SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period June 30, 1996
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Commission file number 1-3919
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Keystone Consolidated Industries, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 37-0364250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1740, Three Lincoln Centre, Dallas, TX 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 458-0028
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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
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Number of shares of common stock outstanding at July 31, 1996 5,686,724
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KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
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Page
number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1995
and June 30, 1996 3-4
Consolidated Statements of Operations - Three months
and six months ended June 30, 1995 and 1996 5
Consolidated Statements of Cash Flows - Six months
ended June 30, 1995 and 1996 6
Consolidated Statement of Stockholders' Deficit -
Six months ended June 30, 1996 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, JUNE 30,
ASSETS 1995 1996
------------ --------
<S> <C> <C>
Current assets:
Notes and accounts receivable $ 31,363 $ 40,125
Inventories 35,631 26,351
Deferred income taxes 3,685 5,066
Prepaid expenses 2,026 190
-------- --------
Total current assets 72,705 71,732
-------- --------
Property, plant and equipment 245,759 253,080
Less accumulated depreciation 159,323 166,367
-------- --------
Net property, plant and equipment 86,436 86,713
-------- --------
Other assets:
Unrecognized net pension obligation 8,427 7,517
Deferred income taxes 24,485 21,873
Other 6,769 7,162
-------- --------
Total other assets 39,681 36,552
-------- --------
$198,822 $194,997
======== ========
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, JUNE 30,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1996
------------ --------
<S> <C> <C>
Current liabilities:
Notes payable and current long-term debt $ 18,750 $ 26,943
Accounts payable 26,534 23,341
Accounts payable to affiliates 39 12
Accrued pension cost 7,170 6,623
Accrued OPEB cost 7,776 7,776
Other accrued liabilities 19,297 19,618
-------- --------
Total current liabilities 79,566 84,313
-------- --------
Noncurrent liabilities:
Long-term debt 11,195 9,351
Accrued pension cost 39,222 26,650
Accrued OPEB cost 97,868 97,746
Other 8,464 9,166
-------- --------
Total noncurrent liabilities 156,749 142,913
-------- --------
Stockholders' deficit:
Common stock 6,362 6,413
Additional paid-in capital 20,013 20,484
Net pension liabilities adjustment (36,257) (31,188)
Accumulated deficit (27,599) (27,926)
Treasury stock, at cost (12) (12)
-------- --------
Total stockholders' deficit (37,493) (32,229)
-------- --------
$198,822 $194,997
======== ========
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $95,482 $90,655 $186,250 $170,118
Other, net 165 154 324 186
------- -------- -------- --------
95,647 90,809 186,574 170,304
------- --------- -------- --------
Costs and expenses:
Cost of goods sold 84,227 83,288 167,504 157,675
Selling 1,049 967 2,363 2,006
General and administrative 4,719 4,314 9,897 9,296
Interest 897 902 1,634 1,869
------- -------- -------- --------
90,892 89,471 181,398 170,846
------- -------- -------- --------
Income (loss) before income taxes 4,755 1,338 5,176 (542)
Provision for income taxes (benefit) 1,879 528 2,045 (215)
------- -------- -------- --------
Net income (loss) $ 2,876 $ 810 $ 3,131 $ (327)
======= ======== ======== ========
Net income (loss) per common and
common equivalent share $ .50 $ .14 $ .55 $ (.06)
======= ======== ======== ========
Weighted average common and common
equivalent shares outstanding 5,657 5,693 5,650 5,678
======= ======== ======== ========
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,131 $ (327)
Depreciation 6,569 7,095
Deferred income taxes 678 (2,009)
Other, net 582 518
------- -------
10,960 5,277
Change in assets and liabilities:
Notes and accounts receivable (1,627) (8,977)
Inventories (5,340) 8,829
Accounts payable (27) (3,220)
Accrued pension cost (4,452) (3,900)
Other, net (319) 2,938
------- -------
Net cash provided (used) by operating
activities
(805) 947
------- -------
Cash flows from investing activities:
Capital expenditures (7,575) (7,400)
Other 395 104
------- -------
Net cash used by investing activities (7,180) (7,296)
------- -------
Cash flows from financing activities:
Revolving credit facility, net 9,787 8,179
Other notes payable and long-term debt:
Additions 81 11
Principal payments (1,885) (1,841)
Common stock issued 2 -
------- -------
Net cash provided by financing activities 7,985 6,349
------- -------
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 $ 1,743 $ 2,060
Income taxes 869 278
Common stock contributed to employee benefit plan $ 597 $ 522
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Six months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Additional Net pension Retained Total
Common paid-in liabilities earnings Treasury stockholders'
stock capital adjustment (deficit) stock deficit
------- ----------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $6,362 $20,013 $(36,257) $(27,599) $(12) $(37,493)
Net loss - - - (327) - (327)
Issuance of common stock 51 471 - - - 522
Pension adjustment - - 5,069 - - 5,069
------ ------- -------- -------- ---- --------
Balance at June 30, 1996 $6,413 $20,484 $(31,188) $(27,926) $(12) $(32,229)
====== ======= ======== ======== ==== ========
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Keystone Consolidated Industries, Inc. (the "Company" or "Keystone") is a
majority-owned subsidiary of Contran Corporation ("Contran"). At June 30, 1996,
Contran and related parties held approximately 68% of the Company's outstanding
common stock.
