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, 1999

Commission file number      1-3919
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                     Keystone Consolidated Industries, Inc.
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             (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
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(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                   New York Stock Exchange

             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 March 20, 2000,  10,060,186 shares of common stock were  outstanding.  The
aggregate  market  value  of the  5,069,713  shares  of  voting  stock  held  by
nonaffiliates  of the  Registrant,  as of such  date,  was  approximately  $24.4
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.





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  carbon  steel  rod  for  the  agricultural,   industrial,
construction,  original equipment  manufacturer and retail consumer markets, and
believes it is the third largest  manufacturer  of fabricated  wire products and
industrial  wire in the United  States based on tons shipped  (459,000 in 1999).
The  Company  is  vertically  integrated,  converting  substantially  all of its
fabricated  wire products and industrial  wire from carbon steel 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 carbon steel rod, as well as from lower  production
costs of carbon steel rod as compared to wire fabricators  which purchase 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 rod imports and increases in domestic rod production  capacity as compared to
non-integrated  rod  producers.  In  1999,  the  Company  had net  sales of $356
million.  Approximately 79% 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 rod not used in the Company's downstream operations.


         The Company's fabricated wire products, which comprised 60% of its 1999
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.
The Company serves these markets through distributors,  agricultural  retailers,
building  supply  centers and  consumer  do-it-yourself  chains such as The Home
Depot,  Inc.,  Lowe's  Companies,  Inc.,  Tractor  Supply Co.,  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  60% of the
Company'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 in competition  with the Company.  The Company's  industrial  wire customers
include manufacturers of nails, coat hangers, barbecue grills, air conditioners,
tools,  containers,  refrigerators and other  appliances.  In 1999, net sales of
industrial wire accounted for 19% of Company net sales. In addition, the Company
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 1999, open market sales of rod accounted for 17% of Company net sales.

         Beginning in January 1999, 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 1999, sales by Garden
Zone  accounted  for 3% of  Company  net sales.  In  addition,  in August  1999,
Keystone also became 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
12 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 1999, the Company expected to increase
its annual  billet  production  capacity to 1 million  tons from  655,000  tons.
However,  during 1999, Keystone  experienced  production problems related to the
start-up of the new equipment.  Keystone believes it has identified the start-up
problems  and  expects  to  have  these  problems  resolved  and  the  equipment
performing  at the desired  levels during the 2000 first  quarter.  In addition,
although  Keystone's new billet production  capacity will be 1 million tons, the
Company is presently  limited by its Illinois  Environmental  Protection  Agency
construction  permit to annual billet  production of 820,000 tons.  Keystone has
applied for  modifications  to its permit to allow  billet  production  of the 1
million ton capacity and expects to have that permit  approved by September  30,
2000.

         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.  Substantially all of Contran's outstanding voting stock is held either
by trusts  established for the benefit of certain children and  grandchildren of
Mr. Simmons,  of which Mr. Simmons is sole trustee,  or by Mr. Simmons directly.
The Company 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 the 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  belief and  assumptions  based on  currently  available
information.  Forward-looking  statements  can be identified by the use of words
such as "believes",  "intends", "may", "should",  "anticipates",  "expected", or
comparable terminology,  or by discussions of strategies or trends. Although the
Company believes the expectations  reflected in such forward-looking  statements
are reasonable,  it cannot give any assurance 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, cost of raw materials,  future supply and demand
for the Company's products (including  cyclicality thereof),  customer inventory
levels,  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,  government  regulations  and possible  changes  therein,  the ultimate
resolution of pending  litigation,  successful  implementation  of the Company's
capital improvements plan, international trade policies of the United States and
certain  foreign  countries and any possible  future  litigation 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.  The Company 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 six  wire  and  wire  product  fabrication
facilities.  The manufacturing process commences in Peoria,  Illinois with scrap
steel being loaded into an electric arc furnace and converted into molten steel.
The  molten  steel  is  then  transferred  to a  ladle  refining  furnace  where
chemistries and temperatures are monitored and adjusted to specifications  prior
to casting. The molten steel is then transferred from the ladle refining furnace
into a six-strand  continuous casting machine from which it emerges in five-inch
square  strands  that are cut to  predetermined  lengths and are  referred to as
billets. 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 rod is
coiled and  cooled.  After  cooling,  the coiled 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 wire, nails and other fabricated wire products or shipped to rod
customers.

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

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,
                               1997               1998              1999
                        ----------------    ----------------     -----------
                       Percent   Percent   Percent    Percent  Percent Percent
                       of Tons    Of       of Tons    of       of Tons   of
    Product            Shipped   Sales     Shipped    Sales    Shipped  Sales
-----------------      -------   ------    -------    -----    -------  -----
<S>                    <C>       <C>       <C>       <C>      <C>        <C>

Fabricated wire
  products ..........    32.3%    47.4%     46.1%     60.4%     45.2%     62.5%
Industrial wire .....    25.1     24.8      24.0      22.6      20.7      19.4
Carbon steel rod ....    42.6     27.8      29.9      17.0      34.1      18.1
                        -----    -----     -----     -----     -----     -----
                        100.0%   100.0%    100.0%    100.0%    100.0%    100.0%
                        =====    =====     =====     =====     =====     =====
</TABLE>


         Fabricated Wire Products.  The Company 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 the Company  through  farm  supply  distributors,
agricultural  retailers,   building  supply  centers,  building  and  industrial
materials  distributors  and  consumer  do-it-yourself  chains  such as The Home
Depot,  Inc.,  Lowe's  Companies,  Inc.,  Tractor  Supply Co.,  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 the
Company for more than 75 years. As part of its marketing  strategy,  the Company
designs merchandise  packaging,  and supportive product literature for marketing
many  of  these  products  to the  retail  consumer  market.  The  Company  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; Hortonville,  Wisconsin and Upper
Sandusky,  Ohio  facilities.  The  primary  customers  for  these  products  are
construction  contractors and building materials manufacturers and distributors.
The Company sells approximately 50% of its nails through PrimeSource,  Inc., one
of the largest  nail  distributors  in the United  States,  under  PrimeSource's
Grip-Rite label.

         The  Company  continuously   evaluates   opportunities  to  expand  its
downstream  fabricated  wire  products  operations.  During  1994,  the  Company
purchased a 20% stake in Engineered Wire Products,  Inc. ("EWP") a joint venture
with a  manufacturer  and  distributor of wire mesh for use primarily in highway
and road construction.  During 1997, 14% of Keystone's rod sales were to EWP. In
December  1997,  Keystone  purchased  the 80% of EWP not  already  owned  by the
Company.  Management  believes EWP broadens its fabricated wire product line and
provides an opportunity  to shift  additional rod production to a higher margin,
value-added  fabricated wire product.  The Company  believes its fabricated wire
products are less susceptible than industrial wire or 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 rod or  other  less  value-added
products. As a result of the acquisition of EWP, the Company was able to convert
its  lower-margin rod sales to EWP, into  higher-margin  fabricated wire product
sales.  However,  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.

         Industrial  Wire.  The Company is one of the largest  manufacturers  of
industrial  wire in the United  States.  At its Peoria,  Illinois,  Hortonville,
Wisconsin,  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 the Company's  fabricated wire products operations or for
sale to industrial  fabrication and original equipment  manufacturer  customers.
The Company's drawn 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 the Company.

         Carbon Steel Rod. The Company  produces low carbon steel rod at its rod
mill located in Peoria,  Illinois.  Low carbon steel rod, with carbon content of
up to 0.38%,  is more easily  shaped and formed  than  higher  carbon rod and is
suitable for a variety of applications where ease of forming is a consideration.
Although  Keystone's  six wire  fabrication  facilities on occasion buy rod from
outside suppliers, during 1999, approximately 65% of the rod manufactured by the
Company was used  internally to produce wire and fabricated  wire products.  The
remainder of the  Company'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.

Industry and Competition

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

         The domestic steel rod industry continues to experience  consolidation.
In addition, worldwide overcapacity in the steel industry continues to exist and
imports  of rod and  certain  wire  products  in  recent  years  have  increased
significantly.  In an  effort to stem  increasing  levels of  imported  rod,  in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the 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. During 1999, the ITC recommended  President Clinton impose a 15% tariff on
all foreign rod imports  except for those from Canada,  Mexico and certain other
countries  covered under trade acts. In February 2000,  the President  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. This level will be increased by
two  percent  in years two and three.  The tariff  rate will be 10% in the first
year,  7.5% in the second  year and 5% in the third year.  The Company  does not
anticipate that the TRQ will have a major impact on the industry.

         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. The Company 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.

         The Company has  implemented a direct  order/inventory  control  system
that is designed to enhance its ability to serve high volume,  retail customers.
Keystone  believes  this system will  provide  the  Company  with a  competitive
advantage in the service of its major retail customers.

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 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 the Company's manufacturing facilities. The 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,  the utility has the right to pass through
certain of its costs to consumers  through 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 charge is
payable in 12 equal  installments  beginning in January 2000. The utility may in
the future bill the Company for fuel adjustment charges.

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

         Keystone  currently  employs   approximately   1,980  people,  of  whom
approximately  1,160 are represented by the Independent  Steel Workers' Alliance
("ISWA") at its Peoria,  Illinois facilities,  approximately 160 are represented
by the  International  Association  of Machinists  and Aerospace  Workers (Local
1570)  ("IAMAW") at its  Sherman,  Texas  facilities  and  approximately  80 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 2002,  March 2000 and
November  2001,  respectively.  Keystone  has begun  discussions  with the IAMAW
concerning the renewal of its collective bargaining agreement and entered into a
contract extension to April 15, 2000. 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
 Carbon steel 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  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 8% of the Company's net sales during each of 1997,  1998
or 1999. 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  $28 million at both  December  31, 1998 and  December 31,
1999. Keystone believes backlog is not a significant factor in its business, and
all of the backlog at December 31, 1999 will be shipped during 2000.

Household cleaning products

         DeSoto,  Inc.  ("DeSoto"),  a  wholly  owned  subsidiary  of  Keystone,
operated a division that manufactured  household  cleaning  products  (primarily
powdered  and  liquid  laundry  detergents)  at a  facility  located  in Joliet,
Illinois  ("Joliet").  Keystone  acquired  DeSoto in September  1996. In January
1999,  DeSoto sold the Joliet  division and Keystone  changed  DeSoto's  name to
Sherman Wire Company. For the years ended December 31, 1997 and 1998, Joliet had
net sales of $14 million and $10 million, respectively. Joliet manufactured most
products on a make and ship basis, and, as such, overall levels of raw materials
and finished goods  inventories  maintained by Joliet were  relatively  nominal.
Approximately 85% of Joliet's sales for 1997 and 1998 were to a single customer.


<PAGE>


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


<PAGE>
ITEM 2. PROPERTIES.

         The Company's  principal executive offices are located in approximately
3,200 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.

         Keystone's fabricated wire products, industrial wire and rod production
facilities  utilize  approximately 2.6 million square feet for manufacturing and
office space,  approximately  77% of which is located at the  Company's  Peoria,
Illinois facility.

         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>           <C>
Keystone Steel & Wire          Peoria, IL             2,012,000     Fabricated wire products, industrial
                                                                      wire, carbon steel 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
Fox Valley Steel & Wire        Hortonville, WI           74,000     Fabricated wire products and industrial
                                                                      wire
Sherman Wire of Caldwell       Caldwell, TX              73,000     Fabricated wire products and industrial
                                                                      wire
</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  13 and 15 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, 1999.


