-----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, RY7XgOnUOMQzRHAV2rhlAvb/vcT1quhw49ngZ5lFA1Twj7LEqaIIjzJKdErOE2o4 mzzvc1fQ+eoAN7H0NMEodA== 0000055604-98-000008.txt : 19980803 0000055604-98-000008.hdr.sgml : 19980803 ACCESSION NUMBER: 0000055604-98-000008 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980730 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: SEC FILE NUMBER: 001-03919 FILM NUMBER: 00000000 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 quarterly period June 30, 1998 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 July 30, 1998: 9,807,993 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1997 and June 30, 1998 3-4 Consolidated Statements of Operations - Three months and six months ended June 30, 1997 and 1998 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1998 6 Consolidated Statement of Redeemable Preferred Stock and Common Stockholders' Equity - Six months ended June 30, 1998 7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 18 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, June 30, ASSETS 1997 1998 Current assets: Cash and cash equivalents $ 22,622 $ - Notes and accounts receivable 37,841 48,723 Inventories 53,930 49,238 Deferred income taxes 18,869 18,367 Prepaid expenses 1,175 931 Total current assets 134,437 117,259 Property, plant and equipment 293,883 320,712 Less accumulated depreciation 181,129 190,795 Net property, plant and equipment 112,754 129,917 Other assets: Restricted investments 7,694 8,007 Prepaid pension cost 111,072 115,688 Deferred financing costs 3,795 3,720 Goodwill 1,229 1,172 Other 3,150 4,313 Total other assets 126,940 132,900 $374,131 $380,076
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30, 1997 1998 Current liabilities: Notes payable and current maturities of long-term debt $ 3,789 $ 3,452 Accounts payable 29,679 33,128 Accrued OPEB cost 8,415 8,415 Other accrued liabilities 39,870 36,616 Total current liabilities 81,753 81,611 Noncurrent liabilities: Long-term debt 103,055 102,308 Accrued OPEB cost 101,470 101,447 Deferred income taxes 2,963 4,341 Negative goodwill 25,421 24,743 Other 11,758 11,087 Total noncurrent liabilities 244,667 243,926 Redeemable preferred stock 3,500 3,500 Stockholders' equity: Common stock 10,029 10,088 Additional paid-in capital 47,191 47,830 Accumulated deficit (12,997) (6,867) Treasury stock, at cost (12) (12) Total stockholders' equity 44,211 51,039 $374,131 $380,076
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended Six months ended June 30, 1997 1998 1997 1998 Revenues and other income: Net sales $103,232 $105,919 $192,381 $202,023 Interest 3 95 7 321 Other, net 240 315 435 428 103,475 106,329 192,823 202,772 Costs and expenses: Cost of goods sold 89,801 95,837 170,592 184,010 Selling 1,215 1,556 2,460 3,075 General and administrative 4,897 3,292 9,280 6,758 Overfunded defined benefit pension credit (750) (2,308) (1,500) (4,616) Interest 1,346 2,286 2,736 4,879 96,509 100,663 183,568 194,106 Income before income taxes 6,966 5,666 9,255 8,666 Provision for income taxes 2,619 1,598 3,284 2,396 Net income 4,347 4,068 5,971 6,270 Dividends on preferred stock 70 70 140 140 Net income available for common shares $ 4,277 $ 3,998 $ 5,831 $ 6,130 Net income per share available for common shares: Basic $ .46 $ .43 $ .63 $ .66 Diluted $ .46 $ .42 $ .63 $ .64 Weighted average common and common equivalent shares outstanding: Basic 9,264 9,358 9,250 9,338 Diluted 9,305 9,579 9,295 9,552
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 1997 and 1998 (In thousands)
1997 1998 Cash flows from operating activities: Net income $5,971 $ 6,270 Depreciation and amortization 6,536 9,775 Amortization of deferred financing costs 88 252 Deferred income taxes 1,074 1,876 Other, net 753 79 Change in assets and liabilities: Notes and accounts receivable (8,025) (11,857) Inventories 699 4,692 Prepaid pension cost (1,500) (4,616) Accounts payable (2,926) 3,449 Other, net 4,246 (3,343) Net cash provided by operating activities 6,916 6,577 Cash flows from investing activities: Capital expenditures (9,616) (27,311) Other, net 110 (746) Net cash used by investing activities (9,506) (28,057) Cash flows from financing activities: Revolving credit facilities, net 4,456 (318) Other notes payable and long-term debt: Additions 247 3 Principal payments (1,973) (769) Common stock issued - 82 Preferred stock dividend payments (140) (140) Net cash provided (used) by financing activitie 2,590 (1,142) Net change in cash and cash equivalents - (22,622) Cash and cash equivalents, beginning of period - 22,622 Cash and cash equivalents, end of period $ - $ - Supplemental disclosures: Cash paid for: Interest, net of amount capitalized $ 2,980 $ 5,166 Income taxes 928 133 Common stock contributed to employee benefit plan $ 578 $ 616
