-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PYgQZmGcI6e8NtYCnRvRlO2wOBm2yumi9MQ5HfW82gBs6DS6ftzv5DPclSAiqTgx ZBXKICsZ1nTmjKiDxofTug== 0000950149-95-000049.txt : 19950515 0000950149-95-000049.hdr.sgml : 19950515 ACCESSION NUMBER: 0000950149-95-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEVA STEEL CENTRAL INDEX KEY: 0000860192 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 930942346 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10459 FILM NUMBER: 95510580 BUSINESS ADDRESS: STREET 1: 10 S GENEVA RD CITY: VINEYARD STATE: UT ZIP: 84058 BUSINESS PHONE: 8012279000 MAIL ADDRESS: STREET 1: PO BOX 2500 CITY: PROVO STATE: UT ZIP: 84603 10-Q 1 FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 1994 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File #1-10459 GENEVA STEEL COMPANY (Exact name of registrant as specified in its charter) UTAH 93-0942346 (State of Incorporation) (I.R.S. Employer Identification No.) 10 South Geneva Road Vineyard, Utah (Address of principal executive offices) 84058 (Zip Code) Registrant's telephone number, including area code: (801) 227-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each class of the issuer's common stock, as of the latest practicable date. 13,118,183 and 20,639,688 shares of Class A and Class B common stock, respectively, outstanding as of January 27, 1995. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GENEVA STEEL COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) ASSETS
December 31, September 30, 1994 1994 ------------ ------------ Current assets: Cash and cash equivalents $ 2,540 $ -- Accounts receivable, net 44,939 47,907 Inventories 75,506 86,009 Prepaid expenses and other 3,123 2,838 Deferred income taxes 6,719 6,407 -------- -------- Total current assets 132,827 143,161 -------- -------- Property, plant and equipment: Land 1,931 1,931 Buildings 16,092 16,092 Machinery and equipment 522,527 521,729 Mineral property and development costs 8,425 8,425 -------- -------- 548,975 548,177 Less accumulated depreciation (103,607) (94,891) -------- -------- Net property, plant and equipment 445,368 453,286 -------- -------- Other assets 11,155 10,368 -------- -------- $589,350 $606,815 ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated balance sheets. Page 2 of 18 3 GENEVA STEEL COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30, 1994 1994 --------- ------------ Current liabilities: Accounts payable $ 53,694 $ 57,021 Accrued payroll and related taxes 12,112 9,178 Accrued liabilities 19,459 14,471 Production prepayments 10,000 10,000 Accrued interest payable 12,746 4,580 Accrued pension and profit sharing costs 1,790 1,114 -------- -------- Total current liabilities 109,801 96,364 -------- -------- Long-term debt 325,000 357,348 -------- -------- Deferred income taxes 6,719 6,407 -------- -------- Redeemable preferred stock 44,938 43,032 -------- -------- Stockholders' equity: Preferred stock -- -- Common stock: Class A 87,226 87,193 Class B 10,896 10,896 Warrants to purchase Class A common stock 5,360 5,360 Retained earnings 18,368 19,266 Class A common stock held in treasury, at cost (18,958) (19,051) -------- -------- Total stockholders' equity 102,892 103,664 -------- -------- $589,350 $606,815 ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated balance sheets. Page 3 of 18 4 GENEVA STEEL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993 (In thousands, except per share data) (Unaudited)
1994 1993 -------- -------- Net sales $164,424 $127,099 Cost of sales 148,480 115,626 -------- -------- Gross margin 15,944 11,473 Selling, general and administrative expenses 5,832 5,682 -------- -------- Income from operations 10,112 5,791 -------- -------- Other income (expense): Interest and other income 28 433 Interest expense (8,753) (3,472) Other expense (379) -- -------- --------- (9,104) (3,039) -------- -------- Income before provision for income taxes 1,008 2,752 Provision for income taxes -- 1,042 --------- -------- Net income 1,008 1,710 Less redeemable preferred stock dividends and accretion for original issue discount 1,906 1,679 -------- -------- Net income (loss) applicable to common shares $ (898) $ 31 ======== ======== Net income (loss) per common share $ (.06) $ .002 ======== ======== Weighted average common shares outstanding 15,174 15,095 ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. Page 4 of 18 5 GENEVA STEEL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993 (Dollars in thousands) (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
1994 1993 -------- -------- Cash flows from operating activities: Net income $ 1,008 $ 1,710 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 9,502 6,128 Deferred income taxes -- 86 (Increase) decrease in current assets-- Accounts receivable, net 2,968 (5,857) Inventories 10,503 (2,116) Prepaid expenses and other (285) (3,751) Increase (decrease) in current liabilities-- Accounts payable (3,327) (7,926) Accrued payroll and related taxes 2,934 2,549 Accrued liabilities 2,645 1,021 Accrued interest payable 8,166 6,283 Accrued pension and profit sharing costs 676 212 -------- -------- Net cash provided by (used for) operating activities 34,790 (1,661) -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (12,628) (46,583) Proceeds from sale of property, plant and equipment 14,135 -- -------- --------- Net cash provided by (used for) investing activities $ 1,507 $(46,583) -------- --------
