<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File #1-10459
GENEVA STEEL COMPANY
(Exact name of registrant as specified in its charter)
UTAH 93-0942346
(State of Incorporation) (I.R.S. Employer Identification No.)
10 South Geneva Road
Vineyard, Utah
(Address of principal executive offices)
84058
(Zip Code)
Registrant's telephone number, including area code: (801) 227-9000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[X] No[ ]
Indicate the number of shares outstanding of each class of the issuer's common
stock, as of the latest practicable date.
15,930,186 and 9,237,158 shares of Class A and Class B common stock,
respectively, outstanding as of May 12, 2000.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------- -------------
<S> <C> <C>
Current assets:
Cash $ -- $ --
Accounts receivable, net 9,366 15,196
Inventories 54,747 55,460
Deferred income taxes 12,236 14,609
Prepaid expenses and other 7,134 4,584
--------- ---------
Total current assets 83,483 89,849
--------- ---------
Property, plant and equipment:
Land 1,792 1,990
Buildings 16,094 16,119
Machinery and equipment 632,911 645,943
Mineral property and development costs 1,000 1,000
--------- ---------
651,797 665,052
Less accumulated depreciation (298,172) (292,035)
--------- ---------
Net property, plant and equipment 353,625 373,017
--------- ---------
Other assets 11,730 11,850
--------- ---------
$ 448,838 $ 474,716
========= =========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 2 of 25
<PAGE> 3
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
Liabilities not subject to compromise:
Revolving credit facility $ 32,850 $ 55,466
Accounts payable 17,577 16,334
Accrued liabilities 15,866 18,209
Accrued payroll and related taxes 6,887 7,444
Accrued pension and profit sharing costs 2,195 963
--------- ---------
Total current liabilities 75,375 98,416
--------- ---------
Liabilities subject to compromise:
Senior notes 325,000 325,000
Accounts payable 56,357 56,633
Accrued dividends payable 28,492 28,492
Accrued interest payable 15,409 15,409
Accrued liabilities 3,121 3,404
--------- ---------
428,379 428,938
--------- ---------
Long-term employee defined benefits 10,731 10,731
--------- ---------
Deferred income tax liabilities 12,236 14,609
--------- ---------
Redeemable preferred stock 56,377 56,001
--------- ---------
Stockholders' deficit:
Preferred stock -- --
Common stock:
Class A 96,277 92,022
Class B 9,741 9,741
Warrants to purchase Class A
common stock -- 4,255
Accumulated deficit (240,278) (239,997)
--------- ---------
Total stockholders' deficit (134,260) (133,979)
--------- ---------
$ 448,838 $ 474,716
========= =========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 3 of 25
<PAGE> 4
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 149,724 $ 59,345
Cost of sales 144,161 90,904
--------- ---------
Gross margin 5,563 (31,559)
Selling, general and administrative
expenses 3,819 4,968
--------- ---------
Income (loss) from operations 1,744 (36,527)
--------- ---------
Other income (expense):
Interest and other income 45 212
Interest expense (total contractual
interest of $9,773 and $10,325 in 2000
and 1999, respectively) (1,506) (4,814)
Gain on asset sales 3 --
--------- ---------
(1,458) (4,602)
--------- ---------
Income (loss) before reorganization
item and benefit for income taxes 286 (41,129)
Reorganization item 1,952 1,150
--------- ---------
Loss before benefit for income taxes (1,666) (42,279)
Benefit for income taxes -- --
--------- ---------
Net loss (1,666) (42,279)
Less redeemable preferred stock dividends
and accretion for original issue discount 188 1,266
--------- ---------
Net loss applicable to common
shares $ (1,854) $ (43,545)
========= =========
Basic and diluted net loss per common
share $ (.11) $ (2.68)
========= =========
Basic and diluted weighted average common
shares outstanding 16,854 16,228
========= =========
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
Page 4 of 25
<PAGE> 5
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 275,894 $ 138,045
Cost of sales 271,025 199,142
--------- ---------
Gross margin 4,869 (61,097)
Selling, general and administrative
expenses 7,168 14,671
--------- ---------
Loss from operations (2,299) (75,768)
--------- ---------
Other income (expense):
Interest and other income 98 238
Interest expense (total contractual
interest of $19,525 and $21,046 in
2000 and 1999, respectively) (2,990) (15,535)
Gain on asset sales 8,352 119
--------- ---------
5,460 (15,178)
--------- ---------
Income (loss) before reorganization
item and provision (benefit) for
income taxes 3,161 (90,946)
Reorganization item 3,066 1,150
--------- ---------
Income (loss) before provision (benefit)
for income taxes 95 (92,096)
Provision (benefit) for income taxes -- --
--------- ---------
Net income (loss) 95 (92,096)
Less redeemable preferred stock dividends
and accretion for original issue discount 376 4,457
--------- ---------
Net loss applicable to common shares $ (281) $ (96,553)
========= =========
Basic and diluted net loss per common share $ (.02) $ (5.98)
========= =========
Basic and diluted weighted average common
shares outstanding 16,854 16,134
========= =========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 5 of 25
<PAGE> 6
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 95 $(92,096)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 21,281 22,216
Amortization 395 1,464
Gain on asset sales (8,352) (119)
(Increase) decrease in current
assets--
Accounts receivable, net 5,830 46,132
Inventories 713 28,621
Prepaid expenses and other (2,550) (658)
Increase (decrease) in current
liabilities--
Accounts payable (141) 2,177
Accrued liabilities (2,626) (8,204)
Accrued payroll and related taxes (557) (1,204)
Accrued interest payable -- 10,329
Accrued pension and profit
sharing costs 1,232 15
-------- --------
Net cash provided by operating
activities 15,320 8,673
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,134) (6,288)
Proceeds from sale of property, plant and
equipment 8,597 137
-------- --------
Net cash provided by (used for)
investing activities $ 6,463 $ (6,151)
-------- --------
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 6 of 25
<PAGE> 7
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Borrowings from credit facilities $ 2,774 $ 13,010
Payments on credit facilities (25,390) (4,817)
Payment of deferred loan costs (275) (1,331)
Change in bank overdraft 1,108 (1,476)
-------- --------
Net cash provided by (used for)
financing activities (21,783) 5,386
-------- --------
Net change in cash -- 7,908
Cash at beginning of period -- --
-------- --------
Cash at end of period $ -- $ 7,908
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 2,990 $ 3,742
</TABLE>
Supplemental schedule of noncash financing activities:
For the six months ended March 31, 2000 and 1999, the Company increased the
redeemable preferred stock by $376 and $282, respectively, for the accretion
required over time to amortize the original issue discount on the redeemable
preferred stock incurred at the time of issuance. At March 31, 2000, the
Company had accrued dividends payable of $28,492 (total contractual
dividends of $43,666).
