SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period March 31, 1995
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 _____
Number of shares of common stock outstanding at April 30, 1995: 5,636,507
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1994
and March 31, 1995 3-4
Consolidated Statements of Operations - Three months
ended March 31, 1994 and 1995 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1994 and 1995 6
Consolidated Statement of Stockholders' Deficit
- Three months ended March 31, 1995 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, MARCH 31,
ASSETS 1994 1995
<S> <C> <C>
Current assets:
Notes and accounts receivable $ 41,915 $ 45,105
Inventories 35,861 37,459
Deferred income taxes 4,552 3,845
Prepaid expenses and other 2,057 1,609
Total current assets 84,385 88,018
Property, plant and equipment 231,708 233,809
Less accumulated depreciation 150,561 153,435
Net property, plant and equipment 81,147 80,374
Other assets:
Unrecognized pension obligation 10,247 9,792
Deferred income taxes 23,783 25,008
Notes receivable 1,397 1,304
Other 4,642 5,165
Total other assets 40,069 41,269
$205,601 $209,661
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, MARCH 31,
1994 1995
<S> <C> <C>
Current liabilities:
Notes payable and current long-term debt $ 10,714 $ 18,664
Accounts payable 28,418 27,122
Accounts payable to affiliates 191 -
Accrued pension cost 13,735 10,002
Accrued OPEB cost 6,825 7,813
Other accrued liabilities 21,973 20,457
Total current liabilities 81,856 84,058
Noncurrent liabilities:
Long-term debt 15,340 14,396
Accrued pension cost 40,470 42,891
Accrued OPEB cost 98,310 97,655
Other 10,204 10,977
Total noncurrent liabilities 164,324 165,919
Stockholders' deficit:
Common stock 6,313 6,357
Additional paid-in capital 19,393 19,948
Accumulated deficit (32,486) (32,231)
Net pension liabilities adjustment (33,787) (34,378)
Treasury stock, at cost (12) (12)
Total stockholders' deficit (40,579) (40,316)
$205,601 $209,661
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1995
<S> <C> <C>
Revenues and other income:
Net sales $87,580 $90,768
Other, net 65 159
87,645 90,927
Costs and expenses:
Cost of goods sold 80,362 83,277
Selling, general and administrative 5,979 6,492
Interest 629 737
86,970 90,506
Income before income taxes 675 421
Provision for income taxes 267 166
Net income $ 408 $ 255
Income per common and common equivalent share $ .07 $ .05
Weighted average common and common equivalent
shares outstanding 5,550 5,642
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 408 $ 255
Depreciation 3,131 3,176
Noncash OPEB cost 448 333
Deferred income taxes (175) (140)
Other, net 83 (104)
3,895 3,520
Change in assets and liabilities:
Notes and accounts receivable (10,727) (3,144)
Inventories (1,154) (1,598)
Accounts payable (81) (1,487)
Accrued pension cost (1,144) (1,826)
Other, net 2,064 (128)
Net cash used by operating activities (7,147) (4,663)
Cash flows from investing activities:
Capital expenditures (2,003) (2,821)
Proceeds from disposition of property and equipment - 476
Net cash used by investing activities (2,003) (2,345)
Cash flows from financing activities:
Revolving credit facility, net 9,284 7,958
Other notes payable and long-term debt:
Additions 133 78
Principal payments (736) (1,030)
Common stock issued, net 469 2
Net cash provided by financing activities 9,150 7,008
Net change in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
Cash and cash equivalents, end of period $ - $ -
Supplemental disclosures:
Cash paid for:
Interest, net of amount capitalized $ 603 $ 784
Income taxes 24 4
Stock contributed to employee benefit plan 622 597
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Three months ended March 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Additional Net pension Total
Common paid-in Accumulated liabilities Treasury stockholders'
stock capital deficit adjustment stock deficit
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $6,313 $19,393 $(32,486) $(33,787) $(12) $(40,579)
Net income - - 255 - - 255
Issuance of common
stock 44 555 - - - 599
Pension adjustment - - - (591) - (591)
Balance at
March 31, 1995 $6,357 $19,948 $(32,231) $(34,378) $ (12) $(40,316)
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Keystone Consolidated Industries, Inc. (the "Company") is a majority-owned
subsidiary of Contran Corporation ("Contran"). At March 31, 1995, Contran held,
directly or indirectly, approximately 67% of the Company's outstanding common
stock.
The consolidated balance sheet at December 31, 1994 has been condensed from
the Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1995 and the consolidated statements of
operations and cash flows for the interim periods ended March 31, 1994 and 1995,
and the consolidated statement of stockholders' deficit for the interim period
ended March 31, 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. However, it should be
understood that accounting measurements at interim dates may be less precise
than at year end. The results of operations for the interim periods are not
necessarily indicative of the operating results for a full year or of future
operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 (the "Annual
Report").
