XOTC:KYCN Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarter ended March 31, 2012   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

Incorporation or organization)

   

(IRS Employer

Identification No.)

5430 LBJ Freeway, Suite 1740,

Three Lincoln Centre, Dallas, Texas

    75240-2697
(Address of principal executive offices)     (Zip Code)

 

Registrant’s telephone number, including area code:   (972) 458-0028

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act). Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x    Smaller reporting company  ¨.

Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  ¨.

Number of shares of common stock outstanding on May 15, 2012: 12,101,932

 

 

 


Table of Contents

KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

INDEX

 

         Page  
Part I.  

FINANCIAL INFORMATION

  
Item 1.  

Financial Statements

  
 

Condensed Consolidated Balance Sheets – December 31, 2011; March 31, 2012 (unaudited)

     3   
 

Condensed Consolidated Statements of Income (unaudited) – Three months ended March 31, 2011 and 2012

     5   
 

Condensed Consolidated Statements of Comprehensive Income (unaudited) – Three months ended March 31, 2011 and 2012

     6   
 

Condensed Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, 2011 and 2012

     7   
 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) – Three months ended March 31, 2012

     8   
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     9   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     16   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     25   
Item 4.  

Controls and Procedures

     25   
PART II.  

OTHER INFORMATION

  
Item 1.  

Legal Proceedings

     26   
Item 1A.  

Risk Factors

     26   
Item 6.  

Exhibits

     26   
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.   

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     December 31,      March 31,  
     2011      2012  
            (unaudited)  

ASSETS

     

Current assets:

     

Accounts receivable, net

   $ 58,976       $ 73,253   

Inventories

     88,567         98,497   

Deferred income taxes

     12,194         12,194   

Prepaid expenses and other

     2,033         1,478   
  

 

 

    

 

 

 

Total current assets

     161,770         185,422   
  

 

 

    

 

 

 

Property, plant and equipment:

     

Land

     1,468         1,468   

Buildings and improvements

     64,959         64,166   

Machinery and equipment

     348,789         350,032   

Construction in progress

     5,607         1,837   
  

 

 

    

 

 

 
     420,823         417,503   

Less accumulated depreciation

     327,820         326,086   
  

 

 

    

 

 

 

Net property, plant and equipment

     93,003         91,417   
  

 

 

    

 

 

 

Other assets:

     

Pension asset

     71,719         78,420   

Other, net

     1,455         1,436   
  

 

 

    

 

 

 

Total other assets

     73,174         79,856   
  

 

 

    

 

 

 

Total assets

   $ 327,947       $ 356,695   
  

 

 

    

 

 

 

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

 

     December 31,     March 31,  
     2011     2012  
           (unaudited)  

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Current maturities of long-term debt

   $ 33,631      $ 52,480   

Accounts payable

     14,334        15,811   

Accrued OPEB cost

     1,220        1,220   

Income taxes payable to Contran

     3,769        2,261   

Income taxes payable to tax authorities

     713        595   

Other accrued liabilities

     29,361        26,740   
  

 

 

   

 

 

 

Total current liabilities

     83,028        99,107   
  

 

 

   

 

 

 

Noncurrent liabilities:

    

Long-term debt

     983        995   

Accrued pension cost

     21,664        21,716   

Accrued OPEB cost

     50,470        50,694   

Deferred income taxes

     17,783        20,985   

Other

     1,891        2,220   
  

 

 

   

 

 

 

Total noncurrent liabilities

     92,791        96,610   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock

     121        121   

Additional paid-in capital

     99,024        99,024   

Accumulated other comprehensive loss

     (182,093     (180,508

Retained earnings

     235,076        242,341   
  

 

 

   

 

 

 

Total stockholders’ equity

     152,128        160,978   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 327,947      $ 356,695   
  

 

 

   

 

 

 

Commitments and contingencies (Note 5)

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

 

     Three months ended
March 31,
 
     2011     2012  
     (unaudited)  

Net sales

   $ 134,163      $ 153,293   

Cost of goods sold

     (120,734     (137,220
  

 

 

   

 

 

 

Gross margin

     13,429        16,073   
  

 

 

   

 

 

 

Other operating income (expense):

    

Selling expense

     (1,815     (2,086

General and administrative expense

     (3,464     (5,137

Defined benefit pension credit

     4,750        1,899   

Other postretirement benefit credit

     1,300        1,577   
  

 

 

   

 

 

 

Total other operating income (expense)

     771        (3,747
  

 

 

   

 

 

 

Operating income

     14,200        12,326   
  

 

 

   

 

 

 

Nonoperating income (expense):

    

Interest expense

     (275     (360

Other income (expense), net

     123        (277
  

 

 

   

 

 

 

Total nonoperating expense

     (152     (637
  

 

 

   

 

 

 

Income before income taxes

     14,048        11,689   

Provision for income taxes

     (6,085     (4,424
  

 

 

   

 

 

 

Net income

   $ 7,963      $ 7,265   
  

 

 

   

 

 

 

Basic and diluted income per share

   $ 0.66      $ 0.60   
  

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding

     12,102        12,102   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

     Three months ended
March  31,
 
         2011             2012      
     (unaudited)  

Net income

   $ 7,963      $ 7,265   
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

    

Defined benefit pension plans:

    

