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, 2000

                          Commission file number 1-3919

                     Keystone Consolidated Industries, Inc.
             (Exact name of registrant as specified in its charter)

             Delaware                                   37-0364250
---------------------------------              ---------------------------
(State or other jurisdiction of                       (IRS Employer
incorporation or organization)                      identification No.)

5430 LBJ Freeway, Suite 1740
Three Lincoln Centre, Dallas, TX                       75240-2697
----------------------------------------      -----------------------------
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:      (972) 458-0028
                                                      -----------------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                    Name of each exchange
            Title of each class                     on which registered

         Common Stock, $1 par value                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 22, 2001,  10,061,969 shares of common stock were  outstanding.  The
aggregate  market  value  of the  5,071,496  shares  of  voting  stock  held  by
nonaffiliates  of the  Registrant,  as of  such  date,  was  approximately  $8.3
million.

                       Documents incorporated by reference

The  information  required by Part III is  incorporated  by  reference  from the
Registrant's  definitive  proxy  statement to be filed with the  Securities  and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.


<PAGE>


                                     PART I

ITEM 1. BUSINESS.

General

         Keystone  Consolidated  Industries,  Inc. ("Keystone" or the "Company")
believes  it is a  leading  manufacturer  of  steel  fabricated  wire  products,
industrial  wire  and  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  (438,000 in 2000).
Keystone  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 2000,  Keystone had net sales of $338 million.
Approximately  78% 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 Keystone's downstream operations.

         The Company's fabricated wire products, which comprised 60% of its 2000
net sales, include fencing, barbed wire, welded and woven hardware cloth, welded
and  woven  wire  mesh and  nails.  These  products  are  sold to  agricultural,
construction,  industrial,  consumer  do-it-yourself and other end-user markets.
Keystone  serves these markets  through  distributors,  agricultural  retailers,
building  supply  centers and  consumer  do-it-yourself  chains such as 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  61%  of
Keystone's  fabricated  wire products net sales are generated by sales under the
RED BRAND  trademark,  a widely  recognized  brand name in the  agricultural and
construction fencing marketplaces for more than 75 years.

         The Company also sells industrial wire, an intermediate product used in
the manufacture of fabricated wire products,  to third parties who are generally
not competitors.  Keystone's  industrial wire customers include manufacturers of
nails,  coat hangers,  barbecue grills,  air  conditioners,  tools,  containers,
refrigerators  and  other  appliances.  In 2000,  net sales of  industrial  wire
accounted for 17% of Company net sales. In addition,  Keystone also sells carbon
steel rod into the open market which it is not able to consume in its downstream
fabricated  wire products and  industrial  wire  operations.  During 2000,  open
market sales of rod accounted for 20% of Company net sales.

         Keystone is also engaged in the distribution of wire,  plastic and wood
lawn and garden products to retailers  through its 51% owned  subsidiary  Garden
Zone LLC ("Garden Zone").  During 2000, sales by Garden Zone accounted for 2% of
Company net sales. In addition,  Keystone is engaged in scrap recycling  through
its unconsolidated 50% interest in Alter Recycling Company,  L.L.C. ("ARC"). See
Note 2 to the Consolidated Financial Statements.

         See "Business -- Products,  Markets and  Distributions" and Notes 2 and
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 and 2000, Keystone experienced production problems related
to the  start-up of the new  equipment.  Keystone  believes  it  resolved  these
problems  during 2000 and the equipment is now performing at the desired levels.
However,  despite the increase in billet production  capacity to 1 million tons,
Keystone's  rod production is constrained by the 800,000 ton capacity of its rod
mill.  The  Company  anticipates  any  excess  billet  production  will  be sold
externally.

         The Company is the successor to Keystone  Steel & Wire  Company,  which
was  founded  in  1889.  Contran  Corporation  ("Contran")  and  other  entities
controlled by Mr. Harold C. Simmons,  beneficially own  approximately 50% of the
Company.  Substantially  all of  Contran's  outstanding  voting stock is held by
trusts  established for the benefit of certain children and grandchildren of Mr.
Simmons,  of which Mr.  Simmons is sole  trustee.  Keystone  may be deemed to be
controlled by Contran and Mr. Simmons.

         As  provided by the safe harbor  provisions  of the Private  Securities
Litigation  Reform Act of 1995,  the Company  cautions  that  statements in this
Annual  Report on Form 10-K  relating to matters that are not  historical  facts
including,  but not limited to,  statements  found in this Item 1 -  "Business",
Item 3 - "Legal Proceedings",  Item 7 - "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations",  and Item 7A - "Quantitative and
Qualitative Disclosures About Market Risk", are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes",   "intends",  "may",  "should",  "could",   "anticipates",
"expected",  or  comparable  terminology,  or by  discussions  of  strategies or
trends.   Although  Keystone   believes  the  expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  substantial risks and  uncertainties  that could  significantly  impact
expected  results,  and actual future results could differ materially from those
described  in such  forward-looking  statements.  While  it is not  possible  to
identify all factors,  Keystone  continues to face many risks and uncertainties.
Among the factors that could cause actual  future  results to differ  materially
are the  risks and  uncertainties  discussed  in this  Annual  Report  and those
described  from time to time in the Company's  other filings with the Securities
and Exchange Commission, including, but not limited to, future supply and demand
for the Company's products (including  cyclicality thereof),  customer inventory
levels,  changes in raw  material and other  operating  costs (such as scrap and
energy),  general  economic  conditions,  competitive  products  and  substitute
products,  customer  and  competitor  strategies,  the  impact  of  pricing  and
production  decisions,  the  possibility  of  labor  disruptions,  environmental
matters (such as those requiring  emission and discharge  standards for existing
and new facilities),  government  regulations and possible changes therein,  any
significant  increases in the cost of providing  medical  coverage to active and
retired employees,  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 and other risks and uncertainties as discussed in this Annual
Report, including, without limitation, the sections referenced above. Should one
or more of these risks  materialize  (or the  consequences of such a development
worsen),  or should the underlying  assumptions prove incorrect,  actual results
could differ  materially from those forecasted or expected.  Keystone  disclaims
any intention or obligation  to update or revise any  forward-looking  statement
whether as a result of new information, future events or otherwise.

Manufacturing

         The  Company's  manufacturing  operations  consist of an  electric  arc
furnace  mini-mill,  a rod  mill  and 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  Keystone to fill
customer orders and respond to shifts in product demand.
<PAGE>


Products, Markets and Distribution

         The following table sets forth certain  information with respect to the
Company's steel and wire product mix in each of the last three years.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                   1998              1999              2000
                             ----------------  ----------------  ---------------
                             Percent   Percent  Percent  Percent Percent Percent
                            of Tons      Of    of Tons    of     of Tons   of
        Product             Shipped    Sales   Shipped  Sales    Shipped  Sales
   -----------------        -------    -----   ------   -----    -------  -----

Fabricated wire
<S>                           <C>      <C>      <C>      <C>      <C>      <C>
  products ...............    46.1%    60.4%    45.2%    62.5%    44.7%    61.9%
Industrial wire ..........    24.0     22.6     20.7     19.4     18.4%    17.4%
Carbon steel rod .........    29.9     17.0     34.1     18.1     36.9%    20.7%
                             -----    -----    -----    -----    -----    -----
                             100.0%   100.0%   100.0%   100.0%   100.0%   100.0%
                             =====    =====    =====    =====    =====    =====
</TABLE>


         Fabricated Wire Products.  Keystone is one of the leading  suppliers in
the United States of agricultural  fencing,  barbed wire,  stockade panels and a
variety  of welded and woven wire mesh,  fabric and  netting  for  agricultural,
construction and industrial applications. The Company produces these products at
its Peoria,  Illinois,  Sherman,  Texas and Caldwell,  Texas  facilities.  These
products  are  distributed  by  Keystone   through  farm  supply   distributors,
agricultural  retailers,   building  supply  centers,  building  and  industrial
materials  distributors  and  consumer  do-it-yourself  chains  such as 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 Keystone
for more than 75 years.  As part of its  marketing  strategy,  Keystone  designs
merchandise  packaging,  and supportive product literature for marketing many of
these  products  to the  retail  consumer  market.  Keystone  also  manufactures
products for residential and commercial  construction,  including bulk, packaged
and collated nails,  rebar ty wire, stucco netting,  welded wire mesh, forms and
reinforcing building fabric at its Peoria,  Illinois;  Sherman, Texas; Caldwell,
Texas;  Springdale,  Arkansas;  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  46% of its nails  through  PrimeSource,  Inc.,  one of the
largest nail distributors in the United States, under PrimeSource's Grip-Rite(R)
label.

         Keystone 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. 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.

         Keystone  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.

         Industrial  Wire.  Keystone  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 Keystone'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 Keystone.

         Carbon  Steel Rod.  Keystone  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 2000, approximately 62% of the rod manufactured by the
Company was used  internally to produce wire and fabricated  wire products.  The
remainder  of  Keystone's  rod  production  was sold  directly to  producers  of
construction  products,  fabricated wire products and industrial wire, including
products similar to those manufactured by the Company.

         In January 2001, Keystone's wholly-owned subsidiary, Fox Valley Steel &
Wire ("Fox  Valley")  sold its sole business  which was located in  Hortonville,
Wisconsin to a management  group. Fox Valley did not record any significant gain
or loss as a result of the sale.  Fox Valley  manufactured  industrial  wire and
fabricated  wire  products  (primarily  ladder  rods and  nails).  Fox  Valley's
revenues in 1998,  1999 and 2000  amounted to $12.0  million,  $11.3 million and
$10.3 million, respectively.  During 1998, 1999 and 2000, approximately 55%, 30%
and 32%,  respectively  of Fox Valley's  sales were to a single  customer.  That
customer  will,  in the  future,  be  serviced by  Keystone's  Peoria,  Illinois
facility.  During 1998, 1999 and 2000, Fox Valley recorded  operating  losses of
$266,000, $67,000 and $686,000, respectively.

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.
During the last two years,  three of Keystone's major competitors have filed for
protection  under  federal  bankruptcy  laws and three  others  have  reduced or
completely shut-down their operations.  The Company believes these shut-downs or
production  curtailments  represent  approximately  2.5  million  tons of annual
capacity.  However,  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. In February 2000,  President Clinton announced the  implementation of a
Tariff-Rate  Quota  ("TRQ") for three years.  The tariff will be imposed on wire
rod imports from countries  subject to the TRQ once imports initially exceed 1.6
million  net tons.  This 1.6  million  net tons 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 believe
the TRQ has had a major  impact on the  industry and high levels of imported rod
continue.

         Keystone  believes its  facilities  are well  located to serve  markets
throughout the continental United States,  with principal markets located in the
Midwestern,  Southwestern  and  Southeastern  regions.  Close  proximity  to its
customer  base  provides the Company with  certain  advantages  over foreign and
certain domestic competition including reduced shipping costs, improved customer
service and shortened  delivery times.  Keystone believes higher  transportation
costs  and  the  lack of  local  distribution  centers  tend  to  limit  foreign
producers'  penetration of the Company's principal  fabricated wire products and
industrial wire markets,  but there can be no assurance this will continue to be
the case.

