Aggregate 401(m) Contributions for the Plan Year to the Nonhighly
Compensated Employee's Section 414(s) Compensation for the Plan Year;
(c) For Plan Years beginning after December 31, 1996, and except
to the extent that the Company elects (in accordance with applicable law)
to apply Subsection (b) rather than this Subsection (c), a Contribution
Percentage shall be determined for each Nonhighly Compensated Employee
who, at any time during the preceding Plan Year, was a Participant or who
was eligible to participate in the Plan, which Contribution Percentage
shall be the ratio, calculated to the nearest one-hundredth of one
percent, of the Nonhighly Compensated Employee's Aggregate 401(m)
Contributions for the preceding Plan Year to the Nonhighly Compensated
Employee's Section 414(s) Compensation for the preceding Plan Year; and
(d) The Aggregate 401(m) Contributions of Highly Compensated
Employees shall constitute Excess Aggregate 401(m) Contributions and shall
be reduced, pursuant to Section 3.2 of this Appendix I, to the extent that
the average of the Contribution Percentages (the "Aggregate 401(m)
Percentage") of Highly Compensated Employees exceeds the greater of (1)
125 percent of the Aggregate 401(m) Percentage of Nonhighly Compensated
Employees or (2) the lesser of (A) 200 percent of the Aggregate 401(m)
Percentage of Nonhighly Compensated Employees or (B) the Aggregate 401(m)
Percentage of Nonhighly Compensated Employees plus two percentage points.
19. Section 3.2 of Appendix I shall be amended to read as follows:
3.2 Reduction of Aggregate 401(m) Contributions. The reduction in
the Aggregate 401(m) Contributions of Highly Compensated Employees as
required by Section 3.1(d) of this Appendix I shall be made on the basis
of the amount of contributions by or on behalf of each Highly Compensated
Employee. Such reductions shall be made in accordance with applicable
regulations and shall constitute "Excess Aggregate 401(m) Contributions."
For all affected Highly Compensated Employ-
-8-
<PAGE> 9
ees, such Excess Aggregate 401(m) Contributions shall be eliminated as
provided for in Article 5 hereof.
IN WITNESS WHEREOF, the Company hereby adopts this First Amendment this
13th day of August, 1997.
GENEVA STEEL
By /s/ Carl E. Ramnitz
------------------------------
As Its Vice President
--------------------------
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<PAGE> 1
EXHIBIT 10.18
OXYGEN SUPPLY AGREEMENT
BETWEEN
GENEVA STEEL COMPANY
AND
AIR LIQUIDE AMERICA CORPORATION
Effective as of
June 10, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. - DEFINITIONS................................................. 1
ARTICLE 2. - EXISTING FACILITY........................................... 2
2.1 Existing Facility............................................. 2
2.2 Tie-In With Oxygen Distribution System........................ 3
2.3 Safety Standards; Restricted Access........................... 3
2.4 Liens......................................................... 3
2.5 Compliance with Law........................................... 3
2.6 Argon Production Prohibition.................................. 3
2.7 Other Product Prohibition..................................... 3
2.8 Power Credit.................................................. 4
ARTICLE 3. - UTILITIES................................................... 4
3.1 Site Utilities................................................ 4
ARTICLE 4. - QUANTITY.................................................... 5
4.1 Oxygen Quantities............................................. 5
4.2 Operation Level............................................... 5
4.3 Reduced Demand................................................ 5
4.4 Title......................................................... 5
ARTICLE 5. - PRICES...................................................... 5
5.1 Monthly Facility Charge....................................... 5
5.1.1 Adjustment...................................... 5
5.1.2 Required Documentation.......................... 6
5.1.3 Definitions..................................... 6
5.2 Payment....................................................... 6
5.3 Disputes...................................................... 6
ARTICLE 6. - SPECIFICATION............................................... 7
6.1 Oxygen Specification.......................................... 7
6.2 Non-conforming Oxygen......................................... 7
6.3 Limitation.................................................... 7
ARTICLE 7. - DELIVERY PRESSURE........................................... 7
ARTICLE 8. - SELLER'S SHUTDOWN........................................... 7
8.1 Ordinary Downtime............................................. 7
8.2 Vaporization.................................................. 7
8.3 Right to Alternate Supply..................................... 8
ARTICLE 9. - METERING EQUIPMENT.......................................... 8
9.1 Oxygen Metering............................................... 8
i
<PAGE> 3
9.1.1 Calibration...................................... 8
9.1.2 Buyer Tests...................................... 8
9.2 Electric Metering Equipment................................... 9
ARTICLE 10. - TAXES...................................................... 9
10.1 Sales and Other Taxes......................................... 9
10.2 Property Taxes................................................ 9
ARTICLE 11. - CONTINGENCIES.............................................. 9
11.1 Contingencies................................................. 9
11.2 Reduced Delivery or Taking.................................... 10
11.3 No Production................................................. 10
11.4 Operational Inefficiency...................................... 10
ARTICLE 12. - LIABILITY.................................................. 11
12.1 Acknowledgement............................................... 11
12.2 Indemnity by Buyer............................................ 11
12.3 Indemnity by Seller........................................... 11
ARTICLE 13. - ATMOSPHERIC CONTAMINANTS................................... 12
ARTICLE 14. - ENVIRONMENTAL CONDITIONS AND PERMITS....................... 12
14.1 Site Condition................................................ 12
14.2 Permitting.................................................... 12
ARTICLE 15. - FAIR LABOR STANDARDS ACT................................... 12
ARTICLE 16. - DEFAULT.................................................... 12
16.1 Default by Seller............................................. 12
16.2 Default by Buyer.............................................. 12
ARTICLE 17. - ASSIGNMENT................................................. 13
ARTICLE 18. - APPLICABLE LAW............................................. 13
ARTICLE 19. - RESOLUTION OF DISPUTES..................................... 13
ARTICLE 20. - TERM....................................................... 13
20.1 Term.......................................................... 13
ARTICLE 21. - NOTICE..................................................... 14
ARTICLE 22. - ENTIRE AGREEMENT........................................... 14
ii
<PAGE> 4
ARTICLE 23. - MISCELLANEOUS.............................................. 15
23.1 Confidentiality............................................... 15
23.2 Severability.................................................. 15
23.3 Waiver........................................................ 15
23.4 Power Rates................................................... 15
iii
<PAGE> 5
OXYGEN SUPPLY AGREEMENT
THIS OXYGEN SUPPLY AGREEMENT (the "Agreement") is entered into September
10, 1997, effective as of June 10, 1997 (the "Effective Date"), between AIR
LIQUIDE AMERICA CORPORATION, a Delaware corporation ("Seller") and GENEVA STEEL
COMPANY, a Utah corporation ("Buyer").
RECITALS:
A. Buyer is currently supplied a portion of the oxygen consumed at its
steel mill located in Vineyard, Utah (the "Geneva Works") from an air separation
facility which is owned and operated by Seller and has a rated capacity of 275
tons per day of oxygen production (the "Existing Facility").
B. Seller and Buyer desire to continue the supply to Buyer of oxygen
from the Existing Facility pursuant to the terms and conditions set forth
herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing, the promises set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller, intending to be
legally bound, agree as follows:
ARTICLE 1. - DEFINITIONS
When used in this Agreement, each term below or defined elsewhere herein
shall have the indicated meaning unless such meaning is clearly precluded by the
context in which the term is used. Unless the context otherwise expressly
requires, the words "herein," "hereto," "hereunder," and other words of similar
import refer to this Agreement as a whole and not to a particular Article or
portion thereof.
1.1 "ARGON" means liquid argon produced at the Existing Facility.
1.2 "EXISTING FACILITY" means the air separation facility owned and
operated by Seller on the Facility Site at the Geneva Works, and all
modifications, improvements and expansions made to such facilities during the
term hereof, for the production, compression, storage and vaporization of Oxygen
and the production and storage of Argon.
1.3 "FACILITY SITE" means that parcel of real property at the Geneva
Works depicted on Exhibit 1.2 hereto leased to Seller pursuant to the Ground
Lease and upon which the Existing Facility is located.
1.4 "GENEVA WORKS" means Buyer's plant located in Vineyard, Utah, and
any additions or modifications thereto.
<PAGE> 6
1.5 "GROUND LEASE" means that certain Amended and Restated Lease of even
date herewith executed by Seller and Buyer attached hereto as Exhibit 1.5 and
any modifications or amendments thereto.
1.6 "MONTHLY FACILITY CHARGE" shall have the meaning set forth in
Article 5 hereof.
1.7 "OXYGEN" means oxygen produced at the Existing Facility meeting the
specifications for oxygen set forth in Article 6 and delivered in gaseous form
hereunder up to the applicable maximum respective production rates specified in
Article 4.
1.8 "OXYGEN DELIVERY POINT" means the location on the battery limits of
the Facility Site depicted on Exhibit 1.2 hereto.
1.9 "OXYGEN DISTRIBUTION SYSTEM" means the system of trunk and service
pipelines currently existing at the Geneva Works to transport Oxygen from the
Oxygen Delivery Point to the various use points within the Geneva Works.
1.10 "PSIG" means pounds per square inch gauge.
1.11 "SCF" used as a measure of Oxygen means that quantity of Oxygen
which in gaseous form would occupy a volume of one cubic foot at 70 degrees
Fahrenheit temperature and 14.696 pounds per square inch absolute pressure.
1.12 "TON" means 2,000 pounds avoirdupois or 24,160 SCF of Oxygen.
ARTICLE 2. - EXISTING FACILITY
2.1 Existing Facility. Seller, at its sole expense, shall operate, own,
maintain and repair the Existing Facility on the Facility Site during the term
hereof pursuant to the Ground Lease. The Existing Facility shall be and remain
the personal property of Seller at all times. The Existing Facility shall at all
times during the term hereof include, but not be limited to, the equipment,
systems and facilities set forth on Exhibit 2.1 hereto. During the term of this
Agreement, Buyer shall not cause the Existing Facility or the Facility Site to
be sold, seized or encumbered in any way whatsoever, and Buyer shall cooperate
with Seller in any reasonable manner, without cost or expense to Buyer,
including the making of public filings or recordations, to ensure that no such
sale, seizure or encumbrance of the Existing Facility or the Facility Site takes
place; provided, however, that Buyer shall have the rights to encumber the
Facility Site as set forth in the Ground Lease. Seller reserves the right to
make changes, modifications, improvements, or expansions of the Existing
Facility, at any time during the term hereof provided that (i) Seller's
obligations hereunder are not diminished, (ii) the production capacities of the
Existing Facility as set forth herein are not diminished, (iii) the costs or
taxes to be paid or utilities to be furnished by Buyer hereunder are not
increased by such changes, modifications, improvements or expansions, and (iv)
such changes, modifications, improvements, or expansions do not adversely affect
Buyer, the Geneva Works or Buyer's operations.
2
<PAGE> 7
2.2 Tie-In With Oxygen Distribution System. Seller, at its expense, will
perform and provide all work, piping, valves, controls, racks and supports
necessary to maintain the connection of the Existing Facility to the Oxygen
Distribution System, all pursuant to specifications prepared by Seller and
approved by Buyer.
2.3 Safety Standards; Restricted Access. Seller shall comply with all of
Buyer's safety and security standards and rules applicable generally to the
Geneva Works; provided, however, that such standards and rules shall not relieve
Seller of its responsibility for the safety of the Facility Site. Buyer will use
reasonable efforts to prevent Buyer's employees from entering the Facility Site
or altering, repairing, adjusting or otherwise tampering with the Existing
Facility without the prior consent of Seller. Buyer will prohibit smoking and
the use of open flames by its employees within fifty (50) feet of the Existing
Facility; provided, however, that Seller shall be and remain responsible for all
emergency response fire protection required for the Existing Facility.