Amortization of prior service cost

     186        186   

Amortization of net actuarial losses

     1,551        2,682   

Other postretirement benefit plans:

    

Amortization of prior service credit

     (2,441     (2,442

Amortization of net actuarial losses

     1,291        1,159   
  

 

 

   

 

 

 

Total other comprehensive income, net

     587        1,585   
  

 

 

   

 

 

 

Comprehensive income

   $ 8,550      $ 8,850   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Three months ended
March 31,
 
     2011     2012  
     (unaudited)  

Cash flows from operating activities:

    

Net income

   $ 7,963      $ 7,265   

Depreciation and amortization

     2,823        2,875   

Deferred income taxes

     4,431        2,162   

Defined benefit pension credit

     (4,750     (1,899

OPEB credit

     (1,300     (1,577

OPEB payments

     (323     (324

Other, net

     (35     382   

Change in assets and liabilities:

    

Accounts receivable

     (14,790     (14,279

Inventories

     (13,954     (9,930

Accounts payable and accrued liabilities

     10,527        (815

Income taxes payable to Contran

            (1,508

Income taxes payable to tax authorities

     2,100        (118

Other, net

     (591     555   
  

 

 

   

 

 

 

Net cash used in operating activities

     (7,899     (17,211
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (2,705     (2,307

Other, net

     58        28   
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,647     (2,279 ) 
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Revolving credit facility, net

     10,549        18,850   

Other, net

     (3     640   
  

 

 

   

 

 

 

Net cash provided by financing activities

     10,546        19,490   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

              

Cash and cash equivalents, beginning of period

              
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $      $   
  

 

 

   

 

 

 

Supplemental disclosures:

    

Cash paid for:

    

Interest, net of amount capitalized

   $ 243      $ 329   

Income taxes, net

     10        3,887   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three months ended March 31, 2012

(In thousands)

 

     Common
stock
     Additional
paid-in
capital
     Accumulated other
comprehensive income (loss)
    Retained
Earnings
     Total  
               Pensions             OPEB           

Balance – December 31, 2011

   $ 121       $ 99,024       $ (192,552   $ 10,459      $ 235,076       $ 152,128   

Net income

                                   7,265         7,265   

Other comprehensive income (loss), net

                     2,868        (1,283             1,585   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance – March 31, 2012

   $ 121       $ 99,024       $ (189,684   $ 9,176      $ 242,341       $ 160,978   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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KEYSTONE CONSOLIDATED INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(unaudited)

Note 1 – Organization and basis of presentation:

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 that we filed with the Securities and Exchange Commission (“SEC”) on March 15, 2012 (the “2011 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. At the end of 2011, we changed our method of accounting for productive inventories at Keystone Steel & Wire (“KSW”) and Engineered Wire Products, Inc. (“EWP”) from last-in first-out (“LIFO”) to first-in first out (“FIFO”) at KSW and average cost at EWP. Accordingly, our results of operations and cash flows for the first quarter of 2011 have been restated in this Quarterly Report to reflect this change in accounting. As compared to the 2011 Annual Report, we have omitted certain information and footnote disclosures from this Quarterly Report that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim period ended March 31, 2012 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with the 2011 Consolidated Financial Statements contained in the 2011 Annual Report.

At March 31, 2012, Contran Corporation (“Contran”) owned approximately 88% of our outstanding common stock. Substantially all of Contran’s outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Harold C. Simmons (for which Mr. Simmons is the sole trustee) or is held directly by Mr. Simmons or other persons or companies related to Mr. Simmons. Consequently, Mr. Simmons may be deemed to control Contran and us.

Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to Keystone Consolidated Industries, Inc. (“KCI”) and its subsidiaries, taken as a whole.

Note 2 – Business segment information:

Our operating segments are organized by our manufacturing facilities and include three reportable segments:

 

   

KSW, located in Peoria, Illinois, operates an electric arc furnace mini-mill, rod mill, industrial wire mill and wire product fabrication facilities and manufactures and sells wire rod, coiled rebar, industrial wire, fabricated wire and other products to agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets;

 

   

EWP, located in Upper Sandusky, Ohio, primarily manufactures and sells wire mesh in both roll and sheet form that is utilized as reinforcement in concrete construction products including pipe, pre-cast boxes and applications for use in roadways, buildings and bridges; and

 

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Keystone-Calumet, Inc. (“Calumet”), located in Chicago Heights, Illinois, manufactures and sells merchant and special bar quality products and special sections in carbon and alloy steel grades for use in agricultural, cold drawn, construction, industrial chain, service centers and transportation applications as well as in the production of a wide variety of products by original equipment manufacturers.

We are vertically integrated, converting substantially all of our products from billets produced in KSW’s steel mini-mill. Calumet’s primary raw material is billet and EWP’s primary raw material is wire rod. Both Calumet and EWP source the majority of their primary raw material requirements from KSW.

