-----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, Bx8cdS3T1ZkMBLux0x3m+5wNzWdRjs/ZQGpsOMZmicD2/Fstzh6q+r4TsrR7wPb9 jCedzckWRf4bLfhlQj5ybQ== 0000055604-95-000012.txt : 19950728 0000055604-95-000012.hdr.sgml : 19950728 ACCESSION NUMBER: 0000055604-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950727 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE CONSOLIDATED INDUSTRIES INC CENTRAL INDEX KEY: 0000055604 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [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: 95556334 BUSINESS ADDRESS: STREET 1: 5430 LBJ FWY STE 1740 STREET 2: THREE LINCOLN CENTRE CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144580028 MAIL ADDRESS: STREET 1: 5430 LBJ FWY STE 1740 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 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 quarter ended June 30, 1995 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 Section 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 July 24, 1995: 5,636,507 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1994 and June 30, 1995 3-4 Consolidated Statements of Operations - Three months and six months ended June 30, 1994 and 1995 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1994 and 1995 6 Consolidated Statement of Stockholders' Deficit - Six months ended June 30, 1995 7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, JUNE 30, ASSETS 1994 1995 Current assets: Notes and accounts receivable $ 41,915 $ 43,814 Accounts receivable from affiliate - 70 Inventories 35,861 40,760 Deferred income taxes 4,552 3,188 Prepaid expenses and other 2,057 1,486 Total current assets 84,385 89,318 Property, plant and equipment 231,708 238,515 Less accumulated depreciation 150,561 156,785 Net property, plant and equipment 81,147 81,730 Other assets: Unrecognized pension obligation 10,247 9,337 Deferred income taxes 23,783 19,549 Notes receivable 1,397 1,189 Other 4,642 5,507 Total other assets 40,069 35,582 $205,601 $206,630
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands)
December 31, JUNE 30, LIABILITIES AND STOCKHOLDERS' DEFICIT 1994 1995 Current liabilities: Notes payable and current long-term debt $ 10,714 $ 20,491 Accounts payable 28,418 28,582 Accounts payable to affiliate 191 - Accrued pension cost 13,735 10,628 Accrued OPEB cost 6,825 7,883 Other accrued liabilities 21,973 21,076 Total current liabilities 81,856 88,660 Noncurrent liabilities: Long-term debt 15,340 13,546 Accrued pension cost 40,470 25,600 Accrued OPEB cost 98,310 97,499 Other 10,204 10,479 Total noncurrent liabilities 164,324 147,124 Stockholders' deficit: Common stock 6,313 6,357 Additional paid-in capital 19,393 19,948 Accumulated deficit (32,486) (29,355) Net pension liabilities adjustment (33,787) (26,092) Treasury stock, at cost (12) (12) Total stockholders' deficit (40,579) (29,154) $205,601 $206,630
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended Six months ended June 30, June 30, 1994 1995 1994 1995 Revenues and other income: Net sales $102,549 $95,482 $190,129 $186,250 Other 62 165 127 324 102,611 95,647 190,256 186,574 Costs and expenses: Cost of goods sold 90,515 84,227 170,877 167,504 Selling, general and administrative 5,669 5,768 11,648 12,260 Interest - notes payable and long-term debt 738 897 1,367 1,634 Interest credit related to excise tax (3,853) - (3,853) - 93,069 90,892 180,039 181,398 Income before income taxes 9,542 4,755 10,217 5,176 Provision for income taxes 3,703 1,879 3,970 2,045 Net income $ 5,839 $ 2,876 $ 6,247 $ 3,131 Income per common and common equivalent share $ 1.04 $ .50 $ 1.11 $ .55 Weighted average common and common equivalent shares outstanding 5,613 5,657 5,581 5,650
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six months ended June 30, 1994 1995 Cash flows from operating activities: Net income $ 6,247 $ 3,131 Depreciation 6,489 6,569 Deferred income taxes 2,631 678 Other, net 733 141 Change in assets and liabilities: Notes and accounts receivable (11,054) (1,927) Inventories (174) (4,899) Accounts payable 4,522 (27) Accrued pension cost (5,954) (4,452) Accrued excise tax and related interest (5,053) (1,033) Other, net 1,172 922 Net cash used by operating activities (441) (897) Cash flows from investing activities: Capital expenditures (6,090) (7,575) Proceeds from disposition of property and equipment - 487 Net cash used by investing activities (6,090) (7,088) Cash flows from financing activities: Revolving credit facility, net 7,502 9,787 Other notes payable and long-term debt: Additions 163 81 Principal payments (1,603) (1,885) Common stock issued, net 469 2 Net cash provided by financing activities 6,531 7,985 Net change in cash and cash equivalents - - Cash and cash equivalents, beginning of period - - Cash and cash equivalents, end of period $ - $ - Supplemental disclosures: Cash paid for: Interest, net of amount capitalized $ 1,362 $ 1,743 Income taxes 1,028 869 Stock contributed to employee benefit plan $ 622 $ 597
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT Six months ended June 30, 1995 (In thousands)
Additional Net pension Total Common paid-in Accumulated liabilities Treasury stockholders' stock capital deficit adjustment stock deficit Balance at December 31, 1994 $6,313 $19,393 $(32,486) $(33,787) $(12) $(40,579) Net income - - 3,131 - - 3,131 Issuance of common stock 44 555 - - - 599 Pension adjustment - - - 7,695 - 7,695 Balance at June 30, 1995 $6,357 $19,948 $(29,355) $(26,092) $ (12) $(29,154)
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 June 30, 1995, Contran held, directly or indirectly, approximately 68% of the Company's outstanding common stock. The consolidated balance sheet at December 31, 1994 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 1995 and the consolidated statements of operations and cash flows for the interim periods ended June 30, 1994 and 1995, and the consolidated statement of stockholders' deficit for the interim period ended June 30, 1995 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, 1994 (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. 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 three-fourths of total inventories and the first-in, first-out or average cost methods are used to determine the cost of other inventories.
