10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2012

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 Incorporation or organization)	(IRS Employer Identification No.)
5430 LBJ Freeway, Suite 1740, Three Lincoln Centre, Dallas, Texas	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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company(as defined in Rule 12b-2 of the Act).

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨

Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨.

Number of shares of common stock outstanding on August 14, 2012: 12,101,932

KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets—December 31, 2011; June 30, 2012 (unaudited)		3
	Condensed Consolidated Statements of Income (unaudited)—Three months and six months ended June 30, 2011 and 2012		5
	Condensed Consolidated Statements of Comprehensive Income (unaudited)—Three months and six months ended June 30, 2011 and 2012		6
	Condensed Consolidated Statements of Cash Flows (unaudited)—Six months ended June 30, 2011 and 2012		7
	Condensed Consolidated Statement of Stockholders’ Equity—Six months ended June 30, 2012 (unaudited)		8
	Notes to Condensed Consolidated Financial Statements (unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		27
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		28
Item 6.	Exhibits		28
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31, 2011		June 30, 2012
			(unaudited)
ASSETS
Current assets:
Accounts receivable, net	$	58,976	$	66,438
Inventories		88,567		98,923
Deferred income taxes		12,194		12,194
Prepaid expenses and other		2,033		757
Total current assets		161,770		178,312
Property, plant and equipment:
Land		1,468		1,468
Buildings and improvements		64,959		64,517
Machinery and equipment		348,789		343,050
Construction in progress		5,607		4,572
		420,823		413,607
Less accumulated depreciation		327,820		321,496
Net property, plant and equipment		93,003		92,111
Other assets:
Pension asset		71,719		85,122
Other, net		1,455		1,411
Total other assets		73,174		86,533
Total assets	$	327,947	$	356,956

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

	December 31, 2011			June 30, 2012
				(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	33,631		$	36,899
Accounts payable		14,334			15,697
Accrued OPEB cost		1,220			1,220
Income taxes payable to Contran		3,769			609
Income taxes payable to tax authorities		713			594
Other accrued liabilities		29,361			31,519
Total current liabilities		83,028			86,538
Noncurrent liabilities:
Long-term debt		983			1,007
Accrued pension cost		21,664			21,769
Accrued OPEB cost		50,470			50,981
Deferred income taxes		17,783			24,804
Other		1,891			1,971
Total noncurrent liabilities		92,791			100,532
Stockholders’ equity:
Common stock		121			121
Additional paid-in capital		99,024			99,024
Accumulated other comprehensive loss		(182,093	)		(178,921	)
Retained earnings		235,076			249,662
Total stockholders’ equity		152,128			169,886
Total liabilities and stockholders’ equity	$	327,947		$	356,956

Commitments and contingencies (Note 5)

See accompanying Notes to Condensed Consolidated Financial Statements.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	(unaudited)
	2011			2012			2011			2012
Net sales	$	155,955		$	152,747		$	290,118		$	306,040
Cost of goods sold		(139,735	)		(136,177	)		(260,469	)		(273,397	)
Gross margin		16,220			16,570			29,649			32,643
Other operating income (expense):
Selling expense		(1,983	)		(2,206	)		(3,798	)		(4,292	)
General and administrative expense		(4,260	)		(5,586	)		(7,724	)		(10,723	)
Defined benefit pension credit		4,750			1,898			9,500			3,797
Other postretirement benefit credit		1,299			1,577			2,599			3,154
Total other operating income (expense)		(194	)		(4,317	)		577			(8,064	)
Operating income		16,026			12,253			30,226			24,579
Nonoperating income (expense):
Interest expense		(328	)		(333	)		(603	)		(693	)
Other income (expense), net		425			(70	)		548			(347	)
Total nonoperating income (expense)		97			(403	)		(55	)		(1,040	)
Income before income taxes		16,123			11,850			30,171			23,539
Provision for income taxes		(6,404	)		(4,529	)		(12,489	)		(8,953	)
Net income	$	9,719		$	7,321		$	17,682		$	14,586
Basic and diluted income per share	$	0.80		$	0.60		$	1.46		$	1.21
Basic and diluted weighted average shares outstanding		12,102			12,102			12,102			12,102

See accompanying Notes to Condensed Consolidated Financial Statements.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(unaudited)
Net income	$	9,719		$	7,321		$	17,682		$	14,586
Other comprehensive income (loss), net of tax:
Defined benefit pension plans:
Amortization of prior service cost		186			186			372			372
Amortization of net actuarial losses		1,552			2,683			3,103			5,365
Other postretirement benefit plans:
Amortization of prior service credit		(2,442	)		(2,441	)		(4,883	)		(4,883	)
Amortization of net actuarial losses		1,291			1,159			2,582			2,318
Total other comprehensive income, net		587			1,587			1,174			3,172
Comprehensive income	$	10,306		$	8,908		$	18,856		$	17,758

See accompanying Notes to Condensed Consolidated Financial Statements.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six months ended June 30,
	2011			2012
	(unaudited)
Cash flows from operating activities:
Net income	$	17,682		$	14,586
Depreciation and amortization		5,682			5,765
Deferred income taxes		9,031			4,939
Defined benefit pension credit		(9,500	)		(3,797	)
OPEB credit		(2,599	)		(3,154	)
OPEB payments		(653	)		(582	)
Other, net		68			555
Change in assets and liabilities:
Accounts receivable		(23,701	)		(7,475	)
Inventories		(20,861	)		(10,356	)
Accounts payable and accrued liabilities		8,140			3,601
Income taxes payable to Contran		—			(3,160	)
Income taxes payable to tax authorities		2,147			(119	)
Other, net		(302	)		1,284
Net cash provided by (used in) operating activities		(14,866	)		2,087
Cash flows from investing activities:
Capital expenditures		(5,778	)		(6,021	)
Other, net		61			28
Net cash used in investing activities		(5,717	)		(5,993	)
Cash flows from financing activities:
Revolving credit facility, net		20,591			3,269
Other, net		(8	)		637
Net cash provided by financing activities		20,583			3,906
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	$	542		$	628
Income taxes, net		1,765			7,293

See accompanying Notes to Condensed Consolidated Financial Statements.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Six months ended June 30, 2012

	Common		Additional paid-in		Accumulated other comprehensive income (loss)						Retained
	stock		capital		Pensions			OPEB			Earnings		Total
	(unaudited)
Balance – December 31, 2011	$	121	$	99,024	$	(192,552	)	$	10,459		$	235,076	$	152,128
Net income		—		—		—			—			14,586		14,586
Other comprehensive income (loss), net		—		—		5,737			(2,565	)		—		3,172
Balance – June 30, 2012	$	121	$	99,024	$	(186,815	)	$	7,894		$	249,662	$	169,886

See accompanying Notes to Condensed Consolidated Financial Statements.

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(unaudited)

Note 1 – Organization and basis of presentation:

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 that we filed with the Securities and Exchange Commission (“SEC”) on March 15, 2012 (the “2011 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. At the end of 2011, we changed our method of accounting for productive inventories at Keystone Steel & Wire (“KSW”) and Engineered Wire Products, Inc. (“EWP”) from last-in first-out (“LIFO”) to first-in first out (“FIFO”) at KSW and average cost at EWP. Accordingly, our results of operations and cash flows for the interim periods ended June 30, 2011 have been restated in this Quarterly Report to reflect this change in accounting. As compared to the 2011 Annual Report, we have omitted certain information and footnote disclosures from this Quarterly Report that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim periods ended June 30, 2012 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with the 2011 Consolidated Financial Statements contained in the 2011 Annual Report.

At June 30, 2012, Contran Corporation (“Contran”) owned approximately 88% of our outstanding common stock. Substantially all of Contran’s outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Harold C. Simmons (for which Mr. Simmons is the sole trustee) or is held directly by Mr. Simmons or other persons or companies related to Mr. Simmons. Consequently, Mr. Simmons may be deemed to control Contran and us.

Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to Keystone Consolidated Industries, Inc. (“KCI”) and its subsidiaries, taken as a whole.