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 7 of 25
<PAGE> 8
GENEVA STEEL COMPANY
DEBTOR-IN-POSSESSION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) VOLUNTARY FILING FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY
CODE
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results
since fiscal year 1998 have been severely affected by, among other things, the
dramatic surge in steel imports beginning in 1998. As a consequence of
record-high levels of low-priced steel imports and the resultant deteriorating
market conditions, the Company's overall price realization and shipments
declined precipitously. Decreased liquidity made it impossible for the Company
to service its debt and fund ongoing operations. Therefore, the Company sought
protection under Chapter 11 of the Bankruptcy Code. Prior to the bankruptcy
filing, the Company did not make the $9 million interest payment due January 15,
1999 under the terms of the Company's 9 1/2% senior notes due 2004. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the 9 1/2% senior notes due 2004 and the
11 1/8% senior notes due 2001 (collectively, the "Senior Notes"), except
pursuant to a confirmed plan of reorganization. The Company is in possession of
its properties and assets and continues to manage its business as debtor-in-
possession subject to the supervision of the Bankruptcy Court. The Company has a
$125 million debtor-in-possession credit facility in place.
As of February 1, 1999, the Company discontinued accruing interest on
its Senior Notes and dividends on its redeemable preferred stock. Contractual
interest on the Senior Notes for the three months ended March 31, 2000 was $8.3
million, which is not included in the accompanying financial statements.
Contractual dividends on the redeemable preferred stock for the three months
were $3.5 million, which is also not included in the financial statements. As of
March 31, 2000, contractual accrued dividends on the redeemable preferred stock
were approximately $43.7 million, which is $15.2 million in excess of dividends
accrued in the accompanying balance sheet.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Company's liabilities as of the petition date or to
enforce pre-petition contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying pre-
petition obligations. However, the Bankruptcy Court has approved payment of
certain pre-petition obligations such as employee wages and benefits.
Additionally, the Bankruptcy Court has approved the retention of legal and
financial professionals. As a debtor-in-possession, the Company has the right,
subject to Bankruptcy Court approval and certain other conditions, to assume or
reject any pre-petition executory contracts and unexpired leases. Parties
affected by such rejections may file pre-petition claims with the Bankruptcy
Court in accordance with bankruptcy procedures.
Page 8 of 25
<PAGE> 9
The Company is currently developing a plan of reorganization (the "Plan
of Reorganization") through, among other things, discussions with the official
creditor committees established in the Chapter 11 proceeding. The objective of
the Plan of Reorganization is to restructure the Company's balance sheet to (i)
significantly strengthen the Company's financial flexibility throughout the
business cycle, (ii) fund required capital expenditures and working capital
needs, and (iii) fulfill those obligations necessary to facilitate emergence
from Chapter 11. In conjunction with formulating the Plan of Reorganization, the
Company, with its lender, filed an application on January 31, 2000 for a
government loan guarantee under the Emergency Steel Loan Guarantee Program (the
"Loan Guarantee Program"). The application seeks a government loan guarantee for
$110 million, which is a portion of the financing required to consummate the
Plan of Reorganization. The Plan of Reorganization also contemplates that the
Company will establish a revolving credit facility as well as receive an equity
infusion of $25 million through issuance of a preferred stock that will be
mandatorily convertible into common stock. There can be no assurance that the
Company's application under the Loan Guarantee Program will be accepted or that,
with or without a guarantee, the Company can obtain the necessary financing to
consummate the Plan of Reorganization.
Although management expects to file the Plan of Reorganization, there
can be no assurance at this time that the Plan of Reorganization will be
proposed by the Company, approved or confirmed by the Bankruptcy Court, or that,
if proposed, approved, confirmed and consummated, such plan will achieve the
objectives described above. The Bankruptcy Court has granted the Company's
request to extend its exclusive right to file a Plan of Reorganization through
May 30, 2000. Recently, the Company filed a motion seeking an extension through
July 31, 2000 of the exclusivity period for filing a plan and through September
26, 2000 for obtaining acceptances of a plan. If the exclusivity period were to
expire or be terminated prior to confirmation of the Plan of Reorganization,
other interested parties, such as creditors of the Company, would have the right
to propose alternative plans of reorganization.
Although the Chapter 11 bankruptcy filing raises substantial doubt about
the Company's ability to continue as a going concern, the accompanying financial
statements have been prepared on a going concern basis. This basis contemplates
the continuity of operations, realization of assets, and discharge of
liabilities in the ordinary course of business. The accompanying financial
statements also present the assets of the Company at historical cost and the
current intention that they will be realized as a going concern and in the
normal course of business. A plan of reorganization will materially change
certain amounts currently disclosed in the financial statements.
The accompanying financial statements do not present the amount which
may ultimately be paid to settle liabilities and contingencies which may be
allowed in the Chapter 11 bankruptcy case. Under Chapter 11 bankruptcy, the
rights of, and ultimate payment by the Company to, pre-petition creditors may be
substantially altered. This will likely result in such claims being paid in the
Chapter 11 bankruptcy proceedings at substantially less than 100% of their face
value. At this time, because of material uncertainties, pre-petition claims are
generally carried at their face value in the accompanying financial statements.
Moreover, the interests of existing preferred and common shareholders could,
among other things, be eliminated. Management currently
Page 9 of 25
<PAGE> 10
anticipates that the Plan of Reorganization will be completed and ready to file
with the Bankruptcy Court during mid 2000. The Plan of Reorganization will be
premised on the Company being approved for a guarantee under the Loan Guarantee
Program, and the Company will likely not file its Plan of Reorganization until a
decision on the loan guarantee application has been announced. There can be no
assurance as to the actual timing for the filing of the Plan of Reorganization
or the approval thereof by the Bankruptcy Court, if at all.
(2) INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the U.S. have been condensed or omitted pursuant to such rules and
regulations. The accompanying unaudited condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial position
and results of operations of the Company.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
(3) INVENTORIES
Inventories were comprised of the following components (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
Raw materials $21,584 $17,081
Semi-finished and finished goods 29,817 33,762
Operating materials 3,346 4,617
------- -------
$54,747 $55,460
======= =======
</TABLE>
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated based upon the
weighted average number of common shares outstanding during the periods. Diluted
net income (loss) per common share is calculated based upon the weighted average
number of common shares outstanding plus the assumed exercise of all dilutive
securities using the treasury stock method. For the three and six months ended
March 31, 2000 and 1999, stock options and warrants prior to conversion are not
included in the calculation of diluted net loss per common share because their
inclusion would be antidilutive. Class B common stock is included in the
weighted average number of common shares outstanding at one share for every ten
shares outstanding because the Class B common stock is convertible to Class A
common stock at this same rate.