         Keystone 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,  Illinois facility from a utility under an interruptible service
contract which  provides for more  economical  electricity  rates but allows the
utility  to  refuse  or  interrupt   power  to   Keystone's   Peoria,   Illinois
manufacturing  facilities.  This utility has in the past, and may in the future,
refuse or interrupt service to the Company resulting in decreased production and
increased costs associated with the related downtime.  In addition,  the utility
has the right to pass  through  certain of its costs to  consumers  through fuel
adjustment  charges.  During  the  1999  third  quarter,  Keystone  received  an
unexpected  $2.2  million  fuel  adjustment   charge  from  the  Peoria  plant's
electricity provider.  The $2.2 million charge was paid during 2000. 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

         As of December 31, 2000, Keystone employed  approximately 1,830 people,
of whom  approximately  1,090 are represented by the Independent  Steel Workers'
Alliance  ("ISWA") at its Peoria,  Illinois  facilities,  approximately  150 are
represented by the International Association of Machinists and Aerospace Workers
(Local 1570) ("IAMAW") at its Sherman, Texas facilities and approximately 70 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 2003 and
November 2001,  respectively.  The Company  believes its  relationship  with its
employees  are good.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations."

Customers

         The  Company  sells its  products  to  customers  in the  agricultural,
industrial, construction, commercial, original equipment manufacturer and retail
markets  primarily in the Midwestern,  Southwestern and Southeastern  regions of
the  United  States.  Customers  vary  considerably  by product  and  management
believes  Keystone's  ability  to offer a broad  range of product  represents  a
competitive advantage in servicing the diverse needs of its customers.

         A listing of end-user markets by products follows:

<TABLE>
<CAPTION>
Product                                 Principal Markets Served

<S>                        <C>
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
</TABLE>

         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 9% of the Company's net sales during each of 1998,  1999
or 2000. 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  December  31,  1999 and $22  million at
December 31, 2000.  Keystone believes backlog is not a significant factor in its
business,  and all of the  backlog at December  31, 2000 will be shipped  during
2001.

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 year ended December 31, 1998, Joliet had net sales
of $10 million. 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 1998 were to a single customer.

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
3,000 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 2.5 million square feet for manufacturing and
office space,  approximately  79% 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>

*Keystone sold the Fox Valley Steel & Wire business in January 2001.

         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, 2000.




<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 22, 2001 was 1,591.  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

2000
<S>                                                      <C>               <C>
  First quarter ..............................           $7.50             $4.50
  Second quarter .............................           $4.75             $3.75
  Third quarter ..............................           $3.88             $2.69
  Fourth quarter .............................           $2.94             $1.25

1999
  First quarter ..............................           $9.75             $5.50
  Second quarter .............................           $7.94             $6.50
  Third quarter ..............................           $6.56             $4.19
  Fourth quarter .............................           $6.13             $3.88
</TABLE>


         The Company has not paid cash dividends on its common stock since 1977.
Keystone is subject to certain  covenants under its commercial  revolving credit
facilities  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,
                                                  --------------------------------------------
                                            1996        1997        1998        1999         2000
                                            ----        ----        ----        ----         ----
                                             (In thousands, except per share and per ton amounts)

Statement of Operations Data:
<S>                                        <C>        <C>        <C>        <C>          <C>
  Net sales ............................   $331,175   $354,073   $370,022   $ 355,688    $ 338,321
  Cost of goods sold ...................    298,268    316,599    339,625     332,644      331,167
                                           --------   --------   --------   ---------    ---------
  Gross profit .........................   $ 32,907   $ 37,474   $ 30,397   $  23,044    $   7,154
                                           ========   ========   ========   =========    =========

  Selling expenses .....................   $  3,855   $  4,628   $  6,042   $   6,845    $   6,737
  General and administrative
    expenses ...........................     22,779     17,918     19,139      20,850       18,388
  Operating income (loss) ..............     10,662     23,292     13,033       2,578      (15,415)
  Interest expense .....................      3,741      7,612     10,460      14,058       15,346

  Income (loss) before income taxes ....   $  4,240   $ 16,909   $  5,006   $ (12,238)     (32,436)
  Provision (benefit) for income taxes .      1,656      4,541      1,095      (4,754)     (11,370)
                                           --------   --------   --------   ---------    ---------

  Net income (loss) ....................   $  2,584   $ 12,368   $  3,911   $  (7,484)   $ (21,066)
                                           ========   ========   ========   =========    =========
  Net income (loss) available for common
    shares (1) .........................   $  2,514   $ 12,088   $  3,754   $  (7,484)   $ (21,066)
                                           ========   ========   ========   =========    =========

 Basic net income (loss) available for
    common shares per share ............   $    .38   $   1.30   $    .41   $    (.75)   $   (2.10)
                                           ========   ========   ========   =========    =========
 Diluted net income (loss) available
    for common shares per share ........   $    .38   $   1.28   $    .40   $    (.75)   $   (2.10)
                                           ========   ========   ========   =========    =========
  Weighted average common and common
    equivalent shares outstanding:......
    Basic ..............................      6,554      9,271      9,544       9,904       10,039
                                           ========   ========   ========   =========    =========
    Diluted ............................      6,560      9,435      9,669       9,904       10,039
                                           ========   ========   ========   =========    =========

Other Financial Data:
  Cash contributions to defined benefit
    pension plans ......................   $  9,664   $   --     $   --     $    --      $    --
  Capital expenditures .................     18,992     26,294     64,541      16,873       13,052
  Depreciation and amortization ........     12,425     12,815     20,140      21,051       17,224

Other Steel and Wire Products Operating
  Data:
  Shipments (000 tons):
    Fabricated wire products ...........        222        225        327         315          310
    Industrial wire ....................        159        175        170         144          128
    Carbon steel rod ...................        307        297        212         237          257
                                           --------   --------   --------   ---------    ---------
      Total ............................        688        697        709         696          695
                                           ========   ========   ========   =========    =========

  Average selling prices (per ton):
    Fabricated wire products ...........   $    716   $    710   $    662   $     683    $     660
    Industrial wire ....................        478        478        476         462          449
    Carbon steel rod ...................        298        317        288         261          266

    Steel and wire products in total ...        475        484        506         493          475

  Average total production cost per ton    $    430   $    437   $    464   $     461    $     470
  Average scrap purchase cost per ton ..        125        122        110          94          100
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                                                          As of December 31,
                                         1996        1997      1998        1999          2000
                                         ----        ----      ----        ----          ----
                                                           (In thousands)

Balance Sheet Data:
<S>                       <C>        <C>          <C>        <C>        <C>          <C>
Working capital (deficit) (2) ....   $ (15,907)   $ 52,684   $    555   $ (13,920)   $ (39,243)
Property, plant and equipment, net      92,608     112,754    156,100     150,156      144,696
Total assets .....................     302,368     374,131    405,857     410,918      385,703
Total debt .......................      51,780     106,844    131,764     146,857      146,008
Redeemable preferred stock .......       3,500       3,500       --          --           --
Stockholders' equity (deficit) ...      31,170      44,211     53,077      46,315       26,058
</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  (438,000 in 2000).
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  78%  of  2000  net  sales.   Keystone'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,  historically, 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 and 2000, Keystone experienced production problems related
to the start-up of the new equipment. Keystone believes it resolved the problems
in 2000 and the equipment is now performing at the desired levels.

         The Company's steel making  operations,  together with billet purchases
of 8,000 tons and 45,000 tons in 2000 and 1999,  respectively,  provided 682,000
tons and  728,000  tons of billets in 2000 and 1999,  respectively.  The current
estimated annual production  capacity of the Company's rod mill is 750,000 tons.
The lower  billet  production  and  purchase  volumes  in 2000  resulted  in rod
production  decreasing 1% from 687,000 tons (92% of estimated  capacity) in 1999
to 678,000  tons (90% of  estimated  capacity).  Despite the  increase in billet
production capacity to 1 million tons,  Keystone's rod production is constrained
by the 800,000 ton capacity of its rod mill. The Company  anticipates any excess
billet  production will be sold  externally.  Following the January 2001 sale of
Fox Valley's business  operations,  Keystone's estimated current fabricated wire
products and industrial wire production  capacity is 580,000 tons. The Company's
fabricated wire products and industrial wire production  facilities  operated at
about 85%,  84%, and 78% of their annual  capacity  during 1998,  1999 and 2000,
respectively.

         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
$110 in 1998, $94 in 1999, and $100 in 2000.  Keystone's  product selling prices
cannot always be adjusted, especially in the short-term, to recover the costs of
any increases in scrap prices.

         The domestic steel rod industry continues to experience  consolidation.
During the last two years,  three of Keystone's major competitors have filed for
protection  under  Federal  bankruptcy  laws and three  others  have  reduced or
completely shut-down their operations.  The Company believes these shut-downs or
production  curtailments  represent  approximately  2.5  million  tons of annual
capacity.  However,  worldwide over capacity 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. In February 2000,  President Clinton announced the  implementation of a
Tariff-Rate  Quota  ("TRQ") for three years.  The tariff will be imposed on wire
rod imports from countries  subject to the TRQ once imports initially exceed 1.6
million net tons. This 1.6 million ton 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 believe the TRQ has
had a major impact on the industry and high levels of imported rod continue.

         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.

         In January 2001, Keystone's wholly-owned subsidiary, Fox Valley Steel &
Wire ("Fox  Valley")  sold its sole business  which was located in  Hortonville,
Wisconsin to a management  group. Fox Valley did not record any significant gain
or loss as a result of the sale.  Fox Valley  manufactured  industrial  wire and
fabricated  wire  products  (primarily  ladder  rods and  nails).  Fox  Valley's
revenues in 1998,  1999 and 2000  amounted to $12.0  million,  $11.3 million and
$10.3 million, respectively.  During 1998, 1999 and 2000, approximately 55%, 30%
and 32%,  respectively  of Fox Valley's  sales were to a single  customer.  That
customer will, in the future, be serviced by Keystone's Peoria facility.  During
1998, 1999 and 2000, Fox Valley recorded  operating losses of $266,000,  $67,000
and $686,000, respectively.

         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,
sales volume and pricing data for the periods indicated.

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                     1998       1999        2000
                                                     ----       ----        ----
                                                         (Tons in thousands)

Production volume (tons):
  Billets:
<S>                                                  <C>         <C>         <C>
    Produced ...............................         640         683         675
    Purchased ..............................          38          45           8
  Carbon steel rod .........................         670         687         678

Sales volume (tons):
  Fabricated wire products .................         327         315         310
  Industrial wire ..........................         170         144         128
  Carbon steel rod .........................         212         237         257
                                                    ----        ----        ----
                                                     709         696         695
                                                    ====        ====        ====

Per ton selling prices:
  Fabricated wire products .................        $662        $683        $660
  Industrial wire ..........................         476         462         449
  Carbon steel rod .........................         288         261         266
  All steel and wire products ..............         506         493         475
</TABLE>
<PAGE>
         The  following  table sets forth the  components  of the  Company's net
sales for the periods indicated.

