10-Q 1 e10-q.txt FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 6/30/2000 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 June 30, 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 August 10, 2000. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED BALANCE SHEETS (Dollars in thousands) (Unaudited)

The accompanying notes to condensed financial statements are an integral part of these condensed balance sheets. Page 2 of 25 3 GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED BALANCE SHEETS (Continued) (Dollars in thousands) (Unaudited) LIABILITIES AND STOCKHOLDERS' DEFICIT

The accompanying notes to condensed financial statements are an integral part of these condensed balance sheets. Page 3 of 25 4 GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED STATEMENTS OF OPERATIONS THREE MONTHS ENDED June 30, 2000 AND 1999 (In thousands, except per share data) (Unaudited)

The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 4 of 25 5 GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED STATEMENTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (In thousands, except per share data) (Unaudited)

The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 5 of 25 6 GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (Dollars in thousands) (Unaudited) Increase (Decrease) in Cash

The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 6 of 25 7 GENEVA STEEL COMPANY DEBTOR-IN-POSSESSION CONDENSED STATEMENTS OF CASH FLOWS (Continued) NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (Dollars in thousands) (Unaudited)

Supplemental schedule of noncash financing activities: For the nine months ended June 30, 2000 and 1999, the Company increased the redeemable preferred stock by $566 and $657, 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 June 30, 2000, the Company had accrued dividends payable of $28,492 (total contractual dividends of $47,249). The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 7 of 25 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 June 30, 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 $3.6 million, which is also not included in the financial statements. As of June 30, 2000, contractual accrued dividends on the redeemable preferred stock were approximately $47.2 million, which is $18.8 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. The Bankruptcy Court has approved payment of certain pre-petition obligations such as employee wages and benefits and customer claims and rebates. Additionally, the Bankruptcy Court has approved the retention of various legal, financial and other 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 9 On July 20, 2000, the Company filed a proposed plan of reorganization (the "Plan") and Disclosure Statement with the United States Bankruptcy Court for the District of Utah. The Plan is proposed jointly by the Company and the Official Committee of Bondholders in the Company's Chapter 11 Case. If approved as currently proposed, the Plan will significantly reduce the Company's debt burden and provide additional liquidity in the form of a $25 million capital infusion through the issuance of preferred stock convertible into common stock, a $110 million term loan that is eighty-five-percent guaranteed by the United States government, and a $125 million revolving line of credit. The Company's prebankruptcy unsecured creditors will receive, in lieu of cash payments, substantially all of the common stock of the Company and the right to purchase the convertible preferred stock. The holders of the Company's prebankruptcy common and redeemable preferred stock will not receive a distribution under the Plan and all interests represented by prebankruptcy common and redeemable preferred stock will be extinguished. In the event that creditors do not purchase all of the preferred stock, the Company has entered into a standby purchase agreement that ensures the full $25 million in new capital will be raised. The objective of the Plan 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. The Company, through Citicorp USA, filed an application on January 31, 2000, for a U.S. government loan guarantee under the Emergency Steel Loan Guarantee Program. The application sought an eighty-five- percent guarantee for the $110 million term loan incorporated into the Plan. The Emergency Steel Loan Guarantee Board extended an offer of guarantee to Citicorp, USA for the company's term loan on June 30, 2000. The Bankruptcy Court will conduct a hearing on the adequacy of the Disclosure Statement on August 24, 2000. Should the Disclosure Statement be approved, a hearing on confirmation of the Plan has been scheduled for October 13, 2000. There can be no assurance at this time that the Plan proposed by the Company and the Bondholders' Committee will be confirmed by the Bankruptcy Court either on the schedule set forth above or at all, or that, if confirmed and consummated, the Plan will achieve the objectives described above. Similarly, there can be no assurance that the financings contemplated by the Plan actually can be obtained on terms favorable to the Company, or at all. 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. The Plan, if implemented, will materially change certain amounts currently disclosed in the financial statements. At this time, because of material uncertainties, pre-petition claims are generally carried at face value in the accompanying financial statements. Page 9 of 25 10 The accompanying financial statements do not present the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 bankruptcy case. Under the Plan, the rights of pre-petition creditors will be substantially altered. This will result in such claims being paid in the Chapter 11 bankruptcy proceedings at substantially less than 100 percent of face value. (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):

