SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee required) - For the fiscal year ended December 31, 1994
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 (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1740
Three Lincoln Centre, Dallas, TX 75240-2697
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 458-0028
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
As of February 28, 1995, 5,636,507 shares of common stock were outstanding. The
aggregate market value of the 1,873,324 shares of voting stock held by
nonaffiliates of the Registrant, as of such date, was approximately $25.3
million.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
PART I
ITEM 1. BUSINESS.
GENERAL
Keystone Consolidated Industries, Inc. ("Keystone" or the "Company"),
incorporated in Delaware in 1955, is the successor to Keystone Steel & Wire
Company, which was founded in 1889. The Company is a diversified mini-mill
manufacturer of carbon steel rod, wire and a wide range of wire products for a
variety of end uses. Mini-mills are typically modern, low cost producers that,
like the Company, make steel from scrap with the electric arc furnace process.
The Company's operations are conducted by four divisions, Keystone Steel & Wire,
Keystone Fasteners, Sherman Wire ("Sherman") and KeyWest Wire, and two
wholly-owned subsidiaries, Wire Products Company ("WPC") and Sherman Wire of
Caldwell, Inc. ("Caldwell"). Keystone owns and operates five plants in
Illinois, Texas, Arkansas and Wisconsin and leases one distribution facility in
California. Product distribution is concentrated primarily in the Midwestern
and Southwestern regions of the United States.
At December 31, 1994, Contran Corporation ("Contran") held, directly or
indirectly, approximately 67% of the Company's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons, Chairman of the
Board and Chief Executive Officer of Contran, may be deemed to control Contran
and the Company.
MANUFACTURING AND DISTRIBUTION
The Company's manufacturing operations consist of a steel mill, a carbon
steel rod mill and five wire and wire product fabrication facilities. The steel
mill, rod mill and the Company's largest wire facility are located in Peoria,
Illinois. The manufacturing process commences in the steel mill with scrap
steel being loaded into an electric arc furnace and converted into molten steel.
The molten steel is transferred by ladle into a six-strand continuous casting
machine which produces five-inch square strands that are cut to predetermined
lengths, referred to as billets. These billets, along with billets purchased
from outside suppliers, are transferred to the adjoining rod mill.
Upon entering the rod mill, the billets pass through a computer-controlled,
multi-zone recuperative reheat furnace. The heated billets are fed into the
rolling line, where they pass through various finishing stands during the rod
production process. After rolling, the rod is coiled, control cooled and passed
through inspection stations for metallurgical, surface and diameter checks.
Finished coils of rod are compacted, banded and then either transferred to the
Company's fabrication facilities for processing into wire, nails and other wire
products or shipped to rod customers.
While the Company does not maintain a significant "shelf" inventory of
finished rod, it generally does have on hand approximately a one-month supply of
wire products inventory which enables the Company to respond to customer orders
and shifts in product demand.
The Company operates production facilities utilizing approximately 2.5
million square feet for manufacturing and office space, approximately 80% of
which is located at Peoria, Illinois. The Company also leases 123,000 square
feet of warehouse and office space in California.
PRODUCTS AND MARKETS
The Company produces carbon steel rod, wire and a wide range of wire products
for agricultural, industrial, construction, commercial, original equipment
manufacturers ("OEM") and retail consumer markets.
Carbon Steel Rod. The Company produces carbon steel rod at its Peoria rod
mill. In 1994, approximately 56% of the rod manufactured by the Company was
used internally at the Company's five wire mills and fabrication facilities and
approximately 44% was sold directly to producers of construction products, wire
and wire products, including products similar to those manufactured by the
Company. The Company believes its ability to internally convert a large portion
of its rod production into a wide variety of wire and wire products provides
significant opportunities for improving margins and enhances marketing
flexibility, compared to non-integrated or single product rod producers. Trade
sales of carbon steel rod were $82.4 million in 1992, $99.9 million in 1993 and
$99.0 million in 1994.
Drawn Carbon Steel Wire. The Company believes it is one of the largest
manufacturers of carbon steel wire in the United States. At its Peoria, WPC,
Sherman and Caldwell plants, the Company produces custom-drawn carbon steel wire
in a variety of gauges, finishes and packages for industrial fabrication and OEM
customers. The Company's drawn wire is used by these customers in the
production of a broad range of finished goods including nails, coat hangers,
barbecue grills, air conditioners, tools, refrigerators and other appliances.
Sales of drawn wire were $55.2 million in 1992, $67.8 million in 1993 and $80.3
million in 1994.
Fencing and Related Wire Products. The Company believes it is a leading
supplier in the United States of agricultural fencing, barbed wire, stockade
panels and a variety of welded and woven wire mesh, fabric and netting for
agricultural, construction and industrial applications through farm supply
distributors, hardlines merchandisers and building and industrial materials
distributors. Many of these fencing and related wire products are marketed
under the Company's RED BRAND(R) label. As part of its marketing strategy, the
Company designs merchandise packaging, product supportive literature and point-
of-purchase displays for marketing of many of these products to the retail
consumer market. Sales of fencing and related wire products were $101.9 million
in 1992, $102.2 million in 1993 and $107.3 million in 1994.
Construction Products. The Company manufactures products for residential and
commercial construction, including nails, pipe reinforcing fabric, rebar ty
wire, stucco netting and reinforcing building fabric. The primary customers for
these products are construction contractors and building materials distributors.
The Company sells most of its nails through PrimeSource, Inc., one of the
largest nail distributors in the United States, under the latter's Grip-Rite(R)
label. Sales of construction products were $76.8 million in 1992, $75.3 million
in 1993 and $77.8 million in 1994.
INDUSTRY AND COMPETITION
The carbon steel rod, wire and wire products industries in the United States
are highly competitive and are comprised primarily of several large mini-mill
rod producers, many small independent wire companies and a few large diversified
rod and wire producers, such as the Company. Foreign steel and wire producers
also compete with the Company and other domestic producers. Since carbon steel
rod is a commodity steel product, price is the primary competitive factor.
Competition in the wire and fabricated wire product markets is based primarily
on price, delivery performance, product quality, service, and brand name
preference.
The domestic carbon steel rod industry experienced a consolidation of
operations over the past decade, as large integrated steel producers disposed of
or, to a significant degree, discontinued their carbon steel rod and wire
operations. Some of this capacity was replaced by the capacity of domestic
mini-mills and foreign producers. Worldwide overcapacity in the steel industry
continues to exist. In the mid-80's the United States government negotiated
Voluntary Restraint Agreements with foreign governments to curtail steel
imports. Those agreements expired in March 1992 and, since that time, imports
of wire rod and certain wire products have increased significantly.
The Company competes with many small independent wire companies who purchase
rod from domestic and foreign sources. Due to its broad range of fabricated
wire products, diverse geographic and product markets, and low cost internal
supply of steel rod, the Company believes that, as one of the few domestic,
diversified rod and wire producers, it is well positioned to compete effectively
with non-diversified rod producers and wire companies.
The Company believes its facilities are well located to serve markets
throughout the continental United States, with principal markets located in the
Midwestern and Southwestern regions. Close proximity to its customer base
provides the Company with certain advantages over foreign and certain domestic
competition including reduced shipping costs, improved customer service, and
shortened delivery times. The Company believes higher transportation costs and
the lack of local distribution centers tends to limit foreign producers'
penetration of the Company's principal rod, wire and wire products markets, but
there can be no assurance this will continue to be the case.
ENVIRONMENTAL MATTERS
The Company's production facilities are affected by a variety of
environmental laws and regulations, including laws governing the discharge of
water pollutants and air contaminants, the generation, transportation, storage,
treatment and disposal of solid wastes and hazardous substances and the handling
of toxic substances, including certain substances used in, or generated by, the
Company's manufacturing operations. Many of these laws and regulations require
permits to operate the facilities to which they pertain. Denial, revocation,
suspension or expiration of such permits could impair the ability of the
affected facility to continue operations.
Environmental legislation and regulations have changed rapidly in recent
years and it is likely the Company will be subject to increasingly stringent
environmental standards in the future. See Item 7 - "Management's Discussion
And Analysis Of Financial Condition And Results Of Operations - Liquidity and
Capital Resources" regarding capital expenditures expected to be incurred in
1995 for environmental related items.
Information in Note 13 to the Consolidated Financial Statements is
incorporated herein by reference.
RAW MATERIALS AND ENERGY
The principal raw material used in the Company's operations is scrap steel.
The Company's Peoria steel mill is located close to numerous sources of high
density automobile, industrial and railroad scrap which is all currently readily
available. The purchase of scrap steel is highly competitive and its price
volatility is influenced by periodic shortages, freight costs, weather,
speculation by scrap brokers and other conditions beyond the control of the
Company. The cost of scrap can vary significantly and product selling prices
cannot always be adjusted, especially in the short-term, to recover the costs of
large increases in scrap prices. See Item 7 -- "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations."
The Company's manufacturing processes also consume large amounts of energy in
the form of electricity and natural gas. The Company purchases its electrical
energy for its Peoria plant from a regulated utility under an interruptible
service contract which provides for more economical electricity rates.
PATENTS AND TRADEMARKS
The Company has registered the trademark "RED BRAND" for field fence and
related products. The "RED BRAND" trademark has been widely advertised and, in
management's opinion, enjoys high levels of market recognition and brand
preference. The Company maintains other trademarks for various products which
have been promoted in their respective markets. While the Company owns one
patent relating to product packaging, the loss of such would not have a material
adverse effect on the financial condition of the Company.
EMPLOYMENT
The Company currently employs approximately 2,000 persons, of whom
approximately 1,200 are represented by the Independent Steel Workers Alliance
("ISWA") at its Peoria facilities and approximately 140 are represented by the
International Association of Machinists and Aerospace Workers (Local 1570)
("IAMAW") at its Sherman facilities. The current collective bargaining
agreement with the ISWA expires in May 1996 and the collective bargaining
agreement with the IAMAW expires in February 1997. The Company believes its
labor relations are satisfactory.