Note 2 – Business segment information:

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

• 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;

• 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

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• 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)
	2011			2012			2011			2012
Net sales:
KSW	$	149,682		$	145,150		$	285,019		$	298,141
EWP		17,368			16,975			28,410			29,724
Calumet		9,515			8,147			15,912			15,589
Elimination of intersegment sales		(20,610	)		(17,525	)		(39,223	)		(37,414	)
Total net sales	$	155,955		$	152,747		$	290,118		$	306,040
Operating income (loss):
KSW	$	9,477		$	9,129		$	18,418		$	19,666
EWP		1,356			965			1,467			1,411
Calumet		336			(412	)		436			(597	)
Pension credit		4,750			1,898			9,500			3,797
OPEB credit		1,299			1,577			2,599			3,154
Other(1)		(1,192	)		(904	)		(2,194	)		(2,852	)
Total operating income		16,026			12,253			30,226			24,579
Non operating income (expense):
Interest expense		(328	)		(333	)		(603	)		(693	)
Other income (expense), net		425			(70	)		548			(347	)
Income before income taxes	$	16,123		$	11,850		$	30,171		$	23,539

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

Note 3 – Inventories, net:

	December 31,		June 30,
	2011		2012
	(In thousands)
Raw materials	$	6,995	$	6,141
Billet		12,702		10,579
Wire rod		7,155		18,607
Work in process		6,771		8,451
Finished products		29,228		29,626
Supplies		25,716		25,519
Total	$	88,567	$	98,923

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Note 4 – Debt:

	December 31,		June 30,
	2011		2012
	(In thousands)
Wells Fargo revolving credit facility	$	33,630	$	36,899
Other		984		1,007
Total debt		34,614		37,906
Less current maturities		33,631		36,899
Total long-term debt	$	983	$	1,007

The average interest rate on the revolving credit facility was 2.7% at June 30, 2012 and was 2.8% for the first six months of 2012.

Note 5 – Environmental matters and other commitments and contingencies:

We have been named as a defendant for certain environmental sites pursuant to governmental laws and private actions, including waste disposal sites and facilities currently or previously owned, operated or used by us. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Additionally, KSW’s facilities are subject to regulatory oversight and enforcement activities. These activities may identify compliance violations which may result in penalties. Certain of these proceedings involve claims for substantial amounts.

On a quarterly basis, we evaluate the potential range of our liability at sites where we have been named a defendant by analyzing and estimating the range of reasonably possible costs to us. At June 30, 2012, the upper end of the range of reasonably possible costs to us for sites where we have been named a defendant is approximately $2.0 million, including our recorded accrual of $.3 million. Our cost estimates have not been discounted to present value due to the uncertainty of the timing of the pay out. At each balance sheet date, we make an estimate of the amount of our accrued environmental costs that will be paid out over the subsequent twelve months, and we classify such amount as a current liability. We classify the remainder of the accrued environmental costs as noncurrent liabilities. See Note 6.

It is possible our actual costs could differ materially from the amounts we have accrued or the upper end of the estimated range for the sites where we have been named a defendant. Our ultimate liability may be affected by a number of factors, including the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes in remedial alternatives and costs or a determination that we are potentially responsible for the release of hazardous substances at other sites. Although we believe our comprehensive general liability insurance policies provide indemnification for certain costs that we incur with respect to our environmental remediation obligations, we do not currently have receivables recorded for any such recoveries.

Prior to one of our subsidiaries’ 1996 acquisition of DeSoto, Inc. (“DeSoto”), DeSoto was notified by the Texas Natural Resource Conservation Commission (now called the Texas Commission on Environmental Quality or “TCEQ”) that there were certain deficiencies in prior reports to the TCEQ relative to one of DeSoto’s non-operating facilities located in Gainesville, Texas. During 1999, that subsidiary entered into the TCEQ’s Voluntary Cleanup Program as it relates to that facility. We are currently pursuing a

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Municipal Setting Designation (“MSD”) for this site which would eliminate the need for long-term groundwater remediation and monitoring. We estimate the cost of future remediation under an MSD at approximately $50,000. If we are not successful in obtaining an MSD, remediation activities at this site would likely continue for another two to three years and could cost as much as $1.7 million.

In February 2009, we received a Notice of Violation (“NOV”) from the United States Environmental Protection Agency (the “U.S. EPA”) regarding alleged air permit issues at KSW. The U.S. EPA alleges KSW (i) is exceeding its sulfur dioxide emission limits set forth in its permits, (ii) failed to apply for a permit that would be issued under the U.S. Clean Air Act and the Illinois Environmental Protection Act in connection with the installation of certain equipment in its melt shop, and (iii) failed to monitor pH readings of an air scrubber in the wire galvanizing area of the plant. We disagree with the U.S. EPA’s assertions and we were in discussions with the U.S. EPA throughout 2009. On December 31, 2009, we were notified the case had been referred to the Department of Justice (the “DOJ”) for review and follow-up. During the first quarter of 2010, we submitted letters to the DOJ regarding our perspective on the matter. During the second quarter of 2010, the U.S. EPA requested additional information regarding the alleged permit issues and we submitted such information in May 2010.

In July 2011, we received a Notice and Finding of Violation (“NOV/FOV”) from the U.S. EPA alleging KSW failed to properly control air emissions and install a baghouse in accordance with terms and conditions of its Prevention of Significant Deterioration (“PSD”) construction permit issued on June 1, 2000.

While we continue to dispute certain of the U.S. EPA’s underlying assertions about the alleged violations contained in the February 2009 NOV and the July 2011 NOV/FOV, we have already undertaken corrective actions to address others and have worked diligently to reach resolution of the matters. KSW met with EPA Region V and the DOJ during August 2011 and February 2012 to discuss both the February 2009 NOV and the July 2011 NOV/FOV. In April 2012, the DOJ informed us that while a formal complaint has been internally approved, it will not be filed if an acceptable settlement can be reached. To date, a formal complaint from the DOJ has not been issued. In May 2012, we volunteered to undertake a model ventilation study and install a Continuous Emissions Monitoring System and we will communicate with both the EPA and DOJ as information is obtained from these projects. KSW has not yet agreed to any additional response actions in connection with the February 2009 NOV or the July 2011 NOV. Therefore, we cannot estimate any potential costs to us to resolve these matters and we can make no assurance our efforts will be successful or that we can avoid any enforcement action or resulting fines from these alleged violations.

Other current litigation

From time-to-time, we are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our operations. In certain cases, we have insurance coverage for these items. We currently believe the disposition of all claims and disputes, individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals we have already provided.

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Note 6—Other accrued liabilities:

	December 31,		June 30,
	2011		2012
	(In thousands)
Current:
Employee benefits	$	16,549	$	18,655
Self insurance		6,686		7,023
Environmental		240		194
Other		5,886		5,647
Total	$	29,361	$	31,519
Noncurrent:
Workers compensation payments	$	1,243	$	1,349
Environmental		165		140
Other		483		482
Total	$	1,891	$	1,971

Note 7 – Employee benefit plans:

The components of our net periodic defined benefit pension credit for the second quarter and first six months of 2011 and 2012 are presented in the table below.

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	931		$	1,167		$	1,862		$	2,335
Interest cost		4,752			4,386			9,504			8,771
Expected return on plan assets		(13,310	)		(12,202	)		(26,620	)		(24,404	)
Amortization of accumulated other comprehensive income:
Prior service cost		308			308			616			616
Actuarial losses		2,569			4,443			5,138			8,885
Total credit	$	(4,750	)	$	(1,898	)	$	(9,500	)	$	(3,797	)

The components of our net periodic credit related to other postretirement benefits for the second quarter and first six months of 2011 and 2012 are presented in the table below.

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	33		$	39		$	64		$	79
Interest cost		573			507			1,147			1,014
Amortization of accumulated other comprehensive income:
Prior service credit		(4,043	)		(4,042	)		(8,085	)		(8,085	)
Actuarial losses		2,138			1,919			4,275			3,838
Total credit	$	(1,299	)	$	(1,577	)	$	(2,599	)	$	(3,154	)

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Note 8 – Income taxes:

	Six months ended
	June 30,
	2011		2012
	(In thousands)
Expected income tax expense, at statutory rate	$	10,559	$	8,239
U.S. state income tax expense, net		1,914		1,019
Other, net		16		(305	)
Income tax expense	$	12,489	$	8,953

Our provision for income taxes in the first half of 2011 includes a $.7 million non-cash charge for state deferred income taxes. The non-cash charge is related to an increase in our effective state income tax rate primarily as a result of an increase in the tax rate of the State of Illinois.

We file income tax returns in various U.S. federal, state and local jurisdictions. Our income tax returns prior to 2008 are generally considered closed to examination by applicable tax authorities.

Note 9 – Financial instruments:

The following table presents the carrying value and estimated fair value of our financial instruments:

	December 31, 2011				June 30, 2012
	Carrying amount		Fair value		Carrying amount		Fair value
	(In thousands)
Accounts receivable, net	$	58,976	$	58,976	$	66,438	$	66,438
Accounts payable		14,334		14,334		15,697		15,697
Debt:
Variable-rate debt		33,630		33,630		36,899		36,899
Fixed-rate debt		984		1,029		1,007		1,046

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. The fair value of our variable rate indebtedness is deemed to approximate book value and is a Level 2 input as defined by ASC Topic 820-10-35. The fair value of our fixed-rate indebtedness was based on the net present value of our remaining debt payments at an interest rate commensurate with our variable-rate debt which represents Level 3 inputs as defined in ASC Topic 820-10-35. Note that substantially all of the carrying value of our fixed-rate debt at December 31, 2011 and June 30, 2012 relates to a $1.1 million non-interest bearing note. Because it is non-interest bearing, we have calculated an imputed interest rate on the note and carry the note at a value discounted for such interest.