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. Page 5 of 18 6 GENEVA STEEL COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993 (Dollars in thousands) (Unaudited)
1994 1993 -------- -------- Cash flows from financing activities: Payments on long-term debt $(32,348) $ -- Payments for deferred loan costs and other assets (1,536) (88) Issuance of Class A common stock to employee savings plan 127 195 -------- -------- Net cash provided by (used for) financing activities (33,757) 107 -------- -------- Net increase (decrease) in cash and cash equivalents 2,540 (48,137) Cash and cash equivalents at beginning of period -- 64,267 --------- -------- Cash and cash equivalents at end of period $ 2,540 $ 16,130 ======== ========
Supplemental schedule of noncash financing activities: For the three months ended December 31, 1994 and 1993, the Company increased the redeemable preferred stock liquidation preference by $1,731 and $1,508, respectively, in lieu of paying a cash dividend. In addition, for the same periods, redeemable preferred stock was increased by $175 and $171, respectively, for the accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance. The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. Page 6 of 18 7 GENEVA STEEL COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (1) INTERIM CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements of Geneva Steel Company and Geneva Steel Funding Corporation, a wholly-owned subsidiary of Geneva Steel Company (collectively, the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and results of operations of the Company. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report on Form 10-K. (2) INVENTORIES Inventories were comprised of the following components:
December 31, September 30, 1994 1994 ------- ------- Raw materials $27,043 $31,608 Semi-finished and finished goods 40,658 46,302 Operating materials 7,805 8,099 ------- ------- $75,506 $86,009 ======= =======
(3) NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is calculated based upon the weighted average number of common and common equivalent shares outstanding during the periods. Common equivalent shares consist of warrants and options to purchase Class A common stock which have a dilutive effect when applying the treasury stock method. Class B common stock is included in the weighted average number of common shares outstanding at one share for every ten shares outstanding as the Class B common stock is convertible to Class A common stock at this same rate. The net income for the three-month periods ended December 31, 1994 and 1993 was adjusted for redeemable preferred stock dividends and the accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance. Page 7 of 18 8 (4) INCOME TAXES The components of and the changes in the net deferred income tax assets and liabilities for the three months ended December 31, 1994 were as follows:
Deferred September 30, (Expense) December 31, 1994 Benefit 1994 --------- --------- ----------- Deferred income tax assets: Net operating loss carryforward $ 24,986 $ 2,646 $ 27,632 Inventory costs capitalized 4,178 -- 4,178 Alternative minimum tax credit carryforward 6,748 -- 6,748 Accrued vacation 1,696 23 1,719 Allowance for doubtful accounts 684 127 811 General business credits 2,271 131 2,402 Other 343 84 427 -------- ------- -------- Total deferred income tax assets 40,906 3,011 43,917 Valuation allowance (1,186) 267 (919) -------- ------- -------- Total deferred income tax assets $ 39,720 $ 3,278 $ 42,998 -------- ------- -------- Deferred income tax liabilities: Accelerated depreciation $(34,977) $(3,246) $(38,223) Mineral property development costs (2,141) (18) (2,159) Operating materials (2,559) (14) (2,573) Other (43) -- (43) -------- -------- -------- Total deferred income tax liabilities $(39,720) $(3,278) $(42,998) ======== ======== ========
The Company did not recognize a provision for income taxes in the accompanying condensed consolidated statement of income for the three months ended December 31, 1994 as a result of utilizing net operating loss carryforwards for financial reporting purposes. As of December 31, 1994, the Company had, for financial reporting purposes, a net operating loss carryforward of approximately $1,300. (5) REVOLVING CREDIT FACILITY In November 1994, the Company amended and restated its revolving credit facility with a syndicate of banks led by Citicorp USA, Inc., as agent (the "Revolving Credit Facility"), which is used primarily for the working capital and capital expenditure needs of the Company. The Revolving Credit Facility in the amount of up to $45,000 is secured by the Company's inventories, unsold accounts receivable, and general intangibles, and proceeds thereof, and expires on April 30, 1999. The amount available to the Company under the Revolving Credit Facility generally ranges from 50 to 55%, in the aggregate, of eligible inventories. At December 31, 1994, approximately $34,600 was available for