(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 nine months ended June 30, 2000, unexercised stock options and warrants are not included in the calculation of diluted net loss per common share because their exercise price is above the average stock price for the periods. For the three and nine months ended June 30, 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. The warrants expired in March 2000. Class B common stock is included in the weighted average number of common shares outstanding at one share for every ten shares outstanding Page 10 of 25 11 because the Class B common stock is convertible to Class A common stock at this same rate. The net income (loss) for the three months ended June 30, 2000 and 1999 and the nine months ended June 30, 2000 and 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. The net loss for the nine months ended June 30, 1999, also was adjusted for 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 existing sales representation agreement. Prior to termination, Mannesmann sold the Company's products to end customers at the same sales price Mannesmann paid the Company plus a variable commission. Mannesmann paid the Company in approximately three days. In addition, the Mannesmann agreement required Mannesmann to purchase and pay for the Company's finished goods inventory as soon as it was assigned to or was otherwise identified with a particular order. As of June 30, 2000, the Company had received $13.4 million from Mannesmann for the purchase of finished goods inventory assigned to discrete orders. The arrangement with Mannesmann was terminated beginning July 1, 2000, with a 90 day phase out of its liquidity arrangement with Mannesmann. 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 employed 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. Page 11 of 25 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 June 30, 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 $3.6 million, which is also not included in the Company's financial statements. As of June 30, 2000, contractual accrued dividends on the redeemable preferred stock were approximately $47.2 million, which is $18.8 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. The Bankruptcy Court has approved payment of certain pre-petition obligations such as employee wages and benefits and customer claims and rebates. Additionally, the Bankruptcy Court has approved the retention of various legal, financial and other 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. On July 20, 2000, the Company filed a proposed plan of reorganization (the "Plan") and Disclosure Statement with the United States Bankruptcy Court for Page 12 of 25 13 the District of Utah. The Plan is proposed jointly by the Company and the Official Committee of Bondholders in the Company's Chapter 11 Case. If approved as currently proposed, the Plan will significantly reduce the Company's debt burden and provide additional liquidity in the form of a $25 million capital infusion through the issuance of preferred stock convertible into common stock, a $110 million term loan that is eighty-five-percent guaranteed by the United States government, and a $125 million revolving line of credit. The Company's prebankruptcy unsecured creditors will receive, in lieu of cash payments, substantially all of the common stock of the Company and the right to purchase the preferred stock. The holders of the Company's prebankruptcy common and redeemable preferred stock will not receive a distribution under the Plan and all interests represented by prebankruptcy common and redeemable preferred stock will be extinguished. In the event that creditors do not purchase all of the preferred stock, the Company has entered into a standby purchase agreement that ensures the full $25 million in new capital will be raised. The objective of the Plan 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. The Company, through Citicorp USA, filed an application on January 31, 2000, for a U.S. government loan guarantee under the Emergency Steel Loan Guarantee Program. The application sought an eighty-five- percent guarantee for the $110 million term loan incorporated into the Plan. The Emergency Steel Loan Guarantee Board extended an offer of guarantee to Citicorp, USA for the Company's term loan on June 30, 2000. The Bankruptcy Court will conduct a hearing on the adequacy of the Disclosure Statement on August 24, 2000. Should the Disclosure Statement be approved, a hearing on confirmation of the Plan has been scheduled for October 13, 2000. There can be no assurance at this time that the Plan proposed by the Company and the Bondholders' Committee will be confirmed by the Bankruptcy Court either on the schedule set forth above or at all, or that, if confirmed and consummated, the Plan will achieve the objectives described above. Similarly, there can be no assurance that the financings contemplated by the Plan actually can be obtained on terms favorable to the Company, or at all. 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. The Plan, if implemented, will materially change certain amounts currently disclosed in the Company's financial statements. At this time, because of material uncertainties, pre-petition claims are generally carried at face value in the financial statements. The Company's financial statements do not present the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Page 13 of 25 14 Chapter 11 bankruptcy case. Under the Plan, the rights of pre-petition creditors will be substantially altered. This will result in such claims being paid in the Chapter 11 bankruptcy proceedings at substantially less than 100 percent of face value. Results of Operations The following table sets forth the percentage relationship of certain cost and expense items to net sales for the periods indicated:

The following table sets forth the sales product mix as a percentage of net sales for the periods indicated:

Page 14 of 25 15 THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999 Net sales increased 76.9% primarily due to increased shipments of approximately 195,800 tons and higher average selling prices for the three months ended June 30, 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 20.0%, 8.6%, 19.0% and 31.0%, respectively, in the three months ended June 30, 2000 compared to the same period of the previous fiscal year. Shipped tonnage of sheet, pipe and slab products increased approximately 167,200 tons or 160.9%,9,400 tons or 33.0% and 42,300 tons or 196.8%, respectively, while shipped tonnage of plate products decreased approximately 23,100 tons or 14.1% between the two periods. The changes in price, volume and product mix were primarily the result of significantly improved market conditions. As a result of various trade cases, as well as improved steel markets in several foreign economies, market conditions for the Company's products significantly improved in the three months ended June 30, 2000 as compared to the same period in the previous fiscal year, although well below levels existing prior to the influx of imports. Average price realization increased despite a product mix shift to lower-priced sheet. The Company expects in the near term that both volume and pricing will decline. Steel imports into the U.S. and domestic steel inventory levels have recently increased and are adversely affecting the Company's order entry and pricing. Additionally, new plate production capacity is being added in the domestic market. As a result of the increased supply of imports and other market conditions, the Company expects that its overall price realization and shipments will decrease significantly in the fourth quarter of fiscal 2000 and negatively impact the financial performance of the Company during the quarter and potentially beyond that period. Domestic competition remains intense and imported steel continues to adversely affect the market. The Company sells substantially all of its products in the spot market at prevailing market prices. The Company believes its percentage of such sales is 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. 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 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. The Company continues to monitor imports of all its products and may file additional trade cases or take other trade action in the future. Existing trade laws and regulations may, however, be inadequate to prevent the adverse impact of dumped and/or subsidized steel imports. Moreover, the preparation and prosecution of trade cases requires several months during which the Company Page 15 of 25 16 and other domestic producers must continue to suffer the adverse impact of unfairly traded imports. There is no guarantee that domestic markets will not in the future be flooded illegally with foreign imports of products in competition with the Company's products. While the Company intends to oppose all such imports vigorously, there is no guarantee that it will be successful. Consequently, such imports could pose continuing problems for the domestic steel industry and the Company. Cost of sales includes raw materials, labor costs, energy costs, depreciation and other operating and support costs associated with the production process. The Company's cost of sales, as a percentage of net sales, decreased to 96.0% for the three months ended June 30, 2000, as compared to 124.8% for the same period in the previous fiscal year. The overall average cost of sales per ton shipped decreased approximately $54 per ton between the two periods, primarily as a result of production efficiencies associated with returning to a two-blast furnace operating level and a shift in product mix to lower-cost coiled products, offset in part by higher natural gas costs. 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 $0.7 million for the three months ended June 30, 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 June 30, 2000 decreased approximately $0.2 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 $0.7 million during the three months ended June 30, 2000 as compared to the same period in the previous fiscal year as a result of lower average borrowings outstanding under the Company's revolving credit facility. During the three months ended June 30, 2000 and 1999, the Company recorded approximately $0.8 million and $2.8 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. NINE MONTHS ENDED JUNE 30, 2000 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999 Net sales increased 91.0% primarily due to increased shipments of approximately 681,200 tons and higher average selling prices for the nine months ended June 30, 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 14.9%, 12.7% and 22.6%, respectively, while the weighted average sales price per ton of plate decreased by 0.9% in the nine months ended June 30, 2000 compared to the same period of the previous fiscal year. Shipped tonnage of sheet, pipe and slab products increased approximately 630,700 tons or 358.4%, 52,500 tons or 81.4% and 25,000 tons or 24.7% Page 16 of 25 17 respectively, while shipped tonnage of plate products decreased approximately 27,000 tons or 6.1% 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 97.4% for the nine months ended June 30, 2000, as compared to 136.7% for the same period in the previous fiscal year. The overall average cost of sales per ton shipped decreased approximately $107 per ton between the two periods, primarily as a result of production efficiencies associated with returning to a two-blast furnace operating level and a shift in product mix to lower cost coiled products, offset in part by higher natural gas costs. 