December 31, JUNE 30, 1994 1995 (In thousands) Raw materials $12,672 $13,572 Work in process 8,086 14,816 Finished products 14,501 12,336 Supplies 14,407 13,841 49,666 54,565 Less LIFO reserve 13,805 13,805 $35,861 $40,760
Note 4 - Notes payable and long-term debt:
December 31, JUNE 30, 1994 1995 (In thousands) Commercial credit agreements: Revolving credit facility $ 6,531 $16,318 Term loan 16,382 14,716 Other 3,141 3,003 26,054 34,037 Less current maturities 10,714 20,491 $15,340 $13,546
The Company's $35 million revolving credit facility 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 10.5% at June 30, 1995). The amount of available borrowings is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit. Additional borrowings available were $18.3 million at June 30, 1995. The Company's daily cash receipts are required to be used to reduce the outstanding borrowings, which results in the Company maintaining zero cash balances. The Company's term loan bears interest at the prime rate plus 1% and is due in installments through December 31, 1996. The loan is collateralized by the Company's property, plant and equipment, and has cross default provisions relating to the revolving credit facility. The 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 net deferred tax asset at each of December 31, 1994 and June 30, 1995 is net of a $30 million valuation allowance. There was no change in the deferred tax valuation allowance during the first half of 1994 or 1995. Note 6 - Pension plans: Variances from actuarial assumptions, including the rate of return on pension plan assets, will result in 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. At June 30, 1995, the remaining balance of such deferred contributions was approximately $9.1 million. Such 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 - Excise tax settlement: As discussed in the Annual Report, the Company satisfied a portion of its 1983 and 1984 funding obligations to the Keystone Master Pension Trust (the "Keystone Trust") with contributions 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 ruled the contributions were prohibited transactions. The case was remanded to the Tax Court to determine the amount due. During 1993, the Company accrued $7.1 million for the estimated cost of the 5% excise taxes and related interest and, to avoid a second tier excise tax, made a "correction" payment of $2.3 million to its pension plans. In June 1994, the Company and the IRS agreed on the amount due and entered into a Closing Agreement which was approved by the Tax Court in July 1994. Pursuant to the terms of the Closing Agreement, in June 1994, the Company made an additional "correction" payment of approximately $3.3 million to its pension plans, and agreed to pay $3.1 million in excise tax and accrued interest over a two-year period beginning in June 1994. As a result, 1994 results include a $4 million reduction in previously accrued expenses related to this matter. Note 8 - 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 disposal of radioactive arc dust. 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 was no significant change in the status of these environmental matters during the first six months of 1995. Other litigation. The Company is engaged in various legal proceedings incidental to its normal business activities. In the opinion of the Company, none of such proceedings are material in relation to the Company's consolidated financial position, results of operations or liquidity. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: The Company's principal 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 second quarter of 1995 decreased $7.1 million, or 7% from the comparable 1994 period. Tons of rod sold decreased 13% (74,000 tons compared to 85,000 tons), while tons of wire and wire products sold decreased 10% (109,000 tons compared to 121,000 tons). Wire and wire products selling prices increased 3% and rod selling prices increased 7% during the second quarter of 1995 as compared to the second quarter of 1994. Net sales for the first half of 1995 decreased $3.9 million, or 2%, from the comparable 1994 period. Tons of rod sold decreased 9% (139,000 tons compared to 153,000 tons), while tons of wire and wire products sold decreased 2% (221,000 tons compared to 226,000 tons). Wire and wire products selling prices increased 1% and rod selling prices increased 6% during the first half of 1995 as compared to the first half of 1994. The Company believes the 11% decline in overall sales volume during the 1995 second quarter and a 17% year-to-year decline in order backlog as of June 30, 1995 is a result of several factors, including customers reducing their inventory levels, increased rod imports and reduced orders due to the Company's announced wire sales price increase for April orders. In addition, the Company believes this price increase, which was not widely followed in the industry and met with customer resistance, resulted in some reduction in market share. The Company has rescinded the April price increase in response to competitive pressure and is presently regaining market share. The Company anticipates certain of these factors will continue to impact revenues through the end of 1995. However, despite these negative factors and the decreased June 30, 1995 backlog, the Company currently