Business segment information

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Business segment information

Note 2 – Business segment information:

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

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

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

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

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 March 31,
	2012			2013
	(In thousands)
Net sales:
KSW	$	152,991		$	140,620
EWP		12,749			11,625
Calumet		7,442			7,107
Elimination of intersegment sales		(19,889	)		(16,578	)
Total net sales	$	153,293		$	142,774
Operating income (loss):
KSW	$	10,537		$	7,487
EWP		446			408
Calumet		(185	)		(776	)
Pension credit		1,899			3,696
OPEB credit		1,577			1,674
Other (1)		(1,948	)		(1,327	)
Total operating income		12,326			11,162
Non operating income (expense):
Interest expense		(360	)		(345	)
Other income (expense), net		(277	)		75
Income before income taxes	$	11,689		$	10,892

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

Calumet’s operating loss before pension and OPEB for the first quarter of 2013 was higher than the prior year first quarter primarily due to a much lower margin of selling prices over billet costs resulting from competitive pressures. As a result of this price competitiveness, Calumet determined it may not be able to recover the cost of certain inventory items in future selling prices and recognized a $117,000 lower of cost or market charge to reduce the inventory to its net realizable value. This charge is included in cost of goods sold.