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
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ACT OF 1934 - For the fiscal year ended December 31, 1999
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 (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: (972) 458-0028
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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
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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 registrant's 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 March 20, 2000, 10,060,186 shares of common stock were outstanding. The
aggregate market value of the 5,069,713 shares of voting stock held by
nonaffiliates of the Registrant, as of such date, was approximately $24.4
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")
believes it is a leading manufacturer of steel fabricated wire products,
industrial wire and carbon steel rod for the agricultural, industrial,
construction, original equipment manufacturer and retail consumer markets, and
believes it is the third largest manufacturer of fabricated wire products and
industrial wire in the United States based on tons shipped (459,000 in 1999).
The Company is vertically integrated, converting substantially all of its
fabricated wire products and industrial wire from carbon steel rod produced in
its steel mini-mill. The Company's vertical integration has historically allowed
it to benefit from the higher and more stable margins associated with fabricated
wire products as compared to carbon steel rod, as well as from lower production
costs of carbon steel rod as compared to wire fabricators which purchase rod in
the open market. Moreover, management believes Keystone's downstream fabricated
wire products and industrial wire businesses better insulate it from the effects
of rod imports and increases in domestic rod production capacity as compared to
non-integrated rod producers. In 1999, the Company had net sales of $356
million. Approximately 79% of the Company's net sales were generated from sales
of fabricated wire products and industrial wire with the balance generated
primarily from sales of rod not used in the Company's downstream operations.
The Company's fabricated wire products, which comprised 60% of its 1999
net sales, include fencing, barbed wire, welded and woven hardware cloth, welded
and woven wire mesh and nails. These products are sold to agricultural,
construction, industrial, consumer do-it-yourself and other end-user markets.
The Company serves these markets through distributors, agricultural retailers,
building supply centers and consumer do-it-yourself chains such as The Home
Depot, Inc., Lowe's Companies, Inc., Tractor Supply Co., and Ace Hardware
Corporation. A significant proportion of these products are sold to
agricultural, consumer do-it-yourself and other end-user markets which in
management's opinion are typically less cyclical than many steel consuming
end-use markets such as the automotive, construction, appliance and machinery
manufacturing industries. Management believes the Company's ability to service
these customers with a wide range of fabricated wire products through multiple
production and distribution locations provides it a competitive advantage in
accessing these growing and less cyclical markets. Approximately 60% of the
Company's fabricated wire products net sales are generated by sales under the
RED BRAND trademark, a widely recognized brand name in the agricultural and
construction fencing marketplaces for more than 75 years.
The Company also sells industrial wire, an intermediate product used in
the manufacture of fabricated wire products, to third parties who are generally
not in competition with the Company. The Company's industrial wire customers
include manufacturers of nails, coat hangers, barbecue grills, air conditioners,
tools, containers, refrigerators and other appliances. In 1999, net sales of
industrial wire accounted for 19% of Company net sales. In addition, the Company
also sells carbon steel rod into the open market which it is not able to consume
in its downstream fabricated wire products and industrial wire operations.
During 1999, open market sales of rod accounted for 17% of Company net sales.
Beginning in January 1999, Keystone is also engaged in the distribution
of wire, plastic and wood lawn and garden products to retailers through its 51%
owned subsidiary Garden Zone LLC ("Garden Zone"). During 1999, sales by Garden
Zone accounted for 3% of Company net sales. In addition, in August 1999,
Keystone also became engaged in scrap recycling through its unconsolidated 50%
interest in Alter Recycling Company, L.L.C. ("ARC"). See Note 2 to the
Consolidated Financial Statements.
See "Business -- Products, Markets and Distributions" and Notes 2 and
12 to the Consolidated Financial Statements.
The Company's operating strategy is to enhance profitability by:
o Establishing a leading position as a supplier of choice among its
fabricated wire products and industrial wire customers by
offering a broad product line and by satisfying growing customer
quality and service requirements;
o Shifting its product mix towards higher margin, value-added
fabricated wire products;
o Achieving manufacturing cost savings and production efficiencies
through capital improvements and investment in new and upgraded
steel and wire production equipment; and
o Increasing vertical integration through internal growth and
selective acquisitions of fabricated wire products manufacturing
facilities.
During December 1998, the Company substantially completed a two-year
$75 million capital improvements plan to upgrade certain of its plant and
equipment and eliminate production capacity bottlenecks in order to reduce costs
and improve production efficiency. The principal components of Keystone's
capital improvements plan included reconfiguring its electric arc furnace,
replacing its billet caster and upgrading its wire and rod mills. As a result of
these capital improvements, beginning in 1999, the Company expected to increase
its annual billet production capacity to 1 million tons from 655,000 tons.
However, during 1999, Keystone experienced production problems related to the
start-up of the new equipment. Keystone believes it has identified the start-up
problems and expects to have these problems resolved and the equipment
performing at the desired levels during the 2000 first quarter. In addition,
although Keystone's new billet production capacity will be 1 million tons, the
Company is presently limited by its Illinois Environmental Protection Agency
construction permit to annual billet production of 820,000 tons. Keystone has
applied for modifications to its permit to allow billet production of the 1
million ton capacity and expects to have that permit approved by September 30,
2000.
The Company is the successor to Keystone Steel & Wire Company, which
was founded in 1889. Contran Corporation ("Contran") and other entities
controlled by Mr. Harold C. Simmons, beneficially own approximately 50% of the
Company. Substantially all of Contran's outstanding voting stock is held either
by trusts established for the benefit of certain children and grandchildren of
Mr. Simmons, of which Mr. Simmons is sole trustee, or by Mr. Simmons directly.
The Company may be deemed to be controlled by Contran and Mr. Simmons.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Annual Report on Form 10-K relating to matters that are not historical facts
including, but not limited to, statements found in this Item 1 - "Business",
Item 3 - "Legal Proceedings", Item 7 - "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations", and Item 7A - "Quantitative and
Qualitative Disclosures About Market Risk", are forward looking statements that
represent management's belief and assumptions based on currently available
information. Forward-looking statements can be identified by the use of words
such as "believes", "intends", "may", "should", "anticipates", "expected", or
comparable terminology, or by discussions of strategies or trends. Although the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it cannot give any assurance that these expectations will prove
to be correct. Such statements by their nature involve substantial risks and
uncertainties that could significantly impact expected results, and actual
future results could differ materially from those described in such
forward-looking statements. While it is not possible to identify all factors,
Keystone continues to face many risks and uncertainties. Among the factors that
could cause actual future results to differ materially are the risks and
uncertainties discussed in this Annual Report and those described from time to
time in the Company's other filings with the Securities and Exchange Commission,
including, but not limited to, cost of raw materials, future supply and demand
for the Company's products (including cyclicality thereof), customer inventory
levels, general economic conditions, competitive products and substitute
products, customer and competitor strategies, the impact of pricing and
production decisions, the possibility of labor disruptions, environmental
matters, government regulations and possible changes therein, the ultimate
resolution of pending litigation, successful implementation of the Company's
capital improvements plan, international trade policies of the United States and
certain foreign countries and any possible future litigation as discussed in
this Annual Report, including, without limitation, the sections referenced
above. Should one or more of these risks materialize (or the consequences of
such a development worsen), or should the underlying assumptions prove
incorrect, actual results could differ materially from those forecasted or
expected. The Company disclaims any intention or obligation to update or revise
any forward-looking statement whether as a result of new information, future
events or otherwise.
Manufacturing
The Company's manufacturing operations consist of an electric arc
furnace mini-mill, a rod mill and six wire and wire product fabrication
facilities. The manufacturing process commences in Peoria, Illinois with scrap
steel being loaded into an electric arc furnace and converted into molten steel.
The molten steel is then transferred to a ladle refining furnace where
chemistries and temperatures are monitored and adjusted to specifications prior
to casting. The molten steel is then transferred from the ladle refining furnace
into a six-strand continuous casting machine from which it emerges in five-inch
square strands that are cut to predetermined lengths and are referred to as
billets. These billets, along with any billets purchased from outside suppliers,
are then transferred to the adjoining rod mill.
Upon entering the rod mill, the billets are brought to rolling
temperature in a reheat furnace and are fed to the rolling mill, where they are
finished to a variety of diameters and specifications. After rolling, the rod is
coiled and cooled. After cooling, the coiled rod passes through inspection
stations for metallurgical, surface and diameter checks. Finished coils are
compacted and tied, and either transferred to the Company's other facilities for
processing into wire, nails and other fabricated wire products or shipped to rod
customers.
While the Company does not maintain a significant "shelf" inventory of
finished rod, it generally has on hand approximately a one-month supply of
fabricated wire and wire products inventory which enables the Company to fill
customer orders and respond to shifts in product demand.
Products, Markets and Distribution
The following table sets forth certain information with respect to the
Company's steel and wire product mix in each of the last three years.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
---------------- ---------------- -----------
Percent Percent Percent Percent Percent Percent
of Tons Of of Tons of of Tons of
Product Shipped Sales Shipped Sales Shipped Sales
- ----------------- ------- ------ ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Fabricated wire
products .......... 32.3% 47.4% 46.1% 60.4% 45.2% 62.5%
Industrial wire ..... 25.1 24.8 24.0 22.6 20.7 19.4
Carbon steel rod .... 42.6 27.8 29.9 17.0 34.1 18.1
----- ----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
Fabricated Wire Products. The Company is one of the leading suppliers
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. The Company produces these products at
its Peoria, Illinois, Sherman, Texas and Caldwell, Texas facilities. These
products are distributed by the Company through farm supply distributors,
agricultural retailers, building supply centers, building and industrial
materials distributors and consumer do-it-yourself chains such as The Home
Depot, Inc., Lowe's Companies, Inc., Tractor Supply Co., and Ace Hardware
Corporation. Many of the Company's fencing and related wire products are
marketed under the Company's RED BRAND label, a recognized trademark of the
Company for more than 75 years. As part of its marketing strategy, the Company
designs merchandise packaging, and supportive product literature for marketing
many of these products to the retail consumer market. The Company also
manufactures products for residential and commercial construction, including
bulk, packaged and collated nails, rebar ty wire, stucco netting, welded wire
mesh, forms and reinforcing building fabric at its Peoria, Illinois; Sherman,
Texas; Caldwell, Texas; Springdale, Arkansas; Hortonville, Wisconsin and Upper
Sandusky, Ohio facilities. The primary customers for these products are
construction contractors and building materials manufacturers and distributors.
The Company sells approximately 50% of its nails through PrimeSource, Inc., one
of the largest nail distributors in the United States, under PrimeSource's
Grip-Rite label.
The Company continuously evaluates opportunities to expand its
downstream fabricated wire products operations. During 1994, the Company
purchased a 20% stake in Engineered Wire Products, Inc. ("EWP") a joint venture
with a manufacturer and distributor of wire mesh for use primarily in highway
and road construction. During 1997, 14% of Keystone's rod sales were to EWP. In
December 1997, Keystone purchased the 80% of EWP not already owned by the
Company. Management believes EWP broadens its fabricated wire product line and
provides an opportunity to shift additional rod production to a higher margin,
value-added fabricated wire product. The Company believes its fabricated wire
products are less susceptible than industrial wire or rod to the cyclical nature
of the steel business because the commodity-priced raw materials used in such
products, such as scrap steel, represent a lower percentage of the total cost of
such value-added products when compared to rod or other less value-added
products. As a result of the acquisition of EWP, the Company was able to convert
its lower-margin rod sales to EWP, into higher-margin fabricated wire product
sales. However, this change in product mix between 1997 and 1998 resulted in a
decline in overall fabricated wire product selling prices as EWP's fabricated
wire products sell for lower prices than do Keystone's other fabricated wire
products.
Industrial Wire. The Company is one of the largest manufacturers of
industrial wire in the United States. At its Peoria, Illinois, Hortonville,
Wisconsin, Sherman, Texas and Caldwell, Texas facilities, the Company produces
custom-drawn industrial wire in a variety of gauges, finishes and packages for
further consumption by the Company's fabricated wire products operations or for
sale to industrial fabrication and original equipment manufacturer customers.
The Company's drawn wire is used by customers in the production of a broad range
of finished goods, including nails, coat hangers, barbecue grills, air
conditioners, tools, containers, refrigerators and other appliances. Management
believes that with a few exceptions, its industrial wire customers do not
generally compete with the Company.
Carbon Steel Rod. The Company produces low carbon steel rod at its rod
mill located in Peoria, Illinois. Low carbon steel rod, with carbon content of
up to 0.38%, is more easily shaped and formed than higher carbon rod and is
suitable for a variety of applications where ease of forming is a consideration.
Although Keystone's six wire fabrication facilities on occasion buy rod from
outside suppliers, during 1999, approximately 65% of the rod manufactured by the
Company was used internally to produce wire and fabricated wire products. The
remainder of the Company's rod production was sold directly to producers of
construction products, fabricated wire products and industrial wire, including
products similar to those manufactured by the Company.
Industry and Competition
The fabricated wire products, industrial wire and carbon steel rod
businesses 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. Keystone's principal competitors in the fabricated wire products and
industrial wire markets are Insteel, Leggett and Platt, Deacero, Merchants
Metals, Inc. and Davis Wire Corporation. Competition in the fabricated wire
product and industrial wire markets is based on a variety of factors, including
channels of distribution, price, delivery performance, product quality, service,
and brand name preference. Since carbon steel rod is a commodity steel product,
management believes the domestic rod market is more competitive than the
fabricated wire products and industrial wire markets, and price is the primary
competitive factor. Among Keystone's principal domestic carbon steel rod
competitors are North Star Steel, Co-Steel Raritan, GS Industries and Rocky
Mountain Steel.
The Company also competes with many small independent wire companies
who purchase rod from domestic and foreign sources. Due to the breadth of
Keystone's fabricated wire products and industrial wire offerings, its ability
to service diverse geographic and product markets, and the low relative cost of
its internal supply of rod, the Company believes it is well positioned to
compete effectively with non-diversified rod producers and wire companies.
Foreign steel and industrial wire producers also compete with the Company and
other domestic producers.
The domestic steel rod industry continues to experience consolidation.
In addition, worldwide overcapacity in the steel industry continues to exist and
imports of rod and certain wire products in recent years have increased
significantly. In an effort to stem increasing levels of imported rod, in
December 1998, Keystone, joined by six other companies (representing more than
75% of the market), and a labor union petitioned the U.S. International Trade
Commission (the "ITC") seeking relief under Section 201 of the Trade Act of
1974. During 1999, the ITC recommended President Clinton impose a 15% tariff on
all foreign rod imports except for those from Canada, Mexico and certain other
countries covered under trade acts. In February 2000, the President announced
the implementation of a Tariff-Rate Quota ("TRQ") for three years. The tariff
will be imposed on wire rod imports from countries subject to the TRQ once
imports initially exceed 1.6 million net tons. This level will be increased by
two percent in years two and three. The tariff rate will be 10% in the first
year, 7.5% in the second year and 5% in the third year. The Company does not
anticipate that the TRQ will have a major impact on the industry.
Keystone believes its facilities are well located to serve markets
throughout the continental United States, with principal markets located in the
Midwestern, Southwestern and Southeastern 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 tend to limit foreign
producers' penetration of the Company's principal fabricated wire products and
industrial wire markets, but there can be no assurance this will continue to be
the case.
The Company has implemented a direct order/inventory control system
that is designed to enhance its ability to serve high volume, retail customers.
Keystone believes this system will provide the Company with a competitive
advantage in the service of its major retail customers.
Raw Materials and Energy
The principal raw material used in Keystone's operations is scrap
steel. The Company's steel mill is located close to numerous sources of high
density automobile, industrial and railroad scrap, all of which are currently
available from numerous sources. The purchase of scrap steel is highly
competitive and its price volatility is influenced by periodic shortages,
freight costs, weather, and other conditions beyond the control of the Company.
The cost of scrap can fluctuate significantly and product selling prices cannot
always be adjusted, especially in the short-term, to recover the costs of
increases in scrap prices. The Company has not entered into any long-term
contracts for the purchase or supply of scrap steel and it is, therefore,
subject to the price fluctuation of scrap steel. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Keystone's manufacturing processes consume large amounts of energy in
the form of electricity and natural gas. The Company purchases electrical energy
for its Peoria facility from a utility under an interruptible service contract
which provides for more economical electricity rates but allows the utility to
refuse or interrupt power to the Company's manufacturing facilities. The utility
has in the past, and may in the future, refuse or interrupt service to the
Company resulting in decreased production and increased costs associated with
the related downtime. In addition, the utility has the right to pass through
certain of its costs to consumers through fuel adjustment charges. During the
1999 third quarter, the Company received an unexpected $2.2 million fuel
adjustment charge from the Peoria plant's electricity provider. The charge is
payable in 12 equal installments beginning in January 2000. The utility may in
the future bill the Company for fuel adjustment charges.
Trademarks
The Company has registered the trademark RED BRAND for field fence and
related products. Adopted by Keystone in 1924, the RED BRAND trademark has been
widely advertised and enjoys high levels of market recognition. The Company also
maintains other trademarks for various products which have been promoted in
their respective markets.
Employment
Keystone currently employs approximately 1,980 people, of whom
approximately 1,160 are represented by the Independent Steel Workers' Alliance
("ISWA") at its Peoria, Illinois facilities, approximately 160 are represented
by the International Association of Machinists and Aerospace Workers (Local
1570) ("IAMAW") at its Sherman, Texas facilities and approximately 80 are
represented by Local Union #40, An Affiliate to the International Brotherhood of
Teamsters' Chauffeurs Warehousemen And Helpers of America, AFL-CIO ("IBTCWHA")
at its Upper Sandusky, Ohio facility. The current collective bargaining
agreements with the ISWA, IAMAW and IBTCWHA expire in May 2002, March 2000 and
November 2001, respectively. Keystone has begun discussions with the IAMAW
concerning the renewal of its collective bargaining agreement and entered into a
contract extension to April 15, 2000. The Company believes its relationship with
its employees are good. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Customers
The Company sells its products to customers in the agricultural,
industrial, construction, commercial, original equipment manufacturer and retail
markets primarily in the Midwestern, Southwestern and Southeastern regions of
the United States. Customers vary considerably by product and management
believes Keystone's ability to offer a broad range of product represents a
competitive advantage in servicing the diverse needs of its customers.
A listing of end-user markets by products follows:
Product Principal Markets Served
- ------------------------- ------------------------------------------
Fencing products Agricultural, construction, do-it-yourself
retailers
Wire mesh products Agricultural, construction
Nails Construction, do-it-yourself retailers
Industrial wire Producers of fabricated wire products
Carbon steel rod Producers of industrial wire and
fabricated wire products
Lawn and garden products Do-it-yourself retailers
Keystone's industrial wire customers include manufacturers and
producers of nails, coat hangers, barbecue grills, air conditioners, tools,
containers, refrigerators and other appliances. With few exceptions, these
customers are generally not in competition with the Company. Keystone's rod
customers include other downstream industrial wire and fabricated wire products
companies including manufacturers of products similar to those manufactured by
the Company.
The Company's ten largest customers represented approximately one-third
of Keystone's net sales in each of the past three years. No single customer
accounted for more than 8% of the Company's net sales during each of 1997, 1998
or 1999. Keystone's fabricated wire products, industrial wire and rod business
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.
Backlog
The Company's backlog of unfilled cancelable fabricated wire products,
industrial wire and rod purchase orders, for delivery generally within three
months, approximated $28 million at both December 31, 1998 and December 31,
1999. Keystone believes backlog is not a significant factor in its business, and
all of the backlog at December 31, 1999 will be shipped during 2000.
Household cleaning products
DeSoto, Inc. ("DeSoto"), a wholly owned subsidiary of Keystone,
operated a division that manufactured household cleaning products (primarily
powdered and liquid laundry detergents) at a facility located in Joliet,
Illinois ("Joliet"). Keystone acquired DeSoto in September 1996. In January
1999, DeSoto sold the Joliet division and Keystone changed DeSoto's name to
Sherman Wire Company. For the years ended December 31, 1997 and 1998, Joliet had
net sales of $14 million and $10 million, respectively. Joliet manufactured most
products on a make and ship basis, and, as such, overall levels of raw materials
and finished goods inventories maintained by Joliet were relatively nominal.
Approximately 85% of Joliet's sales for 1997 and 1998 were to a single customer.
<PAGE>
Environmental Matters
Keystone'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.
The Company records liabilities related to environmental issues at such
time as information becomes available and is sufficient to support a reasonable
estimate of a range of loss. If Keystone is unable to determine that a single
amount in an estimated range is more likely, the minimum amount of the range is
recorded. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable.