Page 10 of 25
<PAGE> 11
The net income (loss) for the three and six months ended March 31, 2000
was adjusted for the accretion required over time to amortize the original issue
discount on the redeemable preferred stock incurred at the time of issuance. The
net loss for the three and six months ended March 31, 1999, was adjusted for the
accretion required over time to amortize the original issue discount on the
redeemable preferred stock incurred at the time of issuance and redeemable
preferred stock dividends through January 31, 1999.
(5) TERMINATION OF MANNESMANN SALES REPRESENTATION AGREEMENT
In March 2000, the Company entered into an agreement with Mannesmann
Pipe and Steel ("Mannesmann") to terminate its sales representation agreement.
Termination of the agreement with Mannesmann will begin July 1, 2000, with a 90
day phase out of the liquidity arrangement. The Company estimates that
termination of the liquidity arrangement will reduce the liquidity otherwise
available to the Company by approximately $15 million. With the cooperation of
Mannesmann, the Company has extended employment offers to certain Mannesmann
employees currently involved in marketing the Company's products. While the
Company believes that the Mannesmann arrangement can be terminated without
material disruptions to its marketing efforts, there can be no assurance that
the termination will not have a material adverse effect on the Company's
marketing efforts, liquidity position or financial condition.
Page 11 of 25
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results
since fiscal year 1998 have been severely affected by, among other things, the
dramatic surge in steel imports beginning in 1998. As a consequence of
record-high levels of low-priced steel imports and the resultant deteriorating
market conditions, the Company's overall price realization and shipments
declined precipitously. Decreased liquidity made it impossible for the Company
to service its debt and fund ongoing operations. Therefore, the Company sought
protection under Chapter 11 of the Bankruptcy Code. Prior to the bankruptcy
filing, the Company did not make the $9 million interest payment due January 15,
1999 under the terms of the Company's 9 1/2% senior notes due 2004. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the 9 1/2% senior notes due 2004 and the
11 1/8% senior notes due 2001 (collectively, the "Senior Notes"), except
pursuant to a confirmed plan of reorganization. The Company is in possession of
its properties and assets and continues to manage its business as debtor-in-
possession subject to the supervision of the Bankruptcy Court. The Company has a
$125 million debtor-in-possession credit facility in place. (See "Liquidity and
Capital Resources.")
As of February 1, 1999, the Company discontinued accruing interest on
the Senior Notes and dividends on its redeemable preferred stock. Contractual
interest on the Senior Notes for the three months ended March 31, 2000 was $8.3
million, which is not included in the Company's financial statements.
Contractual dividends on the redeemable preferred stock for the three months
were $3.5 million, which is also not included in the Company's financial
statements. As of March 31, 2000, contractual accrued dividends on the
redeemable preferred stock were approximately $43.7 million, which is $15.2
million in excess of dividends accrued in the Company's balance sheet.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Company's liabilities as of the petition date or to
enforce pre-petition contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying pre-
petition obligations. However, the Bankruptcy Court has approved payment of
certain pre-petition obligations such as employee wages and benefits.
Additionally, the Bankruptcy Court has approved the retention of legal and
financial professionals. As a debtor-in-possession, the Company has the right,
subject to Bankruptcy Court approval and certain other conditions, to assume or
reject any pre-petition executory contracts and unexpired leases. Parties
affected by such rejections may file pre-petition claims with the Bankruptcy
Court in accordance with bankruptcy procedures.
The Company is currently developing a plan of reorganization (the "Plan
of Reorganization") through, among other things, discussions with the official
creditor committees established in the Chapter 11 proceeding. The objective
Page 12 of 25
<PAGE> 13
of the Plan of Reorganization is to restructure the Company's balance sheet to
(i) significantly strengthen the Company's financial flexibility throughout the
business cycle, (ii) fund required capital expenditures and working capital
needs, and (iii) fulfill those obligations necessary to facilitate emergence
from Chapter 11. In conjunction with formulating the Plan of Reorganization, the
Company, with its lender, filed an application on January 31, 2000 for a
government loan guarantee under the Emergency Steel Loan Guarantee Program (the
"Loan Guarantee Program"). The application seeks a government loan guarantee for
$110 million, which is a portion of the financing required to consummate the
Plan of Reorganization. The Plan of Reorganization also contemplates that the
company will establish a revolving credit facility as well as receive an equity
infusion of $25 million through issuance of a preferred stock that will be
mandatorily convertible into common stock. There can be no assurance that the
Company's application under the Loan Guarantee Program will be accepted or that,
with or without a guarantee, the Company can obtain the necessary financing to
consummate the Plan of Reorganization.
Although management expects to file the Plan of Reorganization, there
can be no assurance at this time that the Plan of Reorganization will be
proposed by the Company, approved or confirmed by the Bankruptcy Court, or that,
if proposed, approved, confirmed and consummated, such plan will achieve the
objectives described above. The Bankruptcy Court has granted the Company's
request to extend its exclusive right to file a Plan of Reorganization through
May 30, 2000. Recently, the Company filed a motion seeking an extension through
July 31, 2000 of the exclusivity period for filing a plan and through September
26, 2000 for obtaining acceptances of a plan. If the exclusivity period were to
expire or be terminated prior to the confirmation of the Plan of Reorganization,
other interested parties, such as creditors of the Company, would have the right
to propose alternative plans of reorganization.
Although the Chapter 11 bankruptcy filing raises substantial doubt about
the Company's ability to continue as a going concern, the Company's financial
statements have been prepared on a going concern basis. This basis contemplates
the continuity of operations, realization of assets, and discharge of
liabilities in the ordinary course of business. The financial statements also
present the assets of the Company at historical cost and the current intention
that they will be realized as a going concern and in the normal course of
business. A plan of reorganization will materially change certain amounts
currently disclosed in the Company's financial statements.
The Company's financial statements do not present the amount which may
ultimately be paid to settle liabilities and contingencies which may be allowed
in the Chapter 11 bankruptcy case. Under Chapter 11 bankruptcy, the rights of,
and ultimate payment by the Company to, pre-petition creditors may be
substantially altered. This will likely result in such claims being paid in the
Chapter 11 bankruptcy proceedings at substantially less than 100% of their face
value. At this time, because of material uncertainties, pre-petition claims are
generally carried at their face value in the financial statements. Moreover, the
interests of existing preferred and common shareholders could, among other
things, be eliminated. Management currently anticipates that the Plan of
Reorganization will be completed and ready to file with the Bankruptcy Court
during mid 2000. The Plan of Reorganization will be premised on the Company
being approved for a loan guarantee under the Loan Guarantee Program,
Page 13 of 25
<PAGE> 14
and the Company will likely not file its Plan of Reorganization until a decision
on the loan guarantee has been announced. There can be no assurance as to the
actual timing for the filing of the Plan of Reorganization or the approval
thereof by the Bankruptcy Court, if at all.
