Keystone Reports 2nd Quarter Results
08/15/2007 - Keystone Consolidated reports net income of $17.2 million on net sales of $122.7 million for the second quarter, and net income of $31.7 million on net sales of $235.8 million for the six months ended June 30, 2007.
Keystone Consolidated Industries, Inc. reported net income of $17.2 million on net sales of $122.7 million for the second quarter, and net income of $31.7 million on net sales of $235.8 million for the six months ended June 30, 2007.
Second Quarter Results—The $17.2 million net income ($1.72 per diluted share) compares to net income of $13.4 million ($1.34 per diluted share) in the second quarter of 2006. According to the company, the increase in earnings was due primarily to a significantly higher pension credit, a $5.4-million legal settlement with a former insurance carrier in 2007, and higher selling prices, partially offset by lower shipment volumes, increased costs (for ferrous scrap, electricity, natural gas and zinc), and a higher effective income tax rate in 2007.
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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 the 2007 legal settlement), are unrelated to the company’s ongoing operating activities, Keystone measures its overall operating performance using operating income before net pension and OPEB expense or credits and any of these non-recurring items.
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- Lower billet shipment volumes as compared to exceptional shipment volumes in 2006 (due to competitor labor disputes and equipment issues and the use of more of the company's billets internally at Keystone-Calumet)
- Lower welded wire reinforcement shipment volumes due to a decline in the construction of new homes.
- Lower industrial wire shipment volumes due, in part, to lower market demand (the result of both increased imported finished products that adversely affected customers' sales volumes and the company's increased selling prices).
- Increased costs for ferrous scrap, zinc and natural gas.
- Increased costs for electricity due to deregulation, following a ten-year rate freeze in Illinois (the location of the company's largest manufacturing facility).
- Higher selling prices in 2007.
The increased pension credit in 2007 was primarily a result of a $233-million increase in plan assets from the end of 2005 to the end of 2006.
The company's provisions for income taxes were not significant prior to the second quarter of 2006. Due to Keystone's profitability during the first six months of 2006 as well as expectations of continued profitability, the company reversed its deferred income tax asset valuation allowance by the end of June 2006, and subsequently, Keystone's effective income tax rate has approximated the statutory rate.
In December 2006, the company adopted a new accounting standard related to planned major maintenance expense. Under the new standard, the company no longer accrues the cost of planned major maintenance expense in advance but instead recognizes the cost of planned major maintenance when it is incurred. The new standard was adopted retroactively, which resulted in the company's net income in the second quarter and first six months of 2006 rising higher than previously reported by approximately $387,000 and $894,000, respectively.
Headquartered in Dallas, Texas, Keystone Consolidated Industries is a leading manufacturer of steel fabricated wire products, industrial wire, billets and wire rod. Keystone also manufactures welded wire reinforcement, coiled rebar and steel bars and shapes. The company's products are used in the agricultural, industrial, cold drawn, construction, transportation, original equipment manufacturer and retail consumer markets.
Keystone-Calumet, Inc. is a bar and shapes manufacturing facility that Keystone purchased in March of 2007.