<PAGE>


                                     PART II

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

         Keystone's  common  stock is listed  and  traded on the New York  Stock
Exchange (symbol:  KES). The number of holders of record of the Company's common
stock as of March 20, 2000 was 1,613.  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
                                                      ----               ---
  1999

<S>                                                  <C>              <C>
  First quarter .............................        $ 9.75           $ 5.50
  Second quarter ............................          7.94             6.50
  Third quarter .............................          6.56             4.19
  Fourth quarter ............................          6.13             3.88


  1998
  First quarter .............................        $12.38           $ 11.06
  Second quarter ............................         12.44             11.00
  Third quarter .............................         12.94              7.06
  Fourth quarter ............................          8.13              6.63
</TABLE>

         The Company has not paid cash dividends on its common stock since 1977.
The  Company  is subject to certain  covenants  under its  commercial  revolving
credit  facilities  and the indenture  related to its Senior  Secured Notes 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,
                                                   -----------------------------------------------------------------
                                                    1995          1996          1997           1998           1999
                                                    ----          ----          ----           ----           ----
                                                         (In thousands, except per share and per ton amounts)

Statement of Operations Data:
<S>                                               <C>             <C>         <C>            <C>            <C>
  Net sales                                       $345,657        $331,175    $354,073       $370,022       $355,688
  Cost of goods sold                               312,909         298,268     316,599        339,625        332,644
  Gross profit                                      32,748          32,907      37,474         30,397         23,044
  Selling expenses                                   4,367           3,855       4,628          6,042          6,845
  General and administrative
    expenses                                        17,185          22,779      17,918         19,139         20,850
  Operating income                                  11,141          10,662      23,292         13,033          2,578
  Interest expense                                   3,385           3,741       7,612         10,460         14,058

  Income (loss) before income taxes               $  8,078        $  4,240    $ 16,909       $  5,006       $(12,238)
  Provision (benefit) for income taxes               3,191           1,656       4,541          1,095         (4,754)
                                                  --------        --------    --------      ---------       ---------

  Net income (loss)                               $  4,887        $  2,584    $ 12,368       $  3,911       $ (7,484)
                                                  ========        ========    ========        =======       --------
  Net income (loss) available for common
    shares (1)                                    $  4,887        $  2,514    $ 12,088       $  3,754       $ (7,484)
                                                  ========        ========    ========        =======       ========

 Basic net income (loss) available for
    common shares per share                       $   .87         $   .38     $   1.30       $    .41       $   (.75)
                                                  =======         =======     ========       ========       ========
 Diluted net income (loss) available
    for common shares per share                   $   .86         $   .38     $   1.28       $    .40       $   (.75)
                                                  =======         =======     ========       ========        =======
  Weighted average common and common
    equivalent shares outstanding   :
    Basic                                            5,633           6,554       9,271          9,544          9,904
                                                  ========        ========    ========       ========       ========
    Diluted                                          5,654           6,560       9,435          9,669          9,904
                                                  ========        ========    ========       ========       ========

Other Financial Data:
  Cash contributions to defined benefit
    pension plans                                 $ 18,702        $  9,664       $   -         $    -           $  -
  Capital expenditures                              18,208          18,992      26,294         64,541         16,873
  Depreciation and amortization                     11,961          12,425      12,815         20,140         21,051

Other Steel and Wire Products Operating
  Data:
  Shipments (in tons):
    Fabricated wire products                           242             222         225            327            315
    Industrial wire                                    164             159         175            170            144
    Carbon steel rod                                   287             307         297            212            237
                                                  --------        --------    --------       --------       --------
      Total                                            693             688         697            709            696
                                                  ========        ========    ========       ========       ========

  Average selling prices (per ton):

    Fabricated wire products                      $    707        $    716    $    710       $    662       $    683
    Industrial wire                                    492             478         478            476            462
    Carbon steel rod                                   322             298         317            288            261

    Steel and wire products in total                   497             475         484            506            493

  Average total production cost per ton           $    452        $    430    $    437       $    464       $    461
  Average scrap purchase cost per ton                  128             125         122            110             94
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                                                    As of December 31,
                                              ---------------------------------------------------------------------
                                                1995           1996           1997           1998           1999
                                                ----           ----           ----           ----           ----
                                                                         (In thousands)

Balance Sheet Data:
<S>                                          <C>              <C>           <C>           <C>             <C>
  Working capital (deficit) (2)              $ (6,861)        $(15,907)     $ 52,684       $    555       $(13,920)
  Property, plant and equipment, net           86,436           92,608       112,754        156,100        150,156
  Total assets                                198,822          302,368       374,131        405,857        410,918
  Total debt                                   29,945           51,780       106,844        131,764        146,857
  Redeemable preferred stock                        -            3,500         3,500              -              -
  Stockholders' equity (deficit)              (37,493)          31,170        44,211         53,077         46,315

</TABLE>

     (1) Includes dividends on preferred stock of $70,000, $280,000 and $157,000
in 1996, 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 carbon steel rod for the agricultural, industrial,
construction,  original  equipment  manufacturer and retail consumer markets and
believes it is the third largest  manufacturer  of fabricated  wire products and
industrial  wire in the United  States based on tons shipped  (459,000 in 1999).
Keystone's  operations  benefit  from  vertical  integration  as  the  Company's
mini-mill  supplies carbon steel rod produced from scrap steel to its downstream
fabricated  wire  products and  industrial  wire  operations.  These  downstream
fabrication  operations  accounted  for 79% of 1999  net  sales.  The  Company's
fabricated wire products  typically yield higher and less volatile gross margins
compared to rod.  Management  believes  Keystone's  fabricated  wire  businesses
insulate it better than other rod producers  from the effects of rod imports and
new domestic rod  production  capacity.  Moreover,  the Company's rod production
costs have generally been below the market price for rod providing a significant
cost advantage over wire producers who purchase 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 1999, the Company expected to increase
its annual  billet  production  capacity to 1 million  tons from  655,000  tons.
However,  during 1999, Keystone  experienced  production problems related to the
start-up of the new equipment.  Keystone believes it has identified the start-up
problems  and  expects  to  have  these  problems  resolved  and  the  equipment
performing  at the desired  levels during the 2000 first  quarter.  In addition,
although  Keystone's new billet production  capacity will be 1 million tons, the
Company is presently  limited by its Illinois  Environmental  Protection  Agency
construction  permit to annual billet  production of 820,000 tons.  Keystone has
applied for modifications to its permit to allow production of the 1 million ton
capacity and expects to have that permit approved by September 30, 2000.

         The Company's steel making  operations,  together with billet purchases
of 45,000 tons and 38,000 tons in 1999 and 1998, respectively,  provided 728,000
tons and  679,000  tons of billets in 1999 and 1998,  respectively.  The current
estimated annual production  capacity of the Company's rod mill is 750,000 tons.
The higher  billet  production  and  purchase  volumes in 1999,  resulted in rod
production  increasing 3% from 670,000 tons (89% of estimated  capacity) in 1998
to 687,000 tons (92% of estimated  capacity).  Despite the potential increase in
billet  production  capacity to 1 million  tons,  Keystone's  rod  production is
constrained by the 750,000 ton capacity of its rod mill. The Company anticipates
any excess  billet  production  will be sold  externally.  Keystone's  estimated
current  fabricated  wire products and industrial  wire  production  capacity is
589,000 tons.  Utilization of the Company's annual  fabricated wire products and
industrial wire production  capacity aggregated 82% in 1997, 85% in 1998 and 84%
in 1999.

         In November  1994, the Company  entered into a joint venture  agreement
and formed  Engineered  Wire Products,  Inc.  ("EWP") with Keystone owning a 20%
equity interest in EWP. In December 1997,  Keystone purchased the 80% of EWP not
already owned by Keystone (the "EWP Acquisition").  As part of the joint venture
agreement,  Keystone  supplied EWP with the majority of EWP's rod  requirements.
EWP then converted the rod to fabricated wire products which were primarily used
in the concrete pipe and road  construction  businesses.  During 1997,  Keystone
shipped  41,000  tons of rod to EWP.  As a  result  of the  acquisition  of EWP,
Keystone  was  able  to  convert  its   lower-margin  rod  sales  to  EWP,  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
$122 in 1997,  $110 in 1998 and $94 in 1999.  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.
In addition, worldwide overcapacity in the steel industry continues to exist and
imports  of rod and  certain  wire  products  in  recent  years  have  increased
significantly.  In an  effort to stem  increasing  levels of  imported  rod,  in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the 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.  During the 1999 second  quarter,  the ITC recommended  President  Clinton
impose a 15% tariff on all  foreign rod  imports  except for those from  Canada,
Mexico and certain other  countries  covered under trade acts. In February 2000,
the President  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.  This
level will be increased  by two percent in years two and three.  The tariff rate
will be 10% in the first year, 7.5% in the second year and 5% in the third year.
The Company  does not  anticipate  that the TRQ will have a major  impact on the
industry.

         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,  the utility has the
right to pass through certain of its costs to consumers  through 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
utility  may in the future  bill the  Company  for  additional  fuel  adjustment
charges.

         The Company was previously  engaged in the manufacture and packaging of
household  cleaning  products  through  the Joliet  division  of its  subsidiary
DeSoto, Inc. In January 1999, DeSoto sold such operations.

         Beginning  in 1999,  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 and
sales volume data for the periods indicated.
<TABLE>
<CAPTION>

                                                Years Ended December 31,
                                               ---------------------------
                                                    1997  1998  1999
                                                    ----  ----  ----
                                                 (In thousands of tons)

 Production volume:
   Billets:
<S>                                                  <C>   <C>   <C>
    Produced .....................................   665   640   683
    Purchased ....................................    67    38    45
  Carbon steel rod ...............................   719   670   687

Sales volume:
  Fabricated wire products .......................   225   327   315
  Industrial wire ................................   175   170   144
  Carbon steel rod ...............................   297   212   237
                                                     ---   ---   ---
                                                     697   709   696
                                                     ===   ===   ===
</TABLE>


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

                                                      Years Ended December 31,
                                                  --------------------------------
                                                  1997          1998          1999
                                                  ----          ----          ----
                                                           (In millions)

 Steel and wire products:
<S>                                             <C>          <C>          <C>
  Fabricated wire products ..............       $  159.9     $  216.6     $  214.7
  Industrial wire .......................           83.8         81.0         66.6
  Carbon steel rod ......................           94.0         61.1         62.0
  Other .................................            2.4          1.3          1.4
                                                --------       ------       ------
                                                   340.1        360.0        344.7
Lawn and garden products ................         --           --             11.0
Household cleaning products .............           14.0         10.0       -
                                                --------       ------       ------
                                                $  354.1     $  370.0     $  355.7
                                                ========       ======       ======
</TABLE>


         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,
                                                     --------------------------
                                                     1997       1998        1999
                                                     ----       ----        ----

<S>                                                  <C>        <C>        <C>
Net sales .....................................      100.0%     100.0%     100.0%
Cost of goods sold ............................       89.4       91.8       93.5
Gross profit ..................................       10.6        8.2        6.5
Selling expenses ..............................        1.3        1.6        1.9
General and administrative expense ............        5.1        5.2        5.9
Overfunded defined benefit pension credit .....       (1.8)      (2.6)      (1.6)

Income (loss) before income taxes .............        4.8%       1.4%      (3.4)%
Provision (benefit) for income taxes ..........        1.3         .3       (1.3)
                                                     -----      -----      -----
Net income (loss) .............................        3.5%       1.1%      (2.1)%
                                                     =====      =====      =====
</TABLE>


Year ended December 31, 1999 compared to year ended December 31, 1998

         Net sales declined 3.9% in 1999 from 1998 due primarily to a 2% decline
in overall steel and wire product  selling  prices and a 1.9% decline in volume.
During 1999,  fabricated wire products  represented 60% of net sales as compared
to 59% in 1998; industrial wire declined to 19% of net sales in 1999 as compared
to 22% in 1998;  and  carbon  steel rod sales in 1999,  as a  percentage  of net
sales,  were  unchanged  from the 1998  level at 17%.  The 2% decline in overall
product  selling  prices  ($12 per ton)  adversely  impacted  net  sales by $8.4
million.

         Fabricated  wire products  selling prices  increased 3% while shipments
declined 4% in 1999 as compared to 1998. Industrial wire selling prices declined
3% in 1999 when compared to 1998 while shipments  declined 15%. Carbon steel rod
selling prices declined 9% while shipments increased 12% as compared to 1998.