2.4 Liens. In express consideration of the terms, covenants and
undertakings set forth herein, and for other valuable consideration, Seller
knowingly and intentionally waives any and all rights it may have, now or in the
future, to assert liens or claims of liens against the Facility Site or the
Geneva Works; provided, however, that the foregoing shall not be a waiver of
Seller's right to payment hereunder but only the right to assert liens against
Buyer's property related thereto. Seller will cause all persons providing
equipment, materials or labor for the Existing Facility to similarly waive their
lien rights prior to performing any work on or for the Existing Facility. Buyer
shall indemnify, defend and hold Seller harmless from and against liens against
the Existing Facility due solely to its location on Buyer's premises. Seller
shall indemnify, defend and hold Buyer harmless from and against liens and
claims arising from the acts or omissions of Seller or its subcontractors,
employees, agents and invitees or due to the failure of Seller or its
contractors to timely pay amounts owed to contractors, subcontractors,
suppliers, materialmen or others.
2.5 Compliance with Law. The Existing Facility shall at all times during
the term hereof conform with all applicable statutes, regulations, ordinances,
rules, standards and codes including, but not limited to, OSHA requirements
related to noise levels.
2.6 Argon Production Prohibition. Seller agrees that it will not produce
or sell any Argon from the Existing Facility during any period when Seller has
not produced argon at the maximum possible levels from the facility which is the
subject of that certain Industrial Gas Supply Agreement dated as of June 6,
1995, as amended (the "1995 Agreement") and for which Buyer has provided certain
argon credits as outlined in the 1995 Agreement. Seller shall reimburse Buyer
for any power and utility costs incurred by Buyer as a result thereof, the power
cost to be calculated as set forth in Section 2.8 hereof.
2.7 Other Product Prohibition. Unless so requested by Buyer to fill the
liquid oxygen storage tank that is a part of the New Facility, Seller agrees
that it will not produce or sell any liquid oxygen or gaseous or liquid nitrogen
from the Existing Facility unless otherwise approved in writing by Buyer, such
approval not to be unreasonably withheld, and Seller pays to Buyer
3
<PAGE> 8
any power and utility costs incurred by Buyer as a result thereof, the power
cost to be calculated as set forth in Section 2.8 hereof.
2.8 Power Credit. The Power Credit ("PC") used by Seller to produce
liquidous product (including Argon) shall be calculated as follows:
PC = ((D/730) + E) R
Where: E = average price paid by Buyer for the energy portion of the power
purchased from PacificCorp for a demand rate in excess of 90
MW, expressed in dollars per kwh; and
PC= credit per 100 SCF of liquidous product produced for Seller's
account.
D = the demand charge (expressed in $ per kw) under Utah Power's
Schedule 9 rate or, if Schedule 9 is no longer available, a
successor tariff of Utah Power generally available to
industrial customers like Seller.
R = 3.2 kilowatt hours per 100 SCF.
ARTICLE 3. - UTILITIES
3.1 Site Utilities. Buyer will provide at no charge to Seller at the
locations depicted on Exhibit 1.2 hereto the following utilities and services
and in the estimated quantities shown for Seller's use:
Sanitary Sewer ........................ Domestic sewage that has been pumped to
Buyer's system by Seller
Storm Drain and Waste Water Runoff1.... Storm and wastewater runoff that has
been piped by Seller to Buyer's existing
storm drainage system
All other water, except fire water which shall be provided by Buyer, and water
delivery systems for the Existing Facility, including potable, treated and
make-up water, shall be obtained by Seller from other sources without cost to
Buyer. In the event of a utility interruption, Buyer shall use reasonable
commercial efforts to minimize and eliminate such interruption as soon as
reasonably practicable. Notwithstanding the foregoing, Buyer shall not be liable
for any interruption of utility service to the Existing Facility.
- --------
Discharges to Buyer's 36" culvert shall be comprised of only cooling tower
blowdown containing no heavy metals, intermittent surface run-off from scuppers
around equipment which may contain only traces of oil, building floor drains
which may contain only traces of oil and detergents, and hub drains containing
only clean condensate.
4
<PAGE> 9
ARTICLE 4. - QUANTITY
Seller shall sell and deliver to Buyer, and Buyer will purchase and
receive from Seller, the following Oxygen:
4.1 Oxygen Quantities. Seller will sell and deliver into the Oxygen
Distribution System such Oxygen from the Existing Facility as Buyer may from
time to time reasonably notify Seller it desires up to a maximum instantaneous
delivery rate at the Oxygen Delivery Point of 276,800 standard cubic feet per
hour (SCFH), such production and delivery rates adjusted for the design
conditions of 70 degrees Fahrenheit dry bulb, relative humidity of 24%,
barometric pressure of 12.4 PSIA, and cooling water temperature of 72 degrees
Fahrenheit.
4.2 Operation Level. Under normal operating conditions, that is when no
contingency exists under Article 11 and no shutdown has been taken pursuant to
Section 8.1 hereof, Seller will operate the Existing Facility at the delivery
level for Oxygen of which Seller has received the notice specified in this
Article 4.
4.3 Reduced Demand. Seller will take the Existing Facility out of
operation if so requested by Buyer to accommodate any reduction in oxygen demand
at the Geneva Works; provided, however, that such periods of non-operation at
the request of Buyer shall not exceed one hundred twenty (120) days during any
twenty-four (24) month period and shall not exceed an aggregate of three hundred
twenty (320) days during the term of this Agreement without Seller's consent,
which consent shall not be unreasonably withheld.
4.4 Title. Title to Oxygen shall pass to Buyer upon delivery by Seller
of into the Oxygen Distribution System at the Oxygen Delivery Point.
ARTICLE 5. - PRICES
5.1 Monthly Facility Charge. As promptly as practicable after the end of
each calendar month, Seller will invoice Buyer and Buyer will pay Seller a
monthly facility charge (the "Monthly Facility Charge") in the amount of
SEVENTY-FIVE THOUSAND DOLLARS ($75,000). The Monthly Facility Charge is intended
to fully compensate Seller for the Existing Facility and all Oxygen that Seller
is obligated to deliver to Buyer pursuant to this Agreement. During periods of
reduced demand, as contemplated in Section 4.3 hereof, the Monthly Facility
Change shall be reduced on a pro rata basis to FIFTY THOUSAND DOLLARS ($50,000)
for each month, or portion thereof, of reduced demand. The Monthly Facility
Charge shall be further adjusted pursuant to Sections 5.1.1, 5.1.2 and 5.1.3
below.
5.1.1 Adjustment. The Monthly Facility Charge will be adjusted (the
"Adjusted Monthly Facility Charge") semi-annually on January 1 and July 1 (each
an "Adjustment Date"), commencing January 1, 1998, in accordance with the
following formula.
5
<PAGE> 10
Adjusted Monthly Facility Charge = C(0) [0.40 L/16.32 + 0.40 P/127.2
+ .20] where:
C(0) = Monthly Facility Charge determined pursuant to Section
5.1 without adjustments.
L = Earnings Index, as hereinafter defined.
P = PPI, as hereinafter defined.
5.1.2 Required Documentation. At the time Seller makes any
adjustment pursuant to this Section 5.1.1, it shall deliver to Buyer adequate
documentation (including mathematical calculations) supporting such adjustment.
5.1.3 Definitions. As used herein, the term (a) "Earnings Index"
means the average of the Average Hourly Earnings for workers in Chemical and
Allied Industries for each of the three (3) months immediately preceding the
Adjustment Date, and (b) "PPI" means the average of the Producers Price Index
for Industrial Commodities, based upon 1982=100, for each of the three (3)
months immediately preceding the Adjustment Date, both of which indices are
published by the United States Department of Labor, Bureau of Labor Statistics.
If the computation of either or both of such indices is changed so that the base
year differs from that at the time the beginning index is first published, the
such index will be converted in accordance with the conversion factor published
by the Department of Labor, Bureau of Labor Statistics. If either or both such
indices are discontinued or revised, such government indices or computation with
which they are replaced shall be used in order to obtain substantially the same
result as would be obtained if the indices had not been terminated or revised.
5.2 Payment. The terms of payment will be net twenty (20) days following
receipt of invoice. Buyer shall remit payments to Seller hereunder to the
address indicated on Seller's invoice. Seller shall have the right to charge
Buyer a late payment fee on any past due amount, such fee to be computed from
the date such payment was due at an interest rate of 3% above the prevailing
prime rate of interest of Texas Commerce Bank, N.A., Houston, Texas (or any
successor principal bank of Seller). Any billing dispute or claim must be made
in writing within thirty (30) days after receipt of invoice, otherwise the
amount indicated on such invoice shall be considered by both parties to be final
and binding. The first Monthly Facility Charge, prorated for any partial month,
shall commence on the Effective Date provided, that Buyer shall receive credit
against the Monthly Facility Charge for any amounts paid to Seller pursuant to
that certain letter of intent dated July 10, 1997 (the "Letter of Intent")
between Seller and Buyer.
5.3 Disputes. In the event Buyer disputes, in good faith, any invoice of
Seller, Buyer shall timely pay the undisputed portion of such invoice and
include therewith a reasonably detailed explanation in writing of the reasons
Buyer disputes the balance of such invoice. If Seller disagrees with Buyer's
explanation, the matter shall be referred for dispute resolution pursuant to
Article 19.
6
<PAGE> 11
ARTICLE 6. - SPECIFICATION
6.1 Oxygen Specification. Seller guarantees that Oxygen delivered at the
Oxygen Delivery Point shall be at least 99.5% pure by volume.
6.2 Non-conforming Oxygen. Any Oxygen delivered hereunder by Seller
which does not conform to the specifications set forth in Section 6.1 hereof may
be rejected by Buyer by providing Seller with verbal notice within twenty-four
(24) hours and subsequent written confirmation within twenty (20) days after
delivery thereof, and the Monthly Facility Charge shall be reduced by the ratio
of non-conforming Oxygen delivered in Tons per day to 275. Buyer reserves the
right to review Seller's records and to confirm Oxygen conformity with the
requirements of this Agreement.
6.3 Limitation. THERE ARE NO EXPRESS WARRANTIES BY SELLER OTHER THAN
THOSE SPECIFIED IN THIS AGREEMENT. NO OTHER WARRANTIES BY SELLER (OTHER THAN
WARRANTY OF TITLE AS PROVIDED IN THE UNIFORM COMMERCIAL CODE) SHALL BE IMPLIED
OR OTHERWISE CREATED UNDER THE UNIFORM COMMERCIAL CODE, INCLUDING BUT NOT
LIMITED TO, THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE.
ARTICLE 7. - DELIVERY PRESSURE
Oxygen shall be delivered by Seller into the Oxygen Distribution System at
a minimum pressure of 450 PSIG at the Oxygen Delivery Point.
ARTICLE 8. - SELLER'S SHUTDOWN
8.1 Ordinary Downtime. Seller will have the right from time to time to
shut down the production portion of the Existing Facility for such periods of
time as may be necessary for Seller to perform scheduled ordinary repairs for
maintenance and/or thawing necessary or consistent with proper operation, not in
any event to exceed twenty-one (21) days during any two consecutive contract
years during the term hereof; provided, however, that the foregoing period is
not intended to limit Seller's rights in the event of a contingency under
Article 11 hereof. Buyer and Seller will coordinate to the extent practicable
Seller's scheduled shutdowns under this Article 8 with Buyer's periods of
reduced Oxygen needs and when other oxygen production facilities at the Geneva
Works are on-line, and shall minimize any resulting downtime or reduced
production impacts on Buyer's operations. Insofar as possible, maintenance will
be completed during periods in which the Existing Facility is not in operation
during periods of reduced oxygen demand at the Geneva Works as contemplated in
Section 4.3 hereof.
