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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 - For the fiscal year ended December 31, 2000
Commission file number 1-3919
Keystone Consolidated Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-0364250
- --------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
5430 LBJ Freeway, Suite 1740
Three Lincoln Centre, Dallas, TX 75240-2697
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 458-0028
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 22, 2001, 10,061,969 shares of common stock were outstanding. The
aggregate market value of the 5,071,496 shares of voting stock held by
nonaffiliates of the Registrant, as of such date, was approximately $8.3
million.
Documents incorporated by reference
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
PART I
ITEM 1. BUSINESS.
General
Keystone Consolidated Industries, Inc. ("Keystone" or the "Company")
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 (438,000 in 2000).
Keystone 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 2000, Keystone had net sales of $338 million.
Approximately 78% 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 Keystone's downstream operations.
The Company's fabricated wire products, which comprised 60% of its 2000
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.
Keystone 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 61% of
Keystone'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 competitors. Keystone's industrial wire customers include manufacturers of
nails, coat hangers, barbecue grills, air conditioners, tools, containers,
refrigerators and other appliances. In 2000, net sales of industrial wire
accounted for 17% of Company net sales. In addition, Keystone 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 2000, open
market sales of rod accounted for 20% of Company net sales.
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 2000, sales by Garden Zone accounted for 2% of
Company net sales. In addition, Keystone is 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 and 2000, Keystone experienced production problems related
to the start-up of the new equipment. Keystone believes it resolved these
problems during 2000 and the equipment is now performing at the desired levels.
However, despite the increase in billet production capacity to 1 million tons,
Keystone's rod production is constrained by the 800,000 ton capacity of its rod
mill. The Company anticipates any excess billet production will be sold
externally.
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 by
trusts established for the benefit of certain children and grandchildren of Mr.
Simmons, of which Mr. Simmons is sole trustee. Keystone 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 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 beliefs and assumptions based on currently available
information. Forward-looking statements can be identified by the use of words
such as "believes", "intends", "may", "should", "could", "anticipates",
"expected", or comparable terminology, or by discussions of strategies or
trends. Although Keystone believes the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances 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, future supply and demand
for the Company's products (including cyclicality thereof), customer inventory
levels, changes in raw material and other operating costs (such as scrap and
energy), 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 (such as those requiring emission and discharge standards for existing
and new facilities), government regulations and possible changes therein, any
significant increases in the cost of providing medical coverage to active and
retired employees, 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 and other risks and uncertainties 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. Keystone 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 Keystone 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.
Year Ended December 31,
1998 1999 2000
---------------- ---------------- ---------------
Percent Percent Percent Percent Percent Percent
of Tons Of of Tons of of Tons of
Product Shipped Sales Shipped Sales Shipped Sales
----------------- ------- ----- ------ ----- ------- -----
Fabricated wire
products ............... 46.1% 60.4% 45.2% 62.5% 44.7% 61.9%
Industrial wire .......... 24.0 22.6 20.7 19.4 18.4% 17.4%
Carbon steel rod ......... 29.9 17.0 34.1 18.1 36.9% 20.7%
----- ----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
Fabricated Wire Products. Keystone 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 Keystone 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 Keystone
for more than 75 years. As part of its marketing strategy, Keystone designs
merchandise packaging, and supportive product literature for marketing many of
these products to the retail consumer market. Keystone 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 46% of its nails through PrimeSource, Inc., one of the
largest nail distributors in the United States, under PrimeSource's Grip-Rite(R)
label.
Keystone 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. 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.
Keystone 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.
Industrial Wire. Keystone 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 Keystone'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 Keystone.
Carbon Steel Rod. Keystone 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 2000, approximately 62% of the rod manufactured by the
Company was used internally to produce wire and fabricated wire products. The
remainder of Keystone'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.
In January 2001, Keystone's wholly-owned subsidiary, Fox Valley Steel &
Wire ("Fox Valley") sold its sole business which was located in Hortonville,
Wisconsin to a management group. Fox Valley did not record any significant gain
or loss as a result of the sale. Fox Valley manufactured industrial wire and
fabricated wire products (primarily ladder rods and nails). Fox Valley's
revenues in 1998, 1999 and 2000 amounted to $12.0 million, $11.3 million and
$10.3 million, respectively. During 1998, 1999 and 2000, approximately 55%, 30%
and 32%, respectively of Fox Valley's sales were to a single customer. That
customer will, in the future, be serviced by Keystone's Peoria, Illinois
facility. During 1998, 1999 and 2000, Fox Valley recorded operating losses of
$266,000, $67,000 and $686,000, respectively.
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.
During the last two years, three of Keystone's major competitors have filed for
protection under federal bankruptcy laws and three others have reduced or
completely shut-down their operations. The Company believes these shut-downs or
production curtailments represent approximately 2.5 million tons of annual
capacity. However, 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. In February 2000, President Clinton 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 1.6 million net tons 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 believe
the TRQ has had a major impact on the industry and high levels of imported rod
continue.
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. Keystone 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.
Keystone 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, 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 Keystone's Peoria, Illinois
manufacturing facilities. This 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, Keystone received an
unexpected $2.2 million fuel adjustment charge from the Peoria plant's
electricity provider. The $2.2 million charge was paid during 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
As of December 31, 2000, Keystone employed approximately 1,830 people,
of whom approximately 1,090 are represented by the Independent Steel Workers'
Alliance ("ISWA") at its Peoria, Illinois facilities, approximately 150 are
represented by the International Association of Machinists and Aerospace Workers
(Local 1570) ("IAMAW") at its Sherman, Texas facilities and approximately 70 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 2003 and
November 2001, respectively. 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 9% of the Company's net sales during each of 1998, 1999
or 2000. 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 December 31, 1999 and $22 million at
December 31, 2000. Keystone believes backlog is not a significant factor in its
business, and all of the backlog at December 31, 2000 will be shipped during
2001.
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 year ended December 31, 1998, Joliet had net sales
of $10 million. 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 1998 were to a single customer.
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.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in approximately
3,000 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.
Keystone's fabricated wire products, industrial wire and rod production
facilities utilize approximately 2.5 million square feet for manufacturing and
office space, approximately 79% 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.
Approximate
Size
Facility Name Location (Square Feet) Products Produced
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
*Keystone sold the Fox Valley Steel & Wire business in January 2001.
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, 2000.
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 22, 2001 was 1,591. 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.
High Low
2000
First quarter .............................. $7.50 $4.50
Second quarter ............................. $4.75 $3.75
Third quarter .............................. $3.88 $2.69
Fourth quarter ............................. $2.94 $1.25
1999
First quarter .............................. $9.75 $5.50
Second quarter ............................. $7.94 $6.50
Third quarter .............................. $6.56 $4.19
Fourth quarter ............................. $6.13 $3.88
The Company has not paid cash dividends on its common stock since 1977.
Keystone 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.
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."
Years ended December 31,
--------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands, except per share and per ton amounts)
Statement of Operations Data:
Net sales ............................ $331,175 $354,073 $370,022 $ 355,688 $ 338,321
Cost of goods sold ................... 298,268 316,599 339,625 332,644 331,167
-------- -------- -------- --------- ---------
Gross profit ......................... $ 32,907 $ 37,474 $ 30,397 $ 23,044 $ 7,154
======== ======== ======== ========= =========
Selling expenses ..................... $ 3,855 $ 4,628 $ 6,042 $ 6,845 $ 6,737
General and administrative
expenses ........................... 22,779 17,918 19,139 20,850 18,388
Operating income (loss) .............. 10,662 23,292 13,033 2,578 (15,415)
Interest expense ..................... 3,741 7,612 10,460 14,058 15,346
Income (loss) before income taxes .... $ 4,240 $ 16,909 $ 5,006 $ (12,238) (32,436)
Provision (benefit) for income taxes . 1,656 4,541 1,095 (4,754) (11,370)
-------- -------- -------- --------- ---------
Net income (loss) .................... $ 2,584 $ 12,368 $ 3,911 $ (7,484) $ (21,066)
======== ======== ======== ========= =========
Net income (loss) available for common
shares (1) ......................... $ 2,514 $ 12,088 $ 3,754 $ (7,484) $ (21,066)
======== ======== ======== ========= =========
Basic net income (loss) available for
common shares per share ............ $ .38 $ 1.30 $ .41 $ (.75) $ (2.10)
======== ======== ======== ========= =========
Diluted net income (loss) available
for common shares per share ........ $ .38 $ 1.28 $ .40 $ (.75) $ (2.10)
======== ======== ======== ========= =========
Weighted average common and common
equivalent shares outstanding:......