 

     Three months ended
March 31,
 
     2011     2012  
     (In thousands)  

Net sales:

    

KSW

   $ 135,337      $ 152,991   

EWP

     11,042        12,749   

Calumet

     6,397        7,442   

Elimination of intersegment sales

     (18,613     (19,889
  

 

 

   

 

 

 

Total net sales

   $ 134,163      $ 153,293   
  

 

 

   

 

 

 

Operating income (loss):

    

KSW

   $ 8,941      $ 10,537   

EWP

     111        446   

Calumet

     100        (185

Pension credit

     4,750        1,899   

OPEB credit

     1,300        1,577   

Other(1)

     (1,002     (1,948
  

 

 

   

 

 

 

Total operating income

     14,200        12,326   

Non operating income (expense):

    

Interest expense

     (275     (360

Other income (expense), net

     123        (277
  

 

 

   

 

 

 

Income before income taxes

   $ 14,048      $ 11,689   
  

 

 

   

 

 

 

(1) Other items primarily consist of the elimination of intercompany profit or loss on ending inventory balances and general corporate expenses.

Note 3 – Inventories, net:

 

     December 31,      March 31,  
     2011      2012  
     (In thousands)  

Raw materials

   $ 6,995       $ 6,907   

Billet

     12,702         12,684   

Wire rod

     7,155         15,197   

Work in process

     6,771         7,612   

Finished products

     29,228         31,286   

Supplies

     25,716         24,811   
  

 

 

    

 

 

 

Total

   $ 88,567       $ 98,497   
  

 

 

    

 

 

 

 

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Note 4 – Debt:

 

     December 31,      March 31,  
     2011      2012  
     (In thousands)  

Wells Fargo revolving credit facility

   $ 33,630       $ 52,480   

Other

     984         995   
  

 

 

    

 

 

 

Total debt

     34,614         53,475   

Less current maturities

     33,631         52,480   
  

 

 

    

 

 

 

Total long-term debt

   $ 983       $ 995   
  

 

 

    

 

 

 

The average rate on the revolving credit facility was 2.7% at March 31, 2012.

Note 5 – Environmental matters and other commitments and contingencies:

We have been named as a defendant for certain environmental sites pursuant to governmental laws and private actions, including waste disposal sites and facilities currently or previously owned, operated or used by us. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Additionally, KSW’s facilities are subject to regulatory oversight and enforcement activities. These activities may identify compliance violations which may result in penalties. Certain of these proceedings involve claims for substantial amounts.

On a quarterly basis, we evaluate the potential range of our liability at sites where we have been named a defendant by analyzing and estimating the range of reasonably possible costs to us. At March 31, 2012, the upper end of the range of reasonably possible costs to us for sites where we have been named a defendant is approximately $2.0 million, including our recorded accrual of $.4 million. Our cost estimates have not been discounted to present value due to the uncertainty of the timing of the pay out. At each balance sheet date, we make an estimate of the amount of our accrued environmental costs that will be paid out over the subsequent twelve months, and we classify such amount as a current liability. We classify the remainder of the accrued environmental costs as noncurrent liabilities. See Note 6.

It is possible our actual costs could differ materially from the amounts we have accrued or the upper end of the estimated range for the sites where we have been named a defendant. Our ultimate liability may be affected by a number of factors, including the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes in remedial alternatives and costs or a determination that we are potentially responsible for the release of hazardous substances at other sites. Although we believe our comprehensive general liability insurance policies provide indemnification for certain costs that we incur with respect to our environmental remediation obligations, we do not currently have receivables recorded for any such recoveries.

Prior to one of our subsidiaries’ 1996 acquisition of DeSoto, Inc. (“DeSoto”), DeSoto was notified by the Texas Natural Resource Conservation Commission (now called the Texas Commission on Environmental Quality or “TCEQ”) that there were certain deficiencies in prior reports to the TCEQ relative to one of DeSoto’s non-operating facilities located in Gainesville,

 

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Texas. During 1999, that subsidiary entered into the TCEQ’s Voluntary Cleanup Program as it relates to that facility. We are currently pursuing a Municipal Setting Designation (“MSD”) for this site which would eliminate the need for long-term groundwater remediation and monitoring. We estimate the cost of future remediation under an MSD at approximately $.1 million. If we are not successful in obtaining an MSD, remediation activities at this site would likely continue for another two to three years and could cost as much as $1.7 million.

In February 2009, we received a Notice of Violation (“NOV”) from the United States Environmental Protection Agency (the “U.S. EPA”) regarding alleged air permit issues at KSW. The U.S. EPA alleges KSW (i) is exceeding its sulfur dioxide emission limits set forth in its permits, (ii) failed to apply for a permit that would be issued under the U.S. Clean Air Act and the Illinois Environmental Protection Act in connection with the installation of certain equipment in its melt shop, and (iii) failed to monitor pH readings of an air scrubber in the wire galvanizing area of the plant. We disagree with the U.S. EPA’s assertions and we were in discussions with the U.S. EPA throughout 2009. On December 31, 2009, we were notified the case had been referred to the Department of Justice (the “DOJ”) for review and follow-up. During the first quarter of 2010, we submitted letters to the DOJ regarding our perspective on the matter. During the second quarter of 2010, the U.S. EPA requested additional information regarding the alleged permit issues and we submitted such information in May 2010.

In July 2011, we received a Notice and Finding of Violation (“NOV/FOV”) from the U.S. EPA alleging KSW failed to properly control air emissions and install a baghouse in accordance with terms and conditions of its Prevention of Significant Deterioration (“PSD”) construction permit issued on June 1, 2000.