Results of Operations
The following table sets forth the percentage relationship of certain
cost and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 96.3 153.2 98.2 144.3
------ ------ ------ ------
Gross margin 3.7 (53.2) 1.8 (44.3)
Selling, general and
administrative expenses 2.5 8.4 2.6 10.6
------ ------ ------ ------
Income (loss) from operations 1.2 (61.6) (0.8) (54.9)
------ ------ ------ ------
Other income (expense):
Interest and other income -- 0.4 0.1 0.2
Interest expense (1.0) (8.1) (1.1) (11.3)
Gain on asset sales -- -- 3.0 0.1
------ ------ ------ ------
(1.0) (7.7) 2.0 (11.0)
Income (loss) before reorganization
item and provision (benefit) for
income taxes 0.2 (69.3) 1.2 (65.9)
Reorganization item 1.3 1.9 1.1 0.8
------ ------ ------ ------
Income (loss) before provision (benefit)
for income taxes (1.1) (71.2) 0.1 (66.7)
Provision (benefit) for income taxes -- -- -- --
------ ------ ------ ------
Net income (loss) (1.1)% (71.2)% 0.1% (66.7)%
====== ====== ====== ======
</TABLE>
The following table sets forth the sales product mix as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Plate 30.7% 62.8% 29.5% 63.5%
Sheet 53.3 13.4 53.8 13.1
Pipe 11.4 10.2 11.3 9.4
Slab 4.1 10.1 4.9 10.7
Non-Steel .5 3.5 0.5 3.3
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Page 14 of 25
<PAGE> 15
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Net sales increased 152.3% primarily due to increased shipments of
approximately 297,500 tons and higher average selling prices for the three
months ended March 31, 2000 as compared to the same period in the previous
fiscal year. The weighted average sales price (net of transportation costs) per
ton of sheet, plate, pipe and slab products increased by 19.6%, 2.2%, 19.9% and
15.9%, respectively, in the three months ended March 31, 2000 compared to the
previous fiscal year. Shipped tonnage of sheet, plate and pipe products
increased approximately 250,600 tons or 738.2%, 25,800 tons or 20.5% and 24,800
tons or 136.8%, respectively, while shipped tonnage of slab products decreased
approximately 3,700 tons or 11.3% between the two periods. As discussed below,
the changes in price, volume and product mix were primarily the result of
significantly improved market conditions due in part to the outcome of trade
cases filed in late 1998 and early 1999.
As a result of various trade cases, as well as improved market
conditions in several foreign economies, market conditions for the Company's
products have significantly improved. Both the Company's order entry and price
realization have improved significantly. Similarly, overall price realization
has increased despite a product mix shift to lower-priced sheet. The timing and
magnitude of the recent volume and pricing improvements are generally consistent
with market recoveries following the success of previously-filed trade cases.
Recently, President Clinton announced the relief granted under the section 201
trade case with respect to certain imported line pipe. The Company expects that
the relief granted will have a positive impact on the line pipe market. In
response to improving market conditions, the Company started a second blast
furnace in September 1999, and is currently operating at or near full capacity.
The Company expects in the near term that volume and pricing will remain
relatively stable, if not further improve. There can, however, be no assurance
that market conditions will continue to justify a full, two-blast furnace
operation or that pricing and order volumes will not decline.
As discussed above, the Company's overall price realization and
shipments have increased. The Company has recently implemented and announced
several price increases. Domestic competition, however, remains intense and
imported steel continues to adversely affect the market. Moreover, additional
production capacity is being added in the domestic market. The Company sells
substantially all of its products in the spot market at prevailing market
prices. The Company believes its percentage of such sales is higher than that of
most 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. There can be no assurance that the
Company will achieve or sustain the price increases it has implemented or
announced.
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 significantly
affected by fluctuations in the value of the United States dollar against
Page 15 of 25
<PAGE> 16
several other currencies, the level of demand for steel in the United States
economy relative to steel demand in foreign economies and world economic
conditions generally. 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.
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 96.3% for the three months ended March 31, 2000, as compared to
153.2% for the same period in the previous fiscal year. The overall average cost
of sales per ton shipped decreased approximately $147 per ton between the two
periods, primarily as a result of production efficiencies associated with
returning to a two-blast furnace operating level, reduced labor costs and a
shift in product mix to lower-cost coiled products. Operating costs per ton
decreased as production volume increased in part because fixed costs were
allocated over more tons.
The Company's pellet agreement with USX expired on December 31, 1999.
The Company is negotiating with USX regarding a new long-term pellet supply
contract and has reached an interim agreement with USX for a one-year supply
arrangement. Management believes that the Company will be able to complete a
longer-term pellet supply contract with USX or a substitute vendor. However,
there can be no assurance that such a contract can be completed or that USX will
continue to supply pellets to the Company. If the Company's pellet supply were
disrupted, the Company's operating results would be adversely affected.
Depreciation costs included in cost of sales decreased approximately
$0.6 million for the three months ended March 31, 2000, compared with the same
period in the previous fiscal year. This decrease was due to a slightly lower
asset base.
Selling, general and administrative expenses for the three months ended
March 31, 2000 decreased approximately $1.1 million as compared to the same
period in the previous fiscal year. These lower expenses were due primarily to
cost savings related to staff and support personnel reductions.
Interest expense decreased approximately $3.3 million during the three
months ended March 31, 2000 as compared to the same period in the previous
fiscal year. As of February 1, 1999, the Company discontinued accruing interest
on the Senior Notes. Interest expense on the Senior Notes of $2.8 million was
included in the three months ended March 31, 1999, which reflects accrued
interest prior to February 1, 1999. In addition, lower average borrowings
outstanding under the Company's revolving credit facility reduced interest
expense by approximately $0.5 million as compared to the same period in the
previous fiscal year.
During the three months ended March 31, 2000 and 1999, the Company
recorded approximately $1.9 million and $1.1 million, respectively, in
professional fees and expenses related to its Chapter 11 reorganization efforts.
These include the professional fees and expenses of the two official committees
established
Page 16 of 25
<PAGE> 17
in the bankruptcy proceeding. These expenses have been included in the
reorganization item in the condensed statements of operations.