Note 10 – Recent Accounting Pronouncements:

In June 2011 the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option of presenting comprehensive income as a component of the Consolidated Statement of Stockholders’ Equity and instead requires comprehensive income to be presented as a component of the Consolidated Statement of Income or in a separate Consolidated Statement of Comprehensive Income immediately following the Consolidated Statement of

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Income. In accordance with ASU 2011-05, we now present our comprehensive income in a separate Condensed Consolidated Statement of Comprehensive Income. Additionally, ASU 2011-05 would have required us to present on the face of our financial statements the effect of reclassifications out of accumulative other comprehensive income on the components of net income and other comprehensive income. However, in December 2011 the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the effectiveness for the requirement to present on the face of our financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. Adoption of ASU 2011-05, as amended by ASU 2011-12, did not have a material effect on our Condensed Consolidated Financial Statements.

In December 2011, the FASB issued ASU 2011-11 Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. This standard will be effective for annual and interim periods beginning with our first quarter 2013 report. We do not believe the adoption of this standard will have a material effect on our Consolidated Financial Statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this Quarterly Report on Form 10-Q that are not historical in nature are forward-looking and are not statements of fact. Some statements found in this report including, but not limited to, statements found in Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that represent our beliefs and assumptions based on currently available information. In some cases you can identify these forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expected” or comparable terminology, or by discussions of strategies or trends. Although we believe the expectations reflected in forward-looking statements are reasonable, we do not know if these expectations will be correct. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause our actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the Securities and Exchange Commission including, but not limited to, the following:

• Future supply and demand for our products (including cyclicality thereof),

• Customer inventory levels,

• Changes in raw material and other operating costs (such as ferrous scrap and energy),

• Availability of raw materials,

• The possibility of labor disruptions,

• General global economic and political conditions,

• Competitive products (including low-priced imports) and substitute products,

• Customer and competitor strategies,

• The impact of pricing and production decisions,

• Environmental matters (such as those requiring emission and discharge standards for existing and new facilities),

• Government regulations and possible changes thereof,

• Significant increases in the cost of providing medical coverage to employees,

• The ultimate resolution of pending litigation and U.S. EPA investigations,

• International trade policies of the United States and certain foreign countries,

• Operating interruptions (including, but not limited to, labor disputes, fires, explosions, unscheduled or unplanned downtime, supply disruptions and transportation interruptions),

• Our ability to renew or refinance credit facilities,

• The ability of our customers to obtain adequate credit,

• Any possible future litigation, and

• Other risks and uncertainties as discussed in this Quarterly Report and the 2011 Annual Report, including, without limitation, the section referenced above.

Should one or more of these risks materialize, if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

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RESULTS OF OPERATIONS

Business Overview

We are a leading domestic producer of steel fabricated wire products, industrial wire and wire rod. We also manufacture wire mesh, coiled rebar, steel bar and other products. Our products are used in the agricultural, industrial, cold drawn, construction, transportation, original equipment manufacturer and retail consumer markets. We are vertically integrated, converting substantially all of our products from billets produced in our steel mini-mill. Historically, our vertical integration has allowed us to benefit from the higher and more stable margins associated with fabricated wire products and wire mesh as compared to wire rod, as well as from lower costs of billet and wire rod as compared to bar manufacturers and wire fabricators that purchase billet and wire rod in the open market. Moreover, we believe our downstream fabricated wire products, wire mesh, coiled rebar and industrial wire businesses are better insulated from the effects of wire rod imports as compared to non-integrated wire rod producers.

Recent Developments

Ferrous scrap market prices decreased during the second quarter of 2012 which led to lower selling prices for most of our products as compared to the first quarter of 2012. At the end of the second quarter of 2012, customer anticipation that scrap prices will continue to fall resulted in both weakened demand and significant pricing pressure. Although ferrous scrap market prices continued to decrease in July, we currently believe scrap prices will begin to increase during the third quarter of 2012.

Results of Operations

Our profitability is primarily dependent on sales volume, selling prices, ferrous scrap costs and energy costs. Additionally, because pension and OPEB expense or credits are unrelated to the operating activities of our businesses, we measure and evaluate the performance of our businesses using operating income before pension and OPEB credit or expense. As such, we believe the presentation of operating income before pension and OPEB credit or expense provides more useful information to investors. Operating income before pension and OPEB credit or expense is a non-GAAP measure of profitability that is not in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and it should not be considered in isolation or as a substitute for a measure prepared in accordance with GAAP. A reconciliation of operating income as reported to operating income adjusted for pension and OPEB expense or credit is set forth in the following table.

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)						(In thousands)
Operating income as reported	$	16,026		$	12,253		$	30,226		$	24,579
Defined benefit pension credit		(4,750	)		(1,898	)		(9,500	)		(3,797	)
OPEB credit		(1,299	)		(1,577	)		(2,599	)		(3,154	)
Operating income before pension and OPEB	$	9,977		$	8,778		$	18,127		$	17,628

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Operating income before pension and OPEB for the second quarter and first six months of 2012 was less than the same periods of 2011 primarily due to higher accrued incentive compensation expense at Keystone Steel & Wire (“KSW”), $286,000 of severance and related costs at Keystone-Calumet, Inc. (“Calumet”) and higher insurance costs at Corporate, partially offset by lower utility costs and better yield at KSW.

Our consolidated sales volume and average per-ton selling prices for the second quarter and first six months of 2011 and 2012 are as follows:

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2011
Sales volume(000 tons):
Wire rod		107		103		200		203
Fabricated wire products		21		25		46		54
Industrial wire		15		17		31		34
Wire mesh		17		15		28		27
Bar		8		7		14		13
Coiled rebar		4		2		5		2
Other		3		2		6		6
Total		175		171		330		339
Average per-ton selling prices:
Wire rod	$	754	$	735	$	732	$	740
Fabricated wire products		1,359		1,307		1,344		1,323
Industrial wire		1,036		1,011		998		1,022
Wire mesh		1,015		1,072		984		1,061
Bar		1,028		1,093		1,009		1,081
Coiled rebar		737		737		734		743
All products		882		885		869		893

Segment Operating Results:

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

• 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

• 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.

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Our consolidated net sales, cost of goods sold, operating costs and operating performance before pension and OPEB credit by segment are set forth in the following table:

	KSW			EWP			Calumet			Other(1)			Total
	(In thousands)
Three months ended June 30, 2011
Net sales	$	149,682		$	17,368		$	9,515		$	(20,610	)	$	155,955
Cost of goods sold		(135,484	)		(15,496	)		(8,975	)		20,220			(139,735	)
Gross margin		14,198			1,872			540			(390	)		16,220
Selling and administrative expense		(4,721	)		(516	)		(204	)		(802	)		(6,243	)
Operating income before pension/OPEB	$	9,477		$	1,356		$	336		$	(1,192	)	$	9,977
Three months ended June 30, 2012
Net sales	$	145,150		$	16,975		$	8,147		$	(17,525	)	$	152,747
Cost of goods sold		(130,553	)		(15,364	)		(8,082	)		17,822			(136,177	)
Gross margin		14,597			1,611			65			297			16,570
Selling and administrative expense		(5,468	)		(646	)		(477	)		(1,201	)		(7,792	)
Operating income (loss) before pension/OPEB	$	9,129		$	965		$	(412	)	$	(904	)	$	8,778
Six months ended June 30, 2011:
Net sales	$	285,019		$	28,410		$	15,912		$	(39,223	)	$	290,118
Cost of goods sold		(258,235	)		(25,848	)		(15,084	)		38,698			(260,469	)
Gross margin		26,784			2,562			828			(525	)		29,649
Selling and administrative expense		(8,366	)		(1,095	)		(392	)		(1,669	)		(11,522	)
Operating income before pension/OPEB	$	18,418		$	1,467		$	436		$	(2,194	)	$	18,127
Six months ended June 30, 2012:
Net sales	$	298,141		$	29,724		$	15,589		$	(37,414	)	$	306,040
Cost of goods sold		(267,671	)		(27,053	)		(15,468	)		36,795			(273,397	)
Gross margin		30,470			2,671			121			(619	)		32,643
Selling and administrative expense		(10,804	)		(1,260	)		(718	)		(2,233	)		(15,015	)
Operating income (loss) before pension/OPEB	$	19,666		$	1,411		$	(597	)	$	(2,852	)	$	17,628