Basic .............................. 6,554 9,271 9,544 9,904 10,039
======== ======== ======== ========= =========
Diluted ............................ 6,560 9,435 9,669 9,904 10,039
======== ======== ======== ========= =========
Other Financial Data:
Cash contributions to defined benefit
pension plans ...................... $ 9,664 $ -- $ -- $ -- $ --
Capital expenditures ................. 18,992 26,294 64,541 16,873 13,052
Depreciation and amortization ........ 12,425 12,815 20,140 21,051 17,224
Other Steel and Wire Products Operating
Data:
Shipments (000 tons):
Fabricated wire products ........... 222 225 327 315 310
Industrial wire .................... 159 175 170 144 128
Carbon steel rod ................... 307 297 212 237 257
-------- -------- -------- --------- ---------
Total ............................ 688 697 709 696 695
======== ======== ======== ========= =========
Average selling prices (per ton):
Fabricated wire products ........... $ 716 $ 710 $ 662 $ 683 $ 660
Industrial wire .................... 478 478 476 462 449
Carbon steel rod ................... 298 317 288 261 266
Steel and wire products in total ... 475 484 506 493 475
Average total production cost per ton $ 430 $ 437 $ 464 $ 461 $ 470
Average scrap purchase cost per ton .. 125 122 110 94 100
As of December 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Working capital (deficit) (2) .... $ (15,907) $ 52,684 $ 555 $ (13,920) $ (39,243)
Property, plant and equipment, net 92,608 112,754 156,100 150,156 144,696
Total assets ..................... 302,368 374,131 405,857 410,918 385,703
Total debt ....................... 51,780 106,844 131,764 146,857 146,008
Redeemable preferred stock ....... 3,500 3,500 -- -- --
Stockholders' equity (deficit) ... 31,170 44,211 53,077 46,315 26,058
(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.
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 (438,000 in 2000).
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 78% of 2000 net sales. Keystone'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, historically, 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 and 2000, Keystone experienced production problems related
to the start-up of the new equipment. Keystone believes it resolved the problems
in 2000 and the equipment is now performing at the desired levels.
The Company's steel making operations, together with billet purchases
of 8,000 tons and 45,000 tons in 2000 and 1999, respectively, provided 682,000
tons and 728,000 tons of billets in 2000 and 1999, respectively. The current
estimated annual production capacity of the Company's rod mill is 750,000 tons.
The lower billet production and purchase volumes in 2000 resulted in rod
production decreasing 1% from 687,000 tons (92% of estimated capacity) in 1999
to 678,000 tons (90% of estimated capacity). Despite the increase in billet
production capacity to 1 million tons, Keystone's rod production is constrained
by the 800,000 ton capacity of its rod mill. The Company anticipates any excess
billet production will be sold externally. Following the January 2001 sale of
Fox Valley's business operations, Keystone's estimated current fabricated wire
products and industrial wire production capacity is 580,000 tons. The Company's
fabricated wire products and industrial wire production facilities operated at
about 85%, 84%, and 78% of their annual capacity during 1998, 1999 and 2000,
respectively.
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
$110 in 1998, $94 in 1999, and $100 in 2000. 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.
During the last two years, three of Keystone's major competitors have filed for
protection under Federal bankruptcy laws and three others have reduced or
completely shut-down their operations. The Company believes these shut-downs or
production curtailments represent approximately 2.5 million tons of annual
capacity. However, worldwide over capacity 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. In February 2000, President Clinton 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 1.6 million ton 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 believe the TRQ has
had a major impact on the industry and high levels of imported rod continue.
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.
In January 2001, Keystone's wholly-owned subsidiary, Fox Valley Steel &
Wire ("Fox Valley") sold its sole business which was located in Hortonville,
Wisconsin to a management group. Fox Valley did not record any significant gain
or loss as a result of the sale. Fox Valley manufactured industrial wire and
fabricated wire products (primarily ladder rods and nails). Fox Valley's
revenues in 1998, 1999 and 2000 amounted to $12.0 million, $11.3 million and
$10.3 million, respectively. During 1998, 1999 and 2000, approximately 55%, 30%
and 32%, respectively of Fox Valley's sales were to a single customer. That
customer will, in the future, be serviced by Keystone's Peoria facility. During
1998, 1999 and 2000, Fox Valley recorded operating losses of $266,000, $67,000
and $686,000, respectively.
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,
sales volume and pricing data for the periods indicated.
Years Ended December 31,
1998 1999 2000
---- ---- ----
(Tons in thousands)
Production volume (tons):
Billets:
Produced ............................... 640 683 675
Purchased .............................. 38 45 8
Carbon steel rod ......................... 670 687 678
Sales volume (tons):
Fabricated wire products ................. 327 315 310
Industrial wire .......................... 170 144 128
Carbon steel rod ......................... 212 237 257
---- ---- ----
709 696 695
==== ==== ====
Per ton selling prices:
Fabricated wire products ................. $662 $683 $660
Industrial wire .......................... 476 462 449
Carbon steel rod ......................... 288 261 266
All steel and wire products .............. 506 493 475
The following table sets forth the components of the Company's net
sales for the periods indicated.
Years Ended December 31,
1998 1999 2000
---- ---- ----
(In millions)
Steel and wire products:
Fabricated wire products .............. $216.6 $214.7 $204.7
Industrial wire ....................... 81.0 66.6 57.4
Carbon steel rod ...................... 61.1 62.0 68.4
Other ................................. 1.3 1.4 1.5
------ ------ ------
360.0 344.7 332.0
Lawn and garden products ................ -- 11.0 6.3
Household cleaning products ............. 10.0 -- --
------ ------ ------
$370.0 $355.7 $338.3
====== ====== ======
The following table sets forth selected operating data of Keystone as a
percentage of net sales for the periods indicated.
Years Ended December 31,
1998 1999 2000
---- ---- ----
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of goods sold ............................ 91.8 93.5 97.9
----- ----- -----
Gross profit .................................. 8.2% 6.5% 2.1%
===== ===== =====
Selling expenses .............................. 1.6% 1.9% 2.0%
General and administrative expense ............ 5.2 5.9 5.4
Overfunded defined benefit pension credit ..... (2.6) (1.6) (.1)
Income (loss) before income taxes ............. 1.4% (3.4)% (9.6)%
Provision (benefit) for income taxes .......... .3 (1.3) (3.4)
----- ----- -----
Net income (loss) ............................. 1.1% (2.1)% (6.2)%
===== ===== =====
Year ended December 31, 2000 compared to year ended December 31, 1999
Net sales declined 4.9% in 2000 from 1999 due primarily to a 3.6%
decline in overall steel and wire product selling prices. During 1999 and 2000,
fabricated wire products represented 60% of net sales while industrial wire
declined to 17% of net sales in 2000 as compared to 19% in 1999. Carbon steel
rod sales increased to 20% of net sales in 2000 from the 1999 level of 17%. The
3.6% decline in overall product selling prices ($18 per ton) adversely impacted
net sales by $12.3 million. In addition, Garden Zone's sales during 2000
declined 42% to $6.3 million from $11.0 million in 1999 primarily due to lower
shipments to a major customer.
Fabricated wire products selling prices declined 3% while shipments
declined 1% in 2000 as compared to 1999. Industrial wire selling prices also
declined 3% in 2000 when compared to 1999 while shipments declined 11%. Carbon
steel rod selling prices increased 2% while shipments increased 8% as compared
to 1999.
Gross profit declined approximately 69% to $7.2 million in 2000 from
$23.0 million in 1999. Gross margin declined to 2.1% from 6.5% in 1999 due
primarily to higher scrap costs (Keystone's primary raw material), lower overall
selling prices, and higher production costs during the second and fourth
quarters of 2000. The higher production costs in the second quarter were due
primarily to extended production outages caused by planned repairs and a furnace
break-out. The higher production costs in the 2000 fourth quarter were primarily
a result of a two-week production outage due to the failure of a furnace rocker
arm and related repair costs of $1 million and inefficiencies resulting from
slower production rates caused by the adverse effects of high accumulations of
snow and ice. In addition, during 1999, Keystone recorded a $2.7 million benefit
as a result of favorable legal settlements with certain electrode vendors
related to alleged price fixing. Keystone's scrap costs increased 6% during 2000
as compared to 1999. During 2000, the Company purchased 658,000 tons of scrap at
an average price of $100 per ton as compared to 1999 purchases of 768,000 tons
at an average price of $94 per ton. Keystone currently expects average scrap
costs in 2001 will be less than 2000 average cost. The Company also purchased
8,000 tons of billets during 2000 at an average cost of $215 per ton as compared
to 45,000 tons of billets in 1999 at an average cost of $195 per ton. Keystone
does not anticipate purchasing any billets during 2001.
