-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LGSFP4A7jsm/rV0fURnHBEyDRpVHliee7swzb0WnV8KdyPFzUrfPfBFpeC6O9Laj bsLcR+NqvAoUdjfLkGguOg== 0000055604-97-000005.txt : 19970509 0000055604-97-000005.hdr.sgml : 19970509 ACCESSION NUMBER: 0000055604-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 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: 97597753 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 KEYSTONE CONSOLIDATED INDUSTRIES 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, 1997 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 incorporation or organization) Identification No.) 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: (972) 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 May 8, 1997 9,263,898 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1996 and March 31, 1997 3-4 Consolidated Statements of Operations - Three months ended March 31, 1996 and 1997 5 Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1997 6 Consolidated Statement of Redeemable Preferred Stock and Common Stockholders' Equity - Three months ended March 31, 1997 7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, March 31, ASSETS 1996 1997 Current assets: Notes and accounts receivable $35,974 $ 48,670 Inventories 36,533 34,948 Deferred income taxes 16,381 17,362 Prepaid expenses 1,542 1,056 Total current assets 90,430 102,036 Property, plant and equipment 262,441 266,770 Less accumulated depreciation 169,833 172,934 Net property, plant and equipment 92,608 93,836 Other assets: Restricted investments 7,691 7,245 Prepaid pension cost 104,726 105,476 Deferred income taxes 2,181 1,053 Other 4,732 4,740 Total other assets 119,330 118,514 $302,368 $314,386
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31, 1996 1997 Current liabilities: Notes payable and current maturities of long-term debt $ 34,760 $ 48,425 Accounts payable 34,419 33,047 Accounts payable to affiliates 159 55 Accrued OPEB cost 8,368 8,385 Other accrued liabilities 28,631 28,799 Total current liabilities 106,337 118,711 Noncurrent liabilities: Long-term debt 17,020 16,162 Accrued OPEB cost 100,818 101,090 Negative goodwill 27,057 26,451 Other 16,466 15,139 Total noncurrent liabilities 161,361 158,842 Redeemable preferred stock 3,500 3,500 Stockholders' equity: Common stock 9,920 9,994 Additional paid-in capital 46,347 46,882 Accumulated deficit (25,085) (23,531) Treasury stock, at cost (12) (12) Total stockholders' equity 31,170 33,333 $302,368 $314,386
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended March 31, 1996 1997 Revenues and other income: Net sales $79,463 $89,149 Other, net 32 199 79,495 89,348 Costs and expenses: Cost of goods sold 74,387 80,791 Selling 1,039 1,245 General and administrative 4,982 4,383 Overfunded defined benefit pension credit - (750) Interest 967 1,390 81,375 87,059 Income (loss) before income taxes (1,880) 2,289 Provision for income taxes (benefit) (743) 665 Net income (loss) (1,137) 1,624 Dividends on preferred stock - 70 Net income (loss) available for common shares $(1,137) $ 1,554 Net income (loss) available for common shares per common and common equivalent share $ (.20) $ .17 Weighted average common and common equivalent shares outstanding 5,663 9,265
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, 1996 1997 Cash flows from operating activities: Net income (loss) $(1,137) $ 1,624 Depreciation and amortization 3,554 2,986 Deferred income taxes (798) 147 Other, net (90) 464 1,529 5,221 Change in assets and liabilities: Notes and accounts receivable (10,736) (12,793) Inventories 2,092 1,585 Accounts payable (328) (1,476) Pension (2,812) (750) Other, net 734 370 Net cash used by operating activities (9,521) (7,843) Cash flows from investing activities: Capital expenditures (4,824) (4,901) Other, net 29 7 Net cash used by investing activities (4,795) (4,894) Cash flows from financing activities: Revolving credit facility, net 15,303 13,698 Other notes payable and long-term debt: Additions - 116 Principal payments (987) (1,007) Preferred stock dividend payments - (70) Net cash provided by financing activities 14,316 12,737 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 $ 988 $ 1,423 Income taxes 316 48
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Three months ended March 31, 1997 (In thousands)
Common stockholders' equity Redeemable Additional preferred Common paid-in Accumulated Treasury stock Stock capital (deficit) stock Total Balance - December 31, 1996 $3,500 $9,920 $46,347 $(25,085) <$>(12) $31,170 Net income - - - 1,624 - 1,624 Issuance of common stock - 74 535 - - 609 Preferred dividends declared 70 - - (70) - (70) Preferred dividends paid (70) - - - - - Balance - March 31, 1997 $3,500 $9,994 $46,882 $(23,531) $ (12) $33,333