The consolidated balance sheet at December 31, 1995 has been condensed from
the Company's audited consolidated financial statements at that date. The
consolidated balance sheet at June 30, 1996 and the consolidated statements of
operations and cash flows for the interim periods ended June 30, 1995 and 1996,
and the consolidated statement of stockholders' deficit for the interim period
ended June 30, 1996 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, 1995 (the "Annual
Report").
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 69% of total
inventories and the first-in, first-out or average cost methods are used to
determine the cost of other inventories.
</TABLE>
<TABLE>
<CAPTION>
December 31, JUNE 30,
1995 1996
------------ ---------
(In thousands)
<S> <C> <C>
Raw materials $12,669 $10,526
Work in process 13,825 10,251
Finished products 10,258 7,358
Supplies 13,552 12,889
------- -------
50,304 41,024
Less LIFO reserve 14,673 14,673
------- -------
$35,631 $26,351
======= =======
</TABLE>
Note 3 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31, JUNE 30,
1995 1996
------------ ---------
(In thousands)
<S> <C> <C>
Commercial credit agreements:
Revolving credit facility $14,561 $22,740
Term loan 13,050 11,383
Other 2,334 2,171
------- -------
29,945 36,294
Less current maturities 18,750 26,943
------- -------
$11,195 $ 9,351
======= =======
</TABLE>
The Company's $35 million revolving credit facility is collateralized
primarily by the Company's trade receivables and inventories, bears interest at
1% over the prime rate and matures December 31, 1999. The effective interest
rate at June 30, 1996 was 9.25% 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 $.3 million at June 30, 1996).
Additional borrowings available were $12 million at June 30, 1996. 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.
The Company's term loan bears interest at the prime rate plus 1%, and is
due in monthly installments through December 31, 1999. The term loan is with
the financial institution that provides the Company's revolving credit facility
and 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. The term loan
becomes due and payable if the Company's revolving credit facility is
terminated.
The Company's credit agreements contain restrictive covenants, including
certain minimum working capital and net worth requirements and a prohibition
against the payment of dividends without lender consent.
Note 4 - 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, 1995 and June 30, 1996 is
net of a $30 million valuation allowance. There was no change in the deferred
tax valuation allowance during the first half of 1995 or 1996.
Note 5 - Pension plans:
Variances from actuarial assumptions, including the rate of return on
pension plan assets and discount rate, will result in increases or decreases in
accrued pension costs, deferred taxes, stockholders' deficit, pension expense
and funding requirements in future periods.
During the mid 1980's the Company received permission from the Internal
Revenue Service to defer certain annual pension plan contributions. At June 30,
1996, the remaining balance of such deferred contributions was approximately
$7.4 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 6 - Contingencies:
Environmental matters. As discussed in the Annual Report, the Company is
involved in the closure of inactive waste disposal units at its facility in
Peoria, Illinois. 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 sites. 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 six months of 1996.
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.
