-----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, pYjGbYICexFjH7ILyIIE1zrKbgbMX3bQEk1jANyfeDVlI4S5jupIhRmLS3VS8lj0 xav1En2AHn69Tue8xvrkwg== 0000055604-94-000001.txt : 19940516 0000055604-94-000001.hdr.sgml : 19940516 ACCESSION NUMBER: 0000055604-94-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE CONSOLIDATED INDUSTRIES INC CENTRAL INDEX KEY: 0000055604 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 370364250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03919 FILM NUMBER: 94526937 BUSINESS ADDRESS: STREET 1: 5430 LBJ FWY STE 1440 STREET 2: THREE LINCOLN CENTRE CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144580028 MAIL ADDRESS: STREET 1: 5430 LBJ FWY STE 1440 STREET 2: THREE LINCOLN CENTRE CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE STEEL & WIRE CO DATE OF NAME CHANGE: 19710506 10-Q 1 KEYSTONE CONSOLIDATED INDUSTRIES, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period March 31, 1994 Commission file number 1-3919 KEYSTONE CONSOLIDATED INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 37-0364250 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5430 LBJ Freeway, Suite 1740, Three Lincoln Centre, Dallas, TX 75240-2697 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 458-0028 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Number of shares of common stock outstanding at April 30, 1994: 5,592,751 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES INDEX
Page number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1993 and March 31, 1994 3-4 Consolidated Statements of Operations - Three months ended March 31, 1993 and 1994 5 Consolidated Statement of Stockholders' Deficit - Three months ended March 31, 1994 6 Consolidated Statements of Cash Flows - Three months ended March 31, 1993 and 1994 7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, MARCH 31, ASSETS 1993 1994 Current assets: Accounts and notes receivable $ 38,513 $ 49,157 Inventories 35,544 36,698 Deferred income taxes 5,437 4,776 Prepaid expenses and other 1,257 1,019 Total current assets 80,751 91,650 Property, plant and equipment 222,601 224,604 Less accumulated depreciation 141,832 144,963 Net property, plant and equipment 80,769 79,641 Other assets: Intangible pension asset 12,067 11,612 Deferred income taxes 28,056 30,333 Other 5,011 4,947 Total other assets 45,134 46,892 $206,654 $218,183
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands)
December 31, MARCH 31, LIABILITIES AND STOCKHOLDERS' DEFICIT 1993 1994 Current liabilities: Notes payable and current maturities of long-term debt $ 8,148 $ 17,394 Accounts payable 24,189 24,198 Accounts payable to affiliates 111 21 Accrued pension cost 9,556 8,812 Accrued OPEB cost 7,243 7,243 Other accrued liabilities 25,119 26,507 Total current liabilities 74,366 84,175 Noncurrent liabilities: Long-term debt 19,042 18,477 Accrued pension cost 60,102 62,941 Accrued OPEB cost 96,336 96,784 Other 7,716 7,468 Total noncurrent liabilities 183,196 185,670 Stockholders' deficit: Common stock 6,244 6,304 Additional paid-in capital 18,803 19,255 Pension liabilities adjustment (35,317) (37,570) Accumulated deficit (40,047) (39,639) Treasury stock, at cost (591) (12) Total stockholders' deficit (50,908) (51,662) $206,654 $218,183
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended March 31, 1993 1994 Revenues and other income: Net sales $81,130 $87,580 Other 89 65 81,219 87,645 Costs and expenses: Cost of goods sold 73,975 80,362 Selling 1,292 1,353 General and administrative 4,208 4,626 Interest 782 629 80,257 86,970 Income before income taxes 962 675 Provision for income taxes 370 267 Net income $ 592 $ 408 Income per common and common equivalent share $ .11 $ .07 Weighted average common and common equivalent shares outstanding 5,511 5,550
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT Three months ended March 31, 1994 (In thousands)
Additional Pension Total Common paid-in liabilities Accumulated Treasury stockholders' stock capital adjustment deficit stock deficit Balance at December 31, 1993 $6,244 $18,803 $(35,317) $(40,047) $(591) $(50,908) Net income - - - 408 - 408 Issuance of common stock 60 452 - - 622 1,134 Purchase of treasury stock - - - - (43) (43) Pension adjustment - - (2,253) - - (2,253) Balance at March 31, 1994 $6,304 $19,255 $(37,570) $(39,639) $ (12) $(51,662)