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                 1998         1999         2000
                                                 ----         ----         ----
                                                           (In millions)

Steel and wire products:
<S>                                             <C>          <C>          <C>
  Fabricated wire products ..............       $216.6       $214.7       $204.7
  Industrial wire .......................         81.0         66.6         57.4
  Carbon steel rod ......................         61.1         62.0         68.4
  Other .................................          1.3          1.4          1.5
                                                ------       ------       ------
                                                 360.0        344.7        332.0
Lawn and garden products ................         --           11.0          6.3
Household cleaning products .............         10.0         --           --
                                                ------       ------       ------
                                                $370.0       $355.7       $338.3
                                                ======       ======       ======
</TABLE>



<PAGE>


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

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                   1998       1999       2000
                                                   ----       ----       ----

<S>                                                <C>        <C>        <C>
Net sales .....................................    100.0%     100.0%     100.0%
Cost of goods sold ............................     91.8       93.5       97.9
                                                   -----      -----      -----
Gross profit ..................................      8.2%       6.5%       2.1%
                                                   =====      =====      =====

Selling expenses ..............................      1.6%       1.9%       2.0%
General and administrative expense ............      5.2        5.9        5.4
Overfunded defined benefit pension credit .....     (2.6)      (1.6)       (.1)

Income (loss) before income taxes .............      1.4%      (3.4)%     (9.6)%
Provision (benefit) for income taxes ..........       .3       (1.3)      (3.4)
                                                   -----      -----      -----
Net income (loss) .............................      1.1%      (2.1)%     (6.2)%
                                                   =====      =====      =====
</TABLE>


Year ended December 31, 2000 compared to year ended December 31, 1999

         Net  sales  declined  4.9% in 2000 from  1999 due  primarily  to a 3.6%
decline in overall steel and wire product selling prices.  During 1999 and 2000,
fabricated  wire products  represented  60% of net sales while  industrial  wire
declined to 17% of net sales in 2000 as compared  to 19% in 1999.  Carbon  steel
rod sales  increased to 20% of net sales in 2000 from the 1999 level of 17%. The
3.6% decline in overall product selling prices ($18 per ton) adversely  impacted
net sales by $12.3  million.  In  addition,  Garden  Zone's  sales  during  2000
declined 42% to $6.3 million from $11.0  million in 1999  primarily due to lower
shipments to a major customer.

         Fabricated  wire products  selling prices  declined 3% while  shipments
declined 1% in 2000 as compared to 1999.  Industrial  wire  selling  prices also
declined 3% in 2000 when compared to 1999 while  shipments  declined 11%. Carbon
steel rod selling prices  increased 2% while shipments  increased 8% as compared
to 1999.

         Gross profit  declined  approximately  69% to $7.2 million in 2000 from
$23.0  million  in 1999.  Gross  margin  declined  to 2.1% from 6.5% in 1999 due
primarily to higher scrap costs (Keystone's primary raw material), lower overall
selling  prices,  and  higher  production  costs  during  the  second and fourth
quarters of 2000.  The higher  production  costs in the second  quarter were due
primarily to extended production outages caused by planned repairs and a furnace
break-out. The higher production costs in the 2000 fourth quarter were primarily
a result of a two-week  production outage due to the failure of a furnace rocker
arm and related  repair costs of $1 million and  inefficiencies  resulting  from
slower  production rates caused by the adverse effects of high  accumulations of
snow and ice. In addition, during 1999, Keystone recorded a $2.7 million benefit
as a result of  favorable  legal  settlements  with  certain  electrode  vendors
related to alleged price fixing. Keystone's scrap costs increased 6% during 2000
as compared to 1999. During 2000, the Company purchased 658,000 tons of scrap at
an average  price of $100 per ton as compared to 1999  purchases of 768,000 tons
at an average price of $94 per ton.  Keystone  currently  expects  average scrap
costs in 2001 will be less than 2000 average  cost.  The Company also  purchased
8,000 tons of billets during 2000 at an average cost of $215 per ton as compared
to 45,000 tons of billets in 1999 at an average  cost of $195 per ton.  Keystone
does not anticipate purchasing any billets during 2001.

         Selling expenses decreased 2% to $6.7 million in 2000 from $6.8 million
in 1999 but was relatively constant as a percentage of sales.

         General and  administrative  expenses decreased 12% to $18.4 million in
2000 from $20.9 million in 1999  primarily due to higher costs  incurred in 1999
associated  with the start-up of Garden Zone and unfavorable  legal  settlements
during 1999.

         During 2000, Keystone recorded a non-cash pension credit of $380,000 as
compared to $5.6 million in 1999.  The lower  pension  credit was  primarily the
result of increased  pension  benefits  included in the Company's May 1999 labor
contract with the Peoria  facility's union and a $3.7 million charge as a result
of an early retirement program for certain salaried employees. During the fourth
quarter of 2000, in connection with Keystone's cost reduction plans, the Company
offered a group of salaried  employees  enhanced  pension benefits if they would
retire  by  December  31,  2000,  resulting  in  the  $3.7  million  charge  for
termination  benefits for early retirement  window.  However,  Keystone believes
annual  salary and related  benefit  costs will be reduced in the future by more
than $3.0 million as a result of these early retirements.  The Company currently
estimates,  for financial reporting purposes,  that it will recognize a non-cash
pension credit of  approximately $3 million in 2001 and does not anticipate cash
contributions  for defined  benefit  pension plan  fundings  will be required in
2001. 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 2000 was higher than 1999 due  principally to
higher  borrowing  levels and higher interest rates.  Average  borrowings by the
Company under its revolving credit facilities,  EWP term loan and Senior Secured
Notes  approximated  $150.9 million during 2000 as compared to $142.7 million in
1999.  During 2000,  the average  interest rate paid by the Company was 9.6% per
annum as compared to 9.3% per annum in 1999.

        At December 31, 2000, the Company's financial statements reflected total
accrued  liabilities  of $16.8  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  2000  and  1999  were  35%  and  39%,
respectively.  The principal reasons for the difference between the U.S. federal
statutory  income  tax rate and the  Company's  effective  income  tax rates are
explained in Note 5 to the  Consolidated  Financial  Statements.  The  Company's
deferred tax  position at December  31, 2000 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 $21.1 million during 2000 as compared to a net loss in 1999 of $7.5 million.

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'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. 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.

         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.  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.


Outlook for 2001

         Keystone  believes the start-up  problems relative to the new equipment
at its Peoria,  Illinois steel mill that adversely impacted earnings during 1999
and the first half of 2000 have been  substantially  resolved.  As a result, the
Company  expects an  improvement  in the operating  effiency of its Peoria steel
mill  during  2001 as compared to 2000.  However,  Keystone  anticipates  higher
energy and  interest  costs,  continued  high levels of  imported  rod and lower
product selling prices in 2001 will result in Keystone  recording a net loss for
the year.

Liquidity And Capital Resources

         At December 31, 2000,  Keystone had negative  working  capital of $39.2
million, including $900,000 of notes payable and current maturities of long-term
debt as well as  outstanding  borrowings  under the Company's  revolving  credit
facilities  of $44.8  million.  The amount of available  borrowings  under these
revolving  credit  facilities  is based on  formula-determined  amounts of trade
receivables and inventories,  less the amount of outstanding  letters of credit.
Under the terms of the indenture related to the Senior Secured Notes, Keystone's
ability to borrow  under its  revolving  credit  facilities  may be limited.  At
December 31, 2000,  unused credit  available for borrowing under  Keystone's $60
million revolving credit facility, which expires December 31, 2001, and EWP's $7
million  revolving  credit  facility,  which  expires June 30,  2002,  were $5.5
million and $2.2  million,  respectively.  At December  31,  2000,  there was no
unused credit  available for borrowing under Garden Zone's $4 million  revolving
credit facility, which expires December 1, 2001. The terms of the indenture will
permit Keystone to borrow all of the $5.5 million unused credit  available under
Keystone's $60 million  revolving  credit  facility  during the first quarter of
2001. 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 2000, the Company's operating activities provided  approximately
$13.9  million of cash,  compared to $1.1 million of cash  provided by operating
activities  in 1999.  Despite lower  earnings in 2000 as compared to 1999,  cash
flow from operations  increased in 2000 compared to 1999 due to relative changes
in the levels of assets  and  liabilities  (primarily  accounts  receivable  and
inventories).

         During 2000, Keystone made capital  expenditures of approximately $13.1
million primarily related to upgrades of production equipment at its facility in
Peoria, Illinois, as compared to $16.9 million in 1999. Capital expenditures for
2001 are  currently  estimated to be  approximately  $13 million and are related
primarily to upgrades of, as well as  additional,  production  equipment.  These
capital  expenditures  will be funded through  operations and by using borrowing
availability under Keystone's revolving credit facilities.

         At December 31, 2000,  the  Company's  financial  statements  reflected
accrued  liabilities  of $16.8 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  2001.  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 its 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, 2001. 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,  there are many  factors  that could cause  actual
future results to differ materially from management's current assessment.  While
it is not  possible to identify  all  factors,  Keystone  continues to face many
risks and  uncertainties.  Among the  factors  that could  cause  actual  future
results to differ materially are the risks and  uncertainties  discussed in this
Annual  Report  and those  described  from time to time in the  Company's  other
filings with the Securities and Exchange Commission,  including, but not limited
to, future supply and demand for the Company's products  (including  cyclicality
thereof), customer inventory levels, changes in raw material and other operating
costs  (such as scrap and  energy),  general  economic  conditions,  competitive
products and substitute products, customer and competitor strategies, the impact
of pricing and  production  decisions,  the  possibility  of labor  disruptions,
environmental  matters (such as those requiring emission and discharge standards
for existing and new  facilities),  government  regulations and possible changes
therein, any significant  increases in the cost of providing medical coverage to
active and retired  employees,  the ultimate  resolution of pending  litigation,
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  and  other  risks  and  uncertainties  as
discussed in this Annual Report.  Should one or more of these risks  materialize
(or the  consequences  of such a development  worsen),  or should the underlying
assumptions  prove incorrect,  actual results could differ materially from those
forecasted or expected and as a result,  could have a material adverse effect on
the future  liquidity,  financial  condition  and results of  operations  of the
Company. Additionally, significant declines in the Company's end-user markets or
market share, the inability to maintain  satisfactory  billet and 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.



<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Keystone's  exposure to changes in interest rates relates  primarily to
long-term  debt  obligations.  At December  31, 2000,  substantially  all of the
Company's  long-term debt was comprised of 9.6% average fixed rate  instruments,
which minimize earnings  volatility  related to interest expense.  Keystone does
not  currently  participate  in  interest   rate-related   derivative  financial
instruments.

         The table below presents principal amounts and related weighted-average
interest rates by maturity date for Keystone's long-term debt obligations.

<TABLE>
<CAPTION>
                                                                                                      Estimated
                                                 Contracted Maturity Date                             Fair Value
                          --------------------   -------------------------------------------
                             2001     2002    2003     2004    2005     Thereafter     Total      December 31, 2000
                             ----     ----    ----     ----    ----     ----------     -----      -----------------
                                                               ($ In thousands)

Fixed-rate debt -
<S>                       <C>         <C>    <C>        <C>    <C>      <C>          <C>              <C>
  Principal amount        $   460     $199   $ 30       $ 52   $ -      $100,000     $100,740         $43,240

  Weighted-average
    interest rate             8.9%     9.1%    9.3%      9.3%    - %         9.6%         9.6%

Variable-rate debt-
  Principal amount        $45,268     $ -     $ -       $ -    $ -      $    -       $ 45,268         $45,268

  Weighted-average
    interest rate             9.8%      - %     - %       -  %   - %         - %         9.8%

</TABLE>

         At December 31, 1999, long-term debt included fixed-rate debt of $101.7
million (fair value - $93.9  million) with a weighted  average  interest rate of
9.6% and $45.2 million  variable-rate debt which approximated fair value, with a
weighted-average interest rate of 9.2%.