Keystone believes its current operating facilities are in material
compliance with all presently applicable federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. Environmental legislation and
regulations have changed rapidly in recent years and the Company may be subject
to increasingly stringent environmental standards in the future.
Information in Note 13 to the Consolidated Financial Statements is
incorporated herein by reference.
<PAGE>
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in approximately
3,200 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.
Keystone's fabricated wire products, industrial wire and rod production
facilities utilize approximately 2.6 million square feet for manufacturing and
office space, approximately 77% of which is located at the Company's Peoria,
Illinois facility.
The following table sets forth the location, size and general product
types produced for each of the Company's steel and wire facilities, all of which
are owned by the Company.
<TABLE>
<CAPTION>
Approximate
Size
Facility Name Location (Square Feet) Products Produced
- ------------------------ ---------------- ------------- --------------------------------------
<S> <C> <C> <C>
Keystone Steel & Wire Peoria, IL 2,012,000 Fabricated wire products, industrial
wire, carbon steel rod
Sherman Wire Sherman, TX 299,000 Fabricated wire products and industrial
wire
Engineered Wire Products Upper Sandusky, OH 83,000 Fabricated wire products
Keystone Fasteners Springdale, AR 76,000 Fabricated wire products
Fox Valley Steel & Wire Hortonville, WI 74,000 Fabricated wire products and industrial
wire
Sherman Wire of Caldwell Caldwell, TX 73,000 Fabricated wire products and industrial
wire
</TABLE>
The Company believes all of its facilities are well maintained and
satisfactory for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS.
Keystone is involved in various legal proceedings. Information required
by this Item is included in Notes 13 and 15 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, 1999.
<PAGE>
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 March 20, 2000 was 1,613. The following table sets forth the high
and low closing sales prices of the Company's common stock for the calendar
years indicated, according to published sources.
<TABLE>
<CAPTION>
High Low
---- ---
1999
<S> <C> <C>
First quarter ............................. $ 9.75 $ 5.50
Second quarter ............................ 7.94 6.50
Third quarter ............................. 6.56 4.19
Fourth quarter ............................ 6.13 3.88
1998
First quarter ............................. $12.38 $ 11.06
Second quarter ............................ 12.44 11.00
Third quarter ............................. 12.94 7.06
Fourth quarter ............................ 8.13 6.63
</TABLE>
The Company has not paid cash dividends on its common stock since 1977.
The Company is subject to certain covenants under its commercial revolving
credit facilities and the indenture related to its Senior Secured Notes that
restrict its ability to pay dividends, including a prohibition against the
payment of dividends on its common stock without lender consent.
<PAGE>
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,
-----------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In thousands, except per share and per ton amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $345,657 $331,175 $354,073 $370,022 $355,688
Cost of goods sold 312,909 298,268 316,599 339,625 332,644
Gross profit 32,748 32,907 37,474 30,397 23,044
Selling expenses 4,367 3,855 4,628 6,042 6,845
General and administrative
expenses 17,185 22,779 17,918 19,139 20,850
Operating income 11,141 10,662 23,292 13,033 2,578
Interest expense 3,385 3,741 7,612 10,460 14,058
Income (loss) before income taxes $ 8,078 $ 4,240 $ 16,909 $ 5,006 $(12,238)
Provision (benefit) for income taxes 3,191 1,656 4,541 1,095 (4,754)
-------- -------- -------- --------- ---------
Net income (loss) $ 4,887 $ 2,584 $ 12,368 $ 3,911 $ (7,484)
======== ======== ======== ======= --------
Net income (loss) available for common
shares (1) $ 4,887 $ 2,514 $ 12,088 $ 3,754 $ (7,484)
======== ======== ======== ======= ========
Basic net income (loss) available for
common shares per share $ .87 $ .38 $ 1.30 $ .41 $ (.75)
======= ======= ======== ======== ========
Diluted net income (loss) available
for common shares per share $ .86 $ .38 $ 1.28 $ .40 $ (.75)
======= ======= ======== ======== =======
Weighted average common and common
equivalent shares outstanding :
Basic 5,633 6,554 9,271 9,544 9,904
======== ======== ======== ======== ========
Diluted 5,654 6,560 9,435 9,669 9,904
======== ======== ======== ======== ========
Other Financial Data:
Cash contributions to defined benefit
pension plans $ 18,702 $ 9,664 $ - $ - $ -
Capital expenditures 18,208 18,992 26,294 64,541 16,873
Depreciation and amortization 11,961 12,425 12,815 20,140 21,051
Other Steel and Wire Products Operating
Data:
Shipments (in tons):
Fabricated wire products 242 222 225 327 315
Industrial wire 164 159 175 170 144
Carbon steel rod 287 307 297 212 237
-------- -------- -------- -------- --------
Total 693 688 697 709 696
======== ======== ======== ======== ========
Average selling prices (per ton):
Fabricated wire products $ 707 $ 716 $ 710 $ 662 $ 683
Industrial wire 492 478 478 476 462
Carbon steel rod 322 298 317 288 261
Steel and wire products in total 497 475 484 506 493
Average total production cost per ton $ 452 $ 430 $ 437 $ 464 $ 461
Average scrap purchase cost per ton 128 125 122 110 94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital (deficit) (2) $ (6,861) $(15,907) $ 52,684 $ 555 $(13,920)
Property, plant and equipment, net 86,436 92,608 112,754 156,100 150,156
Total assets 198,822 302,368 374,131 405,857 410,918
Total debt 29,945 51,780 106,844 131,764 146,857
Redeemable preferred stock - 3,500 3,500 - -
Stockholders' equity (deficit) (37,493) 31,170 44,211 53,077 46,315
</TABLE>
(1) Includes dividends on preferred stock of $70,000, $280,000 and $157,000
in 1996, 1997 and 1998, respectively.
(2) Working capital (deficit) represents current assets minus current
liabilities.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
The Company believes it is a leading manufacturer of fabricated wire
products, industrial wire and carbon steel rod for the agricultural, industrial,
construction, original equipment manufacturer and retail consumer markets and
believes it is the third largest manufacturer of fabricated wire products and
industrial wire in the United States based on tons shipped (459,000 in 1999).
Keystone's operations benefit from vertical integration as the Company's
mini-mill supplies carbon steel rod produced from scrap steel to its downstream
fabricated wire products and industrial wire operations. These downstream
fabrication operations accounted for 79% of 1999 net sales. The Company's
fabricated wire products typically yield higher and less volatile gross margins
compared to rod. Management believes Keystone's fabricated wire businesses
insulate it better than other rod producers from the effects of rod imports and
new domestic rod production capacity. Moreover, the Company's rod production
costs have generally been below the market price for rod providing a significant
cost advantage over wire producers who purchase rod as a raw material.
During December 1998, the Company substantially completed a two-year
$75 million capital improvements plan to upgrade certain of its plant and
equipment and eliminate production capacity bottlenecks in order to reduce costs
and improve production efficiency. The principal components of Keystone's
capital improvements plan included reconfiguring its electric arc furnace,
replacing its billet caster and upgrading its wire and rod mills. As a result of
these capital improvements, beginning in 1999, the Company expected to increase
its annual billet production capacity to 1 million tons from 655,000 tons.
However, during 1999, Keystone experienced production problems related to the
start-up of the new equipment. Keystone believes it has identified the start-up
problems and expects to have these problems resolved and the equipment
performing at the desired levels during the 2000 first quarter. In addition,
although Keystone's new billet production capacity will be 1 million tons, the
Company is presently limited by its Illinois Environmental Protection Agency
construction permit to annual billet production of 820,000 tons. Keystone has
applied for modifications to its permit to allow production of the 1 million ton
capacity and expects to have that permit approved by September 30, 2000.
The Company's steel making operations, together with billet purchases
of 45,000 tons and 38,000 tons in 1999 and 1998, respectively, provided 728,000
tons and 679,000 tons of billets in 1999 and 1998, respectively. The current
estimated annual production capacity of the Company's rod mill is 750,000 tons.
The higher billet production and purchase volumes in 1999, resulted in rod
production increasing 3% from 670,000 tons (89% of estimated capacity) in 1998
to 687,000 tons (92% of estimated capacity). Despite the potential increase in
billet production capacity to 1 million tons, Keystone's rod production is
constrained by the 750,000 ton capacity of its rod mill. The Company anticipates
any excess billet production will be sold externally. Keystone's estimated
current fabricated wire products and industrial wire production capacity is
589,000 tons. Utilization of the Company's annual fabricated wire products and
industrial wire production capacity aggregated 82% in 1997, 85% in 1998 and 84%
in 1999.
In November 1994, the Company entered into a joint venture agreement
and formed Engineered Wire Products, Inc. ("EWP") with Keystone owning a 20%
equity interest in EWP. In December 1997, Keystone purchased the 80% of EWP not
already owned by Keystone (the "EWP Acquisition"). As part of the joint venture
agreement, Keystone supplied EWP with the majority of EWP's rod requirements.
EWP then converted the rod to fabricated wire products which were primarily used
in the concrete pipe and road construction businesses. During 1997, Keystone
shipped 41,000 tons of rod to EWP. As a result of the acquisition of EWP,
Keystone was able to convert its lower-margin rod sales to EWP, into
higher-margin fabricated wire product sales. This change in product mix between
1997 and 1998 resulted in a decline in overall fabricated wire product selling
prices as EWP's fabricated wire products sell for lower prices than do
Keystone's other fabricated wire products.
The Company's profitability is dependent in large part on its ability
to utilize effectively its production capacity, which is affected by the
availability of raw material, plant efficiency and other production factors and
to control its manufacturing costs, which are comprised primarily of raw
materials, energy and labor costs. Keystone's primary raw material is scrap
steel. The price of scrap steel is highly volatile and scrap steel prices are
affected by periodic shortages, freight costs, weather and other conditions
largely beyond the control of the Company. Scrap prices can vary widely from
period to period. The average per ton price paid for scrap by the Company was
$122 in 1997, $110 in 1998 and $94 in 1999. Keystone's product selling prices
cannot always be adjusted, especially in the short-term, to recover the costs of
any increases in scrap prices.
The domestic steel rod industry continues to experience consolidation.
In addition, worldwide overcapacity in the steel industry continues to exist and
imports of rod and certain wire products in recent years have increased
significantly. In an effort to stem increasing levels of imported rod, in
December 1998, Keystone, joined by six other companies (representing more than
75% of the market), and a labor union petitioned the U.S. International Trade
Commission (the "ITC") seeking relief under Section 201 of the Trade Act of
1974. During the 1999 second quarter, the ITC recommended President Clinton
impose a 15% tariff on all foreign rod imports except for those from Canada,
Mexico and certain other countries covered under trade acts. In February 2000,
the President announced the implementation of a Tariff-Rate Quota ("TRQ") for
three years. The tariff will be imposed on wire rod imports from countries
subject to the TRQ once imports initially exceed 1.6 million net tons. This
level will be increased by two percent in years two and three. The tariff rate
will be 10% in the first year, 7.5% in the second year and 5% in the third year.
The Company does not anticipate that the TRQ will have a major impact on the
industry.
Keystone consumes a significant amount of energy in its manufacturing
operations and, accordingly, its profitability can also be adversely affected by
the volatility in the price of coal, oil and natural gas resulting in increased
energy, transportation, freight, scrap and supply costs. The Company purchases
electrical energy for its Peoria, Illinois facility from a utility under an
interruptible service contract which provides for more economical electricity
rates but allows the utility to refuse or interrupt power to its manufacturing
facilities. The utility has in the past, and may in the future, refuse or
interrupt service to Keystone resulting in decreased production and increased
costs associated with the related downtime. In addition, the utility has the
right to pass through certain of its costs to consumers through fuel adjustment
charges. During the 1999 third quarter, the Company received an unexpected $2.2
million fuel-adjustment charge from the Peoria plant's electricity provider. The
utility may in the future bill the Company for additional fuel adjustment
charges.
The Company was previously engaged in the manufacture and packaging of
household cleaning products through the Joliet division of its subsidiary
DeSoto, Inc. In January 1999, DeSoto sold such operations.
Beginning in 1999, Keystone is also engaged in the marketing and
distribution of wire, wood and plastic products to the consumer lawn and garden
market, and the operation of a scrap recycling facility. These operations were
insignificant when compared to the consolidated operations of the Company. As
such, the results of their operations are not separately addressed in the
discussion that follows.
Results Of Operations
The following table sets forth Keystone's steel and wire production and
sales volume data for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
---- ---- ----
(In thousands of tons)
Production volume:
Billets:
<S> <C> <C> <C>
Produced ..................................... 665 640 683
Purchased .................................... 67 38 45
Carbon steel rod ............................... 719 670 687
Sales volume:
Fabricated wire products ....................... 225 327 315
Industrial wire ................................ 175 170 144
Carbon steel rod ............................... 297 212 237
--- --- ---
697 709 696
=== === ===
</TABLE>
The following table sets forth the components of the Company's net
sales for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1998 1999
---- ---- ----
(In millions)
Steel and wire products:
<S> <C> <C> <C>
Fabricated wire products .............. $ 159.9 $ 216.6 $ 214.7
Industrial wire ....................... 83.8 81.0 66.6
Carbon steel rod ...................... 94.0 61.1 62.0
Other ................................. 2.4 1.3 1.4
-------- ------ ------
340.1 360.0 344.7
Lawn and garden products ................ -- -- 11.0
Household cleaning products ............. 14.0 10.0 -
-------- ------ ------
$ 354.1 $ 370.0 $ 355.7
======== ====== ======
</TABLE>
The following table sets forth selected operating data of Keystone as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of goods sold ............................ 89.4 91.8 93.5
Gross profit .................................. 10.6 8.2 6.5
Selling expenses .............................. 1.3 1.6 1.9
General and administrative expense ............ 5.1 5.2 5.9
Overfunded defined benefit pension credit ..... (1.8) (2.6) (1.6)
Income (loss) before income taxes ............. 4.8% 1.4% (3.4)%
Provision (benefit) for income taxes .......... 1.3 .3 (1.3)
----- ----- -----
Net income (loss) ............................. 3.5% 1.1% (2.1)%
===== ===== =====
</TABLE>
Year ended December 31, 1999 compared to year ended December 31, 1998
Net sales declined 3.9% in 1999 from 1998 due primarily to a 2% decline
in overall steel and wire product selling prices and a 1.9% decline in volume.
During 1999, fabricated wire products represented 60% of net sales as compared
to 59% in 1998; industrial wire declined to 19% of net sales in 1999 as compared
to 22% in 1998; and carbon steel rod sales in 1999, as a percentage of net
sales, were unchanged from the 1998 level at 17%. The 2% decline in overall
product selling prices ($12 per ton) adversely impacted net sales by $8.4
million.
Fabricated wire products selling prices increased 3% while shipments
declined 4% in 1999 as compared to 1998. Industrial wire selling prices declined
3% in 1999 when compared to 1998 while shipments declined 15%. Carbon steel rod
selling prices declined 9% while shipments increased 12% as compared to 1998.
Gross profit declined approximately 24% to $23.0 million in 1999 from
$30.4 million in 1998. Gross margin declined to 6.5% from 8.2% in 1998 as lower
scrap costs, Keystone's primary raw material, were more than offset by lower
overall selling prices, and higher production costs. The higher production costs
were due primarily to increased costs associated with the start-up of the
Company's capital projects that were completed during 1998, weather related
issues in the first quarter of 1999, purchased billet costs, a $1.7 million
charge due to a change in the manner in which vacation time was earned for
employees covered by a new labor union contract at the Company's Peoria
facility, an unexpected $2.2 million fuel adjustment charge from the Peoria
plant's electricity provider and a $1.6 million charge in connection with the
write-off of certain production equipment at the Peoria facility. During the
fourth quarter of 1999, the Company determined that certain
infrastructure-related equipment would need to be replaced at the end of the
year as a result of the start-up of certain capital projects, and Keystone
charged the equipment's remaining net book value to depreciation expense in
1999. In addition, Keystone recorded a $2.7 million benefit during 1999 as a
result of favorable legal settlements with certain electrode vendors related to
alleged price fixing. The Company received similar settlements in 1998 totaling
$2.7 million and does not anticipate it will receive any further electrode
settlements. Keystone believes the start-up issues related to new equipment have
been identified and that these issues will be resolved and the equipment
performing at the desired levels by the end of the first quarter of 2000.
However, the Company believes these problems will continue to adversely impact
earnings during the first quarter of 2000. Keystone's scrap costs declined 15%
during 1999 as compared to 1998. During 1999, the Company purchased 768,000 tons
of scrap at an average price of $94 per ton as compared to 1998 purchases of
716,000 at an average price of $110 per ton. Keystone expects average scrap
costs in 2000 will exceed 1999 average costs. The Company also purchased 45,000
tons of billets during 1999 at an average cost of $195 per ton as compared to
38,000 tons of billets in 1998 at an average price of $196 per ton. Keystone
does not anticipate purchasing any billets during 2000.
Selling expenses increased 13% to $6.8 million in 1999 from $6.0
million in 1998 primarily as a result of the higher selling expenses associated
with the Company's lawn and garden products segment.
General and administrative expenses increased 9% to $20.9 million in
1999 from $19.1 million in 1998 primarily due to higher general insurance
expense, costs associated with the start-up of the Company's lawn and garden
products segment, unfavorable legal settlements and higher environmental
charges. In addition, 1998 included a legal fee reimbursement of $380,000.
During 1999, Keystone recorded a non-cash pension credit of $5.6
million as compared to $9.4 million in 1998. The lower pension credit was
primarily the result of increased pension benefits included in the Company's May
1999 labor contract with the Peoria facility's union. The Company currently
estimates, for financial reporting purposes, that it will recognize a non-cash
pension credit of approximately $3 million in 2000 and, does not anticipate cash
contributions for defined benefit pension plan fundings will be required in
2000. However, future variances from assumed actuarial rates, including the rate
of return on pension plan assets, may result in increases or decreases in
pension expense or credit and future funding requirements. See Note 7 to the
Consolidated Financial Statements.
Interest expense during 1999 was higher than 1998 due principally to
higher borrowing levels partially offset by lower interest rates. Average
borrowings by the Company under its revolving credit facilities, EWP term loan
and Senior Secured Notes approximated $142.7 million during 1999 as compared to
$110.8 million in 1998. During 1999, the average interest rate paid by the
Company was 9.3% per annum as compared to 9.6% per annum in 1998.
At December 31, 1999, the Company's financial statements reflected total
accrued liabilities of $18.2 million to cover estimated remediation costs
arising from environmental issues. Although Keystone has established an accrual
for estimated future required environmental remediation costs, there is no
assurance regarding the ultimate cost of remedial measures that might eventually
be required by environmental authorities or that additional environmental
hazards, requiring further remedial expenditures, might not be asserted by such
authorities or private parties. Accordingly, the costs of remedial measures may
exceed the amounts accrued. See Note 13 to the Consolidated Financial
Statements.
The effective tax rates in 1999 and 1998 were 39% and 21.9%,
respectively. 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 5 to the Consolidated Financial Statements. The Company's
deferred tax position at December 31, 1999 is also explained in Note 5 to the
Consolidated Financial Statements and in "-- Liquidity and Capital Resources."
As a result of the items discussed above, Keystone incurred a net loss
of $7.5 million during 1999 as compared to net income in 1998 of $3.9 million.
Year ended December 31, 1998 compared to year ended December 31, 1997
Net sales increased 4.5% in 1998 from 1997. During 1998, fabricated
wire products represented 59% of net sales as compared to 45% in 1997;
industrial wire declined to 22% of net sales in 1998 as compared to 24% in 1997;
and carbon steel rod comprised 17% of 1998 net sales as compared to 27% in 1997.
The primary reason for the change in product mix was the EWP Acquisition in
December 1997. Keystone supplied EWP with the majority of EWP's rod requirements
prior to the acquisition. As a result of the EWP Acquisition those sales are now
reflected as sales of fabricated wire products.
Fabricated wire products selling prices declined 7% while shipments
increased 45% in 1998 as compared to 1997. The primary reason for the decline in
fabricated wire product selling prices during 1998 was the EWP Acquisition.
EWP's fabricated wire products sell for lower overall prices than do the
remainder of the Company's fabricated wire products. Industrial wire prices
remained relatively level in 1998 as compared to 1997 prices while shipments
declined 3%. Carbon steel rod selling prices declined 9% during 1998 as compared
to 1997 while shipments declined 28%. The decline in rod shipments to external
customers was due primarily to the EWP Acquisition and an increase in low cost
imported rod during 1998.