CUSTOMERS AND ORDER BACKLOG
The Company is not dependent upon a single customer or a few customers, the
loss of any one, or a few, of which would have a material adverse effect on its
business (See Note 13 to the Consolidated Financial Statements). The Company's
backlog of unfilled cancelable purchase orders, for delivery generally within
three months, approximated $33 million and $45 million at December 31, 1993 and
1994, respectively. The Company does not believe backlog is a significant
factor in its business.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in approximately
3,000 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.
See Item 1 -- "Business" for a description of the Company's manufacturing
and distribution facilities. In management's opinion, the Company's facilities
represent an adequate resource for the purpose for which they are intended and
are suitable for the manufacture and sale of the Company's products.
Production facilities (with the exception of certain leased equipment) are
owned by the Company and collateralize a revolving line of credit and certain
long-term debt and pension obligations.
The current estimated annual capacity of the rod mill is approximately
750,000 tons; however, rod production is restricted by the Company's steel
making operations, which have an annual productive capacity of approximately
655,000 tons. From time to time the Company purchases billets from other
suppliers, resulting in increased utilization of the rod mill. The Company
purchased 95,000 tons of billets in 1994 and the rod mill operated at
approximately 95% of estimated capacity. The Company will purchase billets in
1995; however, the amounts purchased will depend on price and other market
conditions. Based on the Company's 1995 operating plan, which anticipates
purchasing 98,000 tons of billets, the rod mill is expected to operate at
approximately 98% of estimated capacity in 1995.
The estimated current annual wire and wire products capacity is approximately
536,000 tons. Utilization of the Company's annual wire and wire products
productive capacity aggregated 72% in 1992, 77% in 1993 and 83% in 1994.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings. Information required
by this Item is included in Note 13 to the Consolidated Financial Statements,
which information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Keystone's common stock is listed and traded on the New York Stock Exchange
(symbol: KES). The number of holders of record of the Company's common stock as
of February 28, 1995 was 1,140. The following table sets forth the high and low
sales prices of the Company's common stock for the calendar years indicated,
according to published sources.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1994
First quarter $12.00 $10.00
Second quarter 15.88 11.50
Third quarter 17.38 14.38
Fourth quarter 18.00 13.63
1993
First quarter $10.88 $ 9.38
Second quarter 12.25 8.50
Third quarter 10.38 7.75
Fourth quarter 11.00 8.75
</TABLE>
No cash dividends have been paid since 1977. The Company is subject to
certain loan covenants that restrict its ability to pay dividends, including a
prohibition against the payment of dividends without lender consent under its
commercial revolving credit facility.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Item 7 --
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations."
<TABLE>
<CAPTION>
Years ended December 31,
1990 1991 1992 1993 1994
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $302,477 $302,132 $316,251 $345,186 $364,435
Gross profit 37,792 37,454 37,443 32,521 36,982
Interest expense (credit) 5,427 4,322 3,036 6,575 (1,165)
Income from continuing operations $ 8,328 $ 9,769 $ 5,146 $ 749 $ 7,561
Discontinued operations (1,320) - - - -
Extraordinary items (C) 3,146 3,502 - - -
Cumulative effect of changes in
accounting principles (A) - - (69,949) - -
Net income (loss) $ 10,154 $ 13,271 $(64,803) $ 749 $ 7,561
Per share data:
Income (loss) per common and common
equivalent share (B):
Continuing operations $ 1.48 $ 1.75 $ .92 $ .14 $ 1.35
Discontinued operations (.24) - - - -
Extraordinary items (C) .56 .62 - - -
Cumulative effect of changes in
accounting principles (A) - - (12.53) - -
Net income (loss) $ 1.80 $ 2.37 $ (11.61) $ .14 $ 1.35
Cash dividends declared $ - $ - $ - $ - $ -
Balance sheet data (at year end):
Total assets $179,525 $182,077 $202,109 $206,654 $205,601
Notes payable and long-term debt 44,922 37,290 34,485 27,190 26,054
Noncurrent accrued pension cost 68,335 55,462 51,638 60,102 40,470
Noncurrent accrued OPEB cost 3,929 3,109 93,727 96,336 98,310
Stockholders' equity (deficit) 10,947 27,149 (39,036) (50,908) (40,579)
</TABLE>
(A) Relates to adoption of Statement of
Financial Accounting Standards
("SFAS") No. 106 - "Postretirement
Benefits Other Than Pensions"
("OPEB") and SFAS No. 109 -
"Employers' Accounting for Income
Taxes".
(B) Primary and fully diluted net income
per common and common equivalent
share were the same. See Note 1 to
the Consolidated Financial
Statements.
(C) Extraordinary items relate to income
tax benefits resulting from
utilization of loss carryforwards.
Subsequent to adoption of SFAS No.
109 in 1992 such items are not
classified as extraordinary items.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a commercial revolving credit facility which requires
the Company's daily cash receipts to be used to reduce the outstanding
borrowings which results in the Company maintaining zero cash balances. Cash
flows from operating, investing and financing activities are summarized below.
<TABLE>
<CAPTION>
Years ended December 31,
1992 1993 1994
(In thousands)
<S> <C> <C>
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 19,117 $ 12,950 $ 25,203
Accrued excise tax and related interest - 7,120 (5,054)
Other changes in assets and liabilities, net (9,044) (5,471) (6,904)
10,073 14,599 13,245
Investing and financing activities:
Capital expenditures (7,459) (7,349) (12,742)
Net repayments (2,805) (7,295) (1,136)
Other, net 191 45 633
(10,073) (14,599) (13,245)
Net change in cash $ - $ - $ -
</TABLE>
In addition to higher earnings in 1994, fluctuations in cash flow from
operations were impacted by changes in relative levels of assets and
liabilities, including levels of pension contributions in each year. Pension
contributions exceeded pension expense by approximately $11 million in 1992, $7
million in 1993 and $11 million in 1994, including additional pension
contributions of $2.3 million in 1993 and $3.3 million in 1994, resulting from
the excise tax litigation. In addition, as part of the settlement of this
litigation, the Company made a $1 million excise tax installment payment in 1994
(see Note 13 to the Consolidated Financial Statements). Pension contributions
in 1995 are currently estimated to exceed pension expense by approximately $10
million, including $4 million in excess of required minimum contributions. The
excise tax installment due in 1995 is approximately $1 million.
A significant portion of the increase in 1994 capital expenditures over the
levels of the prior two years relates to upgrades of production equipment and
information systems begun in 1994 at the Company's Peoria, Illinois facility.
Capital expenditures for 1995 are currently estimated to be approximately $20
million, including approximately $8 million for environmental related items.
The amount of available borrowings under the Company's $35 million revolving
credit facility, which expires December 31, 1996, is based on formula-determined
amounts of trade receivables and inventories, less the amount of outstanding
letters of credit. Additional available borrowings under the revolving credit
facility were $27.8 million at December 31, 1994.
The Company adjusts the discount rate used in determining the actuarial
present values of its pension obligations in response to changes in interest
rate trends. The discount rate used at December 31, 1994 was 8.5% (1993 - 7.5%,
1992 - 9.5%). These discount rate changes resulted in, among other things,
adjustments to the Company's noncurrent pension liability and stockholders'
deficit. Variances from actuarially assumed rates, including the rate of return
on pension plan assets, will continue to result in additional increases or
decreases in these accounts, as well as deferred taxes, and pension expense and
funding requirements in future periods (see Note 6 to the Consolidated Financial
Statements).
On December 31, 1994 and 1993, consistent with the changes in discount rates
for pension obligations, the Company also changed the discount rate used in
determining the actuarial present value of its "OPEB" obligations. Such changes
in the OPEB discount rate do not impact the Company's cash flows, as payments
for OPEB costs continue to be made when incurred (see Note 8 to the Consolidated
Financial Statements).
At December 31, 1994, the Company has net deferred tax assets (before
valuation reserve) of $58 million. Approximately $9 million of such deferred
tax debits relate to net operating loss and alternative minimum tax credit
carryforwards which are expected to be utilized in the next few years (since
returning to profitability in 1989, following completion of its rod mill
modernization and disposal of its unprofitable fasteners and plastics business,
the Company has realized $4.5 million of net tax benefits from losses
accumulated in prior years and no carryforwards have expired). The remainder of
the Company's gross deferred tax debits relate primarily to expenses,
principally OPEB and pensions, accrued for financial reporting purposes but not
yet paid or deductible for income tax purposes. The Company currently believes
its long-term profitability should ultimately be sufficient to enable it to
realize full benefit of these future tax deductions. Although, considering all
factors believed to be relevant, including the Company's recent profitability,
its expected future near-term levels of profitability, and the fact accrued OPEB
expenses will become deductible over an extended period of time and require the
Company to generate significant future taxable income, the Company believes a
portion of its deferred tax assets may not currently meet a "more likely than
not" realizability test and, accordingly, has provided a deferred tax valuation
allowance of $30 million. There was no change in such valuation allowance
during 1992, 1993 or 1994. The Company will continue to monitor and evaluate
the need for, and amount of, a deferred tax valuation allowance and will in the
future, after considering all factors believed to be relevant, make appropriate
adjustments in such allowance.
The Company incurs significant ongoing costs for plant and equipment and
substantial employee pension and medical benefits for both current and retired
employees. As such, the Company is vulnerable to business downturns and
increases in costs. In order to meet its financial obligations, the Company has
reduced controllable costs, modified product mix, acquired and disposed of
businesses, refinanced certain indebtedness, and raised additional equity
capital. The Company will continue to evaluate the need for similar actions or
other measures in the future in order to meet its obligations.
For 1995, management has budgeted profitable results of operations with
sufficient cash flows from operations and financing activities to meet its
anticipated operating needs. This budget is based upon management's assessment
of various financial and operational factors including, but not limited to,
assumptions relating to product shipments, product mix and selling prices;
production schedules; productivity rates; raw materials, electricity, labor,
employee benefits and other fixed and variable costs; working capital
requirements; interest rates; repayments of long-term debt; capital
expenditures; and available borrowings under the Company's revolving credit
facility. However, potential liabilities under environmental laws and
regulations with respect to the clean-up and disposal of wastes beyond present
accruals, any significant increases in the required minimum fundings to the
Company's pension funds or in the cost of providing medical coverage to active
and retired employees could have a material adverse effect on the future
liquidity, financial condition and results of operations of the Company.