8.2 Vaporization. In the event from time to time Seller is unable to
supply all or part of the applicable quantities of Oxygen set forth in Article 4
by reason of shutdown under Section 8.1 or a contingency under Article 11, and
Buyer requires the use of Seller's storage and vaporization equipment for Oxygen
purchased from third parties, Seller, without charge to
7
<PAGE> 12
Buyer, shall permit such storage, and shall also vaporize and deliver such
oxygen to the Oxygen Distribution System. Buyer hereby agrees to hold Seller
harmless and indemnify Seller against any loss or damage to its equipment, or
injury, illness or death of persons arising out of or incident to any deliveries
by another industrial gas supplier. Buyer's exercise of the rights specified in
this Section 8.2 shall not entitle Buyer to recover from Seller any part of the
purchase price paid to such other industrial gas supplier, including but not
limited to the difference between the price for Oxygen(s) charged by such other
industrial gas supplier and the price(s) specified in this Agreement; provided,
however, that if (a) such downtime under Section 8.1 exceeds eight (8)
consecutive days, (b) Seller is unable to supply to Buyer the required
quantities of Oxygen hereunder, and (c) Buyer is required to obtain Oxygen from
sources (including from third parties or Seller) other than the Existing
Facility to supply all or part of the applicable quantities of Oxygen set forth
in Article 4, then the Monthly Facility Charge specified under Section 5.1 will
be reduced by the costs incurred by Buyer in obtaining such Oxygen from sources
other than the Existing Facility and the term of this Agreement will be extended
for a period equal to twice the duration of such shutdown. Upon written notice
from Seller that the shutdown or contingency is concluded, Buyer's right to
obtain Oxygen from a third party and Seller's obligation to accept deliveries
and vaporize Oxygen obtained from third parties shall cease with respect to such
shutdown or contingency and the entire Monthly Facility Charge for subsequent
periods shall thereafter be paid to Seller by Buyer pursuant to the terms of
this Agreement. If the Monthly Facility Charge is reduced pursuant to this
Section 8.2, then any days of downtime under Sections 6.3 or 8.1 in excess of
eight (8) consecutive days shall not be counted for purposes of Seller's
twenty-one (21) days of ordinary downtime pursuant to Section 8.1.
8.3 Right to Alternate Supply. When Seller is unable to supply all or
part of the applicable quantities of Oxygen set forth in Article 4 by reason of
shutdown under Section 8.1 or a contingency under Article 11, Buyer shall have
the independent right to purchase Oxygen, or any part thereof, from another
industrial gas supplier; provided, however, that except as specified in Section
8.2 all such deliveries of Oxygen made by such other industrial gas supplier
shall be made into equipment provided by such other industrial gas supplier.
ARTICLE 9. - METERING EQUIPMENT
9.1 Oxygen Metering. Seller, at its expense, shall install and maintain
a gas-phase oxygen flow rate meter as a part of the Existing Facility at
locations within the Facility Site mutually acceptable to the parties for the
purpose of accurately measuring the quantities and instantaneous flow rates of
Oxygen delivered to Buyer hereunder. The meter shall be a billing quality meter
of a brand and type mutually agreed upon by Buyer and Seller.
9.1.1 Calibration. Seller, at its expense, shall, upon notice to
Buyer, calibrate such metering equipment at six month intervals, and Buyer may
have its representatives present during any such tests.
9.1.2 Buyer Tests. At any time requested by Buyer, but not more
often than once a year, Seller will test such metering equipment in the presence
of Buyer's representative,
8
<PAGE> 13
and if the metering equipment is found on such test to be accurate as specified
above, then the cost and expense of such test will be borne by Buyer but if the
metering equipment is found on such test to be inaccurate as specified above,
then the cost and expense of such test and of correcting the inaccuracy in the
metering equipment will be borne by Seller.
9.2 Electric Metering Equipment. Seller, at its expense, shall install
and maintain electricity meters of a mutually acceptable quality, brand and type
as a part of the Existing Facility at a location mutually acceptable to the
parties for the purpose of accurately measuring the power consumption of the
Existing Facility.
ARTICLE 10. - TAXES
10.1 Sales and Other Taxes. If at any time during the term of this
Agreement any tax (other than a net income or excess profits tax, general
franchise tax imposed on corporations on account of their right to do business
within the state as a foreign corporation) is imposed on Seller by any
governmental authority upon, or measured by, the production, delivery, or use of
the Oxygen supplied to Buyer, which directly increases Seller's costs incurred
in the production, sale or delivery of any Oxygen to Buyer hereunder, Buyer will
reimburse Seller therefor to the extent that Seller can reasonably demonstrate
that its costs of production, sale or delivery hereunder are directly increased
thereby. Buyer shall pay any sales or use taxes imposed on the purchase and sale
of Oxygen hereunder.
10.2 Property Taxes. Seller shall pay all real and personal property
taxes or assessments which may now or hereafter be levied on the Facility Site
or the Existing Facility, respectively, during the term of this Agreement.
ARTICLE 11. - CONTINGENCIES
11.1 Contingencies. Neither party hereto will be liable to the other for
default or delay in the performance of any of its obligations hereunder due to
an act of God, accident, fire, flood, storm, riot, war, sabotage, explosion,
strike, work stoppage, concerted acts of workers, national defense requirement,
governmental law, ordinance, rule or regulation, whether valid or invalid,
extraordinary failure of equipment or inability to obtain sufficient quantities
of electrical power, steam, water or other utilities or type of energy, raw
material, labor, equipment or transportation or any similar or different
contingency beyond its reasonable control which would make performance
commercially impracticable whether or not the contingency is of the same class
as those enumerated above, it being expressly agreed that such enumeration shall
be non-exclusive; provided, however, that neither business downturn nor economic
conditions will qualify as a contingency within the meaning of this Article 11.
The party so prevented from performance shall, upon prompt, written notice to
the other party, be excused to the extent that its obligations are prevented,
interfered with or restructured because of such contingency event.
Notwithstanding the occurrence of such contingency, each party shall exert all
reasonable efforts to continue in the performance of its obligations hereunder
and bring any period of contingency to an end and as expeditiously as possible;
provided that any strike or
9
<PAGE> 14
labor disturbance or similar difficulty of any kind shall be deemed to be beyond
the reasonable control of the party whose performance is affected thereby.
11.2 Reduced Delivery or Taking. If, for any period, a contingency
covered by Section 11.1 reduces the delivery or taking of Oxygen from the
Existing Facility, the party affected thereby will give prompt notice to the
other party of the reduction or interruption, and the Monthly Facility Charge
will be reduced pursuant to the following formula:
Reduction Amount = 0.80 x Monthly Facility Fee A
--------------------------- x ----- x N
30.4 275
where: A = Average Oxygen delivered in Tons per day during such
time of reduced delivery or taking.
N = Number of days of reduced delivery or taking.
Buyer will accept and pay for any Oxygen, delivered before said notice is given.
Upon receiving said notice from Seller, Buyer will advise Seller to discontinue
said deliveries or request that they be continued. If advised by Buyer, Seller
shall deliver any Oxygen reasonably available from the Existing Facility and
shall use reasonable efforts to deliver in accord with Buyer's demand any Oxygen
which Seller has reasonably available for Buyer from other locations. Seller
will continue said deliveries, if so requested, to the extent and for as long as
Seller in its reasonable discretion determines that its own needs for
consumption of Oxygen and its pre-existing contract commitments to others will
permit. Buyer will pay for any Oxygen delivered by Seller from other locations
pursuant to this Section 11.2 at the price negotiated between the parties at the
time plus any additional costs related to special purchase, freight or handling.
Buyer shall have the right to obtain Oxygen from other suppliers during the
existence of any contingency under Section 11.1.
11.3 No Production. During any period that no Oxygen is delivered or
taken from the production of the Existing Facility due to the occurrence of a
contingency covered by Section 11.1, Buyer will be fully relieved of its
obligation to pay the Monthly Facility Charge.
11.4 Operational Inefficiency. Seller agrees to maintain and repair all
equipment at the Existing Facility in a manner to ensure that there is no
material degradation in the operational efficiency of such equipment. Seller
agrees to reimburse Buyer for any excess electrical consumption over the Base
Rate, as hereinafter defined, which results from Seller's failure to so maintain
and repair the equipment. As used herein, the term "Base Rate" means 3.2 kwh per
100 SCF when the Existing Facility is producing liquidous product, and an
electrical consumption factor ("ECF") in kwh per 100 SCF when the Existing
Facility is producing only gaseous product.
The ECF will be established during a 24 hour test to be completed prior to
November 30, 1997 according to the following formula. (It is understood that the
test will not include the impact of a future instrument air compressor which
will be installed by Seller approximately one
10
<PAGE> 15
year from the Effective Date. Subsequent to such installation, the ECF will then
be recalculated pursuant to the following formula to account for such
installation.)
ECF = e x 1.05
---
v
Where: ECF = KWH Electrical Consumption Rate per 100 SCF
e = Electricity Consumed
v = 100 SCF of Gaseous Oxygen Produced
ARTICLE 12. - LIABILITY
12.1 Acknowledgement. Buyer acknowledges that there are hazards
associated with the use of the Oxygen. Buyer agrees that its personnel concerned
with the Oxygen are aware of the hazards and assumes all responsibility for the
warning of its employees and independent contractors of all hazards to persons
and property in any way connected with Buyer's use, storage and handling of the
Oxygen. Buyer also assumes all responsibility for the suitability and the
results of using the Oxygen alone or in combination with other articles or
substances and in any manufacturing or other processes or procedures. Neither
Seller nor Buyer shall be liable under this Agreement for any incidental,
consequential, indirect, or special damages of any kind, including, but not
limited to, loss of profits, loss of use or loss of business, unless caused by
the willful or intentional acts of such party.
12.2 Indemnity by Buyer. Buyer hereby covenants and agrees to indemnify
and hold Seller harmless from and against any and all claims, losses, damages,
actions, and causes of action, costs or expenses (including reasonable
attorneys' fees) of any nature or kind, brought against Seller arising from or
incidental to Buyer's activities or presence, including that of its employees,
contractors, agents, representatives, and invitees on or about the Facility Site
or Existing Facility; provided, however, that Buyer shall not be liable for, and
this indemnity shall not extend to, any such liability, loss, demand, action, or
cause of action to the extent that it results from or is attributable to the
negligent acts or omissions of Seller, or its employees, contractors, agents,
representatives and invitees.
12.3 Indemnity by Seller. Subject to Section 12.1, Seller hereby
covenants and agrees to indemnify and hold Buyer harmless from and against any
and all claims, losses, damages, actions, and causes of actions, costs or
expenses (including reasonable attorneys' fees) of any nature or kind, brought
against Buyer arising from or incidental to Seller's activities or presence,
including that of its employees, contractors, agents, representatives, and
invitees on or about the Geneva Works; provided, however, that Seller shall not
be liable for, and this indemnity shall not extend to, any such liability, loss,
demand, action, or cause of action to the extent that it results from or is
attributable to the negligent acts or omissions of Buyer, or its employees,
contractors, agents, representatives and invitees.
11
<PAGE> 16
ARTICLE 13. - ATMOSPHERIC CONTAMINANTS
Buyer agrees to notify and consult with Seller concerning any process or
facility changes by Buyer at the Geneva Works which would cause an increase in
atmospheric contaminants at or near the Existing Facility.
ARTICLE 14. - ENVIRONMENTAL CONDITIONS AND PERMITS
14.1 Site Condition. In the event any hazardous or toxic materials or
substances are discovered on, in or under the Facility Site which would prevent,
delay or increase the cost of operation of the Existing Facility, Seller shall
promptly notify Buyer.
14.2 Permitting. Seller, without cost to Buyer, will obtain all necessary
permits relating to air emissions and the modification, operation, and
maintenance of the Existing Facility and the delivery of Oxygen to the Geneva
Works.
ARTICLE 15. - FAIR LABOR STANDARDS ACT
Seller represents that Oxygen delivered to Buyer hereunder will have been
produced in compliance with the Fair Labor Standards Act of 1938, as amended.