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 --       FirstAmendment  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)
               (Incorporated  by  reference  to Exhibit 4.4 to the  Registrant's
               Form 10-K for the year ended December 31, 1999).

  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).  (Incorporated by reference to
               Exhibit  4.5 to the  Registrant's  Form  10-K for the year  ended
               December 31, 1999).

  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).
               (Incorporated  by  reference  to Exhibit 4.6 to the  Registrant's
               Form 10-K for the year ended December 31, 1999).

 10.1 --       Intercorporate  Services Agreement with Contran Corporation dated
               as of January 1, 2000.

 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

 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, 2000.

(b) No reports on Form 8-K were filed  during the  quarter  ended  December  31,
2000.


  *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  29,  2001,  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  29,  2001 by the
following persons on behalf of the registrant and in the capacities indicated:


/s/ GLENN R. SIMMONS                     /s/ WILLIAM SPIER
------------------------------------     -----------------------------------
Glenn R. Simmons                         William Spier
Chairman of the Board                    Director


/s/ J. WALTER TUCKER, JR.                /s/ STEVEN L. WATSON
---------------------------              -----------------------------------
J. Walter Tucker, Jr.                    Steven L. Watson
Vice Chairman of the Board               Director


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


/s/ PAUL M. BASS, JR.                    /s/ BERT E. DOWNING, JR.
------------------------------------     --------------------------
Paul M. Bass, Jr.                        Bert E. Downing, Jr.
Director                                 Vice President and
                                         Corporate Controller and
                                         Principal Accounting and
                                         Financial Officer


/s/ DAVID E. CONNOR
------------------------------------
David E. Connor
Director



<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, 1999 and 2000.............F-3/F-4

  Consolidated Statements of Operations -- Years ended December 31,
    1998, 1999 and 2000.................................................F-5

  Consolidated Statements of Redeemable Preferred Stock and Common
    Stockholders' Equity -- Years ended
    December 31, 1998, 1999 and 2000....................................F-6

  Consolidated Statements of Cash Flows -- Years ended December 31,
    1998, 1999 and 2000.................................................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, 1999 and
2000,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement schedule listed in the accompanying index
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction  with the related  consolidated  financial  statements.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United  States of America  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.






PricewaterhouseCoopers LLP

Dallas, Texas
March 26, 2001



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 1999 and 2000
                        (In thousands, except share data)




<TABLE>
<CAPTION>
              ASSETS                                         1999          2000
                                                            ------        ------

Current assets:
  Notes and accounts receivable, net of allowances
<S>                                                        <C>          <C>
    of $2,297 and $1,681 .............................     $ 32,819     $ 21,813
  Inventories ........................................       66,083       52,004
  Deferred income taxes ..............................       17,396       16,828
  Prepaid expenses and other .........................        1,364          786
                                                           --------     --------

      Total current assets ...........................      117,662       91,431
                                                           --------     --------

Property, plant and equipment:
  Land, buildings and improvements ...................       51,637       55,297
  Machinery and equipment ............................      301,932      311,063
  Construction in progress ...........................        4,308        1,335
                                                           --------     --------
                                                            357,877      367,695
Less accumulated depreciation ........................      207,721      222,999
                                                           --------     --------

      Net property, plant and equipment ..............      150,156      144,696
                                                           --------     --------

Other assets:
  Restricted investments .............................        9,180        5,969
  Prepaid pension cost ...............................      126,126      126,506
  Deferred income taxes ..............................         --         10,696
  Deferred financing costs ...........................        3,034        2,685
  Goodwill ...........................................        1,002          877
  Investment in unconsolidated equity affiliate ......          281         --
  Other ..............................................        3,477        2,843
                                                           --------     --------

      Total other assets .............................      143,100      149,576
                                                           --------     --------

                                                           $410,918     $385,703
</TABLE>





<PAGE>


          See accompanying notes to consolidated financial statements.

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 1999 and 2000
                        (In thousands, except share data)



<TABLE>
<CAPTION>
           LIABILITIES AND STOCKHOLDERS' EQUITY
                                                            1999          2000
                                                           ------        ------

Current liabilities:
  Notes payable and current maturities of
<S>                                                      <C>          <C>
    long-term debt ...................................   $  45,986    $  45,728
  Accounts payable ...................................      30,689       34,614
  Accounts payable to affiliates .....................          70         --
  Accrued OPEB cost ..................................       9,500        8,767
  Other accrued liabilities ..........................      45,337       41,565
                                                         ---------    ---------

      Total current liabilities ......................     131,582      130,674
                                                         ---------    ---------

Noncurrent liabilities:
  Long-term debt .....................................     100,871      100,280
  Accrued OPEB cost ..................................      98,802       98,015
  Deferred income taxes ..............................       1,100         --
  Negative goodwill ..................................      22,709       21,353
  Other ..............................................       9,539        9,323
                                                         ---------    ---------

      Total noncurrent liabilities ...................     233,021      228,971
                                                         ---------    ---------

Stockholders' equity:
  Common stock, $1 par value, 12,000,000 shares
    authorized; 9,927,665 and 10,063,103 shares issued
    at stated value ..................................      10,656       10,792
  Additional paid-in capital .........................      52,398       53,071
  Accumulated deficit ................................     (16,727)     (37,793)
  Treasury stock - 1,134 shares, at cost .............         (12)         (12)
                                                         ---------    ---------

      Total stockholders' equity .....................      46,315       26,058
                                                         ---------    ---------

                                                         $ 410,918    $ 385,703
</TABLE>



Commitments and contingencies (Notes 13, 14 and 15).



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 1998, 1999 and 2000
                      (In thousands, except per share data)



<TABLE>
<CAPTION>
                                                 1998         1999         2000
                                                ------      --------      ------

Revenues and other income:
<S>                                           <C>          <C>          <C>
  Net sales ...............................   $ 370,022    $ 355,688    $ 338,321
  Interest ................................         594          452          599
  Other, net ..............................         212          463          183
                                              ---------    ---------    ---------

                                                370,828      356,603      339,103
                                              ---------    ---------    ---------

Costs and expenses:
  Cost of goods sold ......................     339,625      332,644      331,167
  Selling .................................       6,042        6,845        6,737
  General and administrative ..............      19,139       20,850       18,388
  Overfunded defined benefit pension credit      (9,444)      (5,610)        (380)
  Interest ................................      10,460       14,058       15,346
                                              ---------    ---------    ---------

                                                365,822      368,787      371,258
                                              ---------    ---------    ---------

                                                  5,006      (12,184)     (32,155)
    Equity in losses of Alter Recycling
      Company L.L.C .......................        --            (54)        (281)
                                              ---------    ---------    ---------

      Income (loss) before income taxes ...       5,006      (12,238)     (32,436)

Provision (benefit) for income taxes ......       1,095       (4,754)     (11,370)
                                              ---------    ---------    ---------

      Net income (loss) ...................       3,911       (7,484)     (21,066)

Dividends on preferred stock ..............         157         --           --
                                              ---------    ---------    ---------


  Net income (loss) available for
    common shares .........................   $   3,754    $  (7,484)   $ (21,066)
                                              =========    =========    =========

Net income (loss) per share available
 for common shares:
    Basic .................................   $     .41    $    (.75)   $   (2.10)
                                              =========    =========    =========
    Diluted ...............................   $     .40    $    (.75)   $   (2.10)
                                              =========    =========    =========

Weighted average common and common
 equivalent shares outstanding:
    Basic .................................       9,544        9,904       10,039
                                              =========    =========    =========
    Diluted ...............................       9,669        9,904       10,039
                                              =========    =========    =========
</TABLE>




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
                         AND COMMON STOCKHOLDERS' EQUITY

                  Years ended December 31, 1998, 1999 and 2000
                                 (In thousands)



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

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

Net loss ..........................      --        --        --        --      (21,066)    --      (21,066)
Issuance of stock .................      --         136       136       673       --       --          809
                                      -------    ------   -------   -------   --------    ----    --------

Balance - December 31, 2000 .......   $  --      10,062   $10,792   $53,071   $(37,793)   $(12)   $ 26,058
                                      =======    ======   =======   =======   ========    ====    ========
</TABLE>



<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1999 and 2000
                                 (In thousands)


<TABLE>
<CAPTION>
                                                 1998        1999          2000
                                                -------     -------       ------

Cash flows from operating activities:
<S>                                            <C>         <C>         <C>
  Net income (loss) ........................   $  3,911    $ (7,484)   $(21,066)
  Depreciation and amortization ............     20,140      21,051      17,224
  Amortization of deferred financing costs .        509         519         479
  Deferred income taxes ....................      3,078      (3,363)    (11,229)
  Other, net ...............................      1,571      (3,089)     (1,883)
  Change in assets and liabilities:
    Notes and accounts receivable ..........     (2,027)      4,323      11,605
    Inventories ............................      1,691     (14,685)     14,080
    Prepaid pension cost ...................     (9,444)     (5,610)       (380)
    Accounts payable .......................      4,323      (1,923)      3,855
    Other, net .............................     (6,947)     11,312       1,236
                                               --------    --------    --------

      Net cash provided by operating
        activities .........................     16,805       1,051      13,921
                                               --------    --------    --------

Cash flows from investing activities:
  Capital expenditures .....................    (64,541)    (16,873)    (13,052)
  Other, net ...............................       (437)        729         (20)
                                               --------    --------    --------

      Net cash used by investing activities     (64,978)    (16,144)    (13,072)
                                               --------    --------    --------
</TABLE>






<PAGE>


          See accompanying notes to consolidated financial statements.


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1998, 1999 and 2000
                                 (In thousands)


<TABLE>
<CAPTION>
                                                1998         1999          2000
                                               -------      -------       ------

Cash flows from financing activities:
<S>                                            <C>         <C>         <C>
  Revolving credit facilities, net .........   $ 26,110    $ 15,437    $    777
  Other notes payable and long-term debt:
    Additions ..............................         95       1,125          26
    Principal payments .....................     (1,285)     (1,469)     (1,652)
  Preferred stock dividend payments ........       (157)       --          --
  Deferred financing costs paid ............       (207)       --          --
  Exercise of warrants and redemption of
    preferred stock, net ...................        701        --          --
  Common stock issued, other ...............        294        --          --
                                               --------    --------    --------

    Net cash provided (used) by financing
       Activities ..........................     25,551      15,093        (849)
                                               --------    --------    --------

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

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

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


Supplemental disclosures:
  Cash paid for:
    Interest, net of amounts capitalized ...   $ 10,903    $ 13,887    $ 14,867
    Income taxes paid (refund), net ........        217      (3,575)       (807)

  Common stock contributed to employee
    benefit plan ...........................   $    617    $    722    $    809
</TABLE>






<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of significant accounting policies

     Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") is 50%
owned by  Contran  Corporation  ("Contran")  and other  entities  related to Mr.
Harold C. Simmons.  Substantially all of Contran's  outstanding  voting stock is
held by trusts established for the benefit of certain children and grandchildren
of Mr. Simmons, of which Mr. Simmons is sole trustee.  The Company may be deemed
to be controlled by Contran and Mr. Simmons.