SIX MONTHS ENDED MARCH 31, 2000 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1999
Net sales increased 99.9% primarily due to increased shipments of
approximately 485,400 tons and slightly higher average selling prices for the
six months ended March 31, 2000 as compared to the same period in the previous
fiscal year. The weighted average sales price (net of transportation costs) per
ton of sheet, pipe and slab products increased by 10.9%, 8.2%, and 17.2%,
respectively, while the weighted average sales price per ton of plate decreased
by 5.8% in the six months ended March 31, 2000 compared to the previous fiscal
year. Shipped tonnage of sheet and pipe products increased approximately 463,500
tons or 643.1% and 43,100 tons or 119.5%, respectively, while shipped tonnage of
slab products decreased approximately 4,000 tons or 1.4%, and 17,200 tons or
21.5%, respectively, between the two periods. The changes in price, volume and
product mix were primarily the result of improved market conditions due in part
to the outcome of the trade cases that were filed in late 1998 and early 1999.
The Company's cost of sales, as a percentage of net sales, decreased to
98.2% for the six months ended March 31, 2000, as compared to 144.3% for the
same period in the previous fiscal year. The overall average cost of sales per
ton shipped decreased approximately $142 per ton between the two periods,
primarily as a result of production efficiencies associated with returning to a
two-blast furnace operating level, reduced labor costs and a shift in product
mix to lower cost coiled products. Operating costs per ton decreased as
production volume increased in part because fixed costs were allocated over more
tons.
Depreciation costs included in cost of sales decreased approximately
$0.9 million for the six months ended March 31, 2000, compared with the same
period in the previous fiscal year. This decrease was due to a slightly lower
asset base.
Selling, general and administrative expenses for the six months ended
March 31, 2000 decreased approximately $7.5 million as compared to the same
period in the previous fiscal year. These lower expenses were due primarily to a
higher than usual reserve for the allowance for doubtful accounts of
approximately $4.0 million expensed during the six months ended March 31, 1999.
In addition, cost savings related to staff and support personnel reductions
reduced expenses during the current period.
Interest expense decreased approximately $12.5 million during the six
months ended March 31, 2000 as compared to the same period in the previous
fiscal year. As of February 1, 1999, the Company discontinued accruing interest
on the Senior Notes. Interest expense on the Senior Notes of approximately $11.0
million was included in the six months ended March 31, 1999, which reflects
accrued interest prior to February 1, 1999. In addition, lower average
borrowings outstanding under the Company's revolving credit facility in the six
months ended March 31, 2000 reduced interest expense by approximately $1.5
million as compared to the same period in the previous fiscal year.
Page 17 of 25
<PAGE> 18
During the six months ended March 31, 2000 and 1999, the Company
recorded approximately $3.1 million and $1.1 million, respectively, in
professional fees and expenses related to its Chapter 11 reorganization efforts.
These include the professional fees and expenses of the two official committees
established in the bankruptcy proceeding. These expenses have been included in
the reorganization item in the condensed statements of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from operating expenses,
capital expenditures and working capital requirements, including interest
payments. In the past, the Company's principal sources of capital have been from
the sale of equity; the incurrence of long-term indebtedness, including
borrowings under the Company's credit facilities; equipment lease financings;
asset sales and cash provided by operations. As of May 12, 2000, the Company's
eligible inventories, accounts receivable and equipment supported access to
$49.4 million in borrowings under the Company's credit facility. As of May 12,
2000, the Company had $22.0 million available under the credit facility, with
$25.0 million in borrowings and $2.4 million in letters of credit outstanding.
Besides the above-described financing activities, the Company's major
source of liquidity has been cash provided by operating activities. Net cash
provided by operating activities was $15.3 million for the six months ended
March 31, 2000, as compared with net cash provided by operating activities of
$8.7 million for the six months ended March 31, 1999. The sources of cash for
operating activities during the six months ended March 31, 2000 included net
income of $0.1 million, depreciation and amortization of $21.3 million, a
decrease in accounts receivable of $5.8 million, a decrease in inventories of
$0.7 million, and an increase in accrued pension and profit sharing costs of
$1.2 million. These sources of cash were substantially offset by a gain on asset
sales of $8.3 million, an increase in prepaid expenses of $2.5 million, a
decrease in accrued payroll and related taxes of $0.6 million and a decrease in
accrued liabilities of $2.6 million.
Mannesmann Pipe and Steel ("Mannesmann") sells the Company's products to
end customers at the same sales price Mannesmann pays the Company plus a
variable commission. Mannesmann pays the Company in approximately three days. In
addition, the Mannesmann agreement requires Mannesmann to purchase and pay for
the Company's finished goods inventory as soon as it has been assigned to or is
otherwise identified with a particular order. As of March 31, 2000, the Company
had received $12.3 million from Mannesmann for the purchase of finished goods
inventory assigned to discrete orders. When the funds are received for inventory
prior to shipment, the Company defers the revenue recognition until the
inventory is shipped. Therefore, until shipment occurs the Company records the
receipt of funds and a corresponding liability representative the deferred
revenue and/or inventory reduction for the cost of the inventory in its
financial statements. The Company remains responsible for customer credit and
product quality. In March 2000, the Company entered into an agreement with
Mannesmann to terminate its existing sales representation agreement. The
arrangement with Mannesmann will be terminated beginning July 1, 2000, with a 90
day phase out of the liquidity arrangement. The Company estimates that
termination of the liquidity arrangement will reduce the liquidity otherwise
available to the Company by approximately $15 million. With the cooperation
Page 18 of 25
<PAGE> 19
of Mannesmann, the Company has extended employment offers to certain Mannesmann
employees currently involved in marketing the Company's products. While the
Company believes that the Mannesmann arrangement can be terminated without
material disruption to its marketing efforts, there can be no assurance that the
termination will not have a material adverse effect on the Company's marketing
efforts, liquidity position or financial condition.
Since its bankruptcy filing, the Company has supplemented its liquidity
by the sale of certain non-core assets. During the first quarter of fiscal year
2000, the Company completed the sale of its quarry for $10.0 million ($1.5
million of which is contingent upon the future issuance, by the relevant
governmental entity, of a conditional use permit) and received $8.5 million in
October 1999. There can be no assurance that the conditional use permit will be
issued or that the Company will receive the additional $1.5 million of the sale
price. Pursuant to the sale, the Company entered into a contract with the buyer
of the quarry for the purchase of limestone to meet its production requirements
at a per ton price that is lower than the Company's historical production cost.
Capital expenditures were $2.1 million and $6.3 million for the six
months ended March 31, 2000 and 1999, respectively. Capital expenditures
(excluding the walking beam furnace discussed below) for fiscal year 2000 are
estimated at approximately $20 million, which includes spending on a blast
furnace reline, maintenance items and various projects designed to reduce costs
and increase product quality and throughput. In addition to expenditures under
the Company's $20 million capital budget, the Company has expended approximately
$1.1 million on a walking beam furnace since January 1, 2000. Depending upon
market conditions, operating results, the timing of the Company's Plan of
Reorganization and other factors affecting liquidity, the Company may spend as
much as $12 million more on the walking beam furnace during the remainder of the
fiscal year. The Company is continuing to closely monitor its capital spending
levels. Depending on market, operational, liquidity and other factors, the
Company may elect to adjust the design, timing and budgeted expenditures of its
capital plan.