is forecasting that revenues for the remainder of 1995 will approximate those of the second half of 1994. Gross profit was $11.3 million for the second quarter of 1995, a decrease of $.7 million from the comparable 1994 period. However, the gross profit margin was 11.8%, up from 11.7% in the comparable 1994 period. Gross profit was $18.7 million for the first half of 1995, a decrease of $.5 million, and the year-to- date gross profit margin of 10.1% was comparable to the 1994 period. Higher product selling prices in 1995 positively impacted gross margins while margins were negatively impacted by higher rod conversion costs, higher scrap costs and increased costs related to production outages at the Peoria rod mill during the first quarter of 1995. Scrap prices were approximately 4% and 2% higher during the second quarter and first half, respectively, of 1995 as compared to the 1994 periods. Scrap steel costs are currently expected to increase slightly from current levels during the second half of 1995. During the first half of 1995, billet and rod production at the Peoria steel mill of 326,000 tons and 353,000 tons, respectively, approximated production in the 1994 period. As the Company's billet production capacity is less than its rod production capacity, the Company periodically purchases billets from other suppliers to increase the utilization of the rod mill and thus assure the Company's ability to meet its customers' orders. The decision to purchase billets depends on billet prices, product demand and other market conditions. During the first half of 1995 the Company purchased 56,000 tons of billets compared to 54,000 tons purchased in the first half of 1994. Due to higher than normal billet inventory levels at June 30, 1995 and lower than planned short- term sales forecasts, the Company currently does not anticipate purchasing billets during the remainder of 1995 whereas 41,000 tons were purchased during the last half of 1994. Selling, general and administrative expenses, as a percentage of net sales, increased slightly from the 1994 to 1995 periods. Interest expense increased in the 1995 periods due to higher interest rates and increased borrowings under the Company's revolving credit facility. LIQUIDITY AND CAPITAL RESOURCES: The Company's cash flows from operating activities are affected by the seasonality of its business as sales of certain products used in the agricultural and construction industries are typically highest during the second quarter and lowest during the fourth quarter of each year. These seasonal fluctuations, as well as the normal December shutdown for maintenance and repairs at the Company's Peoria, Illinois facility impact the timing of production, sales and purchases. At June 30, 1995, the Company had working capital of $.7 million. Notes payable and current long-term debt, deductions in the computation of such working capital, aggregated $20.5 million at June 30, 1995, and included outstanding borrowings of $16.3 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 borrowings available were $18.3 million at June 30, 1995. The Company's daily cash receipts are required to be used to reduce the outstanding borrowings, which results in the Company maintaining zero cash balances. Borrowings under the revolving credit facility mature December 31, 1996. Pension contributions and capital expenditures during the first half of 1995 amounted to $9.7 million and $7.6 million, respectively, and are currently estimated to be approximately $20.8 million and $20 million for the full year, respectively. Management has budgeted profitable results of operations with sufficient cash flows from operations and financing activities to meet its anticipated operating needs for the remainder of 1995. 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 and selling prices; rod imports; 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 accruals, 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 or 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. PART II. ITEM 1. Legal Proceedings Reference is made to disclosure provided under the caption "Current litigation" in Note 13 to the Consolidated Financial Statements included in the Annual Report. Note 8 to the Consolidated Financial Statements is incorporated herein by reference. ITEM 6. Exhibits and Reports on Form 8-K. (a) The following exhibit is included herein: 27.1 Financial Data Schedule for the six month period ended June 30, 1995. (b) Reports on Form 8-K filed during the quarter ended June 30, 1995: 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: July 27, 1995 By /s/Harold M. Curdy Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: July 27, 1995 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: July 27, 1995 By ___________________________________ Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: July 27, 1995 By ___________________________________ Bert E. Downing, Jr. Corporate Controller (Principal Accounting Officer) EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEYSTONE CONSOLIDATED INDUSTRIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 0 0 44,395 511 40,760 4,674 238,515 156,785 206,630 88,660 13,546 6,357 0 0 (35,511) 206,630 186,250 186,574 167,504 167,504 12,218 42 1,634 5,176 2,045 3,131 0 0 0 3,131 .55 .55
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