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, 1993 1994 Cash flows from operating activities: Net income $ 592 $ 408 Adjustments: Depreciation 2,939 3,131 Noncash OPEB cost 617 448 Other, net (166) (92) Change in assets and liabilities: Accounts and notes receivable (12,853) (10,727) Inventories 2,765 (1,154) Accounts payable 2,252 (81) Other, net (366) 920 Total adjustments (4,812) (7,555) Net cash used by operating activities (4,220) (7,147) Cash flows from investing activities - capital expenditures (1,751) (2,003) Cash flows from financing activities: Revolving credit facility, net 6,946 9,284 Other notes payable and long-term debt: Additions 23 133 Principal payments (925) (736) Common stock issued (purchased), net (73) 469 Net cash provided by financing activities 5,971 9,150 Net change in cash and cash equivalents - - Cash and cash equivalents at beginning of period - - Cash and cash equivalents at end of period $ - $ - Supplemental disclosures Cash paid for: Interest, net of amount capitalized $ 812 $ 603 Income taxes 66 24 Treasury stock contributed to employee benefit plan - 622
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and basis of presentation: Keystone Consolidated Industries, Inc. (the "Company") is a majority-owned subsidiary of Contran Corporation ("Contran"). At March 31, 1994, Contran held, directly or indirectly, approximately 62% of the Company's outstanding common stock. The consolidated balance sheet at December 31, 1993 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at March 31, 1994 and the consolidated statements of operations and cash flows for the interim periods ended March 31, 1993 and 1994, and the consolidated statement of stockholders' deficit for the interim period ended March 31, 1994 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. However, it should be understood that accounting measurements at interim dates may be less precise than at year end. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. Certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (the "Annual Report"). Note 2 - Income per share: Income per share is based on the weighted average number of common and common equivalent shares outstanding during each period. Note 3 - Inventories: Inventories are stated at the lower of cost or market. The last-in, first- out ("LIFO") method is used to determine the cost of approximately 73% of inventories held at March 31, 1994 (71% at December 31, 1993) and the first-in, first-out or average cost methods are used to determine the cost of all other inventories.
December 31, MARCH 31, 1993 1994 (In thousands) Raw materials $ 9,944 $ 9,191 Work in process 9,963 11,329 Finished products 14,250 15,329 Supplies 14,115 13,577 48,272 49,426 Less LIFO reserve 12,728 12,728 $35,544 $36,698
Note 4 - Notes payable and long-term debt:
December 31, MARCH 31, 1993 1994 (In thousands) Commercial credit agreements: Revolving credit facility $ 3,911 $13,195 Term loan 19,439 18,883 Other 3,840 3,793 27,190 35,871 Less current maturities 8,148 17,394 $19,042 $18,477
The Company maintains a $35 million revolving credit facility which matures December 31, 1996, is collateralized primarily by the Company's trade receivables and inventories, and bears interest at the prime rate plus 1.5% (an effective rate of 7.5% at March 31, 1994). The amount of available borrowings is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit (approximately $.4 million at March 31, 1994). At March 31, 1994, the available borrowings under this credit facility were $21.4 million. This credit facility requires that the Company's daily cash receipts be used to reduce the outstanding borrowings, which results in the Company maintaining zero cash balances. The Company's term loan with the financial institution that provides the Company's revolving credit facility bears interest at the prime rate plus 1% and is due in installments through December 31, 1996. The loan requires compliance with the restrictive covenants, security agreement and certain other terms of the revolving credit facility, is further collateralized by the Company's property, plant and equipment, and becomes due and payable if the Company terminates its revolving credit facility. The Company's credit agreements contain restrictive covenants including a prohibition against the payment of dividends without lender consent and certain minimum working capital and net worth requirements. Note 5 - Income taxes: The difference between the provision for income taxes and the amounts that would be expected using the U.S. federal statutory income tax rate is primarily related to state income taxes. The components of the net deferred tax asset are summarized below.