         Gross profit declined  approximately  24% to $23.0 million in 1999 from
$30.4 million in 1998.  Gross margin declined to 6.5% from 8.2% in 1998 as lower
scrap costs,  Keystone's  primary raw  material,  were more than offset by lower
overall selling prices, and higher production costs. The higher production costs
were due  primarily  to  increased  costs  associated  with the  start-up of the
Company's  capital  projects that were completed  during 1998,  weather  related
issues in the first  quarter of 1999,  purchased  billet  costs,  a $1.7 million
charge  due to a change in the  manner in which  vacation  time was  earned  for
employees  covered  by a new  labor  union  contract  at  the  Company's  Peoria
facility,  an  unexpected  $2.2 million fuel  adjustment  charge from the Peoria
plant's  electricity  provider and a $1.6 million charge in connection  with the
write-off of certain  production  equipment at the Peoria  facility.  During the
fourth    quarter   of   1999,    the   Company    determined    that    certain
infrastructure-related  equipment  would need to be  replaced  at the end of the
year as a result of the  start-up  of certain  capital  projects,  and  Keystone
charged the  equipment's  remaining  net book value to  depreciation  expense in
1999. In addition,  Keystone  recorded a $2.7 million  benefit  during 1999 as a
result of favorable legal  settlements with certain electrode vendors related to
alleged price fixing. The Company received similar  settlements in 1998 totaling
$2.7  million and does not  anticipate  it will  receive  any further  electrode
settlements. Keystone believes the start-up issues related to new equipment have
been  identified  and that  these  issues  will be  resolved  and the  equipment
performing  at the  desired  levels  by the end of the  first  quarter  of 2000.
However,  the Company  believes these problems will continue to adversely impact
earnings during the first quarter of 2000.  Keystone's  scrap costs declined 15%
during 1999 as compared to 1998. During 1999, the Company purchased 768,000 tons
of scrap at an average  price of $94 per ton as  compared to 1998  purchases  of
716,000 at an average  price of $110 per ton.  Keystone  expects  average  scrap
costs in 2000 will exceed 1999 average costs.  The Company also purchased 45,000
tons of billets  during  1999 at an average  cost of $195 per ton as compared to
38,000  tons of billets in 1998 at an  average  price of $196 per ton.  Keystone
does not anticipate purchasing any billets during 2000.

         Selling  expenses  increased  13% to $6.8  million  in 1999  from  $6.0
million in 1998 primarily as a result of the higher selling expenses  associated
with the Company's lawn and garden products segment.

         General and  administrative  expenses  increased 9% to $20.9 million in
1999 from  $19.1  million  in 1998  primarily  due to higher  general  insurance
expense,  costs  associated  with the start-up of the Company's  lawn and garden
products  segment,   unfavorable  legal  settlements  and  higher  environmental
charges. In addition, 1998 included a legal fee reimbursement of $380,000.

         During  1999,  Keystone  recorded  a  non-cash  pension  credit of $5.6
million as  compared  to $9.4  million  in 1998.  The lower  pension  credit was
primarily the result of increased pension benefits included in the Company's May
1999 labor  contract with the Peoria  facility's  union.  The Company  currently
estimates,  for financial reporting purposes,  that it will recognize a non-cash
pension credit of approximately $3 million in 2000 and, does not anticipate cash
contributions  for defined  benefit  pension plan  fundings  will be required in
2000. 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 1999 was higher than 1998 due  principally to
higher  borrowing  levels  partially  offset by lower  interest  rates.  Average
borrowings by the Company under its revolving credit  facilities,  EWP term loan
and Senior Secured Notes approximated  $142.7 million during 1999 as compared to
$110.8  million in 1998.  During  1999,  the average  interest  rate paid by the
Company was 9.3% per annum as compared to 9.6% per annum in 1998.

        At December 31, 1999, the Company's financial statements reflected total
accrued  liabilities  of $18.2  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  13  to  the  Consolidated   Financial
Statements.

         The  effective  tax  rates  in  1999  and  1998  were  39%  and  21.9%,
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.  The  Company's
deferred tax  position at December  31, 1999 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 $7.5 million during 1999 as compared to net income in 1998 of $3.9 million.

Year ended December 31, 1998 compared to year ended December 31, 1997

         Net sales  increased  4.5% in 1998 from 1997.  During 1998,  fabricated
wire  products  represented  59% of  net  sales  as  compared  to  45% in  1997;
industrial wire declined to 22% of net sales in 1998 as compared to 24% in 1997;
and carbon steel rod comprised 17% of 1998 net sales as compared to 27% in 1997.
The  primary  reason for the change in product  mix was the EWP  Acquisition  in
December 1997. Keystone supplied EWP with the majority of EWP's rod requirements
prior to the acquisition. As a result of the EWP Acquisition those sales are now
reflected as sales of fabricated wire products.

         Fabricated  wire products  selling prices  declined 7% while  shipments
increased 45% in 1998 as compared to 1997. The primary reason for the decline in
fabricated  wire product  selling  prices  during 1998 was the EWP  Acquisition.
EWP's  fabricated  wire  products  sell for  lower  overall  prices  than do the
remainder of the Company's  fabricated  wire  products.  Industrial  wire prices
remained  relatively  level in 1998 as compared to 1997 prices  while  shipments
declined 3%. Carbon steel rod selling prices declined 9% during 1998 as compared
to 1997 while  shipments  declined 28%. The decline in rod shipments to external
customers was due primarily to the EWP  Acquisition  and an increase in low cost
imported rod during 1998.

         Gross profit declined  approximately  19% to $30.4 million in 1998 from
$37.5  million  in 1997.  Gross  margin  declined  to 8.2% from 10.6% in 1997 as
higher production costs more than offset higher overall selling prices and lower
scrap costs. The higher  production costs were due primarily to a new electrical
supply  contract  at the  Company's  facility  in  Peoria,  Illinois,  unplanned
equipment outages during the 1998 first quarter,  power interruptions during the
1998 second  quarter and  increased  costs  associated  with the start-up of the
Company's  capital  projects  that were  completed  during  the third and fourth
quarters of 1998. During 1998, the Company purchased 716,000 tons of scrap at an
average  price of $110 per ton as compared to 1997  purchases of 697,000 tons at
an average price of $122 per ton. The Company  purchased  38,000 tons of billets
in 1998 at an  average  price  of $196 per ton as  compared  to  67,000  tons of
billets in 1997 at an average price of $238 per ton.

         Selling  expenses  increased  31% to $6.0  million  in 1998  from  $4.6
million in 1997, but remained relatively constant as a percentage of net sales.

         General and  administrative  expenses  increased 7% to $19.1 million in
1998 as compared to $17.9 million in 1997, but remained relatively constant as a
percentage of net sales.

         During  1998,  Keystone  recorded  a  non-cash  pension  credit of $9.4
million as compared to approximately $6.3 million in 1997.

         On August 7, 1997 Keystone issued $100 million of 9 5/8% Senior Secured
Notes (the "Senior Notes").  As such, interest expense in 1998 was significantly
higher than 1997.  Average  borrowings by the Company under its revolving credit
facilities,  term loans and the Senior Notes  amounted to  approximately  $110.8
million in 1998 as compared to $32.8 million in 1997.  During 1998,  the average
interest rate paid by Keystone under these debt agreements was 9.6% per annum as
compared to 9.4% in 1997.  Keystone  used $52.4 million of the net proceeds from
the  issuance  of the  Senior  Notes to repay  borrowings  under  the  Company's
revolving credit facility and to retire amounts  outstanding under the Company's
term loan.

         The  effective  tax  rates in 1998  and  1997  were  21.9%  and  26.9%,
respectively.

         As a result  of the items  discussed  above,  net  income  during  1998
declined  to $3.9  million  from  $12.4  million  in  1997  and  decreased  as a
percentage of sales to 1.1% from 3.5%.

Outlook for 2000

         Keystone  believes it has identified the start-up  problems relative to
the new equipment at its Peoria,  Illinois  steel mill and expects to have these
problems resolved and the equipment  performing at the desired levels during the
2000 first quarter.  However, the Company anticipates these issues will continue
to negatively impact 2000 first quarter earnings. Management also believes scrap
costs during 2000 will be higher than in 1999; although,  management anticipates
it will be able to increase  its  per-ton  product  selling  prices to cover any
significant  increase in scrap costs. In addition,  management believes that due
to expected  higher debt levels in 2000,  interest  expense  will also be higher
than in 1999. As such, operating results during 2000 could be adversely impacted
and the  Company may incur a net loss  during the 2000 first  quarter,  although
management  expects the Company to be profitable for calendar 2000. In addition,
management  anticipates  Keystone will receive  permits by September 30, 2000 to
increase  billet  production  to 1  million  tons,  and plans to  convert  these
incremental billets, either internally or externally, to carbon steel rod. Sales
of this additional carbon steel rod would favorably impact earnings.

Liquidity And Capital Resources

         At December 31, 1999,  Keystone had negative  working  capital of $13.9
million,  including  $2.0  million of notes  payable and current  maturities  of
long-term debt as well as outstanding  borrowings under the Company's  revolving
credit  facilities of $44.0 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.  Under the terms of the indenture  related to the Senior  Secured Notes,
the Company's  ability to borrow under its revolving  credit  facilities  may be
limited.  At December 31, 1999,  unused credit  available  for  borrowing  under
Keystone's $60 million  revolving  credit  facility,  which expires December 31,
2001, and EWP's $6 million  revolving  credit  facility,  which expires June 30,
2000,  and Garden Zone's $4 million  revolving  credit  facility,  which expires
December 11, 2000, were $15.9 million, $.7 million and $.5 million respectively.
The terms of the  indenture  will  permit  Keystone  to borrow  all of the $15.9
million unused credit  available under  Keystone's $60 million  revolving credit
facility  during the first quarter of 2000. The Company's $60 million  revolving
credit  facility  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.

         During 1999, the Company's operating activities provided  approximately
$1.1 million of cash,  compared to $16.8  million of cash  provided by operating
activities in 1998.  In addition to lower  earnings in 1999 as compared to 1998,
cash flow from  operations  decreased  in 1999  compared to 1998 due to relative
changes in the levels of assets and  liabilities.  These  decreases in cash flow
were offset by lower capital expenditures.

         During 1999, Keystone made capital  expenditures of approximately $16.9
million primarily related to upgrades of production equipment at its facility in
Peoria, Illinois, as compared to $64.5 million in 1998. During 1997, the Company
commenced a $75 million capital improvement plan to upgrade certain of its plant
and equipment and eliminate  production capacity  bottlenecks in order to reduce
costs and improve production efficiency.  Keystone  substantially  completed the
capital improvement plan during 1998. As such, capital  expenditures during 1999
were  considerably  less  than  capital   expenditures   during  1998.   Capital
expenditures for 2000 are currently  estimated to be  approximately  $15 million
and are related  primarily  to upgrades  of, as well as  additional,  production
equipment.   These  capital   expenditures   will  be  funded  using   borrowing
availability under Keystone's revolving credit facilities.

         At December 31, 1999,  the  Company's  financial  statements  reflected
accrued  liabilities  of $18.2 million for estimated  remediation  costs arising
from environmental  issues. 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  does not expect to be required to make  contributions  to its
pension  plan during  2000.  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  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. As a result of
this  process,  the  Company  has in the  past,  and may in the  future,  reduce
controllable  costs,  modify  product  mix,  acquire and dispose of  businesses,
restructure certain indebtedness,  and raise additional equity capital. Keystone
will continue to evaluate the need for similar  actions or other measures in the
future in order to meet its  obligations.  The Company also routinely  evaluates
acquisitions of interests in, or  combinations  with,  companies  related to the
Company's  current  businesses.  Keystone  intends to consider such  acquisition
activities in the future and, in  connection  with this  activity,  may consider
issuing  additional  equity  securities or increasing  the  indebtedness  of the
Company.  However,  Keystone's  ability  to incur new debt in the  future may be
limited  by the terms of the  indenture  related  to the 9 5/8%  Senior  Secured
Notes.

         Management  believes  the cash  flows  from  operations  together  with
available  cash and the funds  available  under the Company's  revolving  credit
facilities  will be  sufficient to fund the  anticipated  needs of the Company's
operations and capital  improvements for the year ending December 31, 2000. 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  revolving
credit facilities. However, liabilities under environmental laws and regulations
with  respect  to the  clean-up  and  disposal  of  wastes,  or any  significant
increases  in the cost of  providing  medical  coverage  to active  and  retired
employees  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 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 13
and 15 to the Consolidated Financial Statements.

Year 2000 Issue

         As a result of certain computer programs being written using two digits
rather than four to define the applicable year,  certain computer  programs that
had  date-sensitive  software may have  recognized a date using "00" as the year
1900 rather than the year 2000.  This could have resulted in a system failure or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a temporary inability to process  transactions,  send invoices or engage
in normal business activities.

