Keystone Reports 2009 Second Quarter Results

Keystone Consolidated Industries, Inc. (OTC Bulletin Board: KYCN), reported net income of $1.0 million, or $0.08 per diluted share, in the second quarter of 2009 as compared to $21.9 million, or $1.81 per diluted share, in the second quarter of 2008. The decrease in earnings was due primarily to lower shipment volumes resulting from the adverse impact of the current economic condition on Keystone’s customers. Throughout most of the second quarter of 2009, customers continued to cancel or postpone certain projects due to an inability to secure financing in the current credit markets and customers continued to conserve cash by liquidating their inventories and instituting just-in-time order philosophies. In addition, while the Company experienced an unprecedented 90% increase in the cost of ferrous scrap from December 2007 to August 2008, a significant decline in ferrous scrap costs since that time resulted in customers limiting orders as they assumed lower ferrous scrap prices would result in lower selling prices in the near future. Given the sharply reduced market demand, the Company continued to operate on a substantially reduced production schedule during the second quarter of 2009, which resulted in a much higher percentage of fixed costs included in cost of goods sold as the costs could not be capitalized into inventory. Additionally, customers’ just-in-time order philosophies resulted in additional costs due to frequent mill changes as customers were ordering much smaller quantities of Keystone’s many different products. However, the Company believes the reduced production schedules allowed Keystone to somewhat temper the adverse impact of the current business downturn on the Company’s liquidity. Shipment volumes and customer orders increased somewhat in June 2009 which resulted in a return to more normal production levels. Additionally, primarily due to a $510 million decrease in Keystone’s pension plans’ assets during 2008, the Company recorded defined benefit pension expense of $1.5 million during the second quarter of 2009 as compared to a defined benefit pension credit of $17.9 million during the second quarter of 2008.

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