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 $1.6 million for the nine months ended June 30, 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 nine months ended June 30, 2000 decreased approximately $7.7 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 nine months ended June 30, 1999. In addition, cost savings related to staff and support personnel reductions reduced expenses during the current period. Interest expense decreased approximately $13.2 million during the nine months ended June 30, 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 nine months ended June 30, 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 nine months ended June 30, 2000 reduced interest expense by approximately $2.2 million as compared to the same period in the previous fiscal year. During the nine months ended June 30, 2000 and 1999, the Company recorded approximately $3.9 million and $3.9 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 included 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 Page 17 of 25 18 cash provided by operations. As of August 11, 2000, the Company's eligible inventories, accounts receivable and equipment supported access to $10.9 million in borrowings under the Company's credit facility. As of August 11, 2000, the Company had $59.3 million available under the credit facility, with $44.7 million in borrowings and $3.7 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 $29.6 million for the nine months ended June 30, 2000, as compared with net cash provided by operating activities of $13.2 million for the nine months ended June 30, 1999. The sources of cash for operating activities during the nine months ended June 30, 2000 included net income of $0.6 million, depreciation and amortization of $32.5 million, a decrease in accounts receivable of $7.1 million, an increase in accounts payable of $3.1 million, an increase in accrued pension and profit sharing costs of $1.4 million and an increase in accrued payroll and related taxes of $0.4 million. These sources of cash were substantially offset by a gain on asset sales of $8.3 million, an increase in inventories of $2.8 million, an increase in prepaid expenses of $2.5 million, and a decrease in accrued liabilities of $1.7 million. In March 2000, the Company entered into an agreement with Mannesmann Pipe and Steel ("Mannesmann") to terminate its existing sales representation agreement. Prior to termination, Mannesmann sold the Company's products to end customers at the same sales price Mannesmann paid the Company plus a variable commission. Mannesmann paid the Company in approximately three days. In addition, the Mannesmann agreement required Mannesmann to purchase and pay for the Company's finished goods inventory as soon as it was assigned to or was otherwise identified with a particular order. As of June 30, 2000, the Company had received $13.4 million from Mannesmann for the purchase of finished goods inventory assigned to discrete orders. When the funds were received for inventory prior to shipment, the Company deferred the revenue recognition until the inventory was shipped. Therefore, until shipment occurred the Company recorded the receipt of funds and a corresponding liability representing the deferred revenue and/or inventory reduction for the cost of the inventory in its financial statements. The Company is responsible for customer credit and product quality for all steel sold through Mannesmann. The arrangement with Mannesmann was terminated beginning July 1, 2000, with a 90 day phase out of its liquidity arrangement with Mannesmann. 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 employed certain Mannesmann employees currently involved in marketing the Company's products. While the Company believes that the Mannesmann arrangement will 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 Page 18 of 25 19 October 1999. The Company believes it is now entitled to receive the additional $1.5 million, although payment has not been made and may be subject to dispute. There can be no assurance 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 $8.5 million and $7.7 million for the nine months ended June 30, 2000 and 1999, respectively. Capital expenditures for fiscal year 2000 are estimated at approximately $15 million, which includes spending on a walking beam furnace, a blast furnace reline, maintenance items and various projects designed to reduce costs and increase product quality and throughput. The Company is continuing to closely monitor its capital spending levels. The Company's recent cash constraints have dictated that significant capital projects be postponed. In the future, the Company will be required to spend significant additional amounts for capital maintenance and projects including the recently deferred projects. Depending on market, operational, liquidity and other factors, the Company may elect to adjust the design, timing and budgeted expenditures of its capital plan. FACTORS AFFECTING FUTURE RESULTS The Company's future operations and liquidity will be impacted by, among other factors, pricing, product mix, throughput levels and production efficiencies. The Company has efforts underway to increase sales volumes, shift its product mix and 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, continued weak market conditions or a disruption in the Company's operations would likely cause the Company to experience negative cash flow in the fourth fiscal quarter and potentially beyond that period. 