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and basis of presentation: The consolidated balance sheet at December 31, 1996 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at March 31, 1997 and the consolidated statements of operations and cash flows for the interim periods ended March 31, 1996 and 1997, and the consolidated statement of redeemable preferred stock and common stockholders' equity for the interim period ended March 31, 1997, have each 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, 1996 (the "Annual Report"). Contran Corporation ("Contran") holds, directly or through subsidiaries, approximately 41% of the Company's outstanding stock. Contran may be deemed to control the Company. Note 2 - Acquisition On September 27, 1996, the stockholders of Keystone and DeSoto, Inc. ("DeSoto") approved the merger of the two companies (the "Acquisition") in which DeSoto became a wholly-owned subsidiary of Keystone. The Acquisition included the simultaneous merger of Keystone's three underfunded defined benefit pension plans with and into DeSoto's overfunded defined benefit pension plan, which resulted in an overfunded plan for financial reporting purposes. The following pro forma financial information has been prepared assuming the Acquisition and the simultaneous merger of the defined benefit pension plans occurred as of January 1, 1996. The pro forma financial information also reflects adjustments to assume that the April 1996 sale of DeSoto's Union City, California business occurred as of December 31, 1995. The pro forma financial information is not necessarily indicative of actual results had the transactions occurred at the beginning of the period, nor do they purport to represent results of future operations of the merged companies.
Three months ended March 31, 1996 (In million, except per share data) Revenues and other income $83.3 Net loss $(1.1) Net loss available to common stockholders $(1.2) Net loss per Keystone common share $(.13)
Pro forma net periodic defined benefit pension expense for the first three months of 1996, assuming the Acquisition and pension plan merger occurred January 1, 1996, approximates $1.2 million, as compared to historical pension expense of $1.9 million. 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, March 31, 1996 1997 (In thousands) Raw materials: Steel and wire products $12,548 $11,254 Household cleaning products 526 803 13,074 12,057 Work in process - Steel and wire products 12,824 9,930 Finished products: Steel and wire products 9,954 11,976 Household cleaning products 96 286 10,050 12,262 Supplies: Steel and wire products 13,612 13,726 49,560 47,975 Less LIFO reserve: Steel and wire products 12,996 12,996 Household cleaning products 31 31 13,027 13,027 $36,533 $34,948
Note 4 - Notes payable and long-term debt:
December 31, March 31, 1996 1997 (In thousands) Commercial credit agreements: Revolving credit facility $31,095 $44,793 Term loan 19,166 18,333 Urban and Community Development Assistance Grants 1,267 1,172 Other 252 289 51,780 64,587 Less current maturities 34,760 48,425 $17,020 $ 16,162
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 amortization of negative goodwill and state income taxes. Note 6 - Other accrued liabilities
December 31, March 31, 1996 1997 (In thousands) Current: Salary, wages, vacations and other employee expenses $11,085 $ 8,174 Environmental 5,354 5,748 Disposition of facilities 3,518 3,335 Self insurance 1,585 1,687 Legal and professional 1,542 1,215 Other 5,547 8,640 $28,631 $28,799 Noncurrent: Environmental $12,787 $11,562 Deferred gain 2,383 2,283 Other 1,296 1,294 $16,466 $15,139
Note 7 - Contingencies At March 31, 1997, the Company's financial statements reflected accrued liabilities of $17.3 million for estimated remedial costs arising from environmental issues. There is no assurance regarding the ultimate cost of remedial measures that might eventually be required by environmental authorities or that additional environmental hazards, requiring further remedial expenditures, might not be asserted by such authorities or private parties. Accordingly, the costs of remedial measures may exceed the amounts accrued. For additional information related to commitments and contingencies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Annual Report. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Keystone is a leading manufacturer of fabricated wire products, industrial wire and carbon steel rod for the agricultural, industrial, construction, original equipment manufacturer 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. The statements in this Quarterly Report on Form 10-Q relating to matters that are not historical facts including, but not limited to, statements found in this Item 2 - Management's Discussion And Analysis Of Financial Condition And Results Of Operations", are forward looking statements that involve a number of risks and uncertainties. Factors that could cause actual future results to differ materially from those expressed in such forward looking statements include, but are not limited to, cost of raw materials, future supply and demand for the Company's products (including cyclicality thereof), general economic conditions, competitive products and substitute products, customers and competitor strategies, the impact of pricing and production decisions, environmental matters, government regulations and possible changes therein, and the ultimate resolution of pending litigation and possible future litigation as discussed in this Quarterly Report and the Annual Report, including, without limitation, the section referenced above. During the first quarter of 1997, the Company produced 154,000 tons of billets as compared to 144,000 tons in the first quarter of 1996. The Company's rod production during the first quarter of 1997 increased to 178,000 tons as compared to 161,000 tons during the first quarter of 1996. This increase was due primarily to the 10,000 ton increase in billet production combined with a 7,000 ton increase in purchased billets and the conversion of 5,000 tons of billets into rod for another manufacturer during the first quarter of 1997. The following table sets forth selected operating data of the Company as a percentage of net sales for the periods indicated.