While we continue to dispute certain of the U.S. EPA’s underlying assertions about the alleged violations contained in the February 2009 NOV and the July 2011 NOV/FOV, we have already undertaken corrective actions to address others and have worked diligently to reach resolution of the matters. KSW met with EPA Region V and the DOJ during August 2011 and February 2012 to discuss both the February 2009 NOV and the July 2011 NOV/FOV. To date, a formal complaint from the DOJ has not been issued. In April 2012, the DOJ informed us that while a formal complaint has been internally approved, it will not be filed if an acceptable settlement can be reached. KSW and the U.S. EPA are currently reviewing and working through the technical issues for a potential settlement. However, KSW has not yet agreed upon any additional response actions in connection with the February 2009 NOV or the July 2011 NOV. Therefore, we cannot estimate any potential costs to us to resolve these matters and we can make no assurance our efforts will be successful or that we can avoid any enforcement action or resulting fines from these alleged violations.

Other current litigation

From time-to-time, we are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our operations. In certain cases, we have insurance coverage for these items. We currently believe the disposition of all claims and disputes, individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals we have already provided.

 

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Note 6 – Other accrued liabilities:

 

     December 31,      March 31,  
     2011      2012  
     (In thousands)  

Current:

     

Employee benefits

   $ 16,549       $ 14,832   

Self insurance

     6,686         6,222   

Environmental

     240         219   

Other

     5,886         5,467   
  

 

 

    

 

 

 

Total

   $ 29,361       $ 26,740   
  

 

 

    

 

 

 

Noncurrent:

     

Workers compensation payments

   $ 1,243       $ 1,597   

Environmental

     165         140   

Other

     483         483   
  

 

 

    

 

 

 

Total

   $ 1,891       $ 2,220   
  

 

 

    

 

 

 

Note 7 – Employee benefit plans:

We currently expect to record a defined benefit pension credit of $7.6 million during 2012 and we anticipate no cash contributions to our defined benefit pension plans will be required during 2012. The components of our net periodic defined benefit pension credit for the first quarter of 2011 and 2012 are presented in the table below.

 

     Three months ended
March 31,
 
     2011     2012  
     (In thousands)  

Service cost

   $ 931      $ 1,168   

Interest cost

     4,752        4,385   

Expected return on plan assets

     (13,310     (12,202

Amortization of accumulated other comprehensive income:

    

Prior service cost

     308        308   

Actuarial losses

     2,569        4,442   
  

 

 

   

 

 

 

Total pension credit

   $ (4,750   $ (1,899
  

 

 

   

 

 

 

We currently expect our 2012 other postretirement benefit (“OPEB”) credit will be $6.3 million. As allowed under certain of our amended benefit plans, we exercised our right to create supplemental pension benefits in lieu of certain 2012 benefit payments due under one of our OPEB plans. As such, we anticipate contributing an aggregate of $1.2 million to our OPEB plans during 2012. We have the ability to decide whether or not to exercise such rights on a year-by-year basis. If we had not exercised such rights for 2012, our expected OPEB contributions would be $2.9 million higher. The components of our net periodic credit related to OPEB for the first quarter of 2011 and 2012 are presented in the table below.

 

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     Three months ended
March 31,
 
     2011     2012  
     (In thousands)  

Service cost

   $ 31      $ 40   

Interest cost

     574        507   

Amortization of accumulated other comprehensive income:

    

Prior service credit

     (4,042     (4,043

Actuarial losses

     2,137        1,919   
  

 

 

   

 

 

 

Total OPEB credit

   $ (1,300   $ (1,577
  

 

 

   

 

 

 

Future variances from assumed actuarial rates, including the rate of return on our defined benefit pension plans’ assets, as well as changes in the discount rate used to determine the projected benefit obligation, may result in increases or decreases to pension and postretirement benefit assets and liabilities, pension expense or credits, OPEB expense or credits and pension and OPEB funding requirements in future periods.

Note 8 – Income taxes:

 

     Three months ended
March 31,
 
     2011      2012  
     (In thousands)  

Expected income tax expense, at statutory rate

   $ 4,917       $ 4,092   

U.S. state income tax expense, net

     1,162         507   

Other, net

     6         (175
  

 

 

    

 

 

 

Income tax expense

   $ 6,085       $ 4,424   
  

 

 

    

 

 

 

Our provision for income taxes in the first quarter of 2011 includes a $.6 million non-cash charge for state deferred income taxes related to an increase in our effective state income tax rate as a result of an increase in the tax rate of the State of Illinois.

We file income tax returns in various U.S. federal, state and local jurisdictions. Our income tax returns prior to 2008 are generally considered closed to examination by applicable tax authorities.

Note 9 – Financial instruments:

The following table presents the carrying value and estimated fair value of our financial instruments:

 

     December 31,
2011
     March 31,
2012
 
     Carrying
amount
     Fair
value
     Carrying
amount
     Fair
value
 
     (In thousands)  

Accounts receivable, net

   $ 58,976       $ 58,976       $ 73,253       $ 73,253   

Accounts payable

     14,334         14,334         15,811         15,811   

Debt:

           

Variable-rate debt

     33,630         33,630         52,480         52,480   

Fixed-rate debt

     984         1,029         995         1,039   

 

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Due to its nature, the carrying amount of our variable rate indebtedness is considered equivalent to fair value. Additionally, due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. The fair value of our fixed-rate indebtedness was based on the net present value of our remaining debt payments at an interest rate commensurate with our variable-rate debt which represents Level 3 inputs as defined in ASC Topic 820-10-35. Note that substantially all of the carrying value of our fixed-rate debt at March 31, 2011 and 2012 relates to a $1.1 million non-interest bearing note. Because it is non-interest bearing, we have calculated an imputed interest rate on the note and carry the note at a value discounted for such interest.

