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, 2001

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                           None

           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 April 8, 2002,  10,068,450  shares of common stock were  outstanding.  The
aggregate  market  value  of the  5,077,977  shares  of  voting  stock  held  by
nonaffiliates  of the  Registrant,  as of  such  date,  was  approximately  $5.8
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.


<PAGE>


                                     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 wire rod for the  agricultural,  industrial,  construction,
original equipment  manufacturer and retail consumer markets, and believes it is
the largest  manufacturer of fabricated wire products in the United States based
on tons  shipped  (281,000  tons in 2001).  Keystone is  vertically  integrated,
converting substantially all of its fabricated wire products and industrial wire
from  wire  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 wire rod,
as well  as  from  lower  production  costs  of  wire  rod as  compared  to wire
fabricators  which  purchase wire 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 wire rod imports as compared
to non-integrated  wire rod producers.  In 2001,  Keystone had net sales of $309
million.  Approximately 72% 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 wire rod not used in Keystone's downstream operations.

     The Company's fabricated wire products, which comprised 59% of its 2001 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 Tractor
Supply Co., Lowe's Companies,  Inc., 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 59% 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 2001,  net sales of  industrial  wire
accounted for 13% 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 2001,  open
market sales of wire rod accounted for 25% 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  2001,  sales by Garden Zone  accounted  for 3% 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 11 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 2001,  the  Company  increased  its  annual  billet
production  capacity to 1 million tons from 655,000 tons.  Since  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's
voting stock. 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 employees and
retirees,  the ultimate  resolution of pending  litigation,  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 five wire and wire product fabrication facilities. The
manufacturing  process  commences  in Peoria,  Illinois  with scrap  steel being
loaded into an electric arc furnace where it is converted  into molten steel and
then transferred to a ladle refining furnace where  chemistries and temperatures
are monitored and adjusted to specifications  prior to casting. The molten steel
is  transferred  from the ladle  refining  furnace into a six-strand  continuous
casting machine which produces  five-inch  square strands referred to as billets
that are cut to  predetermined  lengths.  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 wire rod is coiled
and  cooled.  After  cooling,  the  coiled  wire 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  industrial  wire,  nails and other  fabricated wire products or
shipped to wire rod customers.

     While the Company  does not  maintain a  significant  "shelf"  inventory of
finished wire rod, it generally has on hand  approximately a one-month supply of
industrial wire and fabricated wire products inventory which enables Keystone to
fill customer orders and respond to shifts in product demand.



<PAGE>


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.

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                      1999                        2000                        2001
                                ----------------            ----------------           -----------
                                  Percent       Percent       Percent       Percent      Percent       Percent
                                  of Tons          Of         of Tons         of         of Tons          of
           Product                Shipped        Sales        Shipped        Sales       Shipped        Sales
      -----------------           -------        -----        -------        -----       -------        -----

Fabricated wire
<S>                                  <C>          <C>           <C>           <C>          <C>           <C>
  products                           45.2%        62.5%         44.7%         61.9%        42.2%         60.9%
Industrial wire                      20.7         19.4           18.4          17.4         14.2          13.5
Wire rod                             34.1         18.1           36.9          20.7         43.6          25.6
                                    -----        -----      ---------     ---------    ---------     ---------
                                    100.0%       100.0%        100.0%        100.0%       100.0%        100.0%
                                    =====        =====      =========     =========    =========     =========
</TABLE>


     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 Tractor Supply
Co., Lowe's Companies, Inc., 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; and Upper
Sandusky,  Ohio  facilities.  The  primary  customers  for  these  products  are
construction  contractors and building materials manufacturers and distributors.
The Company sells approximately 63% of its nails through PrimeSource,  Inc., one
of the largest  nail  distributors  in the United  States,  under  PrimeSource's
Grip-Rite(R) label.

     Keystone  believes its fabricated wire products are less  susceptible  than
industrial wire or wire 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 wire 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; 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 industrial 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.

     Wire Rod.  Keystone  produces  low  carbon  steel  wire rod at its rod mill
located in Peoria,  Illinois.  Low carbon steel wire rod, with carbon content of
up to 0.38%, is more easily shaped and formed than higher carbon wire rod and is
suitable for a variety of applications where ease of forming is a consideration.
Although  Keystone's five wire  fabrication  facilities on occasion buy wire rod
from outside suppliers,  during 2001,  approximately 55% 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. The Company 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 1999  and  2000  amounted  to  $11.3  million  and  $10.3  million,
respectively.  During 1999 and 2000,  approximately 30% and 32%, respectively of
Fox Valley's sales were to a single  customer.  That customer is,  subsequent to
the sale, being serviced by Keystone's Peoria,  Illinois  facility.  During 1999
and 2000,  Fox  Valley  recorded  operating  losses  of  $67,000  and  $686,000,
respectively.

Industry and Competition

     The fabricated  wire products,  industrial  wire and wire rod businesses in
the United States are highly competitive and are comprised  primarily of several
large mini-mill wire rod producers,  many small independent wire companies and a
few  large  diversified  wire  rod,  and wire  producers,  such as the  Company.
Keystone's principal  competitors in the fabricated wire products and industrial
wire markets are 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 wire rod is a commodity steel product, management believes the
domestic wire 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  wire 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 wire rod,  the  Company  believes it is well  positioned  to
compete effectively with  non-diversified wire rod producers and wire companies.
Foreign steel and  industrial  wire  producers also compete with the Company and
other domestic producers.

     The domestic steel wire rod industry continues to experience consolidation.
During the last three years,  eight of Keystone's  nine major  competitors  have
either filed for  protection  under  federal  bankruptcy  laws and  discontinued
operations  or reduced or completely  shut-down  their  operations.  The Company
believes  these  shut-downs or production  curtailments  represent a decrease of
approximately  3.5 million  tons of annual  capacity  compared  to an  estimated
domestic  annual  capacity  of 3.8  million  tons  after the  decline.  However,
worldwide  overcapacity in the steel industry  continues to exist and imports of
wire rod and certain  fabricated  wire  products in recent years have  increased
significantly.  In an effort to stem increasing  levels of imported wire rod, in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the domestic 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 is imposed on wire rod
imports  from  countries  subject to the TRQ once imports  initially  exceed 1.6
million net tons in 2000 and 2001 and 1.7 million net tons in 2002 and 2003. The
tariff rate is 10% in 2000,  7.5% in 2001 and 5% in 2002.  The Company  does not
believe the TRQ has had a major impact on the domestic  wire rod market and high
levels of imported  rod  continue.  However,  in April 2002,  the United  States
Department of Commerce announced a preliminary  determination that wire rod from
seven countries is being sold in the United States below fair value and required
importers to  immediately  begin posting bonds or cash deposits in the amount of
the preliminary  margins.  The preliminary duties are subject to verification by
the Department of Commerce.  Final anti-dumping duties will go into effect later
this year if the ITC  concludes  the United  States  wire rod  industry is being
injured by imports. The Company believes it is too early to determine the impact
on the industry of the April 2002 actions by the Department of Commerce.

     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.

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,  in the past
the utility has had the right to pass through  certain of its costs to consumers
through fuel  adjustment  charges.  The  Company's  current  agreement  with the
utility does not provide for such 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, although during 2001, the Company received a $1.7 million credit on
the 1999 fuel adjustment charge.

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, 2001,  Keystone employed  approximately 1,600 people, of
whom  approximately  990  are  represented  by the  Independent  Steel  Workers'
Alliance  ("ISWA") at its Peoria,  Illinois  facilities,  approximately  120 are
represented by the International Association of Machinists and Aerospace Workers
(Local 1570) ("IAMAW") at its Sherman, Texas facilities and approximately 30 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 2006,  March 2003 and
November 2006,  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
Wire 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  wire 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 1999,  2000
or 2001. 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  $22  million  at  December  31,  2000 and $24  million at
December 31, 2001.  Keystone believes backlog is not a significant factor in its
business,  and all of the backlog at December 31, 2001 is expected to be shipped
during 2002.

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  12  to  the  Consolidated  Financial  Statements  is
incorporated herein by reference.

ITEM 2. PROPERTIES.

     The  Company's  principal  executive  offices are located in  approximately
1,200 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.

     Keystone's   fabricated  wire  products,   industrial  wire  and  wire  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.



<PAGE>


     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.

<TABLE>
<CAPTION>
                                                        Approximate
                                                            Size
     Facility Name                Location             (Square Feet)              Products Produced

<S>                            <C>                        <C>
Keystone Steel & Wire          Peoria, IL                 2,012,000     Fabricated wire products, industrial
                                                                          wire, wire 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
Sherman Wire of Caldwell       Caldwell, TX                  73,000     Fabricated wire products and industrial
                                                                         wire
                                                          ---------

                                                          2,543,000
                                                          =========
</TABLE>

     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  12  and 14 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, 2001.




<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Prior to December 13, 2001,  Keystone's  common stock was listed and traded
on the New York Stock Exchange (symbol:  KES).  Subsequent to December 12, 2001,
Keystone's common stock is traded on the OTC Bulletin Board (Symbol:  KESN). The
number of holders of record of the  Company's  common  stock as of April 8, 2002
was 2,232.  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.

<TABLE>
<CAPTION>
                                                            High               Low

2001
<S>                                                      <C>               <C>
First quarter ..............................             $   2.50          $   1.50
Second quarter .............................             $   2.00          $   1.20
Third quarter ..............................             $   1.70          $    .96
Fourth quarter .............................             $   1.40          $    .48

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
</TABLE>


     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  that restrict its ability to pay dividends,  including a prohibition
against the payment of dividends on its common stock without lender consent.



<PAGE>


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."

<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                   --------------------------------------------
                                                    1997          1998          1999           2000           2001
                                                    ----          ----          ----           ----           ----
                                                         (In thousands, except per share and per ton amounts)

Statement of Operations Data:
<S>                                                <C>           <C>          <C>            <C>            <C>
  Net sales                                        $354,073      $370,022     $355,688       $338,321       $308,670
  Cost of goods sold                                316,599       339,625      332,644        331,167        295,339
                                                   --------      --------     --------       --------       --------
  Gross profit                                     $ 37,474      $ 30,397     $ 23,044       $  7,154       $ 13,331
                                                   ========      ========     ========       ========       ========

  Selling expenses                                 $  4,628      $  6,042     $  6,845       $  6,737       $  6,378
  General and administrative
    Expenses                                         17,918        19,139       20,850         18,388         19,070
  Operating income (loss)                            23,292        14,021        2,578        (15,415)        (4,463)
  Interest expense                                    7,612        10,460       14,058         15,346         14,575

  Income (loss) before income taxes                $ 16,909      $  5,006     $(12,238)      $(32,436)      $(20,395)
  Minority interest in after-tax
   earnings                                            -             -            -              -                 1
  Provision (benefit) for income taxes                4,541         1,095       (4,754)       (11,370)         5,998
                                                   --------     ---------     ---------      --------       --------

  Net income (loss)                                $ 12,368      $  3,911     $ (7,484)      $(21,066)      $(26,394)
                                                   ========      ========     ========       ========       ========
  Net income (loss) available for common
    Shares (1)                                     $ 12,088      $  3,754     $ (7,484)      $(21,066)      $(26,394)
                                                   ========      ========     ========       ========       ========

 Basic net income (loss) available for
    Common shares per share                       $   1.30       $    .41     $   (.75)      $  (2.10)      $  (2.62)
                                                  ========       ========     ========       ========       ========
 Diluted net income (loss) available
    for common shares per share                   $   1.28       $    .40     $   (.75)      $  (2.10)      $  (2.62)
                                                  ========       ========     ========       ========       ========
  Weighted average common and common
    equivalent shares outstanding   :
    Basic                                             9,271         9,544        9,904         10,039         10,062
                                                   ========      ========     ========       ========       ========
    Diluted                                           9,435         9,669        9,904         10,039         10,062
                                                   ========      ========     ========       ========       ========

Other Financial Data:
  Capital expenditures                             $ 26,294      $ 64,541     $ 16,873       $ 13,052       $  3,889
  Depreciation and amortization                      12,815        20,140       21,051         17,224         16,992

Other Steel and Wire Products Operating
  Data:
  Shipments (000 tons):
    Fabricated wire products                            225           327          315            310            281
    Industrial wire                                     175           170          144            128             94
    Wire rod                                            297           212          237            257            291
                                                   --------      --------     --------       --------       --------
      Total                                             697           709          696            695            666
                                                   ========      ========     ========       ========       ========

  Average selling prices (per ton):
    Fabricated wire products                       $    710      $    662     $    683       $    660       $    649
    Industrial wire                                     478           476          462            449            426
    Wire rod                                            317           288          261            266            264

    Steel and wire products in total                    484           506          493            475            449

  Average total production cost per ton            $    437      $    464     $    461       $    470       $    434
  Average scrap purchase cost per ton                   122           112           94            100             85
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                                                                    As of December 31,
                                                1997           1998           1999           2000           2001
                                                ----           ----           ----           ----           ----
                                                                         (In thousands)

Balance Sheet Data:
<S>                         <C>               <C>            <C>            <C>            <C>             <C>
  Working capital (deficit) (2)               $ 52,684       $    555       $(13,920)      $(39,243)       $(30,982)
  Property, plant and equipment, net           112,754        156,100        150,156        144,696         129,600
  Total assets                                 374,131        405,857        410,918        385,703         366,900
  Total debt                                   106,844        131,764        146,857        146,008         146,455
  Redeemable preferred stock                     3,500              -              -           -                  -
  Stockholders' equity (deficit)                44,211         53,077         46,315         26,058            (336)
</TABLE>

(1)  Includes  dividends on preferred stock of $280,000 and $157,000 in 1997 and
     1998, respectively.

(2)  Working  capital   (deficit)   represents   current  assets  minus  current
     liabilities.