Gross profit declined approximately 19% to $30.4 million in 1998 from
$37.5 million in 1997. Gross margin declined to 8.2% from 10.6% in 1997 as
higher production costs more than offset higher overall selling prices and lower
scrap costs. The higher production costs were due primarily to a new electrical
supply contract at the Company's facility in Peoria, Illinois, unplanned
equipment outages during the 1998 first quarter, power interruptions during the
1998 second quarter and increased costs associated with the start-up of the
Company's capital projects that were completed during the third and fourth
quarters of 1998. During 1998, the Company purchased 716,000 tons of scrap at an
average price of $110 per ton as compared to 1997 purchases of 697,000 tons at
an average price of $122 per ton. The Company purchased 38,000 tons of billets
in 1998 at an average price of $196 per ton as compared to 67,000 tons of
billets in 1997 at an average price of $238 per ton.
Selling expenses increased 31% to $6.0 million in 1998 from $4.6
million in 1997, but remained relatively constant as a percentage of net sales.
General and administrative expenses increased 7% to $19.1 million in
1998 as compared to $17.9 million in 1997, but remained relatively constant as a
percentage of net sales.
During 1998, Keystone recorded a non-cash pension credit of $9.4
million as compared to approximately $6.3 million in 1997.
On August 7, 1997 Keystone issued $100 million of 9 5/8% Senior Secured
Notes (the "Senior Notes"). As such, interest expense in 1998 was significantly
higher than 1997. Average borrowings by the Company under its revolving credit
facilities, term loans and the Senior Notes amounted to approximately $110.8
million in 1998 as compared to $32.8 million in 1997. During 1998, the average
interest rate paid by Keystone under these debt agreements was 9.6% per annum as
compared to 9.4% in 1997. Keystone used $52.4 million of the net proceeds from
the issuance of the Senior Notes to repay borrowings under the Company's
revolving credit facility and to retire amounts outstanding under the Company's
term loan.
The effective tax rates in 1998 and 1997 were 21.9% and 26.9%,
respectively.
As a result of the items discussed above, net income during 1998
declined to $3.9 million from $12.4 million in 1997 and decreased as a
percentage of sales to 1.1% from 3.5%.
Outlook for 2000
Keystone believes it has identified the start-up problems relative to
the new equipment at its Peoria, Illinois steel mill and expects to have these
problems resolved and the equipment performing at the desired levels during the
2000 first quarter. However, the Company anticipates these issues will continue
to negatively impact 2000 first quarter earnings. Management also believes scrap
costs during 2000 will be higher than in 1999; although, management anticipates
it will be able to increase its per-ton product selling prices to cover any
significant increase in scrap costs. In addition, management believes that due
to expected higher debt levels in 2000, interest expense will also be higher
than in 1999. As such, operating results during 2000 could be adversely impacted
and the Company may incur a net loss during the 2000 first quarter, although
management expects the Company to be profitable for calendar 2000. In addition,
management anticipates Keystone will receive permits by September 30, 2000 to
increase billet production to 1 million tons, and plans to convert these
incremental billets, either internally or externally, to carbon steel rod. Sales
of this additional carbon steel rod would favorably impact earnings.
Liquidity And Capital Resources
At December 31, 1999, Keystone had negative working capital of $13.9
million, including $2.0 million of notes payable and current maturities of
long-term debt as well as outstanding borrowings under the Company's revolving
credit facilities of $44.0 million. The amount of available borrowings under
these revolving credit facilities is based on formula-determined amounts of
trade receivables and inventories, less the amount of outstanding letters of
credit. Under the terms of the indenture related to the Senior Secured Notes,
the Company's ability to borrow under its revolving credit facilities may be
limited. At December 31, 1999, unused credit available for borrowing under
Keystone's $60 million revolving credit facility, which expires December 31,
2001, and EWP's $6 million revolving credit facility, which expires June 30,
2000, and Garden Zone's $4 million revolving credit facility, which expires
December 11, 2000, were $15.9 million, $.7 million and $.5 million respectively.
The terms of the indenture will permit Keystone to borrow all of the $15.9
million unused credit available under Keystone's $60 million revolving credit
facility during the first quarter of 2000. The Company's $60 million revolving
credit facility requires daily cash receipts be used to reduce outstanding
borrowings, which results in the Company maintaining zero cash balances when
there are balances outstanding under this credit facility.
During 1999, the Company's operating activities provided approximately
$1.1 million of cash, compared to $16.8 million of cash provided by operating
activities in 1998. In addition to lower earnings in 1999 as compared to 1998,
cash flow from operations decreased in 1999 compared to 1998 due to relative
changes in the levels of assets and liabilities. These decreases in cash flow
were offset by lower capital expenditures.
During 1999, Keystone made capital expenditures of approximately $16.9
million primarily related to upgrades of production equipment at its facility in
Peoria, Illinois, as compared to $64.5 million in 1998. During 1997, the Company
commenced a $75 million capital improvement plan to upgrade certain of its plant
and equipment and eliminate production capacity bottlenecks in order to reduce
costs and improve production efficiency. Keystone substantially completed the
capital improvement plan during 1998. As such, capital expenditures during 1999
were considerably less than capital expenditures during 1998. Capital
expenditures for 2000 are currently estimated to be approximately $15 million
and are related primarily to upgrades of, as well as additional, production
equipment. These capital expenditures will be funded using borrowing
availability under Keystone's revolving credit facilities.
At December 31, 1999, the Company's financial statements reflected
accrued liabilities of $18.2 million for estimated remediation costs arising
from environmental issues. There is no assurance regarding the ultimate cost of
remedial measures that might eventually be required by environmental authorities
or that additional environmental hazards, requiring further remedial
expenditures, might not be asserted by such authorities or private parties.
Accordingly, the costs of remedial measures may exceed the amounts accrued.
Keystone does not expect to be required to make contributions to its
pension plan during 2000. Future variances from assumed actuarial rates,
including the rate of return on pension plan assets, may result in increases or
decreases to pension expense or credit and funding requirements in future
periods. See Note 7 to the Consolidated Financial Statements.
The Company incurs significant ongoing costs for plant and equipment
and substantial employee medical benefits for both current and retired
employees. As such, Keystone is vulnerable to business downturns and increases
in costs, and accordingly, routinely compares its liquidity requirements and
capital needs against its estimated future operating cash flows. As a result of
this process, the Company has in the past, and may in the future, reduce
controllable costs, modify product mix, acquire and dispose of businesses,
restructure certain indebtedness, and raise additional equity capital. Keystone
will continue to evaluate the need for similar actions or other measures in the
future in order to meet its obligations. The Company also routinely evaluates
acquisitions of interests in, or combinations with, companies related to the
Company's current businesses. Keystone intends to consider such acquisition
activities in the future and, in connection with this activity, may consider
issuing additional equity securities or increasing the indebtedness of the
Company. However, Keystone's ability to incur new debt in the future may be
limited by the terms of the indenture related to the 9 5/8% Senior Secured
Notes.
Management believes the cash flows from operations together with
available cash and the funds available under the Company's revolving credit
facilities will be sufficient to fund the anticipated needs of the Company's
operations and capital improvements for the year ending December 31, 2000. This
belief 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, interest rates, repayments of long-term debt,
capital expenditures, and available borrowings under the Company's revolving
credit facilities. However, liabilities under environmental laws and regulations
with respect to the clean-up and disposal of wastes, or any significant
increases 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,
significant declines in the Company's end-user markets or market share, the
inability to maintain satisfactory billet and rod production levels, or 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 Notes 13
and 15 to the Consolidated Financial Statements.
Year 2000 Issue
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, certain computer programs that
had date-sensitive software may have recognized a date using "00" as the year
1900 rather than the year 2000. This could have resulted in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in normal business activities.
Over the past few years, the Company has spent time, effort and money
in order to address the Year 2000 Issue in an attempt to ensure that its
computer systems, both information technology ("IT") systems and non-IT systems
involving embedded chip technology, and software applications would function
properly after December 31, 1999. This process included, among other things, the
identification of all systems and applications potentially affected by the Year
2000 Issue, the determination of which systems and applications required
remediation and the completion thereof and the testing of systems and
applications following remediation for Year 2000 compliance. In addition, the
Company requested confirmation from its major software and hardware vendors,
suppliers and customers that they were developing and implementing plans to
become, or that they had become, Year 2000 compliant. Contingency plans were
also developed to address potential Year 2000 Issues related to business
interruption in the event one or more internal systems or the systems of third
parties upon which the Company relies ultimately proved not to be Year 2000
compliant. As part of these contingency plans, the Company's steel making
facility in Peoria, Illinois temporarily idled its manufacturing facilities
shortly before the end of 1999 as an added safeguard against unexpected loss of
utility service; and such facilities resumed production shortly after midnight
of year-end 1999. After all of the efforts described above, the Company believed
its key systems were Year 2000 compliant prior to December 31, 1999. The amount
spent by Keystone to address the Year 2000 Issue, excluding the cost of ongoing
system upgrades, was not significant.
To date in 2000, none of the Company's manufacturing facilities have
suffered any downtime due to non-compliant systems, nor have any significant
problems associated with the Year 2000 Issue been identified in any of such
systems. Keystone will continue to monitor its major systems in order to ensure
such systems continue to be Year 2000 compliant. However, based primarily upon
the length of time into 2000 which has elapsed without the identification of any
significant problems related to the Year 2000 Issue, the Company does not
currently expect to experience any significant Year 2000 Issue-related problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to changes in interest rates relates primarily
to long-term debt obligations. At December 31, 1999, 97% of the Company's
long-term debt was comprised of 9.6% average fixed rate instruments, which
minimize earnings volatility related to interest expense. Keystone does not
currently participate in interest rate-related derivative financial instruments.
The table below presents principal amounts and related weighted-average
interest rates by maturity date for the Company's long-term debt obligations.
<TABLE>
<CAPTION>
Contracted Maturity Date Fair Value
-------------------- -------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total December 31, 1999
---- ---- ---- ---- ---- ---------- ----- -----------------
($ In thousands)
Fixed-rate debt -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal amount $782 $593 $196 $30 $52 $100,000 $101,653 $93,943
Weighted-average
interest rate 8.3% 8.6% 9.0% 9.3% 9.3% 9.6% 9.6%
Variable-rate debt-
Principal amount $45,204 $ - $ - $ $ - $ - $ 45,204 $45,204
-
Weighted-average
interest rate 9.2% -% - % - % - % - % 9.2%
</TABLE>
At December 31, 1998, long-term debt included fixed-rate debt of $102.2
million (fair value - $97.6 million) with a weighted average interest rate of
9.6% and $29.6 million variable-rate debt which approximated fair value, with a
weighted-average interest rate of 8.6%.
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.
<PAGE>
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.
<PAGE>
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
Registrant'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
(Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.1 First Amendment to Amended and Restated Revolving Loan And Security
Agreement dated as of September 27, 1996 between Registrant and Congress
Financial Corporation (Central). (Incorporated by reference to Exhibit 4.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
4.2 First Amendment to Term Loan and Security Agreement dated as of
September 27, 1996 between Registrant and Congress Financial Corporation
(Central). (Incorporated by reference to Exhibit 4.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).
4.3 Indenture dated as of August 7, 1997 relating to the Registrant's 9 5/8%
Senior Secured Notes due 2007 (Incorporated by reference to Exhibit 4.1 to
the Registrant's Form 8-K filed September 4, 1997).
4.4 Fourth Amendment to Amended and Restated Revolving Loan and Security
Agreement dated as of December 31, 1999 between Registrant and Congress
Financial Corporation (Central).
4.5 Second Amendment to Revolving Loan and Security Agreement dated as of
December 31, 1999 between Sherman Wire Company and Congress Financial
Corporation (Central).
4.6 Fifth Amendment to Amended and Restated Revolving Loan and Security
Agreement dated as of February 3, 2000 between Registrant and Congress
Financial Corporation (Central).
10.1 Intercorporate Services Agreement with Contran Corporation dated as of
January 1, 1999.
10.2 The Combined Master Retirement Trust between Valhi, Inc. and Harold C.
Simmons as restated effective July 1, 1995 (Incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-35955)).
10.3* Keystone Consolidated Industries, Inc. 1992 Incentive Compensation Plan.
(Incorporated by reference to Exhibit 99.1 to Registrant's Registration
Statement on Form S-8 (Registration No. 33-63086)).
10.4*Keystone Consolidated Industries, Inc. 1992 Non-Employee Director Stock
Option Plan. (Incorporated by reference to Exhibit 99.2 to Registrant's
Registration Statement on Form S-8 (Registration No. 33-63086)).
10.5*Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan.
(Incorporated by reference to Appendix A to Registrant's Schedule 14A filed
April 25, 1997).
10.6*Amendment to the Keystone Consolidated Industries, Inc. 1997 Long-Term
Incentive Plan. (Incorporated by reference to Registrant's Schedule 14A
filed April 24, 1998.)
10.7*Form of Deferred Compensation Agreement between the Registrant and
certain executive officers. (Incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q (File No. 1-3919) for the
quarter ended March 31, 1999).
21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
99 Annual report of the Keystone Consolidated Industries, Inc. Deferred
Incentive Plan (Form 11-K) to be filed under Form 10-K/A to this Annual
Report on Form 10-K within 180 days after December 31, 1999.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1999.
*Management contract, compensatory plan or agreement.
<PAGE>
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 31, 2000, thereunto duly
authorized.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Registrant)
/s/ GLENN R. SIMMONS
Glenn R. Simmons
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below and dated as of March 31, 2000 by the following
persons on behalf of the registrant and in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ GLENN R. SIMMONS /s/ DAVID E. CONNOR
- ------------------------------ ---------------------
Glenn R. Simmons David E. Connor
Chairman of the Board Director
/s/ J. WALTER TUCKER, JR. /s/ WILLIAM P. LYONS
- ------------------------------------------------ ----------------------
J. Walter Tucker, Jr. William P. Lyons
Vice Chairman of the Board Director
/s/ THOMAS E. BARRY /s/ ROBERT W. SINGER
- ------------------------------------------------ ----------------------
Thomas E. Barry Robert W. Singer
Director President and
Chief Executive Officer
/s/ PAUL M. BASS, JR. /s/ HAROLD M. CURDY
- ------------------------------------------------ --------------------
Paul M. Bass, Jr. Harold M. Curdy
Director Vice President -- Finance,
Treasurer and Principal
Financial Officer
/s/ WILLIAM SPIER /s/ BERT E. DOWNING, JR.
- ------------------------------------------------ --------------------------
William Spier Bert E. Downing, Jr.
Director Corporate Controller and
Principal Accounting Officer
/s/ STEVEN L. WATSON
- ---------------------------------------
Steven L. Watson
Director
</TABLE>
<PAGE>
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, 1998 and 1999........... F-3/F-4
Consolidated Statements of Operations -- Years ended December 31,
1997, 1998 and 1999.................................................... F-5
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity -- Years ended
December 31, 1997, 1998 and 1999....................................... F-6
Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1998 and 1999................................................ F-7/F-8
Notes to Consolidated Financial Statements.......................... F-9/F-32
Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts .........................S-1
Schedules I, III and IV are omitted because they are not applicable.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Keystone Consolidated Industries, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Keystone Consolidated Industries, Inc. and Subsidiaries at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. 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 of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
March 9, 2000
Dallas, Texas
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1999
-------- ------
Current assets:
<S> <C> <C>
Notes and accounts receivable,
net of allowances
of $4,915 and $2,297 ......................... $ 36,786 $ 32,819
Inventories .................................... 52,239 66,083
Deferred income taxes .......................... 18,985 17,396
Prepaid expenses and other ..................... 3,916 1,364
-------- --------
Total current assets ....................... 111,926 117,662
-------- --------
Property, plant and equipment:
Land, buildings and improvements ............... 50,637 51,637
Machinery and equipment ........................ 299,165 301,932
Construction in progress ....................... 4,880 4,308
-------- --------
354,682 357,877
Less accumulated depreciation .................... 198,582 207,721
-------- --------
Net property, plant and equipment .......... 156,100 150,156
-------- --------
Other assets:
Restricted investments ......................... 8,624 9,180
Prepaid pension cost ........................... 120,516 126,126
Deferred financing costs ....................... 3,493 3,034
Goodwill ....................................... 1,115 1,002
Other .......................................... 4,083 3,758
-------- --------
Total other assets ......................... 137,831 143,100
-------- --------
$405,857 $410,918
======== ========
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1998 and 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1999
-------- ------
Current liabilities:
<S> <C> <C>
Notes payable and current maturities of
long-term debt ................................... $ 29,912 $ 45,986
Accounts payable ................................... 34,002 30,689
Accounts payable to affiliates ..................... -- 70
Accrued OPEB cost .................................. 10,000 9,500
Other accrued liabilities .......................... 37,457 45,337
--------- ---------
Total current liabilities ...................... 111,371 131,582
--------- ---------
Noncurrent liabilities:
Long-term debt ..................................... 101,852 100,871
Accrued OPEB cost .................................. 99,047 98,802
Deferred income taxes .............................. 6,162 1,100
Negative goodwill .................................. 24,065 22,709
Other .............................................. 10,283 9,539
--------- ---------
Total noncurrent liabilities ................... 241,409 233,021
--------- ---------
Stockholders' equity:
Common stock, $1 par value, 12,000,000 shares
authorized; 9,838,629 and 9,927,665 shares issued
at stated value .................................. 10,569 10,656
Additional paid-in capital ......................... 51,763 52,398
Accumulated deficit ................................ (9,243) (16,727)
Treasury stock - 1,134 shares, at cost ............. (12) (12)
--------- ---------
Total stockholders' equity ..................... 53,077 46,315
--------- ---------
$ 405,857 $ 410,918
========= =========
</TABLE>
Commitments and contingencies (Notes 13, 14 and 15)
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1998 and 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ------
Revenues and other income:
<S> <C> <C> <C>
Net sales $354,073 $370,022 $355,688
Interest 1,218 594 452
Other, net 2,053 212 463
-------- -------- --------
357,344 370,828 356,603
-------- -------- --------
Costs and expenses:
Cost of goods sold 316,599 339,625 332,644
Selling 4,628 6,042 6,845
General and administrative 17,918 19,139 20,850
Overfunded defined benefit pension credit (6,322) (9,444) (5,610)
Interest 7,612 10,460 14,058
-------- -------- --------
340,435 365,822 368,787
-------- -------- --------
16,909 5,006 (12,184)
Equity in losses of Alter Recycling
Company L.L.C. - - (54)
-------- -------- --------
Income (loss) before income taxes 16,909 5,006 (12,238)
Provision (benefit) for income taxes 4,541 1,095 (4,754)
-------- -------- --------
Net income (loss) 12,368 3,911 (7,484)
Dividends on preferred stock 280 157 -
-------- -------- --------
Net income (loss) available for
common shares $ 12,088 $ 3,754 $ (7,484)
======== ======== ========
Net income (loss) per share available for common shares:
Basic $ 1.30 $ .41 $ (.75)
======== ======== ========
Diluted $ 1.28 $ .40 $ (.75)
======== ======== ========
Weighted average common and common equivalent shares outstanding:
Basic 9,271 9,544 9,904
======== ======== ========
Diluted 9,435 9,669 9,904
======== ======== ========
</TABLE>
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
Common stockholders' equity
--------------------------------------------------------------------
Total
Redeemable Common stock Additional common
preferred -------------------- paid-in Accumulated Treasury stockholders'
stock Shares Amount capital (deficit) stock equity
--------- ------ ------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 ................ $ 3,500 9,190 $ 9,920 $ 46,347 $(25,085) $ (12) $ 31,170
Net income ................................. -- -- -- -- 12,368 -- 12,368
Issuance of stock .......................... -- 109 109 844 -- -- 953
Preferred dividends declared ............... 280 -- -- -- (280) -- (280)
Preferred dividends paid ................... (280) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance - December 31, 1997 ................ 3,500 9,299 10,029 47,191 (12,997) (12) 44,211
Net income ................................. -- -- -- -- 3,911 -- 3,911
Exercise of warrants and redemption
of preferred stock, net .................. (3,500) 448 448 3,753 -- -- 4,201
Issuance of stock - other .................. -- 92 92 819 -- -- 911
Preferred dividends declared ............... 157 -- -- -- (157) -- (157)
Preferred dividends paid ................... (157) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance - December 31, 1998 ................ -- 9,839 10,569 51,763 (9,243) (12) 53,077
Net loss ................................... -- -- -- -- (7,484) -- (7,484)
Issuance of stock .......................... -- 87 87 635 -- -- 722
-------- -------- -------- -------- -------- -------- --------
Balance - December 31, 1999 ................ $ -- 9,926 $ 10,656 $ 52,398 $(16,727) $ (12) $ 46,315
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) ........................ $ 12,368 $ 3,911 $ (7,484)
Depreciation and amortization ............ 12,815 20,140 21,051
Amortization of deferred financing costs . 455 509 519
Deferred income taxes .................... 1,573 3,078 (3,363)
Other, net ............................... 2,425 1,571 (3,089)
Change in assets and liabilities:
Notes and accounts receivable .......... (1,978) (2,027) 4,323
Inventories ............................ (9,671) 1,691 (14,685)
Prepaid pension cost ................... (6,322) (9,444) (5,610)
Accounts payable ....................... (6,455) 4,323 (1,923)
Other, net ............................. 6,249 (6,947) 11,312
-------- -------- --------
Net cash provided by operating
activities ......................... 11,459 16,805 1,051
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ..................... (26,294) (64,541) (16,873)
Acquisition of businesses ................ (11,285) -- --
Proceeds from disposition of property
and equipment .......................... 2,720 11 27
Other, net ............................... 212 (448) 702
-------- -------- --------
Net cash used by investing activities (34,647) (64,978) (16,144)
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Revolving credit facilities, net ......... $ (31,095) $ 26,110 $ 15,437
Other notes payable and long-term debt:
Additions .............................. 100,294 95 1,125
Principal payments ..................... (19,535) (1,285) (1,469)
Preferred stock dividend payments ........ (280) (157) --
Deferred financing costs paid ............ (3,918) (207) --
Exercise of warrants and redemption of
preferred stock, net ................... -- 701 --
Common stock issued, other ............... 344 294 --
--------- --------- ---------
Net cash provided by financing
activities .......................... 45,810 25,551 15,093
--------- --------- ---------
Net change in cash and cash equivalents .... 22,622 (22,622) --
Cash and cash equivalents, beginning of year -- 22,622 --
--------- --------- ---------
Cash and cash equivalents, end of year ..... $ 22,622 $ -- $ --
========= ========= =========
Supplemental disclosures:
Cash paid for:
Interest, net of amount capitalized .... $ 4,068 $ 10,903 $ 13,887
Income taxes paid (refund), net ........ 4,253 217 (3,575)
Common stock contributed to employee
benefit plan ........................... $ 578 $ 617 $ 722
Business combination:
Net assets consolidated:
Goodwill ............................... $ 1,229 -- --
Other noncash assets ................... 22,321 -- --
Liabilities ............................ (9,500) -- --
Negative goodwill ...................... -- -- --
--------- --------- ---------
14,050 -- --
Recorded equity in joint venture ......... (2,765) -- --
--------- --------- ---------
Cash paid ................................ $ 11,285 $ -- $ --
========= ========= =========
</TABLE>
<PAGE>
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 50%
owned by Contran Corporation ("Contran") and other entities related to Mr.