         Over the past few years,  the Company has spent time,  effort and money
in order to  address  the Year  2000  Issue in an  attempt  to  ensure  that its
computer systems, both information  technology ("IT") systems and non-IT systems
involving  embedded chip technology,  and software  applications  would function
properly after December 31, 1999. This process included, among other things, the
identification of all systems and applications  potentially affected by the Year
2000  Issue,  the  determination  of which  systems  and  applications  required
remediation  and  the  completion   thereof  and  the  testing  of  systems  and
applications  following remediation for Year 2000 compliance.  In addition,  the
Company  requested  confirmation  from its major software and hardware  vendors,
suppliers and customers  that they were  developing  and  implementing  plans to
become,  or that they had become,  Year 2000 compliant.  Contingency  plans were
also  developed  to address  potential  Year 2000  Issues  related  to  business
interruption  in the event one or more internal  systems or the systems of third
parties  upon which the  Company  relies  ultimately  proved not to be Year 2000
compliant.  As part of these  contingency  plans,  the  Company's  steel  making
facility in Peoria,  Illinois  temporarily  idled its  manufacturing  facilities
shortly before the end of 1999 as an added safeguard against  unexpected loss of
utility service;  and such facilities  resumed production shortly after midnight
of year-end 1999. After all of the efforts described above, the Company believed
its key systems were Year 2000 compliant  prior to December 31, 1999. The amount
spent by Keystone to address the Year 2000 Issue,  excluding the cost of ongoing
system upgrades, was not significant.

         To date in 2000,  none of the Company's  manufacturing  facilities have
suffered any downtime due to  non-compliant  systems,  nor have any  significant
problems  associated  with the Year 2000  Issue been  identified  in any of such
systems.  Keystone will continue to monitor its major systems in order to ensure
such systems continue to be Year 2000 compliant.  However,  based primarily upon
the length of time into 2000 which has elapsed without the identification of any
significant  problems  related  to the Year 2000  Issue,  the  Company  does not
currently expect to experience any significant Year 2000 Issue-related problems.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's  exposure to changes in interest rates relates  primarily
to  long-term  debt  obligations.  At December 31,  1999,  97% 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 the Company's long-term debt obligations.
<TABLE>
<CAPTION>

                                                 Contracted Maturity Date                             Fair Value
                           --------------------  -------------------------------------------
                             2000     2001    2002     2003    2004     Thereafter     Total      December 31, 1999
                             ----     ----    ----     ----    ----     ----------     -----      -----------------
                                                                ($ In thousands)

Fixed-rate debt -
<S>                            <C>     <C>    <C>      <C>     <C>      <C>          <C>                 <C>
  Principal amount             $782    $593   $196     $30     $52      $100,000     $101,653            $93,943

  Weighted-average

    interest rate              8.3%    8.6%    9.0%     9.3%    9.3%         9.6%         9.6%

Variable-rate debt-
  Principal amount         $45,204      $ -    $ -    $        $ -        $    -     $ 45,204            $45,204
                                                         -

  Weighted-average

    interest rate              9.2%      -%     - %      - %     - %         - %          9.2%
</TABLE>


         At December 31, 1998, long-term debt included fixed-rate debt of $102.2
million (fair value - $97.6  million) with a weighted  average  interest rate of
9.6% and $29.6 million  variable-rate debt which approximated fair value, with a
weighted-average interest rate of 8.6%.

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.


<PAGE>


                                    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 10 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  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  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).

4.2  First  Amendment  to Term  Loan  and  Security  Agreement  dated  as of
     September 27, 1996 between  Registrant and Congress  Financial  Corporation
     (Central).  (Incorporated  by  reference  to  Exhibit  4.2 to  Registrant's
     Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).

4.3  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).

4.4  Fourth  Amendment  to Amended and Restated  Revolving  Loan and Security
     Agreement  dated as of December  31, 1999 between  Registrant  and Congress
     Financial Corporation (Central).

4.5  Second  Amendment to Revolving Loan and Security  Agreement  dated as of
     December  31, 1999 between  Sherman  Wire  Company and  Congress  Financial
     Corporation (Central).

4.6  Fifth  Amendment  to Amended and  Restated  Revolving  Loan and Security
     Agreement  dated as of February 3, 2000  between  Registrant  and  Congress
     Financial Corporation (Central).

10.1 Intercorporate  Services Agreement with Contran  Corporation dated as of
     January 1, 1999.

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).

21   Subsidiaries of the Company.

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of PricewaterhouseCoopers LLP

27   Financial Data Schedule

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, 1999.

  (b) No reports on Form 8-K were filed  during the quarter  ended  December 31,
      1999.

  *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  March  31,  2000,  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 March 31,  2000 by the  following
persons on behalf of the registrant and in the capacities indicated:
<TABLE>
<CAPTION>

<S>                                                           <C>
  /s/ GLENN R. SIMMONS                                          /s/ DAVID E. CONNOR
------------------------------                                ---------------------
      Glenn R. Simmons                                        David E. Connor
    Chairman of the Board                                                     Director

  /s/ J. WALTER TUCKER, JR.                                     /s/ WILLIAM P. LYONS
------------------------------------------------              ----------------------
      J. Walter Tucker, Jr.                                         William P. Lyons
    Vice Chairman of the Board                                          Director

  /s/ THOMAS E. BARRY                                           /s/ ROBERT W. SINGER
------------------------------------------------              ----------------------
      Thomas E. Barry                                           Robert W. Singer
         Director                                                    President and
                                                                Chief Executive Officer

  /s/ PAUL M. BASS, JR.                                        /s/ HAROLD M. CURDY
------------------------------------------------              --------------------
         Paul M. Bass, Jr.                                      Harold M. Curdy
             Director                                           Vice President -- Finance,
                                                                 Treasurer and Principal
                                                                       Financial Officer

  /s/ WILLIAM SPIER                                             /s/ BERT E. DOWNING, JR.
------------------------------------------------              --------------------------
         William Spier                                        Bert E. Downing, Jr.
            Director                                          Corporate Controller and
                                                                Principal Accounting Officer

   /s/ STEVEN L. WATSON
---------------------------------------
       Steven L. Watson
           Director
</TABLE>

<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, 1998 and 1999........... F-3/F-4

  Consolidated Statements of Operations -- Years ended December 31,
    1997, 1998 and 1999.................................................... F-5

  Consolidated Statements of Redeemable Preferred Stock and Common
    Stockholders' Equity -- Years ended

    December 31, 1997, 1998 and 1999....................................... F-6

  Consolidated Statements of Cash Flows -- Years ended December 31,
    1997, 1998 and 1999................................................ F-7/F-8

  Notes to Consolidated Financial Statements.......................... F-9/F-32

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, 1998 and
1999,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 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  expressed
above.

                                                PricewaterhouseCoopers LLP

March 9, 2000
Dallas, Texas


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 1998 and 1999

                        (In thousands, except share data)



<TABLE>
<CAPTION>

              ASSETS                                       1998            1999
                                                         --------        ------

Current assets:
<S>                                                      <C>            <C>
  Notes and accounts receivable,
   net of allowances
    of $4,915 and $2,297 .........................       $ 36,786       $ 32,819
  Inventories ....................................         52,239         66,083
  Deferred income taxes ..........................         18,985         17,396
  Prepaid expenses and other .....................          3,916          1,364
                                                         --------       --------

      Total current assets .......................        111,926        117,662
                                                         --------       --------

Property, plant and equipment:
  Land, buildings and improvements ...............         50,637         51,637
  Machinery and equipment ........................        299,165        301,932
  Construction in progress .......................          4,880          4,308
                                                         --------       --------
                                                          354,682        357,877
Less accumulated depreciation ....................        198,582        207,721
                                                         --------       --------

      Net property, plant and equipment ..........        156,100        150,156
                                                         --------       --------

Other assets:
  Restricted investments .........................          8,624          9,180
  Prepaid pension cost ...........................        120,516        126,126
  Deferred financing costs .......................          3,493          3,034
  Goodwill .......................................          1,115          1,002
  Other ..........................................          4,083          3,758
                                                         --------       --------

      Total other assets .........................        137,831        143,100
                                                         --------       --------

                                                         $405,857       $410,918
                                                         ========       ========
</TABLE>
<PAGE>

          See accompanying notes to consolidated financial statements.

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 1998 and 1999

                        (In thousands, except share data)


<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                           1998            1999
                                                         --------        ------

Current liabilities:
<S>                                                      <C>          <C>
  Notes payable and current maturities of
    long-term debt ...................................   $  29,912    $  45,986
  Accounts payable ...................................      34,002       30,689
  Accounts payable to affiliates .....................        --             70
  Accrued OPEB cost ..................................      10,000        9,500
  Other accrued liabilities ..........................      37,457       45,337
                                                         ---------    ---------

      Total current liabilities ......................     111,371      131,582
                                                         ---------    ---------

Noncurrent liabilities:
  Long-term debt .....................................     101,852      100,871
  Accrued OPEB cost ..................................      99,047       98,802
  Deferred income taxes ..............................       6,162        1,100
  Negative goodwill ..................................      24,065       22,709
  Other ..............................................      10,283        9,539
                                                         ---------    ---------

      Total noncurrent liabilities ...................     241,409      233,021
                                                         ---------    ---------

Stockholders' equity:
  Common stock, $1 par value, 12,000,000 shares
    authorized; 9,838,629 and 9,927,665  shares issued
    at stated value ..................................      10,569       10,656
  Additional paid-in capital .........................      51,763       52,398
  Accumulated deficit ................................      (9,243)     (16,727)
  Treasury stock - 1,134 shares, at cost .............         (12)         (12)
                                                         ---------    ---------

      Total stockholders' equity .....................      53,077       46,315
                                                         ---------    ---------
                                                         $ 405,857    $ 410,918
                                                         =========    =========
</TABLE>

Commitments and contingencies (Notes 13, 14 and 15)


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1997, 1998 and 1999

                      (In thousands, except per share data)


<TABLE>
<CAPTION>

                                                                         1997            1998            1999
                                                                       --------        --------         ------

Revenues and other income:
<S>                                                                     <C>             <C>              <C>
  Net sales                                                             $354,073        $370,022         $355,688
  Interest                                                                 1,218             594              452
  Other, net                                                               2,053             212              463
                                                                        --------        --------         --------

                                                                         357,344         370,828          356,603
                                                                        --------        --------         --------

Costs and expenses:
  Cost of goods sold                                                     316,599         339,625          332,644
  Selling                                                                  4,628           6,042            6,845
  General and administrative                                              17,918          19,139           20,850
  Overfunded defined benefit pension credit                               (6,322)         (9,444)          (5,610)
  Interest                                                                 7,612          10,460           14,058
                                                                        --------        --------         --------

                                                                         340,435         365,822          368,787
                                                                        --------        --------         --------

                                                                          16,909           5,006          (12,184)
    Equity in losses of Alter Recycling

      Company L.L.C.                                                        -               -                 (54)
                                                                        --------        --------         --------

      Income (loss) before income taxes                                   16,909           5,006          (12,238)

Provision (benefit) for income taxes                                       4,541           1,095           (4,754)
                                                                        --------        --------         --------

      Net income (loss)                                                   12,368           3,911           (7,484)

Dividends on preferred stock                                                 280             157             -
                                                                        --------        --------         --------

  Net income (loss) available for
    common shares                                                       $ 12,088        $  3,754         $ (7,484)
                                                                        ========        ========         ========


Net income (loss) per share available for common shares:

    Basic                                                              $   1.30        $    .41        $   (.75)
                                                                       ========        ========        ========
    Diluted                                                            $   1.28        $    .40        $   (.75)
                                                                       ========        ========        ========

Weighted average common and common equivalent shares outstanding:

    Basic                                                                  9,271           9,544            9,904
                                                                        ========        ========         ========
    Diluted                                                                9,435           9,669            9,904
                                                                        ========        ========         ========
</TABLE>




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK

                         AND COMMON STOCKHOLDERS' EQUITY

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                              Common stockholders' equity
                                                               --------------------------------------------------------------------
                                                                                                                          Total
                                                Redeemable         Common stock     Additional                            common
                                                preferred     --------------------  paid-in    Accumulated  Treasury  stockholders'
                                                 stock           Shares  Amount     capital    (deficit)      stock       equity
                                                ---------       ------   ------     ---------  --------     ---------    --------

