Business Segment Information

12 Months Ended

Dec. 31, 2011

Business Segment Information [Abstract]

Business Segment Information

Note 2—Business segment information:

Our operating segments are organized by our manufacturing facilities and include three reportable segments. Each operating segment is separately managed, and each operating segment represents a strategic business unit offering different products as follows:

• Keystone Steel & Wire ("KSW"), located in Peoria, Illinois, operates an electric arc furnace mini-mill, rod mill, industrial wire mill and wire 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, primarily 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.

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.

As discussed in Note 1, at the end of 2011 KSW changed its method for productive inventory costing from LIFO to FIFO and EWP changed its method for productive inventory costing from LIFO to an average cost method. The impact of this change on their operating income is set forth in the following table.

	KSW			EWP
	(In thousands)
Year ended December 31, 2009:
Operating income under LIFO	$	5,976		$	1,405
Change in accounting principle		(9,125	)		(6,075	)
Operating income (loss) as currently reported	$	(3,149	)		(4,670	)
Year ended December 31, 2010:
Operating income (loss) under LIFO	$	10,604		$	(1,278	)
Change in accounting principle		4,507			916
Operating income (loss) as currently reported	$	15,111		$	(362	)
Year ended December 31, 2011:
Operating income (loss) as computed under LIFO	$	21,684		$	(882	)
Change in accounting principle		618			2,722
Operating income as currently reported	$	22,302		$	1,840

The accounting policies of our segments are the same as those described in the summary of significant accounting policies except that no defined benefit pension or OPEB expense or credits are recognized and the elimination of intercompany profit or loss on ending inventory balances is not allocated to each segment. Sales between reportable segments are generally recorded at prices that approximate market prices to third-party customers.

	Years ended December 31,
	2009			2010			2011
	(restated)			(restated)
	(In thousands)
Net sales:
KSW	$	298,219		$	433,729		$	544,011
EWP		37,575			41,310			55,928
Calumet		11,127			22,987			30,905
Elimination of intersegment sales		(24,574	)		(47,281	)		(66,859	)
Total net sales	$	322,347		$	450,745		$	563,985
Operating income (loss):
KSW	$	(3,149	)	$	15,111		$	22,302
EWP		(4,670	)		(362	)		1,840
Calumet		(3,703	)		97			149
Defined benefit pension credit (expense)		(5,887	)		4,654			24,388
OPEB credit		4,748			5,258			5,799
Other(1)		670			(2,873	)		(2,910	)
Total operating income (loss)		(11,991	)		21,885			51,568
Nonoperating income (expense):
Interest expense		(1,725	)		(1,863	)		(1,218	)
Other, net		1,049			637			699
Income (loss) before income taxes	$	(12,667	)	$	20,659		$	51,049

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

Throughout 2009 Calumet determined it would not be able to recover the cost of certain inventory items in future selling prices and recognized impairment charges of $2.8 million to reduce the inventory to its net realizable value. Nominal impairment charges were incurred during 2010 and none were incurred during 2011. These impairment charges are included in cost of goods sold.

On July 2, 2009, the Illinois Environmental Protection Agency (the "IEPA") approved the completion of the soil portion of the remediation plan of certain waste management units at KSW which resulted in a $4.2 million decrease (recorded as a credit to general administrative expense) in KSW's environmental reserves during 2009. See Note 7.

During 2009, KSW recorded bad debt expense of $2.9 million primarily due to a Chapter 11 filing by one of their customers. Nominal amounts of bad debt expense were incurred during 2010 and 2011. Bad debt expense is included in general and administrative expense.

Substantially all of our assets are located in the United States. Segment assets are comprised of all assets attributable to each reportable operating segment. Corporate assets consist principally of the pension asset, restricted investments, deferred tax assets and corporate property, plant and equipment.

	December 31,
	2009		2010		2011
	(restated)		(restated)
	(In thousands)
Total assets:
KSW(1)	$	152,061	$	165,350	$	192,270
EWP(1)		23,302		23,757		28,069
Calumet		11,940		14,820		18,865
Corporate(1)		89,772		168,552		88,743
Total	$	277,075	$	372,479	$	327,947

(1) As discussed above, at the end of 2011 KSW changed their method for productive inventory costing from the LIFO method to FIFO and EWP changed their method for productive inventory costing from the LIFO method to an average cost method. As a result of the accounting change, consolidated total assets increased by their LIFO reserves net of related deferred taxes as of the end of each year. Total assets at the segment level increased by their respective LIFO reserves. KSW's LIFO reserve was $15.4 million, $19.9 million and $20.6 million as of December 31, 2009, 2010 and 2011, respectively. EWP's LIFO reserve was $3.8 million, $4.7 million and $7.4 million as of December 31, 2009, 2010 and 2011, respectively. The related deferred tax asset balance recorded at Corporate was $7.2 million, $9.4 million and $10.8 million as of December 31, 2009, 2010 and 2011, respectively.

	Years ended December 31,
	2009		2010		2011
	(In thousands)
Depreciation and amortization:
KSW	$	11,362	$	9,874	$	9,160
EWP		1,674		1,593		1,397
Calumet		435		481		576
Corporate		113		114		101
Total	$	13,584	$	12,062	$	11,234
Capital expenditures:
KSW	$	8,094	$	13,456	$	14,720
EWP		375		528		289
Calumet		531		953		1,470
Total	$	9,000	$	14,937	$	16,479

Most of our products are distributed in the Midwestern, Southwestern and Southeastern regions of the United States. Information concerning geographic concentration of net sales based on location of customer is as follows:

	Years ended December 31,
	2009		2010		2011
	(In thousands)
United States	$	319,390	$	446,972	$	559,510
Canada		2,169		2,982		3,669
Other		788		791		806
Total	$	322,347	$	450,745	$	563,985