ARTICLE 16. - DEFAULT
16.1 Default by Seller. If a voluntary or involuntary petition should be
filed by or against Seller under any bankruptcy law (including a petition for
reorganization, extension of payment, composition or adjustment of liabilities),
or if a receiver should be appointed for Seller, or if an attachment or
execution should be levied against all or part of the Existing Facility, or if
Seller should materially default in the performance of any material covenant or
obligation to be performed by it under this Agreement, and within ninety (90)
days after receipt of written notification thereof from Buyer, should Seller not
cure such default or if such default is not curable within ninety (90) days and
Seller has not commenced and is diligently pursuing such cure, then Buyer may,
without prejudice to any other right or remedy, terminate this Agreement by
written notice without further responsibility or liability.
16.2 Default by Buyer. If a voluntary or involuntary petition should be
filed by or against Buyer under any bankruptcy law (including a petition for
reorganization, extension of payment, composition or adjustment of liabilities),
or if a receiver should be appointed for Buyer, or if an attachment or execution
should be levied against all or part of the Geneva Works, or if Buyer should
materially default in the performance of any material covenant or obligation to
be performed by it under this Agreement, and within ninety (90) days after
receipt of written notification thereof from Seller, should Buyer not cure such
default or if such default is not curable within ninety (90) days and Buyer has
not commenced and is diligently pursuing such cure, then Seller may, without
prejudice to any other right or remedy, terminate this Agreement by written
notice without further responsibility or liability.
12
<PAGE> 17
ARTICLE 17. - ASSIGNMENT
Any assignment of this Agreement without the prior written consent of the
other party, which consent shall not be unreasonably withheld, shall be void.
ARTICLE 18. - APPLICABLE LAW
This Agreement will be governed by and construed in accordance with the
laws of the State of Utah and any action seeking to enforce or interpret the
terms hereof, or arising out of the breach hereof, shall be commenced and
maintained in the State of Utah.
ARTICLE 19. - RESOLUTION OF DISPUTES
In the event that a party to this Agreement has reasonable grounds to
believe that the other party hereto has failed to fulfill any obligation
hereunder, such party will promptly notify the other party in writing of the
substance of its belief. Unless otherwise agreed in writing, the party receiving
such notice must respond in writing within fifteen (15) days of receipt of such
notice by (a) providing either evidence of cure of the condition specified or an
explanation of why it believes that its performance is in accordance with the
terms and conditions of this Agreement, and (b) specifying three (3) dates, all
of which must be within fifteen (15) days from the date of its response, unless
otherwise agreed in writing, for a meeting to resolve the dispute. The claiming
party will then select one (1) of the three (3) dates, and a dispute resolution
meeting will be held. At the conclusion of such meeting, the parties shall have
the right to pursue any remedy otherwise permitted in law or in equity.
Notwithstanding anything in this Agreement to the contrary, but subject to
Article 11 and Section 8.1, Seller agrees that it will provide uninterrupted
supply of Oxygen during any such dispute so long as all contractually required
payments are made.
ARTICLE 20. - TERM
20.1 Term Subject to the provisions of Section 11.4, the term of this
Agreement will commence as of the Effective Date and expire sixty-four (64)
months after the Effective Date, and will continue in effect thereafter until
terminated by either party upon giving not less than twelve (12) months prior
written notice of such termination to the other party. Notwithstanding the
foregoing, Buyer shall have the right to terminate this Agreement at any time
after the expiration of thirty-six (36) months from the Effective Date if Buyer
determines it can no longer benefit from the use of oxygen from the Existing
Facility as a result of changed technology or obsolescence of equipment or
technology utilized at the Geneva Works, such termination to be effected by
Buyer giving written notice to Seller at least one hundred twenty (120) days
prior to termination. Buyer further agrees to use reasonable efforts to
communicate any decision by Geneva's senior officers to terminate this Agreement
pursuant to the immediately foregoing sentence if such decision is made prior to
such notice period but within one (1) year of the anticipated effective date of
such termination; provided, however, that the failure to communicate such
decision shall not be a default hereunder or affect in any way Geneva's right to
continue with or terminate this Agreement upon written notice as otherwise
provided herein.
13
<PAGE> 18
Upon the expiration of the initial term of this Agreement, both parties agree to
renegotiate in good faith for a contract extension with terms which will reflect
capital depreciation, plant efficiency, technical obsolescence, expected plant
life, additional maintenance requirements, reasonable profit to Seller, and
other factors reasonably related to the production and price of Oxygen provided,
that neither party shall be obligated to enter into any such agreement or
extension.
ARTICLE 21. - NOTICE
Any notice required to be given by either party to the other under any
provisions of this Agreement shall be in writing and shall be considered as
having been delivered on the date of personal delivery or by an acknowledged
facsimile transmission, addressed to the other party as follows:
SELLER: AIR LIQUIDE AMERICA CORPORATION
2121 N. California Blvd.
Walnut Creek, California 94596
Attention: Area Director On-Sites
Facsimile No.: 510-977-6519
BUYER: GENEVA STEEL COMPANY
10 South Geneva Road
Vineyard, Utah 84058
Attention: General Counsel
Facsimile No.: 801-227-9198
With a required copy to:
KIMBALL, PARR, WADDOUPS, BROWN & GEE
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attention: Roger D. Henriksen, Esq.
Facsimile No.: 801-532-7750
or to such other party or such other address as either party shall from time to
time designate for that purpose. Any notice by letter under this Agreement will
be deemed to be given as of the date such letter is received by the other party
hereto.
ARTICLE 22. - ENTIRE AGREEMENT
This Agreement comprises the entire agreement between the parties hereto
and supersedes all previous and contemporaneous writings, oral understandings,
negotiations, and previous agreements with reference to the subject matter
hereof, including but not limited to the Letter of Intent, Section 2.10 of the
1995 Agreement (but no other provision of the 1995 Agreement), that certain
Oxygen Supply Agreement dated September 27, 1988, as amended, and that certain
14
<PAGE> 19
Lease dated April 17, 1968, as amended. There are no other promises,
representations or warranties affecting this Agreement. There shall be no
modification or recision of this Agreement except by a writing signed by both
Buyer and Seller. Any terms and conditions appearing in any purchase orders,
even if signed by Seller and/or Buyer, shall be deemed null and void.
ARTICLE 23. - MISCELLANEOUS
23.1 Confidentiality. Neither this Agreement nor any information relating
to this Agreement or the Existing Facility shall be publicized or disclosed by
Seller or Buyer without the prior written consent of the other party in each
instance, except as otherwise required by law.
23.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted to be valid under applicable law. In the event that any
condition, covenant or other provision herein contained is held to be invalid or
void by any court of competent jurisdiction, the same shall be deemed severable
from the remainder of this Agreement and shall in no way affect any other
covenant or condition herein contained. If such condition, covenant or other
provision shall be deemed invalid due to its scope or breadth, such provision
shall be deemed valid to the extent of the scope or breadth permitted by law.
23.3 Waiver. Either party may, by notice signed by an officer of such
party and delivered in the manner provided in this Agreement, but shall be under
no obligation to, waive any of its rights or conditions to its rights hereunder,
or any duty, obligation or covenant of the other party. To be effective, such
waiver shall specifically state the intention of the waiving party to waive such
rights or conditions to its rights. Such a written waiver shall not affect or
alter the other provisions of this Agreement.
23.4 Power Rates. Upon the request of Buyer, Seller agrees to use
reasonable efforts to assist Buyer in obtaining the most favorable electrical
power rates possible for power to be utilized at the Existing Facility,
including but not limited to providing documentation, information and
consultation in connection therewith, and, if necessary, restructuring the
ownership of the Existing Facility and other provisions of this Agreement in a
mutually acceptable manner to take advantage of any available lower power rates.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
AIR LIQUIDE AMERICA CORPORATION, GENEVA STEEL COMPANY,
a Delaware corporation a Utah corporation
By: /s/ Michael J. Smith By: /s/ Ken C. Johnsen
----------------------------- ------------------------------
Its: Area Vice President Its: Vice President
------------------------- --------------------------
15
<PAGE> 20
EXHIBIT 1.2
to
Oxygen Supply Agreement
---------------------------------------------------------------------------
FACILITY SITE AND BATTERY LIMITS
The "Facility Site" and battery limits referred to in the foregoing
Agreement are located in Utah County, Utah and are more particularly described
as follows:
[See attached Exhibit A]
<PAGE> 21
[OXYGEN PLANT SITE MAPPING]
<PAGE> 22
EXHIBIT 1.5
to
Oxygen Supply Agreement
---------------------------------------------------------------------------
GROUND LEASE
The "Ground Lease" referred to in the foregoing Agreement is attached hereto.
2
<PAGE> 1
EXHIBIT 10.37
FIRST AMENDMENT
TO
TACONITE PELLET SALES AGREEMENT
THIS FIRST AMENDMENT TO TACONITE PELLET SALES AGREEMENT (the
"Amendment") is made and entered into this 25 day of July, 1997 by and between
GENEVA STEEL COMPANY, a Utah corporation (hereinafter referred to as "Buyer"),
and USX CORPORATION, a Delaware corporation (hereinafter referred to as
"Seller").
WITNESSETH:
WHEREAS, Buyer and Seller heretofore entered into a certain TACONITE
PELLET SALES AGREEMENT, effective (by its terms) as of September 1, 1994
(hereinafter referred to as the "Agreement") covering Buyer's purchase and
Seller's sale of taconite pellets in accordance with the terms and conditions as
provided under the Agreement; and
WHEREAS, Buyer and Seller, for various business-related reasons,
mutually desire to amend the quantity and payment terms of the Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein contained, Buyer and Seller, intending to be legally bound,
hereby agree as follows:
1. Article II. QUANTITY of the said Agreement is hereby amended by
substituting the following table of Minimum Tons and Maximum Tons for
each Contract Year of the Agreement at the end of Article II.A, in
replacement in its entirety of the table originally set forth
therein:
"II QUANTITY
A. * * *
<TABLE>
<CAPTION>
Minimum Tons Maximum Tons
<S> <C> <C>
September 1, 1994 through August 31, 1995: 2,700,000 3,000,000
September 1, 1995 through August 31, 1996: 2,700,000 3,000,000
September 1, 1996 through August 31, 1997: 2,700,000 3,000,000
September 1, 1997 through August 31, 1998: 2,700,000 3,000,000
September 1, 1998 through August 31, 1999: 2,700,000 3,000,000"
</TABLE>
<PAGE> 2
2. Article VI. PAYMENT of the Agreement is hereby amended by revising Article
VI.A thereof to read in its entirety as follows:
"VI. PAYMENT
A. Seller shall invoice Buyer weekly for each shipment of Product
hereunder. Invoices shall be faxed to Buyer. Each invoice shall be for
all unbilled Product that has been delivered to Buyer prior to such
invoice date. Buyer shall pay Seller by wire transfer of funds due
hereunder to Seller within eleven (11) days following receipt of such
invoice. If Buyer pays such invoice within ten (10) days, Buyer shall be
entitled to a one-half-of-one-percent (1/2%) discount on the total
amount due on such invoice. However, if Buyer does not remit full
payment by the close of business on the eleventh (11th) day, Buyer shall
be considered to be in default of the Agreement in accordance with
Article X.B hereof. Such wire transfers shall be made to an account to
be designated by Seller from time to time by written notice to Buyer.
Invoices sent during any Contract Year before the Product Prices are
available shall reflect the Product Prices in effect immediately
preceding the date which a new Product Price would become effective.
When the Product Prices for such Contract Year become available, Seller
shall issue an invoice for any balance due as a result of a price
increase or issue a credit for any over payment due to a price decrease.
Interest shall accrue on all past due payments daily at the rate of
twelve percent (12%) per annum. Seller's invoice(s) covering shipment(s)
hereunder will be issued on Friday of each week unless such day falls on
a holiday; in which latter event, Seller's invoice(s) shall be issued on
the next succeeding business day. In the event payment for Seller's
invoice falls due on a holiday or weekend, Buyer shall make payment on
the next succeeding business day and Buyer's account shall be credited
as though payment had occurred on the exact due date. Buyer agrees that
certified weights for all Product received by Buyer shall be provided to
Seller promptly following Buyer's receipt of each shipment at the Geneva
Works."