YEAR 2000 ISSUES
The Company addressed its year 2000 information system issues and
believes it has realized a smooth transition into the year 2000. The Company
remedied a few minor year 2000 related problems without any adverse affects to
its operations or administrative functions. Through March 31, 2000, the Company
had capitalized approximately $9.0 million in costs to improve the Company's
information technology systems and for year 2000 readiness efforts. The costs
included consulting, implementation and transitioning to new computer hardware
and software for the SAP enterprise-wide business systems. Costs for training
and re-engineering efforts were expensed.
FACTORS AFFECTING FUTURE RESULTS
The Company's future operations will be impacted by, among other
factors, pricing, product mix, throughput levels and production efficiencies.
The Company has efforts underway to increase prices, shift its product mix and
Page 19 of 25
<PAGE> 20
improve throughput rates and production efficiencies. There can be no assurance
that the Company's efforts will be successful or that sufficient demand will
exist to support the Company's efforts. Pricing and shipment levels in future
periods are key variables to the Company's future operating results that remain
subject to significant uncertainty. These variables will be affected by several
factors including the level of imports, future capacity additions, product
demand and other competitive and market conditions. Furthermore, the Chapter 11
bankruptcy filing introduces numerous uncertainties which may affect the
Company's business, asset values, results of operations and prospects. Because
of the Company's bankruptcy filing and liquidity position, the Company's
financial flexibility is limited. Many of the foregoing factors, of which the
Company does not have complete control, may materially affect the performance,
financial condition and future results of the Company. Furthermore, a reversal
in the current market trend or a disruption in the Company's operations would
likely cause the Company to return to negative cash flow.
The short-term and long-term liquidity of the Company also is dependent
upon other factors, including continued access to the Company's credit facility;
vendor credit support; cash needs to fund working capital; the effect of the
termination of the Mannesmann agreement; availability of capital; foreign
currency fluctuations; capital expenditure requirements 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.
Inflation can be expected to have an effect on many of the Company's
operating costs and expenses. Due to worldwide competition in the steel
industry, the Company may not be able to pass through such increased costs to
its customers.
This report contains a number of forward-looking statements, including,
without limitation, statements contained in this report relating to the
Company's ability to compete against imports and the effect of imports and trade
cases on the domestic market, the Company's ability to improve and optimize
operations as well as maintaining its on-time delivery and customer service, the
Company's ability to compete with the additional production capacity being added
in the domestic market, the Company's ability to successfully reorganize under
Chapter 11 of the Bankruptcy Code (including the development and timing of the
Plan of Reorganization), the outcome of the Company's application under the Loan
Guarantee Program, the Company's expectation that prices and shipments will
improve, the production efficiencies of a two-blast furnace operation, the
Company's ability to obtain a long-term pellet supply contract, the Company's
objective to increase higher- margin sales, the Company's continued access to
and adequacy of the Credit Facility, the commercial and liquidity impact of
terminating the Mannesmann agreement, the level of future required capital
expenditures, the effect of inflation and any other statements contained herein
to the effect that the Company or its management "believes," "expects,"
"anticipates," "plans" or other similar expressions. There are a number of
important factors that could cause actual events or the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those described herein.
Page 20 of 25
<PAGE> 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in interest rates related
to the Company's credit facility. Variable interest rates may rise, which could
increase the amount of interest expense. At March 31, 2000, the Company had
variable rate debt outstanding from its credit facilities totaling $32.9
million. The impact of market risk is estimated using a hypothetical increase in
interest rates of one percentage point for the Company's variable rate credit
facility. Based on this hypothetical assumption, the Company would have incurred
approximately an additional $83,000 in interest expense for the three months
ended March 31, 2000.
Page 21 of 25
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results
since fiscal year 1998 have been severely affected by, among other things, the
dramatic surge in steel imports beginning in 1998. As a consequence of
record-high levels of low-priced steel imports and the resultant deteriorating
market conditions, the Company's overall price realization and shipments
declined precipitously. Decreased liquidity made it impossible for the Company
to service its debt and fund ongoing operations. Therefore, the Company sought
protection under Chapter 11 of the Bankruptcy Code. Prior to the bankruptcy
filing, the Company did not make the $9 million interest payment due January 15,
1999 under the terms of the Company's 9 1/2% senior notes due 2004. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the 9 1/2% senior notes due 2004 and the
11 1/8% senior notes due 2001 (collectively, the "Senior Notes"), except
pursuant to a confirmed plan of reorganization. The Company is in possession of
its properties and assets and continues to manage its business as debtor-in-
possession subject to the supervision of the Bankruptcy Court. The Company has a
$125 million debtor-in-possession credit facility in place.
As of February 1, 1999, the Company discontinued accruing interest on
the Senior Notes and dividends on its redeemable preferred stock. Contractual
interest on the Senior Notes for the three months ended March 31, 2000 was $8.3
million, which is not included in the Company's financial statements.
Contractual dividends on the redeemable preferred stock for the three months
were $3.5 million, which is also not included in the Company's financial
statements. As of March 31, 2000, contractual accrued dividends on the
redeemable preferred stock were approximately $43.7 million, which is $15.2
million in excess of dividends accrued in the Company's balance sheet.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Company's liabilities as of the petition date or to
enforce pre-petition contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying pre-
petition obligations. However, the Bankruptcy Court has approved payment of
certain pre-petition obligations such as employee wages and benefits.
Additionally, the Bankruptcy Court has approved the retention of legal and
financial professionals. As a debtor-in-possession, the Company has the right,
subject to Bankruptcy Court approval and certain other conditions, to assume or
reject any pre-petition executory contracts and unexpired leases. Parties
affected by such rejections may file pre-petition claims with the Bankruptcy
Court in accordance with bankruptcy procedures.
The Company is currently developing a plan of reorganization (the "Plan
of Reorganization") through, among other things, discussions with the official
creditor committees established in the Chapter 11 proceeding. The objective of
the Plan of Reorganization is to restructure the Company's balance sheet to (i)
significantly strengthen the Company's financial flexibility throughout the
Page 22 of 25
<PAGE> 23
business cycle, (ii) fund required capital expenditures and working capital
needs, and (iii) fulfill those obligations necessary to facilitate emergence
from Chapter 11. In conjunction with formulating the Plan of Reorganization, the
Company, with its lender, filed an application on January 31, 2000 for a
government loan guarantee under the Emergency Steel Loan Guarantee Program (the
"Loan Guarantee Program"). The application seeks a government loan guarantee for
$110 million, which is a portion of the financing required to consummate the
Plan of Reorganization. The Plan of Reorganization also contemplates that the
company will establish a revolving credit facility as well as receive an equity
infusion of $25 million through the issuance of a preferred stock that will be
mandatorily convertible into common stock. There can be no assurance that the
Company's application will be accepted or that, with or without a guarantee, the
Company can obtain the necessary financing to consummate the Plan of
Reorganization.