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

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Keystone Steel & Wire

	Three months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	149,682			100.0	%	$	145,150			100.0	%
Cost of goods sold		(135,484	)		(90.5	)		(130,553	)		(89.9	)
Gross margin		14,198			9.5			14,597			10.1
Selling and administrative expense		(4,721	)		(3.2	)		(5,468	)		(3.8	)
Operating income before pension/OPEB	$	9,477			6.3	%	$	9,129			6.3	%

	Six months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	285,019			100.0	%	$	298,141			100.0	%
Cost of goods sold		(258,235	)		(90.6	)		(267,671	)		(89.8	)
Gross margin		26,784			9.4			30,470			10.2
Selling and administrative expense		(8,366	)		(2.9	)		(10,804	)		(3.6	)
Operating income before pension/OPEB	$	18,418			6.5	%	$	19,666			6.6	%

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The primary drivers of KSW’s sales, cost of goods sold and the resulting gross margin are as follows:

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
Sales volume(000 tons):
Wire rod		126		118		238		240
Fabricated wire products		21		25		46		54
Industrial wire		14		16		30		33
Billet		14		12		26		23
Coiled rebar		4		2		5		2
Total		179		173		345		352
Average per-ton selling prices:
Wire rod	$	751	$	735	$	729	$	739
Fabricated wire products		1,359		1,307		1,344		1,323
Industrial wire		1,044		1,015		1,006		1,026
Billet		558		531		534		531
Coiled rebar		737		737		734		743
All products		830		833		821		842
Average per-ton ferrous scrap cost of goods sold	$	383	$	382	$	363	$	382
Average electricity cost per kilowatt hour	$	0.04	$	0.03	$	0.04	$	0.03
Kilowatt hours consumed (000 hrs)		140,918		133,894		278,941		277,146
Average natural gas cost per therm	$	0.51	$	0.24	$	0.48	$	0.32
Natural gas therms consumed (000 therms)		4,554		4,334		10,319		9,942

KSW’s operating performance during the second quarter and first half of 2012 was also positively impacted by improved yield as a result of scrap mix management.

KSW’s selling and administrative expense was higher during the second quarter and first six months of 2012 as compared to the same periods of 2011 primarily due to increased accrued incentive compensation expense.

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Engineered Wire Products, Inc.

	Three months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	17,368			100.0	%	$	16,975			100.0	%
Cost of goods sold		(15,496	)		(89.2	)		(15,364	)		(90.5	)
Gross margin		1,872			10.8			1,611			9.5
Selling and administrative expense		(516	)		(3.0	)		(646	)		(3.8	)
Operating income before pension/OPEB	$	1,356			7.8	%	$	965			5.7	%

	Six months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	28,410			100.0	%	$	29,724			100.0	%
Cost of goods sold		(25,848	)		(91.0	)		(27,053	)		(91.0	)
Gross margin		2,562			9.0			2,671			9.0
Selling and administrative expense		(1,095	)		(3.8	)		(1,260	)		(4.2	)
Operating income before pension/OPEB	$	1,467			5.2	%	$	1,411			4.8	%

The primary drivers of EWP’s sales, cost of goods sold and the resulting gross margin are as follows:

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
Sales volume (000 tons):
Wire mesh		17		15		28		27
Industrial wire		1		1		1		1
Total		18		16		29		28
Average per-ton selling prices:
Wire mesh	$	1,015	$	1,072	$	984	$	1,061
Industrial wire		859		913		830		908
All products		1,009		1,066		976		1,054
Average per-ton wire rod cost of goods sold	$	707	$	740	$	694	$	738

EWP’s operating performance during the second quarter and first six months of 2012 was negatively impacted by lower production due to inconsistent customer order patterns, which resulted in a higher percentage of fixed costs included in cost of goods sold as these costs could not be capitalized into inventory.

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Keystone – Calumet, Inc.

	Three months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	9,515			100.0	%	$	8,147			100.0	%
Cost of goods sold		(8,975	)		(94.3	)		(8,082	)		(99.2	)
Gross margin		540			5.7			65			0.8
Selling and administrative expense		(204	)		(2.1	)		(477	)		(5.9	)
Operating income (loss) before pension/OPEB	$	336			3.6	%	$	(412	)		(5.1	)%

	Six months ended June 30,
	2011			% of sales			2012			% of sales
	($ in thousands)
Net sales	$	15,912			100.0	%	$	15,589			100.0	%
Cost of goods sold		(15,084	)		(94.8	)		(15,468	)		(99.2	)
Gross margin		828			5.2			121			0.8
Selling and administrative expense		(392	)		(2.5	)		(718	)		(4.6	)
Operating income (loss) before pension/OPEB	$	436			2.7	%	$	(597	)		(3.8	)%

The primary drivers of sales, cost of goods sold and the resulting gross margin are as follows:

	Three months ended June 30,				Six months ended June 30,
	2011		2012		2011		2012
Sales volume(000 tons) - Bar		8		7		14		13
Average per-ton selling prices - Bar	$	1,028	$	1,093	$	1,009	$	1,081
Average per-ton billet cost of goods sold	$	598	$	610	$	555	$	603

During the first quarter of 2011, Calumet installed certain new equipment. Throughout 2011 and the first half of 2012, Calumet experienced significant production delays associated with equipment malfunctions including performance problems related to the new equipment. Due to the related production outages, Calumet struggled to meet customer order deadlines on a consistent basis, resulting in lower than expected sales volume. Calumet has contracted with an engineering firm to design and implement specific production procedures to remedy Calumet’s recurring production issues. As the production procedures are implemented and Calumet’s labor force gains experience working in accordance with them, we believe the mill will operate more efficiently, thereby allowing consistent on-time delivery of customer orders as well as reduction of future conversion costs.

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During the second quarter of 2012, certain management employees were terminated resulting in severance and related costs of $286,000.

On March 20, 2012, an election under the supervision of the National Labor Relations Board was held, in which a majority of Calumet’s hourly employees voted to accept the organization of the workforce by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USA) AFL-CIO, CLC (the “USW”). Calumet negotiated a tentative labor agreement with the USW which was ratified by the represented employees on August 4th.

Pension Credit

Primarily due to a $45 million decrease in our pension plans’ assets as well as a 101 basis point reduction in the applicable discount rate during 2011, we currently expect to record a defined benefit pension credit of $7.6 million during 2012 as compared to the $24.4 million defined benefit pension credit we recorded during 2011. Accordingly, during the second quarter and first six months of 2012 we recorded a defined benefit pension credit of $1.9 million and $3.8 million, respectively, as compared to the $4.8 million and $9.5 million credit recorded during the second quarter and first six months of 2011, respectively.

Corporate Selling and Administrative Expense

Corporate selling and administrative expenses were higher during the second quarter and first six months of 2012 as compared to the same periods of 2011 primarily due to increased insurance costs.

Income Tax Expense

A tabular reconciliation of the difference between the U.S. Federal statutory income tax rate and our effective income tax rates is included in Note 8 to our Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

Operating Activities

During the first six months of 2012, net cash provided by operations totaled $2.1 million as compared to net cash used in operations of $14.9 million during the first six months of 2011. The $17.0 million increase in cash provided by operating activities was primarily due to the net effects of:

• less cash used as a result of relative changes in our accounts receivable in 2012 of $16.2 million primarily due to lower sales volume at the end of the second quarter of 2012 as compared to the end of the second quarter of 2011, and higher sales volume during the fourth quarter of 2011 as compared to the fourth quarter of 2010,

• less net cash used as a result of relative changes in our inventory in 2012 of $10.5 million primarily due to a significant increase in ferrous scrap costs during the first six months of 2011 as compared to a slight decrease in ferrous scrap costs during the first six months of 2012,

• less cash provided by relative changes in our accounts payable and accrued liabilities in 2012 of $4.5 million primarily due to gaining more favorable payment terms on raw materials and utilities during the first half of 2011 (payment terms on raw materials and utilities have remained constant since January 2011), and

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• higher taxes paid during the first six months of 2012 of $5.5 million due to the timing of our tax payments.

Investing Activities

Expenditures on capital projects during the first half of 2012 primarily related to upgrades of production equipment at KSW and amounted to $6.0 million as compared to $5.8 million of capital expenditures during the first half of 2011.

Financing Activities

We increased borrowings on our revolving credit facility during the first half of 2012 by $3.3 million as compared to increasing borrowings by $20.6 million during the first half of 2011. The lower rate of additional borrowings during 2012 was primarily due to the decreased usage of cash in operations as discussed above.

Future Cash Requirements

Capital Expenditures

Capital expenditures for 2012 are currently expected to be approximately $15 million and are primarily related to upgrades of production equipment. We expect to fund capital expenditures using cash flows from operations and borrowing availability under our revolving credit facility.