Note 2 - Income per share:
Income per share is based on the weighted average number of common and
common equivalent shares outstanding during each period.
Note 3 - 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 three-fourths
of total inventories with the first-in, first-out or average cost methods used
to determine the cost of other inventories.
<TABLE>
<CAPTION>
December 31, MARCH 31,
1994 1995
(In thousands)
<S> <C> <C>
Raw materials $12,672 $10,759
Work in process 8,086 12,410
Finished products 14,501 14,239
Supplies 14,407 13,856
49,666 51,264
Less LIFO reserve 13,805 13,805
$35,861 $37,459
</TABLE>
Note 4 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31, MARCH 31,
1994 1995
(In thousands)
<S> <C> <C>
Commercial credit agreements:
Revolving credit facility $ 6,531 $14,489
Term loan 16,382 15,549
Other 3,141 3,022
26,054 33,060
Less current maturities 10,714 18,664
$15,340 $14,396
</TABLE>
The Company maintains a $35 million revolving credit facility which matures
December 31, 1996, is collateralized primarily by the Company's trade
receivables and inventories, and bears interest at the prime rate plus 1.5% (an
effective rate of 10.5% at March 31, 1995). The amount of available borrowings
is based on formula-determined amounts of trade receivables and inventories,
less the amount of outstanding letters of credit. Additional borrowings
available were $20.2 million at March 31, 1995. This credit facility requires
that the Company's daily cash receipts be used to reduce the outstanding
borrowings, which results in the Company maintaining zero cash balances.
The Company's term loan is with the financial institution that provides the
Company's revolving credit facility, bears interest at the prime rate plus 1%,
and is due in installments through December 31, 1996. The loan requires
compliance with the restrictive covenants, security agreement and certain other
terms of the revolving credit facility, is further collateralized by the
Company's property, plant and equipment, and becomes due and payable if the
Company terminates its 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.
Note 5 - Income taxes:
The difference between the provision for income taxes and the amounts that
would be expected using the U.S. federal statutory income tax rate is primarily
related to state income taxes. The net deferred tax asset at each of December
31, 1994 and March 31, 1995 is net of a $30 million valuation allowance. There
was no change in the deferred tax valuation allowance during the first three
months of 1994 or 1995.
Note 6 - Pension plans:
Variances from actuarial assumptions, including the rate of return on
pension plan assets, will result in increases or decreases in accrued pension
costs, deferred taxes, stockholders' deficit, pension expense and related
funding requirements in future periods.
During the early 1980's the Company received permission from the Internal
Revenue Service to defer certain annual pension plan contributions. At March
31, 1995, the remaining balance of such deferred contributions was approximately
$9.9 million. Such deferred amounts, with interest, are payable to the plans
through 2000 and are collateralized by a lien on all of the Company's assets.
Note 7 - Contingencies:
Environmental matters. As discussed in the Annual Report, the Company is
involved in the closure of inactive waste disposal units as well as the disposal
of radioactive arc dust. In addition, the Company is subject to federal and
state "Superfund" legislation at three sites involving cleanup of landfills and
disposal facilities which allegedly received hazardous substances generated by
discontinued operations of the Company. The Company has accrued its estimated
costs related to these issues. The Company believes its comprehensive general
liability insurance policies provide indemnification for certain costs the
Company incurs at the "Superfund" sites and has recorded receivables for the
estimated insurance recoveries. There was no significant change in the status
of these environmental matters during the first three months of 1995.
Other litigation. The Company is engaged in various legal proceedings
incidental to its normal business activities. In the opinion of the Company,
none of such proceedings are material in relation to the Company's consolidated
financial position, results of operations or liquidity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, original equipment manufacturers and retail consumer markets.
Historically, the Company has experienced greater sales and profits during the
first half of the year due to the seasonality of sales in principal wire
products markets, including the agricultural and construction markets.
Net sales of $90.8 million for the first quarter of 1995 represent a 4%
increase over the comparable 1994 quarter. Tons of product sold increased 2%
with wire and wire products sales increasing 6% to 112,000 tons and rod sales
decreasing 4% to 65,000 tons. Wire and wire products are sold at higher selling
prices per ton than rod. Both rod and wire per ton selling prices increased
approximately 4% in 1995 over the comparable 1994 period while per ton selling
prices of wire products declined 3%, principally due to a 5% decrease in the
average selling price of nails.