borrowing under the Revolving Credit Facility. Interest is payable monthly at 1.25% above the defined base rate (9.75% at December 31, 1994) or 2.5% above the defined LIBOR rate (8.5% at December 31, 1994). The Company pays a monthly Page 8 of 18 9 commitment fee based on an annual rate of .50% of the average unused portion of the borrowing limit under the Revolving Credit Facility. (6) ACCOUNTS RECEIVABLE SECURITIZATION FACILITY In November 1994, the Company executed agreements to create and fund a five-year accounts receivable securitization facility of up to $65,000 (the "Receivables Facility"). Under the Receivables Facility, the Company sells substantially all of its accounts receivable to a wholly-owned special purpose subsidiary, Geneva Steel Funding Corporation ("GSFC"). GSFC transfers the accounts receivable purchased from the Company to a trust in exchange for certain trust certificates representing ownership interests in the assets of the trust. One of the trust certificates was sold to an institutional investor and the proceeds of such sale and of subsequent fundings by the investor are used by GSFC to pay the Company for the receivables purchased by GSFC. During the term of the Receivables Facility, the cash generated by collection of the receivables will be used to purchase additional receivables (GSFC will purchase substantially all receivables from the Company on an ongoing basis) or make payments to the investor. Pursuant to the Receivables Facility, the Company acts as servicer for the accounts receivable. The yield on amounts funded by the institutional investor under the Receivables Facility is the applicable commercial paper rate plus 0.5% (5.97% at December 31, 1994). In addition, GSFC pays a 0.375% fee on unfunded amounts. Funding availability under the Receivables Facility is based on eligible receivables as defined in the applicable agreements. At December 31, 1994, $38,200 was available under the Receivables Facility, of which $29,700 had been funded. The Company is not subject to any financial ratio tests under the Receivables Facility, but the agreements provide for early termination and payment upon certain events, which include the incurrence of losses or delinquencies on the receivables in excess of certain levels or the bankruptcy or insolvency of the Company. In the event of a liquidation of GSFC, such institutional investor would be entitled to receive proceeds from collections of accounts receivable based on a formula which takes into account the investor's pro rata share of funding to total trust assets. Page 9 of 18 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table sets forth the percentage relationship of certain cost and expense items to net sales for the periods indicated:
Three Months Ended December 31, -------------------- 1994 1993 ---- ---- Net sales 100.0% 100.0% Cost of sales 90.3 90.9 ----- ----- Gross margin 9.7 9.1 Selling, general and administrative expenses 3.6 4.5 ----- ----- Income from operations 6.1 4.6 ----- ----- Other income (expense): Interest and other income -- 0.3 Interest expense (5.4) (2.7) Other expense (0.1) -- ----- ----- (5.5) (2.4) ----- ----- Income before provision for income taxes 0.6 2.2 Provision for income taxes -- 0.8 ----- ----- Net income 0.6% 1.4% ===== =====
The following table sets forth the sales product mix as a percentage of net sales for the periods indicated:
Three Months Ended December 31, -------------------- 1994 1993 ---- ---- Sheet 53.3% 64.3% Plate 31.7 25.5 Pipe 4.4 6.9 Slab 7.6 0.5 Non-Steel 3.0 2.8 ----- ----- 100.0% 100.0% ===== =====
Page 10 of 18 11 THREE MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1993 The steel industry is cyclical in nature. Since early calendar year 1993, the industry has experienced increasing steel prices resulting from increased demand, and the Company has implemented several price increases for certain steel products. Various producers have announced price increases which the Company intends to follow as justified by market conditions. Industry experience has shown, however, that announced price increases may not be immediately realized, if at all, due to the competitive environment within the industry. The Company has phased in price increases as new orders have been accepted, subject to adjustments as necessary in response to market conditions. The Company sells substantially all of its products in the spot market at prevailing market prices. The Company believes its percentage of such sales is significantly higher than that of most of the other domestic integrated producers. Moreover, the Company has significantly reduced its backlog of orders. Consequently, the Company may be affected by price increases and decreases more quickly than many of its competitors. Net sales increased 29.4% due to increased shipments of approximately 87,400 tons and increased average selling prices for the three months ended December 31, 1994 as compared to the same period in the previous fiscal year. The weighted average sales price (net of transportation costs) per ton of sheet and plate products increased by 6.1% and 11.0%, respectively, while the weighted average sales price per ton of pipe products decreased 