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Six months ended June 30, 1998 (In thousands)
Common stockholders' equity Redeemable Additional preferred Common paid-in Accumulated Treasury stock Stock capital deficit stock Total Balance - December 31, 1997 $3,500 $10,029 $47,191 $(12,997) $ (12) $44,211 Net income - - - 6,270 - 6,270 Issuance of common stock - 59 639 - - 698 Preferred dividends declared 140 - - (140) - (140) Preferred dividends paid (140) - - - - - Balance -June 30, 1998 $3,500 $10,088 $47,830 $ (6,867) $ (12) $51,039
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, 1997 has been condensed from the Company's audited consolidated financial statements at that date. The consolidated balance sheet at June 30, 1998 and the consolidated statements of operations and cash flows for the interim periods ended June 30, 1997 and 1998, and the consolidated statement of redeemable preferred stock and common stockholders' equity for the interim period ended June 30, 1998, 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, 1997 (the "Annual Report"). Contran Corporation ("Contran") and other entities related to Harold C. Simmons hold approximately 49% of the Company's outstanding stock at June 30, 1998. Contran may be deemed to control the Company. Note 2 - Acquisition: In November 1994, the Company entered into a Joint Venture Agreement with an unrelated party and acquired a 20% interest in Engineered Wire Products, Inc. ("EWP"), a manufacturer and distributor of wire mesh for the concrete pipe and road construction business. On December 23, 1997, Keystone acquired the remaining 80% of EWP (the "Acquisition") and EWP became a wholly-owned subsidiary of Keystone. Keystone paid $11.2 million in cash to acquire the remaining 80% interest in the joint venture using available funds on hand. Keystone accounted for the step acquisition of EWP by the purchase method of accounting and the purchase price has been allocated to the individual assets acquired and liabilities assumed of EWP based upon preliminary estimated fair values. The actual allocation of the purchase price may be different from the preliminary allocation due to adjustments in the purchase price and refinements in estimates of the fair values of the net assets acquired. The following pro forma financial information has been prepared assuming the Acquisition and Keystone's August 1997 $100 million bond offering and application of the net proceeds therefrom occurred on January 1, 1997. The pro forma financial information is not necessarily indicative of actual results had these transactions occurred at January 1, 1997, nor do they purport to represent results of future operations of the combined companies.
Three months ended Six months ended June 30, 1997 June 30, 1997 (In millions, except per share data) Revenues and other income $110.4 $202.7 Operating income 9.6 13.1 Net income 4.2 5.2 Net income available to common stockholders 4.1 5.0 Net income available for common shares per common share - diluted $ .44 $ .54
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 75% 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, 1997 1998 (In thousands) Raw materials: Steel and wire products $17,609 $15,790 Household cleaning products 854 1,034 18,463 16,824 Work in process - Steel and wire products 15,475 14,205 Finished products: Steel and wire products 16,707 16,879 Household cleaning products 150 212 16,857 17,091 Supplies - Steel and wire products 16,290 14,273 67,085 62,393 Less LIFO reserve: Steel and wire products 13,096 13,096 Household cleaning products 59 59 13,155 13,155 $53,930 $49,238
Note 4 - Notes payable and long-term debt:
December 31, June 30, 1997 1998 (In thousands) 9 5/8% Senior Secured Notes, due August 2007 $100,000 $100,000 Commercial credit agreements: Revolving credit facility - Keystone - 153 Revolving credit facility - EWP 2,471 2,000 Term loan - EWP 1,603 1,312 Other 2,770 2,295 106,844 105,760 Less current maturities 3,789 3,452 $103,055 $102,308
Note 5 - Income taxes: Summarized below are (i) the differences between the provision for income taxes and the amounts that would be expected using the U.S. federal statutory income tax rate of 35%, and (ii) the components of the comprehensive provision for income taxes.