<PAGE>


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  wire  rod  for the  agricultural,  industrial,
construction,  original  equipment  manufacturer and retail consumer markets and
believes it is the  largest  manufacturer  of  fabricated  wire  products in the
United  States based on tons shipped  (281,000 in 2001).  Keystone's  operations
benefit from vertical  integration as the Company's  mini-mill supplies wire rod
produced  from  scrap  steel to its  downstream  fabricated  wire  products  and
industrial  wire  operations.  Sales of fabricated  wire products and industrial
wire by these downstream  fabrication  operations  accounted for 72% of 2001 net
sales.  Keystone's  fabricated  wire  products  typically  yield higher and less
volatile  gross margins  compared to wire rod.  Management  believes  Keystone's
fabricated  wire businesses help mitigate the adverse effect of wire rod imports
on market prices  compared to producers  that rely  primarily on wire rod sales.
Moreover,  historically  over time, the Company's wire rod production costs have
generally been below the market price for wire rod providing a significant  cost
advantage over wire producers who purchase wire 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 2001,  the  Company  increased  its  annual  billet
production  capacity to 1 million tons from 655,000 tons.  However,  despite the
increase  in billet  production  capacity,  Keystone's  wire 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's steel making  operations,  together with billet  purchases of
8,000 tons in 2000 (none in 2001)  provided  686,000  tons and  682,000  tons of
billets  in 2001  and  2000,  respectively.  Despite  marginally  higher  billet
production and purchases in 2001, wire rod production  decreased 4% from 678,000
tons (85% of  estimated  capacity)  in 2000 to  651,000  tons (81% of  estimated
capacity)  due  primarily to lower sales demand.  Keystone's  estimated  current
fabricated  wire products and  industrial  wire  production  capacity is 570,000
tons.  The Company's  fabricated  wire products and industrial  wire  production
facilities  operated at about 84%, 78%, and 68% of their annual  capacity during
1999, 2000 and 2001, respectively.

     In December 1997,  Keystone  purchased the remaining 80% of Engineered Wire
Products,  Inc.  ("EWP")  not  already  owned by  Keystone.  As a result  of the
acquisition  of  EWP,  Keystone  was  able  to  convert  additional  volumes  of
lower-margin wire rod sales, 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
$94 in 1999,  $100 in 2000 and $85 in 2001.  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 three years,  eight of Keystone's  nine major  competitors  have
either filed for  protection  under  Federal  bankruptcy  laws and  discontinued
operations  or reduced or completely  shut-down  their  operations.  The Company
believes  these  shut-downs or production  curtailments  represent a decrease of
approximately  3.5 million  tons of annual  capacity  compared  to an  estimated
domestic  annual  capacity  of 3.8  million  tons  after the  decline.  However,
worldwide over capacity in the steel industry  continues to exist and imports of
wire rod and certain  fabricated  wire  products in recent years have  increased
significantly.  In an effort to stem increasing  levels of imported wire rod, in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the domestic 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 in 2000 and 2001 and 1.7 million net tons in 2002 and 2003. The
tariff rate is 10% in 2000,  7.5% in 2001 and 5% in 2002.  The Company  does not
believe the TRQ has had a major impact on the domestic  wire rod market and high
levels of imported  rod  continue.  However,  in April 2002,  the United  States
Department of Commerce announced a preliminary  determination that wire rod from
seven countries is being sold in the United States below fair value and required
importers to  immediately  begin posting bonds or cash deposits in the amount of
the preliminary  margins.  The preliminary duties are subject to verification by
the Department of Commerce.  Final anti-dumping duties will go into effect later
this year if the ITC  concludes  the United  States  wire rod  industry is being
injured by imports. The Company believes it is too early to determine the impact
on the industry of the April 2002 actions by the Department of Commerce.

     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, in the past the utility
has had the right to pass through certain of its costs to consumers through fuel
adjustment  charges.  The Company's  current agreement with the utility does not
provide for such 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 $2.2 million charge,  accrued in 1999,
was paid during 2000,  although during 2001 the Company  received a $1.7 million
credit with respect to the 1999 fuel-adjustment charge.

     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. The Company 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 1999  and  2000  amounted  to  $11.3  million  and  $10.3  million,
respectively.  During 1999 and 2000,  approximately 30% and 32%, respectively of
Fox Valley's sales were to a single  customer.  That customer is,  subsequent to
the sale, being serviced by Keystone's  Peoria  facility.  During 1999 and 2000,
Fox Valley recorded operating losses of $67,000 and $686,000, respectively.

     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,  scrap
costs, sales volume and pricing data, for the periods indicated.

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                      1999       2000       2001
                                                      ----       ----       ----
                                                          (Tons in thousands)

Production volume (tons):
  Billets:
<S>                                                    <C>        <C>        <C>
    Produced ..................................        683        675        686
    Purchased .................................         45          8        --
  Wire rod ....................................        687        678        651

Average per-ton scrap purchase cost ...........       $ 94       $100       $ 85

Sales volume (tons):
  Fabricated wire products ....................        315        310        281
  Industrial wire .............................        144        128         94
  Wire rod ....................................        237        257        291
                                                      ----       ----       ----
                                                       696        695        666
                                                      ====       ====       ====

Per-ton selling prices:
  Fabricated wire products ....................       $683       $660       $649
  Industrial wire .............................        462        449        426
  Wire rod ....................................        261        266        264
  All steel and wire products .................        493        475        449
</TABLE>


                                       1
<PAGE>

     The  following  table sets forth the  components of the Company's net sales
for the periods indicated.

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                 1999         2000         2001
                                                 ----         ----         ----
                                                          (In millions)

Steel and wire products:
<S>                                             <C>          <C>          <C>
  Fabricated wire products ..............       $214.7       $204.7       $182.4
  Industrial wire .......................         66.6         57.4         40.3
  Wire rod ..............................         62.0         68.4         76.7
  Other .................................          1.4          1.5          1.3
                                                ------       ------       ------
                                                 344.7        332.0        300.7
Lawn and garden products ................         11.0          6.3          8.0
                                                ------       ------       ------
                                                $355.7       $338.3        308.7
                                                ======       ======       ======
</TABLE>


<PAGE>


     The following  table sets forth  selected  operating  data of Keystone as a
percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                    1999       2000       2001
                                                    ----       ----       ----

<S>                                                <C>        <C>        <C>
Net sales .....................................    100.0%     100.0%     100.0%
Cost of goods sold ............................     93.5       97.9       95.7
                                                   -----      -----      -----
Gross profit ..................................      6.5%       2.1%       4.3%
                                                   =====      =====      =====

Selling expenses ..............................      1.9%       2.0%       2.1%
General and administrative expense ............      5.9        5.4        6.2
Overfunded defined benefit pension credit .....     (1.6)       (.1)      (1.8)

Loss before income taxes ......................     (3.4)%     (9.6)%     (6.6)%
Provision for income taxes (benefit) ..........     (1.3)      (3.4)       1.9
                                                   -----      -----      -----
Net loss ......................................     (2.1)%     (6.2)%     (8.5)%
                                                   =====      =====      =====
</TABLE>


Year ended December 31, 2001 compared to year ended December 31, 2000

     Net sales declined $29.7 million,  or 8.8%, in 2001 from 2000 due primarily
to a 4.2% decline in shipment volume of steel and wire products  combined with a
5.5%  decline in overall  per-ton  steel and wire  product  selling  prices.  In
addition,  the product mix in 2001 was less favorable  than in 2000.  Fabricated
wire products and industrial  wire sell for higher per-ton selling prices and at
higher  margins  than  wire rod.  During  2001,  fabricated  wire  products  and
industrial wire  represented 59% and 13%,  respectively of net sales as compared
to 60% and 17%  respectively,  in 2000.  This decline in the  percentage  of net
sales represented by fabricated wire products and industrial wire sales resulted
in wire rod sales  increasing  from 20% in 2000 to 25% of net sales in 2001. The
5.5%  decline in overall  per-ton  steel and wire  product  selling  prices ($26
per-ton) adversely  impacted net sales by $17.3 million.  Lower net sales of the
Company's steel and wire products were offset in part by Garden Zone's net sales
which increased by 26.2% during 2001 from $6.3 million to $8.0 million.

     Fabricated wire products per-ton selling prices declined 1.6% and shipments
declined  9.4% in 2001 as  compared to 2000.  Industrial  wire  per-ton  selling
prices  declined  5.0% in 2001 when  compared to 2000 while  shipments  declined
26.1% Per-ton  selling price of wire rod declined .9% during 2001 as compared to
2000,  while shipments  increased  13.2%. The decline in both volume and per-ton
selling prices of fabricated  wire products and industrial wire was due to lower
demand.  As the demand for these products  declined,  the Company  increased the
volume of rod sold to external customers.

     Gross profit of $13.3  million  during 2001  increased by $6.1 million over
the 2000 gross  profit of $7.2 million as gross  margin  increased  from 2.1% in
2000 to 4.3% in 2001.  This  increase in gross margin was due primarily to lower
costs in 2001  related to a reduction  in unplanned  production  outages,  lower
costs for scrap  steel  (the  Company's  primary  raw  material)  and  purchased
billets,  $1.8 million of business  interruption  insurance proceeds received in
2001 related to incidents in prior years (as compared to $300,000 in 2000) and a
favorable $1.7 million utility settlement relative to a charge by the utility in
a prior year, all partially  offset by higher natural gas and OPEB costs as well
as the lower overall steel and wire product per-ton selling prices. In addition,
during the 2001 fourth  quarter,  Keystone  recorded a $1.3 million benefit as a
result of a favorable  legal  settlement  with an  electrode  vendor  related to
alleged price fixing. During 2000, Keystone recorded a $2.7 million benefit as a
result of similar  settlements  with electrode  vendors.  The estimated  adverse
impact  on gross  profit  from  production  outages  amounted  to  approximately
$800,000  during 2001 as compared to $5.3  million in 2000.  Keystone's  per-ton
scrap costs  declined  15% during 2001 as compared  to 2000.  During  2001,  the
Company  purchased  788,000 tons of scrap at an average  price of $85 per-ton as
compared to 2000  purchases of 658,000 tons at an average price of $100 per-ton.
This decline in per-ton scrap costs favorably  impacted gross profit during 2001
by approximately  $11.8 million as compared to 2000.  Keystone currently expects
average  scrap costs in 2002 will  approximate  2001 costs.  The Company did not
purchase  any billets in 2001 as compared to 8,000 tons  purchased in 2000 at an
average  cost of $215  per-ton.  Keystone  does not  anticipate  purchasing  any
billets during 2002. Natural gas costs during 2001 were  approximately  $900,000
higher than 2000's cost.

     Selling expense decreased 5.6% to $6.4 million in 2001 from $6.7 million in
2000 but was relatively constant as a percentage of sales.

     General  and  administrative  expense of $19.1  million  in 2001  increased
$700,000  from  $18.4  million  in  2000  as the  effect  of  higher  legal  and
professional  and OPEB costs and  environmental  expenses  during  2001 was only
partially  offset by the effect of  reductions in salaried  headcount  resulting
from certain salaried  employees  accepting  Keystone's early retirement package
during  the last  quarter  of 2000 and a  $650,000  reimbursement  of legal fees
received in 2001.

     During 2001, Keystone recorded a non-cash pension credit of $5.5 million as
compared to $380,000 in 2000. The lower pension credit in 2000 was primarily the
result of a $3.7 million  charge as a result of the  implementation  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.  The Company  currently  estimates,  for financial
reporting  purposes,  that  it will  recognize  a  non-cash  pension  credit  of
approximately $3 million in 2002 and does not anticipate cash  contributions for
defined benefit pension plan fundings will be required in 2002. 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 2001 was lower than 2000 due  principally to lower
interest  rates.  Average  borrowings by the Company under its revolving  credit
facilities,  EWP term loan and Senior Secured Notes approximated  $149.0 million
during 2001 as  compared to $150.9  million in 2000.  During  2001,  the average
interest  rate paid by the  Company  was 8.9% per annum as  compared to 9.6% per
annum in 2000.

     At December 31, 2001, the Company's  financial  statements  reflected total
accrued  liabilities  of $15.6  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  12  to  the  Consolidated   Financial
Statements.

     During  2001,  the Company  recorded a provision  for income  taxes of $6.0
million on a loss before income taxes of $20.4 million  compared to an effective
tax rate of 35% in  2000.  During  the  fourth  quarter  of  2001,  the  Company
determined a portion of its gross deferred tax assets did not currently meet the
"more-likely-than-not"  realizability test, and accordingly  provided a deferred
tax asset valuation  allowance of approximately  $14.5 million  resulting in the
$6.0  million  provision  for  income  taxes.  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, 2001 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
$26.4 million during 2001 as compared to a net loss in 2000 of $21.1 million.

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.  The decline in both volume and per-ton  selling  prices of  fabricated
wire products and  industrial  wire was due to lower  demand.  As the demand for
these  products  declined,  the  Company  increased  the  volume  of rod sold to
external customers.

     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, 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
slower production times due to high  accumulations of snow and ice. In addition,
during 1999,  Keystone recorded a $2.7 million benefit as a result the favorable
legal  settlements  with  certain  electrode  vendors.  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.  This increase in
per-ton scrap costs adversely impacted gross profit during 2000 by approximately
$3.9  million as compared  to 1999.  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.

     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 in 2000 was primarily
the result of increased  pension  benefits  included in the  Company's  May 1999
labor contract with the Peoria facility's union and the $3.7 million charge as a
result of the early retirement program for certain salaried employees.

     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.

     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.

     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.

Related party transactions

     As further  discussed in Note 9 to the Consolidated  Financial  Statements,
the Company is party to certain transactions with related parties.

Outlook for 2002

     Rod imports  continue to cause  disruption  in the  marketplace  and market
demand  has  weakened.  However,  management  currently  believes,  despite  the
continued high level of rod imports,  capacity  utilization and shipment volumes
in 2002 will approximate 2001 levels and per-ton selling prices will approximate
those of the fourth quarter of 2001. In addition,  management currently believes
these volumes and per-ton selling prices combined with anticipated higher energy
and OPEB  costs,  a lower  pension  credit and lower  interest  costs due to the
events  described  in Note 15 to the  Consolidated  Financial  Statements,  will
result in Keystone  recording  a loss before  income  taxes for  calendar  2002.
However,  despite recording an anticipated operating loss and loss before income
taxes in 2002,  Keystone currently believes both operating loss and pre-tax loss
(exclusive  of  non-recurring  items  discussed  below) will  decline in 2002 as
compared  to 2001  levels.  As a result  of the  deferred  tax  asset  valuation
allowance  recorded in 2001, the Company does not  anticipate  recognizing a tax
benefit associated with its pre-tax losses during 2002 will be appropriate.

     Keystone will adopt Statement of Financial  Accounting  Standards  ("SFAS")
No. 142,  Goodwill and Other Intangible  Assets on January 1, 2002. As a result,
negative goodwill at that date of approximately $20.0 million will be eliminated
as a cumulative  effect of change in  accounting  principle.  In addition,  as a
result  of  the  events  described  in  Note  15 to the  Consolidated  Financial
Statements  Keystone will record a pre-tax  extraordinary  gain of approximately
$54.7 million for financial reporting purposes during the first quarter of 2002.
As a result of these items,  the Company  anticipates  recording  net income for
calendar 2002.