3. All other terms and conditions of the Agreement between Buyer
and Seller shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be
executed by their respectively authorized representatives, effective on the day
and year first above written.
GENEVA STEEL COMPANY
a Utah corporation
By: /s/ Ken C. Johnsen
------------------------------------
Ken C. Johnsen
Vice President & General Counsel
USX CORPORATION
a Delaware corporation
By: /s/ Peter Moller
------------------------------------
Peter Moller
Director Planning, Procurement,
Distribution & Sales
3
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
AGREEMENT by and between Geneva Steel Company, a Utah corporation (the
"Company") and ___________________________________ (the "Executive"), dated as
of _____ day of May, 1997.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
The Board of Directors further believes it is appropriate to provide for
severance payments and benefits for the Executive in the event of termination of
employment not related to a Change of Control under the circumstances
hereinafter set forth. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
A G R E E M E N T :
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the earlier of the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs or the termination of an
Executive's employment unrelated to a Change of Control as provided in Section 5
hereof. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control; or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the second anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 2
2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control
(i) any acquisition directly from the Company;
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination,
(i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same
2
<PAGE> 3
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
(iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any tune during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and tune during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
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<PAGE> 4
(b) Compensation.
(i) Base Salary. During the Employment Period the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term "Annual Base Salary" as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual cash bonus for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Average Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any tune during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance
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<PAGE> 5
with the most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any tune during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure results form incapacity due to physical
mental illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies
5
<PAGE> 6
the manner in which the Board or Chief Executive Officer believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the wilful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
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<PAGE> 7
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which
(i) indicates the specific termination provision in this
Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall not be more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of the receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less than
twelve full months or during which the Executive was employed for less
than twelve full months), for the most recently completed fiscal year
during the Employment Period, if any, and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"; and
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<PAGE> 8
(B) the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Average Annual Bonus; and
(ii) for two years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not
been terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical and other welfare benefits
described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider
of which shall be selected by the Executive in his sole discretion; and
(iv) the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the
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<PAGE> 9
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Other than in Connection with a Change in Control. If the
Executive's employment is terminated other than in connection with a Change of
Control and other than for Cause, Death or Disability, or by the Executive for
Good Reason, the Company shall pay or provide to the Executive the payments and
benefits set forth in subparagraph (a)(i)(A) and (B) of this paragraph 6.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. [The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.] In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Confidential Information. The executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any
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of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the company
or any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 9 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such success had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumed and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
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If to the Company:
Geneva Steel Company
10 South Geneva Road
Vineyard, UT 84058
Attention: Ken C. Johnsen, General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall be not be deemed to be
a waiver of such provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in it name on its behalf, all
as of the date and year first-above written.
--------------------------------
[Executive]
GENEVA STEEL COMPANY
By
------------------------------
Its
-----------------------------
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EXHIBIT 13
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING STATISTICS
Net sales............ $726,669 $712,657 $665,699 $486,062 $465,181
Gross margin......... 60,691 50,350 71,508 15,514 21,723
Income (loss) from
operations......... 38,204 25,729 47,713 (6,791) 1,102
Income (loss) before
extraordinary
item............... (1,268) (7,238) 11,604 (16,696) (8,606)
Net income (loss).... (1,268) (7,238) 11,604 (26,230) (8,606)
Net income (loss)
applicable to
common shares...... (11,608) (16,327) 3,606 (33,276) (12,072)
Net income (loss)
per common
share before
extraordinary
item............... (.74) (1.07) .24 (1.57) (.80)
Net income (loss) per
common share....... (.74) (1.07) .24 (2.20) (.80)
BALANCE SHEET
STATISTICS
Cash and cash
equivalents........ $ -- $ 597 $ 12,808 $ -- $ 64,267
Working capital...... 67,063 71,065 33,045 46,797 89,167
Current ratio........ 1.66 1.64 1.29 1.49 2.04
Net property, plant
and equipment...... 458,315 454,523 470,390 453,286 314,590
Total assets......... 646,070 657,386 628,797 606,815 498,384
Long-term debt....... 399,906 388,431 342,033 357,348 224,991
Redeemable preferred
stock.............. 56,169 55,437 51,031 43,032 35,986
Stockholders'
equity............. 82,603 92,827 108,074 103,664 135,775
Long-term debt as a
percentage of
stockholders'
equity............. 484% 418% 316% 345% 166%
ADDITIONAL STATISTICS
Operating income
(loss) per ton
shipped............ $ 17.90 $ 12.00 $ 24.99 $ (4.63) $ .73
Capital
expenditures....... 47,724 26,378 68,025 164,918 82,534
Depreciation and
amortization....... 44,959 44,415 39,308 29,870 23,150
Cash flows from
operating
activities......... 32,070 (19,520) 84,130 (28,018) 64,394
Raw steel production
(tons in
thousands)......... 2,460 2,428 2,145 1,890 2,000
Steel products
shipped (tons in
thousands)......... 2,135 2,145 1,909 1,467 1,511
</TABLE>
4
<PAGE> 2
SELECTED FINANCIAL DATA -- CONTINUED
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>
<S> <C> <C>
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
Fiscal Year Ended September 30, 1997............... HIGH LOW
-------- --------
First Quarter ended December 31.................. $ 4 1/2 $ 2 3/4
Second Quarter ended March 31.................... 3 5/8 2
Third Quarter ended June 30...................... 3 1/2 2 1/4
Fourth Quarter ended September 30................ 4 1/4 2 5/8
</TABLE>
As of November 28, 1997, the Company had 14,050,515 shares of Class A common
stock outstanding, held by 644 stockholders of record, and 19,151,348 shares of
Class B common stock outstanding, held by five stockholders of record.
5
<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,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 91.6 92.9 89.3
----- ----- -----
Gross margin................................... 8.4 7.1 10.7
Selling, general and administrative expenses... 3.1 3.5 3.5
----- ----- -----
Income from operations......................... 5.3 3.6 7.2
Other income (expense):
Interest and other income.................... 0.0 0.1 0.1
Interest expense............................. (5.6) (5.1) (4.6)
Other expense................................ -- (0.2) (0.4)
----- ----- -----
Income (loss) before provision (benefit) for
income taxes................................. (0.3) (1.6) 2.3
Provision (benefit) for income taxes........... (0.1) (0.6) 0.6
----- ----- -----
Net income (loss).............................. (0.2)% (1.0)% 1.7%
===== ===== =====
</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,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Plate.......................................... 45.4% 45.0% 35.1%
Sheet.......................................... 30.2 29.7 40.7
Pipe........................................... 9.6 6.6 6.4
Slab........................................... 11.9 15.9 15.0
Non-steel...................................... 2.9 2.8 2.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Fiscal Year Ended September 30, 1997 Compared
With Fiscal Year Ended September 30, 1996
Net sales increased 2.0% due to a shift in product mix to higher-priced pipe and
plate products from lower-priced slab products offset in part by a decrease in
shipments of approximately 10,200 tons and a decrease in overall average selling
prices for the year ended September 30, 1997 as compared to the previous fiscal
year. The weighted average sales price (net of transportation costs) per ton of
plate, pipe and slab products decreased by 2.4%, 1.6% and 0.6%, respectively,
while the weighted average sales price of sheet products increased by 3.5% in
the year ended September 30, 1997 compared to the previous fiscal year. The
decrease in plate prices was due to continued pricing pressure from unfairly
traded imports and other market factors. Shipped tonnage of plate and pipe
increased approximately 44,900 tons or 5.4% and 56,300 tons or 50.2%,
respectively, while shipped
6
<PAGE> 4
tonnage of sheet and slab products decreased approximately 200 tons or 0.03% and
111,200 tons or 23.3%, respectively, between the two periods. During the third
and fourth quarters a shortage of railcars increased costs and caused shipments
to be slightly lower than expected. Although the Company's primary rail carrier
is building additional railcars over the next several months to meet the
Company's needs and is taking other steps to improve its service to the Company,
the shortage is expected to adversely affect future operations until corrected.
Consistent with the Company's strategic objectives, plate shipments have
increased, in part through utilization of outside processors to level and cut
plate from coils. The Company is currently experiencing increased demand for
pipe and is increasing its production of pipe. The Company continues to sell
slabs to maximize production from the continuous caster while efforts to
increase rolling mill throughput continue. The Company is currently in the
process of installing the rolling mill finishing stand upgrades, which are
expected to increase rolling mill throughput and product quality. Upgrades on
three of six finishing stands have been substantially completed. In light of
recent disruptions to operations caused by work on the upgrades, the Company has
elected to extend the schedule for completion of future work over several months
to limit the ongoing impact.
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 alleged large
dumping margins and also set forth the injury to the U.S. industry caused by
dumped imports from the subject countries. The United States Department of
Commerce issued a final affirmative determination of dumping for each country in
October 1997, finding substantial dumping margins on cut-to-length steel plate
imports from those countries. In December 1997, the International Trade
Commission ("ITC") voted unanimously that the United States industry producing
cut-to-length carbon steel plate was injured due to imports of dumped
cut-to-length plate from the People's Republic of China, the Russian Federation,
Ukraine and the Republic of South Africa. The United States has negotiated
suspension agreements that were effective upon the affirmative injury
determination by the ITC in December 1997. Those agreements will limit imports
of cut-to-length carbon steel plate from the four countries to a total of
approximately 440,000 tons per year for the next five years, a reduction of
about two-thirds from 1996 import levels, and provide for an average 10-15%
increase in import prices to remove the injurious impact of the imports. Any
violation or abrogation of the suspension agreements will result in immediate
imposition of the dumping duties found by the Commerce Department. Dumped
imports from countries not covered by the Plate Trade Cases continue to suppress
plate prices. The Company continues to monitor cut-to-length plate imports from
other countries as well as imports of other of its products and may file
additional trade cases in the future.
Domestic competition remains intense and imported steel continues to adversely
affect the market. Moreover additional production capacity is being added in the
domestic
7
<PAGE> 5
plate and sheet markets. 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. The Company
intends to react to price increases or decreases in the market as required by
competitive conditions.
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, decreased to 91.6%
for the year ended September 30, 1997 from 92.9% for the previous fiscal year as
a result of an increase in net sales in fiscal year 1997. The overall average
cost of sales per ton shipped increased approximately $3 per ton between the two
periods primarily as a result of the shift in product mix to higher-cost plate
and pipe products from lower-cost slab products as well as an increase in
operating costs. Operating costs increased as a result of increased natural gas
and other fuel costs, increased hot metal costs associated with blast furnace
reline and repairs, production disruptions associated with the rolling mill
finishing stand upgrades, higher wages and benefits and other increased costs.
The increases in costs were partially offset by significant improvements in
production yield and throughput rates. These operating improvements have,
however, regressed late in the year. The Company expects fuel prices to increase
during the winter months.
Depreciation costs included in cost of sales increased approximately $1.0
million for the year ended September 30, 1997 compared with the previous fiscal
year. This increase was due to increases in the asset base resulting primarily
from the No. 1 blast furnace reline and repair.
Selling, general and administrative expenses for the year ended September 30,
1997 decreased approximately $2.1 million as compared to the previous fiscal
year. These lower expenses resulted primarily from Company efforts to reduce
administrative staff, to decrease outside services and to reduce other costs.
Interest expense increased approximately $4.5 million during the year ended
September 30, 1997 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, in part, from the termination of the
Company's receivables securitization facility and the termination of the
Company's prepayment arrangement with Mannesmann.
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. As a result, other expense decreased approximately $1.7 million
for the year ended September 30, 1997, as compared with the previous fiscal
year.
8
<PAGE> 6
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 increased as various
upgrades to plate processing and finishing equipment were integrated into the
production process. The Company sold slabs to maximize production from the
continuous caster while efforts to increase rolling mill throughput continue.
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 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.
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 recorded a
portion of the expected loss recovery during the second and third quarters of
the fiscal year.