Selling expenses decreased 2% to $6.7 million in 2000 from $6.8 million
in 1999 but was relatively constant as a percentage of sales.
General and administrative expenses decreased 12% to $18.4 million in
2000 from $20.9 million in 1999 primarily due to higher costs incurred in 1999
associated with the start-up of Garden Zone and unfavorable legal settlements
during 1999.
During 2000, Keystone recorded a non-cash pension credit of $380,000 as
compared to $5.6 million in 1999. 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 and a $3.7 million charge as a result
of an early retirement program for certain salaried employees. During the fourth
quarter of 2000, in connection with Keystone's cost reduction plans, the Company
offered a group of salaried employees enhanced pension benefits if they would
retire by December 31, 2000, resulting in the $3.7 million charge for
termination benefits for early retirement window. However, Keystone believes
annual salary and related benefit costs will be reduced in the future by more
than $3.0 million as a result of these early retirements. The Company currently
estimates, for financial reporting purposes, that it will recognize a non-cash
pension credit of approximately $3 million in 2001 and does not anticipate cash
contributions for defined benefit pension plan fundings will be required in
2001. 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 2000 was higher than 1999 due principally to
higher borrowing levels and higher interest rates. Average borrowings by the
Company under its revolving credit facilities, EWP term loan and Senior Secured
Notes approximated $150.9 million during 2000 as compared to $142.7 million in
1999. During 2000, the average interest rate paid by the Company was 9.6% per
annum as compared to 9.3% per annum in 1999.
At December 31, 2000, the Company's financial statements reflected total
accrued liabilities of $16.8 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 2000 and 1999 were 35% and 39%,
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, 2000 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 $21.1 million during 2000 as compared to a net loss in 1999 of $7.5 million.
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'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. 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.
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. 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.
Outlook for 2001
Keystone believes the start-up problems relative to the new equipment
at its Peoria, Illinois steel mill that adversely impacted earnings during 1999
and the first half of 2000 have been substantially resolved. As a result, the
Company expects an improvement in the operating effiency of its Peoria steel
mill during 2001 as compared to 2000. However, Keystone anticipates higher
energy and interest costs, continued high levels of imported rod and lower
product selling prices in 2001 will result in Keystone recording a net loss for
the year.
Liquidity And Capital Resources
At December 31, 2000, Keystone had negative working capital of $39.2
million, including $900,000 of notes payable and current maturities of long-term
debt as well as outstanding borrowings under the Company's revolving credit
facilities of $44.8 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, Keystone's
ability to borrow under its revolving credit facilities may be limited. At
December 31, 2000, unused credit available for borrowing under Keystone's $60
million revolving credit facility, which expires December 31, 2001, and EWP's $7
million revolving credit facility, which expires June 30, 2002, were $5.5
million and $2.2 million, respectively. At December 31, 2000, there was no
unused credit available for borrowing under Garden Zone's $4 million revolving
credit facility, which expires December 1, 2001. The terms of the indenture will
permit Keystone to borrow all of the $5.5 million unused credit available under
Keystone's $60 million revolving credit facility during the first quarter of
2001. 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 2000, the Company's operating activities provided approximately
$13.9 million of cash, compared to $1.1 million of cash provided by operating
activities in 1999. Despite lower earnings in 2000 as compared to 1999, cash
flow from operations increased in 2000 compared to 1999 due to relative changes
in the levels of assets and liabilities (primarily accounts receivable and
inventories).
During 2000, Keystone made capital expenditures of approximately $13.1
million primarily related to upgrades of production equipment at its facility in
Peoria, Illinois, as compared to $16.9 million in 1999. Capital expenditures for
2001 are currently estimated to be approximately $13 million and are related
primarily to upgrades of, as well as additional, production equipment. These
capital expenditures will be funded through operations and by using borrowing
availability under Keystone's revolving credit facilities.
At December 31, 2000, the Company's financial statements reflected
accrued liabilities of $16.8 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 2001. 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 its 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, 2001. 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, there are many factors that could cause actual
future results to differ materially from management's current assessment. 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, future supply and demand for the Company's products (including cyclicality
thereof), customer inventory levels, changes in raw material and other operating
costs (such as scrap and energy), 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 (such as those requiring emission and discharge standards
for existing and new facilities), government regulations and possible changes
therein, any significant increases in the cost of providing medical coverage to
active and retired employees, 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 and other risks and uncertainties as
discussed in this Annual Report. 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 and as a result, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Keystone's exposure to changes in interest rates relates primarily to
long-term debt obligations. At December 31, 2000, substantially all 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 Keystone's long-term debt obligations.
Estimated
Contracted Maturity Date Fair Value
-------------------- -------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total December 31, 2000
---- ---- ---- ---- ---- ---------- ----- -----------------
($ In thousands)
Fixed-rate debt -
Principal amount $ 460 $199 $ 30 $ 52 $ - $100,000 $100,740 $43,240
Weighted-average
interest rate 8.9% 9.1% 9.3% 9.3% - % 9.6% 9.6%
Variable-rate debt-
Principal amount $45,268 $ - $ - $ - $ - $ - $ 45,268 $45,268
Weighted-average
interest rate 9.8% - % - % - % - % - % 9.8%
At December 31, 1999, long-term debt included fixed-rate debt of $101.7
million (fair value - $93.9 million) with a weighted average interest rate of
9.6% and $45.2 million variable-rate debt which approximated fair value, with a
weighted-average interest rate of 9.2%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is contained in a separate
section of this report. See Index of Financial Statements and Financial
Statement Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
disclosure provided under the captions "Election of Directors" and "Executive
Officers" in Keystone's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Keystone Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Executive Compensation" in the Keystone
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Security Ownership" in the Keystone Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Certain Business Relationships and
Related Transactions" in the Keystone Proxy Statement. See also Note 10 to the
Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1), (2) The Index of Consolidated Financial Statements and Financial
Statement Schedule is included on page F-1 of this report.
(a)(3) Exhibits
Included as exhibits are the items listed in the Exhibit Index.
The Company will furnish a copy of any of the exhibits listed
below upon payment of $4.00 per exhibit to cover the costs to
the Company in furnishing the exhibits. The Company agrees to
furnish to the Commission upon request copies of any instruments
not included herein defining the rights of holders of long-term
debt of the Company.
Exhibit No. Exhibit
3.1 -- Certificate of Incorporation, as amended and filed with the
Secretary of State of Delaware (Incorporated by reference to
Exhibit 3.1 to the 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 -- FirstAmendment 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)
(Incorporated by reference to Exhibit 4.4 to the Registrant's
Form 10-K for the year ended December 31, 1999).
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). (Incorporated by reference to
Exhibit 4.5 to the Registrant's Form 10-K for the year ended
December 31, 1999).
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).
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Form 10-K for the year ended December 31, 1999).
10.1 -- Intercorporate Services Agreement with Contran Corporation dated
as of January 1, 2000.
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
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, 2000.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
2000.
*Management contract, compensatory plan or agreement.
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 29, 2001, 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 29, 2001 by the
following persons on behalf of the registrant and in the capacities indicated:
/s/ GLENN R. SIMMONS /s/ WILLIAM SPIER
- ------------------------------------ -----------------------------------
Glenn R. Simmons William Spier
Chairman of the Board Director
/s/ J. WALTER TUCKER, JR. /s/ STEVEN L. WATSON
- --------------------------- -----------------------------------
J. Walter Tucker, Jr. Steven L. Watson
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/ BERT E. DOWNING, JR.
- ------------------------------------ --------------------------
Paul M. Bass, Jr. Bert E. Downing, Jr.