Gross profit was $7.5 million for the first quarter of 1995, up slightly
from 1994. Gross profit margins were approximately 8.3% during both periods as
lower 1995 costs for scrap steel, the Company's primary raw material, and lower
rod conversion costs were offset by changes in the product mix within the wire
and wire products category and increased costs related to the production outages
at the Peoria rod mill, discussed below.
Scrap steel costs in the first quarter of 1995 were approximately 2% lower
than one year ago and are currently expected to approximate current levels
during the second quarter of 1995.
During the first quarter of 1995, billet production of 158,000 tons at the
Peoria steel mill increased 5% over the comparable 1994 period. As the
Company's billet production capacity is less than its rod production capacity,
the Company periodically purchases billets from other suppliers to increase
utilization of the rod mill and thus assure the Company's ability to meet
customer orders. The decision to purchase billets depends on prices, product
demand and other market conditions. During the first quarter of 1995 the
Company purchased 32,000 tons of billets compared to 30,000 tons purchased in
the first quarter of 1994. However, despite the increased billet production and
purchases, unscheduled downtime during the first quarter of 1995 limited rod
production to the 1994 level of 171,000 tons. The Company has corrected the
mechanical and operational problems that caused the downtime and production has
returned to planned levels.
Selling, general and administrative expenses, as a percentage of net sales,
were comparable in both periods. Interest expense increased in the 1995 period
due primarily to higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash flows from operating activities are affected by the
seasonality of its business as sales of certain products used in the
agricultural and construction industries are typically highest during the second
quarter and lowest during the fourth quarter of each year. These seasonal
fluctuations, as well as the normal maintenance shutdown in December at the
Company's Peoria, Illinois facility, impact the timing of production, sales and
purchases and typically result in a use of cash from operations and increases in
the outstanding balance under the Company's revolving credit facility during the
first quarter of the year.
At March 31, 1995 the Company had working capital of $4 million. Notes
payable and current maturities of long-term debt, deductions in the computation
of such working capital, aggregated $18.7 million at March 31, 1995 and included
outstanding borrowings of $14.5 million under the Company's $35 million
revolving credit facility. The amount of available borrowings is based on
formula-determined amounts of trade receivables and inventories, less the amount
of outstanding letters of credit. Additional borrowings available were $20.2
million at March 31, 1995. The revolving credit facility requires that the
Company's daily cash receipts be used to reduce the outstanding borrowings,
which results in the Company maintaining zero cash balances. Borrowings under
the revolving credit facility currently mature December 31, 1996.
Pension contributions and capital expenditures for the first quarter of 1995
were $4.4 million and $2.8 million, respectively, and are currently estimated to
be approximately $20.4 million and $20 million for the full year, respectively.
Management has budgeted profitable results of operations with sufficient
cash flows from operations and financing activities to meet its anticipated
operating needs for the remainder of 1995. 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 benefit 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 affect 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.
PART II.
ITEM 1. Legal Proceedings
Reference is made to disclosure provided under the caption "Current
litigation" in Note 13 to the Consolidated Financial Statements included in the
Annual Report.
Note 7 to the Consolidated Financial Statements is incorporate herein by
reference.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
27.1 Financial Data Schedule for the three month period ended
March 31, 1995.
(b) Reports on Form 8-K filed during the quarter ended March 31, 1995:
None.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Keystone Consolidated Industries, Inc.
(Registrant)
Date: May 5, 1995 By /s/Harold M. Curdy
Harold M. Curdy
Vice President - Finance/Treasurer
(Principal Financial Officer)
Date: May 5, 1995 By /s/Bert E. Downing, Jr.
Bert E. Downing, Jr.
Corporate Controller
(Principal Accounting Officer)
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Keystone Consolidated Industries, Inc.
(Registrant)
Date: May 5, 1995 By ___________________________________
Harold M. Curdy
Vice President - Finance/Treasurer
(Principal Financial Officer)
Date: May 5, 1995 By ___________________________________
Bert E. Downing, Jr.
Corporate Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEYSTONE
CONSOLIDATED INDUSTRIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 45,612
<ALLOWANCES> 507
<INVENTORY> 37,459
<CURRENT-ASSETS> 88,018
<PP&E> 233,809
<DEPRECIATION> 153,435
<TOTAL-ASSETS> 209,661
<CURRENT-LIABILITIES> 84,058
<BONDS> 14,396
<COMMON> 6,357
0
0
<OTHER-SE> (46,673)
<TOTAL-LIABILITY-AND-EQUITY> 209,661
<SALES> 90,768
<TOTAL-REVENUES> 90,768
<CGS> 83,277
<TOTAL-COSTS> 83,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (46)
<INTEREST-EXPENSE> 737
<INCOME-PRETAX> 421
<INCOME-TAX> 166
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