<S>                                             <C>             <C>      <C>         <C>         <C>         <C>          <C>
Balance - December 31, 1996 ................    $  3,500        9,190    $  9,920    $ 46,347    $(25,085)    $    (12)   $ 31,170

Net income .................................        --           --          --          --        12,368         --        12,368
Issuance of stock ..........................        --            109         109         844        --           --           953
Preferred dividends declared ...............         280         --          --          --          (280)        --          (280)
Preferred dividends paid ...................        (280)        --          --          --          --           --          --
                                                --------     --------    --------    --------    --------     --------     --------

Balance - December 31, 1997 ................       3,500        9,299      10,029      47,191     (12,997)         (12)     44,211

Net income .................................        --           --          --          --         3,911         --         3,911
Exercise of warrants and redemption
  of preferred stock, net ..................      (3,500)         448         448       3,753        --           --         4,201
Issuance of stock - other ..................        --             92          92         819        --           --           911
Preferred dividends declared ...............         157         --          --          --          (157)        --          (157)
Preferred dividends paid ...................        (157)        --          --          --          --           --          --
                                                --------     --------    --------    --------    --------     --------    --------

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
                                                ========     ========    ========    ========    ========     ========    ========
</TABLE>

<PAGE>




                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)
<TABLE>
<CAPTION>

                                                 1997       1998         1999
                                               ---------  ---------    --------

Cash flows from operating activities:

<S>                                            <C>         <C>         <C>
  Net income (loss) ........................   $ 12,368    $  3,911    $ (7,484)
  Depreciation and amortization ............     12,815      20,140      21,051
  Amortization of deferred financing costs .        455         509         519
  Deferred income taxes ....................      1,573       3,078      (3,363)
  Other, net ...............................      2,425       1,571      (3,089)
  Change in assets and liabilities:
    Notes and accounts receivable ..........     (1,978)     (2,027)      4,323
    Inventories ............................     (9,671)      1,691     (14,685)
    Prepaid pension cost ...................     (6,322)     (9,444)     (5,610)
    Accounts payable .......................     (6,455)      4,323      (1,923)
    Other, net .............................      6,249      (6,947)     11,312
                                               --------    --------    --------

      Net cash provided by operating
        activities .........................     11,459      16,805       1,051
                                               --------    --------    --------

Cash flows from investing activities:

  Capital expenditures .....................    (26,294)    (64,541)    (16,873)
  Acquisition of businesses ................    (11,285)       --          --
  Proceeds from disposition of property
    and equipment ..........................      2,720          11          27
  Other, net ...............................        212        (448)        702
                                               --------    --------    --------

      Net cash used by investing activities     (34,647)    (64,978)    (16,144)
                                               --------    --------    --------
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)
<TABLE>
<CAPTION>

                                                 1997         1998          1999
                                               ---------    ---------    ---------

Cash flows from financing activities:

<S>                                            <C>          <C>          <C>
  Revolving credit facilities, net .........   $ (31,095)   $  26,110    $  15,437
  Other notes payable and long-term debt:
    Additions ..............................     100,294           95        1,125
    Principal payments .....................     (19,535)      (1,285)      (1,469)
  Preferred stock dividend payments ........        (280)        (157)        --
  Deferred financing costs paid ............      (3,918)        (207)        --
  Exercise of warrants and redemption of
    preferred stock, net ...................        --            701         --
  Common stock issued, other ...............         344          294         --
                                               ---------    ---------    ---------

    Net cash provided by financing
       activities ..........................      45,810       25,551       15,093
                                               ---------    ---------    ---------

Net change in cash and cash equivalents ....      22,622      (22,622)        --

Cash and cash equivalents, beginning of year        --         22,622         --
                                               ---------    ---------    ---------

Cash and cash equivalents, end of year .....   $  22,622    $    --      $    --
                                               =========    =========    =========


Supplemental disclosures:
  Cash paid for:
    Interest, net of amount capitalized ....   $   4,068    $  10,903    $  13,887
    Income taxes paid (refund), net ........       4,253          217       (3,575)
  Common stock contributed to employee
    benefit plan ...........................   $     578    $     617    $     722

Business combination:
  Net assets consolidated:
    Goodwill ...............................   $   1,229         --           --
    Other noncash assets ...................      22,321         --           --
    Liabilities ............................      (9,500)        --           --

    Negative goodwill ......................        --           --           --
                                               ---------    ---------    ---------
                                                  14,050         --           --
  Recorded equity in joint venture .........      (2,765)        --           --
                                               ---------    ---------    ---------

  Cash paid ................................   $  11,285    $    --      $    --
                                               =========    =========    =========
</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  either by trusts  established  for the  benefit  of certain  children  and
grandchildren  of Mr. Simmons,  of which Mr. Simmons is sole trustee,  or by Mr.
Simmons directly.  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
wholly-owned subsidiaries.  All material intercompany accounts and balances have
been  eliminated.  Certain prior year amounts have been  reclassified to conform
with the 1999 presentation.

         In January  1999,  Keystone's  wholly-owned  subsidiary,  DeSoto,  Inc.
("DeSoto") sold its household cleaning products division.  DeSoto did not record
any  gain or loss as a result  of this  sale.  Subsequent  to the  sale,  Desoto
changed its name to Sherman Wire Company ("Sherman").

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  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.  Ultimate actual results may, in some instances,  differ from
previously estimated amounts.

         Fiscal year.  The  Company's  fiscal year is 52 or 53 weeks and ends on
the last Sunday in  December.  Each of fiscal  1997,  1998 and 1999 were 52-week
years.

         Net sales.  Sales are recorded when products are shipped.

         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 76% and 79% of the inventories held at December 31, 1998 and 1999,
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 1997, 1998 and 1999
amounted to $483,000,  $878,000,  and $50,000,  respectively.  Expenditures  for
repairs,  maintenance  and minor repairs are expensed as incurred.  Expenditures
for improvements which  substantially  increase an asset's capacity or alter its
capabilities are capitalized.

         Depreciation  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. Depreciation expense amounted
to $14,434,000,  $20,849,000 and $21,741,000 during the years ended December 31,
1997, 1998, and 1999, respectively.

         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.  The Company records liabilities related to
environmental  issues  at such  time as  information  becomes  available  and is
sufficient to support a reasonable  estimate of range of 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, 1998 and 1999
the Company had such assets recorded of approximately $323,000.

         Income taxes. Deferred income tax assets and liabilities are recognized
for the expected future tax effects of temporary  differences between the income
tax and financial reporting carrying amounts of assets and liabilities.

         Advertising costs.  Advertising costs,  expensed as incurred,  were $.7
million in 1997, $1.1 million in 1998 and $.5 million in 1999.

         Income  (loss) per share.  Basic income  (loss) per share is based upon
the weighted  average number of common shares actually  outstanding  during each
year.  Diluted  income  (loss)  per share  includes  the  impact of  outstanding
dilutive  stock options and warrants.  The weighted  average number of shares of
outstanding  stock options and warrants which were excluded from the calculation
of diluted earnings per share because their impact would have been  antidilutive
approximated 171,000, 163,000 and 725,000 in 1997, 1998 and 1999, respectively.

         Deferred financing costs.  Deferred financing costs relate primarily to
the issuance of the Company'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
$964,000 and $1,483,000 at December 31, 1998 and 1999, respectively.

         Goodwill. Goodwill, representing the excess of cost over the fair value
of individual net assets acquired in business combinations  accounted for by the
purchase  method,  is  amortized  by the  straight-line  method  over  10  years
(remaining  life  of 8  years  at  December  31,  1999)  and  is  stated  net of
accumulated  amortization  of  approximately  $113,000 at December  31, 1998 and
$227,000 at December 31, 1999. Amortization of goodwill in each of 1998 and 1999
amounted to $113,000.

         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  of  DeSoto,   is  amortized  by  the
straight-line  method over 20 years  (remaining  life of 16.75 years at December
31,  1999)  and is  stated  net of  accumulated  amortization  of  approximately
$3,051,000  and  $4,406,000  at  December  31,  1998  and  1999,   respectively.
Amortization of negative goodwill in 1997, 1998 and 1999 amounted to $1,619,000,
$1,356,000 and $1,356,000, respectively.

     Employee Stock Options.  The Company 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.

         Derivatives and Hedging activities. The Company will adopt Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging  Activities,  as amended,  no later than the first  quarter of 2001.
Under SFAS No. 133,  all  derivatives  will be  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.  The impact
on the Company of adopting SFAS No. 133, if any, has not yet been determined but
will be dependent  upon the extent to which the Company is a party to derivative
contracts or hedging activities covered by SFAS No. 133 at the time of adoption,
including derivatives embedded in non-derivative host contracts.

Note 2 - Acquisitions and joint ventures

         At December 31, 1996,  the Company  owned a 20% interest in  Engineered
Wire Products, Inc. ("EWP"), a manufacturer and distributor of wire mesh for the
concrete pipe and road  construction  business,  which previously  operated as a
division of Price Brothers Company ("PBC") of Dayton, Ohio. The Company also had
the exclusive option to acquire the remaining 80% interest in EWP at fair market
value for a period of five years.  On December 23, 1997,  Keystone  acquired the
remaining  80% of EWP (the  "EWP  Acquisition")  and EWP  became a  wholly-owned
subsidiary of Keystone. Keystone paid $11.2 million in cash to acquire PBC's 80%
interest in the joint venture using available funds on hand.

         Keystone  accounted  for the step  acquisition  of EWP by the  purchase
method  of  accounting  and,  accordingly,  EWP is  consolidated  in  Keystone's
financial statements subsequent to this acquisition. The purchase price has been
allocated to the individual assets acquired and liabilities assumed of EWP based
upon estimated fair values.

         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 at December 31, 1999 include the
accounts of Garden Zone.  Neither Keystone nor the other owners  contributed any
capital or other  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 through  December 31,
1999,  its earnings,  of which 51% accrued to Keystone for  financial  reporting
purposes, were 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  does not
currently anticipate it will be required to make any other contributions to fund
or  operate  this  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, 1999,  Keystone's
investment  in ARC  amounted to $281,000  and is included in other  assets.  ARC
commenced  operations in August 1999 and through December 31, 1999, Keystone had
purchased  approximately  $2.7  million of scrap from ARC. At December 31, 1999,
ARC owed  Keystone  approximately  $809,000  primarily  for the scrap  inventory
purchased by ARC from Keystone.

Note 3 - Inventories
<TABLE>
<CAPTION>

                                                               December 31,
                                                         ---------------------
                                                          1998            1999
                                                          ----            ----
                                                              (In thousands)
Raw materials:
<S>                                                      <C>             <C>
  Steel and wire products ......................         $17,400         $20,985
  Household cleaning products ..................             650            --
                                                         -------         -------
                                                          18,050          20,985

Work in process -
  Steel and wire products ......................           8,642          12,657
                                                         -------         -------

Finished products:
  Steel and wire products ......................          12,797          20,179
  Household cleaning products ..................             249            --
  Lawn and garden products .....................            --             5,595
                                                         -------         -------
                                                          13,046          25,774
                                                         -------         -------

Supplies -
  Steel and wire products ......................          16,894          15,378
                                                         -------         -------
                                                          56,632          74,794
                                                         -------         -------

Less LIFO reserve:
  Steel and wire products ......................           4,334           8,711
  Household cleaning products ..................              59            --
                                                         -------         -------
                                                           4,393           8,711
                                                         -------         -------
                                                         $52,239         $66,083
                                                         =======         =======
</TABLE>
<PAGE>


Note 4 - Notes payable and long-term debt
<TABLE>
<CAPTION>

                                                                December 31,
                                                            -------------------
                                                             1998          1999
                                                            -----          ----
                                                              (In thousands)

<S>                                                        <C>          <C>
9 5/8% Senior Secured Notes, due August 2007 .........     $100,000     $100,000
Commercial credit agreements:
  Revolving credit facilities:
    Keystone .........................................       24,580       35,568
    EWP ..............................................        4,000        4,908
    Garden Zone ......................................         --          3,541
  Term loan - EWP ....................................        1,020          437
Other ................................................        2,164        2,403
                                                           --------     --------
                                                            131,764      146,857
  Less current maturities ............................       29,912       45,986
                                                           --------     --------

                                                           $101,852     $100,871
                                                           ========     ========
</TABLE>

         The Senior  Notes are due in August  2007 and are  collateralized  by a
second  priority  lien on  substantially  all of the  existing  and future fixed
assets of the Company.