Director Vice President and
Corporate Controller and
Principal Accounting and
Financial Officer
/s/ DAVID E. CONNOR
- ------------------------------------
David E. Connor
Director
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
Items 8, 14(a) and 14(d)
Index of Consolidated Financial Statements and Financial Statement Schedule
Page
Financial Statements
Report of Independent Accountants.....................................F-2
Consolidated Balance Sheets -- December 31, 1999 and 2000.............F-3/F-4
Consolidated Statements of Operations -- Years ended December 31,
1998, 1999 and 2000.................................................F-5
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity -- Years ended
December 31, 1998, 1999 and 2000....................................F-6
Consolidated Statements of Cash Flows -- Years ended December 31,
1998, 1999 and 2000.................................................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.
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, 1999 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of America 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
Dallas, Texas
March 26, 2001
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 2000
(In thousands, except share data)
ASSETS 1999 2000
------ ------
Current assets:
Notes and accounts receivable, net of allowances
of $2,297 and $1,681 ............................. $ 32,819 $ 21,813
Inventories ........................................ 66,083 52,004
Deferred income taxes .............................. 17,396 16,828
Prepaid expenses and other ......................... 1,364 786
-------- --------
Total current assets ........................... 117,662 91,431
-------- --------
Property, plant and equipment:
Land, buildings and improvements ................... 51,637 55,297
Machinery and equipment ............................ 301,932 311,063
Construction in progress ........................... 4,308 1,335
-------- --------
357,877 367,695
Less accumulated depreciation ........................ 207,721 222,999
-------- --------
Net property, plant and equipment .............. 150,156 144,696
-------- --------
Other assets:
Restricted investments ............................. 9,180 5,969
Prepaid pension cost ............................... 126,126 126,506
Deferred income taxes .............................. -- 10,696
Deferred financing costs ........................... 3,034 2,685
Goodwill ........................................... 1,002 877
Investment in unconsolidated equity affiliate ...... 281 --
Other .............................................. 3,477 2,843
-------- --------
Total other assets ............................. 143,100 149,576
-------- --------
$410,918 $385,703
See accompanying notes to consolidated financial statements.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1999 and 2000
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 2000
------ ------
Current liabilities:
Notes payable and current maturities of
long-term debt ................................... $ 45,986 $ 45,728
Accounts payable ................................... 30,689 34,614
Accounts payable to affiliates ..................... 70 --
Accrued OPEB cost .................................. 9,500 8,767
Other accrued liabilities .......................... 45,337 41,565
--------- ---------
Total current liabilities ...................... 131,582 130,674
--------- ---------
Noncurrent liabilities:
Long-term debt ..................................... 100,871 100,280
Accrued OPEB cost .................................. 98,802 98,015
Deferred income taxes .............................. 1,100 --
Negative goodwill .................................. 22,709 21,353
Other .............................................. 9,539 9,323
--------- ---------
Total noncurrent liabilities ................... 233,021 228,971
--------- ---------
Stockholders' equity:
Common stock, $1 par value, 12,000,000 shares
authorized; 9,927,665 and 10,063,103 shares issued
at stated value .................................. 10,656 10,792
Additional paid-in capital ......................... 52,398 53,071
Accumulated deficit ................................ (16,727) (37,793)
Treasury stock - 1,134 shares, at cost ............. (12) (12)
--------- ---------
Total stockholders' equity ..................... 46,315 26,058
--------- ---------
$ 410,918 $ 385,703
Commitments and contingencies (Notes 13, 14 and 15).
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1999 and 2000
(In thousands, except per share data)
1998 1999 2000
------ -------- ------
Revenues and other income:
Net sales ............................... $ 370,022 $ 355,688 $ 338,321
Interest ................................ 594 452 599
Other, net .............................. 212 463 183
--------- --------- ---------
370,828 356,603 339,103
--------- --------- ---------
Costs and expenses:
Cost of goods sold ...................... 339,625 332,644 331,167
Selling ................................. 6,042 6,845 6,737
General and administrative .............. 19,139 20,850 18,388
Overfunded defined benefit pension credit (9,444) (5,610) (380)
Interest ................................ 10,460 14,058 15,346
--------- --------- ---------
365,822 368,787 371,258
--------- --------- ---------
5,006 (12,184) (32,155)
Equity in losses of Alter Recycling
Company L.L.C ....................... -- (54) (281)
--------- --------- ---------
Income (loss) before income taxes ... 5,006 (12,238) (32,436)
Provision (benefit) for income taxes ...... 1,095 (4,754) (11,370)
--------- --------- ---------
Net income (loss) ................... 3,911 (7,484) (21,066)
Dividends on preferred stock .............. 157 -- --
--------- --------- ---------
Net income (loss) available for
common shares ......................... $ 3,754 $ (7,484) $ (21,066)
========= ========= =========
Net income (loss) per share available
for common shares:
Basic ................................. $ .41 $ (.75) $ (2.10)
========= ========= =========
Diluted ............................... $ .40 $ (.75) $ (2.10)
========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic ................................. 9,544 9,904 10,039
========= ========= =========
Diluted ............................... 9,669 9,904 10,039
========= ========= =========
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1999 and 2000
(In thousands)
Common stockholders' equity
Redeemable Additional Total common
preferred Common stock paid-in Accumulated Treasury stockholders'
stock Shares Amount capital (deficit) stock equity
--------- ------ ------ -------- --------- ------- ------
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
Net loss .......................... -- -- -- -- (21,066) -- (21,066)
Issuance of stock ................. -- 136 136 673 -- -- 809
------- ------ ------- ------- -------- ---- --------
Balance - December 31, 2000 ....... $ -- 10,062 $10,792 $53,071 $(37,793) $(12) $ 26,058
======= ====== ======= ======= ======== ==== ========
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1999 and 2000
(In thousands)
1998 1999 2000
------- ------- ------
Cash flows from operating activities:
Net income (loss) ........................ $ 3,911 $ (7,484) $(21,066)
Depreciation and amortization ............ 20,140 21,051 17,224
Amortization of deferred financing costs . 509 519 479
Deferred income taxes .................... 3,078 (3,363) (11,229)
Other, net ............................... 1,571 (3,089) (1,883)
Change in assets and liabilities:
Notes and accounts receivable .......... (2,027) 4,323 11,605
Inventories ............................ 1,691 (14,685) 14,080
Prepaid pension cost ................... (9,444) (5,610) (380)
Accounts payable ....................... 4,323 (1,923) 3,855
Other, net ............................. (6,947) 11,312 1,236
-------- -------- --------
Net cash provided by operating
activities ......................... 16,805 1,051 13,921
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ..................... (64,541) (16,873) (13,052)
Other, net ............................... (437) 729 (20)
-------- -------- --------
Net cash used by investing activities (64,978) (16,144) (13,072)
-------- -------- --------
See accompanying notes to consolidated financial statements.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1998, 1999 and 2000
(In thousands)
1998 1999 2000
------- ------- ------
Cash flows from financing activities:
Revolving credit facilities, net ......... $ 26,110 $ 15,437 $ 777
Other notes payable and long-term debt:
Additions .............................. 95 1,125 26
Principal payments ..................... (1,285) (1,469) (1,652)
Preferred stock dividend payments ........ (157) -- --
Deferred financing costs paid ............ (207) -- --
Exercise of warrants and redemption of
preferred stock, net ................... 701 -- --
Common stock issued, other ............... 294 -- --
-------- -------- --------
Net cash provided (used) by financing
Activities .......................... 25,551 15,093 (849)
-------- -------- --------
Net change in cash and cash equivalents .... (22,622) -- --
Cash and cash equivalents, beginning of year 22,622 -- --
-------- -------- --------
Cash and cash equivalents, end of year ..... $ -- $ -- $ --
======== ======== ========
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized ... $ 10,903 $ 13,887 $ 14,867
Income taxes paid (refund), net ........ 217 (3,575) (807)
Common stock contributed to employee
benefit plan ........................... $ 617 $ 722 $ 809
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 by trusts established for the benefit of certain children and grandchildren
of Mr. Simmons, of which Mr. Simmons is sole trustee. 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 2000 presentation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Keystone has incurred operating losses in each of the last two years.
For the years ended December 31, 1999 and 2000, the Company recorded a net loss
of approximately $7.5 million and $21.1 million, respectively.