Deferred tax assets (liabilities) December 31, March 31, 1993 1994 (In thousands) Tax effect of temporary differences relating to: Inventories $ 1,623 $ 1,666 Property and equipment (11,845) (11,383) Accrued pension cost 18,206 18,970 Accrued OPEB cost 40,396 40,571 Accrued liabilities and other deductible differences 6,978 7,421 Other taxable differences (583) (584) Net operating loss carryforwards 2,376 1,675 Alternative minimum tax credit carryforwards 6,342 6,773 Valuation allowance (30,000) (30,000) Net deferred tax asset 33,493 35,109 Less current deferred tax asset 5,437 4,776 Noncurrent deferred tax asset $ 28,056 $ 30,333
There was no change in the deferred tax valuation allowance during the first three months of 1993 or 1994. Note 6 - Pension plans: Variances from actuarial assumptions, including the rate of return on pension plan assets, will continue to result in additional increases or decreases in accrued pension costs, deferred taxes, stockholders' deficit, pension expense and related funding requirements in future periods. During the early 1980's the Company received permission from the Internal Revenue Service to defer certain annual pension plan contributions aggregating $32 million. At March 31, 1994, the remaining balance of such deferred contributions was approximately $12.5 million. The deferred amounts, with interest, are payable to the plans through 2000 and are collateralized by a lien on all of the Company's assets. Note 7 - Contingencies: Environmental matters As discussed in the Annual Report, the Company is involved in the closure of inactive waste disposal units as well as the long-term storage or disposal of radioactive arc dust at its Peoria, Illinois facility. In addition, the Company is subject to federal and state "Superfund" legislation at three sites involving cleanup of landfills and disposal facilities which allegedly received hazardous substances generated by discontinued operations of the Company. The Company has accrued its estimated costs related to these issues. The Company believes its comprehensive general liability insurance policies provide indemnification for certain costs the Company incurs at the "Superfund" sites and has recorded receivables for the estimated insurance recoveries. There were no significant changes in the status of these environmental matters during the first quarter of 1994. Current litigation As discussed in the Annual Report, in 1983 and 1984, the Company satisfied a portion of its funding obligations to the Keystone Master Pension Trust through the contribution of certain real property that the IRS contended were prohibited transactions. In May 1993, the U.S. Supreme Court reversed lower court decisions favorable to the Company and remanded the case to the tax court to determine the amount due. During 1993, the Company accrued $7.1 million for the estimated costs of the 5% nondeductible excise taxes and related interest. In addition, to avoid a second tier $9.6 million excise tax, the Company made a "correction" payment of $2.3 million to its pension plans in June 1993. The Company is currently negotiating a settlement of this matter with the IRS and has reached a preliminary understanding whereby the amount of excise taxes and related interest will be reduced by approximately $4 million and the Company will make an additional "correction" payment of $3.3 million to its pension plans. Should this preliminary understanding become the final settlement, the Company would recognize, as a change in estimate, an approximate $2.5 million after-tax reduction in previously-recorded expense. Also as discussed in the Annual Report, the Company is involved in an adversary proceeding against the Company relating to the bankruptcy of the purchaser of two former divisions of the Company. The Company believes the adversary proceeding is without merit and intends to vigorously defend its interests. There was no significant change in the status of this litigation during the first quarter of 1994. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: The Company's cash flows from operating activities are affected by the seasonality of its business which resulted in increases in accounts receivable and the outstanding balance under its revolving credit facility during the first three months of both 1993 and 1994. The increases in accounts receivable were also due partially to lower year-end accounts receivable balances resulting from the normal two-week December shutdown for maintenance and repairs at the Peoria, Illinois facility. In addition, cash used by operating activities was higher during the first quarter of 1994 due principally to increases in pension contributions and inventory levels, decreased accounts payable and lower income from operations compared to the 1993 period. Pension contributions during the first three months of 1994 amounted to $3.4 million, an increase of $1.6 million from the 1993 period. The Company currently expects to contribute an additional $15.8 million during the remainder of 1994 for a total of $19.2 million compared to total pension contributions in 1993 of $15.0 million. Pension contributions in 1993 included the additional $2.3 million payment to the pension plans made in 1993 in order to avoid a second tier excise tax related to the adverse May 1993 U.S. Supreme Court decision (see Note 7 to the Consolidated Financial Statements). The higher pension contributions in 1994 include approximately $3 million of planned contributions in excess of expected minimum funding requirements and the possible $3.3 