Three months ended March 31, 1996 1997 Net sales 100.0% 100.0% Cost of goods sold 93.6 90.6 Gross profit 6.4 9.4 Selling expense 1.3 1.4 General and administrative expense 6.3 4.9 Overfunded defined benefit pension credit - (.8) Income (loss) before income taxes (2.3)% 2.5% Provision (benefit) for income taxes (.9) .7 Net income (1.4)% 1.8%
Net sales increased to $89.1 million in the first quarter of 1997 from $79.5 million in the first quarter of 1996. Of these sales, fabricated wire products represented $42.8 million (48%) in 1997 and $41.0 million (52%) in 1996; industrial wire represented $18.2 million (20%) in 1997 and $18.1 million (23%) in 1996; and carbon steel rod represented $23.2 million (26%) in 1997 and $20.1 million (25%) in 1996. Fabricated wire products prices decreased 2% while shipments increased 7% to 61,000 tons in 1997 from 57,000 tons in 1996. Industrial wire prices also decreased 2% while shipments increased 3% to 39,000 tons in 1997 from 38,000 tons in 1996. Carbon steel rod prices increased 1% and shipments increased 14% to 77,000 tons in 1997 from 68,000 tons in 1996. Gross profit increased approximately 65% to $8.4 million in the first quarter of 1997 from $5.1 million in the 1996 first quarter. Gross margin increased to 9.4% in 1997 from 6.4% in 1996, as lower scrap costs and pension expense more than offset higher rod conversion costs and lower overall product selling prices. During 1997, the Company purchased 152,000 tons of scrap at an average price of $122 per ton as compared to 1996 purchases of 158,000 tons at an average price of $130 per ton. The acquisition of DeSoto in September 1996 included the simultaneous merger of the Company's and DeSoto's defined benefit pension plans. Pension expense charged to cost of goods sold was $1.9 million in the first quarter of 1996. The merger of the Company's defined benefit pension plans in connection with the acquisition of DeSoto in September 1996 resulted in a single overfunded defined benefit pension plan. As a result of the overfunded status of this plan, the Company recorded a pension credit of $750,000 in the first quarter of 1997. Selling expenses increased 20% to $1.2 million in the first quarter of 1997 from $1.0 million in the 1996 first quarter, but remained relatively constant as a percentage of net sales. General and administrative expenses decreased 12%, or $.6 million during the first quarter of 1997 as compared to the first quarter of 1996. This decrease was primarily due to the amortization of negative goodwill resulting from the DeSoto acquisition. At March 31, 1997, the Company's financial statements reflected accrued liabilities or $17.3 million for estimated remediation costs arising from environmental issues. There is no assurance regarding the ultimate cost of remedial measures that might eventually be required by environmental authorities or that additional environmental hazards, requiring further remedial expenditures, might not be asserted by such authorities or private parties. Accordingly, the costs of remedial measures may exceed the amounts accrued. Interest expense in the first quarter of 1997 was higher than the first quarter of 1996 due principally to higher average borrowing levels. Average borrowings by the Company under its revolving credit facility and term loan approximated $58 million in the first quarter of 1997 as compared to $39 million in the first quarter of 1996. During the first quarter of 1997, the average interest rate paid by the Company was 9.3% per annum as compared to 9.4% per annum. The principal reasons for the difference between he U.S. federal statutory income tax rate and the Company's effective income tax rates are explained in Note 5 to the Consolidated Financial Statements. As a result of the items discussed above, net income during the first quarter of 1997 increased to $1.6 million from a loss of $1.1 million in the first quarter of 1996. 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 facility, impact the timing of production, sales and purchases and typically result in a use of cash from operations and increases in the outstanding balance under the Company's revolving credit facility during the first quarter of each year. At March 31, 1997 the Company had a working capital deficit of $16.7 million, including $48.4 million of notes payable and current maturities of long-term debt. The outstanding borrowings under the Company's $55 million revolving credit facility were $44.8 million at March 31, 1997. The amount of available borrowings under the Company's revolving credit facility is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit. Additional available borrowings under the Company's revolving credit facility, which expires December 31, 1999, were $9.8 million at March 31, 1997. The Company's revolving credit facility requires daily cash receipts be used to reduce outstanding borrowings, which results in the Company maintaining zero cash balances. During the first quarter of 