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. Page 19 of 25 20 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, 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 confirmation and timing of the Plan), the outcome of the Company's proposed Plan, resolution of pending claims and of other issues in the Company's Chapter 11 proceedings, access to sufficient exit financing for the Plan, the Company's expectation that prices and shipments will improve, the production efficiencies of a two-blast furnace operation, the Company's continued access to and adequacy of its 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 and in the Company's other filings with the Securities and Exchange Commission. Page 20 of 25 21 ITEM 3. QUANTATIVE 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 June 30, 2000, the Company had variable rate debt outstanding from its credit facilities totaling $27.6 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 $69,000 in interest expense for the three months ended June 30, 2000. Page 21 of 25 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 June 30, 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 $3.6 million, which is also not included in the Company's financial statements. As of June 30, 2000, contractual accrued dividends on the redeemable preferred stock were approximately $47.2 million, which is $18.8 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. The Bankruptcy Court has approved payment of certain pre-petition obligations such as employee wages and benefits and customer claims and rebates. Additionally, the Bankruptcy Court has approved the retention of various legal, financial and other 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. On July 20, 2000, the Company filed a proposed plan of reorganization (the "Plan") and Disclosure Statement with the United States Bankruptcy Court for the District of Utah. The Plan is proposed jointly by the Company and the Official Committee of Bondholders in the Company's Chapter 11 Case. If approved as currently proposed,the Plan Page 22 of 25 23 will significantly reduce the Company's debt burden and provide additional liquidity in the form of a $25 million capital infusion through the issuance of preferred stock convertible into common stock, a $110 million term loan that is eighty-five-percent guaranteed by the United States government, and a $125 million revolving line of credit. The Company's prebankruptcy unsecured creditors will receive, in lieu of cash payments, substantially all of the common stock of the Company and the right to purchase the preferred stock. The holders of the Company's prebankruptcy common and redeemable preferred stock will not receive a distribution under the Plan and all interests represented by prebankruptcy common and redeemable preferred stock will be extinguished. In the event that creditors do not purchase all of the preferred stock, the Company has entered into a standby purchase agreement that ensures the full $25 million in new capital will be raised. The objective of the Plan 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. The Company, through Citicorp USA, filed an application on January 31, 2000, for a U.S. government loan guarantee under the Emergency Steel Loan Guarantee Program. The application sought an eighty-five- percent guarantee for the $110 million term loan incorporated into the Plan. The Emergency Steel Loan Guarantee Board extended an offer of guarantee to Citicorp, USA on the Company's term loan on June 30, 2000. The Bankruptcy Court will conduct a hearing on the adequacy of the Disclosure Statement on August 24, 2000. Should the Disclosure Statement be approved, a hearing on confirmation of the Plan has been scheduled for October 13, 2000. There can be no assurance at this time that the Plan proposed by the Company and the Bondholders' Committee will be confirmed by the Bankruptcy Court either on the schedule set forth above or at all, or that, if confirmed and consummated, the Plan will achieve the objectives described above. Similarly, there can be no assurance that the financings contemplated by the Plan actually can be obtained on terms favorable to the Company, or at all. 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. The Plan, if implemented, will materially change certain amounts currently disclosed in the Company's financial statements. At this time, because of material uncertainties, pre-petition claims are generally carried at face value in the accompanying financial statements. The Company's financial statements do not present the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 bankruptcy case. Under the Plan, the rights of pre-petition creditors will be substantially altered. This will result in such claims being Page 23 of 25 24 paid in the Chapter 11 bankruptcy proceedings at substantially less than 100 percent of face value. 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.

(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended June 30, 2000. Page 24 of 25 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: August 14, 2000 Page 25 of 25

GENEVA STEEL CO 10-Q