Additionally, any significant decline in the Company's markets or market share,
any inability to maintain satisfactory billet and rod production levels, or any
other unanticipated costs, if significant, could result in a need for funds
greater than the Company currently has available. There can be no assurance the
Company would be able to obtain an adequate amount of additional financing. See
Note 13 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The Company's principal operations are the manufacture and sale of carbon
steel rod, wire and wire products for agricultural, industrial, construction,
commercial, OEM and retail consumer markets.
The Company's 1994 billet and steel rod production of 647,000 and 713,000
tons, respectively, were both comparable to the production for 1993. During
1993, the Company's billet and steel rod production increased 2% (644,000 tons
compared to 632,000 tons) and 9% (715,000 tons compared to 655,000 tons),
respectively, over 1992 production. From time to time the Company purchases
billets from other suppliers resulting in increased utilization of the rod mill.
The Company purchased 41,000 tons, 106,000 tons and 95,000 tons of billets in
1992, 1993 and 1994, respectively.
The following table sets forth selected operating data of the Company as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
1992 1993 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 88.2 90.6 89.8
Gross profit 11.8 9.4 10.2
Selling, general and administrative expenses 8.3 7.4 7.1
Other income - .2 -
Income before interest and income taxes 3.5 2.2 3.1
Interest - notes payable and long-term debt .9 .8 .7
Interest (credit) related to excise tax - 1.1 (1.0)
Income before income taxes 2.6 .3 3.4
Provision for income taxes 1.0 .1 1.3
Income from continuing operations 1.6% .2% 2.1%
</TABLE>
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
Net Sales
Net sales were $316.3 million in 1992, $345.2 million in 1993 and $364.4
million in 1994. During 1994, tons of rod sold decreased 6% (316,000 tons
compared to 337,000 tons), while tons of wire and wire products sold increased
7% (434,000 tons compared to 407,000 tons). The increase in wire and wire
product tonnage consisted of a 12% increase in wire tonnage and a 4% increase in
wire products tonnage. Wire is generally sold at a lower selling price per ton
than wire products. In 1994, selling prices of wire and wire products increased
1% and selling prices of rod increased approximately 6% compared to 1993 prices.
During 1993, tons of rod sold increased 12% (337,000 tons compared to
302,000 tons), while tons of wire and wire products sold increased 6% (407,000
tons compared to 383,000 tons) compared to 1992. The increase in wire and wire
product tonnage consisted of a 21% increase in wire tonnage and a 2% decrease in
wire products tonnage. In 1993, selling prices of wire and wire products
increased approximately 2% and selling prices of rod increased approximately 9%
compared to 1992 prices.
Gross Profit
Gross profit was $37.4 million in 1992, $32.5 million in 1993 and $37.0 in
1994. Gross profit in 1994, as a percentage of net sales, increased .8% from
1993 as higher product selling prices offset higher scrap costs and the effects
of inclement weather during the 1994 first quarter which resulted in production
outages and increased costs. Scrap prices rose by approximately 2% during 1994.
Gross profit in 1993, as a percentage of net sales, declined 2.4% from 1992
due primarily to significantly higher scrap steel costs. Scrap prices rose by
approximately 50% during 1993 and, despite increasing certain product selling
prices five times during 1993, these significant cost increases could not be
recovered. While gross profit in 1993 was aided by higher product selling
prices, increased tons of product sold and lower rod conversion costs, it was
also negatively impacted by approximately $2.3 million of additional
environmental costs related to the inadvertent processing of some contaminated
scrap steel. See Note 13 to the Consolidated Financial Statements.
The purchase of scrap steel is highly competitive and its price volatility
is influenced by periodic shortages, freight costs, weather, speculation by
scrap brokers and other conditions largely beyond the control of the Company.
The cost of scrap can vary significantly and product selling prices cannot
always be adjusted, especially in the short-term, to recover the costs of large
increases in scrap prices. The Company currently expects 1995 scrap steel
prices to be slightly higher than 1994 prices.
Although the Company's primary energy source is purchased coal-generated
electricity, gross profit can also be adversely affected by the volatility in
the price of oil and natural gas resulting in increased energy, transportation,
freight, scrap and supply costs. The Company cannot predict if it would be able
to recover any such cost increases through higher product selling prices or
improved production efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, while in total relatively flat
during the last three years, contained certain offsetting items. Environmental
related expenses were higher in both 1992 and 1994 than in 1993, while 1993
expense included $3.2 million related to excise taxes due to the adverse May
1993 U.S. Supreme Court decision. See Note 13 to the Consolidated Financial
Statements.
Other Income
Other income in 1994, 1993 and 1992 primarily represents rental income and
gain on sale of fixed assets.
Interest Expense
Interest expense related to notes payable and long-term debt in 1994 was
comparable to 1993 and declined from 1992 due principally to lower interest
rates and lower average borrowing levels.
Interest expense in 1993 and the interest credit in 1994 related to the
excise tax matter are discussed in Note 13 to the Consolidated Financial
Statements.
Income taxes
The principal reasons for the difference between the U.S. federal statutory
income tax rate and the Company's effective income tax rates are explained in
Note 4 to the Consolidated Financial Statements. The Company's net current
taxes payable result primarily from the alternative minimum tax. The Company's
deferred tax position at December 31, 1994 is explained in Note 4 to the
Consolidated Financial Statements and in "Liquidity and Capital Resources"
above.
Cumulative effect of changes in accounting principles
See Note 9 to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is contained in a separate section
of this report. See Index of Financial Statements and Financial Statement
Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
disclosure provided under the captions "Election of Directors" and "Executive
Officers" in Keystone's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Keystone Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Executive Compensation" in the Keystone
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Security Ownership" in the Keystone Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Certain Business Relationships and
Related Transactions" in the Keystone Proxy Statement. See also Note 10 to the
Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1), (2) The Index of Consolidated Financial Statements and Financial
Statement Schedule is included on page F-1 of this report.
(a)(3) Exhibits
Included as exhibits are the items listed in the Exhibit Index. The
Company will furnish a copy of any of the exhibits listed below upon
payment of $4.00 per exhibit to cover the costs to the Company in
furnishing the exhibits. The Company agrees to furnish to the
Commission upon request copies of any instruments not included herein
defining the rights of holders of long-term debt of the Company.
Exhibit No. Exhibit
3.1 -- Certificate of Incorporation, as amended and filed with the
Secretary of State of Delaware -- incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990.
3.2 -- Bylaws of the Company, as amended and restated December 30, 1994.
4.1 -- Accounts Receivable Financing Agreement and Security Agreement
dated December 19, 1986, as amended between the Company and
Congress Financial Corporation (Central) -- incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990.
4.2 -- Amendment No. 6, dated November 1, 1991 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and
Congress Financial Corporation (Central) dated December 19,
1986 -- incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
4.3 -- Amendment No. 7, dated January 15, 1993 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and
Congress Financial Corporation (Central) dated December 19,
1986 -- incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
4.4 -- Amendment No. 8, dated December 30, 1993 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and
Congress Financial Corporation (Central) dated December 19,
1986 -- incorporated by reference to Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
4.5 -- Term Loan and Security Agreement between the Company and Congress
Financial Corporation (Central) dated December 30, 1993 --
incorporated by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.1 -- Intercorporate Services Agreement with Contran Corporation dated
as of
January 1, 1994.
21 -- Subsidiaries of the Company.
23 -- Consent of Coopers & Lybrand.
27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned and dated March 21, 1995, thereunto duly
authorized.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Registrant)
/s/ GLENN R. SIMMONS
Glenn R. Simmons
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below and dated as of February 21, 1995 by the following
persons on behalf of the registrant and in the capacities indicated:
/s/ GLENN R. SIMMONS /s/ DAVID E. CONNOR
Glenn R. Simmons David E. Connor
Chairman of the Board and Director
Chief Executive Officer
/s/ J. WALTER TUCKER, JR. /s/ RICHARD N. ULLMAN
J. Walter Tucker, Jr. Richard N. Ullman
Vice Chairman of the Board Director
/s/ THOMAS E. BARRY /s/ HAROLD M. CURDY
Thomas E. Barry Harold M. Curdy
Director Vice President -- Finance,
Treasurer and Principal
Financial Officer
/s/ PAUL M. BASS, JR. /s/ BERT E. DOWNING, JR.
Paul M. Bass, Jr. Bert E. Downing, Jr.