         Principles   of   consolidation   and   management's   estimates.   The
consolidated  financial  statements  include the accounts of the Company and its
wholly-owned subsidiaries.  All material intercompany accounts and balances have
been  eliminated.  Certain prior year amounts have been  reclassified to conform
with the 2000 presentation.

         The  preparation of financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  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.

         Keystone has incurred  operating  losses in each of the last two years.
For the years ended December 31, 1999 and 2000, the Company  recorded a net loss
of approximately $7.5 million and $21.1 million, respectively.

         For the year ended  December 31, 2001,  management  expects to report a
net loss and that  operating cash flow will be positive.  Keystone's  management
believes its available lines of credit and cash flows from operating  activities
will be sufficient to fund the anticipated needs of the Company's operations and
capital  expenditures  for the year ending  December  31,  2001.  However,  such
expectation  is based on various  operating  assumptions  and goals.  Failure to
achieve  these  goals  could have a  material  adverse  effect on the  Company's
ability to achieve its intended business  objectives and may result in cash flow
needs in excess of its current  borrowing  availability  under  existing  credit
facilities.

         Fiscal year.  The  Company's  fiscal year is 52 or 53 weeks and ends on
the last Sunday in December.  Each of fiscal 1998 and 1999 were  52-week  years,
and 2000 was a 53 week year.

     Revenue  recognition.  Revenue is recorded  when  products  are shipped and
title and other risks and rewards of ownership have passed to the customer.  The
Company adopted  Securities and Exchange  Commission Staff  Accounting  Bulletin
("SAB")  No.  101, as amended,  in 2000.  SAB No. 101  provides  guidance on the
recognition,  presentation and disclosure of revenue. The impact of adopting SAB
No. 101 was not material.

         Shipping and handling  costs. In general,  sales from Keystone's  steel
and wire products  segment include  prepaid  freight with the resulting  freight
cost absorbed by the Company.  Keystone's  reported sales in 1998, 1999 and 2000
are stated net of shipping and handling  costs of $22.9  million,  $20.6 million
and $19.9  million,  respectively.  Shipping and handling costs of the Company's
lawn and garden  products  segment  are  included in cost of goods sold and were
approximately $345,000 and $169,000 in 1999 and 2000, respectively.

         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 79% and 75% of the inventories held at December 31, 1999 and 2000,
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 1998, 1999 and 2000
amounted  to  $878,000,  $50,000 and  $124,000  respectively.  Expenditures  for
maintenance,  repairs and minor  renewals are expensed;  expenditures  for major
improvements  are  capitalized.  Keystone  will perform  certain  planned  major
maintenance  activities  during the year (generally  during the fourth quarter).
Repair and  maintenance  costs  estimated to be incurred in connection with such
planned major maintenance  activities are accrued in advance and are included in
cost of goods sold.

         Depreciation  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 $20,849,000,  $21,741,000 and $18,252,000 during the years ended December 31,
1998, 1999 and 2000, respectively.

        When events or changes in circumstances indicate assets may be impaired,
an evaluation is performed to determine if an impairment exists.  Such events or
changes in circumstances  include,  among other things, (i) significant  current
and prior periods or current and projected periods with operating losses, (ii) a
significant  decrease  in the  market  value of an asset or (iii) a  significant
change in the extent or manner in which an asset is used.  All relevant  factors
are considered.  The test for impairment is performed by comparing the estimated
future  undiscounted cash flows (exclusive of interest expense)  associated with
the asset to the asset's net carrying  value to  determine  if a  write-down  to
market  value or  discounted  cash flow value is  required.  If the asset  being
tested for  impairment was acquired in a business  combination  accounted for by
the purchase method,  any goodwill which arose out of that business  combination
may  also  be  considered  in  the  impairment  test  if  the  goodwill  related
specifically  to the  acquired  asset and not to other  aspects of the  acquired
business, such as the customer base or product lines.

         Investment  in  joint  ventures.  Investments  in  20%  but  less  than
majority-owned  companies are accounted  for by the equity  method.  Differences
between  the  cost  of  the   investments  and  Keystone's  pro  rata  share  of
separately-reported net assets if any, are not significant.

         Retirement  plans and  post-retirement  benefits  other than  pensions.
Accounting  and  funding  policies  for  retirement  plans  and post  retirement
benefits other than pensions ("OPEB") are described in Note 7.

         Environmental  liabilities.  Keystone  records  liabilities  related to
environmental  issues  at such  time as  information  becomes  available  and is
sufficient to support a reasonable  estimate of range of 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, 1999 and 2000
Keystone had such assets recorded of approximately $323,000.

         Income taxes. Deferred income tax assets and liabilities are recognized
for the expected future tax  consequences of temporary  differences  between the
income tax and financial  reporting  carrying amounts of assets and liabilities.
Keystone periodically  evaluates its deferred tax assets and adjusts any related
valuation  allowance  based on the  estimate of the amount of such  deferred tax
assets  which  the  Company  believes  does not meet the  "more-likely-than-not"
recognition criteria.

         Advertising costs.  Advertising costs, expensed as incurred,  were $1.1
million in 1998, $.5 million in 1999 and $.9 million in 2000.

         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 163,000, 725,000 and 795,000 in 1998, 1999 and 2000, respectively.

         Deferred financing costs.  Deferred financing costs relate primarily to
the issuance of Keystone's 9 5/8% Senior Secured Notes (the "Senior  Notes") and
are amortized by the interest  method over 10 years (term of the Senior  Notes).
Deferred  financing  costs  are  stated  net  of  accumulated   amortization  of
$1,483,000 and $1,962,000 at December 31, 1999 and 2000, 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 7  years  at  December  31,  2000)  and  is  stated  net of
accumulated  amortization  of  approximately  $227,000 at December  31, 1999 and
$352,000 at December 31, 2000.  Amortization of goodwill amounted to $113,000 in
each of 1998 and 1999 and $125,000 in 2000.

         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 is amortized by the  straight-line  method
over 20 years (remaining life of 15.75 years at December 31, 2000) and is stated
net of accumulated  amortization of  approximately  $4,406,000 and $5,762,000 at
December 31, 1999 and 2000,  respectively.  Amortization of negative goodwill in
each of 1998, 1999 and 2000 amounted to $1,356,000.

     Employee Stock Options.  Keystone accounts for stock-based  compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to  Employees,  and its  various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Compensation
cost  recognized  by the  Company  in  accordance  with APBO No. 25 has not been
significant in each of the past three years.

        Accounting principles not yet adopted.  Keystone will adopt Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting  for  Derivative
Instruments and Hedging Activities, as amended, effective January 1, 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,  and such
changes will be recognized either in net income or other comprehensive income.

        As permitted by the transition requirements of SFAS No. 133, as amended,
the  Company  will  exempt  from the  scope of SFAS No.  133 all host  contracts
containing  embedded  derivatives which were issued or acquired prior to January
1,  1999.  Keystone  is not a party to any  significant  derivative  or  hedging
instrument  covered by SFAS No.  133 at  December  31,  2000 and  therefore  the
Company  does not  expect  that the  impact  of  adopting  SFAS No.  133 will be
material.

Note 2 - Acquisitions and joint ventures

         In January 1999,  Keystone and two unrelated parties formed Garden Zone
LLC ("Garden  Zone") to supply wire,  wood and plastic  products to the consumer
lawn  and  garden  market.  Keystone  owns  51% of  Garden  Zone  and,  as such,
Keystone's  consolidated  financial  statements  include the  accounts of Garden
Zone. Neither Keystone nor the other owners contributed capital or assets to the
Garden Zone joint  venture,  but Keystone did  guarantee 51% of Garden Zone's $4
million revolving credit agreement. See Note 4. Garden Zone commenced operations
in February 1999 and its earnings, of which 51% accrue to Keystone for financial
reporting purposes, have been insignificant.

         In July 1999, Keystone formed Alter Recycling Company,  L.L.C. ("ARC"),
a joint venture with Alter Peoria,  Inc., to operate a scrap recycling operation
at Keystone's  facility in Peoria,  Illinois.  ARC sells scrap steel to Keystone
and others. Upon formation,  Keystone  contributed the property and equipment of
its Peoria  scrap  facility  (net book value of  approximately  $335,000) to the
joint venture in return for its 50% ownership interest. Keystone is not required
to, nor does it currently  anticipate it will, make any other  contributions  to
fund or operate  this joint  venture.  Keystone has not  guaranteed  any debt or
other liability of the joint venture.  Keystone  recognized no gain or loss upon
formation  of ARC and  the  investment  in ARC is  accounted  for by the  equity
method. In addition,  Keystone sold its scrap facility's  existing  inventory to
ARC upon  commencement  of ARC's  operations.  At December  31, 1999  Keystone's
investment  in ARC  amounted  to  $281,000.  As of  December  31,  2000,  due to
operating losses incurred by ARC,  Keystone had reduced its investment in ARC to
zero.  ARC commenced  operations  in August 1999 and through  December 31, 1999,
Keystone  purchased  approximately  $2.7 million of scrap from ARC. During 2000,
Keystone purchased approximately $7.2 million of scrap from ARC. At December 31,
1999  and  2000,   ARC  owed  Keystone   approximately   $809,000  and  $818,000
respectively,  primarily for the scrap inventory purchased by ARC from Keystone.
At December 31, 2000,  Keystone owed ARC  approximately  $171,000  primarily for
scrap purchases by Keystone from ARC.



<PAGE>


Note 3 - Inventories

<TABLE>
<CAPTION>
                                                                 December 31,
                                                             1999           2000
                                                             ----           ----
                                                                (In thousands)
Steel and wire products:
<S>                                                         <C>          <C>
  Raw materials ......................................      $20,985      $11,101
  Work in process ....................................       12,657        9,492
  Finished products ..................................       20,179       23,954
  Supplies ...........................................       15,378       15,520
                                                            -------      -------
                                                             69,199       60,067
  Less LIFO reserve ..................................        8,711       11,083
                                                            -------      -------
                                                             60,488       48,984

Lawn and garden products - finished products .........        5,595        3,020
                                                            -------      -------

                                                            $66,083      $52,004
</TABLE>

Note 4 - Notes payable and long-term debt

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

9 5/8% Senior Secured Notes, due August 2007          $100,000          $100,000
Commercial credit agreements:
  Revolving credit facilities:
<S>                                                     <C>               <C>
    Keystone ...............................            35,568            37,772
    EWP ....................................             4,908             4,203
    Garden Zone ............................             3,541             2,819
  Term loan - EWP ..........................               437               164
Other ......................................             2,403             1,050
                                                      --------          --------
                                                       146,857           146,008
  Less current maturities ..................            45,986            45,728
                                                      --------          --------

                                                      $100,871          $100,280
</TABLE>


         The Senior  Notes are due in August  2007 and are  collateralized  by a
lien on  substantially  all of the existing and future fixed assets of Keystone.
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 Keystone 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 Keystone to pay dividends
or make other restricted payments, as defined.