Note 10 – Recent accounting pronouncements:

In June 2011 the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the option of presenting comprehensive income as a component of the Consolidated Statement of Stockholders’ Equity and instead requires comprehensive income to be presented as a component of the Consolidated Statement of Income or in a separate Consolidated Statement of Comprehensive Income immediately following the Consolidated Statement of Income. In accordance with ASU 2011-05, we now present our comprehensive income in a separate Condensed Consolidated Statement of Comprehensive Income. Additionally, ASU 2011-05 would have required us to present on the face of our financial statements the effect of reclassifications out of accumulative other comprehensive income on the components of net income and other comprehensive income. However, in December 2011 the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the effectiveness for the requirement to present on the face of our financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. Adoption of ASU 2011-05, as amended by ASU 2011-12, did not have a material effect on our Condensed Consolidated Financial Statements.

In December 2011, the FASB issued ASU 2011-11 Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. This standard will be effective for annual and interim periods beginning with our first quarter 2013 report. We do not believe the adoption of this standard will have a material effect on our Consolidated Financial Statements.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this Quarterly Report on Form 10-Q that are not historical in nature are forward-looking and are not statements of fact. Some statements found in this report including, but not limited to, statements found in Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that represent our beliefs and assumptions based on currently available information. In some cases you can identify these forward-looking statements 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 we believe the expectations reflected in forward-looking statements are reasonable, we do not know if these expectations will be correct. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause our actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the Securities and Exchange Commission including, but not limited to, the following:

 

   

Future supply and demand for our products (including cyclicality thereof),

 

   

Customer inventory levels,

 

   

Changes in raw material and other operating costs (such as ferrous scrap and energy),

 

   

Availability of raw materials,

 

   

The possibility of labor disruptions,

 

   

General global economic and political conditions,

 

   

Competitive products (including low-priced imports) and substitute products,

 

   

Customer and competitor strategies,

 

   

The impact of pricing and production decisions,

 

   

Environmental matters (such as those requiring emission and discharge standards for existing and new facilities),

 

   

Government regulations and possible changes thereof,

 

   

Significant increases in the cost of providing medical coverage to employees,

 

   

The ultimate resolution of pending litigation and U.S. EPA investigations,

 

   

International trade policies of the United States and certain foreign countries,

 

   

Operating interruptions (including, but not limited to, labor disputes, fires, explosions, unscheduled or unplanned downtime, supply disruptions and transportation interruptions),

 

   

Our ability to renew or refinance credit facilities,

 

   

The ability of our customers to obtain adequate credit,

 

   

Any possible future litigation, and

 

   

Other risks and uncertainties as discussed in this Quarterly Report and the 2011 Annual Report, including, without limitation, the section referenced above.

Should one or more of these risks materialize, if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

 

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RESULTS OF OPERATIONS

Business Overview

We are a leading domestic producer of steel fabricated wire products, industrial wire and wire rod. We also manufacture wire mesh, coiled rebar, steel bar and other products. Our products are used in the agricultural, industrial, cold drawn, construction, transportation, original equipment manufacturer and retail consumer markets. We are vertically integrated, converting substantially all of our products from billets produced in our steel mini-mill. Historically, our vertical integration has allowed us to benefit from the higher and more stable margins associated with fabricated wire products and wire mesh as compared to wire rod, as well as from lower costs of billet and wire rod as compared to bar manufacturers and wire fabricators that purchase billet and wire rod in the open market. Moreover, we believe our downstream fabricated wire products, wire mesh, coiled rebar and industrial wire businesses are better insulated from the effects of wire rod imports as compared to non-integrated wire rod producers.

Recent Developments

Ferrous scrap market prices were fairly consistent throughout the first quarter of 2012 and we were able to achieve a slightly higher margin between selling prices and raw material costs than the margin achieved during the quarters of 2011. Although we are currently experiencing pricing pressure from imports, we currently believe we will be able to maintain positive overall margins on our products throughout 2012.

Customer orders were strong at the end of the first quarter of 2012 and based on current expectations that the economy will continue to recover at a modest pace, we believe 2012 shipment volumes will exceed 2011 shipment volumes.

Results of Operations

Our profitability is primarily dependent on sales volume, selling prices, ferrous scrap costs and energy costs. Additionally, because pension and OPEB expense or credits are unrelated to the operating activities of our businesses, we measure and evaluate the performance of our businesses using operating income before pension and OPEB credit or expense. As such, we believe the presentation of operating income before pension and OPEB credit or expense provides more useful information to investors. Operating income before pension and OPEB credit or expense is a non-GAAP measure of profitability that is not in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and it should not be considered in isolation or as a substitute for a measure prepared in accordance with GAAP. A reconciliation of operating income as reported to operating income adjusted for pension and OPEB expense or credit is set forth in the following table.