Commitments and Contingencies

See Note 5 to the Condensed Consolidated Financial Statements for a description of certain legal proceedings.

Pension and Other Postretirement Obligations

We currently do not expect to be required to make contributions to our defined benefit pension plans during 2012. As allowed under certain of our amended benefit plans, we exercised our right to create supplemental pension benefits in lieu of certain 2012 benefit payments due under one of our OPEB plans. As such, we anticipate contributing an aggregate of only $1.2 million to our OPEB plans during 2012. We have the ability to decide whether or not to exercise such rights on a year-by-year basis. If we had not exercised such rights for 2012, our expected OPEB contributions would be $2.9 million higher. Future variances from assumed actuarial rates, including the rate of return on plan assets, may result in increases or decreases to pension and OPEB funding requirements in future periods.

Off-balance Sheet Financing Arrangements

We do not have any off-balance sheet financing agreements other than the operating leases discussed in our 2011 Annual Report.

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Working Capital and Borrowing Availability

	December 31,		June 30,
	2011		2012
	(In thousands)
Working capital	$	78,742	$	91,774
Outstanding balance under revolving credit facility		33,630		36,899
Additional borrowing availability		30,939		27,867

The revolving credit facility requires us to use our daily cash receipts to reduce outstanding borrowings, which results in us maintaining zero cash balances when there are balances outstanding under this credit facility.

The amount of available borrowings under our revolving credit facility is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit ($5.0 million at June 30, 2012). Our revolving credit facility requires us to maintain a minimum fixed charge coverage ratio, defined in the agreement as earnings before interest, taxes, depreciation, amortization, restructuring costs, pension and OPEB expense or credits, less OPEB payments, divided by the sum of interest expense, tax payments, principal payments on certain debt and certain capital expenditures, of 1.0 if excess availability falls below $10.0 million. At June 30, 2012 our fixed charge coverage ratio was 1.1 and as disclosed above excess availability was $27.9 million. Current forecasts indicate we will maintain excess availability of at least $10.0 million and a fixed charge coverage ratio of at least 1.0 throughout 2012.

Based upon our current expectations, we expect to have sufficient liquidity to meet our known future short-term and long-term obligations.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 10 to our Condensed Consolidated Financial Statements for the projected impact of recent accounting pronouncements on our financial position and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our critical accounting policies, refer to Part I, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2011 Annual Report. There have been no changes in our critical accounting policies during the first half of 2012.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the 2011 Annual Report for a discussion of the market risks associated with changes in interest rates that affect us. There have been no material changes in such market risks during the first half of 2012.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure information required to be disclosed in the reports we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information we are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of David L. Cheek, our Chief Executive Officer, and Bert E. Downing, Jr., our Vice President, Chief Financial Officer, Corporate Controller and Treasurer, have evaluated the design and operating effectiveness of our disclosure controls and procedures as of June 30, 2012. Based upon their evaluation, these executive officers have concluded our disclosure controls and procedures were effective as of June 30, 2012.

Internal Control Over Financial Reporting

We also maintain internal control over financial reporting. The term “internal control over financial reporting,” as defined by SEC regulations, means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets,

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are made only in accordance with authorizations of our management and directors, and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

Changes in Internal Control Over Financial Reporting

There has been no change to our internal control over financial reporting during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

Reference is made to disclosure provided under the caption “Other current litigation” in Note 5 to our Condensed Consolidated Financial Statements.

ITEM 1A. Risk Factors.

Reference is made to our 2011 Annual Report for a discussion of risk factors related to our businesses. There have been no material changes in such risk factors during the first half of 2012.

ITEM 6. Exhibits.

(a) We have retained a signed original of any exhibit listed below that contains signatures, and we will provide any such exhibit to the Commission or its staff upon request. The following exhibit is included herein:

31.1	Certification.
31.2	Certification.
32.1	Certification.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

- 28 -

SIGNATURES

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: August 14, 2012	By:	/s/ Bert E. Downing, Jr.
		Bert E. Downing, Jr.
		Vice President, Chief Financial Officer,
		Corporate Controller and Treasurer

- 29 -

EX-31.1

Exhibit 31.1

I, David L. Cheek, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Keystone Consolidated Industries, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012

By	/s/ David L. Cheek
	David L. Cheek
	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Bert E. Downing, Jr., certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Keystone Consolidated Industries, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012

By	/s/ Bert E. Downing, Jr.
	Bert E. Downing, Jr.
	Vice President, Chief Financial Officer,
	Corporate Controller and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Keystone Consolidated Industries, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Cheek, Chief Executive Officer of the Company, and I, Bert E. Downing, Jr., Vice President, Chief Financial Officer, Corporate Controller and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By	/s/ David L. Cheek	By	/s/ Bert E. Downing, Jr.
	David L. Cheek		Bert E. Downing, Jr.
	Chief Executive Officer		Vice President, Chief Financial Officer,
	August 14, 2012		Corporate Controller and Treasurer
			August 14, 2012

Note: The certification the registrant furnishes in this exhibit is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Registration Statements or other documents filed with the Securities and Exchange Commission shall not incorporate this exhibit by reference, except as otherwise expressly stated in such filing.

XML

Income Taxes (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2011
Income Taxes (Textual) [Abstract]
Non-cash charge for state deferred income taxes	$ 0.7

XML

Organization and Basis of Presentation (Details) (Contran Corporation [Member])	Jun. 30, 2012
Contran Corporation [Member]
Organization and Basis of Presentation (Textual) [Abstract]
Ownership Percentage	88.00%

XML

Inventories, Net

6 Months Ended

Jun. 30, 2012

Inventories, Net [Abstract]

Inventories, Net

Note 3 – Inventories, net:

	December 31,		June 30,
	2011		2012
	(In thousands)
Raw materials	$	6,995	$	6,141
Billet		12,702		10,579
Wire rod		7,155		18,607
Work in process		6,771		8,451
Finished products		29,228		29,626
Supplies		25,716		25,519
Total	$	88,567	$	98,923

XML

Environmental Matters and Other Commitments and Contingencies (Details Textual) (USD $)	Jun. 30, 2012
Environmental Matters and Other Commitments and Contingencies (Textual) [Abstract]
Upper end of the range of reasonably possible costs	$ 2,000,000
Recorded accrual amount	300,000
Estimate cost of future remediation	50,000
Estimated cost of future remediation if MSD is not obtained	$ 1,700,000

XML

Debt (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Debt
Wells Fargo revolving credit facility	$ 36,899	$ 33,630
Other	1,007	984
Total debt	37,906	34,614
Less current maturities	36,899	33,631
Total long-term debt	$ 1,007	$ 983
Debt (Textual) [Abstract]
Average interest rate on revolving credit facility, at period end	2.70%
Average interest rate on revolving credit facility, during the period	2.80%

XML

Other Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current:
Employee benefits	$ 18,655	$ 16,549
Self insurance	7,023	6,686
Environmental	194	240
Other	5,647	5,886
Total	31,519	29,361
Noncurrent:
Workers compensation payments	1,349	1,243
Environmental	140	165
Other	482	483
Total	$ 1,971	$ 1,891

XML

Employee Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Defined Benefit Pension Plans [Member]
Schedule Of Components Of Net Periodic Credit
Service cost	$ 1,167	$ 931	$ 2,335	$ 1,862
Interest cost	4,386	4,752	8,771	9,504
Expected return on plan assets	(12,202)	(13,310)	(24,404)	(26,620)
Amortization of accumulated other comprehensive income:
Prior service cost	308	308	616	616
Actuarial losses	4,443	2,569	8,885	5,138
Total credit	(1,898)	(4,750)	(3,797)	(9,500)
Other Postretirement Benefit Plans [Member]
Schedule Of Components Of Net Periodic Credit
Service cost	39	33	79	64
Interest cost	507	573	1,014	1,147
Amortization of accumulated other comprehensive income:
Prior service cost	(4,042)	(4,043)	(8,085)	(8,085)
Actuarial losses	1,919	2,138	3,838	4,275
Total credit	$ (1,577)	$ (1,299)	$ (3,154)	$ (2,599)

XML

Business Segment Information

6 Months Ended

Jun. 30, 2012

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:

• 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;