         Keystone's  $60  million   revolving   credit  facility  (the  Keystone
Revolver")  expires  December 31, 2001 and bears interest at the prime rate plus
1/2% or at the Adjusted  Eurodollar  Rate (as defined)  plus 2.5%.  The Keystone
Revolver is  collateralized  by certain of the Company's  trade  receivables and
inventories. The effective interest rate was 9.5% and 10.0% at December 31, 1999
and 2000,  respectively.  The amount of available  borrowings under the Keystone
Revolver  is based  on  formula-determined  amounts  of  trade  receivables  and
inventories,  less the amount of  outstanding  letters of credit  (approximately
$1.2 million at December  31,  2000).  At December  31,  2000,  $5.5 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.

         In June 2000,  EWP renewed and extended its revolving  credit  facility
(the "EWP  Revolver")  for two years  until  June  2002.  Under the terms of the
renewal, the facility was increased from $6 million to $7 million and the assets
that were considered in calculating the facility's borrowing base were expanded.
Borrowings  under the EWP  Revolver  bear  interest  at either the prime rate or
LIBOR plus 2.25% (8.4% and 8.7% at December 31, 1999 and 2000).  At December 31,
2000,  $2.2  million  was  available  for  additional  borrowings  under the EWP
revolver, all of which could be borrowed under the terms of the Indenture. EWP's
accounts receivable, inventories and property, plant and equipment collateralize
the EWP Revolver.  The EWP Revolver Agreement contains covenants with respect to
working capital,  additional borrowings,  payment of dividends and certain other
matters.

         Garden Zone has a $4.0 million  revolving  credit facility (the "Garden
Zone Revolver") which, as amended in February 2001,  matures on December 1, 2001
and bears interest at the LIBOR rate plus 2.4%.  During 1999 and 2000 the Garden
Zone Revolver bore interest at the LIBOR rate plus 2% (8.1% and 8.7% at December
31,  1999  and  2000,  respectively).  Garden  Zone's  accounts  receivable  and
inventories  collateralize  the Garden Zone  Revolver.  At December 31, 2000, no
additional amounts were available for borrowing under the Garden Zone Revolver.

         At December 31, 1999 and 2000,  other notes payable and long-term  debt
included $750,000 and $474,000  respectively,  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 and 2000  amounted to  approximately  $33,000 and
$64,000 respectively.

         Excluding the Senior Notes,  substantially  all of the Company's  notes
payable and long-term debt reprice with changes in interest rates. The aggregate
fair value of the Senior  Notes,  based on quoted  market prices at December 31,
1999 and 2000, approximated $92.3 million and $42.5 million,  respectively.  The
book value of all other indebtedness is deemed to approximate market value.



<PAGE>


         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>
2001                               $ 45,727
2002                                    199
2003                                     30
2004                                     52
2005                                   -
2006 and thereafter                 100,000
                                   --------
                                   $146,008
</TABLE>


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,
                                                  1998        1999         2000
                                                  ----        ----         ----
                                                           (In thousands)

Expected tax expense (benefit) , at
<S>                                              <C>        <C>         <C>
 statutory rate ..............................   $ 1,752    $ (4,283)   $(11,353)
U.S. state income taxes, net .................       280        (157)        157
Amortization of goodwill and negative goodwill      (435)       (435)       (431)
Other, net ...................................      (502)        121         257
                                                 -------    --------    --------

Provision (benefit) for income taxes .........   $ 1,095    $ (4,754)   $(11,370)
                                                 =======    ========    ========

Provision (benefit) for income taxes:
  Currently payable (refundable):
    U.S. federal .............................   $(1,883)   $   (930)   $   (278)
    U.S. state ...............................      (100)       (461)        137
                                                 -------    --------    --------

      Net currently payable ..................    (1,983)     (1,391)       (141)
  Deferred income taxes, net .................     3,078      (3,363)    (11,229)
                                                 -------    --------    --------

                                                 $ 1,095    $ (4,754)   $(11,370)
                                                 =======    ========    ========
</TABLE>


         At December  31,  2000,  Keystone  had  approximately  $6.3  million of
alternative minimum tax credit carryforwards which have no expiration date.

         At December 31, 2000,  the Company had $24.7  million of net  operating
loss  carryforwards  expiring  in 2003  through  2010  which may only be used to
reduce future taxable income of an acquired  subsidiary and which are limited in
utilization  to  approximately  $1.9  million  per year.  At  December  31, 2000
Keystone has other net  operating  loss  carryforwards  of  approximately  $38.3
million  which expire in 2019 and 2020,  and which may be used to reduce  future
taxable income of the entire Company.




<PAGE>


         The components of the net deferred tax asset are summarized below.

<TABLE>
<CAPTION>
                                                                      December 31,
                                                           1999                      2000
                                                   ---------------------------------------------
                                                   Assets  Liabilities    Assets     Liabilities
                                                                   (In thousands)

Tax effect of temporary differences relating to:
<S>                                              <C>         <C>         <C>         <C>
  Inventories ................................   $  2,549    $   --      $  2,639    $   --
  Property and equipment .....................       --        (5,075)       --        (5,738)
  Prepaid pension ............................       --       (49,189)       --       (49,337)
  Accrued OPEB cost ..........................     42,227        --        41,633        --
  Accrued liabilities and other deductible
   differences ...............................     14,975        --        14,811        --
  Other taxable differences ..................       --        (6,757)       --        (6,298)
  Net operating loss carryforwards ...........     15,583        --        23,554        --
  Alternative minimum tax credit carryforwards      1,983        --         6,260        --
                                                 --------    --------    --------    --------

    Gross deferred tax assets (liabilities) ..     77,317     (61,021)     88,897     (61,373)
Reclassification, principally netting by tax
 jurisdiction ................................    (59,921)     59,921     (61,373)     61,373
                                                 --------    --------    --------    --------

    Net deferred tax asset (liability) .......     17,396      (1,100)     27,524        --
Less current deferred tax asset ..............     17,396        --        16,828        --
                                                 --------    --------    --------    --------

    Noncurrent deferred tax asset (liability)    $   --      $ (1,100)   $ 10,696    $   --
                                                 ========    ========    ========    ========
</TABLE>


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

         In 1997,  Keystone adopted its 1997 Long-Term Incentive Plan (the "1997
Plan").  Under the 1997 Plan, the Company may make awards that include, but need
not be limited to, one or more of the  following  types:  stock  options,  stock
appreciation rights,  restricted stock, performance grants and any other type of
award  deemed  consistent  with the  purposes  of the plan.  Subject  to certain
adjustments,  an aggregate of not more than 500,000 shares of Keystone's  common
stock may be issued under the 1997 Plan.  Stock  options  granted under the 1997
Plan may include  options  that qualify as  incentive  stock  options as well as
options  which are not so  qualified.  Incentive  stock options are granted at a
price not less than 100%, or in certain  instances,  110% of a fair market value
of such stock on the date of the grant.  Stock  options  granted  under the 1997
Plan may be exercised over a period of ten, or in certain instances, five years.
The vesting period,  exercise price, length of period during which awards can be
exercised, and restriction periods of all awards are determined by the Incentive
Compensation  Committee of the Board of Directors.  At December 31, 2000,  there
were 498,000 options outstanding under this plan.

         During 1997, the Company granted all remaining  options available under
Keystone's  1992 Option Plan. At December 31, 2000,  there were 238,066  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,
2000, there were 7,000 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, 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

  Granted                                                     146,000       4.25 -  5.50                 765,500
  Canceled                                                   (116,000)      5.13 - 13.38              (1,035,594)
                                                             --------      -------------             -----------

Outstanding at December 31, 2000                              758,066      $4.25 -$13.94             $ 6,317,130
                                                             ========      =============             ===========
</TABLE>



         The following table summarizes weighted average information about fixed
stock options outstanding at December 31, 2000.

<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>
$ 4.25-$ 5.50    132,500     9.2 years   $ 5.25        -          -           $ -
$ 7.63-$11.00    585,566     6.6 years   $ 8.67     398,996    6.0 years      $ 8.46
$12.86-$13.94     40,000     4.8 years   $13.53      40,000    4.8 years      $13.53
                 -------                            -------
                 758,066     7.0 years   $ 8.33     438,996    5.9 years      $ 8.92
                 =======                            =======
</TABLE>


         At  December  31,  2000,   options  to  purchase  438,996  shares  were
exercisable (none at prices lower than the December 31, 2000 quoted market price
of $1.38 per share) and options to purchase an  additional  138,390  shares will
become  exercisable  in 2001. At December 31, 2000, an aggregate of 2,000 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.



<PAGE>


         Pro forma  information  regarding  net income and earnings per share is
required  by SFAS  No.  123,  and has  been  determined  as if the  Company  had
accounted for its stock options  granted  subsequent to 1994 in accordance  with
the fair value based accounting  method of SFAS No. 123. The fair value of these
options was estimated at the date of grant using a Black-Scholes  option pricing
model with the following  weighted  average  assumptions  for options granted in
1999 and 2000. There were no options granted in 1998.


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

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


         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including the stock price  volatility.
Because Keystone's  options have  characteristics  significantly  different from
those of traded options, and because changes in the subjective input assumptions
can materially  affect the fair value estimate,  in the Company's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of the granted options.

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma net 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,
                                                      1998         1999            2000
                                                      ----         ----            ----
                                                          (In thousands except per
                                                               share amounts)

Net income (loss) available for common shares
<S>                                                  <C>        <C>            <C>
   -  as reported                                    $3,754     $(7,484)       $(21,066)
Net income (loss) available for common shares
  -  pro forma                                       $3,343     $(8,228)       $(21,639)
Basic net income (loss) available for common
  shares per common and common equivalent
  share - as reported                                $  .41     $  (.75)       $  (2.10)
Basic net income (loss) available for common
  shares per common and common equivalent
  share - pro forma                                  $  .37     $  (.83)       $  (2.16)
Diluted net income (loss) available for
  common shares per common and common
  equivalent share - as reported                     $ .40      $  (.75)       $  (2.10)
Diluted net income (loss) available for
  common shares per common and common
  equivalent shares - pro forma                      $ .36      $  (.83)       $  (2.16)
Weighted average fair value per share of
  options granted during the year                    $  -       $  5.66        $   3.52
</TABLE>



<PAGE>


Note 7 - Pensions and other post retirement benefits plans

         Keystone  sponsors  several  pension  plans and other  post  retirement
benefit plans for its employees and certain  retirees.  Under plans currently in
effect, most active employees would be entitled to receive OPEB upon retirement.
The  following  tables  provide a  reconciliation  of the  changes in the plans'
benefit  obligations  and fair value of assets for the years ended  December 31,
1999 and 2000:


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

Change in benefit obligation:
<S>                                          <C>          <C>          <C>          <C>
  Benefit obligation at beginning of year    $ 312,514    $ 298,130    $ 111,442    $ 101,523
  Service cost ...........................       3,074        2,915        1,986        1,623
  Interest cost ..........................      21,008       21,333        7,030        7,427
  Plan participants' contributions .......        --           --            675          587
  Plan amendment .........................      15,018         --           --           --
  Actuarial loss (gain) ..................     (31,014)       4,765       (9,680)       6,357
  Termination benefits for early
   retirement window .....................        --          4,367         --           --
  Benefits paid ..........................     (22,470)     (23,016)      (9,930)     (10,814)
                                             ---------    ---------    ---------    ---------
  Benefit obligation at end of year ......     298,130      308,494      101,523      106,703
                                             ---------    ---------    ---------    ---------

Change in plan assets:
  Fair value of plan assets at beginning
    of year ..............................     353,235      336,673         --           --
  Actual return on plan assets ...........       5,908       29,844         --           --
  Company contributions ..................        --           --          9,255       10,227
  Plan participants' contributions .......        --           --            675          587
  Benefits paid ..........................     (22,470)     (23,016)      (9,930)     (10,814)
                                             ---------    ---------    ---------    ---------

  Fair value of plan assets at end of year     336,673      343,501         --           --
                                             ---------    ---------    ---------    ---------

Funded status ............................      38,543       35,007     (101,523)    (106,703)
Unrecognized net loss (gain) .............      71,930       77,883       (3,257)       3,100
Unrecognized prior service cost (credit) .      14,454       13,616       (3,522)      (3,179)
Unrecognized transition obligation .......       1,199         --           --           --
                                             ---------    ---------    ---------    ---------

Prepaid (accrued) benefit cost ...........     126,126      126,506     (108,302)    (106,782)

Less current portion .....................        --           --         (9,500)      (8,767)
                                             ---------    ---------    ---------    ---------

Noncurrent portion .......................   $ 126,126    $ 126,506    $ (98,802)   $ (98,015)
                                             =========    =========    =========    =========
</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
                                     ---------------------------------     -----------  --------------
                                        1998          1999          2000          1998          1999         2000
                                        ----          ----          ----          ----          ----         ----

<S>                                      <C>          <C>           <C>           <C>           <C>            <C>
Discount rate                            6.5%         7.5%          7.25%         6.5%          7.5%           7.25%
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
                                          --------  ------------------------     ---------  --------------
                                             1998         1999         2000         1998         1999        2000
                                             ----         ----         ----         ----         ----        ----
                                                                        (In thousands)

<S>                                        <C>          <C>           <C>           <C>         <C>         <C>
Service cost                               $  2,798     $  3,074      $  2,915      $1,477      $1,986      $  1,623
Interest cost                                20,177       21,008        21,333       7,111       7,030         7,427
Expected return on plan assets              (34,729)     (34,219)      (32,544)          -           -             -
Amortization of unrecognized:
  Net obligation as of
    January 1, 1987                           1,810        1,810         1,199           -           -             -
  Prior service cost                             (4)         511           882        (343)       (343)         (343)
  Net loss                                      504        2,206         2,112        -           -
                                            -------     --------       -------      ------      ------

Net periodic benefit cost (credit)           (9,444)      (5,610)       (4,103)     $8,245      $8,673        $8,707
                                                                                    ======      ======        ======
Termination benefits for early
  retirement window                            -            -            3,723
                                           --------     --------      --------

Total pension cost (credit)                $ (9,444)    $ (5,610)     $   (380)
                                           ========     ========      ========
</TABLE>

         During the fourth quarter of 2000, in connection  with  Keystone's cost
reduction  plans,  the Company  offered a group of salaried  employees  enhanced
pension  benefits if they would retire by December  31,  2000,  resulting in the
$3.7 million charge for termination benefits for early retirement window.

         At December 31, 2000,  approximately 99% of Keystone's  defined benefit
pension plan's (the "Plan") net assets were invested in a collective  investment
trust  (the  "Collective  Trust")  established  by  Valhi,  Inc.  ("Valhi"),   a
majority-owned  subsidiary of Contran,  to permit the  collective  investment by
certain master trusts which fund certain  employee  benefit plans  maintained by
Contran,  Valhi and related companies,  including the Company.  The remainder of
the Plan's assets at December 31, 2000 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 nor the Keystone  directors receive any compensation
for serving in such capacities.

         With  certain  exceptions,  the  trustee  of the  Collective  Trust has
exclusive  authority to manage and control the assets of the  Collective  Trust.
Administrators  of the employee  benefit plans  participating  in the Collective
Trust, however, have the authority to direct distributions and transfers of plan
benefits under such participating  plans. The Trust Investment  Committee of the
Collective Trust has the authority to direct the trustee to establish investment
funds,  transfer assets between investment funds and appoint investment managers
and  custodians.  Except  as  otherwise  provided  by law,  the  trustee  is not
responsible  for the investment of any assets of the  Collective  Trust that are
subject to the management of an investment manager.

         The Company may  withdraw all or part of the Plan's  investment  in the
Collective Trust at the end of any calendar month without penalty.

         For  measurement  purposes,  a 7% annual  rate of  increase  in the per
capita cost of covered  health care benefits was assumed for 2000.  The rate was
assumed to decrease gradually to 5% in 2004 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):
  Effect on total of service and interest
    cost components for the year ended
<S>                                                     <C>            <C>
  December 31, 2000 .............................        $ 1,147        $  (958)

Effect on postretirement benefit
  obligation at December 31, 2000 ...............        $10,993        $(9,285)
</TABLE>


         The Company also maintains several defined  contribution pension plans.
Expense  related  to these  plans was $2.9  million in each of 1998 and 1999 and
$2.8 million in 2000.

Note 8 - Other accrued liabilities

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

Current:
<S>                                                       <C>            <C>
  Employee benefits ..............................        $13,181        $12,137
  Environmental ..................................         10,093          8,398
  Self insurance .................................          7,218          7,993
  Interest .......................................          4,034          4,160
  Unearned revenue ...............................          2,424          3,008
  Legal and professional .........................            829            836
  Disposition of former facilities ...............            617            384
  Other ..........................................          6,941          4,649
                                                          -------        -------

                                                          $45,337        $41,565
                                                          =======        =======
Noncurrent:
  Environmental ..................................        $ 8,143        $ 8,395
  Other ..........................................          1,396            928
                                                          -------        -------

                                                          $ 9,539        $ 9,323
                                                          =======        =======
</TABLE>

Note 9 - Redeemable preferred stock:

         In connection  with the 1996  acquisition of DeSoto,  Inc.  ("DeSoto"),
Keystone exchanged 435,456 shares of Keystone Series A 8% Senior Preferred Stock
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 Keystone 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  Keystone  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,  Keystone
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  $77,000 in 1998,  $66,000 in 1999 and  $87,000 in
2000.

         Contran and related companies perform certain management, financial and
administrative  services  for  Keystone  on a fee  basis  under  the terms of an
Intercorporate  Services Agreement with the Company.  Aggregate fees incurred by
the Company  pursuant to this agreement were $639,000 in 1998,  $656,000 in 1999
and $750,000 in 2000. In addition,  Keystone purchased certain aircraft services
from Valhi in the amount of $160,000 in 1998,  $175,000 in 1999 and  $111,000 in
2000.

         Tall Pines Insurance Company ("Tall Pines"),  Valmont Insurance Company
("Valmont") and EWI RE, Inc. ("EWI") provide for or broker certain of Keystone's
insurance  policies.  Tall Pines is a wholly-owned  captive insurance company of
Tremont Corporation  ("Tremont"),  a company controlled by Contran. Valmont is a
wholly-owned  captive insurance company of Valhi. Parties related to Contran own
all of the  outstanding  common  stock of EWI.  Through  December  31,  2000,  a
son-in-law of Harold C. Simmons  managed the  operations  of EWI.  Subsequent to
December  31,  2000,  such  son-in-law  provides  advisory  services  to  EWI as
requested by EWI.  Consistent  with insurance  industry  practices,  Tall Pines,
Valmont  and  EWI  receive   commissions  from  the  insurance  and  reinsurance
underwriters for the policies that they provide or broker. During 1998, 1999 and
2000, the Company and it subsidiaries paid approximately  $719,000, $2.7 million
and $2.0 million, respectively, for policies provided or brokered by Tall Pines,
Valmont and/or EWI. These amounts  principally  include payments for reinsurance
and  insurance  premiums  paid to  unrelated  third  parties,  but also  include
commissions paid to Tall Pines,  Valmont and EWI. In the Company's opinion,  the
amounts that Keystone and its subsidiaries paid for these insurance policies are
reasonable  and  similar to those they could  have  obtained  through  unrelated
insurance companies and/or brokers. The Company expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2001.

         Dallas Compressor  Company, a wholly-owned  subsidiary of Contran sells
compressors  and  related  services  to  Keystone.  During  1998,  1999 and 2000
Keystone  purchased  products and services from Dallas Compressor Company in the
amount of $26,000, $170,000 and $67,000, 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, 2000:
<S>                                   <C>         <C>          <C>         <C>
  Net sales .......................   $ 96,422    $  95,382    $ 82,787    $ 63,730
  Gross profit ....................      6,441        3,867       3,943      (7,097)

  Net loss ........................   $ (1,932)   $  (3,395)   $ (3,093)   $(12,646)
                                      ========    =========    ========    ========

  Basic net loss per share ........   $   (.19)   $    (.34)   $   (.31)   $  (1.26)
                                      ========    =========    ========    ========

Year ended December 31, 1999:
  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)
                                      ========    =========    ========    ========

  Basic net income (loss) per share   $   (.04)   $     .25    $   (.41)   $ ( .55)
                                      ========    =========    ========    ========
</TABLE>


         During the fourth  quarter of 1999,  Keystone  recorded a charge to bad
debt expense of $.6 million resulting from severe  deterioration in a customer's
financial  condition.  In addition,  during the fourth quarter of 1999, Keystone
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. Also see Note 7.

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, 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").  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.

         Keystone  evaluates  segment  performance  based on  segment  operating
income,  which is defined as income  before  income taxes and interest  expense,
exclusive of certain non-recurring items (such as gains or losses on disposition
of  business  units) and certain  general  corporate  income and  expense  items
(including  interest income) which are not attributable to the operations of the
reportable operating segments.


<PAGE>


<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 (2)    Hortonville,  Wisconsin
                                    Engineered Wire Products       Upper Sandusky, Ohio

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

Household cleaning products         DeSoto                         Joliet, Illinois
</TABLE>

(1)      51.0% subsidiary.

(2)      In January 2001,  Fox Valley Steel & Wire sold its sole  business.  Fox
         Valley did not record any  significant  gain or loss as a result of the
         sale.  Fox Valley's  revenues in 1998,  1999 and 2000 amounted to $12.0
         million,  $11.3 million and $10.3 million,  respectively.  During 1998,
         1999 and 2000,  approximately  55%,  30% and 32%,  respectively  of Fox
         Valley's  sales were to a single  customer.  That customer will, in the
         future, be serviced by Keystone's  Peoria,  Illinois  facility.  During
         1998, 1999 and 2000, Fox Valley recorded  operating losses of $266,000,
         $67,000 and $686,000, respectively.