 

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     Three months ended
March 31,
 
     2011     2012  
     (In thousands)  

Operating income as reported

   $ 14,200      $ 12,326   

Defined benefit pension credit

     (4,750     (1,899

OPEB credit

     (1,300     (1,577
  

 

 

   

 

 

 

Operating income before pension and OPEB

   $ 8,150      $ 8,850   
  

 

 

   

 

 

 

Operating income before pension and OPEB for the first quarter of 2012 was slightly better than the first quarter of 2011 primarily due to an increase in shipment volumes, a slightly higher margin between selling prices and raw material costs, increased productivity and lower utility costs, partially offset by higher accrued incentive compensation expense as a result of our higher profitability.

Our consolidated sales volume and average per-ton selling prices for the first quarter of 2011 and 2012 are as follows:

 

     Three months ended
March  31,
 
     2011     2012  

Sales volume(000 tons):

    

Wire rod

     93        100   

Fabricated wire products

     26        29   

Industrial wire

     16        17   

Wire mesh

     11        12   

Bar

     6        6   

Coiled rebar

          (1)           (1) 

Other

     3        4   
  

 

 

   

 

 

 

Total

     155        168   
  

 

 

   

 

 

 

(1) Less than 1,000 tons.

    

Average per-ton selling prices:

    

Wire rod

   $ 707      $ 745   

Fabricated wire products

     1,331        1,336   

Industrial wire

     963        1,032   

Wire mesh

     937        1,047   

Bar

     982        1,068   

Coiled rebar

     696        793   

All products

     856        902   

 

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Segment Operating Results:

Our operating segments are organized by our manufacturing facilities and include three reportable segments:

 

   

Keystone Steel & Wire (“KSW”), located in Peoria, Illinois, operates an electric arc furnace mini-mill, rod mill, industrial wire mill and wire product fabrication facilities and manufactures and sells wire rod, coiled rebar, industrial wire, fabricated wire and other products to agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets;

 

   

Engineered Wire Products, Inc. (“EWP”), located in Upper Sandusky, Ohio, primarily manufactures and sells wire mesh in both roll and sheet form that is utilized as reinforcement in concrete construction products including pipe, pre-cast boxes and applications for use in roadways, buildings and bridges; and

 

   

Keystone-Calumet, Inc. (“Calumet”), located in Chicago Heights, Illinois, manufactures and sells merchant and special bar quality products and special sections in carbon and alloy steel grades for use in agricultural, cold drawn, construction, industrial chain, service centers and transportation applications as well as in the production of a wide variety of products by original equipment manufacturers.

Our consolidated net sales, cost of goods sold, operating costs and operating performance before pension and OPEB credit by segment are set forth in the following table:

 

     KSW     EWP     Calumet     Other(1)     Total  
     (In thousands)  

Three months ended March 31, 2011

          

Net sales

   $ 135,337      $ 11,042      $ 6,397      $ (18,613   $ 134,163   

Cost of goods sold

     (122,751     (10,352     (6,109     18,478        (120,734
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     12,586        690        288        (135     13,429   

Selling and administrative expense

     (3,645     (579     (188     (867     (5,279
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before pension/OPEB

   $ 8,941      $ 111      $ 100      $ (1,002   $ 8,150   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three months ended March 31, 2012

          

Net sales

   $ 152,991      $ 12,749      $ 7,442      $ (19,889   $ 153,293   

Cost of goods sold

     (137,118     (11,689     (7,386     18,973        (137,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     15,873        1,060        56        (916     16,073   

Selling and administrative expense

     (5,336     (614     (241     (1,032     (7,223
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) before pension/OPEB

   $ 10,537      $ 446      $ (185   $ (1,948   $ 8,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(1) Other items primarily consist of the elimination of intercompany sales, the elimination of intercompany profit or loss on ending inventory balances and general corporate expenses.

 

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Keystone Steel & Wire

 

     Three months ended March 31,  
     2011     % of
sales
    2012     % of
sales
 
     ($ in thousands)  

Net sales

   $ 135,337        100.0   $ 152,991        100.0

Cost of goods sold

     (122,751     (90.7     (137,118     (89.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     12,586        9.3        15,873        10.4   

Selling and administrative expense

     (3,645     (2.7     (5,336     (3.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before pension/OPEB

   $ 8,941        6.6   $ 10,537        6.9
  

 

 

   

 

 

   

 

 

   

 

 

 

The primary drivers of KSW’s sales, cost of goods sold and the resulting gross margin are as follows:

 

     Three months ended
March 31,
 
     2011     2012  

Sales volume (000 tons):

    

Wire rod

     112        122   

Fabricated wire products

     26        29   

Industrial wire

     15        16   

Billet

     13        11   

Coiled rebar

       (1)        (1) 
  

 

 

   

 

 

 

Total sales

     166        178   
  

 

 

   

 

 

 

(1) Less than 1,000 tons.

    

Average per-ton selling prices:

    

Wire rod

   $ 705      $ 743   

Fabricated wire products

     1,331        1,336   

Industrial wire

     972        1,037   

Billet

     509        532   

Coiled rebar

     696        793   

All products

     811        855   

Average per-ton ferrous scrap cost of goods sold

   $ 342      $ 382   

Average electricity cost per kilowatt hour

   $ 0.04      $ 0.03   

Kilowatt hours consumed (000 hours)

     138,023        143,251   

Average natural gas cost per therm

   $ 0.46      $ 0.39   

Natural gas therms consumed (000 therms)

     5,765        5,608   

KSW’s operating performance during the 2011 first quarter was also negatively impacted by increased variable costs of production due to frequent mill changes to meet customer orders.