Although management expects to file the Plan of Reorganization, there
can be no assurance at this time that the Plan of Reorganization will be
proposed by the Company, approved or confirmed by the Bankruptcy Court, or that,
if proposed, approved, confirmed and consummated, such plan will achieve the
objectives described above. The Bankruptcy Court has granted the Company's
request to extend its exclusive right to file a Plan of Reorganization through
May 30, 2000. Recently, the Company filed a motion seeking an extension through
July 31, 2000 of the exclusivity period for filing a plan and through September
26, 2000 for obtaining acceptances of a plan. If the exclusivity period were to
expire or be terminated prior to confirmation of the Plan of Reorganization,
other interested parties, such as creditors of the Company, would have the right
to propose alternative plans of reorganization.
Although the Chapter 11 bankruptcy filing raises substantial doubt about
the Company's ability to continue as a going concern, the Company's financial
statements have been prepared on a going concern basis. This basis contemplates
the continuity of operations, realization of assets, and discharge of
liabilities in the ordinary course of business. The financial statements also
present the assets of the Company at historical cost and the current intention
that they will be realized as a going concern and in the normal course of
business. A plan of reorganization will materially change certain amounts
currently disclosed in the Company's financial statements.
The Company's financial statements do not present the amount which may
ultimately be paid to settle liabilities and contingencies which may be allowed
in the Chapter 11 bankruptcy case. Under Chapter 11 bankruptcy, the rights of,
and ultimate payment by the Company to, pre-petition creditors may be
substantially altered. This will likely result in such claims being paid in the
Chapter 11 bankruptcy proceedings at substantially less than 100% of their face
value. At this time, because of material uncertainties, pre-petition claims are
generally carried at their face value in the accompanying financial statements.
Moreover, the interests of existing preferred and common shareholders could,
among other things, be eliminated. Management currently anticipates that the
Plan of Reorganization will be completed and ready to file with the Bankruptcy
Court during mid 2000. The Plan of Reorganization will be premised on the
Company being approved for a loan guarantee under the Loan Guarantee Program,
and the Company may not file its Plan of Reorganization until a decision on the
loan guarantee application has been announced. There
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<PAGE> 24
can be no assurance as to the actual timing for the filing of the Plan of
Reorganization or the approval thereof by the Bankruptcy Court, if at all.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As described above, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code on February 1, 1999. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured pre-petition debt, including the 9 1/2% Senior Notes due 2004 and the
11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of
reorganization. Interest payment defaults under the Senior Notes are excluded as
a cross default under the terms of the Company's existing debtor-in-possession
credit facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------- ------- --------
<S> <C> <C>
10.1 Assumption, modification and transition X
agreement between Geneva Steel Company and
Mannesmann Pipe and Steel Company, dated
March 9, 2000
27 Financial Data Schedule X
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three months
ended March 31, 2000.
Page 24 of 25
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENEVA STEEL COMPANY
By: /s/ Dennis L. Wanlass
---------------------------------------
Vice President, Treasurer and
Chief Financial Officer
Dated: May 15, 2000
Page 25 of 25
<PAGE> 1
Exhibit 10.1
ASSUMPTION, MODIFICATION AND TRANSITION AGREEMENT
THIS ASSUMPTION, MODIFICATION AND TRANSITION AGREEMENT (the "Agreement")
is entered into as of the 9th day of March, 2000 by and between GENEVA STEEL
COMPANY, Debtor and Debtor in Possession ("Geneva") and MANNESMANN PIPE AND
STEEL COMPANY, a New York corporation ("Mannesmann").
Recitals:
A. Geneva and Mannesmann entered into a certain Amended and Restated
Sales Representation Agreement dated October 30, 1998, as amended (the
"Representation Agreement"), wherein Mannesmann agreed to provide certain
services and Geneva granted to Mannesmann certain rights in connection with the
sale and distribution of Products in a Territory, as such terms are used in the
Agreement.
B. Geneva is currently a debtor-in-possession in a bankruptcy proceeding
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")
pending in the United States Bankruptcy Court for the District of Utah as Case
Number 99-2-21130 (the "Chapter 11 Proceeding").
C. Geneva desires to assume the Representation Agreement pursuant to
Section 365(a) of the Bankruptcy Code, and Mannesmann desires to consent to such
assumption, subject to the releases, terms and conditions set forth herein.
D. Once assumed, the parties have determined that it is in their mutual
interests to terminate the Representation Agreement as of June 30, 2000 and
provide for the orderly transition to Geneva of the services, customers and
certain employees affected by such termination.
Agreement:
NOW, THEREFORE, in consideration of the promises and covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mannesmann and Geneva agree as
follows:
1. DEFINITIONS. The capitalized terms used in this Agreement shall have
the same meanings ascribed to such terms in the Representation Agreement.
2. ASSUMPTION. Subject to Bankruptcy Approval, as hereinafter defined,
Geneva hereby assumes the Representation Agreement pursuant to Section 365(a) of
the Bankruptcy Code. Mannesmann hereby consents to and accepts such assumption
and agrees that any and all defaults of the Representation Agreement, cure
obligations, if any, and obligations to provide adequate assurance of future
performance with respect thereto pursuant to Section 365(b) of the Bankruptcy
Code, have been fully satisfied.
3. TERMINATION DATE. The Representation Agreement is hereby modified so
that it shall automatically terminate as of 11:59 p.m. Mountain Standard Time on
June 30, 2000 (the "Termination Date"). Prior to the Termination Date,
Mannesmann and Geneva shall perform in accordance with the terms and conditions
of the Representation Agreement.
<PAGE> 2
4. POST TERMINATION TRANSITION. The provisions of this Section 4 shall
apply commencing on the Termination Date notwithstanding anything in the
Representation Agreement to the contrary:
4.1. Employees. The parties agree that the provisions of Sections
3.3(a), (b) and (c) of the Representation Agreement shall continue to apply
through and including 11:59 p.m. on July 31, 2000.
4.2. Assignment of Open Accounts. On September 30, 2000,
Mannesmann shall assign to Geneva any and all receivables for Products sold by
Mannesmann on or before the date of termination and which remain uncollected on
such date and Geneva will fund such receivables to Mannesmann within five (5)
days after having received notice of such assignment.
4.3. Geneva Option. Notwithstanding the payment dates provided
for in Section 4.2 above, if the aggregate of such payment exceeds $3 million
Geneva shall have the right to defer the assignment of Open Accounts and payment
of such amount through and including December 28, 2000 upon the giving of at
least thirty (30) days prior written notice to Mannesmann.