million additional contribution discussed in Note 7 to the Consolidated Financial Statements. At March 31, 1994, the Company's working capital was $7.5 million. Notes payable and current maturities of long-term debt, deductions in the computation of such working capital, aggregated $17.4 million at March 31, 1994, and included outstanding borrowings of $13.2 million under the Company's $35 million revolving credit facility. The amount of available borrowings is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit, and additional available borrowings were $21.4 million at March 31, 1994. The revolving credit facility requires that the Company's daily cash receipts be used to reduce the outstanding borrowings, which results in the Company maintaining zero cash balances. Borrowings under the revolving credit facility currently mature December 31, 1996. Capital expenditures in 1994 are currently estimated to be approximately $18 million for the full year, including approximately $5 million related to information processing systems at the Company's Peoria, Illinois facility and $2 million related to environmental items. For 1994, management has budgeted profitable results of operations with sufficient cash flows from operations and financing activities to meet its anticipated operating needs. This budget is based upon management's assessment of various financial and operational factors including, but not limited to, assumptions relating to product shipments, product mix, foreign competition, and selling prices; production schedules; productivity rates; raw materials, electricity, labor, employee benefit and other fixed and variable costs; working capital requirements; interest rates; repayments of long-term debt; capital expenditures; and available borrowings under the Company's revolving credit facility. However, potential liabilities under environmental laws and regulations with respect to the disposal and clean-up of wastes beyond present estimates, any significant increases in the required minimum fundings to the Company's pension funds or in the cost of providing medical coverage to active and retired employees, could have a material adverse affect on the future liquidity, financial condition and results of operations of the Company. Additionally, any significant decline in the Company's markets or market share, any inability to maintain satisfactory billet and rod production levels, or any other unanticipated costs, if significant, could result in a need for funds greater than the Company currently has available. There can be no assurance the Company would be able to obtain an adequate amount of additional financing. RESULTS OF OPERATIONS: The Company's operations are the manufacture and sale of carbon steel rod, wire and wire products for agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets. Historically, the Company has experienced greater sales and profits during the first half of the year due to the seasonality of sales in principal wire products markets, including the agricultural and construction markets. Net sales for the first quarter of $87.6 million represents an increase of 8% over the comparable 1993 quarter primarily due to higher selling prices. Tons of product sold were comparable in both periods with wire and wire products sales increasing 2% to 105,000 tons and rod sales decreasing 4% to 68,000 tons. Despite higher product selling prices in 1994, margins and net income declined due principally to the continued high cost of scrap steel, the Company's primary raw material, increased pressure from imports on certain product selling prices, and inclement weather resulting in production outages and increased costs. During the first quarter of 1994, billet production of 151,000 tons was comparable to the 1993 period, whereas steel rod production increased 4% to 171,000 tons, or 91% of the currently estimated capacity. During the first quarters of 1994 and 1993, the Company purchased 30,000 and 26,000 tons of billets, respectively, for conversion to rods. Scrap steel costs in the first quarter of 1994 were approximately 34% higher than one year ago but are currently expected to decline from current levels during the second quarter. A cost decline could help the Company to reestablish historic gross profit margins later in the year. Selling, general and administrative expenses, as a percentage of net sales, were comparable in both periods. Interest expense declined in the 1994 period due primarily to lower interest rates and lower average borrowing levels. PART II. ITEM 1. Legal Proceedings Reference is made to disclosure provided under the caption "Current litigation" in Note 14 to the Consolidated Financial Statements included in the Annual Report. ITEM 6. Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K filed during the quarter ended March 31, 1994: None. S I G N A T U R E S 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. Keystone Consolidated Industries, Inc. (Registrant) Date: May 9, 1994 By /s/Harold M. Curdy Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: May 9, 1994 By /s/Bert E. Downing, Jr. Bert E. Downing, Jr. Corporate Controller (Principal Accounting Officer) S I G N A T U R E S 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. Keystone Consolidated Industries, Inc. (Registrant) Date: May 9, 1994 By ___________________________________ Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: May 9, 1994 By ___________________________________ Bert E. Downing, Jr. Corporate Controller (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----