<PAGE>


Critical accounting policies and estimates

     The  accompanying   "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations"  are based upon the Company's  consolidated
financial  statements,  which have been prepared in accordance  with  accounting
principles  generally  accepted in the United  States of America  ("GAAP").  The
preparation of these financial statements requires the Company to make estimates
and judgments  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 reported
period.  On an on-going basis,  the Company  evaluates its estimates,  including
those related to bad debts,  inventory  reserves,  the  recoverability  of other
long-lived assets (including goodwill and other intangible assets),  pension and
other   post-retirement   benefit  obligations  and  the  underlying   actuarial
assumptions  related thereto,  the realization of deferred income tax assets and
accruals  for  environmental  remediation,  litigation,  income  tax  and  other
contingencies.  The Company bases its estimates on historical  experience and on
various  other  assumptions  that  are  believed  to  be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the  reported  amounts of assets,  liabilities,  revenues and  expenses.  Actual
results may differ from previously-estimated amounts under different assumptions
or conditions.

     Keystone  believes the following  critical  accounting  policies affect its
more  significant  judgments  and  estimates  used  in  the  preparation  of its
consolidated financial statements:

     o    The Company  maintains  allowances for doubtful accounts for estimated
          losses  resulting from the inability of its customers to make required
          payments and other factors.  The Company takes into  consideration the
          current  financial  condition  of  the  customers,   the  age  of  the
          outstanding   balance  and  the  current  economic   environment  when
          assessing the adequacy of the allowance. If the financial condition of
          the  Company's   customers  were  to  deteriorate,   resulting  in  an
          impairment of their ability to make  payments,  additional  allowances
          may be required.

     o    Keystone provides reserves for estimated  obsolescence or unmarketable
          inventory  equal to the  difference  between the cost of inventory and
          the  estimated net  realizable  value using  assumptions  about future
          demand  for its  products  and  market  conditions.  If actual  market
          conditions  are less  favorable  than those  projected by  management,
          additional  inventory  reserves  may be  required.  Keystone  provides
          reserves  for tools and  supplies  inventory  based  generally on both
          historical and expected future usage requirements.

     o    The  Company  recognizes  an  impairment  charge  associated  with its
          long-lived  assets,  primarily  property  and  equipment,  whenever it
          determines  that  recovery of such  long-lived  asset is not probable.
          Such  determination  is made in accordance  with the  applicable  GAAP
          requirements  associated with the long-lived asset, and is based upon,
          among other  things,  estimates of the amount of future net cash flows
          to be generated by the  long-lived  asset and estimates of the current
          fair value of the asset.  Adverse  changes in such estimates of future
          net cash flows or estimates of fair value could result in an inability
          to  recover  the  carrying  value  of the  long-lived  asset,  thereby
          possibly  requiring  an  impairment  charge  to be  recognized  in the
          future.

     o    Keystone  records a valuation  allowance to reduce its deferred income
          tax assets to the amount that is  believed  to be  realized  under the
          "more-likely-than-not"  recognition  criteria.  While the  Company has
          considered  future taxable income and ongoing prudent and feasible tax
          planning  strategies in assessing the need for a valuation  allowance,
          it is possible  that in the future the Company may change its estimate
          of  the  amount  of  the   deferred   income  tax  assets  that  would
          "more-likely-than-not"  be  realized in the  future,  resulting  in an
          adjustment to the deferred income tax asset  valuation  allowance that
          would either increase or decrease, as applicable,  reported net income
          in the period such change in estimate was made.

     o    The Company records an accrual for  environmental,  legal,  income tax
          and other contingencies when estimated future expenditures  associated
          with  such  contingencies  become  probable,  and the  amounts  can be
          reasonably  estimated.  However, new information may become available,
          or circumstances (such as applicable laws and regulations) may change,
          thereby resulting in an increase or decrease in the amount required to
          be accrued for such matters  (and  therefore a decrease or increase in
          reported net income in the period of such change).

     o    Keystone   sponsors   a  defined   benefit   pension   plan   covering
          substantially all employees who meet certain eligibility requirements.
          For  financial  reporting  purposes,  the  pension  plan is  currently
          overfunded and as such,  the Company's  financial  statements  reflect
          prepaid  pension cost on its balance sheets and an overfunded  defined
          benefit  pension credit in the statements of operations.  In addition,
          the Company is not required to make cash  contributions to the pension
          plan.  The  determination  of the pension asset and pension  credit is
          dependent on the  selection  of certain  actuarial  assumptions  which
          attempt  to  anticipate   future  events.   These  pension   actuarial
          assumptions,  which  are  described  in  Note  7 to  the  Consolidated
          Financial  Statements,  include discount rate, expected return on plan
          assets,  rate of future compensation  increases,  and mortality rates.
          Actual  results  that  differ  from the  Company's  pension  actuarial
          assumptions  are  generally  accumulated  and  amortized  over  future
          periods and therefore,  generally affect the pension asset and pension
          credit in future  periods.  While the  Company  believes  its  pension
          actuarial  assumptions are  appropriate,  future material  differences
          between the Company's pension actuarial assumptions and actual results
          or significant changes in the Company's pension actuarial assumptions,
          could  result in a material  increase or decrease in the amount of the
          reported  pension  asset and  credit,  and  therefore  have a material
          impact on the Company's  reported  future  results of  operations.  In
          addition,  the plan could become  underfunded under applicable federal
          regulations,   which   would   require   the   Company  to  make  cash
          contributions to the plan.

     o    The  determination  of the Company's  obligation  and expense for OPEB
          benefits  is   dependent  on  the   selection  of  certain   actuarial
          assumptions  which attempt to  anticipate  future  events.  These OPEB
          actuarial  assumptions,  which  are  also  described  in Note 7 to the
          Consolidated  Financial  Statements,  include  discount rate,  rate of
          future  increases in healthcare  costs,  and mortality  rates.  Actual
          results that differ from the Company's OPEB actuarial assumptions are,
          in accordance  with GAAP,  generally  accumulated  and amortized  over
          future periods and therefore,  generally  affect OPEB  obligations and
          expense  in  future  periods.  While  the  Company  believes  its OPEB
          actuarial assumptions are appropriate,  future differences between the
          Company's OPEB actuarial assumptions and actual results or significant
          changes in the Company's OPEB actuarial  assumptions  could materially
          affect the reported amount of the Company's future OPEB obligation and
          expense,  and  therefore  have a  material  impact  on  the  Company's
          reported  future  results of operations.  In addition,  the amount the
          Company  ultimately  pays  for  future  cash  OPEB  benefits  could be
          materially  different  from  the  amounts  inherent  in the  actuarial
          assumptions.



<PAGE>


Accounting Principles Not Yet Adopted

     See Note 16 to the Consolidated Financial Statements.

Liquidity And Capital Resources

     At December  31,  2001,  Keystone  had  negative  working  capital of $31.0
million,  including  $.5  million of notes  payable and  current  maturities  of
long-term debt as well as outstanding  borrowings under the Company's  revolving
credit  facilities of $45.8 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.  At December 31, 2001,  unused  credit  available  for  borrowing  under
Keystone's $45 million revolving credit facility (the "Primary Revolver"), which
expires March 31, 2005,  EWP's $7 million  revolving  credit  facility (the "EWP
Revolver"),  which expires June 30, 2002 and Garden Zone's $4 million  revolving
credit  facility  ("the Garden Zone  Revolver"),  which expires July 2, 2002 (as
amended  in  April  2002)  were  $5.2   million,   $3.6  million  and  $240,000,
respectively. As a result of the events described in Note 15 to the Consolidated
Financial Statements,  as of April 9, 2002, unused credit availability under the
Primarily  Revolver  had  increased  to $22.5  million.  The  Company's  Primary
Revolver 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.  Accordingly,  any outstanding
balances under the Primary Revolver are always classified as a current liability
regardless of the maturity date of the facility.  Keystone  currently intends to
review or replace both the EWP Revolver and the Garden Zone  Revolver upon their
respective maturities in June 2002 and July 2002.

     As previously  reported,  the Company did not make the  scheduled  interest
payments  due August 1, 2001 and  February 1, 2002 on its $100 million of Senior
Secured Notes (the "Senior Notes"), and accordingly the Senior Notes and Primary
Revolver  were in  technical  default as of  December  31,  2001.  As more fully
described in Note 15 to the Consolidated Financial Statements,  the liquidity of
the Company was significantly improved during the first four months of 2002 as a
result of the following transactions:

     o    Holders of $93.9  million  principal  amount of the  Company's  Senior
          Notes agreed to exchange  their Senior Notes for various  combinations
          of cash  and new  debt  and  equity  securities  of the  Company,  all
          financial and other  restrictive  covenants  included in the indenture
          covering the  remaining  $6.1 million  principal  amount of the Senior
          Notes were  eliminated  and the  collateral  was released  (making the
          remaining Senior Notes unsecured),

     o    The  Company  obtained a new $10 million  interest-free  loan from the
          County of Peoria,  Illinois  with no principal  amortization  required
          prior to its 2007 maturity date,

     o    The Company  obtained a new $5 million  three-year  term loan from the
          same lender that provides the Company with its Primary Revolver,

     o    The maturity date of the Company's  Primarily Revolver was extended to
          March 31,  2005,  and the size of the  facility  was reduced  from $55
          million to $45 million, and

     o    Two of the Company's major vendors agreed to a five-year  non-interest
          bearing   repayment  of  their  past  due  balances  which   aggregate
          approximately $16.1 million.

     All past due  interest  amounts on the  remaining  $6.1  million  principal
amount of the Senior Notes (including approximately $24,000 of default interest)
was paid in March 2002, and the remaining  Senior Notes and Primary Revolver are
no longer in technical default.

     In addition,  a  wholly-owned  subsidiary of Contran has agreed to loan the
Company up to an aggregate of $6 million  under the terms of a revolving  credit
facility that matures on December 31, 2002.  Through April 2002, the Company has
not borrowed any amounts under such facility.

     During 2001, the Company's operating activities provided approximately $2.1
million  of cash,  compared  to $13.9  million  of cash  provided  by  operating
activities in 2000. Cash flow from operations decreased in 2001 compared to 2000
due primarily to a larger net loss and relative  changes in the levels of assets
and  liabilities  (primarily  accounts  receivable,   inventories  and  accounts
payable).

     During 2001,  Keystone  made capital  expenditures  of  approximately  $3.9
million primarily related to upgrades of production equipment at its facility in
Peoria,  Illinois,  as compared to $13.1 million in 2000. During 2001,  Keystone
deferred capital  expenditures,  including  maintenance  items, due to liquidity
constraints,  although  many of these  items  cannot be  deferred  indefinitely.
Capital  expenditures for 2002 are currently estimated to be approximately $11.4
million and are related primarily to upgrades of production equipment.  Keystone
currently anticipates these capital expenditures will be funded using cash flows
from operations  together with borrowing  availability  under Keystone's  credit
facilities.

     At December 31, 2001, the Company's financial  statements reflected accrued
liabilities  of  $15.6  million  for  estimated   remediation  costs  for  those
environmental matters which Keystone believes are reasonably estimable. 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.
Keystone  believes it is not possible to estimate the range of costs for certain
sites. The upper end of range of reasonably possible costs to Keystone for sites
for which the Company believes it is possible to estimate costs is approximately
$22.0 million.

     Keystone  does not  expect  to be  required  to make  contributions  to its
pension  plan during  2002.  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  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria.  At  December  31,  2001,  the Company  expects  that its
long-term  profitability should ultimately be sufficient to enable it to realize
full benefit of its future tax  deductions.  Although,  considering  all factors
believed to be relevant,  including the Company's recent operating results,  its
expected  future   near-term   productivity   rates;   cost  of  raw  materials,
electricity, labor and employee benefits, environmental remediation, and retiree
medical coverage; interest rates; product mix; sales volumes and selling prices;
financial  restructuring  efforts and the fact that accrued OPEB  expenses  will
become  deductible  over an  extended  period of time and require the Company to
generate  significant  amounts of future taxable income,  the Company believes a
portion  of  the  gross   deferred  tax  assets  may  not  currently   meet  the
"more-likely-than-not" realizability test. As such, during the fourth quarter of
2001,  the  Company  provided  a  deferred  tax  asset  valuation  allowance  of
approximately   $14.5   million.   The  Company  will  continue  to  review  the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
the Company  could change the  valuation  allowance  related to its deferred tax
assets in the future.  At December  31, 2001,  the Company has  recognized a net
deferred  tax asset of $21.6  million,  which  approximates  the tax expense for
financial  reporting purposes which will be recorded during the first quarter of
2002 related to the  cancellation  of  indebtedness  income  resulting  from the
events described in Note 15 to the Consolidated Financial Statements.

     Keystone  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. In addition to the financial
restructuring  related items discussed  previously,  planned reductions in fixed
costs and announced  increases in certain product  selling  prices,  Keystone is
taking additional action towards improving its liquidity. These actions include,
but are not  limited  to,  reducing  inventory  levels  through  more  efficient
production schedules and modifying coverages and participant contribution levels
of medical plans for both employees and retirees.  Keystone has also considered,
and may in the future  consider,  the sale of certain  divisions or subsidiaries
that are not necessary to achieve the Company's  long-term business  objectives.
However,  there can be no assurance  Keystone will be successful in any of these
or other efforts, or that if successful,  they will provide sufficient liquidity
for the Company's operations during the next year.

     Management  currently believes the cash flows from operations together with
funds available under the Company's credit facilities will be sufficient to fund
the anticipated needs of the Company's  operations and capital  improvements for
the year  ending  December  31,  2002.  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  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,
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 wire 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  12  and  14 to  the  Consolidated  Financial
Statements.