Note 7 - Proposed merger:
In June 1996, Keystone entered into a definitive agreement, approved by its
Board of Directors, with DeSoto, Inc. (NYSE: DSO), providing for a merger of the
two companies, with DeSoto becoming a wholly-owned subsidiary of Keystone (the
"Merger"). The Merger would involve, among other things, (i) the issuance of
3.5 million shares of Keystone common stock in exchange for all of the
outstanding DeSoto common stock, in a tax free transaction, with DeSoto
stockholders receiving .7465 of a share of Keystone stock for each share of
DeSoto stock, an (ii) the issuance of $3.5 million of Keystone redeemable
preferred stock in exchange for all of the outstanding DeSoto redeemable
preferred stock. Following the Merger, the defined benefit pension plans of
DeSoto and Keystone will be merged. The Company has filed a Registration
Statement on Form S-4 relating to the Merger, which Registration Statement has
not yet become effective. A special meeting of the Company's stockholders
relative to the Merger is currently scheduled for September 27, 1996.
The Merger is subject to certain conditions, including approval by the
stockholders of both Keystone and DeSoto, the requisite governmental review and
Keystone obtaining the additional financing necessary to consummate the Merger.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources". Contran and parties holding
approximately 22% of DeSoto's voting shares have entered into agreements
committing to vote for approval of the Merger.
DeSoto is engaged in the manufacturing and packaging of household products,
primarily powdered and liquid laundry detergents. DeSoto's 1995 sales, on a pro
forma basis reflecting 1995 and 1996 dispositions of certain businesses, were
approximately $18 million.
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.
The statements in this Quarterly Report on Form 10-Q relating to matters
that are not historical facts including, but not limited to, statements found in
this Item 2 - Management's Discussion And Analysis Of Financial Condition And
Results Of Operations, are forward looking statements that involve a number of
risks and uncertainties. Factors that could cause actual future results to
differ materially from those expressed in such forward looking statements
include, but are not limited to, cost of raw materials, future supply and demand
for the Company's products (including seasonality thereof), general economic
conditions, competitive products and substitute products, customers and
competitor strategies, the impact of pricing and production decisions,
environmental matters, government regulations and possible changes therein, and
the ultimate resolution of pending litigation and possible future litigation as
discussed in this Quarterly Report and the Annual Report, including, without
limitation, the section referenced above.
During the second quarter of 1996, billet production at the Company's steel
mill in Peoria, Illinois of 165,000 tons approximated the production in the
comparable 1995 period. However, the billet production of 309,000 tons in the
first half of 1996 declined 5% from the comparable 1995 period. This decline
was primarily attributable to start-up problems in January 1996 following the
annual maintenance shutdown and abnormally cold weather. As the Company's
billet production capacity is less than its rod production capacity, the Company
periodically purchases billets from other manufacturers to increase utilization
of its Peoria rod mill and thus assure the Company's ability to meet customer
orders. The decision to purchase billets depends on billet prices, product
demand and other market conditions. Due to lower sales volume in the first half
of 1996, the Company purchased only 21,000 tons of billets compared to 56,000
tons purchased in the first half of 1995. The Company currently anticipates
purchasing 11,000 tons of billets during the third quarter of 1996. Purchases
during the third quarter of 1995 were nominal as purchase levels in the first
half of 1995 resulted in higher than normal billet inventories at June 30, 1995.
Rod production during the second quarter of 1996 was 176,000 tons, down 3%
from the 1995 second quarter, and production of 337,000 tons during the first
half of 1996 was 5% lower than in the comparable 1995 period. The declines were
primarily a result of unscheduled downtime due to start-up problems following
the annual maintenance shutdown, abnormally cold weather and rod mill equipment
failures (all during the first quarter of 1996), and lower billet purchases due
to the decline in sales volume.
Net sales for the second quarter of 1996 decreased $4.8 million, or 5% from
the comparable 1995 period. Tons of product sold increased 4% with tons of rod
sold up 20% to 89,000 tons, tons of wire sold up 5% to 42,000 tons, and tons of
wire products sold down 14% to 60,000 tons. Rod and wire per ton selling prices
declined 14% and 6%, respectively, during the second quarter of 1996 as compared
to the second quarter of 1995, while per ton selling prices of wire products
increased 3%. Wire and wire products are sold at higher selling prices per ton
than rod.