The Company's new plasma-fired cupola ironmaking facility became available for
operation during the year ended September 30, 1996. The cupola is used to
supplement blast furnace iron production during the reline of the Company's
blast furnaces and may also be used during 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
9
<PAGE> 7
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.
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.
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 sale of equity, the incurrence of 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, 1997.
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
10
<PAGE> 8
therefor. For dividend periods ending before April 1996, the Company had the
option to add dividends to the liquidation preference in lieu of payment in
cash. 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 Senior Notes precluded payment of the quarterly
preferred stock dividends beginning with the dividend due June 15, 1996. Unpaid
dividends were approximately $14.3 million at September 30, 1997. Unpaid
dividends accumulate until paid and accrue additional dividends at a rate of 14%
per annum. As a result of the Company's inability to pay four full quarterly
dividends, the holders of the Redeemable Preferred Stock elected two directors
on May 30, 1997. 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 $.18 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.
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. The Revolving Credit Facility 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
(8.50% at September 30, 1997) plus 1.50% or the defined LIBOR rate (5.69% at
September 30, 1997) plus 2.75%. The Company pays a monthly commitment fee based
on an annual rate of
11
<PAGE> 9
.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, 1997, the
Company's eligible inventories and accounts receivable supported access to
$106.0 million under the Revolving Credit Facility. As of September 30, 1997 the
Company had $74.9 million in borrowings and $9.9 million in letters of credit
outstanding under the Revolving Credit Facility, leaving $21.2 million in
additional borrowing availability.
The terms of the Revolving Credit Facility and of 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, limitations 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
amendment and restatement of the Revolving Credit Facility on May 14, 1997, the
Company entered into various amendments modifying or waiving the financial
covenants and tests contained in the revolving credit facility.
Besides these financing activities, the Company's major source of liquidity has
been cash provided by operating activities. Net cash provided by operating
activities was $32.1 million for the year ended September 30, 1997, as compared
with net cash used for operating activities of $19.5 million and net cash
provided by operating activities of $84.1 million for the years ended September
30, 1996 and 1995, respectively. The sources of cash provided by operating
activities during the year ended September 30, 1997, included depreciation and
amortization of $45.0 million, a decrease in accounts receivable of $16.4
million and an increase in accrued liabilities of $3.0 million. These sources of
cash flow were offset in part by an increase in inventories of $6.9 million, a
decrease in accounts payable of $13.2 million, a decrease in production
prepayments of $9.8 million when the Company's production prepayment arrangement
with Mannesmann was terminated, a decrease in the net deferred tax liability of
$0.8 million and a net loss of $1.3 million.
Capital expenditures were $47.7 million, $26.4 million and $68.0 million for
fiscal years 1997, 1996 and 1995, respectively. Capital expenditures for 1997
were higher than expected due in part to costs associated with the reline and
repairs of the No. 1 and No. 2 blast furnaces and the related stoves. Capital
expenditures for fiscal year 1998 are estimated at approximately $39 million,
which includes completion of the rolling mill finishing stand modernization
project, implementation of new business and financial software and various other
projects designed to reduce costs and
12
<PAGE> 10
increase product quality and throughput. The Company anticipates that it may
incur significant start-up and transition costs as the remaining rolling mill
finishing stand equipment is installed and implemented. The Company has selected
and started the implementation of SAP software, an enterprise-wide business
system. The Company expects to benefit significantly from such implementation,
including through addressing the year 2000 issue inherent in its legacy systems.
The implementation is currently estimated to cost $8 to $10 million with
portions being implemented during a two year period. Depending on market,
operational, liquidity and other factors, the Company 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 has formed a limited liability company with certain unrelated
parties, which in turn has entered into a cooperative agreement with the United
States Department of Energy ("DOE") for the demonstration of a cokeless
ironmaking facility and associated power generation and air separation
facilities. As of September 30, 1997, the Company had spent (net of DOE
reimbursement) approximately $0.9 million in connection with the project, which
has been included in construction in progress in the accompanying consolidated
financial statements. Expenditures on the project are subject to government cost
sharing arrangements. Completion of the project remains subject to several
contingencies. Under certain circumstances, the Company will be required to
repay some or all of the government cost share funds and expense other funds
included in construction in progress 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 $39.4 million and its annual preferred stock dividends
are approximately $10.4 million.
Factors Affecting Future Results
This annual report contains a number of forward-looking statements, including,
without limitation, statements contained in this report relating to the
Company's ability to obtain railcars, to increase shipments to the expected
levels, the Company's objective to increase higher-margin plate and pipe product
mix while reducing lower-margin slab sales, the successful implementation of the
rolling mill finishing stands upgrade which is expected to increase production
throughput and product quality, the Company's ability to compete with the
additional production capacity being added in the domestic plate and sheet
markets, the Company's ability to monitor and control the level of unfairly
traded imports and their effect on the domestic market, the expected adequacy of
cash resources including additional borrowing availability and any other
statements contained herein to the effect that the Company or its management
"believes", "expects", "anticipates", "plans" and similar expressions. There are
a number of important factors that could cause actual events or the
13
<PAGE> 11
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below.
The Company's future operations will be impacted by, among other factors,
pricing, product mix, throughput levels, production efficiencies and railcar
availability. 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 to
the Company's future operating results that remains subject to significant
uncertainty. Future pricing will be affected by several factors including the
level of imports, future capacity additions, product demand and other market
factors such as the increased domestic plate production capacity currently
coming on line.
The short-term and long-term liquidity of the Company also is dependent upon
several other factors, including availability of capital, 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. The Company also faces labor negotiations with the expiration of its
union labor agreement on March 31, 1998. The Company is currently unable to
predict the effect such negotiations will have on the Company's operations and
financial condition.
Inflation can be expected to have an effect on many of the Company's operating
costs and expenses. Due to worldwide competition in the steel industry, the
Company may not be able to pass through such increased costs to its customers.
14
<PAGE> 12
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, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1997.
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
Arthur Anderson LLP
Salt Lake City, Utah
October 29, 1997
(except with respect to the matter discussed in Note 9
as to which the date is December 17, 1997)
15
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ -- $ 597
Accounts receivable, less allowance for
doubtful accounts of $4,564 and $4,031,
respectively.............................. 60,163 76,527
Inventories.................................. 100,081 93,139
Deferred income taxes........................ 3,059 7,637
Prepaid expenses and other................... 5,291 3,160
Related party receivable..................... 753 250
-------- --------
Total current assets................. 169,347 181,310
-------- --------
Property, Plant and Equipment:
Land......................................... 1,990 1,990
Buildings.................................... 16,109 16,109
Machinery and equipment...................... 645,807 600,290
Mineral property and development costs....... 8,425 8,425
-------- --------
672,331 626,814
Less accumulated depreciation................ (214,016) (172,291)
-------- --------
Net property, plant and equipment......... 458,315 454,523
-------- --------
Other Assets................................... 18,408 21,553
-------- --------
$ 646,070 $ 657,386
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
16
<PAGE> 14
CONSOLIDATED BALANCE SHEETS -- CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................. $ 46,348 $ 59,575
Accrued liabilities.............................. 23,671 18,353
Accrued payroll and related taxes................ 11,715 10,867
Accrued dividends payable........................ 14,290 4,682
Production prepayments........................... -- 9,763
Accrued interest payable......................... 4,559 4,746
Accrued pension and profit sharing costs......... 1,701 2,259
-------- --------
Total current liabilities..................... 102,284 110,245
-------- --------
Long-Term Debt..................................... 399,906 388,431
-------- --------
Deferred Income Tax Liabilities.................... 5,108 10,446
-------- --------
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.......................................... 56,169 55,437
-------- --------
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 shares issued........ 87,979 87,979
Class B, no par value; 50,000,000 shares
authorized, 19,151,348 shares issued and
outstanding................................ 10,110 10,110
Warrants to purchase Class A common stock........ 5,360 5,360
Retained earnings (deficit)...................... (11,399) 5,077
Less 719,042 and 1,194,897 Class A common stock
treasury shares, respectively, at cost........ (9,447) (15,699)
-------- --------
Total stockholders' equity.................... 82,603 92,827
-------- --------
$646,070 $657,386
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
17
<PAGE> 15
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................... $726,669 $712,657 $665,699
Cost of sales........................... 665,978 662,307 594,191
-------- -------- --------
Gross margin.......................... 60,691 50,350 71,508
Selling, general and administrative
expenses.............................. 22,487 24,621 23,795
-------- -------- --------
Income from operations................ 38,204 25,729 47,713
-------- -------- --------
Other income (expense):
Interest and other income............. 412 552 520
Interest expense...................... (40,657) (36,199) (30,579)
Other expense......................... -- (1,749) (2,386)
-------- -------- --------
(40,245) (37,396) (32,445)
-------- -------- --------
Income (loss) before provision (benefit)
for income taxes...................... (2,041) (11,667) 15,268
Provision (benefit) for income taxes.... (773) (4,429) 3,664
-------- -------- --------
Net income (loss)....................... (1,268) (7,238) 11,604
Less redeemable preferred stock
dividends and accretion for original
issue discount........................ 10,340 9,089 7,998
-------- -------- --------
Net income (loss) applicable to common
shares................................ $(11,608) $(16,327) $ 3,606
======== ======== ========
Net income (loss) per common share...... $ (.74) $ (1.07) $ .24
======== ======== ========
Weighted average common shares
outstanding........................... 15,660 15,309 15,330
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
18
<PAGE> 16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES ISSUED AMOUNT WARRANTS
----------------------- ------------------ TO PURCHASE RETAINED
COMMON COMMON COMMON COMMON COMMON EARNINGS TREASURY
CLASS A CLASS B CLASS A CLASS B CLASS A (DEFICIT) STOCK TOTAL
---------- ---------- ------- -------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1994...................... 14,556,431 20,639,688 $87,193 $ 10,896 $ 5,360 $ 19,266 $(19,051) $103,664
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............ -- -- -- -- -- (118) 922 804
Redeemable preferred stock
dividends............... -- -- -- -- -- (7,296) -- (7,296)
Redeemable preferred stock
accretion for original
issue discount.......... -- -- -- -- -- (702) -- (702)
Net income................ -- -- -- -- -- 11,604 -- 11,604
---------- ---------- ------- ------- ------ -------- -------- --------
Balance at September 30,
1995...................... 14,695,265 19,251,348 87,926 10,163 5,360 22,754 (18,129) 108,074
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............ -- -- -- -- -- (1,350) 2,430 1,080
Redeemable preferred stock
dividends............... -- -- -- -- -- (8,372) -- (8,372)
Redeemable preferred stock
accretion for original
issue discount.......... -- -- -- -- -- (717) -- (717)
Net loss.................. -- -- -- -- -- (7,238) -- (7,238)
---------- ---------- ------- ------- ------ -------- -------- --------
Balance at September 30,
1996...................... 14,705,265 19,151,348 87,979 10,110 5,360 5,077 (15,699) 92,827
Issuance of Class A common
stock to employee
savings plan............ -- -- -- -- -- (4,868) 6,252 1,384
Redeemable preferred stock
dividends............... -- -- -- -- -- (9,608) -- (9,608)
Redeemable preferred stock
accretion for original
issue discount.......... -- -- -- -- -- (732) -- (732)
Net loss.................. -- -- -- -- -- (1,268) -- (1,268)
---------- ---------- ------- ------- ------ -------- -------- --------
Balance at September 30,
1997...................... 14,705,265 19,151,348 $87,979 $ 10,110 $ 5,360 $ (11,399) $ (9,447) $ 82,603
========== ========== ======= ======= ====== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ (1,268) $ (7,238) $ 11,604
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Depreciation................... 43,048 42,077 37,293
Amortization of loan fees...... 1,911 2,338 2,015
Deferred income tax provision
(benefit).................... (760) (3,569) 6,378
(Gain) loss on asset
disposal..................... 863 (46) --
(Increase) decrease in current
assets --
Accounts receivable, net..... 16,364 (41,349) 12,729
Inventories.................. (6,942) (3,230) (3,900)
Prepaid expenses and other... (2,634) (749) 177
Increase (decrease) in current
liabilities --
Accounts payable............. (13,227) (8,364) 10,918
Accrued liabilities.......... 2,991 (692) 3,572
Accrued payroll and related
taxes..................... 2,232 1,279 2,293
Production prepayments....... (9,763) (237) --
Accrued interest payable..... (187) 136 30
Accrued pension and profit
sharing costs............. (558) 124 1,021
-------- -------- --------
Net cash provided by (used for)
operating activities.............. 32,070 (19,520) 84,130
-------- -------- --------
Cash flows from investing
activities:
Purchase of property, plant and
equipment...................... (47,724) (26,378) (68,025)
Proceeds from sale of property,
plant and equipment............ 21 213 15,966
Change in other assets............ 1,238 (11,361) (889)
-------- -------- --------
Net cash used for investing
activities........................ $(46,465) $(37,526) $(52,948)
-------- -------- --------
</TABLE>
20
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt................. $ 51,987 $ 59,752 $ --
Payments on long-term debt........ (40,513) (13,354) (15,315)
Payments for deferred loan costs
and other assets............... (4) (1,563) (1,724)
Change in bank overdraft.......... 2,328 -- (1,341)
Other............................. -- -- 6
-------- -------- --------
Net cash provided by (used for)
financing activities.............. 13,798 44,835 (18,374)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................. (597) (12,211) 12,808
Cash and cash equivalents at
beginning of year................. 597 12,808 --
-------- -------- --------
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)................. $ 38,934 $ 34,386 $ 28,683
Income taxes................... -- 367 250
</TABLE>
Supplemental schedule of noncash financing activities:
For the years ended September 30, 1996 and 1995, the Company increased the
redeemable preferred stock liquidation preference by $3,690 and $7,296,
respectively, in lieu of paying cash dividends. In addition, for the years
ended September 30, 1997, 1996 and 1995, redeemable preferred stock was
increased by $732, $717 and $702, respectively, for the accretion required
over time to amortize the original issue discount on the redeemable
preferred stock incurred at the time of issuance. As of September 30,1997,
accrued dividends of $14,290 were unpaid.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
PRINCIPLES 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, 1997 and 1996
was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Raw materials.................... $ 26,783 $31,064
Semi-finished and finished
goods.......................... 65,406 53,604
Operating materials.............. 7,892 8,471
-------- -------
$100,081 $93,139
======== =======
</TABLE>
Operating materials consist primarily of production molds, platforms for the
production molds and furnace lining refractories.