Six months ended June 30, 1997 1998 Expected tax expense, at statutory rate $ 3,239 $3,033 U.S. state income taxes, net 361 198 Amortization of goodwill (329) (218) Other, net 13 (617) Comprehensive provision for income taxes $ 3,284 $2,396 Comprehensive provision for income taxes: Currently payable: U.S. federal $ 3,537 $ 843 U.S. state 696 60 Alternative minimum tax credits (2,023) (383) Net currently payable 2,210 520 Deferred income taxes, net 1,074 1,876 $ 3,284 $2,396
Note 6 - Other accrued liabilities:
December 31, June 30, 1997 1998 (In thousands) Current: Salary, wages, vacations and other employee expenses $12,275 $10,006 Environmental 7,498 6,115 Self insurance 6,605 6,483 Interest 4,146 4,054 Disposition of facilities 2,306 1,808 Legal and professional 1,199 889 Other 5,841 7,261 $39,870 $36,616 Noncurrent: Environmental $ 8,606 $ 8,135 Deferred gain 1,987 1,789 Other 1,165 1,163 $11,758 $11,087
Note 7 - Contingencies: At June 30, 1998, the Company's financial statements reflected accrued liabilities of $14.3 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 ultimate costs of remedial measures may exceed the amounts currently 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. Note 8 - Subsequent event: In July 1998, the holders of warrants to purchase 447,900 shares of Keystone's common stock at $9.38 per share exercised these warrants. Under the terms of the warrants, proceeds from the warrants exercised were used by Keystone to redeem all of the outstanding preferred stock, which was also held by the warrant holders, at the aggregate $3.5 million redemption price. Net cash proceeds to the Company approximated $684,000. 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, successful implementation of the Company's capital improvements plan and any possible future litigation as discussed in this Quarterly Report and the Annual Report, including, without limitation, the section referenced above. The following table sets forth the Company's production and sales volume data for the periods indicated.
Three months ended Six months ended June 30, June 30, 1997 1998 1997 1998 (In thousands of tons) Production volume: Billets: Produced 185 190 339 361 Purchased 27 - 38 - Rod 203 179 381 351 Sales volume: Fabricated wire products 64 95 125 172 Industrial wire 51 45 89 87 Steel rod 89 55 166 119 204 195 380 378
The following table sets forth the components of the Company's net sales for the periods indicated.
Three months ended Six months ended June 30, June 30, 1997 1998 1997 1998 (In millions) Fabricated wire products $ 46.3 $ 64.4 $89.2 $116.9 Industrial wire 24.1 21.4 42.3 41.9 Rod 27.9 16.3 51.1 36.0 Household cleaning products and other 4.9 9.8 3.8 7.2 $103.2 $105.9 $192.4 $202.0
The following table sets forth selected operating data of the Company as a percentage of net sales for the periods indicated.
Three months ended Six months ended June 30, June 30, 1997 1998 1997 1998 Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 87.0 90.5 88.7 91.1 Gross profit 13.0 9.5 11.3 8.9 Selling expense 1.2 1.5 1.3 1.5 General and administrative expense 4.7 3.1 4.8 3.3 Overfunded defined benefit pension credit (.7) (2.2) (.8) (2.3) Income before income taxes 6.7% 5.3% 4.8% 4.3% Provision for income taxes 2.5 1.5 1.7 1.2 Net income 4.2% 3.8% 3.1% 3.1%
As a result of increased billet production during both the second quarter and first six months of 1998 as compared to the same periods in 1997, as well as lower sales volumes, Keystone did not purchase any billets during 1998 as compared to 27,000 tons of billets purchased in the second quarter of 1997 at an average price of $235 per ton and 38,000 tons at an average price of $236 per ton purchased during the first six months of 1997. The decrease in billet purchases, and an increase in billet inventories, resulted in 12% and 8% declines in rod production during the 1998 second quarter and first six months of 1998, respectively. Net sales increased to $105.9 million during the 1998 second quarter from $103.2 million in the same period a year ago primarily as a result of a favorable change in product mix combined with an increase in overall product selling prices and offset by a 4% decline in volume. Industrial wire selling prices increased by 1%, while fabricated wire products and carbon steel rod selling prices declined by 7% and 6%, respectively. However, due to the change in product mix, overall selling prices increased by 8%. During the second quarter of 1998, higher-priced fabricated wire products comprised 49% of total tons shipped, whereas during the second quarter of 1997, fabricated wire products comprised 31% of total tons shipped. Approximately half of the change in the percentage of fabricated wire products included in the product mix between the two periods is a result of Keystone's acquisition of Engineered Wire Products, Inc. ("EWP") in December 1997. EWP's products sell for lower prices than do Keystone's other fabricated wire products. Net sales for the first six months of 1998 increased 5% to $202 million from $192.4 million for the first six months of 1997. Industrial wire selling prices increased by 2%, while fabricated wire products and carbon steel rod selling prices declined by 5% and 2%, respectively. The first six months of 1998 were also favorably impacted