  Summary of debt and other contractual commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in the  future.  See Notes 4, 13 and 14 to the  Consolidated  Financial
Statements.  The following table summarizes such contractual commitments for the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment (as adjusted for the events
described in Note 15 to the Consolidated Financial Statements):

<TABLE>
<CAPTION>
                                    Unconditional payment due date
                                                              2007 and
Contractual commitment          2002   2003/2004  2005/2006    after      Total
----------------------          ----   ---------  ---------   -------     -----
                                                  (In thousands)

<S>                            <C>       <C>       <C>       <C>        <C>
Indebtedness ...............   $36,111   $ 4,208   $ 3,146   $ 57,638   $101,103

Operating leases ...........     1,899     1,831       175       --        3,905

Deferred vendor payment
 agreements ................     2,421     6,454     6,454        807     16,136

Product supply agreement ...     1,200     2,400     2,400      5,100     11,100
                               -------   -------   -------   --------   --------

                               $41,631   $14,893   $12,175   $ 63,545   $132,244
                               =======   =======   =======   ========   ========
</TABLE>

     Payments under the deferred  payment  agreements in the above table reflect
the minimum payments  required under the agreements.  Certain  provisions of the
agreements may require  acceleration  of the timing of the payments,  but not an
increase  in the total  amount to be paid.  Payments  under the  product  supply
agreement in the above table  reflect the minimum  payments  required  under the
agreement.  However,  it is probable the Company will make  additional  payments
under the agreement based on actual consumption.

     In addition,  the Company is party to an agreement that requires  quarterly
contributions  of $75,000 to an  environmental  trust fund.  Monies in the trust
fund will be made available to the Company when the related  environmental  site
is remediated  or when the trust fund has a minimum  excess of $2.0 million over
the related site's estimated remaining  remediation costs. At December 31, 2001,
estimated  remaining  remediation costs exceeded the amount in the environmental
trust fund.



<PAGE>


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, 2001,  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.

<TABLE>
<CAPTION>
                                                                                                      Estimated
                                                 Contracted Maturity Date                             Fair Value
                          --------------------   -------------------------------------------
                             2002     2003    2004     2005    2006     Thereafter     Total      December 31, 2001
                             ----     ----    ----     ----    ----     ----------     -----      -----------------
                                                               ($ In thousands)

Fixed-rate debt -
<S>                       <C>         <C>    <C>        <C>    <C>      <C>          <C>                 <C>
  Principal amount        $    73     $ 57   $ 66       $ -    $ -      $100,000     $100,196            $25,196

  Weighted-average
    interest rate             7.8%     6.9%   9.0%        - %    - %         9.6%        9.6%

Variable-rate debt-
  Principal amount        $ 46,259    $ -    $ -         $ $ -    $ -      $   -     $ 46,259             $46,259


  Weighted-average
    interest rate             5.4%      - %    - %        - %    - %           - %       5.4%
</TABLE>

     At December 31, 2000,  long-term  debt included  fixed-rate  debt of $100.7
million (fair value - $43.2  million) with a weighted  average  interest rate of
9.6% and $45.3 million  variable-rate debt which approximated fair value, with a
weighted-average interest rate of 9.8%.

     The table below  presents  principal  amounts and related  weighted-average
interest  rates by maturity date for Keystone's  long-term  debt  obligations at
December  31,  2001,  as  adjusted  for the events  described  in Note 15 to the
Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                  Contracted Maturity Date                              Fair Value
                          --------------------    -------------------------------------------
                             2002       2003      2004     2005    2006     Thereafter     Total     December 31, 2001
                             ----       ----      ----     ----    ----     ----------     -----     -----------------
                                                                ($ In thousands)
Fixed-rate debt -
<S>                       <C>         <C>       <C>        <C>     <C>      <C>          <C>                <C>
  Principal amount        $   469     $  849    $  858     $  792  $792     $57,638      $61,398            $61,398

  Weighted-average
    interest rate             1.2%        .5%       .6%      -  %    - %        2.1%         2.0%

Variable-rate debt-
  Principal amount        $35,642     $1,250    $1,250    $1,563   $ -      $  -         $39,705            $39,705

  Weighted-average
    interest rate             5.4%       5.5%      5.5%      5.5%    - %       -   %         5.4%
</TABLE>

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 9 to the
Consolidated Financial Statements.




<PAGE>


                                     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          Certificate of Designations, Rights and Preferences of the Series
               A 10%  Cumulative  Convertible  Pay-In-Kind  Preferred  Stock  of
               Registrant dated March 15, 2002.

  3.3          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          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).

  4.2          First  Supplemental  Indenture  Dated  as of  March  15,  2002 to
               Indenture Dated as of August 7, 1997 Between Registrant as Issuer
               and the Bank of New York, as Trustee.

  4.3          Second  Supplemental  Indenture  Dated  as of March  15,  2002 to
               Indenture Dated as of August 7, 1997 Between Registrant as Issuer
               and the Bank of New York, as Trustee.

  4.4          Amended and Restated  Revolving Loan And Security Agreement dated
               as  of  December  29,  1995  between  the  Company  and  Congress
               Financial  Corporation  (Central).  (Incorporated by reference to
               Exhibit 4.1 to Registrant's Form 10-K for the year ended December
               31, 1995).

  4.5          First  Amendment  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).

  4.6          Second  Amendment  to Amended  and  Restated  Revolving  Loan And
               Security  Agreement dated as of August 4, 1997 between Registrant
               and Congress Financial Corporation (Central).



<PAGE>


Exhibit No.                          Exhibit

  4.7          Third  Amendment  to  Amended  and  Restated  Revolving  Loan And
               Security  Agreement  dated as of May 14, 1999 between  Registrant
               and Congress Financial Corporation (Central).

  4.8          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).

  4.9          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).

 4.10          Sixth  Amendment  to  Amended  and  Restated  Revolving  Loan and
               Security   Agreement   dated  as  of  January  17,  2001  between
               Registrant and Congress Financial Corporation (Central).

 4.11          Seventh  Amendment  to Amended and  Restated  Revolving  Loan and
               Security   Agreement   dated  as  of  November  1,  2001  between
               Registrant and Congress Financial Corporation (Central).

 4.12          Eighth  Amendment  to Amended  and  Restated  Revolving  Loan and
               Security   Agreement  dated  as  of  December  31,  2001  between
               Registrant and Congress Financial Corporation (Central).

 4.13          Ninth  Amendment  to  Amended  and  Restated  Revolving  Loan and
               Security   Agreement   dated  as  of  January  31,  2002  between
               Registrant and Congress Financial Corporation (Central).

 4.14          Tenth  Amendment  to  Amended  and  Restated  Revolving  Loan and
               Security   Agreement  dated  as  of  February  28,  2002  between
               Registrant and Congress Financial Corporation (Central).

 4.15          Eleventh  Amendment  to Amended and Restated  Revolving  Loan and
               Security  Agreement dated as of March 15, 2002 between Registrant
               and Congress Financial Corporation (Central).

 4.16          Twelfth  Amendment  to Amended and  Restated  Revolving  Loan and
               Security  Agreement dated as of March 15, 2002 between Registrant
               and Congress Financial Corporation (Central).

 4.17          Loan Agreement dated as of March 13, 2002 between  Registrant and
               the County of Peoria, Illinois.

 4.18          Subordinate Security Agreement dated as of March 13, 2002 made by
               Registrant in favor of the County of Peoria, Illinois.

 4.19          Amended  and  Restated  EWP  Bridge  Loan  Agreement  dated as of
               November 21, 2001,  by and between  Registrant  and EWP Financial
               LLC.

 4.20          First Amendment to Amended and Restated EWP Bridge Loan Agreement
               dated as of March 18,  2002,  by and between  Registrant  and EWP
               Financial LLC.

 4.21          Stock Pledge  Agreement  dated as of November  21,  2001,  by and
               between Registrant and EWP Financial LLC.


<PAGE>


Exhibit No.                          Exhibit

 4.22          Form of Registrant's  6% Subordinated  Unsecured Note dated as of
               March 15, 2002.

 4.23          Form of  Registrant's  8%  Subordinated  Secured Note dated as of
               March 15, 2002.

 4.24          Indenture Dated as of March 15, 2002,  related to Registrant's 8%
               Subordinated Secured Notes Between Registrant as Issuer, and U.S.
               Bank National Association, as Trustee.

 10.1          Intercorporate  Services Agreement with Contran Corporation dated
               as of January 1, 2001.

 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).

 10.8          Account  Reconciliation  Agreement  dated  as of March  12,  2002
               between Registrant and Central Illinois Light Company.

 10.9          Account  Reconciliation  Agreement  dated  as of March  11,  2002
               between Registrant and PSC Metals, Inc.

 21            Subsidiaries of the Company.

 23.1          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, 2001.

     (b) No reports on Form 8-K were filed during the quarter ended December 31,
2001.

     *Management contract, compensatory plan or agreement.


<PAGE>


                                   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  April  15,  2002,  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 April 15,  2002 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/ DAVID L. CHEEK
------------------------------------         -----------------------------------
Thomas E. Barry                              David L. Cheek
Director                                     President and
                                             Chief Operating 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





<PAGE>

             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, 2000 and 2001                                             F-3

  Consolidated Statements of Operations -
   Years ended December 31, 1999, 2000 and 2001                           F-5

  Consolidated Statements of Stockholders' Equity (Deficit) -
   Years ended December 31, 1999, 2000 and 2001                           F-6

  Consolidated Statements of Cash Flows -
   Years ended December 31, 1999, 2000 and 2001                           F-7

  Notes to Consolidated Financial Statements                              F-9

Financial Statement Schedule

  Schedule II - Valuation and Qualifying Accounts                         S-1

     Schedules I, III and IV are omitted because they are not applicable.


<PAGE>





                        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, 2000 and 2001, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2001,  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.






PricewaterhouseCoopers LLP

Dallas, Texas
March 29, 2002



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 2001
                        (In thousands, except share data)


<TABLE>
<CAPTION>
              ASSETS                                       2000            2001
                                                          ------          ------

Current assets:
  Notes and accounts receivable, net of allowances
<S>                                                      <C>            <C>
    of $1,681 and $2,858 .........................       $ 21,813       $ 29,411
  Inventories ....................................         52,004         40,912
  Deferred income taxes ..........................         16,828          9,778
  Prepaid expenses and other .....................            786          3,211
                                                         --------       --------

      Total current assets .......................         91,431         83,312
                                                         --------       --------

Property, plant and equipment:
  Land, buildings and improvements ...............         55,297         55,520
  Machinery and equipment ........................        311,063        311,336
  Construction in progress .......................          1,335            700
                                                         --------       --------
                                                          367,695        367,556
  Less accumulated depreciation ..................        222,999        237,956
                                                         --------       --------

      Net property, plant and equipment ..........        144,696        129,600
                                                         --------       --------

Other assets:
  Restricted investments .........................          5,969          5,675
  Prepaid pension cost ...........................        126,506        131,985
  Deferred income taxes ..........................         10,696         11,844
  Deferred financing costs .......................          2,685          2,295
  Goodwill .......................................            877            752
  Other ..........................................          2,843          1,437
                                                         --------       --------

      Total other assets .........................        149,576        153,988
                                                         --------       --------

                                                         $385,703       $366,900
                                                         ========       ========
</TABLE>





<PAGE>


          See accompanying notes to consolidated financial statements.

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2000 and 2001
                        (In thousands, except share data)



<TABLE>
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                           2000           2001
                                                          ------         ------

Current liabilities:
  Notes payable and current maturities of
<S>                                                     <C>           <C>
    long-term debt .................................    $  45,728     $  46,332
  Accounts payable .................................       34,614        23,014
  Payables to affiliates ...........................         --             633
  Accrued OPEB cost ................................        8,767         7,215
  Other accrued liabilities ........................       41,565        37,100
                                                        ---------     ---------

      Total current liabilities ....................      130,674       114,294
                                                        ---------     ---------

Noncurrent liabilities:
  Long-term debt ...................................      100,280       100,123
  Accrued OPEB cost ................................       98,015       101,810
  Negative goodwill ................................       21,353        19,998
  Other ............................................        9,323        31,010
                                                        ---------     ---------

      Total noncurrent liabilities .................      228,971       252,941
                                                        ---------     ---------

Minority interest ..................................         --               1
                                                        ---------     ---------

Stockholders' equity (deficit):
  Common stock, $1 par value, 12,000,000 shares
    authorized; 10,063,103 shares issued at
    stated value ...................................       10,792        10,792
  Additional paid-in capital .......................       53,071        53,071
  Accumulated deficit ..............................      (37,793)      (64,187)
  Treasury stock - 1,134 shares, at cost ...........          (12)          (12)
                                                        ---------     ---------

      Total stockholders' equity (deficit) .........       26,058          (336)
                                                        ---------     ---------

                                                        $ 385,703     $ 366,900
                                                        =========     =========
</TABLE>



Commitments and contingencies (Notes 12, 13 and 14).