• 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)
	2011			2012			2011			2012
Net sales:
KSW	$	149,682		$	145,150		$	285,019		$	298,141
EWP		17,368			16,975			28,410			29,724
Calumet		9,515			8,147			15,912			15,589
Elimination of intersegment sales		(20,610	)		(17,525	)		(39,223	)		(37,414	)
Total net sales	$	155,955		$	152,747		$	290,118		$	306,040
Operating income (loss):
KSW	$	9,477		$	9,129		$	18,418		$	19,666
EWP		1,356			965			1,467			1,411
Calumet		336			(412	)		436			(597	)
Pension credit		4,750			1,898			9,500			3,797
OPEB credit		1,299			1,577			2,599			3,154
Other(1)		(1,192	)		(904	)		(2,194	)		(2,852	)
Total operating income		16,026			12,253			30,226			24,579
Non operating income (expense):
Interest expense		(328	)		(333	)		(603	)		(693	)
Other income (expense), net		425			(70	)		548			(347	)
Income before income taxes	$	16,123		$	11,850		$	30,171		$	23,539

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

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Schedule Of Income Taxes
Expected income tax expense, at statutory rate			$ 8,239	$ 10,559
U.S. state income tax expense, net			1,019	1,914
Other, net			(305)	16
Income tax expense	$ 4,529	$ 6,404	$ 8,953	$ 12,489

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Accounts receivable, net	$ 66,438	$ 58,976
Inventories	98,923	88,567
Deferred income taxes	12,194	12,194
Prepaid expenses and other	757	2,033
Total current assets	178,312	161,770
Property, plant and equipment:
Land	1,468	1,468
Buildings and improvements	64,517	64,959
Machinery and equipment	343,050	348,789
Construction in progress	4,572	5,607
Total property, plant and equipment	413,607	420,823
Less accumulated depreciation	321,496	327,820
Net property, plant and equipment	92,111	93,003
Other assets:
Pension asset	85,122	71,719
Other, net	1,411	1,455
Total other assets	86,533	73,174
Total assets	356,956	327,947
Current liabilities:
Current maturities of long-term debt	36,899	33,631
Accounts payable	15,697	14,334
Accrued OPEB cost	1,220	1,220
Income taxes payable to Contran	609	3,769
Income taxes payable to tax authorities	594	713
Other accrued liabilities	31,519	29,361
Total current liabilities	86,538	83,028
Noncurrent liabilities:
Long-term debt	1,007	983
Accrued pension cost	21,769	21,664
Accrued OPEB cost	50,981	50,470
Deferred income taxes	24,804	17,783
Other	1,971	1,891
Total noncurrent liabilities	100,532	92,791
Stockholders' equity:
Common stock	121	121
Additional paid-in capital	99,024	99,024
Accumulated other comprehensive loss	(178,921)	(182,093)
Retained earnings	249,662	235,076
Total stockholders' equity	169,886	152,128
Total liabilities and stockholders' equity	356,956	327,947
Commitments and contingencies (Note 5)

XML

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $) In Thousands	Total	Accumulated Other Comprehensive Income (Loss) OPEB [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Income (Loss) Pensions [Member]	Retained Earnings [Member]
Balance at Dec. 31, 2011	$ 152,128	$ 10,459	$ 121	$ 99,024	$ (192,552)	$ 235,076
Net income	14,586					14,586
Other comprehensive income (loss), net	3,172	(2,565)			5,737
Balance at Jun. 30, 2012	$ 169,886	$ 7,894	$ 121	$ 99,024	$ (186,815)	$ 249,662

XML

Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2012

Defined Benefit Pension Plans [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Schedule Of Components Of Net Periodic Credit

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	931		$	1,167		$	1,862		$	2,335
Interest cost		4,752			4,386			9,504			8,771
Expected return on plan assets		(13,310	)		(12,202	)		(26,620	)		(24,404	)
Amortization of accumulated other comprehensive income:
Prior service cost		308			308			616			616
Actuarial losses		2,569			4,443			5,138			8,885
Total credit	$	(4,750	)	$	(1,898	)	$	(9,500	)	$	(3,797	)

Other Postretirement Benefit Plans [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Schedule Of Components Of Net Periodic Credit

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	33		$	39		$	64		$	79
Interest cost		573			507			1,147			1,014
Amortization of accumulated other comprehensive income:
Prior service credit		(4,043	)		(4,042	)		(8,085	)		(8,085	)
Actuarial losses		2,138			1,919			4,275			3,838
Total credit	$	(1,299	)	$	(1,577	)	$	(2,599	)	$	(3,154	)

XML

Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2012

Financial Instruments [Abstract]

Schedule To Carrying Value And Estimated Fair Value Of Financial Instruments

	December 31, 2011				June 30, 2012
	Carrying amount		Fair value		Carrying amount		Fair value
	(In thousands)
Accounts receivable, net	$	58,976	$	58,976	$	66,438	$	66,438
Accounts payable		14,334		14,334		15,697		15,697
Debt:
Variable-rate debt		33,630		33,630		36,899		36,899
Fixed-rate debt		984		1,029		1,007		1,046

XML

Organization and Basis of Presentation

6 Months Ended

Jun. 30, 2012

Organization and Basis of Presentation [Abstract]

Organization and Basis of Presentation

Note 1 – Organization and basis of presentation:

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 that we filed with the Securities and Exchange Commission (“SEC”) on March 15, 2012 (the “2011 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. At the end of 2011, we changed our method of accounting for productive inventories at Keystone Steel & Wire (“KSW”) and Engineered Wire Products, Inc. (“EWP”) from last-in first-out (“LIFO”) to first-in first out (“FIFO”) at KSW and average cost at EWP. Accordingly, our results of operations and cash flows for the interim periods ended June 30, 2011 have been restated in this Quarterly Report to reflect this change in accounting. As compared to the 2011 Annual Report, we have omitted certain information and footnote disclosures from this Quarterly Report that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim periods ended June 30, 2012 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with the 2011 Consolidated Financial Statements contained in the 2011 Annual Report.

At June 30, 2012, Contran Corporation (“Contran”) owned approximately 88% of our outstanding common stock. Substantially all of Contran’s outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Harold C. Simmons (for which Mr. Simmons is the sole trustee) or is held directly by Mr. Simmons or other persons or companies related to Mr. Simmons. Consequently, Mr. Simmons may be deemed to control Contran and us.

Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to Keystone Consolidated Industries, Inc. (“KCI”) and its subsidiaries, taken as a whole.

XML

Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Condensed Consolidated Statements of Income [Abstract]
Net sales	$ 152,747	$ 155,955	$ 306,040	$ 290,118
Cost of goods sold	(136,177)	(139,735)	(273,397)	(260,469)
Gross margin	16,570	16,220	32,643	29,649
Other operating income (expense):
Selling expense	(2,206)	(1,983)	(4,292)	(3,798)
General and administrative expense	(5,586)	(4,260)	(10,723)	(7,724)
Defined benefit pension credit	1,898	4,750	3,797	9,500
Other postretirement benefit credit	1,577	1,299	3,154	2,599
Total other operating income (expense)	(4,317)	(194)	(8,064)	577
Operating income	12,253	16,026	24,579	30,226
Nonoperating income (expense):
Interest expense	(333)	(328)	(693)	(603)
Other income (expense), net	(70)	425	(347)	548
Total nonoperating income (expense)	(403)	97	(1,040)	(55)
Income before income taxes	11,850	16,123	23,539	30,171
Provision for income taxes	(4,529)	(6,404)	(8,953)	(12,489)
Net income	$ 7,321	$ 9,719	$ 14,586	$ 17,682
Basic and diluted income per share	$ 0.60	$ 0.80	$ 1.21	$ 1.46
Basic and diluted weighted average shares outstanding	12,102	12,102	12,102	12,102

XML

Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Comprehensive Income

In June 2011 the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option of presenting comprehensive income as a component of the Consolidated Statement of Stockholders’ Equity and instead requires comprehensive income to be presented as a component of the Consolidated Statement of Income or in a separate Consolidated Statement of Comprehensive Income immediately following the Consolidated Statement of Income. In accordance with ASU 2011-05, we now present our comprehensive income in a separate Condensed Consolidated Statement of Comprehensive Income. Additionally, ASU 2011-05 would have required us to present on the face of our financial statements the effect of reclassifications out of accumulative other comprehensive income on the components of net income and other comprehensive income. However, in December 2011 the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the effectiveness for the requirement to present on the face of our financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. Adoption of ASU 2011-05, as amended by ASU 2011-12, did not have a material effect on our Condensed Consolidated Financial Statements.