Net sales for the first half of 1996 decreased $16.1 million, or 9%, from
the comparable 1995 period. Tons of product sold decreased 2% with tons of rod
sold up 13% to 157,000 tons, tons of wire sold down 3% to 79,000 tons, and tons
of wire products sold down 16% to 116,000 tons. Rod and wire per ton selling
prices declined 12% and 5%, respectively, during the first half of 1996 as
compared to the first half of 1995, while per ton selling prices of wire
products increased 4%.
Although total sales tonnage in the second quarter of 1996 increased over
the comparable 1995 period, sales tonnage for the first six months of 1996 was
2% less than the 1995 six-month period. The Company believes this decline was a
result of several factors, occurring primarily in the 1996 first quarter,
including customers adjusting inventory levels, new capacity from U. S.
competitors and increased imports due to market weaknesses in other parts of the
world. The Company also believes these pressures softened somewhat in the
second quarter of 1996 as evidenced by a 9% year-to-year increase in order
backlog at June 30, 1996 (as compared to a 38% year-to-year decline in order
backlog at the end of the 1996 first quarter). The Company currently expects
1996 third quarter revenues to approximate those of the 1995 third quarter with
higher sales tonnage offsetting lower overall sales prices.
Gross profit was $7.4 million for the second quarter of 1996, a decrease of
$3.9 million from the comparable 1995 period as the gross profit margin declined
to 8.1% from 11.8%. Gross profit was $12.4 million for the first half of 1996,
a decrease of $6.3 million from the comparable 1995 period, as the year-to-date
gross profit margin declined to 7.3% from 10.1%. These declines were primarily
caused by lower overall selling prices in 1996 as well as a 13% higher rod
conversion cost caused, in part, by the 1996 first quarter start-up problems,
unscheduled downtime and rod mill equipment failures, as well as higher costs
for natural gas and certain supplies. In addition, scrap prices were slightly
higher during the 1996 periods as compared to the 1995 periods. Scrap steel
costs are currently expected to approximate current levels during the third
quarter of 1996.
Selling, general and administrative expenses, as a percentage of net sales,
approximated 1995 levels during the respective 1996 periods. Interest expense
increased in the 1996 periods due to increased borrowings under the Company's
revolving credit facility, partially offset by lower 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 December shutdown for maintenance and
repairs at the Company's Peoria, Illinois facility impact the timing of
production, sales and purchases.
At June 30, 1996, the Company had a working capital deficit of $12.6
million. Notes payable and current long-term debt, deductions in the
computation of such working capital, aggregated $26.9 million at June 30, 1996,
and included outstanding borrowings of $22.7 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, and additional borrowings available
were $12 million at June 30, 1996. The Company's daily cash receipts are
required to be used to reduce the outstanding borrowings, which results in the
Company maintaining zero cash balances. Borrowings under the revolving credit
facility mature December 31, 1999.
Capital expenditures during the first half of 1996 amounted to $7.4 million
and are currently estimated to be approximately $22 million for the full year.
The Company's capital expenditures for the years 1995 and 1996 are relatively
high, as compared to levels of the six preceding years, due to modernization and
expansion of the Company's production facilities as well as a new management
information system at the Company's Peoria facility.
Due to lower than expected sales and earnings during the first half of 1996,
and the resulting increased use of cash by operating activities, the Company
experienced borrowing constraints during the 1996 second quarter. In April 1996
the Company obtained, from its primary lender, a temporary increase (now
expired) in available borrowings of up to $3 million to enable the Company to
fund its minimum pension contribution due on April 15, 1996.
As discussed in Note 7 to the Consolidated Financial Statements, Keystone
has agreed to merge with DeSoto, which merger is subject to certain conditions.
Pursuant to terms of the proposed Merger, Keystone would be required to cause
DeSoto to pay approximately $6.5 million to certain DeSoto trade creditors as
soon as practicable after the Merger. In addition, Keystone would be obligated,
at the Merger date, to pay to the holders of DeSoto preferred stock all dividend
arrearages (approximately $1.7 million). As a result of these and other Merger
related transactions, as well as Keystone's current financial position, Keystone
will require additional funding from its primary lender. In order to obtain
such additional funds, Keystone will need the Pension Benefit Guaranty
Corporation (the "PBGC") to consent to an increase in Keystone's allowable
borrowings. The PBGC and Keystone's primary lender have both verbally indicated
that, upon consummation of the Merger and the subsequent merger of Keystone's
and DeSoto's defined benefit pension plans, they will increase Keystone's
allowable borrowings by $20 million. If the Merger is not consummated, these
additional borrowings will not be available and, depending upon future results,
Keystone will likely need to seek increases in borrowings later this year.