Director Controller and Principal
Accounting Officer
/s/ DONALD A. SOMMER
Donald A. Sommer
Director
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets -- December 31, 1993 and 1994 F-3/F-4
Consolidated Statements of Operations -- Years ended December 31,
1992, 1993 and 1994 F-5
Consolidated Statements of Stockholders' Equity (Deficit) -- Years
ended December 31, 1992, 1993 and 1994 F-6
Consolidated Statements of Cash Flows -- Years ended December 31,
1992, 1993 and 1994 F-7/F-8
Notes to Consolidated Financial Statements F-9/F-23
FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts S-1
Schedules I, III and IV are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Keystone Consolidated Industries, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Keystone Consolidated Industries, Inc. and Subsidiaries as
listed in the Index of Consolidated Financial Statements and Financial Statement
Schedule on page F-1 of this Annual Report on Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Keystone Consolidated Industries, Inc. and Subsidiaries as of December 31, 1994
and 1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 9 to the Consolidated Financial Statements, in 1992
the Company changed its methods of accounting for postretirement benefits other
than pensions and for income taxes in accordance with Statements of Financial
Accounting Standards Nos. 106 and 109, respectively.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 17, 1995
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1993 1994
<S> <C> <C>
Current assets:
Notes and accounts receivable, net of allowances
of $435 and $553 $38,513 $ 41,915
Inventories 35,544 35,861
Deferred income taxes 5,437 4,552
Prepaid expenses and other 1,257 2,057
Total current assets 80,751 84,385
Property, plant and equipment:
Land, buildings and improvements 42,461 45,886
Machinery and equipment 175,734 179,747
Leasehold improvements 1,204 1,236
Construction in progress 3,202 4,839
222,601 231,708
Less accumulated depreciation 141,832 150,561
Net property, plant and equipment 80,769 81,147
Other assets:
Unrecognized net pension obligation 12,067 10,247
Deferred income taxes 28,056 23,783
Notes receivable 1,917 1,397
Other 3,094 4,642
Total other assets 45,134 40,069
$206,654 $205,601
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1993 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
1993 1994
<S> <C> <C>
Current liabilities:
Notes payable and current maturities of
long-term debt $ 8,148 $ 10,714
Accounts payable 24,189 28,418
Accounts payable to affiliates 111 191
Accrued pension cost 9,556 13,735
Accrued OPEB cost 7,243 6,825
Accrued excise tax and related interest 7,120 1,033
Other accrued liabilities 17,999 20,940
Total current liabilities 74,366 81,856
Noncurrent liabilities:
Long-term debt 19,042 15,340
Accrued pension cost 60,102 40,470
Accrued OPEB cost 96,336 98,310
Accrued excise tax and related interest - 1,033
Other 7,716 9,171
Total noncurrent liabilities 183,196 164,324
Stockholders' equity (deficit):
Preferred stock, no par value; 500,000 shares
authorized - -
Common stock, $1 par value, 9,000,000 and
12,000,000 shares authorized; 5,514,685 and
5,593,585 shares issued at stated value 6,244 6,313
Additional paid-in capital 18,803 19,393
Excess of pension cost over unrecognized net
pension obligation (35,317) (33,787)
Accumulated deficit (40,047) (32,486)
Treasury stock - 56,550 and 1,134 shares,
at cost (591) (12)
Total stockholders' deficit (50,908) (40,579)
<C> <C>
$206,654 $205,601
</TABLE>
[FN]
Commitments and contingencies (Note 13).
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1992, 1993 and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Revenues and other income:
Net sales $316,251 $345,186 $364,435
Interest and other, net 46 525 18
316,297 345,711 364,453
Costs and expenses:
Cost of goods sold 278,808 312,665 327,453
Selling 4,833 5,032 5,101
General and administrative 21,280 20,309 20,675
Interest - notes payable & long-term debt 3,036 2,618 2,688
Interest (credit) related to excise tax - 3,957 (3,853)
307,957 344,581 352,064
Income before income taxes 8,340 1,130 12,389
Provision for income taxes 3,194 381 4,828
Income before cumulative effect of
changes in accounting principles 5,146 749 7,561
Cumulative effect of changes in accounting
principles (69,949) - -
Net income (loss) $(64,803) $ 749 $ 7,561
Income (loss) per common and common
equivalent share:
Before cumulative effect of changes
in accounting principles $ .92 $ .14 $ 1.35
Cumulative effect of changes in
accounting principles (12.53) - -
Net income (loss) $(11.61) $ .14 $ 1.35
Weighted average common and common
equivalent shares outstanding 5,572 5,495 5,601
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1992, 1993 and 1994
(In thousands)
<TABLE>
<CAPTION>
Additional Retained
Common stock paid-in Pension earnings Treasury
Shares Amount capital liabilities (deficit) stock
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1991 5,515 $6,244 $18,803 $(21,761) $ 24,007 $(144)
Net loss - - - - (64,803) -
Pension adjustments - - - (1,395) - -
Issuance of treasury stock - - - - - 13
Balance - December 31, 1992 5,515 6,244 18,803 (23,156) (40,796) (131)
Net income - - - - 749 -
Pension adjustments - - - (12,161) - -
Purchase of treasury stock - - - - - (460)
Balance - December 31, 1993 5,515 6,244 18,803 (35,317) (40,047) (591)
Net income - - - - 7,561 -
Pension adjustments - - - 1,530 - -
Purchase of treasury stock - - - - - (43)
Issuance of treasury stock - - - - - 622
Exercise of employee stock options 62 62 474 - - -
Restricted stock granted, net 17 - - - - -
Issuance of restricted stock - 7 116 - - -
Balance - December 31, 1994 5,594 $6,313 $19,393 $(33,787) $(32,486) $ (12)
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1992, 1993 and 1994
(In thousands)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Cash flows from operati
Net income (loss) $(64,803) $ 749 $ 7,561
Depreciation 10,525 11,084 11,585
Noncash OPEB cost 3,207 2,195 1,556
Deferred income taxes 8 (862) 4,180
Cumulative effect of changes
in accounting principles 69,949 - -
Other, net 231 (216) 321
19,117 12,950 25,203
Change in assets and liabilities:
Notes and accounts receivable (4,055) (2,735) (3,520)
Inventories 3,437 900 (317)
Accounts payable (397) 3,529 4,309
Accrued pension cost (11,312) (7,354) (11,125)
Accrued excise tax and related interest - 7,120 (5,054)
Other, net 3,283 189 3,749
Net cash provided by operating
activities 10,073 14,599 13,245
Cash flows from investing activities:
Capital expenditures (7,459) (7,349) (12,742)
Proceeds from disposition of property
and equipment 191 505 17
Net cash used by investing
activities (7,268) (6,844) (12,725)
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1992, 1993 and 1994
(In thousands)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Cash flows from f
Revolving credit facility, net $ 638 $(16,451) $ 2,620
Other notes payable and long-term debt:
Additions 90 20,091 208
Principal payments (3,533) (10,935) (3,964)
Common stock issued (purchased), net - (460) 616
Net cash used by financing
activities (2,805) (7,755) (520)
Net change in cash and cash equivalents - - -
Cash and cash equivalents, beginning of year - - -
Cash and cash equivalents, end of year $ - $ - $ -
Supplemental disclosures:
Cash paid for:
Interest, net of amount capitalized $ 3,104 $ 2,797 $ 2,831
Income taxes 3,909 70 1,721
Treasury stock contributed to employee
benefit plan $ - $ - $ 622
Restricted stock issued in consideration
for accrued compensation $ - $ - $ 123
Book value of equipment contributed
to joint venture $ - $ - $ 559
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") is a
majority-owned subsidiary of Contran Corporation ("Contran"). At December 31,
1994, Contran held, directly or indirectly, approximately 67% of the Company's
outstanding common stock. Substantially all of Contran's outstanding voting
stock is held by trusts established for the benefit of the children and
grandchildren of Harold C. Simmons, of which Mr. Simmons is sole trustee. Mr.
Simmons may be deemed to control Contran and the Company.
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and balances have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amount of
revenues and expenses during the reporting period. Ultimate actual results may,
in some instances, differ from previously estimated amounts.
Fiscal year. The Company's fiscal year is 52 or 53 weeks and ends on the
last Sunday in December. Each of fiscal 1992, 1993 and 1994 were 52-week years.
Property, plant, equipment and depreciation. Property, plant and equipment
are stated at cost. Repairs, maintenance and minor renewals are expensed as
incurred. Improvements which substantially increase an asset's capacity or alter
its capabilities are capitalized.
Depreciation is computed using principally the straight-line method over
the estimated useful lives of 10 to approximately 30 years for buildings and
improvements and three to 12 years for machinery and equipment.
Retirement plans and postretirement benefits other than pensions.
Accounting and funding policies for retirement plans and postretirement benefits
other than pensions ("OPEB") are described in Notes 6 and 8, respectively.
Environmental liabilities. The Company records liabilities related to
environmental issues at such time as information becomes available and is
sufficient to support a reasonable estimate of range of loss. If the Company is
unable to determine that a single amount in an estimated range is more likely,
the minimum amount of the range is recorded.
Income taxes. Deferred income tax assets and liabilities are recognized for
the expected future tax effects of temporary differences between the income tax
and financial reporting carrying amounts of assets and liabilities.
Advertising costs. Advertising costs, expensed as incurred, were $953,000
in 1992, $996,000 in 1993 and $1 million in 1994.
Income (loss) per share. Income (loss) per share is based on the weighted
average number of common and common equivalent shares outstanding during each
year. Outstanding stock options and other common stock equivalents are excluded
from the computations when the effect of their assumed exercise is antidilutive.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost or market. The last-in,
first-out ("LIFO") method is used to determine the cost of approximately 71% of
the inventories held at December 31, 1993 and 1994, and the first-in, first-out
or average cost methods are used to determine the cost of all other inventories.
<TABLE>
<CAPTION>
December 31,
1993 1994
(In thousands)
<S> <C> <C>
Raw materials $ 9,944 $12,672
Work in process 9,963 8,086
Finished products 14,250 14,501
Supplies 14,115 14,407
48,272 49,666
Less LIFO reserve 12,728 13,805
$35,544 $35,861
</TABLE>
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1993 1994
(In thousands)
<S> <C> <C>
Commercial credit agreements:
Revolving credit facility $ 3,911 $ 6,531
Term loan 19,439 16,382
Series 1976 Pollution Control Revenue Bonds, interest
at 8%; due in equal annual installments through 1996 1,500 1,000
Urban and Community Development Assistance Grants,
interest at 8%, due in semi-annual installments
through 2003 2,082 1,847
Other, interest at 3% to 13.75%, due in installments
through 1999 258 294
27,190 26,054
Less current maturities 8,148 10,714
$19,042 $15,340
</TABLE>
The Company maintains a $35 million commercial revolving credit facility
which matures December 31, 1996, which is collateralized primarily by the
Company's trade receivables and inventories and which bears interest at 1.5%
over the prime rate (an effective rate of 7.5% and 10% at December 31, 1993 and
1994, respectively). The amount of available borrowings is based on
formula-determined amounts of trade receivables and inventories, less the amount
of outstanding letters of credit (approximately $.7 million at December 31,
1994). At December 31, 1994, the available borrowings under this credit
facility were $27.8 million. This credit facility requires the Company's daily
cash receipts to be used to reduce the outstanding borrowings, which results in
the Company maintaining zero cash balances.
