Keystone Reports Fourth Quarter 2008 Results
Because the amount of the Company’s net periodic defined benefit pension and other postretirement benefit (“OPEB”) expense or credits, and certain non-recurring gains and losses (such as a legal settlement during 2007), are unrelated to the ongoing operating activities of the Company, Keystone measures its overall operating performance using operating income before net pension and OPEB expense or credits and any of these non-recurring items. A reconciliation of operating income as reported to operating income adjusted for pension and OPEB credits and the 2007 legal settlement is set forth in the following table.
Three months ended Year ended
December 31, December 31,
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(In thousands)
2007 2008 2007 2008
---- ---- ---- ----
Operating income
as reported $20,649 $12,533 $97,972 $110,493
Defined benefit
pension credit (19,307) (18,522) (80,443) (73,923)
OPEB credit (1,924) (1,932) (8,526) (8,474)
Gain on legal
settlement - - (5,400) -
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Operating income
(loss) before pension
and OPEB and gain on
legal settlement $(582) $(7,921) $3,603 $28,096
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The Company’s total sales volume and average per-ton selling prices for the fourth quarter and full year of 2007 and 2008 were as follows:
Three months ended Year ended
December 31, December 31,
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2007 2008 2007 2008
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Total sales volume (000 tons) 168 63 648 586
Average per-ton selling prices $663 $1,056 $690 $955
The increase in operating loss before pension and OPEB for the fourth quarter of 2008 as compared to the same period in 2007 was primarily a result of the net effects of the following factors:
- lower shipment volumes due to customers limiting orders during the fourth quarter of 2008 as discussed above;
- higher ferrous scrap costs in 2008;
- a significantly higher fourth quarter LIFO adjustment in 2008 as compared to 2007 of
$3.1 million , as the low shipment volumes during the fourth quarter of 2008 resulted in higher levels of year-end inventory than previously estimated; - a
$1.2 million impairment charge during the fourth quarter of 2008 to reduce certain inventories to net realizable value; - higher overall per-ton selling prices due to price increases throughout 2008 as discussed below;
- lower operating costs as Keystone substantially reduced production levels due to the rapid decline in product demand during the fourth quarter of 2008; and
- income of
$2.2 million related to obtaining an excise tax exemption on certain 2007 and 2008 electricity costs during the fourth quarter of 2008.
The increase in operating income before pension and OPEB and the 2007 legal settlement for the year ended
- higher per-ton product selling prices in 2008 resulting from price increases the Company implemented to offset increased costs for ferrous scrap throughout the year, as well as increased demand for domestic wire rod and industrial wire during the first three quarters of 2008 due to lower quantities of import product available for sale, higher prices for import products and the weak U.S. dollar;
- decreased costs for zinc during 2008;
- cost savings of
$1.7 million resulting from a reduction-in-force at Keystone’s largest manufacturing facility during the first quarter of 2008; - income of
$.9 million related to obtaining an excise tax exemption in 2008 on certain 2007 electricity costs; - lower shipment volumes for the majority of Keystone’s products due to customers limiting orders during the fourth quarter of 2008 as discussed above;
- increased costs for ferrous scrap and energy during 2008;
- a
$1.2 million impairment charge during the fourth quarter of 2008 to reduce certain inventories to net realizable value; - increased employee incentive compensation accruals as a result of increased profitability during 2008; and
- increased costs for workers compensation and personal injury claims under the Company’s general liability insurance in 2008.
The 2008 pension credit is lower than the pension credit for 2007 due to the component of the pension credit related to the expected return on plan assets; Keystone’s plans’ assets decreased
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical in nature are forward-looking and are not statements of fact. Forward-looking statements represent the Company’s 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 Keystone believes the expectations reflected in forward-looking statements are reasonable, it does 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, the Company continues to face many risks and uncertainties. Among the factors that could cause Keystone’s actual future results to differ materially from those described herein are the risks and uncertainties discussed from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”) including, but not limited to, the following:
- Future supply and demand for Keystone’s products (including cyclicality thereof),
- Customer inventory levels,
- Changes in raw material and other operating costs (such as ferrous scrap and energy),
- 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 therein,
- Significant increases in the cost of providing medical coverage to employees,
- The ultimate resolution of pending litigation,
- 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 and transportation interruptions),
- The Company’s ability to renew or refinance credit facilities,
- Any possible future litigation, and
- Other risks and uncertainties as discussed in the Company’s filings with the SEC.
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. Keystone disclaims any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.
In an effort to provide investors with additional information regarding the Company’s results as determined by accounting principles generally accepted in
- The Company discloses operating income before pension and OPEB credits or expense and the 2007 gain on legal settlement, which is used by the Company’s management to assess its performance. The Company believes disclosure of operating income before pension and OPEB credits or expense and the 2007 gain on legal settlement provides useful information to investors because it allows investors to analyze the performance of the Company’s operations in the same way that the Company’s management assesses performance.
Keystone Consolidated Industries, Inc. is headquartered in
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three months ended Year ended
December 31, December 31,
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2007 2008 2007 2008
---- ---- ---- ----
(unaudited)
Net sales $112,057 $67,318 $451,178 $562,693
Cost of goods sold (108,257) (71,027) (427,908) (511,197)
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Gross margin (loss) 3,800 (3,709) 23,270 51,496
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Other operating
income (expenses):
Selling expense (1,650) (889) (6,682) (7,227)
General and
administrative expense (2,732) (3,323) (12,985) (16,173)
Defined benefit
pension credit 19,307 18,522 80,443 73,923
Other postretirement
benefit credit 1,924 1,932 8,526 8,474
Gain on legal settlement - - 5,400 -
--- --- ----- ---
Total other
operating income 16,849 16,242 74,702 58,997
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Operating income 20,649 12,533 97,972 110,493
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Nonoperating income
(expense):
Interest expense (1,454) (674) (6,073) (3,798)
Other, net (398) (1,177) 601 (342)
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Total nonoperating
expense (1,852) (1,851) (5,472) (4,140)
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Income before
income taxes
and reorganization
items 18,797 10,682 92,500 106,353
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Reorganization items:
Reorganization costs (75) 6 (190) (225)
Gain on cancellation
of debt 1,043 - 10,074 -
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Total reorganization
items 968 6 9,884 (225)
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Income before
income taxes 19,765 10,688 102,384 106,128
Provision for
income taxes (6,511) (4,078) (37,619) (40,014)
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Net income $13,254 $6,610 $64,765 $66,114
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Basic and diluted
earnings per share $1.33 $0.55 $6.48 $5.73
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Basic and diluted
weighted average
shares outstanding 10,000 12,102 10,000 11,533
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SOURCE Keystone Consolidated Industries, Inc.