For the year ended December 31, 2001, management expects to report a
net loss and that operating cash flow will be positive. Keystone's management
believes its available lines of credit and cash flows from operating activities
will be sufficient to fund the anticipated needs of the Company's operations and
capital expenditures for the year ending December 31, 2001. However, such
expectation is based on various operating assumptions and goals. Failure to
achieve these goals could have a material adverse effect on the Company's
ability to achieve its intended business objectives and may result in cash flow
needs in excess of its current borrowing availability under existing credit
facilities.
Fiscal year. The Company's fiscal year is 52 or 53 weeks and ends on
the last Sunday in December. Each of fiscal 1998 and 1999 were 52-week years,
and 2000 was a 53 week year.
Revenue recognition. Revenue is recorded when products are shipped and
title and other risks and rewards of ownership have passed to the customer. The
Company adopted Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 101, as amended, in 2000. SAB No. 101 provides guidance on the
recognition, presentation and disclosure of revenue. The impact of adopting SAB
No. 101 was not material.
Shipping and handling costs. In general, sales from Keystone's steel
and wire products segment include prepaid freight with the resulting freight
cost absorbed by the Company. Keystone's reported sales in 1998, 1999 and 2000
are stated net of shipping and handling costs of $22.9 million, $20.6 million
and $19.9 million, respectively. Shipping and handling costs of the Company's
lawn and garden products segment are included in cost of goods sold and were
approximately $345,000 and $169,000 in 1999 and 2000, respectively.
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 79% and 75% of the inventories held at December 31, 1999 and 2000,
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 1998, 1999 and 2000
amounted to $878,000, $50,000 and $124,000 respectively. Expenditures for
maintenance, repairs and minor renewals are expensed; expenditures for major
improvements are capitalized. Keystone will perform certain planned major
maintenance activities during the year (generally during the fourth quarter).
Repair and maintenance costs estimated to be incurred in connection with such
planned major maintenance activities are accrued in advance and are included in
cost of goods sold.
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 $20,849,000, $21,741,000 and $18,252,000 during the years ended December 31,
1998, 1999 and 2000, respectively.
When events or changes in circumstances indicate assets may be impaired,
an evaluation is performed to determine if an impairment exists. Such events or
changes in circumstances include, among other things, (i) significant current
and prior periods or current and projected periods with operating losses, (ii) a
significant decrease in the market value of an asset or (iii) a significant
change in the extent or manner in which an asset is used. All relevant factors
are considered. The test for impairment is performed by comparing the estimated
future undiscounted cash flows (exclusive of interest expense) associated with
the asset to the asset's net carrying value to determine if a write-down to
market value or discounted cash flow value is required. If the asset being
tested for impairment was acquired in a business combination accounted for by
the purchase method, any goodwill which arose out of that business combination
may also be considered in the impairment test if the goodwill related
specifically to the acquired asset and not to other aspects of the acquired
business, such as the customer base or product lines.
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. Keystone 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, 1999 and 2000
Keystone had such assets recorded of approximately $323,000.
Income taxes. Deferred income tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
income tax and financial reporting carrying amounts of assets and liabilities.
Keystone periodically evaluates its deferred tax assets and adjusts any related
valuation allowance based on the estimate of the amount of such deferred tax
assets which the Company believes does not meet the "more-likely-than-not"
recognition criteria.
Advertising costs. Advertising costs, expensed as incurred, were $1.1
million in 1998, $.5 million in 1999 and $.9 million in 2000.
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 163,000, 725,000 and 795,000 in 1998, 1999 and 2000, respectively.
Deferred financing costs. Deferred financing costs relate primarily to
the issuance of Keystone'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
$1,483,000 and $1,962,000 at December 31, 1999 and 2000, 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 7 years at December 31, 2000) and is stated net of
accumulated amortization of approximately $227,000 at December 31, 1999 and
$352,000 at December 31, 2000. Amortization of goodwill amounted to $113,000 in
each of 1998 and 1999 and $125,000 in 2000.
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 is amortized by the straight-line method
over 20 years (remaining life of 15.75 years at December 31, 2000) and is stated
net of accumulated amortization of approximately $4,406,000 and $5,762,000 at
December 31, 1999 and 2000, respectively. Amortization of negative goodwill in
each of 1998, 1999 and 2000 amounted to $1,356,000.
Employee Stock Options. Keystone 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.
Accounting principles not yet adopted. Keystone will adopt Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, effective January 1, 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, and such
changes will be recognized either in net income or other comprehensive income.
As permitted by the transition requirements of SFAS No. 133, as amended,
the Company will exempt from the scope of SFAS No. 133 all host contracts
containing embedded derivatives which were issued or acquired prior to January
1, 1999. Keystone is not a party to any significant derivative or hedging
instrument covered by SFAS No. 133 at December 31, 2000 and therefore the
Company does not expect that the impact of adopting SFAS No. 133 will be
material.
Note 2 - Acquisitions and joint ventures
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 include the accounts of Garden
Zone. Neither Keystone nor the other owners contributed capital or 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 its earnings, of which 51% accrue to Keystone for financial
reporting purposes, have been 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 is not required
to, nor does it currently anticipate it will, make any other contributions to
fund or operate this joint venture. Keystone has not guaranteed any debt or
other liability of the 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. As of December 31, 2000, due to
operating losses incurred by ARC, Keystone had reduced its investment in ARC to
zero. ARC commenced operations in August 1999 and through December 31, 1999,
Keystone purchased approximately $2.7 million of scrap from ARC. During 2000,
Keystone purchased approximately $7.2 million of scrap from ARC. At December 31,
1999 and 2000, ARC owed Keystone approximately $809,000 and $818,000
respectively, primarily for the scrap inventory purchased by ARC from Keystone.
At December 31, 2000, Keystone owed ARC approximately $171,000 primarily for
scrap purchases by Keystone from ARC.
Note 3 - Inventories
December 31,
1999 2000
---- ----
(In thousands)
Steel and wire products:
Raw materials ...................................... $20,985 $11,101
Work in process .................................... 12,657 9,492
Finished products .................................. 20,179 23,954
Supplies ........................................... 15,378 15,520
------- -------
69,199 60,067
Less LIFO reserve .................................. 8,711 11,083
------- -------
60,488 48,984
Lawn and garden products - finished products ......... 5,595 3,020
------- -------
$66,083 $52,004
Note 4 - Notes payable and long-term debt
December 31,
1999 2000
---- ----
(In thousands)
9 5/8% Senior Secured Notes, due August 2007 $100,000 $100,000
Commercial credit agreements:
Revolving credit facilities:
Keystone ............................... 35,568 37,772
EWP .................................... 4,908 4,203
Garden Zone ............................ 3,541 2,819
Term loan - EWP .......................... 437 164
Other ...................................... 2,403 1,050
-------- --------
146,857 146,008
Less current maturities .................. 45,986 45,728
-------- --------
$100,871 $100,280
The Senior Notes are due in August 2007 and are collateralized by a
lien on substantially all of the existing and future fixed assets of Keystone.
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 Keystone 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 Keystone to pay dividends
or make other restricted payments, as defined.
Keystone's $60 million revolving credit facility (the Keystone
Revolver") expires December 31, 2001 and bears interest at the prime rate plus
1/2% or at the Adjusted Eurodollar Rate (as defined) plus 2.5%. The Keystone
Revolver is collateralized by certain of the Company's trade receivables and
inventories. The effective interest rate was 9.5% and 10.0% at December 31, 1999
and 2000, respectively. The amount of available borrowings under the Keystone
Revolver is based on formula-determined amounts of trade receivables and
inventories, less the amount of outstanding letters of credit (approximately
$1.2 million at December 31, 2000). At December 31, 2000, $5.5 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.
In June 2000, EWP renewed and extended its revolving credit facility
(the "EWP Revolver") for two years until June 2002. Under the terms of the
renewal, the facility was increased from $6 million to $7 million and the assets
that were considered in calculating the facility's borrowing base were expanded.
Borrowings under the EWP Revolver bear interest at either the prime rate or
LIBOR plus 2.25% (8.4% and 8.7% at December 31, 1999 and 2000). At December 31,
2000, $2.2 million was available for additional borrowings under the EWP
revolver, all of which could be borrowed under the terms of the Indenture. EWP's
accounts receivable, inventories and property, plant and equipment collateralize
the EWP Revolver. The EWP Revolver Agreement contains covenants with respect to
working capital, additional borrowings, payment of dividends and certain other
matters.