         The Senior Notes were issued pursuant to an indenture (the "Indenture")
which,  among  other  things,  provides  for  optional  redemptions,   mandatory
redemptions  and  certain  covenants,  including  provisions  that,  among other
things,  limit the ability of the Company to sell capital stock of subsidiaries,
enter into sale and leaseback  transactions  and  transactions  with affiliates,
create new liens and incur additional debt. In addition,  under the terms of the
Indenture,  the  Company's  ability to borrow  under its $60  million  revolving
credit  facility may be limited.  The  Indenture  also limits the ability of the
Company to pay dividends or make other restricted payments, as defined.

         On December 31, 1999, Keystone renewed its $55 million revolving credit
facility  for a  period  of two  years.  Under  the  terms of the  renewal,  the
revolving  credit facility was increased from $55 million to $60 million and the
interest  rate was  reduced  from the prime  rate plus 1% to the prime rate plus
1/2%, or at the Adjusted Eurodollar Rate (as defined) plus 2.5%. The $60 million
revolving credit facility (the "Keystone Revolver") is collateralized  primarily
by the Company's trade receivables and inventories.  The effective interest rate
was 8.75% and 9.5% at December  31, 1998 and 1999,  respectively.  The amount of
available borrowings is based on formula-determined amounts of trade receivables
and inventories, less the amount of outstanding letters of credit (approximately
$1.1 million at December 31,  1999).  At December  31, 1999,  $15.9  million was
available  for  borrowings  under this  credit  facility,  all of which could be
borrowed under the terms of the Indenture.  The Keystone  Revolver  requires the
Company's daily cash receipts to be used to reduce the  outstanding  borrowings,
which  results in the Company  maintaining  zero cash  balances  when there is a
balance  outstanding on the Keystone  Revolver.  The Keystone  Revolver contains
restrictive  covenants,  including certain minimum working capital and net worth
requirements  and a  prohibition  against the payment of  dividends  on Keystone
common stock without lender consent.

         EWP's $6  million  revolving  credit  agreement  (the  "EWP  Revolver")
expires in June 2000.  Borrowings under the EWP Revolver bear interest at either
the prime rate or LIBOR  plus  2.25%  (8.1% and 8.4% at  December  31,  1998 and
1999). At December 31, 1999, $.7 million was available for additional borrowings
under the EWP  revolver,  all of which could be borrowed  under the terms of the
Indenture.  EWP's term loan is due June 30,  2000 and is  payable  in  quarterly
installments of $145,750 plus accrued  interest.  EWP's term note bears interest
at LIBOR plus 2.25% (7.5% and 8.1% at December 31, 1998 and 1999, respectively).
EWP's  accounts  receivable,  inventories  and  property,  plant  and  equipment
collateralize  the EWP Revolver and EWP's term loan.  These  agreements  contain
covenants with respect to working  capital,  additional  borrowings,  payment of
dividends and certain other matters.

         Garden Zone's $4 million  revolving  credit  facility (the "Garden Zone
Revolver") expires in December 2000 and bears interest at the LIBOR rate plus 2%
(8.1% at December 31, 1999).  Garden Zone's accounts  receivable and inventories
collateralize  the Garden Zone  Revolver.  At December  31,  1999,  $459,000 was
available for additional  borrowings  under this credit  facility,  all of which
could be borrowed under the terms of the Indenture.

         At December 31, 1999,  other notes payable and long-term  debt included
$750,000  advanced to Garden  Zone by one of its  minority  owners.  The advance
bears  interest at the prime rate.  Interest  paid on this  advance  during 1999
amounted to approximately $33,000.

         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,
1998 and 1999, approximated $95.4 million and $92.3 million,  respectively.  The
book value of all other indebtedness is deemed to approximate market value.

         The aggregate  maturities of notes payable and long-term debt are shown
in the table below.
<TABLE>
<CAPTION>

Year ending December 31,                                           Amount
------------------------                                        -------------
                                                                (In thousands)

<S>                                                                <C>
2000                                                               $ 45,986
2001                                                                    593
2002                                                                    196
2003                                                                     30
2004                                                                     52
2005 and thereafter                                                 100,000
                                                                   --------
                                                                   $146,857
                                                                   ========
</TABLE>

         At December  31,  1999,  total  collateralized  obligations,  including
deferred pension contributions (see Note 7), amounted to $147.5 million.


<PAGE>


Note 5 - Income taxes

     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,
                                               ---------------------------------
                                                 1997        1998         1999
                                                 ----        ----         ----
                                                        (In thousands)

<S>                                             <C>         <C>         <C>
Expected tax expense, at statutory rate ....    $ 5,918     $ 1,752     $(4,283)
U.S. state income taxes, net ...............        253         280        (157)
Amortization of goodwill ...................       (567)       (435)       (435)
Settlement of income tax audit .............     (1,500)       --          --
                                                -------     -------     -------
Other, net .................................        437        (502)        121
                                                -------     -------     -------

Provision (benefit)for income taxes ........    $ 4,541     $ 1,095     $(4,754)
                                                =======     =======     =======

Provision (benefit) for income taxes:
  Currently payable (refundable):
    U.S. federal ...........................    $ 5,536     $(1,883)    $  (930)
    U.S. state .............................        384        (100)       (461)
    Benefit of loss carry forwards .........       (841)       --          --
    Alternative minimum tax credits ........     (2,111)       --          --
                                                -------     -------     -------

      Net currently payable ................      2,968      (1,983)     (1,391)
  Deferred income taxes, net ...............      1,573       3,078      (3,363)
                                                -------     -------     -------

                                                $ 4,541     $ 1,095     $(4,754)
                                                =======     =======     =======
</TABLE>

         The Company was subject to the regular U.S.  federal  statutory  income
tax rate of 35%, during 1997,  1998 and 1999, but during 1997 Keystone  utilized
alternative  minimum  tax credit  carryforwards  to reduce its  current  federal
income tax payable.  At December 31, 1999,  the Company had  approximately  $2.0
million of alternative minimum tax credit carryforwards which have no expiration
date.


<PAGE>


         The components of the net deferred tax asset are summarized below.
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                              --------------------------------------------------------------------
                                                                        1998                                         1999
                                                              ----------------------------------------  --------------------------
                                                                      Assets          Liabilities       Assets         Liabilities
                                                                      ------          -----------       ------         -----------
                                                                                 (In thousands)

Tax effect of temporary differences relating to:

<S>                                                                  <C>               <C>               <C>               <C>
  Inventories ..............................................         $  2,542          $   --            $  2,549          $   --
  Property and equipment ...................................             --              (4,452)             --              (5,075)
  Prepaid pension ..........................................             --             (47,001)             --             (49,189)
  Accrued OPEB cost ........................................           42,530              --              42,227              --
  Accrued liabilities and other deductible
   differences .............................................           14,641              --              14,975              --
  Other taxable differences ................................             --              (6,707)             --              (6,757)
  Net operating loss carryforwards .........................            9,937              --              15,583              --
  Alternative minimum tax credit carryforwards .............            1,333              --               1,983
                                                                     --------          --------          --------          --------

    Gross deferred tax assets (liabilities) ................           70,983           (58,160)           77,317           (61,021)
Reclassification, principally netting by tax
 jurisdiction ..............................................          (51,998)           51,998           (59,921)           59,921
                                                                     --------          --------          --------          --------

    Net deferred tax asset (liability) .....................           18,985            (6,162)           17,396            (1,100)
Less current deferred tax asset ............................           18,985              --              17,396              --
                                                                     --------          --------          --------          --------

    Noncurrent deferred tax asset (liability) ..............         $   --            $ (6,162)         $   --            $ (1,100)
                                                                     ========          ========          ========          ========
</TABLE>


         At December 31, 1999,  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.  Approximately $2.4 million
of such acquired net operating loss  carryforward  was utilized in 1997 (none in
1998  or  1999).  During  1999,  Keystone  generated  a net  operating  loss  of
approximately  $16.5 million which expires in 2019.  This net operating loss may
be used to reduce future taxable income of the entire Company.

Note 6 - Stock options, warrants and stock appreciation rights plan

         In 1997,  the Company  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 the  Company'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, 1999,  there
were 434,000 options outstanding under this plan.

         During 1997, the Company granted all remaining  options available under
the Company's 1992 Option Plan. At December 31, 1999, there were 268,066 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,
1999, there were 11,000 options outstanding under this plan.
<PAGE>

         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.
<TABLE>
<CAPTION>

                                                                  Price per         Amount payable
                                                   Options          share           upon exercise
                                                   --------       ---------         -------------

<S>                                                 <C>          <C>                 <C>
Outstanding at December 31, 1996                    404,996      $5.86-$13.56        $3,639,634
  Granted                                           167,000       8.13- 13.94         1,613,625
  Exercised                                         (35,235)      9.71- 10.50          (343,778)
  Canceled                                           (5,000)            10.75           (53,750)
                                                   --------      ------------        ----------

Outstanding at December 31, 1997                    531,761       5.86- 13.94          4,855,731
  Exercised                                         (39,061)      5.86- 10.50           (280,483)
  Canceled                                          (90,634)      6.36- 13.94           (921,524)
                                                   --------      ------------          ----------

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
                                                    =======      ============           ==========
</TABLE>


         The following table summarizes weighted average information about fixed
stock options outstanding at December 31, 1999.
<TABLE>
<CAPTION>

                                          Outstanding                                      Exercisable
                         ------------------------------------------     ---------------------------------------------
                                               Weighted Average                                Weighted Average

Range of                               Remaining                                        Remaining
Exercise                              Contractual         Exercise                      Contractual        Exercise
Prices                   Options          Life              Price        Options           Life              Price
 ----------              -------       -----------        --------       -------        -----------        -------

<
<S>                      <C>               <C>                <C>        <C>                 <C>              <C>
$ 7.63-$11.00            680,066            7.7 years         $ 8.73     301,546             6.3 years        $ 8.31
$12.86-$13.94             48,000            5.7               $13.57      38,100             5.1              $13.47
                         -------                                         -------
                         728,066            7.6               $ 9.05     339,646             6.2              $ 8.89
                         =======                                         =======
</TABLE>


         At  December  31,  1999,   options  to  purchase  339,646  shares  were
exercisable (none at prices lower than the December 31, 1999 quoted market price
of $5.94 per share) and options to purchase an  additional  159,280  shares will
become  exercisable in 2000. At December 31, 1999, an aggregate of 66,000 shares
were available for future grants under the 1997 Plan.

         During 1998,  warrants to purchase  447,900  shares of Keystone  common
stock at an exercise price of $9.38 per share were exercised.