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 2000 and 2001
                      (In thousands, except per share data)



<TABLE>
<CAPTION>
                                                 1999           2000        2001
                                                ------        --------     ------

Revenues and other income:
<S>                                           <C>          <C>          <C>
  Net sales ...............................   $ 355,688    $ 338,321    $ 308,670
  Interest ................................         452          599          253
  Other, net ..............................         463          183          565
                                              ---------    ---------    ---------

                                                356,603      339,103      309,488
                                              ---------    ---------    ---------

Costs and expenses:
  Cost of goods sold ......................     332,644      331,167      295,339
  Selling .................................       6,845        6,737        6,378
  General and administrative ..............      20,850       18,388       19,070
  Overfunded defined benefit pension credit      (5,610)        (380)      (5,479)
  Interest ................................      14,058       15,346       14,575
                                              ---------    ---------    ---------

                                                368,787      371,258      329,883
                                              ---------    ---------    ---------

                                                (12,184)     (32,155)     (20,395)
    Equity in losses of Alter Recycling
      Company L.L.C .......................         (54)        (281)        --
                                              ---------    ---------    ---------

      Loss before income taxes ............     (12,238)     (32,436)     (20,395)

Provision for income taxes (benefit) ......      (4,754)     (11,370)       5,998

Minority interest in after-tax earnings ...        --           --              1
                                              ---------    ---------    ---------

      Net loss ............................   $  (7,484)   $ (21,066)   $ (26,394)
                                              =========    =========    =========


Basic and diluted net loss per share ......   $    (.75)   $   (2.10)   $   (2.62)
                                              =========    =========    =========

Basic and diluted weighted average common
 and common equivalent shares outstanding .       9,904       10,039       10,062
                                              =========    =========    =========
</TABLE>




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                  Years ended December 31, 1999, 2000 and 2001
                                 (In thousands)




<TABLE>
<CAPTION>
                                                Additional
                               Common stock       paid-in  Accumulated Treasury
                              Shares   Amount     capital   (deficit)    stock    Total

<S>                            <C>     <C>       <C>       <C>         <C>     <C>
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

Net loss ..................     --        --        --      (26,394)    --      (26,394)
                              ------   -------   -------   --------    ----    --------

Balance - December 31, 2001   10,062   $10,792   $53,071   $(64,187)   $(12)   $   (336)
                              ======   =======   =======   ========    ====    ========
</TABLE>




<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1999, 2000 and 2001
                                 (In thousands)


<TABLE>
<CAPTION>
                                                 1999        2000         2001
                                                -------     -------      ------

Cash flows from operating activities:
<S>                                            <C>         <C>         <C>
  Net loss .................................   $ (7,484)   $(21,066)   $(26,394)
  Depreciation and amortization ............     21,051      17,224      16,992
  Amortization of deferred financing costs .        519         479         540
  Deferred income taxes ....................     (3,363)    (11,229)      5,902
  Other, net ...............................     (3,089)     (1,883)      3,780
  Change in assets and liabilities:
    Notes and accounts receivable ..........      4,323      11,605      (8,310)
    Inventories ............................    (14,685)     14,080      10,354
    Prepaid pension cost ...................     (5,610)       (380)     (5,479)
    Accounts payable .......................     (1,923)      3,855     (10,616)
    Other, net .............................     11,312       1,236      15,329
                                               --------    --------    --------

      Net cash provided by operating
        activities .........................      1,051      13,921       2,098
                                               --------    --------    --------

Cash flows from investing activities:
  Capital expenditures .....................    (16,873)    (13,052)     (3,889)
  Proceeds from sale of business unit ......       --          --           757
  Other, net ...............................        729         (20)        587
                                               --------    --------    --------

      Net cash used by investing activities     (16,144)    (13,072)     (2,545)
                                               --------    --------    --------

Cash flows from financing activities:
  Revolving credit facilities, net .........   $ 15,437    $    777    $    992
  Other notes payable and long-term debt:
    Additions ..............................      1,125          26          56
    Principal payments .....................     (1,469)     (1,652)       (601)
                                               --------    --------    --------

    Net cash provided (used) by financing
       activities ..........................     15,093        (849)        447
                                               --------    --------    --------
</TABLE>






<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 2000 and 2001
                                 (In thousands)


<TABLE>
<CAPTION>
                                                  1999        2000        2001
                                                -------      -------     ------

Cash and cash equivalents:
  Net change from operations, investing
<S>                                             <C>         <C>         <C>
   and financing activities .................       --          --         --

  Balance at beginning of year ..............       --          --         --
                                                --------    --------    -------

  Balance at end of year ....................   $   --      $   --      $  --
                                                ========    ========    =======


Supplemental disclosures:
  Cash paid for:
    Interest, net of amounts capitalized ....   $ 13,887    $ 14,867    $ 9,189
    Income taxes paid (refund), net .........     (3,575)       (807)      (194)

  Common stock contributed to employee
    Benefit plan ............................   $    722    $    809    $  --
</TABLE>






<PAGE>


                     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 majority-owned
subsidiaries.   All  material  intercompany  accounts  and  balances  have  been
eliminated.  Certain prior year amounts have been  reclassified  to conform with
the 2001 presentation.

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States of America ("GAAP") 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.  Actual results may differ from previously
estimated amounts under different assumptions or conditions.

     Primarily as a result of a $54.7 million  pre-tax  extraordinary  gain from
cancellation of  indebtedness  (See Note 15),  management  expects to report net
income for the year ending December 31, 2002. Keystone management also currently
expects to report positive cash flow from  operations  during 2002. In addition,
as a result of the events discussed in Note 15, Keystone's  management  believes
the  Company's  liquidity  in 2002  will be  substantially  improved  over  that
experienced  in 2001.  As such,  Keystone's  management  believes its  available
credit facilities 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, 2002.  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 1999 and 2001 were 52-week  years,  and
2000 was a 53 week year.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership  have passed to the customer.  In general,  sales
from Keystone's  steel and wire products  segment include prepaid freight to the
customer  with the resulting  freight cost  absorbed by the Company.  Keystone's
reported  sales in 1999,  2000 and 2001 are stated net of shipping  and handling
costs of $20.6  million,  $19.9  million  and $19.2  million,  respectively.  In
general, sales from Keystone's lawn and garden products segment are also shipped
freight prepaid to the customer with the resulting  freight cost absorbed by the
Company.  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,
$169,000 and $208,000 in 1999, 2000 and 2001, respectively.  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.

     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 75% and 74% of the inventories held at December 31, 2000 and 2001,
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 1999, 2000 and 2001 amounted to
$50,000,  $124,000  and  $17,000  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 for financial reporting purposes 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.
Accelerated depreciation methods are used for income tax purposes, as permitted.
Depreciation expense amounted to $21,741,000, $18,252,000 and $18,184,000 during
the years ended December 31, 1999, 2000 and 2001, respectively. Upon the sale or
retirement  of an asset,  the  related  cost and  accumulated  depreciation  are
removed  from  the  accounts  and  any  gain or loss  is  recognized  in  income
currently.

     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. See Note 16.

     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 probable  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, 2000 and 2001  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 $.5
million in 1999, $.9 million in 2000 and $.6 million in 2001.

     Loss per share. Basic and diluted loss per share is based upon the weighted
average  number of common  shares  actually  outstanding  during each year.  The
impact of  outstanding  stock  options was  antidilutive.  The weighted  average
number of shares of  outstanding  stock  options  which were  excluded  from the
calculation  of diluted  earnings per share because their impact would have been
antidilutive  approximated 725,000,  795,000 and 651,000 in 1999, 2000 and 2001,
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
$1,962,000 and $2,501,000 at December 31, 2000 and 2001, respectively.

     Goodwill. Goodwill,  representing the excess of cost over the fair value of
the net assets of Engineered Wire Products, Inc., ("EWP") acquired in a business
combination  accounted  for  by  the  purchase  method,  was  amortized  by  the
straight-line  method over 10 years through  December 31, 2001 and is stated net
of accumulated  amortization of approximately  $352,000 at December 31, 2000 and
$477,000 at December 31, 2001.  Amortization of goodwill amounted to $113,000 in
1999,  and  $125,000  in each of 2000 and 2001.  Upon  adoption of SFAS No. 142,
effective  January 1,  2002,  goodwill  will no longer be  subject  to  periodic
amortization. See Note 16.

     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,  was amortized by the  straight-line  method over 20
years through  December 31, 2001, and is stated net of accumulated  amortization
of  approximately  $5,762,000  and  $7,118,000  at  December  31, 2000 and 2001,
respectively.  Amortization of negative  goodwill in each of 1999, 2000 and 2001
amounted to  $1,356,000.  Upon  adoption of SFAS No. 142,  effective  January 1,
2002,  negative  goodwill will be eliminated as a cumulative effect of change in
accounting principle. See Note 16.

     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.

     Business interruption insurance recoveries. Business interruption insurance
recoveries  related to production outages due primarily to equipment failures or
malfunctions  are recorded as a reduction of cost of good sold when the recovery
is  received.  During  1999,  2000  and 2001  Keystone  received  such  business
interruption  insurance  recoveries of approximately $1.6 million,  $300,000 and
$1.8 million, respectively.

     Derivative activities.  Effective January 1, 2001, the Company adopted SFAS
No. 133,  Accounting  for  Derivative  Instruments  and Hedging  Activities,  as
amended.  Under SFAS No. 133, all derivatives are 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 are recognized  either in net income or other  comprehensive  income. As
permitted by the transition  requirements of SFAS No. 133, as amended,  Keystone
has  exempted  from  the  scope of SFAS No.  133 all host  contracts  containing
embedded  derivatives  which were  acquired or issued  prior to January 1, 1999.
Keystone  is not a party to any  significant  derivative  or hedging  instrument
covered by SFAS No. 133 and therefore the Company's  financial  statements  were
not impacted by adopting SFAS No. 133.

     Business combinations.  Effective July 1, 2001 the Company adopted SFAS No.
141, Business Combinations,  for all business combinations initiated on or after
July 1, 2001, and all purchase business combinations  completed on or after July
1, 2001.  Under SFAS No. 141,  all business  combinations  initiated on or after
July  1,  2001  will  be  accounted  for  by  the  purchase   method,   and  the
pooling-of-interests method is prohibited.

Note 2 - 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  since that date, 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, 2000 and 2001, 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 and
2001,   Keystone   purchased   approximately  $7.2  million  and  $6.0  million,
respectively of scrap from ARC. At December 31, 2000 and 2001, ARC owed Keystone
approximately  $818,000 and $1.0 million  respectively,  primarily for the scrap
inventory  purchased  by ARC from  Keystone at  formation,  and such amounts are
included in notes and accounts receivable. However, during the fourth quarter of
2001,  Keystone  recorded a $1.0 million  charge to provide an allowance for the
full  amount of the net  receivable  from ARC.  Such  allowance  is  included in
allowance  for notes and  accounts  receivable  on the December 31, 2001 balance
sheet. At December 31, 2000, Keystone owed ARC approximately  $171,000 primarily
for scrap purchases by Keystone from ARC.

                                       2
<PAGE>

Note 3 - Inventories

<TABLE>
<CAPTION>
                                                                December 31,
                                                             2000          2001
                                                             ----          ----
                                                               (In thousands)
Steel and wire products:
<S>                                                         <C>          <C>
  Raw materials ......................................      $11,101      $ 9,818
  Work in process ....................................        9,492        9,912
  Finished products ..................................       23,954       16,132
  Supplies ...........................................       15,520       13,446
                                                            -------      -------
                                                             60,067       49,308
  Less LIFO reserve ..................................       11,083       10,768
                                                            -------      -------
                                                             48,984       38,540

Lawn and garden products - finished products .........        3,020        2,372
                                                            -------      -------

                                                            $52,004      $40,912
                                                            =======      =======
</TABLE>

Note 4 - Notes payable and long-term debt

<TABLE>
<CAPTION>
                                                               December 31,
                                                         2000             2001
                                                         ----             ----
                                                             (In thousands)

9 5/8% Senior Secured Notes,
<S>         <C>                                        <C>              <C>
 due August 2007 .............................         $100,000         $100,000
Commercial credit agreements:
  Revolving credit facilities:
    Keystone .................................           37,772           40,823
    EWP ......................................            4,203            3,225
    Garden Zone ..............................            2,819            1,738
  Term loan - EWP ............................              164             --
Other ........................................            1,050              669
                                                       --------         --------
                                                        146,008          146,455
  Less current maturities ....................           45,728           46,332
                                                       --------         --------

                                                       $100,280         $100,123
</TABLE>

     The Company did not make the scheduled interest payments due August 1, 2001
and February 1, 2002 on its Senior Notes,  and  accordingly the Senior Notes and
the Company's primary  revolving credit facility ("the Keystone  Revolver") were
in technical  default as of December 31, 2001. During the first quarter of 2002,
$93.9 million  principal  amount of the Senior Notes and the related accrued and
unpaid  interest were retired in exchange for various  combinations  of cash and
new debt and equity securities of the Company, and all past due interest amounts
on the remaining $6.1 million  principal  amount of the Senior Notes  (including
approximately  $24,000 of default  interest)  were paid. See Note 15. After such
exchanges and payment of accrued  interest,  the remaining  Senior Notes and the
Keystone Revolver are no longer in technical  default.  Accordingly,  the Senior
Notes and a portion of the related accrued interest as of December 31, 2001 have
been  classified as noncurrent  liabilities.  A portion of the accrued  interest
related to the Senior  Notes as of December  31, 2001 has been  classified  as a
current  liability  at such date to the extent that such  accrued  interest  was
subsequently  paid or is expected to be paid during 2002, either under the terms
of the existing Senior Notes (for those Senior Notes which remain  outstanding),
or as part of the  consideration  received by the Senior note holders (for those
Senior Notes which were exchanged, in part, for cash). See Note 8.

     The Keystone  Revolver,  as amended in April 2002,  provides for  revolving
borrowings of up to $45 million based upon  formula-determined  amounts of trade
receivables and inventories.  Borrowings bear interest, at the Company's option,
at prime rate plus .5% or LIBOR plus 2.5%,  mature no later than March, 2005 and
are   collateralized   by  certain  of  the  Company's  trade   receivables  and
inventories.  In addition,  the Keystone Revolver is  cross-collateralized  with
junior liens on certain of the  Company's  property,  plant and  equipment.  The
effective  interest rate on outstanding  borrowings under the Keystone  Revolver
was 10.0% and 5.5% at December 31, 2000 and 2001, respectively.  At December 31,
2001, $1.2 million of letters of credit were  outstanding,  and $3.0 million was
available for  additional  borrowings  based upon April 2002 amended size of the
facility.  The Keystone  Revolver requires the Company's daily net cash receipts
to be used to reduce the  outstanding  borrowings,  which results in the Company
maintaining zero cash balances so long as there is an outstanding  balance under
the Keystone Revolver.  Accordingly, any outstanding balances under the Keystone
Revolver  are  always  classified  as a  current  liability,  regardless  of the
maturity  date of the  facility.  The  Keystone  Revolver  contains  restrictive
covenants, including certain minimum working capital and net worth requirements,
maintenance of financial  ratios  requirements  and other  customary  provisions
relative to payment of dividends on Keystone's common stock and on the Company's
new 10% Pay-In-Kind Preferred Stock (See Note 15).

     EWP's $7 million revolving credit facility (the "EWP Revolver")  expires in
June 2002.  Borrowings  under the EWP Revolver bear interest at either the prime
rate or  LIBOR  plus  2.25%  (8.7%  and 4.2% at  December  31,  2000  and  2001,
respectively).  At December 31, 2001,  $3.6 million was available for additional
borrowings under the EWP revolver.  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.  Keystone currently
intends to renew or replace the EWP Revolver upon its maturity in June 2002.

     Garden Zone has a $4.0 million  revolving credit facility (the "Garden Zone
Revolver")  which,  as amended in April 2002,  matures on July 2, 2002 and bears
interest  at the LIBOR rate plus  2.4%.  During  2000 and 2001 the  Garden  Zone
Revolver  bore interest at the LIBOR rate plus 2% (8.7% and 4.6% at December 31,
2000 and 2001, respectively).  Garden Zone's accounts receivable and inventories
collateralize  the Garden Zone  Revolver.  At December 31,  2001,  approximately
$240,000 was available for additional borrowings under the Garden Zone Revolver.
Keystone has guaranteed 51% of the outstanding  borrowings under the Garden Zone
revolver.  The  Company  currently  intends to renew or replace  the Garden Zone
Revolver upon its maturity in July 2002.