22
<PAGE> 20
INSURANCE CLAIM RECEIVABLE
A plant-wide power outage associated with unusual weather conditions and an
operator error in January 1996 had an effect on operating results during the
fiscal years ended September 30, 1997 and 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 1997 and 1996
consolidated financial statements. During fiscal years 1997 and 1996, the
Company recorded $12.3 million and $3.7 million, respectively, as an offset to
cost of goods sold in the accompanying consolidated financial statements. As of
September 30, 1997 and 1996, the Company has an insurance claim receivable of
$11.0 million and $12.3 million included in other assets in the accompanying
consolidated financial statements. The Company continues to work with the
insurance Company to resolve this claim and is continuing to pursue legal
remedies available to the Company (see Note 5).
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:
<TABLE>
<S> <C>
Buildings.................................... 31.5 years
Machinery and Equipment...................... 2-30 years
</TABLE>
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 $.5 million, $2.1 million and $5.7 million of
interest during the years ended September 30, 1997, 1996 and 1995, 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 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, 1997 and
1996, approximately $43.7 million and $39.2 million, 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. The Company experienced minimal mining
activity in fiscal year 1997.
23
<PAGE> 21
OTHER ASSETS
Other assets consist primarily of an insurance claim receivable described above
and deferred loan costs incurred in connection with obtaining long-term
financing. The deferred loan costs are being amortized on a straight-line basis
over the term of the applicable financing agreement. Accumulated amortization of
deferred loan costs totaled $6.6 million and $4.7 million at September 30, 1997
and 1996, respectively.
PRODUCTION PREPAYMENTS
The Company's production prepayment arrangement with a major customer was
terminated in May 1997. The arrangement previously provided for up to $15
million in production prepayments upon entry of new orders. 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, production
prepayments of $9.8 million 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 estimated customer claims. As of September 30, 1997 and
1996, reserves for estimated customer claims of $2.9 million and $2.5 million,
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.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets in accordance with
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"
which was issued in March 1995. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the book
24
<PAGE> 22
value of the asset may not be recoverable. The Company evaluates at each balance
sheet date whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of the
future undiscounted net cash flows of the related asset or asset grouping over
the remaining life in measuring whether the assets are recoverable. SFAS No. 121
was adopted in fiscal year 1997 and did not have a material impact on the
Company's financial position or results of operations.
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, 1997, 1996 and 1995 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, SFAS No. 128 "Earnings Per Share" was issued. This statement
specifies requirements for computation, presentation and disclosure of earnings
per share ("EPS") for all periods ending after December 15, 1997. Early adoption
is prohibited and upon adoption, all prior period EPS data must be restated.
SFAS No. 128 simplifies the standards for computing EPS and replaces the
presentations of Primary EPS and Fully Diluted EPS with Basic EPS and Diluted
EPS. The Company will adopt SFAS No. 128 in fiscal year 1998 and believes it
will not have a material impact.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. Under
current reporting requirements, extraordinary and non-recurring gains and losses
are excluded from income from current operations. SFAS No. 130 requires an "all-
inclusive" approach which specifies that all revenues, expenses, gains and
losses recognized during the period be reported in income, regardless of whether
they are considered to be results of operations of the period. The statement is
effective for fiscal years beginning after December 15, 1997.
25
<PAGE> 23
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, 1997 and 1996 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<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 payable monthly at the defined
base rate (8.50% at September 30, 1997) plus
1.50% or the defined LIBOR rate (5.69% at
September 30, 1997) plus 2.75%, due May 14,
2000 (see discussion below), secured by
inventories and accounts receivable........... 74,906 63,431
-------- --------
$399,906 $388,431
======== ========
</TABLE>
The aggregate amounts of principal maturities of long-term debt as of September
30, 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
---------------------------------------------
<S> <C>
1998.................................... $ --
1999.................................... --
2000.................................... 74,906
2001.................................... 135,000
2002.................................... --
Thereafter.............................. 190,000
--------
$ 399,906
========
</TABLE>
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 (8.50% at September
30, 1997) plus 1.50%, or the defined LIBOR rate (5.69% at September 30, 1997)
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
26
<PAGE> 24
Facility is also subject to other financial tests and covenants. As of September
30, 1997, the Company's eligible inventories and accounts receivable supported
access to $106.0 million under the Revolving Credit Facility. As of September
30, 1997, the Company had $74.9 million in borrowings and $9.9 million in
letters of credit outstanding under the Revolving Credit Facility, leaving $21.2
million in additional borrowing availability. 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 year ended September 30, 1995, the Company retired its revolving
credit facility. 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 million 9 1/2%
Senior Notes issued in January 1994 (the "9 1/2% Senior Notes") and $135 million
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, 1997, the Company 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 $380.9 million as of September 30, 1997.
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, 1997, 1996, and 1995, the Company derived
approximately 33%, 31% and 36%, respectively, of its net sales through one
customer, which is a distributor to other companies. International sales during
the years ended September 30, 1997, 1996 and 1995 did not exceed 10%.
27
<PAGE> 25
4. INCOME TAXES
The provision (benefit) for income taxes as of September 30, 1997, 1996 and 1995
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -------
<S> <C> <C> <C>
Current income tax benefit
Federal............................... $ (11) $ (752) $(2,375)
State................................. (2) (108) (339)
---- ------ ------
(13) (860) (2,714)
---- ------ ------
Deferred income tax provision (benefit)
Federal............................... (665) (3,123) 4,543
State................................. (95) (446) 649
Change in valuation allowance......... -- -- 1,186
---- ------ ------
(760) (3,569) 6,378
---- ------ ------
Provision (benefit) for income taxes.... $(773) $(4,429) $ 3,664
==== ====== ======
</TABLE>
The provision (benefit) for income taxes as a percentage of income (loss) for
the years ended September 30, 1997, 1996 and 1995 differs from the statutory
federal income tax rate due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<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)
Reassessment of deferred liabilities.......... -- -- (8.0)
Other......................................... 0.4 0.3 1.5
----- ----- ----
Effective income tax rate..................... (37.9)% (38.0)% 24.0%
===== ===== ====
</TABLE>
The components of the net deferred income tax assets and liabilities as of
September 30, 1997 and 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward................ $ 35,257 $ 26,019
Inventory costs capitalized.................... 5,442 4,604
Alternative minimum tax credit carryforward.... 6,464 6,464
Accrued vacation............................... 1,847 1,836
Allowance for doubtful accounts................ 1,023 1,248
General business credits....................... 2,754 2,978
Other.......................................... 328 188
-------- --------
Total deferred income tax assets............ 53,115 43,337
-------- --------
Deferred income tax liabilities:
Accelerated depreciation....................... (45,237) (41,323)
Insurance claim receivable..................... (4,217) --
Mineral property development costs............. (2,465) (2,467)
Operating supplies............................. (3,245) (2,356)
-------- --------
Total deferred income tax liabilities....... (55,164) (46,146)
-------- --------
Net deferred income tax liabilities.... $ (2,049) $ (2,809)
======== ========
</TABLE>
28
<PAGE> 26
As of September 30, 1997, the Company had a net operating loss carryforward and
an alternative minimum tax credit carryforward for tax reporting purposes of
approximately $92.9 million and $6.5 million, 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 $47.7 million and
$26.4 million on capital projects during the fiscal years ended September 30,
1997 and 1996, respectively. These expenditures were made primarily in
connection with the Company's ongoing modernization and capital maintenance
efforts. Capital expenditures for fiscal year 1997 were higher than expected due
in part to costs associated with the reline and repair of the No. 1 and No. 2
blast furnaces and the related stoves. Capital expenditures for fiscal year 1998
are estimated at $39 million, which includes completion of the rolling mill
finishing stand modernization project, implementation of new business and
financial software and various other projects designed to reduce costs and
increase product quality and throughput. The Company has selected and started
the implementation of SAP software, an enterprise-wide business system. It's
expected that the Company will benefit significantly from such implementation,
including addressing the year 2000 issue inherent in its legacy systems. The
implementation is estimated to cost $8 to $10 million with portions being
implemented during a two year period. 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 has formed a limited liability company with certain unrelated
parties, which in turn has entered into a cooperative agreement with the United
States Department of Energy ("DOE") for the demonstration of a cokeless
ironmaking facility and associated power generation and air separation
facilities. As of September 30, 1997, the Company had spent (net of DOE
reimbursement) approximately $0.9 million in connection with the project, which
has been included in construction in progress in the accompanying consolidated
financial statements. Expenditures on the project are subject to government cost
sharing 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 and expense other funds included
in construction in progress in the event the project is terminated.
LEGAL MATTERS
On February 25, 1997, the Company filed a complaint in the Fourth Judicial
District Court for Utah County, State of Utah, against Commerce & Industry
Insurance Co.
29
<PAGE> 27
("C&I"), a New York corporation. A First Amended Complaint was filed and served
on April 9, 1997, alleging that C&I had breached its insurance contract with
Geneva by failing to pay on Geneva's claim for the loss it incurred on January
25 and 26, 1996 when it lost its internal generator. C&I removed the case to the
United States District Court for the District of Utah on May 1, 1997. Upon C&I's
formal request for additional investigation, Geneva stipulated with C&I on June
6, 1997, to stay the litigation until October 31, 1997, to provide C&I
additional time to review documents and interrogate witnesses. That
investigation continued until September, 1997. During early October, Geneva had
several meetings with C&I in an attempt to resolve the case and assess the
strength of the case.