         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
1997 and 1999. There were no options granted in 1998.
<TABLE>
<CAPTION>

                                                    Years ended December 31,
                                                   --------------------------
                                                     1997              1999
                                                     ----              ----

<S>                                                  <C>               <C>
Risk-free interest rate                              6.7%              5.5%
Dividend yield                                        -                 -
Volatility factor                                     .44               .43
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 income  (loss)  available for common shares and primary net income
(loss)  available for common shares per common and common  equivalent share were
as follows:
<TABLE>
<CAPTION>

                                                                                  Years ended December 31,
                                                                           -------------------------------------
                                                                             1997           1998            1999
                                                                             ----           ----            ----
                                                                                  (In thousands except per
                                                                                        share amounts)

<S>                                                                         <C>              <C>           <C>
Net income (loss) available for common shares
   -  as reported                                                           $12,088          $3,754        $(7,484)
Net income (loss) available for common shares
  -  pro forma                                                              $11,752          $3,343        $(8,228)
Basic net income (loss) available for common
  shares per common and common equivalent
  share - as reported                                                       $  1.30          $  .41        $  (.75)
Basic net income (loss) available for common
  shares per common and common equivalent
  share - pro forma                                                         $  1.26          $  .37        $  (.83)
Weighted average fair value per share of
  options granted during the year                                           $  6.37          $  -          $  5.66
</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,
1998 and 1999:
<TABLE>
<CAPTION>

                                                  Pension Benefits            Other Benefits
                                               -----------------------    -------- --------------
                                               1998         1999          1998          1999
                                               ----         ----          ----          ----
                                                                 (In thousands)

Change in benefit obligation:
<S>                                          <C>          <C>          <C>          <C>
  Benefit obligation at beginning of year    $ 296,159    $ 312,514    $ 108,395    $ 111,442
  Service cost ...........................       2,798        3,074        1,477        1,986
  Interest cost ..........................      20,177       21,008        7,111        7,030
  Plan participants' contributions .......        --           --            758          675
  Plan amendment .........................        --         15,018         --           --
  Actuarial loss (gain) ..................      15,928      (31,014)       3,442       (9,680)
  Benefits paid ..........................     (22,548)     (22,470)      (9,741)      (9,930)
                                             ---------    ---------    ---------    ---------
  Benefit obligation at end of year ......     312,514      298,130      111,442      101,523
                                             ---------    ---------    ---------    ---------

Change in plan assets:
  Fair value of plan assets at beginning
    of year ..............................     358,150      353,235         --           --
  Actual return on plan assets ...........      17,633        5,908         --           --
  Company contributions ..................        --           --          8,983        9,255
  Plan participants' contributions .......        --           --            758          675
  Benefits paid ..........................     (22,548)     (22,470)      (9,741)      (9,930)
                                             ---------    ---------    ---------    ---------

  Fair value of plan assets at end of year     353,235      336,673         --           --
                                             ---------    ---------    ---------    ---------

Funded status ............................      40,721       38,543     (111,442)    (101,523)
Unrecognized net loss (gain) .............      76,786       71,930        6,260       (3,257)
Unrecognized prior service cost (credit) .        --         14,454       (3,865)      (3,522)
Unrecognized transition obligation .......       3,009        1,199         --           --
                                             ---------    ---------    ---------    ---------

Prepaid (accrued) benefit cost ...........     120,516      126,126     (109,047)    (108,302)

Less current portion .....................        --           --        (10,000)      (9,500)
                                             ---------    ---------    ---------    ---------

Noncurrent portion .......................   $ 120,516    $ 126,126    $ (99,047)   $ (98,802)
                                             =========    =========    =========    =========
</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
                                     ------------------------------------     ------------------------------------
                                        1997          1998          1999          1997          1998         1999
                                        ----          ----          ----          ----          ----         ----

<S>                                     <C>          <C>           <C>           <C>           <C>           <C>
Discount rate                            7.0%         6.5%          7.5%          7.0%          6.5%          7.5%
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
                                    --------------------------------      ---------------------------------
                                        1997        1998        1999         1997         1998        1999
                                        ----        ----        ----         ----         ----        ----
                                                                 (In thousands)

<S>                                  <C>         <C>         <C>         <C>         <C>         <C>
Service cost .....................   $  2,368    $  2,798    $  3,074    $  1,304    $  1,477    $  1,986
Interest cost ....................     20,229      20,177      21,008       7,395       7,111       7,030
Expected return on plan assets ...    (31,807)    (34,729)    (34,219)       --          --          --
Amortization of unrecognized:
  Net obligation as of
    January 1, 1987 ..............      1,810       1,810       1,810        --          --          --
  Prior service cost .............         (4)         (4)        511        (343)       (343)       (343)
  Net loss (gains) ...............      1,082         504       2,206         (29)       --          --
                                     --------    --------    --------    --------    --------    --------

Net periodic benefit cost (credit)   $ (6,322)   $ (9,444)   $ (5,610)   $  8,327    $  8,245    $  8,673
                                     ========    ========    ========    ========    ========    ========
</TABLE>


         At December 31, 1999,  approximately  97% of the Plan's 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, 1999 were invested
in investment partnerships, certain real estate leased by the Company, 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 or 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.

         Keystone was granted funding waivers from the Internal  Revenue Service
("IRS") to defer the annual pension plan  contributions  for the 1980,  1984 and
1985 plan  years,  which,  in the  aggregate,  amounted  to $31.7  million.  The
deferred amounts, with interest, were payable by the Company over fifteen years.
At December 31, 1999, the remaining  balance of such deferred  contributions was
approximately  $651,000.  These deferred  contributions are  collateralized by a
lien on all of the  Company's  assets.  However,  the Company  will no longer be
required to make these  deferred  contributions  provided  the Plan  maintains a
specified over-funded status.

         For  measurement  purposes,  a 6.0%  annual rate of increase in the per
capita cost of covered  health care benefits was assumed for 1999.  The rate was
assumed  to  decrease  gradually  to 5.0%  in  2006  and  remain  at that  level
thereafter.
<PAGE>

         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:
<TABLE>
<CAPTION>

                                               Change in Health Care Cost Trend
                                               --------------------------------
                                                  1% Increase       1% Decrease
                                               --------------       -----------
                                                        (In thousands)

Increase (decrease):
<S>                                               <C>                 <C>
  Effect on total of service and interest
    cost components for the year ended
    December 31, 1999                              $   752             $(1,279)

  Effect on postretirement benefit
    obligation at December 31, 1999                $11,284             $(9,494)
</TABLE>


         The Company also maintains several defined  contribution pension plans.
Expense related to these plans was $2.4 million in 1997 and $2.9 million in each
of 1998 and 1999.

Note 8 - Other accrued liabilities
<TABLE>
<CAPTION>

                                                   December 31,
                                                 1998       1999
                                                 ----       ----
                                                 (In thousands)

Current:
<S>                                             <C>       <C>
  Employee benefits .........................   $11,560   $13,181
  Environmental .............................     7,165    10,093
  Self insurance ............................     6,950     7,218
  Interest ..................................     4,054     4,034
  Disposition of former facilities ..........     1,452       617
  Legal and professional ....................       795       829
  Other .....................................     5,481     9,365
                                                -------   -------

                                                $37,457   $45,337
                                                =======   =======
Noncurrent:
  Environmental .............................   $ 8,175   $ 8,143
  Deferred gain .............................       821       274
  Other .....................................     1,287     1,122
                                                -------   -------

                                                $10,283   $ 9,539
                                                =======   =======
</TABLE>

     The  deferred  gain  relates to the sale of certain  DeSoto  properties  to
DeSoto's pension plan. See Note 14.

<PAGE>

Note 9 - Redeemable preferred stock:

         In connection  with the DeSoto  Acquisition,  Keystone  issued  435,456
shares of Keystone Series A 8% Senior Preferred Stock in exchange for all of the
outstanding  preferred stock of DeSoto. The preferred stock could be redeemed by
Keystone at any time, at a cash redemption  price equal to $8.0375 per share (an
aggregate  of $3.5  million)  plus all  accrued  but unpaid  dividends  thereon,
whether or not earned or declared (the "Liquidation Preference").  Under certain
conditions,  Keystone  was  required  to redeem  the  preferred  stock at a cash
redemption  price equal to the  Liquidation  Preference,  to the maximum  extent
legally permissible including within ten days after the exercise of any warrants
to purchase  Keystone  common stock by any of the  warrantholders  and preferred
stockholders.

         In July 1998, the warrantholders  exercised their warrants and Keystone
redeemed all of the  outstanding  preferred  stock at the aggregate $3.5 million
redemption price. Net cash proceeds to the Company approximated $701,000.

Note 10 - Related party transactions

         Keystone 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 various transactions with related parties, including
the Company. Such transactions may include,  among other things,  management and
expense  sharing  arrangements,  advances of funds on open  account,  and sales,
leases and  exchanges  of assets.  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.
Depending upon the business, tax and other objectives then relevant, the Company
may be a party to one or more such transactions in the future. See also Note 14.

     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  $62,000 in 1997,  $77,000 in 1998 and  $66,000 in
1999.

         Under the terms of an Intercorporate  Services  Agreement with Contran,
Contran  and  related  companies  perform  certain  management,   financial  and
administrative  services for the Company on a fee basis. Aggregate fees incurred
by the Company  pursuant to this  agreement  were $540,000 in 1997,  $639,000 in
1998 and $656,000 in 1999. In addition,  the Company  purchased certain aircraft
services  from Valhi in the amount of  $175,000  in 1997,  $160,000  in 1998 and
$175,000 in 1999.

         Certain of Keystone's property,  liability and casualty insurance risks
are insured or partially reinsured by captive insurance subsidiaries of Contran.
The premiums paid in connection  therewith were approximately  $127,000 in 1997,
$719,000 in 1998 and $967,000 in 1999.

         EWI RE, Inc.  ("EWI") arranges for and brokers certain of the Company's
insurance policies. Parties related to Contran own 90% of the outstanding common
stock of EWI, and a son-in-law  of Mr.  Simmons  manages the  operations of EWI.
Consistent with insurance industry practices, EWI receives a commission from the
insurance underwriters for the policies that it arranges or brokers. The Company
paid an aggregate  of  approximately  $.8 million for such  policies in 1998 and
$1.7 million in 1999.

         Dallas Compressor  Company, a wholly-owned  subsidiary of Contran sells
compressors  and  related  services  to  Keystone.  During  1997,  1998 and 1999
Keystone  purchased  products and services from Dallas Compressor Company in the
amount of $52,000, $26,000 and $170,000, respectively.
<PAGE>

Note 11 - Quarterly financial data (unaudited)
<TABLE>
<CAPTION>

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

Year ended December 31, 1999:

<S>                                                      <C>              <C>             <C>              <C>
  Net sales                                              $91,717          $105,924        $79,738          $78,309
  Gross profit (loss)                                      8,054            12,440          3,512             (962)
  Net income (loss)                                      $  (348)         $  2,479        $(4,118)         $(5,497)
                                                         =======          ========        =======          =======

  Net income (loss) available for common shares          $  (348)         $  2,479        $(4,118)         $(5,497)
                                                         =======          ========        =======          =======

  Basic net income (loss) available for common
    shares per common and common equivalent share        $  (.04)         $    .25        $  (.41)         $ ( .55)
                                                         =======          ========        =======          ========

Year ended December 31, 1998:

  Net sales                                              $96,104          $105,919        $87,125          $80,874
  Gross profit                                             7,931            10,082          5,918            6,466
  Net income (loss)                                      $ 2,202          $  4,068        $  (707)         $(1,652)
                                                         =======          ========        =======          =======

  Net income (loss) available for common shares          $ 2,132          $  3,998        $  (724)         $(1,652)
                                                         =======          ========        =======          =======

  Basic net income (loss) available for common
   shares per common and common equivalent share         $   .23          $    .43        $  (.07)         $  (.18)
                                                         =======          ========        =======          =======
</TABLE>


         During the fourth quarter of 1998 and 1999,  Keystone recorded a charge
to bad debt expense of $.7 million and $.6 million, respectively, resulting from
severe deterioration in a customer's financial  condition.  In addition,  during
the fourth  quarter of 1999,  the  Company  recorded  a $1.6  million  charge to
depreciation expense representing the remaining book value of certain components
of the Company's pollution control system that were replaced.

Note 12 - Operations

         Through December 31, 1998,  Keystone's operations were 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  manufacture  and sale of
household  cleaning  products.  In  January  1999,  the  Company's  wholly-owned
subsidiary,  DeSoto,  sold its household  cleaning  products  division.  Also in
January 1999,  Keystone  formed  Garden Zone,  to supply wire,  wood and plastic
products to the consumer  lawn and garden  markets.  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. The Company's household
cleaning products were sold primarily to a single customer.


<PAGE>


         The Company  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.
<TABLE>
<CAPTION>

Business Segment             Principal entities                  Location

<S>                         <C>                                  <C>
Steel and wire products      Keystone Steel & Wire               Peoria, Illinois
                             Sherman Wire                        Sherman, Texas
                             Sherman Wire
                              of Caldwell, Inc.                  Caldwell, Texas
                             Keystone Fasteners                  Springdale, Arkansas
                             Fox Valley Steel & Wire             Hortonville,  Wisconsin
                             Engineered Wire Products (1)        Upper Sandusky, Ohio

Lawn and garden products     Garden Zone LLC (2)                 Charleston, South
                                                                   Carolina

Household cleaning products  DeSoto                              Joliet, Illinois
</TABLE>


(1)      Unconsolidated 20% equity affiliate prior to December 23, 1997. On that
         date,  Keystone  acquired  the  80% of EWP  not  already  owned  by the
         Company,  resulting  in  EWP  becoming  a  wholly-owned  subsidiary  of
         Keystone.  Sales  by  Keystone  to EWP  during  1997  prior  to the EWP
         Acquisition amounted to $12.9 million.