1997, the Company's operating activities used approximately $7.8 million of cash compared to $9.5 million in the first quarter of 1996. In addition to higher earnings in the 1997 quarter, cash flow from operations was impacted by changes in relative levels of assets and liabilities, including levels of pension fundings. Defined benefit pension plan contributions were $4.7 million in the first quarter of 1996. The acquisition of DeSoto included the simultaneous merger of Keystone's previously underfunded defined benefit pension plans with and into DeSoto's overfunded defined benefit pension plan, resulting in a single overfunded plan for financial reporting purposes. The Company did not make any contributions to its pension plan during the first quarter of 1997 and does not expect to be required to make contributions to the pension plan during the remainder of 1997. Future variances from actuarially assumed rates, including the rate of return on pension plan assets, may result in increases or decreases to pension expense or credit and funding requirements in future periods. Immediately following the Acquisition, Keystone was obligated to, and did, cause DeSoto to pay certain of DeSoto's trade creditors (the "Trade Credit Group") 80% of the balance of the trade payables then due to the Trade Credit Group. The remaining 20% of the balance ($1.4 million) due to the Trade Credit Group, plus interest at 8%, was paid by DeSoto in February 1997. During the first quarter of 1997, the Company made capital expenditures of approximately $4.9 million primarily related to upgrades of production equipment and an information systems project at its facility in Peoria, Illinois. Capital expenditures for 1997 are currently estimated to be approximately $22 million and are related primarily to upgrades and debottlenecking of production equipment. The Company incurs significant ongoing costs for plant and equipment and substantial employee medical benefits for both current and retired employees. As such, the Company is vulnerable to business downturns and increases in costs, and accordingly, routinely compares its liquidity requirements and capital needs against its estimated future operating cash flows. As a result of this process, the Company has in the past, and may in the future, reduce controllable costs, modify product mix, acquire and dispose of businesses, restructure certain indebtedness, and raise additional equity capital. The Company will continue to evaluate the need for similar actions or other measures in the future in order to meet its obligations. The Company also routinely evaluates acquisitions of interests in, or combinations with, companies related to the Company's current businesses. The Company intends to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities or increasing the indebtedness of the Company. Management believes the cash flows from operations together with the funds available under the Company's revolving credit facility will provide sufficient funds to meet its anticipated operating and capital expenditure needs for the year ending December 31, 1997. This belief 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, production schedules, productivity rates, raw materials, electricity, labor, employee benefits 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, liabilities under environmental laws and regulations with respect to the clean-up and disposal of wastes, any significant increases in the cost of providing medical coverage to active and retired employees or an unfavorable result of DeSoto's IRS examination, could have a material adverse effect on the future liquidity, financial condition and results of operations of the Company. Additionally, significant declines in the Company's end user markets or market share, the inability to maintain satisfactory billet and rod production levels, or 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 17 to the Consolidated Financial Statements included in the Annual Report. ITEM 6. Exhibits and Reports on Form 8- K. (a) The following exhibit is included herein: 27.1 Financial Data Schedule for the three month period ended March 31, 1997. (b) Reports on Form 8-K filed during the quarter ended March 31, 1997: 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 8, 1997 By /s/Harold M. Curdy Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: May 8, 1997 By /s/Bert E. Downing, Jr. Bert E. Downing, Jr. Corporate Controller (Principal Accounting Officer) EX-27 2 KEYSTONE FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from Keystone Consolidated Industries, Inc.'s consolidated financial statements for the three months ended March 31, 1997 and is qualified in its entirety by reference to such. 3-MOS DEC-31-1997 MAR-31-1997 0 0 49,231 561 34,948 102,036 266,770 172,934 314,386 118,711 16,162 3,500 0 9,994 23,339 314,386 89,149 89,348 80,791 80,791 4,786 92 1,390 2,289 665 1,624 0 0 0 1,624 .17 .17
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