Harold C. Simmons. Substantially all of Contran's outstanding voting stock is
held either by trusts established for the benefit of certain children and
grandchildren of Mr. Simmons, of which Mr. Simmons is sole trustee, or by Mr.
Simmons directly. The Company may be deemed to be controlled by Contran and Mr.
Simmons.
Principles of consolidation and management's estimates. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany accounts and balances have
been eliminated. Certain prior year amounts have been reclassified to conform
with the 1999 presentation.
In January 1999, Keystone's wholly-owned subsidiary, DeSoto, Inc.
("DeSoto") sold its household cleaning products division. DeSoto did not record
any gain or loss as a result of this sale. Subsequent to the sale, Desoto
changed its name to Sherman Wire Company ("Sherman").
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 1997, 1998 and 1999 were 52-week
years.
Net sales. Sales are recorded when products are shipped.
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 76% and 79% of the inventories held at December 31, 1998 and 1999,
respectively. The first-in, first-out or average cost methods are used to
determine the cost of all other inventories.
Property, plant, equipment and depreciation. Property, plant and
equipment are stated at cost. Interest cost capitalized in 1997, 1998 and 1999
amounted to $483,000, $878,000, and $50,000, respectively. Expenditures for
repairs, maintenance and minor repairs are expensed as incurred. Expenditures
for 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 30 years for buildings and improvements
and three to 12 years for machinery and equipment. Depreciation expense amounted
to $14,434,000, $20,849,000 and $21,741,000 during the years ended December 31,
1997, 1998, and 1999, respectively.
Investment in joint ventures. Investments in 20% but less than
majority-owned companies are accounted for by the equity method. Differences
between the cost of the investments and Keystone's pro rata share of
separately-reported net assets if any, are not significant.
Retirement plans and post-retirement benefits other than pensions.
Accounting and funding policies for retirement plans and post retirement
benefits other than pensions ("OPEB") are described in Note 7.
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. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. At both December 31, 1998 and 1999
the Company had such assets recorded of approximately $323,000.
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 $.7
million in 1997, $1.1 million in 1998 and $.5 million in 1999.
Income (loss) per share. Basic income (loss) per share is based upon
the weighted average number of common shares actually outstanding during each
year. Diluted income (loss) per share includes the impact of outstanding
dilutive stock options and warrants. The weighted average number of shares of
outstanding stock options and warrants which were excluded from the calculation
of diluted earnings per share because their impact would have been antidilutive
approximated 171,000, 163,000 and 725,000 in 1997, 1998 and 1999, respectively.
Deferred financing costs. Deferred financing costs relate primarily to
the issuance of the Company's 9 5/8% Senior Secured Notes (the "Senior Notes")
and are amortized by the interest method over 10 years (term of the Senior
Notes). Deferred financing costs are stated net of accumulated amortization of
$964,000 and $1,483,000 at December 31, 1998 and 1999, respectively.
Goodwill. Goodwill, representing the excess of cost over the fair value
of individual net assets acquired in business combinations accounted for by the
purchase method, is amortized by the straight-line method over 10 years
(remaining life of 8 years at December 31, 1999) and is stated net of
accumulated amortization of approximately $113,000 at December 31, 1998 and
$227,000 at December 31, 1999. Amortization of goodwill in each of 1998 and 1999
amounted to $113,000.
Negative goodwill. Negative goodwill, representing the excess of fair
value over cost of individual net assets acquired in business combinations
accounted for by the purchase method of DeSoto, is amortized by the
straight-line method over 20 years (remaining life of 16.75 years at December
31, 1999) and is stated net of accumulated amortization of approximately
$3,051,000 and $4,406,000 at December 31, 1998 and 1999, respectively.
Amortization of negative goodwill in 1997, 1998 and 1999 amounted to $1,619,000,
$1,356,000 and $1,356,000, respectively.
Employee Stock Options. The Company accounts for stock-based compensation
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and its various interpretations. Under APBO No. 25,
no compensation cost is generally recognized for fixed stock options in which
the exercise price is not less than the market price on the grant date.
Compensation cost recognized by the Company in accordance with APBO No. 25 has
not been significant in each of the past three years.
Derivatives and Hedging activities. The Company will adopt Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, no later than the first quarter of 2001.
Under SFAS No. 133, all derivatives will be recognized as either assets or
liabilities and measured at fair value. The accounting for changes in fair value
of derivatives will depend upon the intended use of the derivative. The impact
on the Company of adopting SFAS No. 133, if any, has not yet been determined but
will be dependent upon the extent to which the Company is a party to derivative
contracts or hedging activities covered by SFAS No. 133 at the time of adoption,
including derivatives embedded in non-derivative host contracts.
Note 2 - Acquisitions and joint ventures
At December 31, 1996, the Company owned a 20% interest in Engineered
Wire Products, Inc. ("EWP"), a manufacturer and distributor of wire mesh for the
concrete pipe and road construction business, which previously operated as a
division of Price Brothers Company ("PBC") of Dayton, Ohio. The Company also had
the exclusive option to acquire the remaining 80% interest in EWP at fair market
value for a period of five years. On December 23, 1997, Keystone acquired the
remaining 80% of EWP (the "EWP Acquisition") and EWP became a wholly-owned
subsidiary of Keystone. Keystone paid $11.2 million in cash to acquire PBC's 80%
interest in the joint venture using available funds on hand.
Keystone accounted for the step acquisition of EWP by the purchase
method of accounting and, accordingly, EWP is consolidated in Keystone's
financial statements subsequent to this acquisition. The purchase price has been
allocated to the individual assets acquired and liabilities assumed of EWP based
upon estimated fair values.
In January 1999, Keystone and two unrelated parties formed Garden Zone
LLC ("Garden Zone"), to supply wire, wood and plastic products to the consumer
lawn and garden market. Keystone owns 51% of Garden Zone and, as such,
Keystone's consolidated financial statements at December 31, 1999 include the
accounts of Garden Zone. Neither Keystone nor the other owners contributed any
capital or other assets to the Garden Zone joint venture, but Keystone did
guarantee 51% of Garden Zone's $4 million revolving credit agreement. See Note
4. Garden Zone commenced operations in February 1999 and through December 31,
1999, its earnings, of which 51% accrued to Keystone for financial reporting
purposes, were insignificant.
In July 1999, Keystone formed Alter Recycling Company, L.L.C. ("ARC"),
a joint venture with Alter Peoria, Inc., to operate a scrap recycling operation
at Keystone's facility in Peoria, Illinois. ARC sells scrap steel to Keystone
and others. Upon formation, Keystone contributed the property and equipment of
its Peoria scrap facility (net book value of approximately $335,000) to the
joint venture in return for its 50% ownership interest. Keystone does not
currently anticipate it will be required to make any other contributions to fund
or operate this joint venture. Keystone recognized no gain or loss upon
formation of ARC and the investment in ARC is accounted for by the equity
method. In addition, Keystone sold its scrap facility's existing inventory to
ARC upon commencement of ARC's operations. At December 31, 1999, Keystone's
investment in ARC amounted to $281,000 and is included in other assets. ARC
commenced operations in August 1999 and through December 31, 1999, Keystone had
purchased approximately $2.7 million of scrap from ARC. At December 31, 1999,
ARC owed Keystone approximately $809,000 primarily for the scrap inventory
purchased by ARC from Keystone.
Note 3 - Inventories
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---- ----
(In thousands)
Raw materials:
<S> <C> <C>
Steel and wire products ...................... $17,400 $20,985
Household cleaning products .................. 650 --
------- -------
18,050 20,985
Work in process -
Steel and wire products ...................... 8,642 12,657
------- -------
Finished products:
Steel and wire products ...................... 12,797 20,179
Household cleaning products .................. 249 --
Lawn and garden products ..................... -- 5,595
------- -------
13,046 25,774
------- -------
Supplies -
Steel and wire products ...................... 16,894 15,378
------- -------
56,632 74,794
------- -------
Less LIFO reserve:
Steel and wire products ...................... 4,334 8,711
Household cleaning products .................. 59 --
------- -------
4,393 8,711
------- -------
$52,239 $66,083
======= =======
</TABLE>
<PAGE>
Note 4 - Notes payable and long-term debt
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
----- ----
(In thousands)
<S> <C> <C>
9 5/8% Senior Secured Notes, due August 2007 ......... $100,000 $100,000
Commercial credit agreements:
Revolving credit facilities:
Keystone ......................................... 24,580 35,568
EWP .............................................. 4,000 4,908
Garden Zone ...................................... -- 3,541
Term loan - EWP .................................... 1,020 437
Other ................................................ 2,164 2,403
-------- --------
131,764 146,857
Less current maturities ............................ 29,912 45,986
-------- --------
$101,852 $100,871
======== ========
</TABLE>
The Senior Notes are due in August 2007 and are collateralized by a
second priority lien on substantially all of the existing and future fixed
assets of the Company.
The Senior Notes were issued pursuant to an indenture (the "Indenture")
which, among other things, provides for optional redemptions, mandatory
redemptions and certain covenants, including provisions that, among other
things, limit the ability of the Company to sell capital stock of subsidiaries,
enter into sale and leaseback transactions and transactions with affiliates,
create new liens and incur additional debt. In addition, under the terms of the
Indenture, the Company's ability to borrow under its $60 million revolving
credit facility may be limited. The Indenture also limits the ability of the
Company to pay dividends or make other restricted payments, as defined.
On December 31, 1999, Keystone renewed its $55 million revolving credit
facility for a period of two years. Under the terms of the renewal, the
revolving credit facility was increased from $55 million to $60 million and the
interest rate was reduced from the prime rate plus 1% to the prime rate plus
1/2%, or at the Adjusted Eurodollar Rate (as defined) plus 2.5%. The $60 million
revolving credit facility (the "Keystone Revolver") is collateralized primarily
by the Company's trade receivables and inventories. The effective interest rate
was 8.75% and 9.5% at December 31, 1998 and 1999, 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
$1.1 million at December 31, 1999). At December 31, 1999, $15.9 million was
available for borrowings under this credit facility, all of which could be
borrowed under the terms of the Indenture. The Keystone Revolver requires the
Company's daily cash receipts to be used to reduce the outstanding borrowings,
which results in the Company maintaining zero cash balances when there is a
balance outstanding on the Keystone Revolver. The Keystone Revolver contains
restrictive covenants, including certain minimum working capital and net worth
requirements and a prohibition against the payment of dividends on Keystone
common stock without lender consent.
EWP's $6 million revolving credit agreement (the "EWP Revolver")
expires in June 2000. Borrowings under the EWP Revolver bear interest at either
the prime rate or LIBOR plus 2.25% (8.1% and 8.4% at December 31, 1998 and
1999). At December 31, 1999, $.7 million was available for additional borrowings
under the EWP revolver, all of which could be borrowed under the terms of the
Indenture. EWP's term loan is due June 30, 2000 and is payable in quarterly
installments of $145,750 plus accrued interest. EWP's term note bears interest
at LIBOR plus 2.25% (7.5% and 8.1% at December 31, 1998 and 1999, respectively).
EWP's accounts receivable, inventories and property, plant and equipment
collateralize the EWP Revolver and EWP's term loan. These agreements contain
covenants with respect to working capital, additional borrowings, payment of
dividends and certain other matters.
Garden Zone's $4 million revolving credit facility (the "Garden Zone
Revolver") expires in December 2000 and bears interest at the LIBOR rate plus 2%
(8.1% at December 31, 1999). Garden Zone's accounts receivable and inventories
collateralize the Garden Zone Revolver. At December 31, 1999, $459,000 was
available for additional borrowings under this credit facility, all of which
could be borrowed under the terms of the Indenture.
At December 31, 1999, other notes payable and long-term debt included
$750,000 advanced to Garden Zone by one of its minority owners. The advance
bears interest at the prime rate. Interest paid on this advance during 1999
amounted to approximately $33,000.
Excluding the Senior Notes, substantially all of the Company's notes
payable and long-term debt reprice with changes in interest rates. The aggregate
fair value of the Senior Notes, based on quoted market prices at December 31,
1998 and 1999, approximated $95.4 million and $92.3 million, respectively. The
book value of all other indebtedness is deemed to approximate market value.
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>
2000 $ 45,986
2001 593
2002 196
2003 30
2004 52
2005 and thereafter 100,000
--------
$146,857
========
</TABLE>
At December 31, 1999, total collateralized obligations, including
deferred pension contributions (see Note 7), amounted to $147.5 million.
<PAGE>
Note 5 - Income taxes
Summarized below are (i) the differences between the provision (benefit)
for income taxes and the amounts that would be expected using the U. S. federal
statutory income tax rate of 35%, and (ii) the components of the comprehensive
provision (benefit) for income taxes.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Expected tax expense, at statutory rate .... $ 5,918 $ 1,752 $(4,283)
U.S. state income taxes, net ............... 253 280 (157)
Amortization of goodwill ................... (567) (435) (435)
Settlement of income tax audit ............. (1,500) -- --
------- ------- -------
Other, net ................................. 437 (502) 121
------- ------- -------
Provision (benefit)for income taxes ........ $ 4,541 $ 1,095 $(4,754)
======= ======= =======
Provision (benefit) for income taxes:
Currently payable (refundable):
U.S. federal ........................... $ 5,536 $(1,883) $ (930)
U.S. state ............................. 384 (100) (461)
Benefit of loss carry forwards ......... (841) -- --
Alternative minimum tax credits ........ (2,111) -- --
------- ------- -------
Net currently payable ................ 2,968 (1,983) (1,391)
Deferred income taxes, net ............... 1,573 3,078 (3,363)
------- ------- -------
$ 4,541 $ 1,095 $(4,754)
======= ======= =======
</TABLE>
The Company was subject to the regular U.S. federal statutory income
tax rate of 35%, during 1997, 1998 and 1999, but during 1997 Keystone utilized
alternative minimum tax credit carryforwards to reduce its current federal
income tax payable. At December 31, 1999, the Company had approximately $2.0
million of alternative minimum tax credit carryforwards which have no expiration
date.
<PAGE>
The components of the net deferred tax asset are summarized below.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1999
---------------------------------------- --------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In thousands)
Tax effect of temporary differences relating to:
<S> <C> <C> <C> <C>
Inventories .............................................. $ 2,542 $ -- $ 2,549 $ --
Property and equipment ................................... -- (4,452) -- (5,075)
Prepaid pension .......................................... -- (47,001) -- (49,189)
Accrued OPEB cost ........................................ 42,530 -- 42,227 --
Accrued liabilities and other deductible
differences ............................................. 14,641 -- 14,975 --
Other taxable differences ................................ -- (6,707) -- (6,757)
Net operating loss carryforwards ......................... 9,937 -- 15,583 --
Alternative minimum tax credit carryforwards ............. 1,333 -- 1,983
-------- -------- -------- --------
Gross deferred tax assets (liabilities) ................ 70,983 (58,160) 77,317 (61,021)
Reclassification, principally netting by tax
jurisdiction .............................................. (51,998) 51,998 (59,921) 59,921
-------- -------- -------- --------
Net deferred tax asset (liability) ..................... 18,985 (6,162) 17,396 (1,100)
Less current deferred tax asset ............................ 18,985 -- 17,396 --
-------- -------- -------- --------
Noncurrent deferred tax asset (liability) .............. $ -- $ (6,162) $ -- $ (1,100)
======== ======== ======== ========
</TABLE>
At December 31, 1999, the Company had $24.7 million of net operating
loss carryforwards expiring in 2003 through 2010 which may only be used to
reduce future taxable income of an acquired subsidiary and which are limited in
utilization to approximately $1.9 million per year. Approximately $2.4 million
of such acquired net operating loss carryforward was utilized in 1997 (none in
1998 or 1999). During 1999, Keystone generated a net operating loss of
approximately $16.5 million which expires in 2019. This net operating loss may
be used to reduce future taxable income of the entire Company.
Note 6 - Stock options, warrants and stock appreciation rights plan
In 1997, the Company adopted its 1997 Long-Term Incentive Plan (the
"1997 Plan"). Under the 1997 Plan, the Company may make awards that include, but
need not be limited to, one or more of the following types: stock options, stock
appreciation rights, restricted stock, performance grants and any other type of
award deemed consistent with the purposes of the plan. Subject to certain
adjustments, an aggregate of not more than 500,000 shares of the Company's
common stock may be issued under the 1997 Plan. Stock options granted under the
1997 Plan may include options that qualify as incentive stock options as well as
options which are not so qualified. Incentive stock options are granted at a
price not less than 100%, or in certain instances, 110% of a fair market value
of such stock on the date of the grant. Stock options granted under the 1997
Plan may be exercised over a period of ten, or in certain instances, five years.
The vesting period, exercise price, length of period during which awards can be
exercised, and restriction periods of all awards are determined by the Incentive
Compensation Committee of the Board of Directors. At December 31, 1999, there
were 434,000 options outstanding under this plan.
During 1997, the Company granted all remaining options available under
the Company's 1992 Option Plan. At December 31, 1999, there were 268,066 options
outstanding under this plan. Also during 1997, the Company terminated its 1992
Non-Employee Director Stock Option Plan (the "Director Plan"). At December 31,
1999, there were 11,000 options outstanding under this plan.