On December 30, 1993, the Company entered into a $20 million term loan with
the financial institution that provides the Company's revolving credit facility.
The term loan bears interest at the prime rate plus 1% and is due in 35 monthly
installments of $.3 million plus accrued interest and one final installment of
the remaining principal and interest on December 31, 1996. The term loan
requires compliance with the restrictive covenants, security agreement and
certain other terms of the revolving credit facility and is further
collateralized by the Company's property, plant and equipment. In addition, the
term loan becomes due and payable if the Company terminates its revolving credit
facility. The proceeds of the term loan were used to prepay the Company's prior
term loan ($6.8 million) and the balance was applied to reduce borrowings under
the revolving credit facility.
The Company's commercial credit agreements contain restrictive covenants,
including a prohibition against the payment of dividends without lender consent,
and certain minimum working capital and net worth requirements. Substantially
all of the Company's notes payable and long-term debt reprice with changes in
interest rates, and the book value of such indebtedness is deemed to approximate
market value.
Average short-term borrowings under revolving credit agreements were $18.4
million in 1992, $19.2 million in 1993 and $10.4 million in 1994, at average
interest rates of 8.8%, 8.2%, and 9.9%, respectively. The maximum short-term
borrowings outstanding at any month end during these years were $28.6 million in
1992, $27.3 million in 1993 and $16.8 in 1994.
At December 31, 1993 and 1994, total collateralized obligations, including
deferred pension contributions (see Note 6), amounted to $40.5 million and $36.7
million, respectively.
The aggregate maturities of notes payable and long-term debt are shown in
the table below.
<TABLE>
<CAPTION>
Year ending December 31, Amount
(In thousands)
<S> <C>
1995 $10,714
1996 13,914
1997 301
1998 253
1999 228
2000 and thereafter 644
$26,054
</TABLE>
NOTE 4 - INCOME TAXES
Summarized below are (i) the differences between the provision for income
taxes and the amounts that would be expected using the U. S. federal statutory
income tax rate of 34% in 1992 and 35% in 1993 and 1994 and (ii) the components
of the comprehensive provision for income taxes.
<TABLE>
<CAPTION>
Years ended December 31,
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Expected tax expense, at statutory rates $ 2,836 $ 396 $ 4,336
U.S. state income taxes, net 380 207 557
Nondeductible excise taxes (credit) - 1,110 (58)
Rate change adjustment of deferred taxes - (1,320) -
Other, net (22) (12) (7)
Provision for income taxes charged to
results of operations 3,194 381 4,828
Stockholders' equity - pension component (856) (7,774) 978
Comprehensive provision (benefit) for
income taxes $ 2,338 $(7,393) $ 5,806
Comprehensive provision (benefit) for income
taxes:
Currently payable:
U.S. federal $ 4,751 $ 439 $ 943
U.S. state 664 171 294
Benefit of loss carryforwards (5,211) (767) (2,247)
Alternative minimum tax liability 2,983 1,406 1,663
Net currently payable 3,187 1,249 653
Deferred income taxes, net (849) (8,642) 5,153
$ 2,338 $(7,393) $ 5,806
</TABLE>
The Company currently believes its long-term profitability should
ultimately be sufficient to enable it to realize full benefit of its future tax
deductions. Although, considering all factors believed to be relevant,
including the Company's recent profitability, its expected future near-term
levels of profitability, and the fact accrued OPEB expenses will become
deductible over an extended period of time and require the Company to
generate significant future taxable income, the Company believes a portion
of the gross deferred tax assets may not currently meet a "more likely than
not" realizability test. There was no change in the valuation allowance
during 1993 or 1994.
Net operating loss carryforwards of approximately $5 million and $4 million
for federal and state income tax purposes, respectively, expire from 2003
through 2008. The Company has been subject to the full 20% alternative minimum
tax since 1992.
The components of the net deferred tax asset are summarized below.
<TABLE>
<CAPTION>
December 31,
1993 1994
Assets Liabilities Assets Liabilities
(In thousands)
<S> <C> <C> <C> <C>
Tax effect of temporary differences relating to:
Inventories $ 1,623 $ - $ 1,798 $ -
Property and equipment - (11,845) - (10,584)
Accrued pension cost 18,206 - 10,916 -
Accrued OPEB cost 40,396 - 41,003 -
Accrued liabilities and other deductible
differences 6,978 - 7,421 -
Other taxable differences - (583) - (1,159)
Net operating loss carryforwards 2,376 - 1,949 -
Alternative minimum tax credit carryforwards 6,342 - 6,991 -
Valuation allowance (30,000) - (30,000) -
Gross deferred tax assets (liabilities) 45,921 (12,428) 40,078 (11,743)
Reclassification, principally netting by tax
jurisdiction (12,428) 12,428 (11,743) 11,743
Net deferred tax asset 33,493 - 28,335 -
Less current deferred tax asset, net of prorata allocation
of valuation allowance 5,437 - 4,552 -
Noncurrent deferred tax asset $ 28,056 $ - $ 23,783 $ -
</TABLE>
NOTE 5 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS PLAN
The Company's Incentive Stock Option - Stock Appreciation Rights Plan (the
"1982 Option Plan") permits the granting of incentive stock options ("ISOs") and
stock appreciation rights ("SARs") to purchase up to 337,500 shares of the
Company's common stock, subject to adjustment in certain instances. ISOs are
20% vested and exercisable one year from the date of grant, increasing to 40% at
two years after the date of grant, 60% at three years after the date of grant,
and 100% at four years after the date of grant. ISOs expire five years from the
date of grant. There were no SARs awarded. The 1982 Option Plan was replaced in
May 1992 upon adoption of the Keystone Consolidated Industries, Inc. 1992
Incentive Compensation Plan (the "1992 Option Plan").
The 1992 Option Plan permits the granting of stock options, SARs and
restricted stock to key employees of the Company or its parent or subsidiaries
for up to 300,000 shares of the Company's common stock, subject to adjustments
in certain instances. The 1992 Option Plan provides for the grant of options
that qualify as incentive stock options and for options which are not so
qualified. Incentive stock options are granted at a price not less than 100% of
the fair market value of such stock on the date of grant. The exercise price of
all options and SARs, the length of period during which the options or SARs may
be exercised, and the length of the restriction period for restricted stock
awards are determined by the Incentive Compensation Committee of the Board of
Directors.
The Keystone Consolidated Industries, Inc. 1992 Non-Employee Director Stock
Option Plan (the "Director Plan") was adopted in May 1992. The Director Plan
provides that annually, each non-employee director of the Company will
automatically be granted an option to purchase 1,000 shares of the Company's
common stock. Options are granted at a price equal to the fair market value of
such stock on the date of the grant, vest one year from the date of the grant
and expire five years from the date of the grant. Up to 50,000 shares of the
Company's common stock may be issued pursuant to the Director Plan.
Changes in outstanding options, including options outstanding under a prior
plan pursuant to which no further grants can be made are summarized in the table
below.
<TABLE>
<CAPTION>
Price per Amount payable
Options share upon exercise
<S> <C> <C> <C>
Outstanding at December 31, 1991 146,500 $ 8.53-17.79 $1,823,580
Granted 20,000 10.75-12.86 246,650
Canceled (37,500) 10.41-17.79 (556,301)
Outstanding at December 31, 1992 129,000 8.53-15.81 1,513,929
Granted 55,000 8.75-10.50 490,000
Canceled (4,500) 9.99-15.77 (53,625)
Outstanding at December 31, 1993 179,500 8.53-15.81 1,950,304
Granted 9,900 10.25-11.25 106,475
Exercised (61,500) 8.53-15.77 (535,252)
Canceled (16,300) 8.75-15.77 (226,825)
Outstanding at December 31, 1994 111,600 $ 8.75-15.81 $1,294,702
</TABLE>
During 1994, the Company awarded 19,200 shares of restricted stock under the
terms of the 1992 Option Plan as partial consideration for compensation that had
been accrued at December 31, 1993. The restricted stock vests 40% six months
after the award date, increasing to 70% 18 months after the award date and 100%
two years after the award date. During 1994, 1,800 shares of restricted stock
were forfeited and at December 31, 1994, 7,600 shares had been issued.
At December 31, 1994, options to purchase 88,700 shares were exercisable
(61,700 shares exercisable at prices lower than the December 31, 1994 quoted
market price of $13.63 per share) and options to purchase an additional 12,980
shares will become exercisable in 1995. At December 31, 1994, an aggregate of
267,000 shares were available for future grants under the 1992 Option Plan and
the Director Plan.
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Company maintains several noncontributory defined benefit pension plans
covering most of its employees. Benefits are based on a combination of stated
percentages of employee's wages. Pension plan assets are primarily invested in
a collective investment trust (the "Collective Trust") formed by Valhi, Inc., a
majority-owned subsidiary of Contran, to permit the collective investment by
trusts which implement employee benefit plans maintained by Contran, Valhi and
related companies, including the Company. Harold C. Simmons is the sole trustee
and the sole member of the Trust Investment Committee for such trust.
The Company's funding policy is to contribute amounts equal to, or
exceeding, minimum funding requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Company received permission
from the Internal Revenue Service ("IRS") to defer the annual pension plan
contributions for plan years ended June 30, 1980, 1984 and 1985, which, in the
aggregate, amounted to $31.7 million. The deferred amounts, with interest, are
payable to the plans over fifteen years. At December 31, 1994, the remaining
balance of such deferred contributions was approximately $10.6 million. Payment
of these deferred contributions, due through 2000, is collateralized by a lien
on all of the Company's assets.
The components of net periodic pension cost are presented in the table
below.