Garden Zone has a $4.0 million revolving credit facility (the "Garden
Zone Revolver") which, as amended in February 2001, matures on December 1, 2001
and bears interest at the LIBOR rate plus 2.4%. During 1999 and 2000 the Garden
Zone Revolver bore interest at the LIBOR rate plus 2% (8.1% and 8.7% at December
31, 1999 and 2000, respectively). Garden Zone's accounts receivable and
inventories collateralize the Garden Zone Revolver. At December 31, 2000, no
additional amounts were available for borrowing under the Garden Zone Revolver.
At December 31, 1999 and 2000, other notes payable and long-term debt
included $750,000 and $474,000 respectively, 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 and 2000 amounted to approximately $33,000 and
$64,000 respectively.
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,
1999 and 2000, approximated $92.3 million and $42.5 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.
Year ending December 31, Amount
(In thousands)
2001 $ 45,727
2002 199
2003 30
2004 52
2005 -
2006 and thereafter 100,000
--------
$146,008
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.
Years ended December 31,
1998 1999 2000
---- ---- ----
(In thousands)
Expected tax expense (benefit) , at
statutory rate .............................. $ 1,752 $ (4,283) $(11,353)
U.S. state income taxes, net ................. 280 (157) 157
Amortization of goodwill and negative goodwill (435) (435) (431)
Other, net ................................... (502) 121 257
------- -------- --------
Provision (benefit) for income taxes ......... $ 1,095 $ (4,754) $(11,370)
======= ======== ========
Provision (benefit) for income taxes:
Currently payable (refundable):
U.S. federal ............................. $(1,883) $ (930) $ (278)
U.S. state ............................... (100) (461) 137
------- -------- --------
Net currently payable .................. (1,983) (1,391) (141)
Deferred income taxes, net ................. 3,078 (3,363) (11,229)
------- -------- --------
$ 1,095 $ (4,754) $(11,370)
======= ======== ========
At December 31, 2000, Keystone had approximately $6.3 million of
alternative minimum tax credit carryforwards which have no expiration date.
At December 31, 2000, 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. At December 31, 2000
Keystone has other net operating loss carryforwards of approximately $38.3
million which expire in 2019 and 2020, and which may be used to reduce future
taxable income of the entire Company.
The components of the net deferred tax asset are summarized below.
December 31,
1999 2000
---------------------------------------------
Assets Liabilities Assets Liabilities
(In thousands)
Tax effect of temporary differences relating to:
Inventories ................................ $ 2,549 $ -- $ 2,639 $ --
Property and equipment ..................... -- (5,075) -- (5,738)
Prepaid pension ............................ -- (49,189) -- (49,337)
Accrued OPEB cost .......................... 42,227 -- 41,633 --
Accrued liabilities and other deductible
differences ............................... 14,975 -- 14,811 --
Other taxable differences .................. -- (6,757) -- (6,298)
Net operating loss carryforwards ........... 15,583 -- 23,554 --
Alternative minimum tax credit carryforwards 1,983 -- 6,260 --
-------- -------- -------- --------
Gross deferred tax assets (liabilities) .. 77,317 (61,021) 88,897 (61,373)
Reclassification, principally netting by tax
jurisdiction ................................ (59,921) 59,921 (61,373) 61,373
-------- -------- -------- --------
Net deferred tax asset (liability) ....... 17,396 (1,100) 27,524 --
Less current deferred tax asset .............. 17,396 -- 16,828 --
-------- -------- -------- --------
Noncurrent deferred tax asset (liability) $ -- $ (1,100) $ 10,696 $ --
======== ======== ======== ========
Note 6 - Stock options, warrants and stock appreciation rights plan
In 1997, Keystone 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 Keystone'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, 2000, there
were 498,000 options outstanding under this plan.
During 1997, the Company granted all remaining options available under
Keystone's 1992 Option Plan. At December 31, 2000, there were 238,066 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,
2000, there were 7,000 options outstanding under this plan.
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.
Price per Amount payable
Options share upon exercise
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
Granted 146,000 4.25 - 5.50 765,500
Canceled (116,000) 5.13 - 13.38 (1,035,594)
-------- ------------- -----------
Outstanding at December 31, 2000 758,066 $4.25 -$13.94 $ 6,317,130
======== ============= ===========
The following table summarizes weighted average information about fixed
stock options outstanding at December 31, 2000.
Outstanding Exercisable
Weighted Average Weighted Average
Range of Remaining Remaining
Exercise Contractual Exercise Contractual Exercise
Prices Options Life Price Options Life Price
---------- ------- ----------- -------- ------- ----------- -------
$ 4.25-$ 5.50 132,500 9.2 years $ 5.25 - - $ -
$ 7.63-$11.00 585,566 6.6 years $ 8.67 398,996 6.0 years $ 8.46
$12.86-$13.94 40,000 4.8 years $13.53 40,000 4.8 years $13.53
------- -------
758,066 7.0 years $ 8.33 438,996 5.9 years $ 8.92
======= =======
At December 31, 2000, options to purchase 438,996 shares were
exercisable (none at prices lower than the December 31, 2000 quoted market price
of $1.38 per share) and options to purchase an additional 138,390 shares will
become exercisable in 2001. At December 31, 2000, an aggregate of 2,000 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
1999 and 2000. There were no options granted in 1998.
Years ended December 31,
1999 2000
---- ----
Risk-free interest rate 5.5% 6.66%
Dividend yield - -
Volatility factor 43% 45%
Weighted average expected life 10 years 10 years
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:
Years ended December 31,
1998 1999 2000
---- ---- ----
(In thousands except per
share amounts)
Net income (loss) available for common shares
- as reported $3,754 $(7,484) $(21,066)
Net income (loss) available for common shares
- pro forma $3,343 $(8,228) $(21,639)
Basic net income (loss) available for common
shares per common and common equivalent
share - as reported $ .41 $ (.75) $ (2.10)
Basic net income (loss) available for common
shares per common and common equivalent
share - pro forma $ .37 $ (.83) $ (2.16)
Diluted net income (loss) available for
common shares per common and common
equivalent share - as reported $ .40 $ (.75) $ (2.10)
Diluted net income (loss) available for
common shares per common and common
equivalent shares - pro forma $ .36 $ (.83) $ (2.16)
Weighted average fair value per share of
options granted during the year $ - $ 5.66 $ 3.52
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,
1999 and 2000:
Pension Benefits Other Benefits
----------------------- ------------------
1999 2000 1999 2000
---- ---- ---- ----
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 312,514 $ 298,130 $ 111,442 $ 101,523
Service cost ........................... 3,074 2,915 1,986 1,623
Interest cost .......................... 21,008 21,333 7,030 7,427
Plan participants' contributions ....... -- -- 675 587
Plan amendment ......................... 15,018 -- -- --
Actuarial loss (gain) .................. (31,014) 4,765 (9,680) 6,357
Termination benefits for early
retirement window ..................... -- 4,367 -- --
Benefits paid .......................... (22,470) (23,016) (9,930) (10,814)
--------- --------- --------- ---------
Benefit obligation at end of year ...... 298,130 308,494 101,523 106,703
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning
of year .............................. 353,235 336,673 -- --
Actual return on plan assets ........... 5,908 29,844 -- --
Company contributions .................. -- -- 9,255 10,227
Plan participants' contributions ....... -- -- 675 587
Benefits paid .......................... (22,470) (23,016) (9,930) (10,814)
--------- --------- --------- ---------
Fair value of plan assets at end of year 336,673 343,501 -- --
--------- --------- --------- ---------
Funded status ............................ 38,543 35,007 (101,523) (106,703)
Unrecognized net loss (gain) ............. 71,930 77,883 (3,257) 3,100
Unrecognized prior service cost (credit) . 14,454 13,616 (3,522) (3,179)
Unrecognized transition obligation ....... 1,199 -- -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost ........... 126,126 126,506 (108,302) (106,782)
Less current portion ..................... -- -- (9,500) (8,767)
--------- --------- --------- ---------
Noncurrent portion ....................... $ 126,126 $ 126,506 $ (98,802) $ (98,015)
========= ========= ========= =========
The assumptions used in the measurement of the Company's benefit
obligations at December 31, are shown in the following table:
Pension Benefits Other Benefits
--------------------------------- ----------- --------------
1998 1999 2000 1998 1999 2000
---- ---- ---- ---- ---- ----
Discount rate 6.5% 7.5% 7.25% 6.5% 7.5% 7.25%
Expected return on plan assets 10.0% 10.0% 10.0% - - -
Rate of compensation increase 3.0% 3.0% 3.0% - - -
The following table provides the components of net periodic benefit
cost for the plans for the years ended December 31,:
Pension Benefits Other Benefits
-------- ------------------------ --------- --------------
1998 1999 2000 1998 1999 2000
---- ---- ---- ---- ---- ----
(In thousands)
Service cost $ 2,798 $ 3,074 $ 2,915 $1,477 $1,986 $ 1,623
Interest cost 20,177 21,008 21,333 7,111 7,030 7,427
Expected return on plan assets (34,729) (34,219) (32,544) - - -
Amortization of unrecognized:
Net obligation as of
January 1, 1987 1,810 1,810 1,199 - - -
Prior service cost (4) 511 882 (343) (343) (343)
Net loss 504 2,206 2,112 - -
------- -------- ------- ------ ------
Net periodic benefit cost (credit) (9,444) (5,610) (4,103) $8,245 $8,673 $8,707
====== ====== ======
Termination benefits for early
retirement window - - 3,723
-------- -------- --------
Total pension cost (credit) $ (9,444) $ (5,610) $ (380)
======== ======== ========
During the fourth quarter of 2000, in connection with Keystone's cost
reduction plans, the Company offered a group of salaried employees enhanced
pension benefits if they would retire by December 31, 2000, resulting in the
$3.7 million charge for termination benefits for early retirement window.