(2)      51.0% subsidiary.

         The  Company'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. Robert W. Singer.  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     Household                  Corporate
                                     Wire        Garden       Cleaning      Segment         and
                                    Products     Products     Products       Total      Eliminations      Total
                                   --------     --------     --------       -----      ------------      -----
                                                                  (In thousands)
Year ended December 31, 1999:

<S>                                <C>          <C>         <C>          <C>          <C>          <C>
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
  affiliates ...................         (54)        --          --            (54)        --            (54)
Operating profit (loss) ........       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

Year ended December 31, 1998:

Net sales ......................   $ 359,993    $    --     $  10,029    $ 370,022    $    --      $ 370,022
Depreciation and amortization ..      21,317         --            52       21,369       (1,229)      20,140
Operating profit (loss) ........      14,400         --        (1,367)      13,033         --         13,033
Identifiable segment assets ....     252,172         --         2,311      254,483      151,374      405,857
Capital expenditures ...........      64,308         --           217       64,525           16       64,541

Year ended December 31, 1997:

Net sales ......................   $ 340,099    $    --     $  13,974    $ 354,073    $    --      $ 354,073
Depreciation and amortization ..      14,296         --             7       14,303       (1,488)      12,815
Operating profit ...............      22,446         --           846       23,292         --         23,292
Identifiable segment assets ....     210,114         --         2,184      212,298      161,833      374,131
Capital expenditures ...........      26,085         --           117       26,202           92       26,294
</TABLE>




<PAGE>



<TABLE>
<CAPTION>

                                                   Years ended December 31,
                                                ------------------------------
                                                 1997        1998         1999
                                                 ----        ----         ----
                                                       (In thousands)

<S>                                            <C>         <C>         <C>
Operating profit ...........................   $ 23,292    $ 13,033    $  2,578
Equity in loss of unconsolidated affiliate .       --          --           (54)
General corporate items:
  Interest income ..........................      1,218         594         452
  General income (expenses), net ...........         11       1,839      (1,156)
Interest expense ...........................     (7,612)    (10,460)    (14,058)
                                               --------    --------    --------

  Income (loss) before income taxes ........   $ 16,909    $  5,006    $(12,238)
                                               ========    ========    ========
</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,
                                      ----------------------------------------
                                       1997              1998             1999
                                       ----              ----             ----
                                                  (In thousands)

<S>                                   <C>              <C>              <C>
United States ...............         $350,850         $366,731         $353,151
Canada ......................            2,802            3,242            2,449
Great Britain ...............              418               24               88
Other .......................                3               25             --
                                      --------         --------         --------
                                      $354,073         $370,022         $355,688
                                      ========         ========         ========
</TABLE>


<PAGE>


Note 13 - Environmental matters

         At December 31, 1999,  Keystone's  financial statements reflected total
accrued  liabilities of $18.2 million to cover estimated  remedial costs arising
from environmental issues, 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.

         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 1997, 1998 and
1999 the Company did not have any significant  remediation  efforts  relative to
Phases V and VI.  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, 1998 and
1999 the trust fund had balances of $3.6 million and $4.0 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 2000.

         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  paragraphs now undergoing  RCRA closure under the  supervision of the
IEPA.  Keystone has requested a meeting with the U.S. EPA to learn the basis for
the notice and what responsive action is required.

         In March  2000,  the  Illinois  Attorney  General  filed and  served an
eight-count  complaint  against Keystone for alleged  violations of the Illinois
Environmental  Protection Act, 415 ILCS 5/31, at Keystone's Peoria facility. The
complaint alleges Keystone stored hazardous waste without a RCRA permit,  failed
to use required manifests for hazardous waste disposal, sent hazardous waste off
site to non-hazardous  waste landfills,  failed to make required hazardous waste
determinations  for  several  barrels  of waste  discovered  during a 1996 state
inspection,  committed various record keeping violations,  submitted  incomplete
annual hazardous waste reports to the IEPA, caused water pollution and created a
water pollution  hazard through the release of spent pickle liquor onto the land
in December  1998 and  January  1999.  The  complaint  seeks a civil  penalty of
$50,000 for each violation of the Illinois Environmental  Protection Act, and an
additional  civil  penalty of $10,000 for each day of  violation.  Keystone will
vigorously contest the complaint.

"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. The Company 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  the Company
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 1997 and 1999, the Company  received
approximately  $4.7  million and  $725,000,  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 the Company's
self insurance accruals.

         In July  1991,  the  United  States  filed an  action  against a former
division of the Company and four other PRP's 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. If all PRP's identified by U.S. EPA as
having  responsibility  for this site were to  participate  in the soils remedy,
Keystone's  share would be 18.6%.  At  present,  PRP's  representing  80% of the
allocated  responsibility,  including  Keystone,  have  indicated they intend to
participate  in the soils remedy.  In addition,  the special  notice letter also
requested the PRP's 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. U.S. EPA has yet to
issue its final ROD in response to these and other comments.

         In September  1991,  the Company along with 53 other PRP's,  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 PRP's 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 project  manager for the  engineering  firm
conducting  the RI/FS at the site has  concluded  the least  expensive  remedial
option would be to cap the site and install and operate a soil vapor  extraction
system, at an estimated cost of approximately  $2.6 million.  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 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.  The proposed  Consent Decree was lodged
by U.S.  EPA with the District  Court in February  1999,  with a public  comment
period of at least 30 days. The Company's estimated share of the least expensive
remedial option is $375,000.

         Prior to the DeSoto  acquisition,  DeSoto was notified by U.S. EPA that
it is one of  approximately  50 PRPs at the  Chemical  Recyclers,  Inc.  site in
Wylie,  Texas.  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. The Company is paying on a non-binding  interim
basis,  approximately  10% of the costs for this  site.  Remediation  costs,  at
DeSoto'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.  At December 31, 1999 current estimates
of total remaining  remediation costs related to this site are approximately $35
million.  In addition to certain  amounts  included in the trust fund  discussed
below, DeSoto also has certain funds available in other trust funds due it under
the partial  consent  decree.  These credits can be used by DeSoto (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 the  Company's  non-operating  facilities  located in
Gainesville,  Texas.  During 1999,  the Company  entered into TNRCC's  Voluntary
Cleanup Program.  Remediation  costs,  are presently  estimated to be between $1
million and $5 million.

         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, 1999.  The Company has denied any
liability  with  regard to this  matter  and  expects to  vigorously  defend the
action.

         During December 1997,  DeSoto entered into a agreement with U.S. EPA to
settle the Company's  alleged  liability  with respect to the American  Chemical
Site ("ACS"), a chemical  recycling facility located in Griffith,  Indiana for a
payment of approximately  $1.6 million,  which was within the previously accrued
balance and which was paid in 1998.

         In addition to the sites discussed above,  DeSoto is allegedly involved
at various other sites and in related toxic tort lawsuits which the Company does
not currently expect to incur significant liability.

         Under the terms of a 1990 asset sale agreement, DeSoto established a $6
million trust fund to fund potential clean-up liabilities relating to the assets
sold. The trust agreement expires on October 26, 2000. The Company has access to
the trust fund for any expenses or liabilities incurred by the Company regarding
environmental  claims relating to the sites  identified in the trust  agreement.
The trust fund is primarily invested in United States Treasury securities and is
classified as a restricted  investment on the balance sheet.  As of December 31,
1998 and 1999, the balance in the trust fund was approximately  $4.5 million and
$4.6 million, respectively.

Note 14 - Lease commitments

         During years prior to the DeSoto  acquisition,  DeSoto sold four of its
real properties to a real property trust created by DeSoto's  pension plan. This
trust paid a total of approximately $10.6 million in cash for the properties and
entered into ten-year  leases of the properties to DeSoto.  DeSoto's gain on the
sale of these  properties  is being  amortized  over the  period of the  related
leases and is included in other accrued liabilities. See Note 8. 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. In
January 1999, the Plan sold the third location, and DeSoto was released from the
respective  lease.  DeSoto  subleased the fourth  location and continues to make
monthly  rental  payments to the pension plan for the amount by which its rental
obligation exceeds the subtenant's rental obligations.  During January 2000, the
Plan entered into an agreement to sell the fourth and final location.
<PAGE>

         Payments,  net of subtenant  rent  payments,  under these leases during
1997 1998 and 1999 amounted to  approximately  $832,000,  $679,000 and $324,000,
respectively.

         In addition,  the Company is obligated  under certain  other  operating
leases through 2005.

         Future  commitments under these leases, net of subleases are summarized
below.
<TABLE>
<CAPTION>

                                                      (In thousands)
                                       ---------------------------------------
                                         Lease             Sub
                                       commitment          rents           Net

<S>                                      <C>               <C>           <C>
2000                                     $2,141            $263          $1,878
2001                                      1,648             247           1,401
2002                                        968             150             818
2003                                        241               -             241
2004                                        104               -             104
Thereafter                                   22              -               22
                                         ------            ----          ------
                                         $5,124            $660          $4,464
                                         ======            ====          ======
</TABLE>

Note 15 -  Other commitments and contingencies

Current litigation

         In 1992, a claim was filed  against  DeSoto in the Eastern  Division of
the Danish High Court by an  insurance  carrier to a third  party,  for property
damage allegedly  incurred when a fertilizer  product  manufactured by the third
party,  containing  a  chemical  sold to that  party by one of  DeSoto's  former
operations,  allegedly  caused or  promoted,  a fungus  infection  resulting  in
failure of certain tomato crops in the United  Kingdom.  The damages alleged are
approximately $1.4 million.  DeSoto's defense, with a reservation of rights, has
been  undertaken  by one of its  insurance  carriers.  The matter  continues  to
proceed in Denmark,  where  jurisdiction has been conceded.  During 1996, DeSoto
received a report from its Danish counsel that an independent expert had largely
confirmed  DeSoto's  position  that its product was not the cause of the alleged
damage.

         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.

         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.

<PAGE>
Product supply agreement

         In 1996,  Keystone  entered into a long-term  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,
Illinois  facility and, after completion of the plant,  provide the Company with
all,  subject to certain  limitations,  of its gaseous oxygen and nitrogen needs
for a 15 year period. 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
1997, 1998 and 1999 amount to $391,000, $399,000 and $2.1 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
1997, 33% in 1998 and 34% in 1999. These customers  accounted for  approximately
30% of steel and wire  products  notes and accounts  receivable  at December 31,
1998 and 22% at December 31, 1999.

         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 and lawn and garden products notes and accounts  receivable at December 31,
1999.

         Household  cleaning  products.  The Company sold its household cleaning
products to primarily one customer,  Sears, Roebuck & Co. ("Sears"). The Company
extends industry  standard terms to its household  cleaning  products  customers
and,  generally  requires no  collateral.  During 1997 and 1998,  sales to Sears
accounted for approximately 81% and 85%, respectively, of total sales related to
household  cleaning  products.  Receivables  from  Sears at  December  31,  1998
amounted to approximately 76% ($1.5 million), of receivables related to sales of
household cleaning products.


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           SCHEDULE II - VALUATION AND

                               QUALIFYING ACCOUNTS

                                 (In thousands)

                                    Additions
<TABLE>
<CAPTION>

                                                  Balance at    Charged to    Deductions                Balance at
                                                   beginning    costs and      (net of                    end of
Description                                        of period     expenses    recoveries)   Other (A)      period
-----------                                     -- ---------     --------    -----------   ---------   -- ------

Year ended December 31, 1997:

<S>                                                 <C>            <C>          <C>        <C>            <C>
  Allowance for doubtful accounts and
    notes receivable                                $   469        $2,513       $   61     $     20       $2,941
                                                    =======        ======       ======     ========       ======

Year ended December 31, 1998:

  Allowance for doubtful accounts and
    notes receivable                                $ 2,941        $2,019       $   45     $   -          $4,915
                                                    =======        ======       ======     ========       ======

Year ended December 31, 1999:

  Allowance for doubtful accounts and
   notes receivable                                  $4,915       $   523       $3,141     $   -          $2,297
                                                     ======       =======       ======     ========       ======


</TABLE>