     At December  31,  2000 and 2001,  other notes  payable and  long-term  debt
included  $474,000  advanced  to  Garden  Zone by one of its other  owners.  The
advance bears  interest at the prime rate.  Interest paid on this advance during
1999,  2000 and 2001  amounted to  approximately  $33,000,  $64,000 and $34,000,
respectively.  Aggregate future  maturities of other notes payable and long-term
debt at December  31, 2001  amounted to  $546,000,  $57,000 and $66,000 in 2002,
2003 and 2004, 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,
2000 and management's estimate of fair value at December 31, 2001,  approximated
$42.5  million  and $25.0  million,  respectively.  The book  value of all other
indebtedness is deemed to approximate market value.

Note 5 - Income taxes

     At December 31, 2001, the Company expects that its long-term  profitability
should  ultimately  be  sufficient  to enable it to realize  full benefit of its
future tax attributes. However, considering all factors believed to be relevant,
including the Company's recent operating results,  its expected future near-term
productivity  rates;  cost of raw  materials,  electricity,  labor and  employee
benefits,  environmental  remediation,  and retiree medical  coverage;  interest
rates;  product mix; sales volumes and selling prices;  financial  restructuring
efforts and the fact that accrued OPEB expenses will become  deductible  over an
extended period of time and require the Company to generate  significant amounts
of future taxable income,  the Company  believes a portion of the gross deferred
tax assets may not currently meet the "more-likely-than-not" realizability test.
As such,  during the fourth quarter of 2001, the Company provided a deferred tax
asset  valuation  allowance of  approximately  $14.5 million.  The resulting net
deferred  tax  asset  of  approximately  $21.6  million  at  December  31,  2001
approximates  the tax expense for  financial  reporting  purposes  which will be
recorded  during  the first  quarter  of 2002  related  to the  cancellation  of
indebtedness income resulting from the events described in Note 15.

     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.

<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                                    1999       2000          2001
                                                    ----       ----          ----
                                                           (In thousands)

<S>                                              <C>         <C>         <C>
Expected tax benefit, at statutory rate ......   $ (4,283)   $(11,353)   $ (7,138)
U.S. state income taxes (benefit), net .......       (157)        157        (399)
Amortization of goodwill and negative goodwill       (435)       (431)       (431)
Deferred tax asset valuation allowance .......       --          --        14,510
Other, net ...................................        121         257        (544)
                                                 --------    --------    --------

Provision (benefit) for income taxes .........   $ (4,754)   $(11,370)   $  5,998
                                                 ========    ========    ========

Provision (benefit) for income taxes:
  Currently payable (refundable):
    U.S. federal .............................   $   (930)   $   (278)   $    (37)
    U.S. state ...............................       (461)        137         133
                                                 --------    --------    --------

      Net currently payable (refundable) .....     (1,391)       (141)         96
  Deferred income taxes, net .................     (3,363)    (11,229)      5,902
                                                 --------    --------    --------

                                                 $ (4,754)   $(11,370)   $  5,998
                                                 ========    ========    ========
</TABLE>



<PAGE>


     At  December  31,  2001,   Keystone  had  approximately   $6.3  million  of
alternative minimum tax credit carryforwards which have no expiration date.

     At December 31, 2001,  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, 2001
Keystone has other net  operating  loss  carryforwards  of  approximately  $64.7
million  which  expire  in 2019  through  2021,  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.

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                        ----------------------
                                                                  2000                  2001
                                                          ---------------------------------------------
                                                          Assets   Liabilities    Assets    Liabilities
                                                                       (In thousands)

Tax effect of temporary differences relating to:
<S>                                                     <C>         <C>         <C>         <C>
  Inventories .......................................   $  2,639    $   --      $  2,453    $   --
  Property and equipment ............................       --        (5,738)       --        (5,513)
  Prepaid pension ...................................       --       (49,337)       --       (51,474)
  Accrued OPEB cost .................................     41,633        --        42,507
  Accrued liabilities and other deductible
   Differences ......................................     14,811        --        14,130        --
  Other taxable differences .........................       --        (6,298)       --        (6,260)
  Net operating loss carryforwards ..................     23,554        --        34,029        --
  Alternative minimum tax credit carryforwards ......      6,260        --         6,260        --
  Deferred tax asset valuation allowance ............       --          --       (14,510)       --
                                                        --------    --------    --------    --------

    Gross deferred tax assets .......................     88,897     (61,373)     84,869     (63,247)
Reclassification, principally netting by tax
 jurisdiction .......................................    (61,373)     61,373     (63,247)     63,247
                                                        --------    --------    --------    --------

    Net deferred tax asset ..........................     27,524        --        21,622        --
Less current deferred tax asset, net of pro rata
 allocation of deferred tax asset valuation allowance     16,828        --         9,778        --
                                                        --------    --------    --------    --------

    Noncurrent net deferred tax asset ...............   $ 10,696    $   --      $ 11,844    $   --
                                                        ========    ========    ========    ========
</TABLE>

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, 2001,  there
were 432,000 options outstanding under this plan.

     During 1997,  the Company  granted all remaining  options  available  under
Keystone's  1992 Option Plan. At December 31, 2001,  there were 206,300  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,
2001, there were 3,000 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.



<PAGE>




<TABLE>
<CAPTION>
                                                                              Price per           Amount payable
                                                            Options            share              upon exercise

<S>                                                           <C>          <C>    <C>                 <C>
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

  Canceled                                                   (101,766)      5.13 - 13.94                (863,624)
                                                             --------      -------------             -----------

Outstanding at December 31, 2001                              656,300      $4.25 -$13.94             $ 5,453,506
                                                             ========      =============             ===========
</TABLE>

     The following table  summarizes  weighted average  information  about fixed
stock options outstanding at December 31, 2001.

<TABLE>
<CAPTION>
                                          Outstanding                                      Exercisable
                                                 Weighted Average                                 Weighted Average
       Range of                           Remaining                                        Remaining
       Exercise                          Contractual        Exercise                      Contractual        Exercise
        Prices             Options          Life              Price        Options           Life              Price
      ----------           -------       -----------        --------       -------        -----------        -------

<C>    <C>               <C>                <C>               <C>         <C>                <C>              <C>
$ 4.25-$ 5.50            114,500            8.2 years         $ 5.24      37,785             8.2 years        $ 5.24
$ 7.63-$10.25            506,800            5.7 years         $ 8.65     428,425             5.4 years        $ 8.56
$12.86-$13.94             35,000            3.5 years         $13.48      35,000             3.5 years        $13.48
                         -------                                         -------
                         656,300            6.0 years         $ 8.31     501,210             5.5 years        $ 8.65
                         =======                                         =======
</TABLE>

     At December 31, 2001,  options to purchase  501,210 shares were exercisable
(none at prices lower than the December 31, 2001 quoted market price of $.65 per
share) and  options  to  purchase  an  additional  117,305  shares  will  become
exercisable  in 2002.  At December 31, 2001,  an aggregate of 68,000 shares were
available for future grants under the 1997 Plan.

     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 2001.


<PAGE>





<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                                            1999            2000
                                                            ----            ----

<S>                                                          <C>           <C>
Risk-free interest rate .........................            5.5%          6.66%
Dividend yield ..................................           --             --
Volatility factor ...............................             43%            45%
Weighted average expected life ..................          10 years       10 years
</TABLE>

     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 loss and basic and  diluted  net loss per  common  share  were as
follows:

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,

                                                                             1999           2000            2001
                                                                             ----           ----            ----
                                                                                  (In thousands except per
                                                                                        share amounts)

<S>                                                                     <C>             <C>            <C>
Net loss  -  as reported                                                $(7,484)        $(21,066)      $(26,394)
Net loss  -  pro forma                                                  $(8,228)        $(21,639)      $(26,892)
Basic and diluted net loss per share
 - as reported                                                          $  (.75)        $  (2.10)      $  (2.62)
Basic and diluted net loss per share
 - pro forma                                                            $  (.83)        $  (2.16)      $  (2.67)
Weighted average fair value per share of
  options granted during the year                                       $  5.66         $   3.52       $   -
</TABLE>



<PAGE>


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, 2000 and
2001:

<TABLE>
<CAPTION>
                                                Pension Benefits            Other Benefits
                                                -----------------         -----------------
                                                2000         2001         2000         2001
                                                ----         ----         ----         ----
                                                             (In thousands)

Change in benefit obligation:
<S>                                          <C>          <C>          <C>          <C>
  Benefit obligation at beginning of year    $ 298,130    $ 308,494    $ 101,523    $ 106,703
  Service cost ...........................       2,915        2,954        1,623        1,506
  Interest cost ..........................      21,333       21,419        7,427        9,739
  Plan participants' contributions .......        --           --            587          933
  Actuarial loss .........................       4,765        6,702        6,357       44,146
  Termination benefits for early
   retirement window .....................       4,367         --           --           --
  Benefits paid ..........................     (23,016)     (25,463)     (10,814)     (10,729)
                                             ---------    ---------    ---------    ---------
  Benefit obligation at end of year ......     308,494      314,106      106,703      152,298
                                             ---------    ---------    ---------    ---------

Change in plan assets:
  Fair value of plan assets at beginning
    of year ..............................     336,673      343,501         --           --
  Actual return on plan assets ...........      29,844       14,952         --           --
  Company contributions ..................        --           --         10,227        9,796
  Plan participants' contributions .......        --           --            587          933
  Benefits paid ..........................     (23,016)     (25,463)     (10,814)     (10,729)
                                             ---------    ---------    ---------    ---------

  Fair value of plan assets at end of year     343,501      332,990         --           --
                                             ---------    ---------    ---------    ---------

Funded status ............................      35,007       18,884     (106,703)    (152,298)
Unrecognized net loss ....................      77,883      100,367        3,100       46,109
Unrecognized prior service cost (credit) .      13,616       12,734       (3,179)      (2,836)
                                             ---------    ---------    ---------    ---------

Prepaid (accrued) benefit cost ...........     126,506      131,985     (106,782)    (109,025)

Less current portion .....................        --           --         (8,767)      (7,215)
                                             ---------    ---------    ---------    ---------

Noncurrent portion .......................   $ 126,506    $ 131,985    $ (98,015)   $(101,810)
                                             =========    =========    =========    =========
</TABLE>

     The  assumptions   used  in  the  measurement  of  the  Company's   benefit
obligations at December 31, are shown in the following table:

<TABLE>
<CAPTION>
                                        Pension Benefits         Other Benefits
                                     ---------------------    -------------------
                                     1999    2000     2001    1999   2000    2001
                                     ----    ----     ----    ----   ----    ----

<S>                                   <C>    <C>       <C>     <C>   <C>      <C>
Discount rate ...................     7.5%   7.25%     7.0%    7.5%  7.25%    7.0%
Expected return on plan assets ..    10.0%   10.0%    10.0%   --     --      --
Rate of compensation increase ...     3.0%    3.0%     3.0%   --     --      --
</TABLE>




<PAGE>


     The following  table provides the  components of net periodic  benefit cost
for the plans for the years ended December 31,:

<TABLE>
<CAPTION>
                                               Pension Benefits                   Other Benefits
                                        ---------------------------        ---------------------------
                                        1999        2000       2001        1999       2000        2001
                                        ----        ----       ----        ----       ----        ----
                                                                 (In thousands)

<S>                                  <C>         <C>         <C>         <C>        <C>        <C>
Service cost .....................   $  3,074    $  2,915    $  2,954    $ 1,986    $ 1,623    $  1,506
Interest cost ....................     21,008      21,333      21,419      7,030      7,427       9,739
Expected return on plan assets ...    (34,219)    (32,544)    (33,142)      --         --          --
Amortization of unrecognized:
  Net obligation as of
    January 1, 1987 ..............      1,810       1,199        --         --         --
  Prior service cost .............        511         882         882       (343)      (343)       (343)
  Net loss .......................      2,206       2,112       2,408       --         --         1,137
                                     --------    --------    --------    -------    -------    --------

Net periodic benefit cost (credit)     (5,610)     (4,103)     (5,479)   $ 8,673    $ 8,707    $ 12,039
                                     ========     ========   ========    =======    =======    ========
Termination benefits for early
  retirement window                      -          3,723        -
                                     --------     --------   -------

Total pension cost (credit)          $ (5,610)     $ (380)  $ (5,479)
                                     ========    ========   ========
</TABLE>

     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.

     During the fourth  quarter of 2001,  based on an actuarial  valuation,  the
Company recorded an increase in 2001 OPEB expense and liability of approximately
$2.9 million resulting in OPEB expense for the year 2001 of approximately  $12.0
million.  The  Company  had  previously  estimated  OPEB  expense for 2001 would
approximate $9.1 million.

     At December 31,  2001,  substantially  all 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, 2001 were invested in investment partnerships,
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 9% annual rate of increase in the per capita
cost of covered  health care benefits was assumed for 2001. The rate was assumed
to decrease gradually to 5% in 2005 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:

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                   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
<S>                                                     <C>            <C>
  December 31, 2001 ............................        $ 2,370        $ (1,949)

Effect on postretirement benefit
  obligation at December 31, 2001 ..............        $31,343        $(25,956)
</TABLE>

     The Company also  maintains  several  defined  contribution  pension plans.
Expense  related to these plans was $2.9  million in 1999,  $2.8 million in 2000
and $1.6 million in 2001.

Note 8 - Other accrued liabilities

<TABLE>
<CAPTION>
                                                               December 31,
                                                           2000            2001
                                                           ----            ----

Current:
<S>                                                       <C>            <C>
  Employee benefits ..............................        $12,137        $11,168
  Self insurance .................................          7,993          8,906
  Environmental ..................................          8,398          8,068
  Deferred vendor payments .......................           --            2,488
  Interest .......................................          4,160          1,287
  Legal and professional .........................            836            887
  Disposition of former facilities ...............            384            530
  Unearned revenue ...............................          3,008              6
  Other ..........................................          4,649          3,760
                                                          -------        -------

                                                          $41,565        $37,100
                                                          =======        =======
Noncurrent:
  Deferred vendor payments .......................        $  --          $13,648
  Interest .......................................           --            7,735
  Environmental ..................................          8,395          7,508
  Workers compensation payments ..................            593          1,762
  Other ..........................................            335            357
                                                          -------        -------

                                                          $ 9,323        $31,010
                                                          =======        =======
</TABLE>

     Noncurrent accrued interest is discussed in Note 15.