At December 31, 2000, approximately 99% of Keystone's defined benefit
pension plan's (the "Plan") 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, 2000 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 nor 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.
For measurement purposes, a 7% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5% in 2004 and remain at that level thereafter.
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:
Change in Health Care Cost Trend
1% Increase 1% Decrease
(In thousands)
Increase (decrease):
Effect on total of service and interest
cost components for the year ended
December 31, 2000 ............................. $ 1,147 $ (958)
Effect on postretirement benefit
obligation at December 31, 2000 ............... $10,993 $(9,285)
The Company also maintains several defined contribution pension plans.
Expense related to these plans was $2.9 million in each of 1998 and 1999 and
$2.8 million in 2000.
Note 8 - Other accrued liabilities
December 31,
1999 2000
---- ----
(In thousands)
Current:
Employee benefits .............................. $13,181 $12,137
Environmental .................................. 10,093 8,398
Self insurance ................................. 7,218 7,993
Interest ....................................... 4,034 4,160
Unearned revenue ............................... 2,424 3,008
Legal and professional ......................... 829 836
Disposition of former facilities ............... 617 384
Other .......................................... 6,941 4,649
------- -------
$45,337 $41,565
======= =======
Noncurrent:
Environmental .................................. $ 8,143 $ 8,395
Other .......................................... 1,396 928
------- -------
$ 9,539 $ 9,323
======= =======
Note 9 - Redeemable preferred stock:
In connection with the 1996 acquisition of DeSoto, Inc. ("DeSoto"),
Keystone exchanged 435,456 shares of Keystone Series A 8% Senior Preferred Stock
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 Keystone 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 Keystone 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, Keystone
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 $77,000 in 1998, $66,000 in 1999 and $87,000 in
2000.
Contran and related companies perform certain management, financial and
administrative services for Keystone on a fee basis under the terms of an
Intercorporate Services Agreement with the Company. Aggregate fees incurred by
the Company pursuant to this agreement were $639,000 in 1998, $656,000 in 1999
and $750,000 in 2000. In addition, Keystone purchased certain aircraft services
from Valhi in the amount of $160,000 in 1998, $175,000 in 1999 and $111,000 in
2000.
Tall Pines Insurance Company ("Tall Pines"), Valmont Insurance Company
("Valmont") and EWI RE, Inc. ("EWI") provide for or broker certain of Keystone's
insurance policies. Tall Pines is a wholly-owned captive insurance company of
Tremont Corporation ("Tremont"), a company controlled by Contran. Valmont is a
wholly-owned captive insurance company of Valhi. Parties related to Contran own
all of the outstanding common stock of EWI. Through December 31, 2000, a
son-in-law of Harold C. Simmons managed the operations of EWI. Subsequent to
December 31, 2000, such son-in-law provides advisory services to EWI as
requested by EWI. Consistent with insurance industry practices, Tall Pines,
Valmont and EWI receive commissions from the insurance and reinsurance
underwriters for the policies that they provide or broker. During 1998, 1999 and
2000, the Company and it subsidiaries paid approximately $719,000, $2.7 million
and $2.0 million, respectively, for policies provided or brokered by Tall Pines,
Valmont and/or EWI. These amounts principally include payments for reinsurance
and insurance premiums paid to unrelated third parties, but also include
commissions paid to Tall Pines, Valmont and EWI. In the Company's opinion, the
amounts that Keystone and its subsidiaries paid for these insurance policies are
reasonable and similar to those they could have obtained through unrelated
insurance companies and/or brokers. The Company expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2001.
Dallas Compressor Company, a wholly-owned subsidiary of Contran sells
compressors and related services to Keystone. During 1998, 1999 and 2000
Keystone purchased products and services from Dallas Compressor Company in the
amount of $26,000, $170,000 and $67,000, respectively.
Note 11 - Quarterly financial data (unaudited)
March 31, June 30, September 30, December 31,
(In thousands, except per share data)
Year ended December 31, 2000:
Net sales ....................... $ 96,422 $ 95,382 $ 82,787 $ 63,730
Gross profit .................... 6,441 3,867 3,943 (7,097)
Net loss ........................ $ (1,932) $ (3,395) $ (3,093) $(12,646)
======== ========= ======== ========
Basic net loss per share ........ $ (.19) $ (.34) $ (.31) $ (1.26)
======== ========= ======== ========
Year ended December 31, 1999:
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)
======== ========= ======== ========
Basic net income (loss) per share $ (.04) $ .25 $ (.41) $ ( .55)
======== ========= ======== ========
During the fourth quarter of 1999, Keystone recorded a charge to bad
debt expense of $.6 million resulting from severe deterioration in a customer's
financial condition. In addition, during the fourth quarter of 1999, Keystone
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. Also see Note 7.
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, 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"). 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.
Keystone 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.
Business Segment Principal entities Location
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 (2) Hortonville, Wisconsin
Engineered Wire Products Upper Sandusky, Ohio
Lawn and garden products Garden Zone LLC (1) Charleston, South
Carolina
Household cleaning products DeSoto Joliet, Illinois
(1) 51.0% subsidiary.
(2) In January 2001, Fox Valley Steel & Wire sold its sole business. Fox
Valley did not record any significant gain or loss as a result of the
sale. Fox Valley's revenues in 1998, 1999 and 2000 amounted to $12.0
million, $11.3 million and $10.3 million, respectively. During 1998,
1999 and 2000, approximately 55%, 30% and 32%, respectively of Fox
Valley's sales were to a single customer. That customer will, in the
future, be serviced by Keystone's Peoria, Illinois facility. During
1998, 1999 and 2000, Fox Valley recorded operating losses of $266,000,
$67,000 and $686,000, respectively.
Keystone'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.
Steel and Lawn and Household Corporate
Wire Garden Cleaning Segment and
Products Products Products Total Eliminations Total
(In thousands)
Year ended December 31, 2000:
Net sales ...................... $ 331,975 $ 6,760 -- $ 338,735 $ (414) $ 338,321
Depreciation and amortization .. 18,446 -- -- 18,446 (1,222) 17,224
Equity in loss of unconsolidated
affiliate ..................... (281) -- -- (281) -- (281)
Operating profit (loss) ........ (15,760) 345 -- (15,415) -- (15,415)
Identifiable segment assets .... 219,662 3,990 -- 223,652 162,051 385,703
Capital expenditures ........... 13,045 -- -- 13,045 7 13,052
Year ended December 31, 1999:
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
affiliate ..................... (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
Years ended December 31,
1998 1999 2000
---- ---- ----
(In thousands)
Operating profit (loss) .................... $ 13,033 $ 2,578 $(15,415)
Equity in loss of unconsolidated affiliate . -- (54) (281)
General corporate items:
Interest income .......................... 594 452 599
General income (expenses), net ........... 1,839 (1,156) (1,993)
Interest expense ........................... (10,460) (14,058) (15,346)
-------- -------- --------
Income (loss) before income taxes ........ $ 5,006 $(12,238) $(32,436)
======== ======== ========
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:
Year ended December 31,
1998 1999 2000
---- ---- ----
(In thousands)
United States ............... $366,731 $353,151 $336,288
Canada ...................... 3,242 2,449 1,949
Great Britain ............... 24 88 77
Other ....................... 25 -- 7
-------- -------- --------
$370,022 $355,688 $338,321
======== ======== ========
Note 13 - Environmental matters
At December 31, 2000, Keystone's financial statements reflected total
accrued liabilities of $16.8 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 1998 and 1999
the Company did not have any significant remediation efforts relative to Phases
V and VI. During 2000, Keystone began preliminary efforts relative to Phase V.