On October 15, 1997, C&I provided a formal response to the claim in which it
declined coverage as an excluded peril under the policy, relying on, among other
defenses, an exclusion for "power, heating or cooling failure."
Pursuant to the June 1997 stipulation, C&I answered the First Amended Complaint
on October 31, 1997, denying most of the substantive factual allegations in the
First Amended Complaint and asserting as an affirmative defense, among others,
that Geneva's loss was excluded from coverage. On November 24, 1997, Geneva
filed a Second Amended Complaint against C&I, adding claims seeking relief for
breach of contractual implied covenant of good faith and fair dealing, and bad
faith--intentional and outrageous tortious conduct and oppression. C&I's answer
or other response to the Second Amended Complaint must be filed December 26,
1997. Geneva requested the Court to require that discovery be completed within
approximately six months and the trial be held as soon thereafter as the Court's
schedule would allow. C&I requested the Court to allow discovery until June 1,
1999 and require that the case be ready for trial after October 1, 1999. At a
Scheduling Conference, the Court set trial beginning July 2, 1999. The Court has
set May 1, 1998 as a deadline for dispositive motions on initial coverage issues
and required that all discovery be completed by January 15, 1999. The parties
are presently involved in resolving discovery issues and proceeding with
discovery. The Company intends vigorously to pursue its claims.
In addition, to the insurance claim described above, 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
results 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 has incurred substantial capital expenditures for environmental
control facilities, including the Q-BOP furnaces, the wastewater treatment
facility, the ben-
30
<PAGE> 28
zene mitigation equipment, the coke oven gas desulfurization facility and other
projects. The Company has budgeted a total of approximately $2.3 million for
environmental capital improvements in fiscal years 1998 and 1999. 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"), the 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 Preexisting 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
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.
31
<PAGE> 29
PURCHASE COMMITMENTS
On February 10, 1989, the Company entered into an agreement which was
subsequently amended on July 1, 1997, to purchase interruptible and firm back-up
power through February 28, 2002. For interruptible power, the Company pays an
energy charge adjusted annually to reflect changes in the supplier's average
energy costs and a facilities charge, based on a minimum of 110,000 kilowatts,
adjusted annually to reflect changes in the supplier's per megawatt fixed
transmission investment and expenses.
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 nine-year agreement to
purchase metallurgical coke, which was subsequently amended on April 11, 1996.
The Company has committed to purchase approximately 275,000 and 229,000 net tons
of coke at specified prices in the fourth and fifth contract years,
respectively. 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,
which was amended on July 25, 1997, to purchase taconite pellets. The Company
has commitments to purchase 2,700,000 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 constructed at the Company's steel mill
which will be owned and operated by an independent party. The new plant was
completed in mid 1997. The Company pays a monthly facility charge which is
adjusted semi-annually each January 1 and July 1 based on an index. The contract
continues through mid 2012.
Effective June 10, 1997, the Company entered into an agreement to purchase 100%
of the oxygen, nitrogen and argon produced at a facility that is owned and
operated by an independent party. The contract expires in September 2002 and
specifies that the Company will pay a monthly facility charge that is adjusted
semi-annually each January 1 and July 1 based upon a percentage of the change in
the PPI.
During the period from September 1, 1997 through December 1, 1997, the Company
entered into various agreements to purchase in the aggregate, 39,500 MMBtu's per
day of firm natural gas. The agreements expire between August 1998 and October
1998. The Company expects to extend or replace these agreements as they expire.
The price for most of such gas is adjusted monthly based on the index price as
reported by "Inside FERC Gas Market Report."
32
<PAGE> 30
Effective November 1, 1997, the Company entered into an agreement to purchase
firm natural gas transportation service for 35,000 decatherms per day for
November 1997 through March 1998 and thereafter from the startup of new
facilities being constructed by an independent party for a period of five years.
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
noncancelable operating leases at September 30, 1997, were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- -------------------------
<S> <C>
1998 $ 9,106
1999 8,587
2000 7,615
2001 7,386
2002 5,269
Thereafter 26,582
-------
$64,545
=======
</TABLE>
Total rental expense for non-cancelable operating leases was approximately $9.9
million, $6.0 million and $3.9 million for the years ended September 30, 1997,
1996 and 1995, respectively.
LETTERS OF CREDIT
As of September 30, 1997, the Company had outstanding letters of credit totaling
approximately $9.9 million.
6. REDEEMABLE PREFERRED STOCK
In March 1993, the Company issued $40 million 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, 1997.
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. For dividend periods ending before April 1996, the Company
had the option to add dividends to the liquidation preference in lieu of payment
in cash. Prior to April 1996, the Company elected to add the dividends to the
liquidation preference. As of September 30, 1997 and 1996, the liquidation value
of the Redeemable Preferred Stock was $60.4 million. 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
33
<PAGE> 31
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 Revolving Credit Facility.
Restricted payment limitations under the Company's Senior Notes precluded
payment of the quarterly preferred stock dividends beginning with the dividend
due June 15, 1996. Unpaid dividends were approximately $14.3 million at
September 30, 1997. Unpaid dividends accumulate until paid and accrue additional
dividends at a rate of 14% per annum. As a result of the Company's inability to
pay four full quarterly dividends, the holders of the Redeemable Preferred Stock
elected two directors on May 30, 1997. 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 the Company's 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 million at September 30, 1997. The Company
estimates that the aggregate fair market value of its warrants to purchase Class
A common stock was approximately $1.1 million at September 30, 1997. 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. On March 26, 1997, certain of these stock options were repriced at
$7.75 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
34
<PAGE> 32
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.
Effective December 18, 1996, the Company's Board of Directors adopted the Geneva
Steel Company 1996 Incentive Plan (the "Incentive Plan") which was approved by
the Company's shareholders in February 1997. The Incentive Plan provides that
1,500,000 shares of class A common stock will be available for the grant of
options or awards.
The Incentive Plan is administered by a committee consisting of at least two
non-employee directors of the company (the "Committee"). The Committee
determines, among other things, the eligible employees, the number of options
granted and the purchase price, terms and conditions of each award, provided
that the term does not exceed ten years. The per share purchase price may not be
less than 80 percent of the fair market value on the date of grant.
The Incentive Plan also provides for the non-discretionary grant of options to
each of its non-employee directors ("Director Options"). Each non-employee
director who becomes a director after January 1, 1997 shall be granted a
Director Option of 4,000 shares upon election or appointment. In addition,
annually on the first business day on or after January 1 of each calendar year
that the Incentive Plan is in effect, all non-employee directors who are members
of the Board at that time shall be granted a Director Option of 2,000 shares;
provided, however, that a director shall not be entitled to receive an annual
grant during the year elected or appointed. Director Options will be granted at
a purchase price equal to the fair market value of the shares on the date of
grant. Director Options vest at 40 percent on the second anniversary of the date
of grant and an additional 20 percent on the third, fourth and fifth
anniversaries of the date of grant, provided that the director remains in
service as a director on each date. The Director Options generally have a ten
year term.
Stock option activity for the years ended September 30, 1997, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding at September 30, 1994............ 621,400 $8.24
Granted.................................... 129,700 7.75
Cancelled.................................. (1,200) 7.82
--------- -----
Outstanding at September 30, 1995............ 749,900 8.15
Granted.................................... 173,438 3.80
Cancelled.................................. (15,825) 7.80
--------- -----
Outstanding at September 30, 1996............ 907,513 7.33
Granted.................................... 810,000 2.25
Cancelled.................................. (90,850) 4.97
--------- -----
Outstanding at September 30, 1997............ 1,626,663 $4.93
========= =====
</TABLE>
Options to purchase 565,275, 459,320 and 356,920 shares of Class A common stock
were exercisable on September 30, 1997, 1996 and 1995, respectively. As of
35
<PAGE> 33
September 30, 1997, 999,087 shares of Class A common stock are available for
grant under the plans.
The Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock option plans. Had compensation expense
for the Company's stock option plans been determined in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and loss per common share would have been increased to the
pro forma amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Net loss as reported............................... $(1,268) $(7,238)
Net loss pro forma................................. (1,650) (7,292)
Net loss per common share as reported.............. $ (.74) $ (1.07)
Net loss per common share pro forma................ (.77) (1.07)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
The fair value of each option grant has been estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1997 and 1996, in calculating compensation cost: expected stock price
volatility of 60.8% for both years, an average risk free interest rate of
approximately 6.25 percent and expected lives ranging between three years to
seven years for 1997 and seven years for 1996.
The weighted average fair value of options granted during fiscal years 1997 and
1996 was $2.25 and $3.80. At September 30, 1997, the 1,626,663 options
outstanding have exercise prices between $2.25 and $10.91 with a weighted
average exercise price of $4.93 and a weighted average remaining contractual
life of 7.1 years. 565,275 of these options are exercisable with a weighted
average exercise price of $8.26.
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 in shares of class A common
stock at 25% up to 4%
36
<PAGE> 34
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,
1997 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 the Company contributed 4% of each participant's
compensation to this plan. Total contributions by the Company for both plans for
the years ended September 30, 1997, 1996 and 1995 were $5.1 million, $4.5
million and $3.5 million, 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 retirees covered by the collective bargaining agreement.
Company cash 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 in shares of Class A common stock up to 4% of their
compensation during fiscal years 1997, 1996 and 1995. For the pension plan, the
Company contributed 5% of each participant's compensation to this plan from
March 1, 1996 through September 30, 1997 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, the Company
contributed 4% of each participant's compensation to this plan. During the years
ended September 30, 1997, 1996 and 1995, total contributions by the Company were
$2.2 million, $2.1 million and $2.0 million, respectively. The participants vest
in the Company's contributions at 20% for each year of service until fully
vested after five years.
37
<PAGE> 35
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, 1997, 1996 and 1995.
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, 1997,
1996 and 1995, performance dividend plan expenses were $9.6 million, $9.2
million and $6.4 million, 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.
9. RELATED PARTY 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, October 4, 1996
and December 23, 1996 the Company loaned $250,000, $210,000 and $40,000,
respectively. On February 13, 1997, the Company authorized an increase in the
loan amount to $700,000 and advanced an additional $200,000. The loan is
evidenced by a promissory note which bears interest at the rate of 8.53% and was
payable at the earlier of September 27, 1997 or demand for repayment by the
Company. On October 17, 1997, the Chief Executive Officer paid $240,000 on the
note and the payment date of the note was extended to April 30, 1998. On
December 17, 1997, the Chief Executive Officer paid an additional $400,000 on
the note. The loan is secured by interests in real and personal property owned
by the Chief Executive Officer and an affiliated entity.
38
<PAGE> 36
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly financial information for the years ended
September 30, 1997 and 1996 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 QUARTERS FIRST SECOND THIRD FOURTH
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............... $169,741 $182,961 $194,089 $179,878
Gross margin............ 12,930 7,921 20,732 19,108
Net income (loss)....... (1,410) (5,504) 3,962 1,684
Net income (loss)
applicable to common
shares................ (3,871) (8,046) 1,337 (1,028)
Net income (loss) per
common share.......... (.25) (.52) .08 (.06)
</TABLE>
<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
</TABLE>
39
<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
Salt Lake City, Utah
December 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 60,163
<ALLOWANCES> 4,564
<INVENTORY> 100,081
<CURRENT-ASSETS> 169,347
<PP&E> 672,331
<DEPRECIATION> (214,016)
<TOTAL-ASSETS> 646,070
<CURRENT-LIABILITIES> 102,284
<BONDS> 399,906
56,169
0
<COMMON> 88,642
<OTHER-SE> (6,039)
<TOTAL-LIABILITY-AND-EQUITY> 646,070
<SALES> 726,669
<TOTAL-REVENUES> 726,669
<CGS> 665,978
<TOTAL-COSTS> 665,978
<OTHER-EXPENSES> 22,487
<LOSS-PROVISION> 6,558
<INTEREST-EXPENSE> 40,245
<INCOME-PRETAX> (2,041)
<INCOME-TAX> (773)
<INCOME-CONTINUING> (1,268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,268)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