Disclosures about Offsetting Assets and Liabilities

In December 2011, the FASB issued ASU 2011-11 Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. This standard will be effective for annual and interim periods beginning with our first quarter 2013 report. We do not believe the adoption of this standard will have a material effect on our Consolidated Financial Statements.

fair value of variable rate indebtedness

fair value. The fair value of our variable rate indebtedness is deemed to approximate book value and is a Level 2 input as defined by ASC Topic 820-10-35. The fair value of our fixed-rate indebtedness was based on the net present value of our remaining debt payments at an interest rate commensurate with our variable-rate debt which represents Level 3 inputs as defined in ASC Topic 820-10-35. Note that substantially all of the carrying value of our fixed-rate debt at December 31, 2011 and June 30, 2012 relates to a $1.1 million non-interest bearing note. Because it is non-interest bearing, we have calculated an imputed interest rate on the note and carry the note at a value discounted for such interest.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	KEYSTONE CONSOLIDATED INDUSTRIES INC
Entity Central Index Key	0000055604
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		12,101,932

XML

Business Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Business Segment Information [Abstract]

Schedule of Operating Segments Organized by Manufacturing Facilities and Include Three Reportable Segments

	Three months ended June 30,						Six months ended June 30,
	(In thousands)						(In thousands)
	2011			2012			2011			2012
Net sales:
KSW	$	149,682		$	145,150		$	285,019		$	298,141
EWP		17,368			16,975			28,410			29,724
Calumet		9,515			8,147			15,912			15,589
Elimination of intersegment sales		(20,610	)		(17,525	)		(39,223	)		(37,414	)
Total net sales	$	155,955		$	152,747		$	290,118		$	306,040
Operating income (loss):
KSW	$	9,477		$	9,129		$	18,418		$	19,666
EWP		1,356			965			1,467			1,411
Calumet		336			(412	)		436			(597	)
Pension credit		4,750			1,898			9,500			3,797
OPEB credit		1,299			1,577			2,599			3,154
Other(1)		(1,192	)		(904	)		(2,194	)		(2,852	)
Total operating income		16,026			12,253			30,226			24,579
Non operating income (expense):
Interest expense		(328	)		(333	)		(603	)		(693	)
Other income (expense), net		425			(70	)		548			(347	)
Income before income taxes	$	16,123		$	11,850		$	30,171		$	23,539

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

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net income	$ 7,321	$ 9,719	$ 14,586	$ 17,682
Other comprehensive income (loss), net of tax:
Total other comprehensive income, net	1,587	587	3,172	1,174
Comprehensive income	8,908	10,306	17,758	18,856
Defined Benefit Pension Plans [Member]
Other comprehensive income (loss), net of tax:
Amortization of prior service cost/credit	186	186	372	372
Amortization of net actuarial losses	2,683	1,552	5,365	3,103
Other Postretirement Benefit Plans [Member]
Other comprehensive income (loss), net of tax:
Amortization of prior service cost/credit	(2,441)	(2,442)	(4,883)	(4,883)
Amortization of net actuarial losses	1,159	1,291	2,318	2,582
Total other comprehensive income, net			$ (2,565)

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Other Accrued Liabilities

6 Months Ended

Jun. 30, 2012

Other Accrued Liabilities [Abstract]

Other Accrued Liabilities

Note 6—Other accrued liabilities:

	December 31,		June 30,
	2011		2012
	(In thousands)
Current:
Employee benefits	$	16,549	$	18,655
Self insurance		6,686		7,023
Environmental		240		194
Other		5,886		5,647
Total	$	29,361	$	31,519
Noncurrent:
Workers compensation payments	$	1,243	$	1,349
Environmental		165		140
Other		483		482
Total	$	1,891	$	1,971

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Environmental Matters and Other Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Environmental Matters and Other Commitments and Contingencies [Abstract]

Environmental Matters and Other Commitments and Contingencies

Note 5 – Environmental matters and other commitments and contingencies:

We have been named as a defendant for certain environmental sites pursuant to governmental laws and private actions, including waste disposal sites and facilities currently or previously owned, operated or used by us. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Additionally, KSW’s facilities are subject to regulatory oversight and enforcement activities. These activities may identify compliance violations which may result in penalties. Certain of these proceedings involve claims for substantial amounts.

On a quarterly basis, we evaluate the potential range of our liability at sites where we have been named a defendant by analyzing and estimating the range of reasonably possible costs to us. At June 30, 2012, the upper end of the range of reasonably possible costs to us for sites where we have been named a defendant is approximately $2.0 million, including our recorded accrual of $.3 million. Our cost estimates have not been discounted to present value due to the uncertainty of the timing of the pay out. At each balance sheet date, we make an estimate of the amount of our accrued environmental costs that will be paid out over the subsequent twelve months, and we classify such amount as a current liability. We classify the remainder of the accrued environmental costs as noncurrent liabilities. See Note 6.

It is possible our actual costs could differ materially from the amounts we have accrued or the upper end of the estimated range for the sites where we have been named a defendant. Our ultimate liability may be affected by a number of factors, including the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes in remedial alternatives and costs or a determination that we are potentially responsible for the release of hazardous substances at other sites. Although we believe our comprehensive general liability insurance policies provide indemnification for certain costs that we incur with respect to our environmental remediation obligations, we do not currently have receivables recorded for any such recoveries.

Prior to one of our subsidiaries’ 1996 acquisition of DeSoto, Inc. (“DeSoto”), DeSoto was notified by the Texas Natural Resource Conservation Commission (now called the Texas Commission on Environmental Quality or “TCEQ”) that there were certain deficiencies in prior reports to the TCEQ relative to one of DeSoto’s non-operating facilities located in Gainesville, Texas. During 1999, that subsidiary entered into the TCEQ’s Voluntary Cleanup Program as it relates to that facility. We are currently pursuing a Municipal Setting Designation (“MSD”) for this site which would eliminate the need for long-term groundwater remediation and monitoring. We estimate the cost of future remediation under an MSD at approximately $50,000. If we are not successful in obtaining an MSD, remediation activities at this site would likely continue for another two to three years and could cost as much as $1.7 million.

In February 2009, we received a Notice of Violation (“NOV”) from the United States Environmental Protection Agency (the “U.S. EPA”) regarding alleged air permit issues at KSW. The U.S. EPA alleges KSW (i) is exceeding its sulfur dioxide emission limits set forth in its permits, (ii) failed to apply for a permit that would be issued under the U.S. Clean Air Act and the Illinois Environmental Protection Act in connection with the installation of certain equipment in its melt shop, and (iii) failed to monitor pH readings of an air scrubber in the wire galvanizing area of the plant. We disagree with the U.S. EPA’s assertions and we were in discussions with the U.S. EPA throughout 2009. On December 31, 2009, we were notified the case had been referred to the Department of Justice (the “DOJ”) for review and follow-up. During the first quarter of 2010, we submitted letters to the DOJ regarding our perspective on the matter. During the second quarter of 2010, the U.S. EPA requested additional information regarding the alleged permit issues and we submitted such information in May 2010.

In July 2011, we received a Notice and Finding of Violation (“NOV/FOV”) from the U.S. EPA alleging KSW failed to properly control air emissions and install a baghouse in accordance with terms and conditions of its Prevention of Significant Deterioration (“PSD”) construction permit issued on June 1, 2000.

While we continue to dispute certain of the U.S. EPA’s underlying assertions about the alleged violations contained in the February 2009 NOV and the July 2011 NOV/FOV, we have already undertaken corrective actions to address others and have worked diligently to reach resolution of the matters. KSW met with EPA Region V and the DOJ during August 2011 and February 2012 to discuss both the February 2009 NOV and the July 2011 NOV/FOV. In April 2012, the DOJ informed us that while a formal complaint has been internally approved, it will not be filed if an acceptable settlement can be reached. To date, a formal complaint from the DOJ has not been issued. In May 2012, we volunteered to undertake a model ventilation study and install a Continuous Emissions Monitoring System and we will communicate with both the EPA and DOJ as information is obtained from these projects. KSW has not yet agreed to any additional response actions in connection with the February 2009 NOV or the July 2011 NOV. Therefore, we cannot estimate any potential costs to us to resolve these matters and we can make no assurance our efforts will be successful or that we can avoid any enforcement action or resulting fines from these alleged violations.

Other current litigation

From time-to-time, we are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our operations. In certain cases, we have insurance coverage for these items. We currently believe the disposition of all claims and disputes, individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals we have already provided.