<TABLE>
<CAPTION>
Years ended December 31,
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Service cost $ 2,005 $ 1,931 $ 2,601
Interest cost on projected benefit obligation 14,593 14,509 13,691
Actual (return)/loss on plan assets (6,559) (18,200) 1,272
Net amortization and deferral (1,418) 9,363 (8,621)
Net periodic pension cost $ 8,621 $ 7,603 $ 8,943
</TABLE>
The Company adjusts the discount rate used in determining the actuarial
present values of its pension obligations in response to changes in interest
rate trends. The discount rate used at December 31, 1994 was 8.5% (1993 - 7.5%,
1992 - 9.5%). The 1994 change resulted in, among other things, a decrease in
noncurrent pension liability of $14.5 million, and an $8.8 million credit to
stockholders' deficit. On December 31, 1993, the Company also reduced its
assumed long-term rate of return on plan assets from 12% to 10%. The 1993
changes resulted in, among other things, an increase in noncurrent pension
liability of $28 million, and a $17 million charge to stockholders' deficit.
Variances from actuarially assumed rates, including the rate of return on
pension plan assets, will result in additional increases or decreases in these
accounts, as well as deferred taxes, pension expense and funding requirements in
future periods.
The assumed rate of increase in future compensation levels and long-term
rate of return on assets were 3% and 10%, respectively. The vested benefit
obligation includes the actuarial present value of the vested benefits to which
an active employee is entitled if employment was terminated immediately.
The following table sets forth the actuarially estimated obligations and
funded status of the Company's various defined benefit pension plans and the
Company's accrued pension cost.
<TABLE>
<CAPTION>
December 31,
1993 1994
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $173,924 $160,413
Accumulated benefit obligation $180,426 $166,738
Projected benefit obligation $187,776 $174,640
Plan assets at fair value 110,767 112,474
Projected benefit obligation in excess of plan assets 77,009 62,166
Unrecognized net loss from experience different from
actuarial assumptions (51,304) (49,399)
Unrecognized net obligation being amortized over
15-19 years (12,067) (10,247)
Adjustment required to recognize minimum liability 56,020 51,685
Total accrued pension cost 69,658 54,205
Less current portion 9,556 13,735
Noncurrent accrued pension cost $ 60,102 $ 40,470
</TABLE>
The Company maintains several defined contribution plans covering most of
its employees. The Company contributes the lesser of an amount equal to the
participants' contributions or a formula established by the Board of Directors.
Expense related to these plans was $2.3 million in 1992 and $2.4 million in each
of 1993 and 1994.
NOTE 7 - OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
1993 1994
(In thousands)
<S> <C> <C>
Current:
Salary, wages, vacations and other employee expense $ 9,388 $10,558
Environmental 3,525 5,553
Other 5,086 4,829
$17,999 $20,940
Noncurrent:
Environmental $ 6,056 $ 7,469
Other 1,660 1,702
$ 7,716 $ 9,171
</TABLE>
NOTE 8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides, in addition to pension benefits, medical
and life insurance benefits for certain retired employees of currently owned
businesses as well as for certain retirees of businesses which have been sold or
discontinued. Certain retirees are required to contribute to the cost of their
benefits. Under plans currently in effect, certain active employees would be
entitled to receive OPEB upon retirement. OPEB expense for the years ended
December 31, 1993 and 1994 was composed of the following:
<TABLE>
<CAPTION>
December 31,
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Service cost $ 1,046 $ 1,109 $ 1,396
Interest cost on projected benefit obligation 9,002 9,132 7,421
Amortization of prior service cost - (171) (343)
Total OPEB expense $10,048 $10,070 $ 8,474
</TABLE>
The following table sets forth the actuarial present value of the estimated
accumulated OPEB obligations, none of which have been funded.
<TABLE>
<CAPTION>
December 31,
1993 1994
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated
OPEB obligations:
Current retirees $ 74,369 $ 67,632
Fully eligible active plan participants 1,071 992
Other active plan participants 27,511 25,107
102,951 93,731
Unrecognized net gain (loss) from experience different
from actuarial assumptions (4,952) 6,167
Unrecognized prior service credit 5,580 5,237
Total accrued OPEB cost 103,579 105,135
Less current portion 7,243 6,825
Noncurrent accrued OPEB cost $ 96,336 $ 98,310
</TABLE>
The rates used in determining the actuarial present value of the accumulated
OPEB obligations were (i) discount rate - 8.5% in 1994 and 7.5% in 1993 and (ii)
rate of increase in future health care costs - 9% in 1995, gradually declining
to 5.5% in 2015 and thereafter. If the health care cost trend rate was
increased by one percentage point for each year, OPEB expense would have
increased $1.0 million and $1.2 million in 1994 and 1993, respectively, and the
actuarial present value of accumulated OPEB obligations at December 31, 1994 and
1993 would have increased $9.6 million and $10.4 million, respectively.
NOTE 9 - CHANGE IN ACCOUNTING PRINCIPLES
The Company (i) elected early compliance with both SFAS No. 106 (OPEB) and
SFAS No. 109 (income taxes) as of January 1, 1992; (ii) elected to apply SFAS
No. 109 prospectively and not restate prior years; and (iii) elected immediate
recognition of the OPEB transition obligation. The cumulative effect of changes
in accounting principles is shown in the table below.
<TABLE>
<CAPTION>
Amount
(In thousands)
<S> <C>
Increase (decrease) in net assets at January 1, 1992:
Accrued OPEB cost $(93,957)
Deferred income taxes, net 24,008
Loss from cumulative effect of changes in accounting
principles $(69,949)
</TABLE>
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company may be deemed to be controlled by Harold C. Simmons (see
Note 1). Corporations that may be deemed to be controlled by or affiliated with
Mr. Simmons sometimes engage in various transactions with related parties,
including the Company. Such transactions may include, among other things,
management and expense sharing arrangements, advances of funds on open account,
and sales, leases and exchanges of assets. It is the policy of the Company to
engage in transactions with related parties on terms, in the opinion of the
Company, no less favorable to the Company than could be obtained from unrelated
parties. Depending upon the business, tax and other objectives then relevant,
the Company may be a party to one or more such transactions in the future.
J. Walter Tucker, Jr., Vice Chairman of the Company, is a principal
stockholder of Tucker & Branham, Inc., Orlando, Florida. The Company has
contracted with Tucker & Branham, Inc. for the services of Mr. Tucker. Fees paid
to Tucker & Branham, Inc. were $50,000 in 1992, $62,000 in 1993 and $66,000 in
1994.
Under the terms of an Intercorporate Services Agreement with Contran,
Contran and related companies perform certain management, financial and
administrative services for the Company on a fee basis. Aggregate fees incurred
by the Company pursuant to this agreement were $508,000 in 1992, $580,000 in
1993 and $640,000 in 1994. In addition, the Company purchased certain aircraft
services from Valhi in the amount of $178,000 in 1992, $158,000 in 1993 and
$128,000 in 1994.
Certain of Keystone's property, liability and casualty insurance risks were
partially reinsured by a captive insurance subsidiary of Valhi prior to 1993.
The premiums and claims paid in connection therewith were approximately $18,000
in 1992, $139,000 in 1993 and $98,000 in 1994.
NOTE 11 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Net sales $87,580 $102,549 $87,571 $86,735
Gross profit 7,218 12,034 8,632 9,098
Net income (loss) $ 408 $ 5,839 $ 1,557 $ (243)
Income (loss) per common share $ .07 $ 1.04 $ .28 $ (.04)
Year ended December 31, 1993:
Net sales $81,130 $ 95,822 $86,361 $81,873
Gross profit 7,155 9,190 9,012 7,164
Net income (loss) $ 592 $ (3,590) $ 3,191 $ 556
Income (loss) per common share $ .11 $ (.65) $ .58 $ .10
</TABLE>
NOTE 12 - OPERATIONS
The Company's continuing operations are comprised of one segment, the
manufacture and sale of carbon steel rod, wire and wire products for
agricultural, industrial, construction, commercial, original equipment
manufacturers and retail consumer markets primarily in the Midwestern and
Southwestern United States.
<TABLE>
<CAPTION>
Years ended December 31,
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Net sales $316,251 $345,186 $364,435
Operating income $ 12,826 $ 12,361 $ 12,112
Excise tax and related interest (Note 13) - (7,120) 4,020
General corporate expense, net (1,450) (1,493) (1,055)
Interest expense (3,036) (2,618) (2,688)
Income before income taxes $ 8,340 $ 1,130 $ 12,389
</TABLE>
Export sales were $2.8 million in 1992, $1.5 million in 1993 and $2.8
million in 1994.
In November 1994, the Company entered into a Joint Venture Agreement with an
unrelated party and formed Engineered Wire Products, Inc. (EWP) a manufacturer
and distributor of wire mesh, which previously operated as a division of the
unrelated party. The Company obtained a 20% interest in EWP, in exchange for
contributions of $1 million in cash and equipment and an agreement to contribute
up to an additional $.9 million, subject to certain conditions, through May 1,
1995. The Company also entered into a Shareholders' Agreement which gives the
Company the exclusive option to acquire the remaining 80% interest in EWP at
fair market value for a period of five years. The Company accounts for its
interest in EWP under the equity method.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Environmental matters - Peoria facility
The Company is currently involved in the closure of inactive waste disposal
units at its Peoria, Illinois facility pursuant to a closure plan approved by
the Illinois Environmental Protection Agency ("IEPA") in September 1992. The
original closure plan provides for the in-place treatment of seven hazardous
waste surface impoundments and two waste piles to be disposed of as special
wastes. During 1994 the Company discovered additional contaminated soils and
recorded a charge of $3.1 million, $1.7 million in the fourth quarter, for the
estimated treatment and disposal costs related to the additional soils. At
December 31, 1994, the Company has a $8.5 million accrual representing the
estimated costs remaining to be incurred relating to the remediation efforts,
exclusive of capital improvements. The remediation is currently expected to be
complete in 1998. Pursuant to agreements with the IEPA and Illinois Attorney
General's office, the Company will deposit $3 million into a trust fund over a
six-year period. The Company cannot withdraw funds from the trust fund until
the fund balance exceeds the sum of the estimated remaining remediation costs
plus $2 million. At December 31, 1993 and 1994 the trust fund had balances of
$.9 million and $1.5 million, respectively, which amounts are included in other
noncurrent assets because the Company does not expect to have access to any of
these funds until after 1997.