2.5% in the three months ended December 31, 1994 compared to the same period in the previous fiscal year. The overall average selling price realization per ton also increased between the periods as a result of a shift in product mix to higher priced plate products. This increase was offset, in part, by the Company's increased sales of lower priced slab products. The increase in plate shipments resulted from the completion of various upgrades to plate processing and finishing equipment. The Company increased slab shipments to maximize production from the continuous caster as the caster became fully integrated into the production process. The Company anticipates that slab sales will decline as plate and large coil production increases as discussed below. Shipped tonnage of sheet, plate and slabs increased approximately 2,600 tons or 1.0%, 41,900 tons or 45.0% and 46,200 tons or 1,650.4%, respectively, while shipped tonnage of pipe decreased approximately 3,300 tons or 14.5% between the two periods. Cost of sales includes raw materials, labor costs, energy costs (consisting primarily of oxygen, electricity and natural gas), depreciation and other operating and support costs associated with the production process. The Company's cost of sales, as a percentage of net sales, decreased to 90.3% for the three months ended December 31, 1994 from 90.9% for the same period in the previous fiscal year as a result of higher average selling prices offset, in part, by higher operating costs. The average cost of sales per ton shipped increased approximately $14 per ton between the two periods. The increased cost per ton was due, in part, to a shift in product mix to higher cost plate products, offset, in part, by increased sales of lower cost slab products. Costs increased primarily as a result of higher depreciation expense, production inefficiencies and transition costs associated with implementation of certain modernization and capital projects, increased coke costs as a result of purchasing coke to supplement internal coke production, higher wages and benefits as required by the union labor agreement and increases in certain other operating costs. These increased costs were offset, in part, by reduced production costs as a result of Page 11 of 18 12 integrating the continuous caster, the first phase of the wide coiled plate project and other completed capital projects into the production process. The Company expects that additional operating cost savings will be achieved from its modernization efforts as discussed below. The Company expects that certain operating costs will increase in future periods. The Company's consumption of purchased coke will be higher, thereby increasing the Company's average cost of coke used in the manufacturing process. The Company also anticipates higher iron ore pellet costs. The Company has historically purchased iron ore pellets from USX, and believes that USX has agreed to a new, long-term contract that includes higher pellet prices; nevertheless, USX recently attempted to negotiate even more favorable pricing and quantity terms. The Company is currently attempting to resolve the matter with USX. In the interim, USX has agreed to supply the Company with iron ore pellets through calendar year 1995. As part of its modernization efforts, the Company modified its soaking pit furnaces to hold hot slabs taken from the continuous caster and increase the temperature of the slabs in preparation for rolling. As the continuous caster and other related capital projects were implemented, the Company encountered difficulties in achieving sufficient slab heating capacity from the soaking pits. Consequently, the Company is using both the soaking pits and its existing reheat furnaces to heat slabs. Utilization of both facilities has prevented the Company from realizing a portion of the estimated operating costs savings previously associated with the Company's modernization program. Insufficient heating capacity limits the Company's ability to heat long slabs and has, therefore, reduced the percentage of large coils produced. The Company recently signed a contract for the installation of a 42-megawatt induction slab heating facility, which will be located in-line with the Company's caster and rolling mill. The new heating facility is designed to increase slab temperature by approximately 300 degrees fahrenheit prior to rolling. The Company estimates that the new furnace will be completed during the third calendar quarter of 1995. The Company continues to evaluate its slab heating requirements and may elect to install additional heating capacity. Completion of the induction furnace is expected to allow the Company to substantially increase large coil production. The continuous caster is now fully integrated into the production process and is providing important cost and quality benefits. By the end of December 1994, the Company was producing substantially all of its slabs through the continuous caster and had achieved a 1.9 million ton annualized production rate. The final phase of the wide coiled plate project is expected to be completed in the current quarter. In connection with the implementation of this and other projects, the