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Schedule Of Income Taxes

	Six months ended
	June 30,
	2011		2012
	(In thousands)
Expected income tax expense, at statutory rate	$	10,559	$	8,239
U.S. state income tax expense, net		1,914		1,019
Other, net		16		(305	)
Income tax expense	$	12,489	$	8,953

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Inventories, Net (Tables)

6 Months Ended

Jun. 30, 2012

Inventories, Net [Abstract]

Schedule of Inventories, Net

	December 31,		June 30,
	2011		2012
	(In thousands)
Raw materials	$	6,995	$	6,141
Billet		12,702		10,579
Wire rod		7,155		18,607
Work in process		6,771		8,451
Finished products		29,228		29,626
Supplies		25,716		25,519
Total	$	88,567	$	98,923

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Financial Instruments

6 Months Ended

Jun. 30, 2012

Financial Instruments [Abstract]

Financial Instruments

Note 9 – Financial instruments:

The following table presents the carrying value and estimated fair value of our financial instruments:

	December 31, 2011				June 30, 2012
	Carrying amount		Fair value		Carrying amount		Fair value
	(In thousands)
Accounts receivable, net	$	58,976	$	58,976	$	66,438	$	66,438
Accounts payable		14,334		14,334		15,697		15,697
Debt:
Variable-rate debt		33,630		33,630		36,899		36,899
Fixed-rate debt		984		1,029		1,007		1,046

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. The fair value of our variable rate indebtedness is deemed to approximate book value and is a Level 2 input as defined by ASC Topic 820-10-35. The fair value of our fixed-rate indebtedness was based on the net present value of our remaining debt payments at an interest rate commensurate with our variable-rate debt which represents Level 3 inputs as defined in ASC Topic 820-10-35. Note that substantially all of the carrying value of our fixed-rate debt at December 31, 2011 and June 30, 2012 relates to a $1.1 million non-interest bearing note. Because it is non-interest bearing, we have calculated an imputed interest rate on the note and carry the note at a value discounted for such interest.

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 7 – Employee benefit plans:

The components of our net periodic defined benefit pension credit for the second quarter and first six months of 2011 and 2012 are presented in the table below.

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	931		$	1,167		$	1,862		$	2,335
Interest cost		4,752			4,386			9,504			8,771
Expected return on plan assets		(13,310	)		(12,202	)		(26,620	)		(24,404	)
Amortization of accumulated other comprehensive income:
Prior service cost		308			308			616			616
Actuarial losses		2,569			4,443			5,138			8,885
Total credit	$	(4,750	)	$	(1,898	)	$	(9,500	)	$	(3,797	)

The components of our net periodic credit related to other postretirement benefits for the second quarter and first six months of 2011 and 2012 are presented in the table below.

	Three months ended June 30,						Six months ended June 30,
	2011			2012			2011			2012
	(In thousands)
Service cost	$	33		$	39		$	64		$	79
Interest cost		573			507			1,147			1,014
Amortization of accumulated other comprehensive income:
Prior service credit		(4,043	)		(4,042	)		(8,085	)		(8,085	)
Actuarial losses		2,138			1,919			4,275			3,838
Total credit	$	(1,299	)	$	(1,577	)	$	(2,599	)	$	(3,154	)

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 8 – Income taxes:

	Six months ended
	June 30,
	2011		2012
	(In thousands)
Expected income tax expense, at statutory rate	$	10,559	$	8,239
U.S. state income tax expense, net		1,914		1,019
Other, net		16		(305	)
Income tax expense	$	12,489	$	8,953

Our provision for income taxes in the first half of 2011 includes a $.7 million non-cash charge for state deferred income taxes. The non-cash charge is related to an increase in our effective state income tax rate primarily as a result of an increase in the tax rate of the State of Illinois.

We file income tax returns in various U.S. federal, state and local jurisdictions. Our income tax returns prior to 2008 are generally considered closed to examination by applicable tax authorities.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 10 – Recent Accounting Pronouncements:

In June 2011 the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option of presenting comprehensive income as a component of the Consolidated Statement of Stockholders’ Equity and instead requires comprehensive income to be presented as a component of the Consolidated Statement of Income or in a separate Consolidated Statement of Comprehensive Income immediately following the Consolidated Statement of Income. In accordance with ASU 2011-05, we now present our comprehensive income in a separate Condensed Consolidated Statement of Comprehensive Income. Additionally, ASU 2011-05 would have required us to present on the face of our financial statements the effect of reclassifications out of accumulative other comprehensive income on the components of net income and other comprehensive income. However, in December 2011 the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the effectiveness for the requirement to present on the face of our financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. Adoption of ASU 2011-05, as amended by ASU 2011-12, did not have a material effect on our Condensed Consolidated Financial Statements.

In December 2011, the FASB issued ASU 2011-11 Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. This standard will be effective for annual and interim periods beginning with our first quarter 2013 report. We do not believe the adoption of this standard will have a material effect on our Consolidated Financial Statements.

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Financial Instruments (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Fair Value Balance Sheet Grouping Financial Statement Captions [Abstract]
Accounts receivable, net, Carrying amount	$ 66,438,000	$ 58,976,000
Accounts receivable, net, Fair value	66,438,000	58,976,000
Accounts payable, Carrying amount	15,697,000	14,334,000
Accounts payable, Fair value	15,697,000	14,334,000
Debt:
Variable-rate debt, Carrying amount	36,899,000	33,630,000
Variable-rate debt, Fair value	36,899,000	33,630,000
Fixed-rate debt, Carrying amount	1,007,000	984,000
Fixed-rate debt, Fair value	1,046,000	1,029,000
Financial Instruments (Textual) [Abstract]
Non-interest bearing note	$ 1,100,000	$ 1,100,000

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Other Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Other Accrued Liabilities [Abstract]

Schedule of Other Accrued Liabilities

	December 31,		June 30,
	2011		2012
	(In thousands)
Current:
Employee benefits	$	16,549	$	18,655
Self insurance		6,686		7,023
Environmental		240		194
Other		5,886		5,647
Total	$	29,361	$	31,519
Noncurrent:
Workers compensation payments	$	1,243	$	1,349
Environmental		165		140
Other		483		482
Total	$	1,891	$	1,971

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Business Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net sales:
Total net sales	$ 152,747	$ 155,955	$ 306,040	$ 290,118
Operating income (loss):
Defined benefit pension credit	1,898	4,750	3,797	9,500
Other postretirement benefit credit	1,577	1,299	3,154	2,599
Other	904	1,192	2,852	2,194
Total operating income	12,253	16,026	24,579	30,226
Nonoperating income (expense):
Interest expense	(333)	(328)	(693)	(603)
Other income (expense), net	(70)	425	(347)	548
Income before income taxes	11,850	16,123	23,539	30,171
Keystone Steel & Wire [Member]
Net sales:
Total net sales	145,150	149,682	298,141	285,019
Operating income (loss):
Total operating income	9,129	9,477	19,666	18,418
Engineered Wire Products, Inc. [Member]
Net sales:
Total net sales	16,975	17,368	29,724	28,410
Operating income (loss):
Total operating income	965	1,356	1,411	1,467
Keystone-Calumet, Inc. [Member]
Net sales:
Total net sales	8,147	9,515	15,589	15,912
Operating income (loss):
Total operating income	(412)	336	(597)	436
Elimination of Intersegment Sales [Member]
Net sales:
Total net sales	$ (17,525)	$ (20,610)	$ (37,414)	$ (39,223)

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net income	$ 14,586	$ 17,682
Depreciation and amortization	5,765	5,682
Deferred income taxes	4,939	9,031
Defined benefit pension credit	(3,797)	(9,500)
OPEB credit	(3,154)	(2,599)
OPEB payments	(582)	(653)
Other, net	555	68
Change in assets and liabilities:
Accounts receivable	(7,475)	(23,701)
Inventories	(10,356)	(20,861)
Accounts payable and accrued liabilities	3,601	8,140
Income taxes payable to Contran	(3,160)
Income taxes payable to tax authorities	(119)	2,147
Other, net	1,284	(302)
Net cash provided by (used in) operating activities	2,087	(14,866)
Cash flows from investing activities:
Capital expenditures	(6,021)	(5,778)
Other, net	28	61
Net cash used in investing activities	(5,993)	(5,717)
Cash flows from financing activities:
Revolving credit facility, net	3,269	20,591
Other, net	637	(8)
Net cash provided by financing activities	3,906	20,583
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	628	542
Income taxes, net	$ 7,293	$ 1,765

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Debt

6 Months Ended

Jun. 30, 2012

Debt [Abstract]

Debt

Note 4 – Debt:

	December 31,		June 30,
	2011		2012
	(In thousands)
Wells Fargo revolving credit facility	$	33,630	$	36,899
Other		984		1,007
Total debt		34,614		37,906
Less current maturities		33,631		36,899
Total long-term debt	$	983	$	1,007

The average interest rate on the revolving credit facility was 2.7% at June 30, 2012 and was 2.8% for the first six months of 2012.

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Inventories, net
Raw materials	$ 6,141	$ 6,995
Billet	10,579	12,702
Wire rod	18,607	7,155
Work in process	8,451	6,771
Finished products	29,626	29,228
Supplies	25,519	25,716
Total	$ 98,923	$ 88,567

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Debt (Tables)

6 Months Ended

Jun. 30, 2012

Debt [Abstract]

Schedule of Debt

	December 31,		June 30,
	2011		2012
	(In thousands)
Wells Fargo revolving credit facility	$	33,630	$	36,899
Other		984		1,007
Total debt		34,614		37,906
Less current maturities		33,631		36,899
Total long-term debt	$	983	$	1,007