4.4. Administration of Open Orders. Mannesmann, upon Geneva's
request, shall continue to administer all orders that are open on the
Termination Date, including, but not limited to, making payment for any material
delivered or produced and identified to such orders, such payment to be made by
Mannesmann in accordance with the terms provided for in the Representation
Agreement. The administration of any orders which remain open after September
30, 2000 shall become the responsibility of Geneva, and any payments which
Mannesmann may have made for material under such orders that remain undelivered
at such time shall be refunded to Mannesmann no later than October 5, 2000. If
any warehouse receipt has been issued for any of the material covered by such
order, as a condition to such payment Mannesmann shall deliver to Geneva the
original of such warehouse receipt(s) and thereupon title to such material shall
vest in Geneva. Mannesmann shall promptly cause any protective form UCC-1 filed
in any state with respect to such material to be terminated and released of
record.
4.5. No Affect on Other Provisions. Except as expressly set forth
in this Section 4, the provisions of the Representation Agreement intended to
survive termination shall survive such termination, including, but not limited
to, the provisions of Section 3.3(d) and Section 12 thereof which the parties
hereby agree shall apply in full force and effect notwithstanding the
termination effected by this Agreement.
5. EX-L-TUBE SETTLEMENT. Concurrently with the execution of this
Agreement, the parties agree to enter into that certain Settlement Agreement
among Geneva, Mannesmann and Ex-L-Tube, Inc. ("Ex-L-Tube") attached as Exhibit 5
hereto (the "Ex-L-Tube Settlement"). The Ex-L- Tube Settlement Agreement
provides for an initial payment to Geneva by Ex-L-Tube of $2.0 million (the
"Initial Settlement Amount"). Upon receipt by Geneva of the Initial Settlement
Amount from Ex-L-Tube, Geneva shall pay to Mannesmann the sum of $700,000.00
which payment shall represent Mannesmann's
2
<PAGE> 3
entire right, title or interest in any amounts to be received by Geneva from
Ex-L-Tube pursuant to the such Settlement Agreement. In no event shall
Mannesmann be entitled to receive from Ex-L-Tube or Geneva any other amount, and
Mannesmann hereby waives any claim or right or remedy against Ex-L-Tube or
Geneva in relation to the matters that are the subject of the
Ex-L-Tube-Settlement, including any right to any additional payment. In the
event the payment of the Initial Settlement Amount received by Geneva from
Ex-L-Tube should for any reason subsequently be determined to be void, avoidable
or the property of another, in whole or in part, including, without limitation,
fraudulent conveyances, preferential transfers or property subject to a prior
perfected security interest or lien of another entity, and if Geneva is required
to repay or restore any portion thereof, or, upon the advice of Geneva's
counsel, does so after demand, then, as to such amount repaid or restored,
Mannesmann shall immediately pay to Geneva its pro rata portion of such amount
repaid or restored.
6. WAIVER OF PRE-PETITION CLAIMS BY MANNESMANN. In consideration of
Geneva's entering into this Agreement, Mannesmann has agreed to waive and
release and hereby waives and releases all pre-petition claims, disputes and
controversies against Geneva arising out of the Representation Agreement and
relating in any way to periods prior to the commencement of the Chapter 11
Proceeding , including, without limitation all such claims of Mannesmann filed
or listed, or which could have been filed or listed, in the Chapter 11
Proceeding but excluding those pre-petition product claims, if any, identified
in Section 8 hereof. Without limiting the generality of the foregoing,
Mannesmann expressly waives and releases all claims identified in the Proof of
Claim filed by Mannesmann on July 30, 1999, a copy of which is attached hereto
as Exhibit 6.
7. MUTUAL RELEASE OF CLAIMS. In consideration of Mannesmann's release of
its Proof of Claim and Geneva's assumption of the Representation Agreement, the
parties hereby release and discharge each other from all claims and obligations,
except for the obligations set forth in and claims arising under this Agreement
and, subject to Section 6 hereof, the Representation Agreement as assumed.
8. PRODUCT CLAIMS. Geneva agrees that the provisions of Section 4 of the
Representation Agreement shall continue in full force and effect with respect to
Products produced by Geneva and sold under the Representation Agreement.
9. BANKRUPTCY COURT APPROVAL. The rights and obligations of the parties
hereto are subject to the approval ("Bankruptcy Approval") of the United States
Bankruptcy Court for the District of Utah in the Chapter 11 Proceeding. In the
event the Bankruptcy Court does not approve this Agreement by June 30, 2000,
this Agreement shall automatically expire and be of no further force or effect
unless extended by the written agreement of Geneva and Mannesmann. Each of the
parties hereto agrees to use commercially reasonable efforts to obtain the
Bankruptcy Approval.
10. INCORPORATION BY REFERENCE. Sections 15 through 26 of the
Representation Agreement (excluding Section 22 thereof) are hereby incorporated
herein by reference as if they had been set forth herein in their entirety.
3
<PAGE> 4
11. ENTIRE AGREEMENT. The provisions set forth in this Agreement (or
incorporated herein by reference) contain the entire understanding between the
parties with respect to the subject matter hereof and supercede all prior
understandings between the parties with respect to the termination of the
Representation Agreement and the transition necessitated thereby.
12. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in any number of counterparts, each of which shall constitute one agreement.
Facsimile signatures shall have the same force and effect as original
signatures.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
"Mannesmann"
MANNESMANN PIPE & STEEL CORPORATION
a New York corporation
By /s/ Tim A. Taylor
----------------------------------
Its Vice President of Finance
--------------------------------
"Geneva"
GENEVA STEEL COMPANY,
Debtor and Debtor in Possession
By /s/ Ken C. Johnsen
----------------------------------
Ken C. Johnsen
Executive Vice President
4
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,366
<ALLOWANCES> 9,773
<INVENTORY> 54,747
<CURRENT-ASSETS> 83,483
<PP&E> 651,797
<DEPRECIATION> (298,172)
<TOTAL-ASSETS> 448,838
<CURRENT-LIABILITIES> 75,375
<BONDS> 325,000
56,377
0
<COMMON> 106,018
<OTHER-SE> (240,278)
<TOTAL-LIABILITY-AND-EQUITY> 448,838
<SALES> 275,894
<TOTAL-REVENUES> 275,894
<CGS> 271,025
<TOTAL-COSTS> 271,025
<OTHER-EXPENSES> 7,168
<LOSS-PROVISION> 2,294
<INTEREST-EXPENSE> (2,990)
<INCOME-PRETAX> 95
<INCOME-TAX> 0
<INCOME-CONTINUING> 95
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
REGISTRANT'S BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR THE SIX
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.
[/LEGEND]
</TABLE>