by the change in product mix due primarily to the EWP acquisition as fabricated wire products comprised 45% of total tons shipped, whereas during the first six months of 1997 fabricated wire products comprised 32% of total tons shipped. The 1998 second quarter gross margin percentage of 9.5% was lower than the 13% recorded during the comparable period in 1997 primarily as a result of increased scrap, production and material handling costs and power interruptions at the Company's largest facility which is located in Peoria, Illinois. Keystone purchases electrical energy for the Peoria facility under an interruptible service contract which provides for more economical electricity rates but allows the utility to refuse or interrupt power to the Company's manufacturing facilities during periods of peak demand. Keystone's scrap costs increased 3.6% during the 1998 second quarter as compared to the same period a year ago. During the 1998 second quarter, the Company purchased 165,000 tons of scrap at an average price of $125 per ton as compared to 1997 second quarter purchases of 208,000 tons at an average price of $121 per ton. For the first six months of 1998, Keystone's gross margin percentage decreased to 8.9% from 11.3% during the 1997 period. This decline was due primarily to increased scrap, production and material handling costs and power interruptions as well as production inefficiencies due primarily to unplanned equipment downtime in the Company's steel mill during the first quarter of 1998. During the first six months of 1998, the Company purchased 340,000 tons of scrap at an average price of $125 per ton as compared to 1997 purchases of 360,000 tons at an average price of $122 per ton. Selling expenses increased to $1.6 million in the second quarter of 1998 from $1.2 million in the 1997 second quarter, but remained relatively constant as a percentage of net sales. Selling expenses increased to $3.1 million in the first half of 1998 from $2.5 million in the first half of 1997, but also remained relatively constant as a percentage of net sales. General and administrative expenses declined to $3.3 million during the second quarter of 1998 as compared to $4.9 million during the second quarter of 1997. During the first half of 1998, general and administrative expenses amounted to $6.8 million as compared to $9.3 million during the first half of 1997. These decreases were primarily due to lower legal and general insurance expenses partially offset by increases due to the acquisition of EWP. Interest expense in the second quarter of 1998 was higher than the second quarter of 1997 due principally to higher average borrowing levels and interest rates. These higher borrowing levels and interest rates were due primarily to the issuance of $100 million principal amount of 9 5/8% Senior Secured Notes ("the Notes") in August 1997. Average borrowings by the Company under its revolving credit facilities, term loans and the Notes approximated $105.3 million in the second quarter of 1998 as compared to $54.8 million in the second quarter of 1997. During the second quarter of 1998, the average interest rate paid by the Company was 9.6% per annum as compared to 9.5% per annum in the second quarter of 1997. Interest expense in the first half of 1998 was also higher than the first half of 1997 due principally to higher borrowing levels. Average borrowings by the Company under its revolving credit facilities, term loans and the Notes approximated $105.8 million in the first half of 1998 as compared to $56.2 million in the first half of 1997. During the first half of 1998, the average interest rate paid by the Company was 9.6% per annum as compared to 9.4% per annum in the first half of 1997. As a result of the August 1997 issuance of the Notes, interest expense in calendar 1998 will be greater than interest expense in calendar 1997. The principal reasons for the difference between the 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 second quarter of 1998 declined to $4.1 million from $ 4.3 million in the second quarter of 1997, and net income during the first half of 1998 increased to $6.3 million from $6.0 million in the first half of 1997. 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, impact the timing of production, sales and purchases and have typically resulted 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 June 30, 1998 the Company had working capital of $35.6 million, including $3.5 million of notes payable and current maturities of long-term debt. The outstanding borrowings under the Company's revolving credit facilities were $2.2 million at June 30, 1998. The amount of available borrowings under these credit facilities is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit. Under the terms of the Indenture related to the Senior Secured Notes, the Company's ability to borrow in excess of $25 million under its $55 million revolving credit facility is dependent upon maintenance of a consolidated cash flow ratio (as defined) for the most recently completed four fiscal quarters of at least 2.5 to 1. Additional available borrowings under Keystone's $55 million revolving credit facility, which expires December 31, 1999, and EWP's $6 million revolving credit facility, which expires June 30, 2000, were $54.3 million and $4.0 