Company expects to realize additional operating cost savings, increase its percentage of plate products sold and achieve other operational benefits. The Company has implemented measures designed to minimize transition costs and other start-up difficulties with respect to its capital projects. There can be no assurance, however, that such conditions will not be greater than currently expected or extend beyond the anticipated start-up periods. Depreciation costs included in cost of sales increased approximately $3.1 million for the three months ended December 31, 1994 compared with the same period in the previous fiscal year. This increase was due to increases in the asset base resulting from capital expenditures. Depreciation expense will increase substantially due to implementation of the Company's capital projects. Page 12 of 18 13 Selling, general and administrative expenses for the three months ended December 31, 1994 increased approximately $0.2 million as compared to the same period in the previous fiscal year. The higher expenses resulted primarily from increased wages and salaries. The Company expects that wages and salaries will further increase in future periods. Interest and other income decreased approximately $0.4 million during the three months ended December 31, 1994 as compared to the same period in the previous fiscal year as a result of a decrease in the amount of invested cash and cash equivalents. Interest expense increased approximately $5.3 million during the three months ended December 31, 1994 as compared to the same period in the previous fiscal year. Interest expense increased due to higher levels of borrowing and decreases in capitalized interest during the three months ended December 31, 1994 offset, in part, by a reduction in interest rates as a result of restructuring the Company's debt. Interest expense is expected to increase in future periods due to increased borrowings incurred in fiscal year 1994. Other expense reflects the costs incurred in connection with the receivables facility which commenced in November 1994 (see description of receivables facility below). Although the receivables facility operates to reduce the Company's cost of working capital, other expense is expected to increase in future periods due to expected increases in funding under the receivables facility and the effect of fundings under the receivables facility being outstanding for the full three month period. The Company did not recognize a provision for income taxes for the three months ended December 31, 1994 as a result of utilizing net operating loss carryforwards for financial reporting purposes. As of December 31, 1994, the Company had, for financial reporting purposes, a net operating loss carryforward of approximately $1.3 million. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from capital expenditures and working capital requirements, including interest payments. The Company has met these requirements over the past three years principally from the incurrence of additional long-term indebtedness, including borrowings under the Company's revolving credit facility, and cash provided by operations. In November 1994, the Company amended and restated its revolving credit facility with a syndicate of banks led by Citicorp USA, Inc., as agent (the "Revolving Credit Facility"), which is used primarily for the working capital and capital expenditure needs of the Company. The Revolving Credit Facility in the amount of up to $45 million is secured by the Company's inventories, unsold accounts receivable, and general intangibles, and proceeds thereof, and expires on April 30, 1999. The amount available to the Company under the Revolving Credit Facility currently ranges from 50 to 55%, in the aggregate, of eligible inventories. At December 31, 1994, approximately $34.6 million was available for borrowing under the Revolving Credit Facility. Interest is payable monthly at 1.25% above the defined base rate (9.75% at December 31, 1994) or 2.5% above the defined LIBOR rate (8.5% at December 31, 1994). The Company's ability to borrow under the Revolving Credit Facility is subject to compliance with various Page 13 of 18 14 financial covenants and tests contained therein. As of December 31, 1994, the Company had no borrowings outstanding under the Revolving Credit Facility. The debt instruments governing the Revolving Credit Facility and the Company's 11 1/8% Senior Notes issued in March 1993 and 9 1/2% Senior Notes issued in February 1994 (collectively, the "Senior Notes") contain cross default and other customary provisions. Financial covenants contained in the Revolving Credit Facility and/or the Senior Notes also include, among other things, a limitation on dividends and distributions on capital stock of the Company, a tangible net worth maintenance requirement, a current ratio maintenance requirement, a leverage ratio maintenance requirement, an interest coverage requirement, a cumulative cash flow requirement, a cumulative capital expenditure limitation, a limitation on the incurrence of additional indebtedness unless certain financial tests are satisfied, a limitation on mergers, consolidations and dispositions of assets and a