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, 1999 and 2000 the trust fund had balances
of $4.0 million and $4.4 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 2001.
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. During the fourth quarter of 2000, Keystone entered into a modified
Administrative Order on Consent. That order may require the Company to conduct
cleanup activities at certain solid waste management units at its Peoria
facility depending on the results of soil and groundwater sampling and risk
assessment to be conducted by Keystone pursuant to the order.
In March 2000, the Illinois Attorney General (the "IAG") filed and
served a seven-count complaint against Keystone for alleged violations of the
Illinois Environmental Protection Act, 415 ILCS 5/31, and regulations
implementing RCRA at Keystone's Peoria facility. The complaint alleges Keystone
violated RCRA in failing to prevent spills of an alleged hazardous waste on four
separate occasions during the period from June 1995 through January 1999. The
complaint also alleges the Company illegally "stored", "disposed of" and
manifested the same allegedly hazardous waste on some or all of those occasions.
In addition, the complaint alleges these hazardous waste spills resulted in
groundwater pollution in violation of the Illinois Environmental Protection Act.
The complaint further alleges Keystone improperly disposed of hazardous waste on
two occasions at a landfill not permitted to receive such wastes. The complaint
seeks the maximum statutory penalties allowed which ranges up to $50,000 for
each violation and additional amounts up to $25,000 for each day of violation.
Keystone has answered the complaint and proceedings in the case have been stayed
pending the outcome of settlement negotiations between Keystone and the IAG's
office.
In June 2000, the IAG filed a Complaint For Injunction And Civil
Penalties against Keystone. The complaint alleges the Company's Peoria facility
violated its National Pollutant Discharge Elimination System ("NPDES") permit
limits for ammonia and zinc discharges from the facility's wastewater treatment
facility into the Illinois River. The complaint alleges specific violations of
the 30-day average ammonia limit in the NPDES permit for three months in 1996,
11 months in 1997, 12 months in 1998, 11 months in 1999 and the first two months
of 2000. The complaint further alleges two violations of the daily maximum limit
for zinc in October and December of 1999. Keystone has answered the complaint
and proceedings in the case have been stayed pending the outcome of settlement
negotiations between the Company and the IAG's office.
"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. Keystone 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 Keystone 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 1999 and 2000, the Company received approximately
$725,000 and $140,000, 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 Keystone's self insurance
accruals.
In July 1991, the United States filed an action against a former
division of the Company and four other PRPs 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. In addition, the special notice letter
also requested the PRPs 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. Keystone and
the other remaining PRPs are now in the final stages of negotiating another
Consent Decree with the U.S. EPA, in order to resolve their liability for
performance of the U.S. EPA's September 1998 ROD for a soils remedy at the site,
for the performance of the U.S. EPA's December 1999 ROD for remedial action
regarding the groundwater component of Operable Unit No. 4 at the site, for
payment of U.S. EPA's site costs incurred since May 1994 as well as future U.S.
EPA oversight costs, and for the transfer of certain funds that may be made
available to the PRPs as a result of a consent decree reached between U.S. EPA
and another site PRP. Under the proposed terms of that Consent Decree, and the
draft PRP Agreement that would be executed to implement the PRPs' performance
under that decree, Keystone would be required to pay approximately $700,000, and
would remain liable for 18.57% of future U.S. EPA oversight costs as well as a
similar share of any unanticipated cost increases in the soils remedial action
work. (Under the proposed agreements, the City of Byron, Illinois, would assume
responsibility for any cost overruns associated with the municipal water supply
components of the groundwater contamination remedy.) Verbal agreement of all of
the parties has been reached as to the terms of this agreement, subject to
approval by the City Council of the City of Byron, the U.S. EPA Regional
Administrator, and the Department of Justice. Until the proposed consent decree
is signed by all of the responsible parties and approved by the court, it is
possible that the negotiations could fail and that Keystone's ultimate liability
could increase in a subsequent settlement agreement or as a result of
litigation.
In September 1991, the Company along with 53 other PRPs, 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 PRPs 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 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 is also demanding reimbursement of
$460,000 in past costs for prior oversight costs and 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.
Prior to its acquisition by Keystone, 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. Sherman is paying on a non-binding interim
basis, approximately 10% of the costs for this site. Remediation costs, at
Sherman'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, 2000 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, Sherman also has certain funds available in other trust funds due it
under the partial consent decree. These credits can be used by Sherman (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 its non-operating facilities located in Gainesville,
Texas. During 1999, Sherman entered into TNRCC's Voluntary Cleanup Program.
Remediation costs are presently estimated to be between $1 million and $5
million. Investigation activities are on-going including additional soil and
groundwater sampling.
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, 2000. Sherman 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, Sherman is allegedly involved
at various other sites and in related toxic tort lawsuits which it does not
currently expect to incur significant liability.
Under the terms of a 1990 asset sale agreement, DeSoto established two
trust funds totaling $6 million to fund potential clean-up liabilities relating
to the assets sold. Sherman has access to the trust funds for any expenses or
liabilities it incurs relative to environmental claims relating to the sites
identified in the trust agreements. The trust funds are primarily invested in
United States Treasury securities and are classified as restricted investments
on the balance sheet. In October 2000, one of the trust's term expired and the
$3.6 million trust balance was returned to Sherman. As of December 31, 1999 and
2000, the balance in the trust funds were approximately $4.6 million and $1.5
million, respectively.
Note 14 - Lease commitments
During years prior to its acquisition by Keystone, DeSoto sold four of
its real properties to a real property trust created by DeSoto's pension plan.
This trust entered into ten-year leases of the properties to DeSoto. 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. The Plan sold the third and fourth locations during 1999 and 2000,
respectively, and Sherman was released from the leases. Payments, net of
subtenant rent payments, under these leases during 1998, 1999 and 2000 amounted
to approximately $679,000, $324,000, and $24,000, 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.
(In thousands)
Lease Sub
commitment rents Net
2001 $2,022 $47 $1,975
2002 1,370 - 1,370
2003 460 - 460
2004 137 - 137
2005 38 - 38
------ --- ------
$4,027 $47 $3,980
====== === ======
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 2000, the matter was settled by the insurance carrier.
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.
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
facility and, after completion of the plant, provide Keystone 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 1998,
1999 and 2000 amount to $399,000, $2.1 million and $2.7 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 33% of steel and wire product sales in
1998, and 34% in 1999 and 2000. These customers accounted for approximately 22%
of steel and wire products notes and accounts receivable at December 31, 1999
and 20% at December 31, 2000.
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 2000 and lawn and garden products notes and accounts receivable at
December 31, 1999 and 2000.
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 1998, sales to Sears accounted for
approximately 85% of total sales related to household cleaning products.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)
Additions
Balance at Charged to Deductions Balance at
beginning costs and (net of end of
Description of period expenses recoveries) period
Year ended December 31, 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
====== ======= ====== ======
Year ended December 31, 2000:
Allowance for doubtful accounts and
Notes receivable $2,297 $ 200 $ 816 $1,681
====== ====== ====== ======
EXHIBIT 10.1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 2000, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1999 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 $187,500
quarterly, commencing as of January 1, 2000, 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, 2000 to December
31, 2000.
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.
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: /s/ STEVEN L. WATSON
---------------------------------------------
Steven L. Watson
President
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
By: /s/ GLENN R. SIMMONS
--------------------------------------------
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.
EXHIBIT 23.1
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 26, 2001 relating to the financial statements and
financial statements schedule, which appears in Keystone Consolidated
Industries, Inc.'s Annual Report on Form 10-K for the year ended December 31,
2000.
PricewaterhouseCoopers LLP
Dallas, Texas
March 29, 2001
EXHIBIT 23.2
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 26, 2001 relating to the financial statements and financial
statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
March 29, 2001