million, respectively, at June 30, 1998, all of which could be borrowed under the Terms of the Indenture. The Company's $55 million revolving credit facility requires daily cash receipts be used to reduce outstanding borrowings, which results in the Company maintaining zero cash balances when there are balances outstanding under this credit facility. During the first half of 1998, the Company's operating activities provided approximately $6.6 million of cash compared to $6.9 million in the first half of 1997. Although higher earnings in the 1998 period reduced the amount of cash used by operating activities, higher interest payments due to the issuance of the Notes in August 1997 negatively impacted cash flows from operating activities. Interest payments of $4.8 million are due on the Notes in the first and third quarters of each year. Cash paid for interest during the first half of 1998 and 1997 amounted to $5.2 million and $3.0 million, respectively. In February 1998, the Company purchased certain agricultural fencing product manufacturing equipment and related inventory from Insteel Industries, Inc. ("Insteel"), for approximately $13 million. Keystone expects to incur capital costs of $6 million to $9 million to relocate and integrate such equipment into its manufacturing facilities. As part of the agreement with Insteel, Keystone also acquired Insteel's former customer list and certain other records and Insteel agreed not to compete with Keystone in the North American agricultural fencing products business for a period of five years. During the first half of 1998, the Company made capital expenditures of approximately $27.3 million primarily related to the Insteel equipment purchase and upgrades of production equipment at its facility in Peoria, Illinois. Capital expenditures for 1998, including those related to the purchase of equipment from Insteel, are currently estimated to be approximately $57 million and are related primarily to upgrades and debottlenecking of production equipment. During 1997, the Company commenced a three year, $75 million capital improvement plan to upgrade certain of its plant and equipment and eliminate production capacity bottlenecks in order to reduce costs and improve production efficiency. The principal components of the Company's capital improvements plan include reconfiguring its electric arc furnace, replacing the caster and upgrading its wire and rod mills. These capital expenditures will be funded using borrowing availability under the Company's revolving credit facilities. At June 30, 1998, the Company's financial statements reflected accrued liabilities of $14.3 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. 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. The Company's ability to incur new debt in the future will be limited by the terms of the Indenture. Management believes the cash flows from operations together with the funds available under the Company's revolving credit facilities will provide sufficient funds to fund the anticipated needs of its operations and capital improvements plan for the year ending December 31, 1998. 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 and capital expenditures and available borrowings under the Company's revolving credit facilities. However, liabilities under environmental laws and regulations with respect to the clean- up and disposal of wastes, or any significant increases in the cost of providing medical coverage to active and retired employees 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. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Reference is made to disclosure provided under the caption "Current litigation" in Note 7 to the Consolidated Financial Statements included in the Annual Report. ITEM 4. Submission of Matters to a Vote of Security Holders On May 8, 1998, the annual meeting of the stockholders of Keystone was held for the purpose of voting to elect two directors for terms of three years and to approve and an amendment to the Keystone Consolidated Industries, Inc. 1997 Long-term Incentive Plan, to increase the number of shares of common stock available for issuance thereunder from 300,000 to 500,000. Result of voting at the annual meeting are detailed below (9,358,393 common shares and 435,458 preferred shares, each with one vote and voting together as a single class, were entitled to vote at the meeting).
For Withheld Abstained Total Directors: Paul M. Bass, Jr. 6,005,920 10,981 - 6,016,901 David E. Connor 6,005,611 11,290 - 6,016,901 Amendment to Incentive Plan 5,694,565 313,532 8,804 6,016,901
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, 1998. (b) Reports on Form 8-K filed during the quarter ended June 30, 1998: 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 30, 1998 By /s/Harold M. Curdy Harold M. Curdy Vice President - Finance/Treasurer (Principal Financial Officer) Date: July 30, 1998 By /s/Bert E. Downing, Jr. 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, 1998 and is qualified in its entirety by reference to such. 6-MOS DEC-31-1998 JUN-30-1998 0 0 51,758 3,035 49,238 117,259 320,712 190,795 380,076 81,611 102,308 3,500 0 10,088 40,951 380,076 202,023 202,772 184,010 184,010 5,123 94 4,879 8,666 2,396 6,270 0 0 0 6,270 .66 .64
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