There can be no assurance Keystone would be able to obtain an adequate amount of
additional financing.
The merger of Keystone's underfunded defined benefit pension plans with
DeSoto's overfunded defined benefit pension plan following the proposed Merger
is expected to result in lower pension contributions and pension expense than
Keystone has historically experienced. The anticipated increase in cash flows
due to lower pension contributions should eventually more than offset the cash
payments to be made as a result of the Merger. Pension contributions during the
first half of 1996 amounted to $7.7 million and, if the proposed Merger is
consummated, are currently estimated to be approximately $9.7 million for the
full year as post-merger pension contributions are expected to be minimal. If
the proposed Merger is not consummated, it is currently estimated that Keystone
will need to contribute an additional $6 million to the pension plans during the
remainder of 1996.
Variances from actuarial assumptions, including the rate of return on
pension plan assets and discount rate, result in increases or decreases in
accrued pension costs, deferred taxes, stockholders' deficit, pension expense
and funding requirements in future periods. During the first half of 1996, the
Company's pension plans had an investment return of approximately 9.7% (an
annualized rate of approximately 19.4%). This rate of return exceeds the
actuarially assumed annual rate of return of 10% and, as a result, reduced the
Company's pension liability and pension liabilities adjustment component of
stockholders' deficit at June 30, 1996. The Company's pension plans' assets are
invested primarily in collective investment trust (the "Collective Trust") for
Contran and its affiliates. Approximately one-fourth of the Collective Trust's
assets relate to a single security which had increased in value by approximately
11% since December 31, 1995 and, as such, was a significant factor in the 9.7%
overall return for the first half of 1996.
Approximately 1,200 of the Company's employees in Peoria, Illinois are
represented by the Independent Steel Workers Alliance ("ISWA"). In May 1996,
ISWA membership ratified a new three-year labor agreement with the Company that
provides for increased profit sharing with the ISWA membership but no wage rate
increases.
Management's budget for 1996, as revised to consider the Merger with DeSoto
and related transactions, provides for 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 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 credit
facilities. However, any significant decline in the Company's markets, market
share or selling prices, any inability to maintain satisfactory billet and rod
production levels, any significant increase in the cost of scrap steel; the
inability to successfully consummate the Merger with DeSoto; or any other
significant unanticipated costs, 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.
Additionally, potential liabilities under environmental laws and regulations
with respect to the cleanup and disposal of wastes beyond present accruals, any
significant increases in expected minimum fundings to the Company's pension
plans 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.
PART II. OTHER INFORMATION
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 incorporated 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 six month period ended June 30, 1996.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1996:
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: August 8, 1996 By /s/Harold M. Curdy
-------------------------------------
Harold M. Curdy
Vice President - Finance/Treasurer
(Principal Financial Officer)
Date: August 8, 1996 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: August 8, 1996 By
-----------------------------------
Harold M. Curdy
Vice President - Finance/Treasurer
(Principal Financial Officer)
Date: August 8, 1996 By
-----------------------------------
Bert E. Downing, Jr.
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Keystone
Consolidated Industries, Inc.'s consolidated financial statements for the six
months ended June 30, 1996 and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 40,125
<ALLOWANCES> 702
<INVENTORY> 26,351
<CURRENT-ASSETS> 71,732
<PP&E> 253,080
<DEPRECIATION> 166,367
<TOTAL-ASSETS> 194,997
<CURRENT-LIABILITIES> 84,313
<BONDS> 9,351
<COMMON> 6,413
0
0
<OTHER-SE> (38,642)
<TOTAL-LIABILITY-AND-EQUITY> 194,997
<SALES> 170,118
<TOTAL-REVENUES> 170,304
<CGS> 157,675
<TOTAL-COSTS> 157,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 165
<INTEREST-EXPENSE> 1,869
<INCOME-PRETAX> (542)
<INCOME-TAX> (215)
<INCOME-CONTINUING> (327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