<PAGE>
Changes in outstanding options, including options outstanding under the
former 1992 Option Plan, the Director Plan and 15,000 options outstanding under
another plan which was terminated in a prior year, all 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, 1996 404,996 $5.86-$13.56 $3,639,634
Granted 167,000 8.13- 13.94 1,613,625
Exercised (35,235) 9.71- 10.50 (343,778)
Canceled (5,000) 10.75 (53,750)
-------- ------------ ----------
Outstanding at December 31, 1997 531,761 5.86- 13.94 4,855,731
Exercised (39,061) 5.86- 10.50 (280,483)
Canceled (90,634) 6.36- 13.94 (921,524)
-------- ------------ ----------
Outstanding at December 31, 1998 402,066 8.13- 13.94 3,653,724
Granted 342,000 7.63- 9.19 3,124,938
Canceled (16,000) 8.38- 13.94 (191,438)
------- ------------ ----------
Outstanding at December 31, 1999 728,066 $7.63-$13.94 $6,587,224
======= ============ ==========
</TABLE>
The following table summarizes weighted average information about fixed
stock options outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------ ---------------------------------------------
Weighted Average Weighted Average
Range of Remaining Remaining
Exercise Contractual Exercise Contractual Exercise
Prices Options Life Price Options Life Price
---------- ------- ----------- -------- ------- ----------- -------
<
<S> <C> <C> <C> <C> <C> <C>
$ 7.63-$11.00 680,066 7.7 years $ 8.73 301,546 6.3 years $ 8.31
$12.86-$13.94 48,000 5.7 $13.57 38,100 5.1 $13.47
------- -------
728,066 7.6 $ 9.05 339,646 6.2 $ 8.89
======= =======
</TABLE>
At December 31, 1999, options to purchase 339,646 shares were
exercisable (none at prices lower than the December 31, 1999 quoted market price
of $5.94 per share) and options to purchase an additional 159,280 shares will
become exercisable in 2000. At December 31, 1999, an aggregate of 66,000 shares
were available for future grants under the 1997 Plan.
During 1998, warrants to purchase 447,900 shares of Keystone common
stock at an exercise price of $9.38 per share were exercised.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock options granted subsequent to 1994 in accordance with
the fair value based accounting method of SFAS No. 123. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for options granted in
1997 and 1999. There were no options granted in 1998.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1997 1999
---- ----
<S> <C> <C>
Risk-free interest rate 6.7% 5.5%
Dividend yield - -
Volatility factor .44 .43
Weighted average expected life 10 years 10 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the stock price volatility.
Because Keystone's options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the Company's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of the granted options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income (loss) available for common shares and primary net income
(loss) available for common shares per common and common equivalent share were
as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1997 1998 1999
---- ---- ----
(In thousands except per
share amounts)
<S> <C> <C> <C>
Net income (loss) available for common shares
- as reported $12,088 $3,754 $(7,484)
Net income (loss) available for common shares
- pro forma $11,752 $3,343 $(8,228)
Basic net income (loss) available for common
shares per common and common equivalent
share - as reported $ 1.30 $ .41 $ (.75)
Basic net income (loss) available for common
shares per common and common equivalent
share - pro forma $ 1.26 $ .37 $ (.83)
Weighted average fair value per share of
options granted during the year $ 6.37 $ - $ 5.66
</TABLE>
<PAGE>
Note 7 - Pensions and other post retirement benefits plans
Keystone sponsors several pension plans and other post retirement
benefit plans for its employees and certain retirees. Under plans currently in
effect, most active employees would be entitled to receive OPEB upon retirement.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1998 and 1999:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- -------- --------------
1998 1999 1998 1999
---- ---- ---- ----
(In thousands)
Change in benefit obligation:
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 296,159 $ 312,514 $ 108,395 $ 111,442
Service cost ........................... 2,798 3,074 1,477 1,986
Interest cost .......................... 20,177 21,008 7,111 7,030
Plan participants' contributions ....... -- -- 758 675
Plan amendment ......................... -- 15,018 -- --
Actuarial loss (gain) .................. 15,928 (31,014) 3,442 (9,680)
Benefits paid .......................... (22,548) (22,470) (9,741) (9,930)
--------- --------- --------- ---------
Benefit obligation at end of year ...... 312,514 298,130 111,442 101,523
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning
of year .............................. 358,150 353,235 -- --
Actual return on plan assets ........... 17,633 5,908 -- --
Company contributions .................. -- -- 8,983 9,255
Plan participants' contributions ....... -- -- 758 675
Benefits paid .......................... (22,548) (22,470) (9,741) (9,930)
--------- --------- --------- ---------
Fair value of plan assets at end of year 353,235 336,673 -- --
--------- --------- --------- ---------
Funded status ............................ 40,721 38,543 (111,442) (101,523)
Unrecognized net loss (gain) ............. 76,786 71,930 6,260 (3,257)
Unrecognized prior service cost (credit) . -- 14,454 (3,865) (3,522)
Unrecognized transition obligation ....... 3,009 1,199 -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost ........... 120,516 126,126 (109,047) (108,302)
Less current portion ..................... -- -- (10,000) (9,500)
--------- --------- --------- ---------
Noncurrent portion ....................... $ 120,516 $ 126,126 $ (99,047) $ (98,802)
========= ========= ========= =========
</TABLE>
The assumptions used in the measurement of the Company's benefit
obligations at December 31, are shown in the following table:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------------ ------------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 6.5% 7.5% 7.0% 6.5% 7.5%
Expected return on plan assets 10.0% 10.0% 10.0% - - -
Rate of compensation increase 3.0% 3.0% 3.0% - - -
</TABLE>
<PAGE>
The following table provides the components of net periodic benefit
cost for the plans for the years ended December 31,:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------------- ---------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost ..................... $ 2,368 $ 2,798 $ 3,074 $ 1,304 $ 1,477 $ 1,986
Interest cost .................... 20,229 20,177 21,008 7,395 7,111 7,030
Expected return on plan assets ... (31,807) (34,729) (34,219) -- -- --
Amortization of unrecognized:
Net obligation as of
January 1, 1987 .............. 1,810 1,810 1,810 -- -- --
Prior service cost ............. (4) (4) 511 (343) (343) (343)
Net loss (gains) ............... 1,082 504 2,206 (29) -- --
-------- -------- -------- -------- -------- --------
Net periodic benefit cost (credit) $ (6,322) $ (9,444) $ (5,610) $ 8,327 $ 8,245 $ 8,673
======== ======== ======== ======== ======== ========
</TABLE>
At December 31, 1999, approximately 97% of the Plan's net assets were
invested in a collective investment trust (the "Collective Trust") established
by Valhi, Inc. ("Valhi"), a majority-owned subsidiary of Contran, to permit the
collective investment by certain master trusts which fund certain employee
benefit plans maintained by Contran, Valhi and related companies, including the
Company. The remainder of the Plan's assets at December 31, 1999 were invested
in investment partnerships, certain real estate leased by the Company, mortgages
and other short-term investments. Harold C. Simmons is the sole trustee of the
Collective Trust. Mr. Simmons and two members of Keystone's board of directors
and Master Trust Investment Committee comprise the Trust Investment Committee
for the Collective Trust. Neither Mr. Simmons or the Keystone directors receive
any compensation for serving in such capacities.
With certain exceptions, the trustee of the Collective Trust has
exclusive authority to manage and control the assets of the Collective Trust.
Administrators of the employee benefit plans participating in the Collective
Trust, however, have the authority to direct distributions and transfers of plan
benefits under such participating plans. The Trust Investment Committee of the
Collective Trust has the authority to direct the trustee to establish investment
funds, transfer assets between investment funds and appoint investment managers
and custodians. Except as otherwise provided by law, the trustee is not
responsible for the investment of any assets of the Collective Trust that are
subject to the management of an investment manager.
The Company may withdraw all or part of the Plan's investment in the
Collective Trust at the end of any calendar month without penalty.
Keystone was granted funding waivers from the Internal Revenue Service
("IRS") to defer the annual pension plan contributions for the 1980, 1984 and
1985 plan years, which, in the aggregate, amounted to $31.7 million. The
deferred amounts, with interest, were payable by the Company over fifteen years.
At December 31, 1999, the remaining balance of such deferred contributions was
approximately $651,000. These deferred contributions are collateralized by a
lien on all of the Company's assets. However, the Company will no longer be
required to make these deferred contributions provided the Plan maintains a
specified over-funded status.
For measurement purposes, a 6.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.0% in 2006 and remain at that level
thereafter.
<PAGE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
Change in Health Care Cost Trend
--------------------------------
1% Increase 1% Decrease
-------------- -----------
(In thousands)
Increase (decrease):
<S> <C> <C>
Effect on total of service and interest
cost components for the year ended
December 31, 1999 $ 752 $(1,279)
Effect on postretirement benefit
obligation at December 31, 1999 $11,284 $(9,494)
</TABLE>
The Company also maintains several defined contribution pension plans.
Expense related to these plans was $2.4 million in 1997 and $2.9 million in each
of 1998 and 1999.
Note 8 - Other accrued liabilities
<TABLE>
<CAPTION>
December 31,
1998 1999
---- ----
(In thousands)
Current:
<S> <C> <C>
Employee benefits ......................... $11,560 $13,181
Environmental ............................. 7,165 10,093
Self insurance ............................ 6,950 7,218
Interest .................................. 4,054 4,034
Disposition of former facilities .......... 1,452 617
Legal and professional .................... 795 829
Other ..................................... 5,481 9,365
------- -------
$37,457 $45,337
======= =======
Noncurrent:
Environmental ............................. $ 8,175 $ 8,143
Deferred gain ............................. 821 274
Other ..................................... 1,287 1,122
------- -------
$10,283 $ 9,539
======= =======
</TABLE>
The deferred gain relates to the sale of certain DeSoto properties to
DeSoto's pension plan. See Note 14.
<PAGE>
Note 9 - Redeemable preferred stock:
In connection with the DeSoto Acquisition, Keystone issued 435,456
shares of Keystone Series A 8% Senior Preferred Stock in exchange for all of the
outstanding preferred stock of DeSoto. The preferred stock could be redeemed by
Keystone at any time, at a cash redemption price equal to $8.0375 per share (an
aggregate of $3.5 million) plus all accrued but unpaid dividends thereon,
whether or not earned or declared (the "Liquidation Preference"). Under certain
conditions, Keystone was required to redeem the preferred stock at a cash
redemption price equal to the Liquidation Preference, to the maximum extent
legally permissible including within ten days after the exercise of any warrants
to purchase Keystone common stock by any of the warrantholders and preferred
stockholders.
In July 1998, the warrantholders exercised their warrants and Keystone
redeemed all of the outstanding preferred stock at the aggregate $3.5 million
redemption price. Net cash proceeds to the Company approximated $701,000.
Note 10 - Related party transactions
Keystone 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. See also Note 14.
J. Walter Tucker, Jr., Vice Chairman of the Company, is a principal
stockholder of Tucker & Branham, Inc., Orlando, Florida. Although the Company
does not pay Mr. Tucker a salary, the Company has contracted with Tucker &
Branham, Inc. for management consulting services by Mr. Tucker. Fees paid to
Tucker & Branham, Inc. were $62,000 in 1997, $77,000 in 1998 and $66,000 in
1999.
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 $540,000 in 1997, $639,000 in
1998 and $656,000 in 1999. In addition, the Company purchased certain aircraft
services from Valhi in the amount of $175,000 in 1997, $160,000 in 1998 and
$175,000 in 1999.
Certain of Keystone's property, liability and casualty insurance risks
are insured or partially reinsured by captive insurance subsidiaries of Contran.
The premiums paid in connection therewith were approximately $127,000 in 1997,
$719,000 in 1998 and $967,000 in 1999.
EWI RE, Inc. ("EWI") arranges for and brokers certain of the Company's
insurance policies. Parties related to Contran own 90% of the outstanding common
stock of EWI, and a son-in-law of Mr. Simmons manages the operations of EWI.
Consistent with insurance industry practices, EWI receives a commission from the
insurance underwriters for the policies that it arranges or brokers. The Company
paid an aggregate of approximately $.8 million for such policies in 1998 and
$1.7 million in 1999.
Dallas Compressor Company, a wholly-owned subsidiary of Contran sells
compressors and related services to Keystone. During 1997, 1998 and 1999
Keystone purchased products and services from Dallas Compressor Company in the
amount of $52,000, $26,000 and $170,000, respectively.
<PAGE>
Note 11 - Quarterly financial data (unaudited)
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(In thousands, except per share data)
Year ended December 31, 1999:
<S> <C> <C> <C> <C>
Net sales $91,717 $105,924 $79,738 $78,309
Gross profit (loss) 8,054 12,440 3,512 (962)
Net income (loss) $ (348) $ 2,479 $(4,118) $(5,497)
======= ======== ======= =======
Net income (loss) available for common shares $ (348) $ 2,479 $(4,118) $(5,497)
======= ======== ======= =======
Basic net income (loss) available for common
shares per common and common equivalent share $ (.04) $ .25 $ (.41) $ ( .55)
======= ======== ======= ========
Year ended December 31, 1998:
Net sales $96,104 $105,919 $87,125 $80,874
Gross profit 7,931 10,082 5,918 6,466
Net income (loss) $ 2,202 $ 4,068 $ (707) $(1,652)
======= ======== ======= =======
Net income (loss) available for common shares $ 2,132 $ 3,998 $ (724) $(1,652)
======= ======== ======= =======
Basic net income (loss) available for common
shares per common and common equivalent share $ .23 $ .43 $ (.07) $ (.18)
======= ======== ======= =======
</TABLE>
During the fourth quarter of 1998 and 1999, Keystone recorded a charge
to bad debt expense of $.7 million and $.6 million, respectively, resulting from
severe deterioration in a customer's financial condition. In addition, during
the fourth quarter of 1999, the Company recorded a $1.6 million charge to
depreciation expense representing the remaining book value of certain components
of the Company's pollution control system that were replaced.
Note 12 - Operations
Through December 31, 1998, Keystone's operations were comprised of two
segments; the manufacture and sale of carbon steel rod, wire and wire products
for agricultural, industrial, construction, commercial, original equipment
manufacturers and retail consumer markets and the manufacture and sale of
household cleaning products. In January 1999, the Company's wholly-owned
subsidiary, DeSoto, sold its household cleaning products division. Also in
January 1999, Keystone formed Garden Zone, to supply wire, wood and plastic
products to the consumer lawn and garden markets. Keystone owns 51% of Garden
Zone. The Company's steel and wire products are distributed primarily in the
Midwestern and Southwestern United States. Garden Zone's products are
distributed primarily in the Southeastern United States. The Company's household
cleaning products were sold primarily to a single customer.
<PAGE>
The Company evaluates segment performance based on segment operating
income, which is defined as income before income taxes and interest expense,
exclusive of certain non-recurring items (such as gains or losses on disposition
of business units) and certain general corporate income and expense items
(including interest income) which are not attributable to the operations of the
reportable operating segments.
<TABLE>
<CAPTION>
Business Segment Principal entities Location
<S> <C> <C>
Steel and wire products Keystone Steel & Wire Peoria, Illinois
Sherman Wire Sherman, Texas
Sherman Wire
of Caldwell, Inc. Caldwell, Texas
Keystone Fasteners Springdale, Arkansas
Fox Valley Steel & Wire Hortonville, Wisconsin
Engineered Wire Products (1) Upper Sandusky, Ohio
Lawn and garden products Garden Zone LLC (2) Charleston, South
Carolina
Household cleaning products DeSoto Joliet, Illinois
</TABLE>
(1) Unconsolidated 20% equity affiliate prior to December 23, 1997. On that
date, Keystone acquired the 80% of EWP not already owned by the
Company, resulting in EWP becoming a wholly-owned subsidiary of
Keystone. Sales by Keystone to EWP during 1997 prior to the EWP
Acquisition amounted to $12.9 million.
(2) 51.0% subsidiary.
The Company's operating segments are defined as components of
consolidated operations about which separate financial information is available
that is regularly evaluated by the chief operating decision maker in determining
how to allocate resources and in assessing performance. The Company's chief
operating decision maker is Mr. Robert W. Singer. Each operating segment is
separately managed, and each operating segment represents a strategic business
unit offering different products.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies except that pension expense
for each segment is recognized and measured on the basis of estimated current
service cost of each segment. The remainder of the Company's net overfunded
defined benefit pension credit is included in net general corporate expenses. In
addition, amortization of goodwill and negative goodwill are included in general
corporate expenses and are not allocated to each segment. General corporate
expenses also includes OPEB and environmental expenses relative to facilities no
longer owned by the Company.
Segment assets are comprised of all assets attributable to each
reportable operating segment. Corporate assets consist principally of pension
related assets, restricted investments, deferred tax assets and corporate
property, plant and equipment.
<PAGE>
<TABLE>
<CAPTION>
Steel and Lawn and Household Corporate
Wire Garden Cleaning Segment and
Products Products Products Total Eliminations Total
-------- -------- -------- ----- ------------ -----
(In thousands)
Year ended December 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
Net sales ...................... $ 344,738 $ 13,968 $ -- $ 358,706 $ (3,018) $ 355,688
Depreciation and amortization .. 22,282 -- -- 22,282 (1,231) 21,051
Equity in loss of unconsolidated
affiliates ................... (54) -- -- (54) -- (54)
Operating profit (loss) ........ 2,311 267 -- 2,578 -- 2,578
Identifiable segment assets .... 249,165 6,894 -- 256,059 154,859 410,918
Capital expenditures ........... 16,857 -- -- 16,857 16 16,873
Year ended December 31, 1998:
Net sales ...................... $ 359,993 $ -- $ 10,029 $ 370,022 $ -- $ 370,022
Depreciation and amortization .. 21,317 -- 52 21,369 (1,229) 20,140
Operating profit (loss) ........ 14,400 -- (1,367) 13,033 -- 13,033
Identifiable segment assets .... 252,172 -- 2,311 254,483 151,374 405,857
Capital expenditures ........... 64,308 -- 217 64,525 16 64,541
Year ended December 31, 1997:
Net sales ...................... $ 340,099 $ -- $ 13,974 $ 354,073 $ -- $ 354,073
Depreciation and amortization .. 14,296 -- 7 14,303 (1,488) 12,815
Operating profit ............... 22,446 -- 846 23,292 -- 23,292
Identifiable segment assets .... 210,114 -- 2,184 212,298 161,833 374,131
Capital expenditures ........... 26,085 -- 117 26,202 92 26,294
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating profit ........................... $ 23,292 $ 13,033 $ 2,578
Equity in loss of unconsolidated affiliate . -- -- (54)
General corporate items:
Interest income .......................... 1,218 594 452
General income (expenses), net ........... 11 1,839 (1,156)
Interest expense ........................... (7,612) (10,460) (14,058)
-------- -------- --------
Income (loss) before income taxes ........ $ 16,909 $ 5,006 $(12,238)
======== ======== ========
</TABLE>
All of the Company's assets are located in the United States.
Information concerning geographic concentration of net sales based on location
of customer is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1997 1998 1999
---- ---- ----
(In thousands)
<S> <C> <C> <C>
United States ............... $350,850 $366,731 $353,151
Canada ...................... 2,802 3,242 2,449
Great Britain ............... 418 24 88
Other ....................... 3 25 --
-------- -------- --------
$354,073 $370,022 $355,688
======== ======== ========
</TABLE>
<PAGE>
Note 13 - Environmental matters
At December 31, 1999, Keystone's financial statements reflected total
accrued liabilities of $18.2 million to cover estimated remedial costs arising
from environmental issues, including those discussed below. Although the Company
has established an accrual for estimated future required environmental
remediation costs, there is no assurance regarding the ultimate cost of remedial
measures that might eventually be required by environmental authorities or that
additional environmental hazards, requiring further remedial expenditures, might
not be asserted by such authorities or private parties. Accordingly, the costs
of remedial measures may exceed the amounts accrued.
The Company is currently involved in the closure of inactive waste
disposal units at its Peoria 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. The Company recorded an estimated liability for remediation of the
impoundments and waste piles based on a six phase remediation plan. The Company
adjusts the recorded liability for each Phase as actual remediation costs become
known. During 1995, the Company began remediation of Phases II and III and
completed these Phases, as well as Phase IV during 1996. During 1997, 1998 and
1999 the Company did not have any significant remediation efforts relative to
Phases V and VI. Pursuant to agreements with the IEPA and Illinois Attorney
General's office, the Company is depositing $75,000 per quarter into a trust
fund. The Company must continue these quarterly deposits and 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, 1998 and
1999 the trust fund had balances of $3.6 million and $4.0 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 2000.
In February 2000, Keystone received a notice from the United States
Environmental Protection Agency ("U.S. EPA") giving formal notice of the U.S.
EPA's intent to issue a unilateral administrative order to Keystone pursuant to
section 3008(h) of the Resource Conservation and Recovery Act ("RCRA"). The
draft order enclosed with this notice would require Keystone to: (1) investigate
the nature and extent of hazardous constituents present at and released from
five alleged solid waste management units at the Peoria facility; (2)
investigate hazardous constituent releases from "any other past or present
locations at the Peoria facility where past waste treatment, storage or disposal
may pose an unacceptable risk to human health and the environment"; (3) complete
by June 30, 2001 an "environmental indicators report" demonstrating the
containment of hazardous substances that could pose a risk to "human receptors"
and further demonstrating that Keystone "has stabilized the migration of
contaminated groundwater at or from the facility;" (4) submit by January 30,
2002 proposed "final corrective measures necessary to protect human health and
the environment from all current and future unacceptable risks of releases of
hazardous waste or hazardous constituents at or from the Peoria facility; and
(5) complete by June 30, 2001 the closure of the sites discussed in the
preceding paragraphs now undergoing RCRA closure under the supervision of the
IEPA. Keystone has requested a meeting with the U.S. EPA to learn the basis for
the notice and what responsive action is required.