     As further  discussed in Note 15,  during March 2002,  the Company  entered
into  agreements  with certain  vendors whereby the Company agreed that it would
repay the vendors  approximately  $16.1  million owed to the vendors at December
31, 2001,  over a five-year  period with no interest.  Accordingly,  the Company
reclassified this amount from accounts payable to current and noncurrent accrued
liabilities.

Note 9 - Related party transactions

     The Company 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 (a) intercorporate  transactions such as guarantees,
management and expense  sharing  arrangements,  shared fee  arrangements,  joint
ventures,  partnerships,  loans, options, advances of funds on open account, and
sales,  leases and  exchanges  of assets,  including  securities  issued by both
related  and  unrelated  parties,  and (b)  common  investment  and  acquisition
strategies,   business   combinations,    reorganizations,    recapitalizations,
securities  repurchases,  and  purchases and sales (and other  acquisitions  and
dispositions)  of  subsidiaries,   divisions  or  other  business  units,  which
transactions  have involved both related and unrelated parties and have included
transactions  which  resulted  in the  acquisition  by one  related  party  of a
publicly-held  minority equity  interest in another  related party.  The Company
continuously considers,  reviews and evaluates, and understands that Contran and
related entities consider, review and evaluate such transactions. Depending upon
the business,  tax and other  objectives then relevant,  it is possible that the
Company might be a party to one or more such transactions in the future.

     It is the policy of the  Company  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.

     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  $66,000 in 1999,  $87,000 in 2000 and  $52,000 in
2001.

     Under the terms of an  intercorporate  services  agreement  ("ISA") entered
into between the Company and Contran,  employees of Contran will provide certain
management,  tax planning,  financial and administrative services to the Company
on a fee basis. Such charges are based upon estimates of the time devoted by the
employees of Contran to the affairs of the Company, and the compensation of such
persons.  Because of the large number of companies  affiliated with Contran, the
Company  believes it benefits from cost savings and economies of scale gained by
not having certain management, financial and administrative staffs duplicated at
each entity,  thus allowing certain  individuals to provide services to multiple
companies but only be compensated  by one entity.  The ISA agreement is reviewed
and approved by the  applicable  independent  directors of the Company.  The ISA
fees  charged by Contran to the  Company  aggregated  approximately  $656,000 in
1999, $750,000 in 2000 and $1,005,000 in 2001. At December 31, 2001, the Company
owed Contran  approximately  $633,000,  primarily  for ISA fees.  Such amount is
included in payables to affiliates on the Company's  balance sheet. In addition,
Keystone  purchased  certain  aircraft  services  from  Valhi in the  amount  of
$175,000 in 1999, $111,000 in 2000 and $124,000 in 2001.

     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 1999, 2000 and
2001, the Company and it  subsidiaries  paid  approximately  $2.7 million,  $2.0
million and $2.2  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 2002.

     Dallas  Compressor  Company,  a  wholly-owned  subsidiary  of Contran sells
compressors  and  related  services  to  Keystone.  During  1999,  2000 and 2001
Keystone  purchased  products and services from Dallas Compressor Company in the
amount of $170,000, $67,000 and $31,000, respectively.

     During  2001,  Garden Zone paid  approximately  $60,000 to one of its other
owners for accounting and financial services.

     EWP  Financial,  LLC, a wholly-owned  subsidiary of Contran,  has agreed to
loan the Company up to an  aggregate  of $6 million  through  December 31, 2002.
Borrowings  bear interest at the prime rate plus 3%, and are  collateralized  by
the stock of EWP. In addition, the Company pays a commitment fee of .375% on the
unutilized  portion of the  facility.  At December  31,  2001,  no amounts  were
outstanding  under the  facility,  and $6 million was available for borrowing by
the Company.  During 2001, the Company paid Contran an up-front  facility fee of
$120,000  related to this facility.  The terms of this loan were approved by the
independent directors of the Company.

Note 10 - Quarterly financial data (unaudited)

<TABLE>
<CAPTION>
                                         March 31,   June 30,  September 30, December 31,
                                         ---------   --------   ---------     ---------
                                             (In thousands, except per share data)

Year ended December 31, 2001:
<S>                                      <C>         <C>         <C>         <C>
  Net sales ..........................   $ 77,763    $ 86,294    $ 82,329    $ 62,284
  Gross profit (loss) ................      1,406       5,833       6,636        (544)

  Net loss ...........................   $ (3,706)   $ (1,628)   $ (1,250)   $(19,810)
                                         ========    ========    ========    ========

  Basic and diluted net loss per share   $   (.37)   $   (.16)   $   (.12)   $  (1.97)
                                         ========    ========    ========    ========

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 and diluted net loss per share   $   (.19)   $   (.34)   $   (.31)   $  (1.26)
                                         ========    ========    ========    ========
</TABLE>

     During the fourth quarter of 2000, the Company  offered a group of salaried
employees  enhanced  pension benefits if they could retire by December 31, 2000,
resulting in a $3.7 million charge for termination benefits for early retirement
window.

     During the fourth quarter of 2001, the Company  recorded a (i) $1.0 million
charge to provide an allowance  for the full amount of the net  receivable  from
ARC, and (ii) a $14.5 million  charge to provide a deferred tax asset  valuation
allowance for the portion of the  Company's  deferred tax asset that the Company
believes does not currently meet the "more-likely-than-not" realizability test.

     During the fourth  quarter of 2001,  based on an actuarial  valuation,  the
Company recorded an increase in 2001 OPEB expense and liability of approximately
$2.9 million resulting in OPEB expense for the year 2001 of approximately  $12.0
million.  The  Company  had  previously  estimated  OPEB  expense for 2001 would
approximate $9.1 million.

     During the fourth quarter of 2001, Keystone recorded a $1.3 million benefit
as a result of a favorable legal  settlement with an electrode vendor related to
alleged price fixing.

     See Notes 2, 5 and 7.

Note 11 - Operations

     Keystone's  operations are 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  distribution of wire, wood and plastic products to the consumer
lawn and garden markets  through Garden Zone.  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.

     In January 2001,  Keystone's  wholly-owned  subsidiary,  Fox Valley Steel &
Wire  ("Fox  Valley")  sold its  business  which  was  located  in  Hortonville,
Wisconsin.  The Company 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 1999 and
2000 amounted to $11.3 million and $10.3 million, respectively.  During 1999 and
2000 Fox Valley recorded operating losses of $67,000 and $686,000, respectively.

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
                             Engineered Wire Products      Upper Sandusky, Ohio

Lawn and garden products     Garden Zone LLC (1)           Charleston, South
                                                            Carolina


(1)      51.0% subsidiary.

     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.

     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.  David L. Cheek.  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.



<PAGE>


<TABLE>
<CAPTION>
                                    Steel and  Lawn and                Corporate
                                      Wire      Garden     Segment         and
                                    Products   Products     Total     Eliminations    Total
                                                         (In thousands)

Year ended December 31, 2001:

<S>                                <C>          <C>       <C>          <C>          <C>
Net sales ......................   $ 300,659    $ 8,483   $ 309,142    $    (472)   $ 308,670
Depreciation and amortization ..      18,215       --        18,215       (1,223)      16,992
Operating profit (loss) ........      (4,673)       210      (4,463)        --         (4,463)
Identifiable segment assets ....     203,060      2,812     205,872      161,028      366,900
Capital expenditures ...........       3,888       --         3,888            1        3,889

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 ...............       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
</TABLE>




<PAGE>







<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                                  1999        2000         2001
                                                  ----        ----         ----
                                                         (In thousands)

<S>                                            <C>         <C>         <C>
Operating profit (loss) ....................   $  2,578    $(15,415)   $ (4,463)
Equity in loss of unconsolidated affiliate .        (54)       (281)       --
General corporate items:
  Interest income ..........................        452         599         253
  General income (expenses), net ...........     (1,156)     (1,993)     (1,610)
Interest expense ...........................    (14,058)    (15,346)    (14,575)
                                               --------    --------    --------

  Loss before income taxes .................   $(12,238)   $(32,436)   $(20,395)
                                               ========    ========    ========
</TABLE>

     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:

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                        1999              2000             2001
                                        ----              ----             ----
                                                     (In thousands)

<S>                                   <C>              <C>              <C>
United States ...............         $353,151         $336,288         $307,064
Canada ......................            2,449            1,949            1,217
Mexico ......................             --                  7              189
Great Britain ...............               88               77              100
Japan .......................             --               --                100
                                      --------         --------         --------

                                      $355,688         $338,321         $308,670
                                      ========         ========         ========
</TABLE>

Note 12 - Environmental matters

     At December 31,  2001,  Keystone's  financial  statements  reflected  total
accrued  liabilities of $15.6 million to cover estimated  remediation  costs for
those  environmental  matters which Keystone believes are reasonably  estimable,
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. Keystone believes it is not possible to estimate the
range of costs for certain sites. The upper end of range of reasonably  possible
costs to  Keystone  for sites for which the  Company  believes it is possible to
estimate costs is approximately $22.0 million.

     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, 2000 and 2001 the trust fund had  balances of $4.4
million and $4.8  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 2002.

     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  paragraph now  undergoing  RCRA closure under the  supervision of the
IEPA. Keystone has complied with deadlines in the draft order. During the fourth
quarter  of 2000,  Keystone  entered  into a  modified  Administrative  Order on
Consent,  which 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
during future periods 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,  2000 and 2001,  the Company  received  approximately
$725,000,  $140,000 and $88,000,  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, Inc. ("DeSoto") was notified
by U.S. EPA that it is one of approximately  50 PRPs at the Chemical  Recyclers,
Inc. site in Wylie,  Texas. In January 1999,  DeSoto changed its name to Sherman
Wire Company ("Sherman"). 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.  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  $1.2 million and $2
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,  2001.  Sherman  has denied any
liability  with  regard to this  matter  and  expects to  vigorously  defend the
action.

     Sherman has received  notification  from the TNRCC stating that DeSoto is a
PRP  at  the  Material  Recovery   Enterprises  Site  near  Ovalo,  Texas,  with
approximately  3% of the total  liability.  The matter has been  tendered to the
Valspar  Corporation  ("Valspar")  pursuant to a 1990 agreement  whereby Valspar
purchased  certain assets of DeSoto.  Valspar has been handling the matter under
reservation  of  rights.  At the  request  of  Valspar,  Sherman  has  signed  a
participation  agreement  which would require  Sherman to pay no less than 3% of
the remediation  costs.  Valspar  continues to pay for legal fees in this matter
and has reimbursed Sherman for all assessments.

     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, 2000 and
2001,  the  balance  in the trust  funds were  approximately  $1.5  million  and
$900,000, respectively.

Note 13 - 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 1999 and 2000 amounted to approximately  $324,000, and
$24,000,  respectively.  There were no payments  under these  leases in 2001 and
there are no required payments under these leases in subsequent years.

     In addition,  the Company is obligated under certain other operating leases
through 2006. Future commitments under these leases are summarized below.

                                                         Lease commitment
                                                          (In thousands)

2002                                                          $1,899
2003                                                           1,371
2004                                                             460
2005                                                             137
2006                                                              38
                                                              ------
                                                              $3,905
                                                              ======


<PAGE>


Note 14 -  Other commitments and contingencies

Current litigation

     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.

     In July 2001,  Sherman received a letter from a law firm advising them that
Sears  Roebuck & Co.  ("Sears")  had been named as a  defendant  in a lead paint
personal injury case. Sears claimed  contractual  indemnity  against Sherman and
demanded that Sherman  defend and  indemnify  Sears with regard to any losses or
damages Sears may sustain in the case. Sears was named as an additional  insured
on insurance  policies,  in which DeSoto, the manufacturer of the paint, was the
named insured. DeSoto's insurance carriers were notified of the action and asked
to indemnify Sherman with respect to the complaint.  Sherman has not indemnified
Sears and is unaware if the insurors have agreed to indemnify Sears.

     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 fifteen-year 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  ending  in  2011.  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 1999, 2000 and 2001 amounted to $2.1 million,  $2.7 million and
$2.2 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
34% of steel and wire  product  sales in 1999,  2000 and 2001.  These  customers
accounted for  approximately  20% of steel and wire products  notes and accounts
receivable at December 31, 2000 and 34% at December 31, 2001.

     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, 2000 and 2001 and lawn and garden  products notes and accounts  receivable
at December 31, 2000 and 2001.

Note 15 - Subsequent Events

     During March 2002, Keystone completed an exchange offer with respect to the
Senior Notes  pursuant to which,  among other  things,  holders of $93.9 million
principal  amount of the Senior  Notes  agreed to exchange  their  Senior  Notes
(along with accrued interest of approximately  $10.1 million through the date of
exchange, including $2.1 million which accrued during the first quarter of 2002)
for  various  forms of  consideration,  including  newly-issued  debt and equity
securities  of the  Company,  as  described  below,  and such Senior  Notes were
retired:

     o    $79.2 million  principal amount of Senior Notes were exchanged for (i)
          $19.8 million  principal  amount of 8% Subordinated  Secured Notes due
          2009 and (ii) 59,399 shares of the Company's  Series A 10% Convertible
          Pay-In-Kind Preferred Stock,

     o    $14.5  million  principal  amount of Senior Notes were  exchanged  for
          $14.5 million principal amount of 6% Subordinated  Unsecured Notes due
          2011, and

     o    $175,000  principal  amount of Senior Notes were exchanged for $36,000
          in cash and 6,481 shares of Keystone common stock.

     As a result of the exchange offer, the collateral  previously  securing the
Senior  Notes was  released,  and the  Senior  Note  indenture  was  amended  to
eliminate substantially all covenants related to the Senior Notes, including all
financial-related covenants.

     The 8%  Subordinated  Secured  Notes bear simple  interest at 8% per annum,
one-half of which will be paid in cash on a semi-annual  basis and one-half will
be deferred  and be paid  together  with the  principal  in three  installments,
one-third in each of March 2007, 2008 and 2009. The  Subordinated  Secured Notes
are  collateralized  by a  second-priority  lien  on  substantially  all  of the
existing  fixed  and  intangible  assets  of the  Company  and its  wholly-owned
subsidiaries  (excluding EWP and Garden Zone),  other than the real property and
other fixed assets  comprising  Keystone's  steel mill in Peoria,  Illinois,  on
which there will be a third-priority  lien.  Keystone may redeem the New Secured
Notes,  at its  option,  in  whole  or in part at any  time  with no  prepayment
penalty.  The Subordinated Secured Notes are subordinated to all existing senior
indebtedness of Keystone,  including,  without limitation, the Keystone, EWP and
Garden Zone  Revolvers,  the new Term Loan (as defined below) and, to the extent
of the  Company's  steel mill in Peoria,  Illinois,  the County Loan (as defined
below). The Subordinated Secured Notes rank senior to any expressly subordinated
indebtedness of Keystone, including the new 6% Subordinated Unsecured Notes.