 

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KSW’s selling and administrative expense was higher during the first quarter of 2012 as compared to the first quarter of 2011 primarily due to increased accrued incentive compensation expense as a result of higher profitability.

Engineered Wire Products, Inc.

 

     Three months ended March 31,  
     2011     % of
sales
    2012     % of
sales
 
     ($ in thousands)  

Net sales

   $ 11,042        100.0   $ 12,749        100.0

Cost of goods sold

     (10,352     (93.8     (11,689     (91.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     690        6.2        1,060        8.3   

Selling and administrative expense

     (579     (5.2     (614     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before pension/OPEB

   $ 111        1.0   $ 446        3.5
  

 

 

   

 

 

   

 

 

   

 

 

 

The primary drivers of EWP’s sales, cost of goods sold and the resulting gross margin are as follows:

 

     Three months ended
March 31,
 
       2011          2012    

Sales volume (000 tons):

     

Wire mesh

     11         12   

Industrial wire

     1         1   
  

 

 

    

 

 

 

Total

     12         13   
  

 

 

    

 

 

 

Average per-ton selling prices:

     

Wire mesh

   $ 937       $ 1,047   

Industrial wire

     807         903   

All products

     928         1,039   

Average per-ton wire rod cost of goods sold

   $ 673       $ 737   

Keystone – Calumet, Inc.

 

     Three months ended March 31,  
     2011     % of
sales
    2012     % of
sales
 
     ($ in thousands)  

Net sales

   $ 6,397        100.0   $ 7,442        100.0

Cost of goods sold

     (6,109     (95.5     (7,386     (99.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     288        4.5        56        0.8   

Selling and administrative expense

     (188     (2.9     (241     (3.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) before pension/OPEB

   $ 100        1.6   $ (185     (2.4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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The primary drivers of sales, cost of goods sold and the resulting gross margin are as follows:

 

     Three months ended
March 31,
 
       2011          2012    

Sales volume(000 tons) – Bar

     6         6   

Average per-ton selling prices – Bar

   $ 982       $ 1,068   

Average per-ton billet cost of goods sold

   $ 493       $ 595   

During the first quarter of 2011, Calumet installed certain new equipment. Throughout 2011 and the first quarter of 2012, Calumet experienced significant production delays associated with equipment malfunctions including performance problems related to the new equipment. Due to the related production outages, Calumet struggled to meet customer order deadlines on a consistent basis, resulting in lower than expected sales volume. As the equipment malfunctions are remedied and Calumet’s labor force gains experience working with the new equipment, we believe the mill will operate more efficiently, thereby allowing consistent on-time delivery of customer orders as well as reduction of future conversion costs.

On March 20, 2012, an election under the supervision of the National Labor Relations Board was held, in which a majority of Calumet’s hourly employees voted to accept the organization of the workforce by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USA) AFL-CIO, CLC (the “USW”). We currently expect to begin negotiating a contract with the USW in June.

Pension Credit

Primarily due to a $45 million decrease in our pension plans’ assets as well as a 101 basis point reduction in the applicable discount rate during 2011, we currently expect to record a defined benefit pension credit of $7.6 million during 2012 as compared to the $24.4 million defined benefit pension credit we recorded during 2011. Accordingly, we recorded a defined benefit pension credit of $1.9 million during the first quarter of 2012 as compared to the $4.8 million credit recorded during the first quarter of 2011.

Income Tax Expense

A tabular reconciliation of the difference between the U.S. Federal statutory income tax rate and our effective income tax rates is included in Note 8 to our Condensed Consolidated Financial Statements.

 

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LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

Operating Activities

During the first quarter of 2012, net cash used in operations totaled $17.2 million as compared to net cash used in operations of $7.9 million during the first quarter of 2011. The $9.3 million increase in cash used for operating activities was primarily due to the net effects of:

 

   

higher operating income before pension and OPEB in 2012 of $.7 million,

 

   

less net cash used as a result of relative changes in our inventory in 2012 of $4.0 million primarily due to a much more significant increase in ferrous scrap costs during the first quarter of 2011 as compared to the first quarter of 2012, partially offset by higher inventory levels at March 31, 2012 to meet the anticipated customer demand during the spring season,

 

   

more cash used by relative changes in our accounts payable in 2012 of $11.3 million primarily due to increased production schedules, the payment of 2011 employee incentive compensation during the first quarter of 2012 which was significantly higher than 2010 employee incentive compensation paid during the first quarter of 2011, as well as gaining more favorable payment terms on raw materials and utilities during the first quarter of 2011 (payment terms on raw materials and utilities have remained constant since January 2011), and

 

   

higher taxes paid during the first quarter of 2012 of $3.9 million due to the timing of our tax payments.

Investing Activities

Expenditures on capital projects during the first quarter of 2012 primarily related to upgrades of production equipment at KSW and amounted to $2.3 million as compared to $2.7 million of capital expenditures during the first quarter of 2011.

Financing Activities

We increased borrowings on our revolving credit facility during the first quarter of 2012 by $18.9 million as compared to increasing borrowings by $10.5 million during the first quarter of 2011. The increased borrowings during 2012 were primarily due to the increased usage of cash in operations as discussed above.