In March 2000, the Illinois Attorney General filed and served an
eight-count complaint against Keystone for alleged violations of the Illinois
Environmental Protection Act, 415 ILCS 5/31, at Keystone's Peoria facility. The
complaint alleges Keystone stored hazardous waste without a RCRA permit, failed
to use required manifests for hazardous waste disposal, sent hazardous waste off
site to non-hazardous waste landfills, failed to make required hazardous waste
determinations for several barrels of waste discovered during a 1996 state
inspection, committed various record keeping violations, submitted incomplete
annual hazardous waste reports to the IEPA, caused water pollution and created a
water pollution hazard through the release of spent pickle liquor onto the land
in December 1998 and January 1999. The complaint seeks a civil penalty of
$50,000 for each violation of the Illinois Environmental Protection Act, and an
additional civil penalty of $10,000 for each day of violation. Keystone will
vigorously contest the complaint.
"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 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 eight sites. These situations involve cleanup of
landfills and disposal facilities which allegedly received hazardous substances
generated by discontinued operations of the Company. Although the Company
believes its comprehensive general liability insurance policies provide
indemnification for certain costs the Company incurs at the "Superfund" sites
discussed below, it has only recorded receivables for the estimated insurance
recoveries at three of those sites. During 1997 and 1999, the Company received
approximately $4.7 million and $725,000, respectively, from certain of its
insurers in exchange for releasing such insurers from coverage for certain years
of environmental related liabilities. Such amounts are included in the Company's
self insurance accruals.
In July 1991, the United States filed an action against a former
division 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. In December
1996, Keystone, U.S. EPA and the Department of Justice entered into the Fifth
Partial Consent Decree 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 is precluded from recovering any portion of the $690,000
settlement payment from other parties to the lawsuit. In January 1997, Keystone
paid the $690,000 settlement. 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 recovered a portion
of the $690,000 payment from its insurer. In March 1997, U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated soils be performed at an estimated cost of $63,000, that a soil
cover be placed over the site, an on-site groundwater pump and treat system be
installed and operated for an estimated period of 15 years, and that both
on-site and off-site groundwater monitoring be conducted for an indefinite
period. U.S. EPA's cost estimate for the recommended plan is $5.1 million. U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately $6 million. The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") special notice letter notifying them for the first time of a
September 1998 Record of Decision ("ROD") and requesting a commitment on or
before May 19, 1999 to perform soils work required by that ROD that was
estimated to cost approximately $300,000. If all PRP's identified by U.S. EPA as
having responsibility for this site were to participate in the soils remedy,
Keystone's share would be 18.6%. At present, PRP's representing 80% of the
allocated responsibility, including Keystone, have indicated they intend to
participate in the soils remedy. In addition, the special notice letter also
requested the PRP's to reimburse U.S. EPA for costs incurred at the site since
May 1994 in the amount of $1.1 million, as well as for all future costs the U.S.
EPA will incur at the site in overseeing the implementation of the selected
soils remedy and any future groundwater remedy. Keystone refused to agree to the
U.S. EPA's past and future cost demand. In August 1999, U.S. EPA issued a
groundwater PRAP with an estimated present value cost of $3 million. Keystone
filed public comments opposing the PRAP in September 1999. U.S. EPA has yet to
issue its final ROD in response to these and other comments.
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 RI/FS began in
1993, was completed in 1997 and approved by IEPA in 1998. In the summer of 1999,
IEPA selected a capping and soil vapor extraction remedy estimated by the PRP
group to have a present value cost of approximately $2.5 million. IEPA May also
demand reimbursement of future oversight costs.
In August 1987, Keystone 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. Four other PRPs
participated in the RI/FS and a contribution action is pending against eleven
additional viable companies which contributed wastes to the site. Following
completion of the RI/FS, U.S. EPA published in November 1997, a PRAP for the
site that recommends the excavation and disposal of contaminated soil,
installation of an impervious cap over a portion of the site, placement of a
surface cover over the remainder of the site and semi-annual groundwater
monitoring until drinking water standards are met by natural attenuation. U.S.
EPA estimates the costs of this recommended plan to be $3.1 million. The highest
cost remedy evaluated by U.S. EPA but not recommended in the PRAP is estimated
by U.S. EPA to have a cost of $19.8 million. In September 1998, Keystone and
four other PRPs who had funded the prior remedial actions and RI/FS signed a
proposed Consent Decree with U.S. EPA calling for them to be "nonperforming
parties" for the implementation of a March 1998 Record of Decision. Under this
proposed Consent Decree, Keystone is responsible for an unspecified share of
U.S. EPA's past site costs of $686,000. The proposed Consent Decree was lodged
by U.S. EPA with the District Court in February 1999, with a public comment
period of at least 30 days. The Company's estimated share of the least expensive
remedial option is $375,000.
Prior to the DeSoto acquisition, DeSoto was notified by U.S. EPA that
it is one of approximately 50 PRPs at the Chemical Recyclers, Inc. site in
Wylie, Texas. Under a consent order with the U.S. EPA, the PRP group has
performed a removal action and an investigation of soil and groundwater
contamination. Such investigation revealed certain environmental contamination.
It is anticipated U.S. EPA will order further remedial action, the exact extent
of which is not currently known. The Company is paying on a non-binding interim
basis, approximately 10% of the costs for this site. Remediation costs, at
DeSoto's present allocation level are estimated at a range of from $1.5 million
to $4 million.
In 1984, U.S. EPA filed suit against DeSoto by amending a complaint
against Midwest Solvent Recovery, Inc. et al ("Midco"). DeSoto was a defendant
based upon alleged shipments to an industrial waste recycling storage and
disposal operation site located in Gary, Indiana. The amended complaint sought
relief under CERCLA to force the defendants to clean up the site, pay
non-compliance penalties and reimburse the government for past clean up costs.
In June 1992, DeSoto settled its portion of the case by entering into a partial
consent decree, and all but one of the eight remaining primary defendants and 93
third party defendants entered into a main consent decree. Under the terms of
the partial consent decree, DeSoto agreed to pay its pro rata share (13.47%) of
all costs under the main consent decree. At December 31, 1999 current estimates
of total remaining remediation costs related to this site are approximately $35
million. In addition to certain amounts included in the trust fund discussed
below, DeSoto also has certain funds available in other trust funds due it under
the partial consent decree. These credits can be used by DeSoto (with certain
limitations) to fund its future liabilities under the partial consent decree.
In 1995, DeSoto was notified by the Texas Natural Resource Conservation
Commission ("TNRCC") that there were certain deficiencies in prior reports to
TNRCC relative to one of the Company's non-operating facilities located in
Gainesville, Texas. During 1999, the Company entered into TNRCC's Voluntary
Cleanup Program. Remediation costs, are presently estimated to be between $1
million and $5 million.
In December 1991, DeSoto and approximately 600 other PRPs were named in
a complaint alleging DeSoto and the PRPs generated wastes that were disposed of
at a Pennsauken, New Jersey municipal landfill. The plaintiffs in the complaint
were ordered by the court to show in what manner the defendants were connected
to the site. The plaintiffs provided an alleged nexus indicating garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such waste allegedly contained hazardous material to which
DeSoto objected. The claim was dismissed without prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in discovery stage at December 31, 1999. The Company has denied any
liability with regard to this matter and expects to vigorously defend the
action.
During December 1997, DeSoto entered into a agreement with U.S. EPA to
settle the Company's alleged liability with respect to the American Chemical
Site ("ACS"), a chemical recycling facility located in Griffith, Indiana for a
payment of approximately $1.6 million, which was within the previously accrued
balance and which was paid in 1998.
In addition to the sites discussed above, DeSoto is allegedly involved
at various other sites and in related toxic tort lawsuits which the Company does
not currently expect to incur significant liability.
Under the terms of a 1990 asset sale agreement, DeSoto established a $6
million trust fund to fund potential clean-up liabilities relating to the assets
sold. The trust agreement expires on October 26, 2000. The Company has access to
the trust fund for any expenses or liabilities incurred by the Company regarding
environmental claims relating to the sites identified in the trust agreement.
The trust fund is primarily invested in United States Treasury securities and is
classified as a restricted investment on the balance sheet. As of December 31,
1998 and 1999, the balance in the trust fund was approximately $4.5 million and
$4.6 million, respectively.
Note 14 - Lease commitments
During years prior to the DeSoto acquisition, DeSoto sold four of its
real properties to a real property trust created by DeSoto's pension plan. This
trust paid a total of approximately $10.6 million in cash for the properties and
entered into ten-year leases of the properties to DeSoto. DeSoto's gain on the
sale of these properties is being amortized over the period of the related
leases and is included in other accrued liabilities. See Note 8. The amount paid
to DeSoto by the trust and DeSoto's annual rental obligation were based upon
independent appraisals and approved by DeSoto's Board of Directors. During 1998,
the Plan sold two of the locations and, as part of the terms of the sale of one
of the locations, DeSoto leased back the property for a period of two years. In
January 1999, the Plan sold the third location, and DeSoto was released from the
respective lease. DeSoto subleased the fourth location and continues to make
monthly rental payments to the pension plan for the amount by which its rental
obligation exceeds the subtenant's rental obligations. During January 2000, the
Plan entered into an agreement to sell the fourth and final location.
<PAGE>
Payments, net of subtenant rent payments, under these leases during
1997 1998 and 1999 amounted to approximately $832,000, $679,000 and $324,000,
respectively.
In addition, the Company is obligated under certain other operating
leases through 2005.
Future commitments under these leases, net of subleases are summarized
below.
<TABLE>
<CAPTION>
(In thousands)
---------------------------------------
Lease Sub
commitment rents Net
<S> <C> <C> <C>
2000 $2,141 $263 $1,878
2001 1,648 247 1,401
2002 968 150 818
2003 241 - 241
2004 104 - 104
Thereafter 22 - 22
------ ---- ------
$5,124 $660 $4,464
====== ==== ======
</TABLE>
Note 15 - Other commitments and contingencies
Current litigation
In 1992, a claim was filed against DeSoto in the Eastern Division of
the Danish High Court by an insurance carrier to a third party, for property
damage allegedly incurred when a fertilizer product manufactured by the third
party, containing a chemical sold to that party by one of DeSoto's former
operations, allegedly caused or promoted, a fungus infection resulting in
failure of certain tomato crops in the United Kingdom. The damages alleged are
approximately $1.4 million. DeSoto's defense, with a reservation of rights, has
been undertaken by one of its insurance carriers. The matter continues to
proceed in Denmark, where jurisdiction has been conceded. During 1996, DeSoto
received a report from its Danish counsel that an independent expert had largely
confirmed DeSoto's position that its product was not the cause of the alleged
damage.
During 1996, DeSoto and more than 60 others were named as defendants in
litigation in which the estates of four individuals who died of leukemia allege
their deaths were a result of exposure to benzene during the individuals'
maritime careers. Subsequently, the cases were dismissed although appeals are
pending. DeSoto has denied any liability and will continue to vigorously defend
these actions.
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.
<PAGE>
Product supply agreement
In 1996, Keystone entered into a long-term product supply agreement
(the "Supply Agreement") with a vendor. The Supply Agreement provides, among
other things, that the vendor will construct a plant at the Company's Peoria,
Illinois facility and, after completion of the plant, provide the Company with
all, subject to certain limitations, of its gaseous oxygen and nitrogen needs
for a 15 year period. In addition to specifying rates to be paid by the Company,
including a minimum facility fee of approximately $1.2 million per year, the
Supply Agreement also specifies provisions for adjustments to the rates and term
of the Supply Agreement. Purchases made pursuant to the Supply Agreement during
1997, 1998 and 1999 amount to $391,000, $399,000 and $2.1 million, respectively.
Concentration of credit risk
Steel and Wire Products. 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 customers' financial condition and, generally, requires no
collateral from its customers. The Company's ten largest steel and wire
customers accounted for approximately 34% of steel and wire product sales in
1997, 33% in 1998 and 34% in 1999. These customers accounted for approximately
30% of steel and wire products notes and accounts receivable at December 31,
1998 and 22% at December 31, 1999.
Lawn and garden products. The Company sells its products primarily to
retailers in the Southeastern United States. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company's ten largest lawn and garden
customers accounted for significantly all of lawn and garden product sales in
1999 and lawn and garden products notes and accounts receivable at December 31,
1999.
Household cleaning products. The Company sold its household cleaning
products to primarily one customer, Sears, Roebuck & Co. ("Sears"). The Company
extends industry standard terms to its household cleaning products customers
and, generally requires no collateral. During 1997 and 1998, sales to Sears
accounted for approximately 81% and 85%, respectively, of total sales related to
household cleaning products. Receivables from Sears at December 31, 1998
amounted to approximately 76% ($1.5 million), of receivables related to sales of
household cleaning products.
<PAGE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)
Additions
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance at
beginning costs and (net of end of
Description of period expenses recoveries) Other (A) period
- ----------- -- --------- -------- ----------- --------- -- ------
Year ended December 31, 1997:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
notes receivable $ 469 $2,513 $ 61 $ 20 $2,941
======= ====== ====== ======== ======
Year ended December 31, 1998:
Allowance for doubtful accounts and
notes receivable $ 2,941 $2,019 $ 45 $ - $4,915
======= ====== ====== ======== ======
Year ended December 31, 1999:
Allowance for doubtful accounts and
notes receivable $4,915 $ 523 $3,141 $ - $2,297
====== ======= ====== ======== ======
</TABLE>
FOURTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN AND SECURITY
AGREEMENT (the "Fourth Amendment") is entered into as of December 31, 1999, by
and between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation
("Borrower"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois
corporation ("Lender"). Except for terms which are expressly defined herein, all
capitalized terms used herein shall have the meaning subscribed to them in the
Loan Agreement (as defined below).
RECITALS
WHEREAS, Borrower and Lender are parties to that certain Amended and
Restated Revolving Loan and Security Agreement dated as of December 29, 1995 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement").
WHEREAS, Borrower desires to amend the terms of the Loan Agreement to
reflect the renewal of the Loan Agreement and to provide further financial
accommodations under the Loan Agreement.
WHEREAS, Lender is willing to amend the Loan Agreement on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENTS TO THE LOAN AGREEMENT
A. The definition of "Inventory Cap Adjustment" in Section 1 of the Loan
Agreement is hereby amended and restated in its entirety to read as
follows:
"Inventory Cap Adjustment" shall mean, at any time, the amount, if
any, by which the Inventory Utilization exceeds $30,000,000.
B. The definition of "Maximum Credit" in Section 1 of the Loan Agreement
is hereby amended and restated in its entirety to read as follows:
"Maximum Credit" shall mean the amount of $60,000,000.
<PAGE>
C. The definition of "Prime Rate" in Section 1 of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, at its office in
Charlotte, North Carolina, as its prime rate, whether or not such
announced rate is the best rate available at such bank.
D. Section 1 of the Loan Agreement is hereby amended by adding the
following defined terms in the appropriate alphabetical order:
"Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
percent) determined by dividing (a) the Eurodollar Rate for such
Interest Period by (b) a percentage equal to: (i) one (1) minus (ii)
the Reserve Percentage. For purposes hereof, "Reserve Percentage"
shall mean the reserve percentage, expressed as a decimal, prescribed
by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of
United States dollars in a non-United States or an international
banking office of Reference Bank used to fund a Eurodollar Rate Loan
or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such
deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on
and as of the effective day of any change in the Reserve Percentage.
"Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to
close under the laws of the States of New York or Illinois or the
Commonwealth of Pennsylvania, and a day on which the Reference Bank
and Lender are open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate
Loans, the term Business Day shall also exclude any day on which banks
are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
"Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
"Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
percent) at which Reference Bank is offered deposits of United States
dollars in the London interbank market (or other Eurodollar Rate
market selected by Borrower and approved by Lender) on or about 9:00
a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans requested by and
available to Borrower in accordance with this Agreement, with a
maturity of comparable duration to the Interest Period selected by
Borrower.
"Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance
with the customary practice in the applicable Eurodollar Rate market;
provided, that, Borrower may not elect an Interest Period which will
end after the last day of the then-current term of this Agreement.
"Interest Rate" shall mean, as to Prime Rate Loans, a rate of one-half
of one percent (.5%) per annum in excess of the Prime Rate and, as to
Eurodollar Rate Loans, a rate of two and one-half of one percent
(2.5%) percent per annum in excess of the Adjusted Eurodollar Rate
(based on the Eurodollar Rate applicable for the Interest Period
selected by Borrower as in effect three (3) Business Days after the
date of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof, whether
such rate is higher or lower than any rate previously quoted to
Borrower); provided, that, the Interest Rate shall mean the rate of
two and one-half of one percent (2.5%) per annum in excess of the
Prime Rate as to Prime Rate Loans and the rate of four and one-half of
one percent (4.5%) per annum in excess of the Adjusted Eurodollar Rate
as to Eurodollar Rate Loans, at Lender's option, without notice, (a)
for the period (i) from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of
all obligations (notwithstanding entry of a judgment against Borrower)
and (ii) from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as
determined by Lender, and (b) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under
Section 2 (whether or not such excess(es), arise or are made with or
without Lender's knowledge or consent and whether made before or after
an Event of Default).
"Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the
terms thereof.
"Reference Bank" shall mean First Union National Bank or such other
bank as Lender may from time to time designate.
E. Section 2.1(a) of the Loan Agreement is hereby amended and restated in
its entirety to read as follows:
2.1 REVOLVING LOANS.
(a) Subject to, and upon the terms and conditions contained
herein, Lender may, in its sole discretion, agree to make
Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount which is equal to the sum
of:
(i) the sum of:
(A) eighty-five percent (85%) of the Net Amount of Eligible
Borrower Accounts, plus
(B) the sum of (a) sixty percent (60%) of the value of
Eligible Borrower Inventory which constitutes finished goods
and (b) the sum of fifty-five percent (55%) of Eligible
Borrower Inventory excluding finished goods; plus
(ii) provided that Caldwell is Solvent at the time of the
proposed Revolving Loans, the sum of:
(A) the lesser of $3,500,000, or
(B) (i) eighty-five percent (85%) of Eligible Caldwell
Accounts; plus (ii) the sum of (x) sixty percent (60%) of
the value of Eligible Caldwell Inventory which constitutes
finished goods and (y) fifty-five percent (55%) of the value
of Eligible Caldwell Inventory, excluding finished goods;
plus
(iii) provided that Fox Valley is Solvent at the time of the
proposed Revolving Loans, the sum of:
(A) the lesser of $2,500,000, or
(B) (I) EIGHTY-FIVE PERCENT (85%) OF ELIGIBLE FOX ACCOUNTS; PLUS (ii)
the sum of (x) sixty percent (60%) of Eligible Fox Valley Inventory which
constitutes finished goods and (y) fifty-five percent (55%) of the value of
Eligible Fox Valley INVENTORY, EXCLUDING FINISHED GOODS; LESS
(IV) ANY AVAILABILITY RESERVES; LESS
(v) the Inventory Cap Adjustment (the calculation determined
in this Section 2.1(a) is hereinafter referred to as the
"Borrowing Base")
F. Section 3.1 of the Loan Agreement is hereby amended and restated in
its entirety to read as follows:
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the
Interest Rate applicable to Prime Rate Loans. All interest
accruing hereunder on and after the date of any Event of Default
or termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing
Eurodollar Rate Loans continue for an additional Interest Period.
Such request from Borrower shall specify the amount of the Prime
Rate Loans which will constitute Eurodollar Rate Loans (subject
to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms
and conditions contained herein, three (3) Business Days after
receipt by Lender of such a request from Borrower, such Prime
Rate Loans shall be converted to Eurodollar Rate Loans or such
Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event which with
notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party
hereto shall have sent any notice of termination or non-renewal
of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified
by Lender to Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest
Periods may be in effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans must be in an amount not less
than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, (vi) the maximum amount of the Eurodollar Rate Loans at
any time requested by Borrower shall not exceed the amount equal
to eighty (80%) percent of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding
during the applicable Interest Period as determined by Lender
(but with no obligation of Lender to make such Revolving Loans)
and (vii) Lender shall have determined that the Interest Period
or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of
the request for such Eurodollar Rate Loan by Borrower. Any
request by Borrower to convert Prime Rate Loans to Eurodollar
Rate Loans or to continue any existing Eurodollar Rate Loans
shall be irrevocable. Notwithstanding anything to the contrary
contained herein, Lender and Reference Bank shall not be required
to purchase United States Dollar deposits in the London interbank
market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed
to apply as if Lender and Reference Bank had purchased such
deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest
Period, unless Lender has received and approved a request to
continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof.
Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event
that (i) an Event of Default or event which, with the notice or
passage of time, or both, would constitute an Event of Default,
shall exist, (ii) this Agreement shall terminate or not be
renewed, or (iii) the aggregate principal amount of the Prime
Rate Loans which have previously been converted to Eurodollar
Rate Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at any
time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the
Revolving Loans then available to Borrower under Section 2
hereof. Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrower)
any amounts required to compensate Lender, the Reference Bank or
any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as
a result of the conversion of Eurodollar Rate Loans to Prime Rate
Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360)
day year and actual days elapsed. The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the
month after any change in such Prime Rate is announced based on
the Prime Rate in effect on the last day of the month in which
any such change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the maximum amount
or the rate permitted under any applicable law or regulation, and
if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
G. Section 3.3 of the Loan Agreement is hereby amended by deleting the
reference to "$5,000" and inserting "two thousand five hundred dollars
($2,500)" in place thereof.
H. Section 3 of the Loan Agreement is hereby amended by adding, at the
end of such section the following Section 3.4:
3.4 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to
Borrower, convert to Prime Rate Loans in the event that (i) any
change in applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender, Reference Bank or any participant to make or maintain
Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in
the increase in the costs to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans by
an amount deemed by Lender to be material, or (C) reduce the
amounts received or receivable by Lender in respect thereof, by
an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or
maintaining any Eurodollar Rate Loans shall otherwise increase by
an amount deemed by Lender to be material. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with
Lender for any loss (including loss of anticipated profits), cost
or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of
Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be
delivered to Borrower and shall be conclusive, absent manifest
error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of
the applicable Interest Period (whether pursuant to acceleration,
upon maturity or otherwise), including any payments pursuant to
the application of collections under Section 6.3 or any other
payments made with the proceeds of Collateral, Borrower shall pay
to Lender upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with
Lender for any additional loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of
such prepayment or payment, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person
to make or maintain such Eurodollar Rate Loans or any portion
thereof.
I. Section 12.1(a) is hereby amended and restated in its entirety to
read as follows:
(a) This Agreement and the other Financing Agreements shall
continue in full force and effect for a term ending on the date
December 31, 2001 (the "Renewal Date"), with the Renewal Date
being extended on each Renewal Date to the date which is the year
after the then current Renewal Date unless sooner terminated
pursuant to the terms hereof. Lender or Borrower (subject to
Lender's right to extend the Renewal Date as provided above) may
terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least
sixty (60) days prior written notice; provided, that, this
Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or
non-renewal of the Financing Agreements, Borrower shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall
furnish cash collateral to Lender in such amounts as Lender
determines are reasonably necessary to secure Lender from loss,
cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations,
including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final
and indefeasible payment. Such cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender,
as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and
including the next business day, if the amounts so paid by
Borrower to the bank account designated by Lender are received in
such bank account later than 12:00 noon, Chicago time.
J. Section 12.1(c) is hereby amended and restated in its entirety to read
as follows:
(c) If for any reason this Agreement is terminated by the Borrower
prior to the end of the then current term or renewal term of this
Agreement, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as
to a reasonable calculation of Lender's lost profits as a result
thereof, Borrower agrees to pay to Lender, upon the effective date of
such termination, an early termination fee equal to (i) two percent
(2%) of the outstanding balance of the Revolving Loans if such
termination occurs on or prior to December 31, 2000 and (ii) one
percent (1%) of the outstanding balance of the Revolving Loans if such
termination occurs after December 31, 2000 but prior to the end of the
then current term or renewal term of this Agreement. Such early
termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently
existing. The early termination fee provided for in this Section 12.1
shall be deemed included in the Obligations.
II. CONDITIONS TO EFFECTIVENESS OF FOURTH AMENDMENT. This Fourth Amendment
shall become effective on the date (the "Effective Date") when Borrower
shall satisfy all of the following conditions:
A. FOURTH AMENDMENT. Borrower and Lender shall have duly executed and
delivered this Fourth Amendment.
B. FEE. Lender shall have received a payment of One Hundred Thousand and
No/100 Dollars ($100,000) as a fee for the renewal of the Loan
Agreement and for Lender's execution of this Fourth Amendment.
C. ADDITIONAL MATTERS. Lender shall have received such other
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certificates, opinions, UCC financing statements, documents and
instruments relating to the obligations or the transactions
contemplated hereby as may have been reasonably requested by Lender,
and all corporate and other proceedings and all other documents and
all legal matters in connection with the transactions contemplated
hereby shall be reasonably satisfactory in form and substance to
Lender.
IV. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into
this Fourth Amendment, Borrower represents and warrants to Lender, upon the
effectiveness of this Fourth Amendment, which representations and
warranties shall survive the execution and delivery of this Fourth
Amendment, that:
A. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation;
B. the execution, delivery and performance of this Fourth Amendment
by Borrower are within its corporate powers and have been duly
authorized by all necessary corporate action;
C. this Fourth Amendment constitutes a legal, valid and binding
obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally,
and by general principles of equity; and
D. all of the representations and warranties contained in the Loan
Agreement and in the other Financing Agreements (other than those
which speak expressly only as of a different date) are true and
correct as of the date of this Fourth Amendment after giving
effect to this Fourth Amendment.
V. MISCELLANEOUS.
A. EFFECT; RATIFICATION. The amendments set forth herein are
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effective solely for the purpose set forth herein and shall be
limited precisely as written, and shall not be deemed to (i) be a
consent to any amendment, waiver or modification of any other
term or condition of the Loan Agreement or of any other Financing
Agreements or (ii) prejudice any right or rights that Lender may
now have or may have in the future under or in connection with
the Loan Agreement or any other Financing Agreements. Each
reference in the Loan Agreement to "this Agreement", "herein",
"hereof" and words of like import and each reference in the other
Financing Agreements to the Loan Agreement shall mean the Loan
Agreement as amended hereby. This Fourth Amendment shall be
construed in connection with and as part of the Loan Agreement
and all terms, conditions, representations, warranties, covenants
and agreements set forth in the Loan Agreement and each other
Financing Agreement, except as herein amended or waived, are
hereby ratified and confirmed and shall remain in full force and
effect.
B. COSTS AND EXPENSES. Borrower shall pay to Lender on demand all
----- --- ---------
reasonable out-of-pocket costs, expenses, title fees, filing fees
and taxes paid or payable in connection with the preparation,
negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Fourth
Amendment, the Loan Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any
amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect
hereof and thereof, including, but not limited to: (a) all costs
and expenses of filing or recording (including Uniform Commercial
Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording and title
insurance taxes and fees, if applicable); (b) costs and expenses
and fees for title insurance and other insurance premiums,
environmental audits, surveys, assessments, engineering reports
and inspections, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other
items of payment; (d) charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and
protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing
the provisions of this Fourth Amendment, the Loan Agreement and
the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions
contemplated hereby and thereby (including, without limitation,
preparations for and consultations concerning any such matters);
and (g) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with the foregoing.
C. CERTAIN WAIVERS; RELEASE. Although Borrower does not believe that
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it has any claims against Lender, it is willing to provide Lender
with a general and total release of all such claims in
consideration of the benefits which Borrower will receive
pursuant to this Fourth Amendment. Accordingly, Borrower for
itself and any successor of Borrower hereby knowingly,
voluntarily, intentionally and irrevocably releases and
discharges Lender and its respective officers, directors, agents
and counsel (each a "Releasee") from any and all actions, causes
of action, suits, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments,
extents, executions, losses, liabilities, costs, expenses, debts,
dues, demands, obligations or other claims of any kind
whatsoever, in law, admiralty or equity, which Borrower ever had,
now has or hereafter can, shall or may have against any Releasee
for, upon or by reason of any matter, cause or thing whatsoever
from the beginning of the world to the date of this Fourth
Amendment.
D. COUNTERPARTS. This Fourth Amendment may be executed in any number
of counterparts, each such counterpart constituting an original
but all together constituting one and the same instrument.
E. SEVERABILITY. Any provision contained in this Fourth Amendment
that is held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining
provisions of this Fourth Amendment in that jurisdiction or the
operation, enforceability or validity of that provision in any
other jurisdiction.
F. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
[remainder of page intentionally left blank]
S-1 IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment as of the date first above written.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
BY
NAME:
TITLE:
CONSENT
By Guarantee dated September 27, 1996 (as amended, the "Guarantee"), the
undersigned (the "Guarantor") guaranteed to Lender (as defined therein), subject
to the terms, conditions and obligations set forth therein, the prompt payment
and performance of all of the Guaranteed Obligations (as defined therein). The
Guarantor consents to Borrower's execution of the foregoing Amendment No. 4 to
Loan Agreement (the "Amendment;" capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Amendment) and acknowledges the
continued validity, enforceability and effectiveness of the Guarantee with
respect to all loans, advances and extensions of credit to Borrower, whether
heretofore or hereafter made, together with all interests thereon and all
expenses in connection therewith. The Guarantor hereby acknowledges and agrees
to the increase in the amount of maximum credit extended to Borrower pursuant to
the Amendment and acknowledges and agrees that the Guarantee applies to the
Obligations owed by Borrower under and pursuant to the Loan Agreement, as
amended by the Amendment, including, without limitation, the increase in the
definitions of Inventory Cap Adjustment and Maximum Credit to $30,000,000 and
$60,000,000 respectively.
SHERMAN WIRE COMPANY
BY
NAME:
TITLE:
CONSENT
By Confirmation Agreement dated September 27, 1996, relating to that
Amendment, Ratification and Confirmation of Secured Guaranty Agreement dated
December 29, 1995, relating to, among other things the Secured Guaranty
Agreement dated October 16, 1987 (collectively, the "Guarantee"), the
undersigned (the "Guarantor") guaranteed to Lender (as defined therein), subject
to the terms, conditions and obligations set forth therein, the prompt payment
and performance of all of the Obligations (as defined therein). The Guarantor
consents to Borrower's execution of the foregoing Amendment No. 4 to Loan
Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Amendment) and acknowledges the
continued validity, enforceability and effectiveness of the Guarantee with
respect to all loans, advances and extensions of credit to Borrower, whether
heretofore or hereafter made, together with all interests thereon and all
expenses in connection therewith. The Guarantor hereby acknowledges and agrees
to the increase in the amount of maximum credit extended to Borrower pursuant to
the Amendment and acknowledges and agrees that the Guarantee applies to the
Obligations owed by Borrower under and pursuant to the Loan Agreement, as
amended by the Amendment, including, without limitation, the increase in the
definitions of Inventory Cap Adjustment and Maximum Credit to $30,000,000 and
$60,000,000 respectively.
SHERMAN WIRE OF CALDWELL, INC.
BY
NAME:
TITLE:
CONSENT
By Confirmation Agreement dated September 27, 1996, relating to that
Guarantee and Waiver and Rider No. 1 to Guarantee and Waiver, each dated
December 30, 1993 (as amended, collectively, the "Guarantee"), the undersigned
(the "Guarantor") guaranteed to Lender (as defined therein), subject to the
terms, conditions and obligations set forth therein, the prompt payment and
performance of all of the Obligations (as defined therein). The Guarantor
consents to Borrower's execution of the foregoing Amendment No. 4 to Loan
Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Amendment) and acknowledges the
continued validity, enforceability and effectiveness of the Guarantee with
respect to all loans, advances and extensions of credit to Borrower, whether
heretofore or hereafter made, together with all interests thereon and all
expenses in connection therewith. The Guarantor hereby acknowledges and agrees
to the increase in the amount of maximum credit extended to Borrower pursuant to
the Amendment and acknowledges and agrees that the Guarantee applies to the
Obligations owed by Borrower under and pursuant to the Loan Agreement, as
amended by the Amendment, including, without limitation, the increase in the
definitions of Inventory Cap Adjustment and Maximum Credit to $30,000,000 and
$60,000,000 respectively.
FOX VALLEY STEEL AND WIRE COMPANY
BY
NAME:
TITLE:
(A) Relates to the acquisition of EWP.
PAGE>
SECOND AMENDMENT TO
REVOLVING LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT
(the "Second Amendment") is entered into as of December 31, 1999 by and between
SHERMAN WIRE COMPANY f/k/a DeSoto, Inc., a Delaware corporation, as successor by
merger to DSO Acquisition Corporation ("Borrower"), and CONGRESS FINANCIAL
CORPORATION (CENTRAL), an Illinois corporation ("Lender"). Except for terms
which are expressly defined herein, all capitalized terms used herein shall have
the meaning subscribed to them in the Loan Agreement (as defined below).
RECITALS
WHEREAS, Borrower and Lender are parties to that certain
Revolving Loan And Security Agreement dated as of September 27, 1996 (as
amended, the "Loan Agreement").
WHEREAS, Borrower desires to amend the terms of the Loan
Agreement to reflect the renewal of the Loan Agreement and to provide further
financial accommodations under the Loan Agreement.
WHEREAS, Lender is willing to amend the Loan Agreement
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
I. AMENDMENTS TO THE LOAN AGREEMENT
A. The definition of "Maximum Credit" set forth in Section 1 of
the Loan Agreement is hereby amended and restated in its
entirety to read as follows:
"Maximum Credit" shall mean, for each business day,
the lesser of (i) $10,000,000 and (ii) $60,000,000
less the Keystone Facility Obligations for such
business day.
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B. The definition of "Prime Rate" in Section 1 of the Loan
Agreement is hereby amended and restated in its entirety to
read as follows:
"Prime Rate" shall mean the rate from time to time
publicly announced by First Union National Bank, or
its successors, at its office in Charlotte, North
Carolina, as its prime rate, whether or not such
announced rate is the best rate available at such
bank.
C. Section 1 of the Loan Agreement is hereby amended by adding
the following defined terms in the appropriate alphabetical
order:
"Adjusted Eurodollar Rate" shall mean, with respect
to each Interest Period for any Eurodollar Rate Loan,
the rate per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for
such Interest Period by (b) a percentage equal to:
(i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the
reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking
authority for determining the reserve requirement
which is or would be applicable to deposits of United
States dollars in a non-United States or an
international banking office of Reference Bank used
to fund a Eurodollar Rate Loan or any Eurodollar Rate
Loan made with the proceeds of such deposit, whether
or not the Reference Bank actually holds or has made
any such deposits or loans. The Adjusted Eurodollar
Rate shall be adjusted on and as of the effective day
of any change in the Reserve Percentage.
"Business Day" shall mean any day other than a
Saturday, Sunday, or other day on which commercial
banks are authorized or required to close under the
laws of the States of New York or Illinois or the
Commonwealth of Pennsylvania, and a day on which the
Reference Bank and Lender are open for the
transaction of business, except that if a
determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall
also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
"Eurodollar Rate Loans" shall mean any Loans or
portion thereof on which interest is payable based on
the Adjusted Eurodollar Rate in accordance with the
terms hereof.
"Eurodollar Rate" shall mean with respect to the
Interest Period for a Eurodollar Rate Loan, the
interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded
upwards, if necessary, to the next one-sixteenth
(1/16) of one (1%) percent) at which Reference Bank
is offered deposits of United States dollars in the
London interbank market (or other Eurodollar Rate
market selected by Borrower and approved by Lender)
on or about 9:00 a.m. (New York time) two (2)
Business Days prior to the commencement of such
Interest Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance
with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
"Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2), or
three (3) months duration as Borrower may elect, the
exact duration to be determined in accordance with
the customary practice in the applicable EURODOLLAR
RATE MARKET; PROVIDED, THAT, Borrower may not elect
an Interest Period which will end after the last day
of the then-current term of this Agreement.
"Interest Rate" shall mean, as to Prime Rate Loans, a
rate of one-half of one percent (.5%) per annum in
excess of the Prime Rate and, as to Eurodollar Rate
Loans, a rate of two and one-half of one percent
(2.5%) percent per annum in excess of the Adjusted
Eurodollar Rate (based on the Eurodollar Rate
applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of
Borrower for such Eurodollar Rate Loans in accordance
with the terms hereof, whether such rate is higher or
lower than any rate previously quoted to Borrower);
provided, that, the Interest Rate shall mean the rate
of two and one-half of one percent (2.5%) per annum
in excess of the Prime Rate as to Prime Rate Loans
and the rate of four and one-half of one percent
(4.5%) per annum in excess of the Adjusted Eurodollar
Rate as to Eurodollar Rate Loans, at Lender's option,
without notice, (a) for the period (i) from and after
the date of termination or non-renewal hereof until
Lender has received full and final payment of all
obligations (notwithstanding entry of a judgment
against Borrower) and (ii) from and after the date of
the occurrence of an Event of Default for so long as
such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time
outstanding in excess of the amounts available to
Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without
Lender's knowledge or consent and whether made before
or after an Event of Default).
"Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the
Prime Rate in accordance with the terms thereof.
"Reference Bank" shall mean First Union National Bank
or such other bank as Lender may from time to time
designate.
D. Section 2.1(a) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
2.1 REVOLVING LOANS.
(a) Subject to, and upon the terms and conditions
contained herein, Lender may, in its sole discretion, agree to
make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount which is equal to the
lesser of the Maximum Credit or the sum of:
(i) the sum of:
(A) eighty-five percent (85%)
of the Net Amount of Eligible
accounts, plus
(B) the sum of (a) sixty
percent (60%) of the value
of Eligible Inventory which
constitutes finished goods
and (b) the fifty-five
percent (55%) of the value
of Eligible Inventory
EXCLUDING FINISHED GOODS;
LESS
(ii) any Availability Reserves.
E. Section 3.1 of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the
Interest Rate applicable to Prime Rate Loans. All interest
accruing hereunder on and after the date of any Event of
Default or termination or non-renewal hereof shall be
payable on demand.
(b) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any
existing Eurodollar Rate Loans continue for an additional
Interest Period. Such request from Borrower shall specify
the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth
below) and the Interest Period to be applicable to such
Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by
Lender of such a request from Borrower, such Prime Rate
Loans shall be converted to Eurodollar Rate Loans or such
Eurodollar Rate Loans shall CONTINUE, AS THE CASE MAY BE,
PROVIDED, THAT, (i) no Event of Default, or event which
-------- ---- with notice or passage of time or both would
constitute an Event of Default exists or has occurred and is
continuing, (ii) no party hereto shall have sent any notice
of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures
as are established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for
Eurodollar Rate Loans, (iv) no more than four (4) Interest
Periods may be in effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans must be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000
in excess thereof, (vi) the maximum amount of the Eurodollar
Rate Loans at any time requested by Borrower shall not
exceed the amount equal to eighty (80%) percent of the
lowest principal amount of the Revolving Loans which it is
anticipated will be outstanding during the applicable
Interest Period as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii)
Lender shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower.
Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar
Rate Loans shall be irrevocable. Notwithstanding anything to
the contrary contained herein, Lender and Reference Bank
shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans,
but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a
request to continue such Eurodollar Rate Loan at least three
(3) Business Days prior to such last day in accordance with
the terms hereof. Any Eurodollar Rate Loans shall, at
Lender's option, upon notice by Lender to Borrower, convert
to Prime Rate Loans in the event that (i) an Event of
Default or event which, with the notice or passage of time,
or both, would constitute an Event of Default, shall exist,
(ii) this Agreement shall terminate or not be renewed, or
(iii) the aggregate principal amount of the Prime Rate Loans
which have previously been converted to Eurodollar Rate
Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at
any time during such Interest Period exceed either (A) the
aggregate principal amount of the Loans then outstanding, or
(B) the Revolving Loans then available to Borrower under
Section 2 hereof. Borrower shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender
for any loss (including loss of anticipated profits), cost
or expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans
pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly
in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an
amount equal to each increase or decrease in the Prime Rate
effective on the first day of the month after any change in
such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change
occurs. In no event shall charges constituting interest
payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation,
and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
F. Section 3 of the Loan Agreement is hereby amended by adding,
at the end of such section, the following Section 3.2:
3.2 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary
contained herein, all Eurodollar Rate Loans shall,
upon notice by Lender to Borrower, convert to Prime
Rate Loans in the event that (i) any change in
applicable law or regulation (or the interpretation
or administration thereof) shall either (A) make it
unlawful for Lender, Reference Bank or any
participant to make or maintain Eurodollar Rate Loans
or to comply with the terms hereof in connection with
the Eurodollar Rate Loans, or (B) shall result in the
increase in the costs to Lender, Reference Bank or
any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender
to be material, or (C) reduce the amounts received or
receivable by Lender in respect thereof, by an amount
deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making
or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon
demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or
any participant with Lender for any loss (including
loss of anticipated profits), cost or expense
incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or
expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by
such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Lender
setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid
shall be delivered to Borrower and shall be
conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other
than on the last day of the applicable Interest
Period (whether pursuant to acceleration, upon
maturity or otherwise), including any payments
pursuant to the application of collections under
Section 6.3 or any other payments made with the
proceeds of Collateral, Borrower shall pay to Lender
upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or
any participant with Lender for any additional loss
(including loss of anticipated profits), cost or
expense incurred by such person as a result of such
prepayment or payment, including, without limitation,
any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain
such Eurodollar Rate Loans or any portion thereof.