     The 6%  Subordinated  Unsecured Notes bear simple interest at 6% per annum,
of  which  one-fourth  will  be  paid  in  cash  on  a  semi-annual   basis  and
three-fourths  will  accrue  and be paid  together  with the  principal  in four
installments,  one-fourth in each of May 2008, 2009, 2010 and 2011. Keystone may
redeem the Subordinated  Unsecured Notes, at its option,  in whole or in part at
any time  with no  prepayment  penalty.  The  Subordinated  Unsecured  Notes are
subordinated  to all existing and future senior or secured  indebtedness  of the
Company,  including,  without  limitation,  the  Keystone,  EWP and Garden  Zone
Revolvers,  the new Term Loan,  the new County Loan,  the  Subordinated  Secured
Notes  and any other  future  indebtedness  of the  Company  which is  expressly
subordinated to the Subordinated Unsecured Notes.

     The Series A 10% Convertible Pay-In-Kind Preferred Stock has a stated value
of $1,000 per share and has a  liquidation  preference  of $1,000 per share plus
accrued  and unpaid  dividends.  The Series A  preferred  shares  have an annual
dividend of $100 per share,  and such  dividends  may be paid in cash or, at the
Company's  option, in whole or in part in new Series A preferred shares based on
their  stated  value.  After  March 2003,  the Series A preferred  shares may be
converted into shares of Keystone common stock at the exchange rate of $4.00 per
share,  and holders of the Series A preferred shares will be entitled to vote on
any matter brought before Keystone shareholders on an as-converted basis, voting
together with Keystone common  shareholders  as a single class.  The Company may
redeem the  Series A shares at any time,  in whole or in part,  at a  redemption
price of $1,000 per share plus accrued and unpaid dividends. In addition, in the
event of certain sales of the Company's  assets  outside the ordinary  course of
business,  the Company will be required to offer to purchase a specified portion
of the Series A shares, at a purchase price of $1,000 per share plus accrued and
unpaid  dividends,  based upon the proceeds to the Company from such asset sale.
Otherwise, holders of the Series A shares have no mandatory redemption rights.

     Keystone will account for the Senior Notes retired in the exchange offer in
accordance  with SFAS No. 15,  Accounting  by Debtors and Creditors for Troubled
Debt Restructurings. In accordance with SFAS No. 15:

     o    The 6,481  shares of Keystone  common  stock will be recorded at their
          fair value at issuance of $7,000 based on the quoted  market price for
          Keystone common stock on the date of exchange,

     o    The 59,399  shares of Series A  preferred  stock will be  recorded  at
          their estimated fair value at issuance of $2.1 million,

     o    The 8% Subordinated  Secured Notes will initially be recorded at their
          aggregate undiscounted future cash flows (both principal and interest)
          of $29.3 million,  and thereafter both principal and interest payments
          will be accounted  for as a reduction  of the  carrying  amount of the
          debt, and no interest expense will be recognized, and

     o    The 6% Subordinated  Unsecured Notes will initially be recorded at the
          $16.0 million  carrying  amount of the  associated  Senior Notes (both
          principal and interest), and future interest expense on such debt will
          be recognized on the effective interest method at a rate of 3.8%.

     As a result, for financial reporting purposes the Company expects to report
a $54.7 million pre-tax  extraordinary  gain ($33.1 million net of income taxes)
in the first  quarter of 2002  related  to the  exchange  of the  Senior  Notes.
Because  of  differences  between  the income tax  treatment  and the  financial
reporting treatment of the exchange, the Company expects to report $65.8 million
of income for federal income tax purposes resulting from the exchange.  However,
all of the taxable  income  generated from the exchange is expected to be offset
by  utilization  of the  Company's  net  operating  loss  carryforwards,  and no
significant cash income tax payments are expected to be required to be paid as a
result of the exchange.

     As part of its  efforts  to  restructure  the Senior  Notes,  in April 2002
Keystone  received  a new $10  million  term  loan from the  County  of  Peoria,
Illinois  (the  "County  Loan") and a new $5 million term loan (the "Term Loan")
from the same lender providing the Keystone  Revolver.  The County Loan does not
bear  interest,  requires no  amortization  of principal and is due in 2007. The
Term Loan bears  interest at prime plus .5% or LIBOR plus 2.5% at the  Company's
option,  with principal  payments  amortized over a four-year  period and due in
March 2005.  The County Loan is  collateralized  by a second primary lien on the
real property and other fixed assets comprising Keystone's Steel mill in Peoria,
Illinois. The Term Loan is collateralized by a first-priority lien on all of the
fixed  assets of the  Company  and its  subsidiaries,  other than EWP and Garden
Zone.

     In addition, two of the Company's major vendors, representing approximately
$16.1 million of trade payables,  have agreed to be paid over a five-year period
ending in March  2007  with no  interest.  The  repayment  of a portion  of such
deferred vendor payments could be accelerated if the Company achieves  specified
levels of future earnings.

     The following table sets forth the  capitalization of the Company (i) on an
actual  basis as of December  31,  2001 and (ii) on an as  adjusted  basis after
giving  effect to the  exchange  of the  Senior  Notes  and  other  transactions
described  above, as if such  transactions had occurred on December 31, 2001 The
aggregate $15 million proceeds from the new County and Term loans are assumed to
(i) pay expenses associated with the exchange offer and related  transactions of
$3.1 million, (ii) pay $309,000 of accrued interest related to Senior Notes that
remain  outstanding  and (iii)  reduce the  outstanding  balance of the Keystone
Revolver  by  $11.6  million.   The  actual  carrying  amounts  of  the  Secured
Subordinated  Notes and Unsecured  Subordinated  Notes at their date of issuance
will differ  slightly from the amounts shown below because they will reflect the
effect of accrued  interest  on the  associated  Senior  Notes  during the first
quarter of 2002 up to the date of exchange.

<TABLE>
<CAPTION>
                                                            December 31, 2001
                                                         Actual        As Adjusted
                                                            (Unaudited)
                                                           (In thousands)

Notes payable and long-term debt:
<S>                                                    <C>            <C>
  9 5/8% Senior Notes, due August 2007 ...........     $ 100,000      $   6,150
  Commercial credit agreements:
    Revolving credit facilities:
      Keystone ...................................        40,823         29,269
      EWP ........................................         3,225          3,225
      Garden Zone ................................         1,738          1,738
    Term loan ....................................          --            5,000
  8% Subordinated Secured Notes ..................          --           29,304
  6% Subordinated Unsecured Notes ................          --           15,748
  County Loan ....................................          --           10,000
  Accrued interest on exchanged
   Senior Notes ..................................         8,255           --
  Other indebtedness .............................           669            669
                                                       ---------      ---------

      Total ......................................       154,710        101,103
                                                       ---------      ---------

Preferred stock ..................................          --            2,112
                                                       ---------      ---------

Stockholders' equity (deficit):
    Common stock .................................        10,792         10,798
    Additional paid-in-capital ...................        53,071         53,071
    Accumulated deficit ..........................       (64,187)       (32,055)
    Treasury stock ...............................           (12)           (12)
                                                       ---------      ---------

      Total stockholders' equity (deficit) .......          (336)        31,802
                                                       ---------      ---------

      Total capitalization .......................     $ 154,374      $ 135,017
                                                       =========      =========
</TABLE>

     The following  table sets forth the  aggregate  maturities of notes payable
and  long-term  debt of the  Company  as  adjusted  after  giving  effect to the
Exchange Offer and related  transactions as if such transactions had occurred on
December 31, 2001.

Year ending December 31,                                   As Adjusted

2002                                                        $ 36,111
2003                                                           2,099
2004                                                           2,108
2005                                                           2,355
2006                                                             792
Thereafter                                                    57,638
                                                            --------

                                                            $101,103
                                                            ========

Note 16 - Accounting principles not yet adopted

     Goodwill.  The Company will adopt SFAS No. 142,  effective January 1, 2002.
Under SFAS No. 142,  goodwill,  including  goodwill  arising from the difference
between the cost of an  investment  accounted  for by the equity  method and the
amount of the  underlying  equity in net assets of such equity  method  investee
("equity method goodwill"),  will not be amortized on a periodic basis. Instead,
goodwill  (other than equity method  goodwill)  will be subject to an impairment
test to be performed at least on an annual  basis,  and  impairment  reviews may
result in  future  periodic  write-downs  charged  to  earnings.  Equity  method
goodwill  will not be tested for  impairment  in  accordance  with SFAS No. 142;
rather,  the overall  carrying amount of an equity method investee will continue
to be reviewed  for  impairment  in  accordance  with  existing  GAAP.  There is
currently no equity method goodwill  associated with any of the Company's equity
method investees.  Under the transition provisions of SFAS No. 142, all goodwill
existing  as of June 30,  2001 will  cease to be  periodically  amortized  as of
January 1, 2002,  but any goodwill  arising in a purchase  business  combination
(including  step  acquisitions)  completed on or after July 1, 2001 would not be
periodically amortized from the date of such combination.  In addition, negative
goodwill  of  approximately  $20.0  million  recorded at January 1, 2002 will be
eliminated  as a  cumulative  effect of change in  accounting  principle at that
date.  The Company  would have  reported a net loss of $8.7  million or $.88 per
share;  $22.3 million or $2.22 per share and $27.6 million or $2.75 per share in
1999,  2000  and  2001,  respectively  if the  goodwill  and  negative  goodwill
amortization  included in the  Company's  net loss,  as  reported,  had not been
recognized.

     As  discussed  in Note 1, the  Company  has  assigned  its  goodwill to the
reporting  unit (as that term is defined  in SFAS No.  142)  consisting  of EWP.
Under  SFAS No.  142,  such  goodwill  will  deemed  to not be  impaired  if the
estimated fair value of EWP exceeds the net carrying value of EWP, including the
allocated  goodwill.  If the fair value of EWP is less than the carrying  value,
then a goodwill impairment loss would be recognized equal to the excess, if any,
of the net carrying  value of the reporting  unit goodwill over its implied fair
value  (up to a maximum  impairment  equal to the  carrying  of  goodwill).  The
implied  fair value of EWP  goodwill  would be the amount equal to the excess of
the  estimated  fair value of EWP over the amount that would be allocated to the
tangible and  intangible net assets of EWP  (including  unrecognized  intangible
assets) as if such  reporting  unit had been  acquired  in a  purchase  business
combination accounted for in accordance with SFAS No. 141.


<PAGE>


     The Company will use appropriate valuation  techniques,  such as discounted
cash flows, to estimate the fair value of EWP.

     The Company has completed  its initial,  transitional  goodwill  impairment
analysis  under SFAS No. 142 as of January 1, 2002,  and no goodwill  impairment
was deemed to exist.  In  accordance  with  requirements  of SFAS No.  142,  the
Company will review  goodwill for  impairment  during the third  quarter of each
year starting in 2002.  Goodwill  will also be reviewed for  impairment at other
times  during  each year when  events or changes in  circumstances  indicate  an
impairment might be present.

     Impairment  of  long-lived  assets.  The  Company  will adopt SFAS No. 144,
effective  January 1, 2002. SFAS No. 144 retains the  fundamental  provisions of
existing  GAAP with respect to the  recognition  and  measurement  of long-lived
asset  impairment  contained in SFAS No. 121,  Accounting  for the Impairment of
Long-Lived  Assets and for Lived-Lived  Assets to be Disposed Of. However,  SFAS
No. 144 provides new guidance intended to address certain  implementation issues
associated  with SFAS No.  121,  including  expanded  guidance  with  respect to
appropriate  cash  flows  to be used to  determine  whether  recognition  of any
long-lived  asset  impairment  is  required,  and if required how to measure the
amount of the  impairment.  SFAS No. 144 also requires that any net assets to be
disposed of by sale to be reported at the lower of carrying  value or fair value
less cost to sell,  and expands the  reporting  of  discontinued  operations  to
include any  component of an entity with  operations  and cash flows that can be
clearly distinguished from the rest of the entity. Adoption of SFAS No. 144 will
not have a significant effect on the Company as of January 1, 2002.

     Asset  retirement  obligations.  The  Company  will  adopt  SFAS  No.  143,
Accounting  for Asset  Retirement  Obligations,  no later than  January 1, 2003.
Under  SFAS No.  143,  the fair  value of a  liability  for an asset  retirement
obligation  covered  under the scope of SFAS No. 143 would be  recognized in the
period in which the liability is incurred,  with an  offsetting  increase in the
carrying amount of the related  long-lived asset. Over time, the liability would
be accreted to its present value,  and the capitalized cost would be depreciated
over the useful life of the related asset. Upon settlement of the liability,  an
entity would either  settle the  obligation  for its recorded  amount or incur a
gain or loss upon  settlement.  The Company is still  studying  this standard to
determine,  among other things,  whether it has any asset retirement obligations
which are covered  under the scope of SFAS No. 143,  and the effect,  if any, to
the Company of adopting SFAS No. 143 has not yet been determined.




<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           SCHEDULE II - VALUATION AND
                               QUALIFYING ACCOUNTS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                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, 1999:

  Allowance for doubtful accounts and
<S>                                                  <C>          <C>           <C>         <C>
    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
                                                     ======        ======       ======      ======

Year ended December 31, 2001:

  Allowance for doubtful accounts and
    notes receivable                                 $1,681        $1,589       $  412      $2,858
                                                     ======        ======       ======      ======

  Deferred tax asset valuation allowance             $  -         $14,510       $  -       $14,510
                                                     ======       =======       ======     =======
</TABLE>




<PAGE>



                                                                     EXHIBIT 21

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES


                         SUBSIDIARIES OF THE REGISTRANT




<TABLE>
<CAPTION>
                                    Jurisdiction of            Percent of
                                     Incorporation          Voting Securities
      Name of Corporation           or Organization              Held (1)

<S>                                  <C>                         <C>
Sherman Wire of Caldwell, Inc.       Nevada                      100.0%

FV Steel and Wire Company (3)        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%
</TABLE>

     (1) Held by the Registrant or the indicated subsidiary of the Registrant.

     (2) Formerly DeSoto, Inc.

     (3) Formerly Fox Valley Steel and Wire Company.





<PAGE>