Future Cash Requirements

Capital Expenditures

Capital expenditures for 2012 are expected to be approximately $17 million and are primarily related to upgrades of production equipment. We expect to fund capital expenditures using cash flows from operations and borrowing availability under our revolving credit facility.

 

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Commitments and Contingencies

See Note 5 to the Condensed Consolidated Financial Statements for a description of certain legal proceedings.

Pension and Other Postretirement Obligations

We currently do not expect to be required to make contributions to our defined benefit pension plans during 2012. As allowed under certain of our amended benefit plans, we exercised our right to create supplemental pension benefits in lieu of certain 2012 benefit payments due under one of our OPEB plans. As such, we anticipate contributing an aggregate of only $1.2 million to our OPEB plans during 2012. We have the ability to decide whether or not to exercise such rights on a year-by-year basis. If we had not exercised such rights for 2012, our expected OPEB contributions would be $2.9 million higher. Future variances from assumed actuarial rates, including the rate of return on plan assets, may result in increases or decreases to pension and OPEB funding requirements in future periods.

Off-balance Sheet Financing Arrangements

We do not have any off-balance sheet financing agreements other than the operating leases discussed in our 2011 Annual Report.

Working Capital and Borrowing Availability

 

     December 31,      March 31,  
     2011      2012  
     (In thousands)  

Working capital

   $ 78,742       $ 86,315   

Outstanding balance under revolving credit facility

     33,630         52,480   

Additional borrowing availability

     30,939         13,554   

The revolving credit facility requires us to use our daily cash receipts to reduce outstanding borrowings, which results in us maintaining zero cash balances when there are balances outstanding under this credit facility.

The amount of available borrowings under our revolving credit facility is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit ($5.0 million at March 31, 2012). Our revolving credit facility requires us to maintain a minimum fixed charge coverage ratio, defined in the agreement as earnings before interest, taxes, depreciation, amortization, restructuring costs, pension and OPEB expense or credits, less OPEB payments, divided by the sum of interest expense, tax payments, principal payments on certain debt and certain capital expenditures, of 1.0 if excess availability falls below $10.0 million. At March 31, 2012 our fixed charge coverage ratio was 1.3 and as disclosed above excess availability was $13.6 million. Current forecasts indicate we will maintain excess availability of at least $10.0 million and a fixed charge coverage ratio of at least 1.0 throughout 2012.

Based upon our current expectations, we expect to have sufficient liquidity to meet our known future short-term and long-term obligations.

 

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RECENT ACCOUNTING PRONOUNCEMENTS

See Note 10 to our Condensed Consolidated Financial Statements for the projected impact of recent accounting pronouncements on our financial position and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our critical accounting policies, refer to Part I, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2011 Annual Report. There have been no changes in our critical accounting policies during the first quarter of 2012.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the 2011 Annual Report for a discussion of the market risks associated with changes in interest rates that affect us. There have been no material changes in such market risks during the first quarter of 2012.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure information required to be disclosed in the reports we file or submit to the SEC under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information we are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of David L. Cheek, our Chief Executive Officer, and Bert E. Downing, Jr., our Vice President, Chief Financial Officer, Corporate Controller and Treasurer, have evaluated the design and operating effectiveness of our disclosure controls and procedures as of March 31, 2012. Based upon their evaluation, these executive officers have concluded our disclosure controls and procedures were effective as of March 31, 2012.

Internal Control Over Financial Reporting

We also maintain internal control over financial reporting. The term “internal control over financial reporting,” as defined by SEC regulations, means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:

 

   

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets,

 

   

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are made only in accordance with authorizations of our management and directors, and

 

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Table of Contents
   

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

Changes in Internal Control Over Financial Reporting

There has been no change to our internal control over financial reporting during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

Reference is made to disclosure provided under the caption "Other current litigation" in Note 5 to our Condensed Consolidated Financial Statements.

 

ITEM 1A. Risk Factors.

Reference is made to our 2011 Annual Report for a discussion of risk factors related to our businesses. There have been no material changes in such risk factors during the first quarter of 2012.

 

ITEM 6. Exhibits.

 

(a)

We have retained a signed original of any exhibit listed below that contains signatures, and we will provide any such exhibit to the Commission or its staff upon request. The following exhibit is included herein:

 

  31.1

Certification.

 

  31.2

Certification.

 

  32.1

Certification.

 

101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema
101.CAL    XBRL Taxonomy Extension Calculation Linkbase
101.DEF    XBRL Taxonomy Extension Definition Linkbase
101.LAB    XBRL Taxonomy Extension Label Linkbase
101.PRE    XBRL Taxonomy Extension Presentation Linkbase

 

- 26 -


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Keystone Consolidated Industries, Inc.

    (Registrant)

 

Date: May 15, 2012               By  

/s/  Bert E. Downing, Jr.

          Bert E. Downing, Jr.
         

Vice President, Chief Financial Officer,

Corporate Controller and Treasurer

 

- 27 -

XOTC:KYCN Quarterly Report 10-Q Filling

XOTC:KYCN Stock - Get Quarterly Report SEC Filing of XOTC:KYCN stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:KYCN Quarterly Report 10-Q Filing - 3/31/2012
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