In the normal course of operations at the Company's Peoria facility during
1992, an unknown amount of a radioactive element contained in scrap was melted
in an electric arc furnace, resulting in the low-level contamination of the
pollution control system and the accumulated furnace dust. As a result, it was
necessary for the Company to clean the pollution control system and remove and
dispose of the contaminated dust. In July 1994, the Company entered into a
disposal agreement with a licensed waste disposal facility. The Company has
shipped approximately 70% of the contaminated dust to the disposal facility
which is currently constructing treatment facilities. The disposal facility has
represented that treatment and disposal will be completed by June 1995. At
December 31, 1994, the Company has a $3.1 million accrual related to this matter
representing the estimated costs to complete disposal of the contaminated dust.
Environmental matters - "Superfund" sites
The Company is subject to federal and state "Superfund" legislation that
imposes cleanup and remediation responsibility upon present and former owners
and operators of, and persons that generated hazardous substances deposited
upon, sites determined by state or federal regulators to contain hazardous
substances. The Company has been notified by the United States Environmental
Protection Agency ("U.S. EPA") that the Company is a potentially responsible
party ("PRP") under the federal "Superfund" legislation for the alleged release
or threat of release of hazardous substances into the environment at several
sites. These situations involve cleanup of landfills and disposal facilities
which allegedly received hazardous substances generated by discontinued
operations of the Company. The Company believes its comprehensive general
liability insurance policies provide indemnification for certain costs the
Company incurs at the three "Superfund" sites discussed below and has recorded
receivables for the estimated insurance recoveries.
In July 1991, the United States filed an action against a former subsidiary
of the Company and four other PRP's in the United States District Court for the
Northern District of Illinois (Civil Action No. 91C4482) seeking to recover
investigation and remediation costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron, Illinois. In April 1992, Keystone filed a third-party
complaint in this civil action against 15 additional parties seeking
contribution in the event the Company is held liable for any response costs at
the Byron site. Neither the Company nor the other designated PRPs are
performing any investigation of the nature and extent of the contamination.
U.S. EPA has possession of the site, is conducting the remedial investigation,
and has not made available sufficient data, tests results or other facts that
would enable the PRPs to speculate as to an appropriate remedy or remedies. In
July 1993, the U.S. EPA made available for inspection records documenting
approximately $10 million in investigation and remediation costs incurred at the
site and produced copies of the laboratory results on groundwater samples taken
as a part of the ongoing remedial investigation. During 1994, U.S. EPA released
its remedial investigation study showing ground water contamination, however
U.S. EPA has not completed a feasibility study or risk assessment for the site.
Until U.S. EPA releases its Final Record of Decision, the Company will not know
whether U.S. EPA will require any further groundwater remediation measures. In
October 1994, Keystone, EPA and the Department of Justice reached a verbal
agreement to settle Keystone's liability for EPA response costs incurred at the
site through April 1994 for a payment of $690,000. Under the agreement Keystone
would be precluded from recovering any portion of the $690,000 settlement
payment from other parties to the lawsuit. The terms of that verbal agreement
must still be approved by the District Court. Keystone will remain potentially
liable for EPA response costs incurred after April 30, 1994, and natural
resource damage claims, if any, that may be asserted in the future. Keystone
has a verbal agreement with its insurer to recover a portion of the anticipated
$690,000 payment. In 1993, the Company accrued a liability of $500,000 based
upon its estimated share of the documented investigation and remediation costs
known at that time and an additional $190,000 was accrued in 1994.
In September 1991, the Company along with 53 other PRP's, executed a consent
decree to undertake the immediate removal of hazardous wastes and initiate a
Remedial Investigation/Feasibility Study ("RI/FS") of the Interstate Pollution
Control site located in Rockford, Illinois. The Company's percentage allocation
within the group of PRP's agreeing to fund this project is currently 2.14%.
However, the Company's ultimate allocation, and the ultimate costs of the RI/FS
and any remedial action, are subject to change depending, for example, upon: the
number and financial condition of the other participating PRPs, field conditions
and sampling results, results of the risk assessment and Feasibility Study,
additional regulatory requirements, and the success of a contribution action
seeking to compel additional parties to contribute to the costs of the RI/FS and
any remedial action. The project manager for the engineering firm conducting
the RI/FS at the site has concluded the least expensive remedial option would be
to cap the site and install and operate a soil vapor extraction system, at an
estimated cost of approximately $2.6 million. The remedial investigation is
still in process and the feasibility study is expected to be completed during
1996. The Company's current allocated share of the estimated least expensive
remedial option is approximately $56,000 and was accrued prior to 1994.
In August 1987, the Company was notified by U.S. EPA that it is a PRP
responsible for the alleged hazardous substance contamination of a site
previously owned by the Company in Cortland, New York. There are four other
PRPs participating in the RI/FS and a contribution action is pending against
eleven additional viable companies which contributed wastes to the site. An
estimate made by the principal engineering firm responsible for the management
of the RI/FS indicated the cost of the least expensive remedial option is
approximately $3 million. This option would involve the construction of a site
cap and ground water monitoring. The likelihood that U.S. EPA will select this
option will depend on, among other things, the results of the EPA's evaluation
of the Feasibility Study. The Company's estimated share of the least expensive
remedial option is approximately $375,000 and was accrued prior to 1994.
Current litigation
The Company satisfied a portion of its 1983 and 1984 funding obligations to
the Keystone Master Pension Trust ("KMPT") through the contributions of certain
real property that the IRS contended were prohibited transactions. In 1988, the
IRS issued a Notice of Deficiency proposing the imposition of excise taxes plus
accrued interest against the Company under the "prohibited transaction"
provisions of the Internal Revenue Code (the "Code"). In May 1993, the U.S.
Supreme Court reversed lower court decisions favorable to the Company and
remanded the case to the tax court to determine the amount due. During 1993,
the Company accrued an aggregate of $7.1 million for the estimated cost of the
5% nondeductible excise taxes ($3.2 million) and related interest ($3.9
million), resulting in a net after-tax charge of approximately $5.6 million. In
addition, to avoid a second tier $9.6 million excise tax, the Company made a
"correction" payment of $2.3 million to its pension plans in June 1993. In June
1994, the Company and the IRS agreed on the amount due and entered into a
Closing Agreement which was approved by the Tax Court in July 1994. Pursuant to
the terms of the Closing Agreement, the Company made an additional "correction"
payment of approximately $3.3 million to its pension plans in June 1994, and
agreed to pay a total of $3.1 million in excise taxes and interest, in three
equal installments, over a two-year period beginning in June 1994. As a result,
in 1994 the Company recorded a $4 million reduction in previously accrued
expenses related to this matter. At December 31, 1994 the remaining accrued
liability related to this matter amounted to approximately $2.1 million.
In February 1989, the Company sold substantially all of the operating assets
of two former divisions. As part of the purchase price, the Company received
two promissory notes from the purchaser collateralized by the assets sold. In
1991, the purchaser restructured its business and borrowing obligations,
including its notes payable to the Company, and in consideration of the
Company's consent to that restructuring, the Company obtained certain
replacement security interests including a secured note receivable, proceeds
from a noncompetition agreement and security interests in two of the purchasers'
limited partnership interests. In October 1991, an involuntary bankruptcy
petition was filed against the purchaser by certain unsecured creditors. In
November 1993, the bankruptcy Trustee commenced an adversary proceeding against
the Company seeking to subordinate certain claims filed by the Company and to
recover certain payments received by the Company pursuant to the replacement
security interests referred to above. During the fourth quarter of 1994, the
Company entered into a settlement agreement pursuant to which the Trustee
withdrew its adversary proceeding against the Company, the Company released its
unsecured claims against the bankruptcy estate and the Company received two new
notes from limited partnerships affiliated with the purchaser. The Company
retained its security interests in the limited partnerships as well as its right
to receive the proceeds from the noncompetition agreement.
The Company is also engaged in various legal proceedings incidental to its
normal business activities. In the opinion of the Company, none of such
proceedings is material in relation to the Company's consolidated financial
position, results of operations or liquidity.
Concentration of credit risk
The Company sells its products to agricultural, industrial, construction,
commercial, original equipment manufacturers and retail distributors primarily
in the midwestern and southwestern regions of the United States. The Company
performs ongoing credit evaluations of its customer's financial condition and,
generally, requires no collateral from its customers. The Company's ten largest
customers accounted for approximately 33% of sales in 1992, 30% in 1993 and 29%
in 1994, and approximately 33% of notes and accounts receivable at both December
31, 1993 and 1994.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
beginning costs and (net of end of
Description of period expenses recoveries) period
YEAR ENDED DECEMBER 31, 1992:
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
and notes receivable $ 317 $ 45 $ (102) $ 464
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts
and notes receivable $ 464 $ (6) $ (23) $ 435
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts
and notes receivable $ 435 $128 $ (10) $ 553
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
</TABLE>
EXHIBIT 21
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percent of
voting securities
State or county owned at
Name of incorporationDecember 31,
1994
<S> <C> <C>
Sherman Wire of Caldwell, Inc. Nevada 100.0%
Wire Products Company Wisconsin 100.0%
</TABLE>
EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Keystone Consolidated Industries, Inc. on Form S-8 (File Nos. 33-30137, 33-
63086 and 2-93666) of our report, which includes an explanatory paragraph
regarding changes in accounting methods for postretirement benefits other than
pensions and for income taxes in accordance with Statements of Financial
Accounting Standards Nos. 106 and 109, respectively, dated February 17, 1995, on
our audits of the consolidated financial statements and financial statement
schedules of Keystone Consolidated Industries, Inc. and Subsidiaries as of
December 31, 1994 and 1993 and for the years ended December 31, 1994, 1993 and
1992, which report is included in this Annual Report on form 10-K.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEYSTONE
CONSOLIDATED INDUSTRIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 42,468
<ALLOWANCES> 553
<INVENTORY> 35,861
<CURRENT-ASSETS> 84,385
<PP&E> 231,708
<DEPRECIATION> 150,561
<TOTAL-ASSETS> 205,601
<CURRENT-LIABILITIES> 81,856
<BONDS> 15,340
<COMMON> 6,313
0
0
<OTHER-SE> (46,892)
<TOTAL-LIABILITY-AND-EQUITY> 205,601
<SALES> 364,435
<TOTAL-REVENUES> 364,435
<CGS> 327,453
<TOTAL-COSTS> 327,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> (1,165)
<INCOME-PRETAX> 12,389
<INCOME-TAX> 4,828
<INCOME-CONTINUING> 7,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,561
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 1994, amends and supersedes that certain Intercorporate Services
Agreement dated as of January 1, 1993 by and between CONTRAN CORPORATION
("Contran"), a Delaware corporation, and KEYSTONE CONSOLIDATED INDUSTRIES, INC.
