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Lean times force Geneva out of the party circuit

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Geneva Steel canceled its annual media Christmas luncheon last December because company administrators didn't think it was right to party with the press at Riverside Country Club while putting people out of work.

The company let 64 steelworkers go during the holidays.Partying of any kind looks like a thing of the past at the leaner, meaner Geneva.

Hobnobbing at the plush Utah Jazz suite will probably come to an end. Sponsorship of events such as America's Freedom Festival at Provo will be sharply curtailed. Local charities won't see as much of Geneva's humanitarian side. Top company executives will take home 10 percent less pay.

Geneva couldn't retain those pleasures at the same time it's sending 50 employees packing. The company laid off 38 administrative and staff workers Monday and eliminated 12 contract positions. It also reassigned 10 people within the plant.

The layoffs and transfers are part of a plan to slash 20 percent from Geneva's operation and management costs. Geneva employs about 2,600 people, including 500 nonunion office workers.

Joe Cannon, Geneva chairman and chief executive officer, cautioned observers against reading the company's demise into the belt tightening. Some, however, don't think it would take much to put it on life support.

"Our efforts to reduce administrative costs are only one element of a large project, referred to as the Delta Project, directed at systematically changing the way we do business at Geneva Steel," Cannon said. "We don't believe this is the beginning and the end of the change."

Geneva launched several teams the past few months to work on improving all aspects of the company including customer service, employee relations and operations.

Cannon said the moves are necessary to remain competitive in the current marketplace.

Low steel prices, a surge of foreign imports and new domestic mills are taking a toll on Geneva's bottom line. The company has had only one profitable year since1991.

"Clearly, they're in the survival mode. That's the name of the game," said Richard Aldrich, a steel industry analyst with Lehman Brothers in New York City. "These guys are battening down the hatches and getting as lean and mean as they can."

Even so, Geneva can't be ruled out as a bankruptcy candidate, he said. Its stock is trading at about the price of a Happy Meal. Long-term debt amounts to more than $385 million. The company sorely lacks liquidity, and has little, if any, cash on hand.

"If steel prices drop $50 a ton, I don't see how these guys can survive very long," said Aldrich, who recently increased his annual loss estimate for Geneva.

Cannon said while lots of people would like that to be the case, it's not "re-engineering" itself under threat of bankruptcy. But it is positioning the company to weather a drastic price drop.

"We'll do whatever it takes to try to survive in exactly that scenario," he said. "We're going to keep going and going until someone nukes us."

Analysts agree that Geneva will remain viable as long as steel prices don't collapse.

There also has been talk in the steel industry of Geneva being bought out. "That's not an impossibility," Aldrich said.

The current edition of American Metal Markets lists at least three firms, including a worldwide Indonesian conglomerate looking to get a toehold in American markets, that might be interested, he said. Geneva has a mill full of cutting-edge steelmaking equipment, for which it spent $370 million. The debt makes it a less attractive buy.

"We're not for sale," said Cannon, adding nobody has made the company an offer, nor are any negotiations taking place.

Cannon and Robert J. Grow, president and chief operating officer, are used to detractors telling them the plant will fail since they reopened it a decade ago. But the resilient company holds on.

"We believe that these measures, along with our efforts during the past few years to modernize the plant, are necessary to accomplish our long-term objectives of success and profitability," Grow said.

Monday's layoffs are similar to a reduction in force the company endure in 1992 when it trimmed administrative costs 10 percent, including 20 staff positions. Geneva also let some 180 steelworkers go that year, blaming "dumped" foreign steel, low steel prices and an economic recession. The company employed 2,800 people at that time.