Business Segment Information

6 Months Ended

Jun. 30, 2011

Business Segment Information

Business Segment Information

Note 3 – Business segment information:

Our operating segments are organized by our manufacturing facilities and include three reportable segments:

— Keystone Steel & Wire ("KSW"), located in Peoria, Illinois, operates an electric arc furnace mini-mill, rod mill, industrial wire mill and wire product fabrication facilities and manufactures and sells wire rod, coiled rebar, industrial wire, fabricated wire and other products to agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets;

— Engineered Wire Products, Inc. ("EWP"), located in Upper Sandusky, Ohio, manufactures and sells wire mesh in both roll and sheet form that is utilized as reinforcement in concrete construction products including pipe, pre-cast boxes and applications for use in roadways, buildings and bridges; and

— Keystone-Calumet, Inc. ("Calumet"), located in Chicago Heights, Illinois, manufactures and sells merchant and special bar quality products and special sections in carbon and alloy steel grades for use in agricultural, cold drawn, construction, industrial chain, service centers and transportation applications as well as in the production of a wide variety of products by original equipment manufacturers.

We are vertically integrated, converting substantially all of our products from billets produced in KSW's steel mini-mill. Calumet's primary raw material is billet and EWP's primary raw material is wire rod. Both Calumet and EWP source the majority of their primary raw material requirements from KSW.

	Three months ended June 30,						Six months  ended June 30,
	(In thousands)						(In thousands)
	2010			2011			2010			2011
Net sales:
KSW		$130,892			$149,682			$233,382			$285,019
EWP		12,991			17,368			20,367			28,410
Calumet		5,735			9,515			9,986			15,912
Elimination of intersegment sales		(14,648	)		(20,610	)		(29,022	)		(39,223	)
Total net sales		$134,970			$155,955			$234,713			$290,118
Operating income:
KSW		$    8,533			$    8,745			$  15,518			$  17,555
EWP		873			903			510			685
Calumet		499			336			646			436
Pension credit		1,209			4,750			2,421			9,500
OPEB credit		1,345			1,299			2,687			2,599
Other(1)		(979	)		(1,192	)		(2,827	)		(2,194	)
Total operating income		11,480			14,841			18,955			28,581
Non operating income (expense):
Interest expense		(622	)		(328	)		(1,065	)		(603	)
Other income, net		83			425			147			548
Income before income taxes		$  10,941			$  14,938			$  18,037			$  28,526

⁽¹⁾ Other items primarily consist of the elimination of intercompany profit or loss on ending inventory balances and general corporate expenses.

On a quarterly basis, we estimate our LIFO reserve balances that would be required at the end of the year based on projections of year-end inventory quantities and costs, and we record a pro-rated, year-to-date change in our LIFO reserve balances from the prior year-end based on these projections. Changes in LIFO reserves are reflected in cost of goods sold. The changes in KSW's and EWP's LIFO inventory reserve balances for the 2010 and 2011 periods are presented in the table below.

	Increase (decrease) in LIFO reserve
	Three months ended       June 30,					Six months ended       June 30,
	2010			2011		2010			2011
	(In thousands)
KSW		$  (328	)		$   732		$ (22	)		$   863
EWP		63			453		157			782
Total		$  (265	)		$1,185		$135			$1,645

During the second quarter of 2011, we increased KSW's and EWP's LIFO inventory reserve balances primarily due to an increase in our estimated raw material costs expected to be in inventory as of the end of the year.