limitation on liens. The Company has from time-to-time entered into amendments modifying certain of the covenants and tests contained in its previous revolving credit facility and may be required to seek amendments of the Revolving Credit Facility in the future based on actual operating results or capital spending. Covenants amended in the past include the interest coverage requirement, the leverage ratio maintenance requirement and the tangible net worth maintenance requirement. In November 1994, the Company also executed agreements to create and fund a five-year accounts receivable securitization facility of up to $65 million (the "Receivables Facility"). Under the Receivables Facility, the Company sells substantially all of its accounts receivable to a wholly-owned special purpose subsidiary, Geneva Steel Funding Corporation ("GSFC"). GSFC transfers the accounts receivable purchased from the Company to a trust in exchange for certain trust certificates representing ownership interest in the assets of the trust. One of the trust certificates was sold to an institutional investor and the proceeds of such sale and of subsequent fundings by the investor are used by GSFC to pay the Company for the receivables purchased by GSFC. During the term of the Receivables Facility, the cash generated by collection of the receivables will be used to purchase additional receivables (GSFC will purchase substantially all receivables from the Company on an ongoing basis) or make payments to the investor. Pursuant to the Receivables Facility, the Company acts as servicer for the accounts receivable. The yield on amounts funded by the institutional investor under the Receivables Facility is the applicable commercial paper rate plus 0.5% (5.97% at December 31, 1994). In addition, GSFC pays a 0.375% fee on unfunded amounts. Funding availability under the Receivables Facility is based on eligible receivables as defined in the applicable agreements. At December 31, 1994, $38.2 million was available under the Receivables Facility, of which $29.7 million had been funded. The Company is not subject to any financial ratio tests under the Receivables Facility, but the agreements provide for early termination and payment upon certain events, which include the incurrence of losses or delinquencies on the receivables in excess of certain levels or the bankruptcy or insolvency of the Company. The principal benefit of the Receivables Facility is to reduce the Company's cost of funding related to its working capital needs. Besides these and other financing activities, the Company's major source of liquidity has been cash provided by operations. Net cash provided by operating activities was $34.8 million for the three months ended December 31, 1994 compared with net cash used for operating activities of $1.7 million for the same period Page 14 of 18 15 in the previous fiscal year. The $34.8 million provided by operating activities during the three months ended December 31, 1994 was primarily a result of fundings under the Receivables Facility of $29.7 million, depreciation and amortization of $9.5 million, a reduction of inventories of $10.5 million and an increase in accrued interest payable of $8.2 million. These sources of cash flow were offset, in part, by a $26.8 million increase in accounts receivable primarily associated with higher shipment levels. The Company also increased its cash flow during the period through a sale-leaseback transaction of approximately $14.1 million of manufacturing equipment. The Company expects its capital expenditures to require significant cash resources over the next several years. With respect to fiscal year 1995, the Company previously identified approximately $117 million in potential capital expenditures. These capital expenditures included estimates for additional slab heating capacity at a cost of approximately $30 million ($25 million in fiscal year 1995), a plasma-fired cupola ironmaking facility at a cost of approximately $29 million ($27 million in fiscal year 1995), and the final phase of the wide coiled plate project at a cost of approximately $14 million. At present, the Company has determined to spend approximately $15 million for the induction slab heating facility discussed above but may not spend additional amounts on slab heating capacity in fiscal year 1995. Moreover, the Company is pursuing leasing alternatives for financing the plasma-fired cupola ironmaking facility. The Company may elect to adjust the design, timing and budgets of capital projects for operational, liquidity or other reasons. The Company anticipates that, in any event, it may incur significant start-up and transition costs as planned capital projects are implemented. The Revolving Credit Facility contains certain limitations on capital expenditures that are dependent, in part, on the Company's actual cash flows. If the Company fails to achieve anticipated operating and cash flow results, such limitations could preclude the Company from making capital expenditures in the amounts that are currently anticipated. The Company is required to make substantial interest and dividend payments on the Senior Notes, its redeemable preferred stock or the exchange