G. Section 12.1(a) is hereby amended and restated in its entirety to read
as follows:
(a) This Agreement and the other Financing Agreements shall continue
in full force and effect for a term ending on the date December 31,
2001 (the "Renewal Date"), with the Renewal Date being extended on
each Renewal Date to the date which is the year after the then current
Renewal Date unless sooner terminated pursuant to the terms hereof.
Lender or Borrower (subject to Lender's right to extend the Renewal
Date as provided above) may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving to THE OTHER
PARTY AT LEAST SIXTY (60) DAYS PRIOR WRITTEN NOTICE; PROVIDED, THAT,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrower shall pay to Lender, in full,
all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or
expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender
has not yet received final and indefeasible payment. Such cash
collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender, as Lender may, in its discretion, designate in
writing to Borrower for such purpose. Interest shall be due until and
including the next business day, if the amounts so paid by Borrower to
the bank account designated by Lender are received in such bank
account later than 12:00 noon, Chicago time.
H. Section 12.1(c) is hereby amended and restated in its entirety to
read as follows:
(c) If for any reason this Agreement is terminated by
the Borrower prior to the end of the then current
term or renewal term of this Agreement, in view of
the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement
of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower
agrees to pay to Lender, upon the effective date of
such termination, an early termination fee equal to
(i) two percent (2%) of the outstanding balance of
the Revolving Loans if such termination occurs on or
prior to December 31, 2000 and (ii) one percent (1%)
of the outstanding balance of the Revolving Loans if
such termination occurs after December 31, 2000 but
prior to the end of the then current term or renewal
term of this Agreement. Such early termination fee
shall be presumed to be the amount of damages
sustained by Lender as a result of such early
termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The early
termination fee provided for in this Section 12.1
shall be deemed included in the Obligations.
II. CONDITIONS TO EFFECTIVENESS OF SECOND AMENDMENT. This Second Amendment
shall become effective on the date (the "Effective Date") when Borrower
shall satisfy all of the following conditions:
A. SECOND AMENDMENT. Borrower and Lender shall have duly executed and
delivered this Second Amendment.
B. ADDITIONAL MATTERS. Lender shall have received such other
certificates, opinions, UCC financing statements, documents
and instruments relating to the obligations or the
transactions contemplated hereby as may have been reasonably
requested by Lender, and all corporate and other proceedings
and all other documents and all legal matters in connection
with the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Lender.
III. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into
this Second Amendment, Borrower represents and warrants to Lender, upon
the effectiveness of this Second Amendment, which representations and
warranties shall survive the execution and delivery of this Second
Amendment, that:
A. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation;
B. the execution, delivery and performance of this Second Amendment
by Borrower are within its corporate powers and have been duly
authorized by all necessary corporate action;
C. this Second Amendment constitutes a legal, valid and binding
obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally,
and by general principles of equity; and
D. all of the representations and warranties contained in the Loan
Agreement and in the other Financing Agreements (other than those
which speak expressly only as of a different date) are true and
correct as of the date of this Second Amendment after giving
effect to this Second Amendment.
IV. MISCELLANEOUS.
A. EFFECT; RATIFICATION. The amendments set forth herein are
effective solely for the purpose set -------------------- forth
herein and shall be limited precisely as written, and shall not
be deemed to (i) be a consent to any amendment, waiver or
modification of any other term or condition of the Loan Agreement
or of any other Financing Agreements or (ii) prejudice any right
or rights that Lender may now have or may have in the future
under or in connection with the Loan Agreement or any other
Financing Agreements. Each reference in the Loan Agreement to
"this Agreement", "herein", "hereof" and words of like import and
each reference in the other Financing Agreements to the Loan
Agreement shall mean the Loan Agreement as amended hereby. This
Second Amendment shall be construed in connection with and as
part of the Loan Agreement and all terms, conditions,
representations, warranties, covenants and agreements set forth
in the Loan Agreement and each other Financing Agreement, except
as herein amended or waived, are hereby ratified and confirmed
and shall remain in full force and effect.
B. COSTS AND EXPENSES. Borrower shall pay to Lender on demand all
reasonable out-of-pocket costs, ------------------ expenses,
title fees, filing fees and taxes paid or payable in connection
with the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation, enforcement
and defense of the Obligations, Lender's rights in the
Collateral, this Second Amendment, the Loan Agreement, the other
Financing Agreements and all other documents related hereto or
thereto, including any amendments, supplements or consents which
may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing
taxes and fees, documentary taxes, intangibles taxes and mortgage
recording and title insurance taxes and fees, if applicable); (b)
costs and expenses and fees for title insurance and other
insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search
fees; (c) costs and expenses of remitting loan proceeds,
collecting checks and other items of payment; (d) charges, fees
or expenses charged by any bank or issuer in connection with the
Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Second Amendment, the
Loan Agreement and the other Financing Agreements or defending
any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any
such matters); and (g) the fees and disbursements of counsel
(including legal assistants) to Lender in connection with the
foregoing.
C. CERTAIN WAIVERS; RELEASE. Although Borrower does not believe that
it has any claims against ------------------------ Lender, it is
willing to provide Lender with a general and total release of all
such claims in consideration of the benefits which Borrower will
receive pursuant to this Second Amendment. Accordingly, Borrower
for itself and any successor of Borrower hereby knowingly,
voluntarily, intentionally and irrevocably releases and
discharges Lender and its respective officers, directors, agents
and counsel (each a "Releasee") from any and all actions, causes
of action, suits, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments,
extents, executions, losses, liabilities, costs, expenses, debts,
dues, demands, obligations or other claims of any kind
whatsoever, in law, admiralty or equity, which Borrower ever had,
now has or hereafter can, shall or may have against any Releasee
for, upon or by reason of any matter, cause or thing whatsoever
from the beginning of the world to the date of this Second
Amendment.
D. COUNTERPARTS. This Second Amendment may be executed in any number
of counterparts, each such counterpart constituting an original
but all together constituting one and the same instrument.
E. SEVERABILITY. Any provision contained in this Second Amendment
that is held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining
provisions of this Second Amendment in that jurisdiction or the
operation, enforceability or validity of that provision in any
other jurisdiction.
F. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
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IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment as of the date first above written.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
BY
NAME:
TITLE:
SHERMAN WIRE COMPANY
BY
NAME:
TITLE:
<PAGE>
CONSENT
By Guarantee dated September 27, 1996 (as amended, the "Guarantee"),
the undersigned (the "Guarantor") guaranteed to Lender (as defined therein),
subject to the terms, conditions and obligations set forth therein, the prompt
payment and performance of all of the Guaranteed Obligations (as defined
therein). The Guarantor consents to Borrower's execution of the foregoing
Amendment No. 2 to Loan Agreement (the "Amendment;" capitalized terms not
otherwise defined herein shall have the meaning ascribed to them in the
Amendment) and acknowledges the continued validity, enforceability and
effectiveness of the Guarantee with respect to all loans, advances and
extensions of credit to Borrower, whether heretofore or hereafter made, together
with all interests thereon and all expenses in connection therewith. The
Guarantor hereby acknowledges and agrees to the increase in the amount of
maximum credit extended to Borrower pursuant to the Amendment and acknowledges
and agrees that the Guarantee applies to the Obligations owed by Borrower under
and pursuant to the Loan Agreement, as amended by the Amendment, including,
without limitation, the increase in the definition of Maximum Credit to
$60,000,000.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
BY
NAME:
TITLE:
FIFTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN
AND SECURITY AGREEMENT (the "Fifth Amendment") is entered into as of February 3,
2000, by and between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware
corporation ("Borrower"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), an
Illinois corporation ("Lender"). Except for terms which are expressly defined
herein, all capitalized terms used herein shall have the meaning subscribed to
them in the Loan Agreement (as defined below).
RECITALS
WHEREAS, Borrower and Lender are parties to that certain
Amended and Restated Revolving Loan and Security Agreement dated as of December
29, 1995 (as amended, supplemented or otherwise modified from time to time, the
"Loan Agreement").
WHEREAS, Borrower desires to amend the terms of the Loan
Agreement.
WHEREAS, Lender is willing to amend the Loan Agreement on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
I. AMENDMENTS TO THE LOAN AGREEMENT
A. Subsection (d) of the definition of "Eligible Borrower
Inventory" in Section 1 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(d) supplies used or consumed in Borrower's
business (other than (i) steel used or
consumed by Borrower in the process of
manufacturing Inventory, and (ii) electrical
supplies, electrodes, lead, zinc, metals
(other than steel), operations process
supplies and refractory materials used or
consumed by Borrower in the process of
manufacturing Inventory not to exceed
$4,500,000 in the aggregate);
II. CONDITIONS TO EFFECTIVENESS OF FIFTH AMENDMENT. This Fifth Amendment
shall become effective on the date (the "Effective Date") when Borrower
shall satisfy all of the following conditions:
A. FIFTH AMENDMENT. Borrower and Lender shall have duly executed and
delivered this Fifth Amendment.
B. ADDITIONAL MATTERS. Lender shall have received such other
certificates, opinions, UCC financing statements, documents and
instruments relating to the obligations or the transactions
contemplated hereby as may have been reasonably requested by
Lender, and all corporate and other proceedings and all other
documents and all legal matters in connection with the
transactions contemplated hereby shall be reasonably satisfactory
in form and substance to Lender.
IV. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into
this Fifth Amendment, Borrower represents and warrants to Lender, upon
the effectiveness of this Fifth Amendment, which representations and
warranties shall survive the execution and delivery of this Fifth
Amendment, that:
A. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation;
B. the execution, delivery and performance of this Fifth Amendment
by Borrower are within its corporate powers and have been duly
authorized by all necessary corporate action;
C. this Fifth Amendment constitutes a legal, valid and binding
obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally,
and by general principles of equity; and
D. all of the representations and warranties contained in the Loan
Agreement and in the other Financing Agreements (other than those
which speak expressly only as of a different date) are true and
correct as of the date of this Fifth Amendment after giving
effect to this Fifth Amendment.
V. MISCELLANEOUS.
A. EFFECT; RATIFICATION. The amendments set forth herein are
effective solely for the purpose set -------------------- forth
herein and shall be limited precisely as written, and shall not
be deemed to (i) be a consent to any amendment, waiver or
modification of any other term or condition of the Loan Agreement
or of any other Financing Agreements or (ii) prejudice any right
or rights that Lender may now have or may have in the future
under or in connection with the Loan Agreement or any other
Financing Agreements. Each reference in the Loan Agreement to
"this Agreement", "herein", "hereof" and words of like import and
each reference in the other Financing Agreements to the Loan
Agreement shall mean the Loan Agreement as amended hereby. This
Fifth Amendment shall be construed in connection with and as part
of the Loan Agreement and all terms, conditions, representations,
warranties, covenants and agreements set forth in the Loan
Agreement and each other Financing Agreement, except as herein
amended or waived, are hereby ratified and confirmed and shall
remain in full force and effect.
B. COSTS AND EXPENSES. Borrower shall pay to Lender on demand all
reasonable out-of-pocket costs, ------------------ expenses,
title fees, filing fees and taxes paid or payable in connection
with the preparation, negotiation, execution, delivery,
recording, administration, collection, liquidation, enforcement
and defense of the Obligations, Lender's rights in the
Collateral, this Fifth Amendment, the Loan Agreement, the other
Financing Agreements and all other documents related hereto or
thereto, including any amendments, supplements or consents which
may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing
taxes and fees, documentary taxes, intangibles taxes and mortgage
recording and title insurance taxes and fees, if applicable); (b)
costs and expenses and fees for title insurance and other
insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search
fees; (c) costs and expenses of remitting loan proceeds,
collecting checks and other items of payment; (d) charges, fees
or expenses charged by any bank or issuer in connection with the
Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Fifth Amendment, the
Loan Agreement and the other Financing Agreements or defending
any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any
such matters); and (g) the fees and disbursements of counsel
(including legal assistants) to Lender in connection with the
foregoing.
C. CERTAIN WAIVERS; RELEASE. Although Borrower does not believe that
it has any claims against ------------------------ Lender, it is
willing to provide Lender with a general and total release of all
such claims in consideration of the benefits which Borrower will
receive pursuant to this Fifth Amendment. Accordingly, Borrower
for itself and any successor of Borrower hereby knowingly,
voluntarily, intentionally and irrevocably releases and
discharges Lender and its respective officers, directors, agents
and counsel (each a "Releasee") from any and all actions, causes
of action, suits, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments,
extents, executions, losses, liabilities, costs, expenses, debts,
dues, demands, obligations or other claims of any kind
whatsoever, in law, admiralty or equity, which Borrower ever had,
now has or hereafter can, shall or may have against any Releasee
for, upon or by reason of any matter, cause or thing whatsoever
from the beginning of the world to the date of this Fifth
Amendment.
D. COUNTERPARTS. This Fifth Amendment may be executed in any number
of counterparts, each such counterpart constituting an original
but all together constituting one and the same instrument.
E. SEVERABILITY. Any provision contained in this Fifth Amendment
that is held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining
provisions of this Fifth Amendment in that jurisdiction or the
operation, enforceability or validity of that provision in any
other jurisdiction.
F. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Fifth Amendment as of the date first above written.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
BY
NAME:
TITLE:
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
BY
NAME:
TITLE:
<PAGE>
CONSENT
By Guarantee dated September 27, 1996 (as amended, the "Guarantee"),
the undersigned (the "Guarantor") guaranteed to Lender (as defined therein),
subject to the terms, conditions and obligations set forth therein, the prompt
payment and performance of all of the Guaranteed Obligations (as defined
therein). The Guarantor consents to Borrower's execution of the foregoing Fifth
Amendment to Loan Agreement (the "Amendment;" capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Amendment) and
acknowledges the continued validity, enforceability and effectiveness of the
Guarantee with respect to all loans, advances and extensions of credit to
Borrower, whether heretofore or hereafter made, together with all interests
thereon and all expenses in connection therewith.
SHERMAN WIRE COMPANY
BY
NAME:
TITLE:
<PAGE>
CONSENT
By Confirmation Agreement dated September 27, 1996, relating to that Amendment,
Ratification and Confirmation of Secured Guaranty Agreement dated December 29,
1995, relating to, among other things the Secured Guaranty Agreement dated
October 16, 1987 (collectively, the "Guarantee"), the undersigned (the
"Guarantor") guaranteed to Lender (as defined therein), subject to the terms,
conditions and obligations set forth therein, the prompt payment and performance
of all of the Obligations (as defined therein). The Guarantor consents to
Borrower's execution of the foregoing Fifth Amendment to Loan Agreement (the
"Amendment;" capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Amendment) and acknowledges the continued
validity, enforceability and effectiveness of the Guarantee with respect to all
loans, advances and extensions of credit to Borrower, whether heretofore or
hereafter made, together with all interests thereon and all expenses in
connection therewith.
SHERMAN WIRE OF CALDWELL, INC.
BY
NAME:
TITLE:
<PAGE>
CONSENT
By Confirmation Agreement dated September 27, 1996, relating to that
Guarantee and Waiver and Rider No. 1 to Guarantee and Waiver, each dated
December 30, 1993 (as amended, collectively, the "Guarantee"), the undersigned
(the "Guarantor") guaranteed to Lender (as defined therein), subject to the
terms, conditions and obligations set forth therein, the prompt payment and
performance of all of the Obligations (as defined therein). The Guarantor
consents to Borrower's execution of the foregoing Fifth Amendment to Loan
Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Amendment) and acknowledges the
continued validity, enforceability and effectiveness of the Guarantee with
respect to all loans, advances and extensions of credit to Borrower, whether
heretofore or hereafter made, together with all interests thereon and all
expenses in connection therewith.
FOX VALLEY STEEL AND WIRE COMPANY
BY
NAME:
TITLE:
INTERCORPORATE SERVICES AGREEMENT
THIS INTERCORPORATE SERVICES AGREEMENT (THE "AGREEMENT"), effective as
of January 1, 1999, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1998 between CONTRAN CORPORATION, A
DELAWARE CORPORATION ("CONTRAN"), and KEYSTONE CONSOLIDATED INDUSTRIES, INC., a
Delaware CORPORATION ("RECIPIENT").
RECITALS
A. Employees and agents of Contran and affiliates of Contran, including
Harold C. Simmons, perform management, financial and administrative functions
for Recipient without direct compensation from Recipient.
B. Recipient does not separately maintain the full internal capability
to perform all necessary management, financial and administrative functions that
Recipient requires.
C. 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.
D. 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.
AGREEMENT
For and in consideration of the mutual premises, representations and
covenants herein contained, the parties hereto mutually agree as follows:
SECTION 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 charter and bylaws 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, without limitation, 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; and
(i) Such other services as may be requested by Recipient from time to
time.
SECTION 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 effective 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,
consultants, 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.
SECTION 3. FEE FOR SERVICES. Recipient agrees to pay to Contran
$164,000 quarterly, commencing as of January 1, 1999, pursuant to this
Agreement.
SECTION 4. ORIGINAL TERM. SUBJECT TO THE PROVISIONS OF SECTION 5
hereof, the original term of this Agreement shall be from January 1, 1999 to
December 31, 1999.
SECTION 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.
SECTION 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.
SECTION 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 Contran or any such person may become
subject arising out of the Services provided by CONTRAN TO RECIPIENT HEREUNDER,
PROVIDED that such indemnity shall not protect any person against any liability
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on the part of such person.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 12. GOVERNING LAW. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the state of Texas.
<PAGE>
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:
STEVEN L. WATSON
PRESIDENT
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
BY:
GLENN R. SIMMONS
CHAIRMAN OF THE BOARD
EXHIBIT 21
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Percent of
Incorporation Voting Securities
Name of corporation or organization held (1)
Sherman Wire of Caldwell, Inc. Nevada 100.0%
Fox Valley Steel and Wire Company Wisconsin 100.0%
Sherman Wire Company (2) Delaware 100.0%
J.L. Prescott Company New Jersey 100.0%
DeSoto Environmental
Management, Inc. Delaware 100.0%
Engineered Wire Products, Inc. Ohio 100.0%
Garden Zone LLC Delaware 51.0%
(1) Held by the Registrant or the indicated subsidiary of the Registrant.
(2) Formerly DeSoto, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 (File No. 333-35955) of Keystone Consolidated Industries,
Inc. of our report dated March 9, 2000 relating to the financial statements and
financial statement schedule, which appears in Keystone Consolidated Industries,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999.
Dallas, Texas
March 29, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-71441, 333-55891, 333-55865, 333-55867, 33-30137,
33-63086 and 2-93666) of Keystone Consolidated Industries, Inc. of our report
dated March 9, 2000 relating to the financial statements and financial statement
schedule, which appears in this Form 10-K.
Dallas, Texas
March 29, 2000
<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, 1999 and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 35,116
<ALLOWANCES> 2,297
<INVENTORY> 66,083
<CURRENT-ASSETS> 117,662
<PP&E> 357,877
<DEPRECIATION> 207,721
<TOTAL-ASSETS> 410,918
<CURRENT-LIABILITIES> 131,582
<BONDS> 100,871
0
0
<COMMON> 10,656
<OTHER-SE> 35,659
<TOTAL-LIABILITY-AND-EQUITY> 410,918
<SALES> 355,688
<TOTAL-REVENUES> 356,603
<CGS> 332,644
<TOTAL-COSTS> 332,644
<OTHER-EXPENSES> 21,616
<LOSS-PROVISION> 523
<INTEREST-EXPENSE> 14,058
<INCOME-PRETAX> (12,238)
<INCOME-TAX> (4,754)
<INCOME-CONTINUING> (7,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,484)
<EPS-BASIC> (.75)
<EPS-DILUTED> (.75)
</TABLE>