("Recipient"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS,
WHEREAS, employees and agents of Contran and affiliates of Contran perform
management, financial and administrative functions for Recipient without direct
compensation from Recipient; and
WHEREAS,
WHEREAS, Recipient does not separately maintain the full internal
capability to perform all necessary management, financial and administrative
functions which Recipient requires; and
WHEREAS,
WHEREAS, it is believed that the cost of maintaining the additional
personnel by Recipient necessary to perform the functions provided for by this
Agreement would exceed the fee set forth in Section 3 of this Agreement and that
the terms of this Agreement are no less favorable to Recipient than could
otherwise be obtained from a third party for comparable services; and
WHEREAS,
WHEREAS, Recipient desires to continue receiving the management,
financial and administrative services presently provided by Contran and
affiliates of Contran and Contran is willing to continue to provide such
services under the terms of this Agreement.
NOW, THEREFORE
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. Services to be Provided: Contran agrees to make available to Recipient,
upon request, the following services (the "Services") to be rendered by
the internal staff of Contran and affiliates of Contran:
(a) Consultation and assistance in the development and implementation of
Recipient's corporate business strategies, plans and objectives.
(b) Consultation and assistance in management and conduct of corporate
affairs and corporate governance consistent with the Articles of
Incorporation and By-Laws of Recipient.
(c) Consultation and assistance in maintenance of financial records and
controls, including preparation and review of periodic financial
statements and reports to be filed with public and regulatory
entities and those required to be prepared for financial
institutions or pursuant to indentures and credit agreements.
(d) Consultation and assistance in cash management and in arranging
financing necessary to implement the business plans of Recipient.
(e) Consultation and assistance in tax management and administration
including; preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning.
(f) Consultation and assistance in performing internal audit and control
functions.
(g) Consultation and assistance with respect to insurance and risk
management.
(h) Consultation and assistance with respect to employee benefit plans
and incentive compensation arrangements.
(i) Such other services as may be requested by Recipient or deemed
necessary and proper from time to time.
2. Miscellaneous Services: It is the intent of the parties hereto that
Contran provide only the Services requested by Recipient in connection
with routine management, financial and administrative functions related to
the ongoing operations of Recipient and not with respect to special
projects, including corporate investments, acquisitions and divestitures.
The parties hereto contemplate that the Services rendered in connection
with the conduct of Recipient's business will be on a scale compared to
that existing on the date of this Agreement, adjusted for internal
corporate growth or contraction, but not for major corporate acquisitions
or divestitures, and that adjustments may be required to the terms of this
Agreement in the event of such major corporate acquisitions, divestitures
or special projects. Recipient will continue to bear all other costs
required for outside services including, but not limited to, the outside
services of attorneys, auditors, trustees, transfer agents and registrars,
and it is expressly understood that Contran assumes no liability for any
expenses or services other than those stated in Section 1. In addition to
the fee paid to Contran by Recipient for the Services provided pursuant to
this Agreement, Recipient will pay to Contran the amount of out-of-pocket
costs incurred by Contran in rendering such Services.
3. Fee for Services: Recipient agrees to pay to Contran $160,000.00
quarterly, commencing as of January 1, 1994, pursuant to this Agreement.
4. Original Term: Subject to the provisions of Section 5 hereof, the
original term of this Agreement shall be from January 1, 1994 to December
31, 1994.
5. Extensions. This Agreement shall be extended on a quarter- to-quarter
basis after the expiration of its original term unless written
notification is given by Contran or Recipient thirty (30) days in advance
of the first day of each successive quarter or unless it is superseded by
a subsequent written agreement of the parties hereto.
6. Limitation of Liability. In providing its Services hereunder, Contran
shall have a duty to act, and to cause its agents to act, in a reasonably
prudent manner, but neither Contran nor any officer, director, employee or
agent of Contran or its affiliates shall be liable to Recipient for any
error of judgment or mistake of law or for any loss incurred by Recipient
in connection with the matter to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on
the part of Contran.
7. Indemnification of Contran by Recipient. Recipient shall indemnify and
hold harmless Contran, its affiliates and their respective officers,
directors and employees from and against any and all losses, liabilities,
claims, damages, costs and expenses (including attorneys' fees and other
expenses of litigation) to which such party may become subject to arising
out of the Services provided by Contran to Recipient hereunder, provided
that such indemnity shall not protect any such party against any liability
to which such person would otherwise be subject to by reason of willful
misfeasance, bad faith or gross negligence.
8. Further Assurances. Each of the parties will make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as the other party may reasonably request and as may reasonably
be required in order to effectuate the purposes of this Agreement and to
carry out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall be
addressed, if intended for Contran, to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such
other address as it shall have furnished to Recipient in writing, and if
intended for Recipient, to Three Lincoln Centre, 5430 LBJ Freeway, Suite
1740, Dallas, Texas 75240, Attention: Chairman of the Board, or such
other address as it shall have furnished to Contran in writing.
10. Amendment and Modification. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
11. Successor and Assigns: This Agreement shall be binding upon and inure to
the benefit of Contran and Recipient and their respective successors and
assigns, except that neither party may assign its rights under this
Agreement without the prior written consent of the other party.
12. Governing Law: This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CONTRAN CORPORATION
By:_____________________________
Michael A. Snetzer
President
KEYSTONE CONSOLIDATED
INDUSTRIES, INC.
By:_____________________________
Glenn R. Simmons
Chairman of the Board and
Chief Executive Officer
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
KEYSTONE CONSOLIDATED INDUSTRIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at meetings of the Board of Directors of Keystone
Consolidated Industries, Inc. resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolutions
setting forth the proposed amendment is as follows:
NOW THEREFORE BE IT RESOLVED that Article Fourth of the corporation's
certificate of incorporation be amended to read in its entirety as follows:
FOURTH. The total number of shares of all classes of
stock which the Corporation shall have authority to
issue is twelve million five hundred thousand
(12,500,000), of which twelve million (12,000,000)
shares are Common Stock of the par value of One Dollar
($1.00) each and five hundred thousand (500,000) shares
are Preferred Stock without par value.
The Preferred Stock shall be issued in one or more
series. The Board of Directors is hereby expressly
authorized to issue the shares of Preferred Stock in
such series and to fix from time to time before issuance
the number of shares to be included in any series and
the designation, relative rights, preferences and
limitations of all shares of such series. The authority
of the Board of Directors with respect to each series
shall include, without limitation thereto, the
determination of any or all of the following and the
shares of each series may vary from the shares of any
other series in the following respects:
(a) The number of shares constituting such series and the
designation thereof to distinguish the shares of such
series from the shares of all other series;
(b) The annual dividend rate on the shares of that series and
whether such dividends shall be cumulative and, if
cumulative, the date from which dividends shall
accumulate;
(c) The redemption price or prices for the particular series,
if redeemable, and the terms and conditions of such
redemption;
(d) The preference, if any, of shares of such series in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(e) The voting rights, if any, in addition to the voting
rights prescribed by law and the terms of exercise of
such voting rights;
(f) The right, if any, of shares of such series to be
converted into shares of any other series or class and
the terms and conditions of such conversion; and
(g) any other relative rights, preferences and limitations of
that series.
At all elections of directors of the Corporation each holder of
Common Stock entitled to vote at such election shall be
entitled to as many votes as shall equal the number of his
shares of Common Stock multiplied by the number of directors to
be elected, and he may cast all of such votes for a single
director or may distribute them among the number to be voted
for, or any two or more of them, as he may see fit. In respect
of all other matters as to which the vote or consent of
stockholders of the Corporation shall be required to be taken,
the holders of Common Stock shall be entitled to one vote for
each share of stock held by them.
No holder of stock of the Corporation shall have any preemptive
or other right whatever, as such holder, to subscribe for or
purchase or to have offered to him for subscription or purchase
any additional shares of stock of any class, character or
description which may be issued or sold by the Corporation, or
obligations of any kind which may be issued or sold by the
Corporation and which shall be convertible into stock of any
class of the Corporation, or to which there shall be attached
or appertain any warrant or warrants or other instrument or
instruments that shall confer upon the holder of such
obligation the right to subscribe for, or to purchase or
receive from the Corporation, any shares of capital stock of
any class of the Corporation, whether now or hereafter
authorized.
SECOND: That thereafter, pursuant to the resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and Held on april 27, 1994; upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware, at which meeting more than
two-thirds of the outstanding shares entitled to vote at such meeting were voted
in favor of the foregoing amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said KEYSTONE CONSOLIDATED INDUSTRIES, INC. has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Glenn R. Simmons, Chairman and Chief Executive Officer, and attested by Sandra
K. Myers, its secretary, this _____ day of August, 1994.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
Glenn R. Simmons, Chairman
and Chief Executive Officer
ATTEST:
By
Sandra K. Myers, Secretary
STATE OF TEXAS )
) SS.
COUNTY OF DALLAS )
BE IT REMEMBERED that on this ____ day of August, 1994 personally came
before me, a Notary Public in and for the County and State aforesaid, Glenn R.
Simmons, Chairman of the Board and Chief Executive Officer, of Keystone
Consolidated Industries, Inc. , a corporation of the State of Delaware, and he
duly executed said certificate before me and acknowledged the said certificate
to be his act and deed and the act and deed of said corporation and the facts
stated therein are true; and that the seal affixed to said certificate and
attested by the Secretary of said corporation is the common or corporate seal of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
Linda S. Roberts
Corp103
corp\lr\8/5/94