debentures, and outstanding balances under the Revolving Credit Facility, together with interest on any additional funding necessary for the additional capital expenditures and other working capital needs. The Company's annual interest expense is approximately $33 million and its annual preferred stock dividends are approximately $7 million. Dividends not paid in cash before April 1996 will be added to the liquidation preference of the redeemable preferred stock. In addition, the Company will incur costs based on the yield applicable to funded amounts under the Receivables Facility. During the first quarter of fiscal year 1995, the Company's operations improved significantly. The Company expects further improvement due to the further decline of certain transition costs and production inefficiencies and the realization of additional operating cost savings. There can be no assurance, however, that the decline in transition costs and production inefficiencies or the increase in operating cost savings will continue, that sufficient product demand will exist for the Company's additional throughput capacity, or that the projected benefits of the modernization and other capital projects will be fully achieved. The Company's ability to meet its anticipated cash needs, including capital spending, is highly dependent on cash provided by operations, which includes the effect of changes in working capital. To improve liquidity and operating cash flow, the Company may contract with independent companies to provided just-in-time Page 15 of 18 16 supplies or consigned inventories of certain raw materials. The Company may also lease facilities and equipment related to certain capital projects. The Company has previously entered into an arrangement with one of its major customers whereby the customer makes a production prepayment of up to $10 million upon the entry of new orders. As an additional means of enhancing the Company's liquidity, the Company may negotiate an increase in the maximum amount of production prepayments to $20 million. Although the Company believes that the anticipated cash from future operations, fundings under the Receivables Facility and borrowings under the Revolving Credit Facility will provide sufficient liquidity for the Company to meet its debt service requirements and to fund ongoing operations, including required capital expenditures, there can be no assurance that these or other possible sources will be adequate. In such event, the Company may defer certain capital expenditures or pursue alternative financing sources. The short-term and long-term liquidity of the Company is dependent upon several factors, including the Company's ongoing operations, availability of financing, foreign currency fluctuations, competitive and market forces, capital expenditures and general economic conditions. Moreover, the United States steel market is subject to cyclical fluctuations that may affect the amount of cash internally generated by the Company and the ability of the Company to obtain external financing. Consequently, there can be no assurance that the Company will have sufficient resources to fund all of its planned and future capital projects or to satisfy other working capital and cash needs. The Company is currently engaged in labor negotiations with the United Steelworkers of America in light of the expiration of its union labor agreement on February 28, 1995. The Company is currently unable to predict the effect such negotiations may have on the Company's operations and financial condition. Inflation can be expected to have an effect on many of the Company's operating costs and expenses. Due to worldwide competition in the steel industry, the Company may not be able to pass through such increased costs to its customers. Page 16 of 18 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
Exhibit Filed Number Exhibit Herewith ------- ------- -------- 27 Financial data schedule X
(b) Reports on Form 8-K. The Company filed a current report on Form 8-K with the Commission on November 2, 1994. The Form 8-K, dated October 31, 1994, reported the preliminary results of the Company's fiscal quarter and year ended September 30, 1994, as well as other developments. Page 17 of 18 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENEVA STEEL COMPANY By: /s/ Dennis L. Wanlass --------------------------------------- Vice President, Treasurer and Chief Financial Officer Dated: February 14, 1995 Page 18 of 18 19 EXHIBIT INDEX
Exhibit Number Exhibit ------- ------- 27 Financial data schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the registrants balance sheet and statement of income as of and for the three months ended December 31, 1994 and is qualified in its entirety by reference to such financial statements, including the notes thereto. U.S. DOLLARS 3-MOS SEP-30-1994 OCT-1-1994 DEC-31-1994 1 2,540,000 0 46,783,000 1,844,000 75,506,000 132,827,000 548,975,000 103,607,000 589,350,000 109,801,000 325,000,000 79,164,000 44,938,000 0 23,728,000 589,350,000 164,424,000 164,424,000 148,480,000 148,480,000 5,832,000 895,000 8,753,000 1,008,000 0 1,008,000 0 0 0 1,008,000 (.06) (.06)
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