         Keystone's operating segments are defined as components of consolidated
operations  about which  separate  financial  information  is available  that is
regularly  evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing  performance.  The Company's chief operating
decision  maker is Mr. 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, 2000:

<S>                                <C>          <C>           <C>     <C>          <C>          <C>
Net sales ......................   $ 331,975    $ 6,760       --      $ 338,735    $    (414)   $ 338,321
Depreciation and amortization ..      18,446       --         --         18,446       (1,222)      17,224
Equity in loss of unconsolidated
 affiliate .....................        (281)      --         --           (281)        --           (281)
Operating profit (loss) ........     (15,760)       345       --        (15,415)        --        (15,415)
Identifiable segment assets ....     219,662      3,990       --        223,652      162,051      385,703
Capital expenditures ...........      13,045       --         --         13,045            7       13,052

Year ended December 31, 1999:

Net sales ......................   $ 344,738    $13,968   $   --      $ 358,706    $  (3,018)   $ 355,688
Depreciation and amortization ..      22,282       --         --         22,282       (1,231)      21,051
Equity in loss of unconsolidated
 affiliate .....................         (54)      --         --            (54)        --            (54)
Operating profit (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
</TABLE>




<PAGE>




<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                                 1998         1999         2000
                                                 ----         ----         ----
                                                         (In thousands)

<S>                                            <C>         <C>         <C>
Operating profit (loss) ....................   $ 13,033    $  2,578    $(15,415)
Equity in loss of unconsolidated affiliate .       --           (54)       (281)
General corporate items:
  Interest income ..........................        594         452         599
  General income (expenses), net ...........      1,839      (1,156)     (1,993)
Interest expense ...........................    (10,460)    (14,058)    (15,346)
                                               --------    --------    --------

  Income (loss) before income taxes ........   $  5,006    $(12,238)   $(32,436)
                                               ========    ========    ========
</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,
                                        1998              1999             2000
                                        ----              ----             ----
                                                      (In thousands)

<S>                                   <C>              <C>              <C>
United States ...............         $366,731         $353,151         $336,288
Canada ......................            3,242            2,449            1,949
Great Britain ...............               24               88               77
Other .......................               25             --                  7
                                      --------         --------         --------

                                      $370,022         $355,688         $338,321
                                      ========         ========         ========
</TABLE>


<PAGE>


Note 13 - Environmental matters

         At December 31, 2000,  Keystone's  financial statements reflected total
accrued  liabilities of $16.8 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 1998 and 1999
the Company did not have any significant  remediation efforts relative to Phases
V and VI. During 2000,  Keystone began preliminary  efforts relative to Phase V.
Pursuant to agreements with the IEPA and Illinois Attorney General's office, the
Company is  depositing  $75,000 per quarter into a trust fund.  The Company must
continue these quarterly  deposits and cannot withdraw funds from the trust fund
until the fund balance  exceeds the sum of the estimated  remaining  remediation
costs plus $2 million. At December 31, 1999 and 2000 the trust fund had balances
of $4.0 million and $4.4  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 2001.

         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.  During  the  fourth  quarter of 2000,  Keystone  entered  into a modified
Administrative  Order on Consent.  That order may require the Company to conduct
cleanup  activities  at  certain  solid  waste  management  units at its  Peoria
facility  depending  on the results of soil and  groundwater  sampling  and risk
assessment to be conducted by Keystone pursuant to the order.

         In March 2000,  the  Illinois  Attorney  General  (the "IAG") filed and
served a seven-count  complaint  against Keystone for alleged  violations of the
Illinois   Environmental   Protection   Act,  415  ILCS  5/31,  and  regulations
implementing RCRA at Keystone's Peoria facility.  The complaint alleges Keystone
violated RCRA in failing to prevent spills of an alleged hazardous waste on four
separate  occasions  during the period from June 1995 through  January 1999. The
complaint  also  alleges  the  Company  illegally  "stored",  "disposed  of" and
manifested the same allegedly hazardous waste on some or all of those occasions.
In addition,  the complaint  alleges these  hazardous  waste spills  resulted in
groundwater pollution in violation of the Illinois Environmental Protection Act.
The complaint further alleges Keystone improperly disposed of hazardous waste on
two occasions at a landfill not permitted to receive such wastes.  The complaint
seeks the maximum  statutory  penalties  allowed  which ranges up to $50,000 for
each violation and  additional  amounts up to $25,000 for each day of violation.
Keystone has answered the complaint and proceedings in the case have been stayed
pending the outcome of settlement  negotiations  between  Keystone and the IAG's
office.

         In June  2000,  the IAG  filed a  Complaint  For  Injunction  And Civil
Penalties against Keystone.  The complaint alleges the Company's Peoria facility
violated its National  Pollutant  Discharge  Elimination System ("NPDES") permit
limits for ammonia and zinc discharges from the facility's  wastewater treatment
facility into the Illinois River. The complaint  alleges specific  violations of
the 30-day  average  ammonia limit in the NPDES permit for three months in 1996,
11 months in 1997, 12 months in 1998, 11 months in 1999 and the first two months
of 2000. The complaint further alleges two violations of the daily maximum limit
for zinc in October and December of 1999.  Keystone  has answered the  complaint
and  proceedings  in the case have been stayed pending the outcome of settlement
negotiations between the Company and the IAG's office.

"Superfund" sites

         The  Company is subject to federal  and state  "Superfund"  legislation
that  imposes  cleanup and  remediation  responsibility  upon present and former
owners and  operators  of,  and  persons  that  generated  hazardous  substances
deposited  upon,  sites  determined  by state or federal  regulators  to contain
hazardous substances. Keystone has been notified by U.S. EPA that the Company is
a  potentially   responsible   party  ("PRP")  under  the  federal   "Superfund"
legislation for the alleged release or threat of release of hazardous substances
into the  environment  at eight  sites.  These  situations  involve  cleanup  of
landfills and disposal facilities which allegedly received hazardous  substances
generated by discontinued operations of the Company.  Although Keystone believes
its comprehensive  general liability insurance policies provide  indemnification
for certain costs the Company incurs at the "Superfund"  sites discussed  below,
it has only recorded receivables for the estimated insurance recoveries at three
of those  sites.  During  1999 and  2000,  the  Company  received  approximately
$725,000 and  $140,000,  respectively,  from certain of its insurers in exchange
for releasing  such  insurers  from coverage for certain years of  environmental
related  liabilities.  Such amounts are included in  Keystone's  self  insurance
accruals.

         In July  1991,  the  United  States  filed an  action  against a former
division of the Company and four other PRPs in the United States  District Court
for the Northern  District of Illinois  (Civil  Action No.  91C4482)  seeking to
recover  investigation  and remediation  costs incurred by U.S. EPA at the Byron
Salvage  Yard,  located in Byron,  Illinois.  In April  1992,  Keystone  filed a
third-party complaint in this civil action against 15 additional parties seeking
contribution  in the event the Company is held liable for any response  costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any  investigation  of the nature and extent of the  contamination.  In December
1996,  Keystone,  U.S. EPA and the Department of Justice  entered into the Fifth
Partial  Consent  Decree to settle  Keystone's  liability for EPA response costs
incurred at the site  through  April 1994 for a payment of  $690,000.  Under the
agreement  Keystone is  precluded  from  recovering  any portion of the $690,000
settlement payment from other parties to the lawsuit.  In January 1997, Keystone
paid the $690,000  settlement.  Keystone will remain  potentially liable for EPA
response  costs  incurred  after April 30,  1994,  and natural  resource  damage
claims, if any, that may be asserted in the future. Keystone recovered a portion
of the  $690,000  payment  from its  insurer.  In March 1997,  U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated  soils be performed at an  estimated  cost of $63,000,  that a soil
cover be placed over the site, an on-site  groundwater  pump and treat system be
installed  and  operated  for an  estimated  period of 15  years,  and that both
on-site and  off-site  groundwater  monitoring  be conducted  for an  indefinite
period. U.S. EPA's cost estimate for the recommended plan is $5.1 million.  U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately  $6 million.  The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a  Comprehensive   Environmental   Response,   Compensation  and  Liability  Act
("CERCLA")  special  notice  letter  notifying  them  for  the  first  time of a
September  1998 Record of Decision  ("ROD") and  requesting a  commitment  on or
before  May 19,  1999 to  perform  soils  work  required  by that  ROD  that was
estimated to cost approximately $300,000. In addition, the special notice letter
also  requested  the PRPs to reimburse  U.S. EPA for costs  incurred at the site
since May 1994 in the amount of $1.1  million,  as well as for all future  costs
the U.S.  EPA will incur at the site in  overseeing  the  implementation  of the
selected soils remedy and any future  groundwater  remedy.  Keystone  refused to
agree to the U.S.  EPA's past and future cost demand.  In August 1999,  U.S. EPA
issued a  groundwater  PRAP with an estimated  present value cost of $3 million.
Keystone filed public comments opposing the PRAP in September 1999. Keystone and
the other  remaining  PRPs are now in the final  stages of  negotiating  another
Consent  Decree  with the U.S.  EPA,  in order to resolve  their  liability  for
performance of the U.S. EPA's September 1998 ROD for a soils remedy at the site,
for the  performance  of the U.S.  EPA's  December 1999 ROD for remedial  action
regarding  the  groundwater  component of Operable  Unit No. 4 at the site,  for
payment of U.S.  EPA's site costs incurred since May 1994 as well as future U.S.
EPA  oversight  costs,  and for the  transfer of certain  funds that may be made
available to the PRPs as a result of a consent decree  reached  between U.S. EPA
and another site PRP. Under the proposed terms of that Consent  Decree,  and the
draft PRP Agreement  that would be executed to implement  the PRPs'  performance
under that decree, Keystone would be required to pay approximately $700,000, and
would remain liable for 18.57% of future U.S. EPA  oversight  costs as well as a
similar share of any  unanticipated  cost increases in the soils remedial action
work. (Under the proposed agreements,  the City of Byron, Illinois, would assume
responsibility for any cost overruns  associated with the municipal water supply
components of the groundwater  contamination remedy.) Verbal agreement of all of
the  parties  has been  reached  as to the terms of this  agreement,  subject to
approval  by the City  Council  of the City of  Byron,  the  U.S.  EPA  Regional
Administrator,  and the Department of Justice. Until the proposed consent decree
is signed by all of the  responsible  parties and  approved by the court,  it is
possible that the negotiations could fail and that Keystone's ultimate liability
could  increase  in  a  subsequent  settlement  agreement  or  as  a  result  of
litigation.

         In September  1991,  the Company  along with 53 other PRPs,  executed a
consent  decree to  undertake  the  immediate  removal of  hazardous  wastes and
initiate a Remedial  Investigation/Feasibility Study ("RI/FS") of the Interstate
Pollution Control site located in Rockford,  Illinois.  The Company's percentage
allocation  within the group of PRPs  agreeing to fund this project is currently
2.14%. However, the Company's ultimate allocation, and the ultimate costs of the
RI/FS and any remedial  action,  are subject to change  depending,  for example,
upon: the number and financial  condition of the other participating PRPs, field
conditions and sampling results,  results of the risk assessment and feasibility
study,  additional  regulatory  requirements,  and the success of a contribution
action  seeking to compel  additional  parties to contribute to the costs of the
RI/FS and any remedial  action.  The RI/FS began in 1993,  was completed in 1997
and approved by IEPA in 1998. In the summer of 1999, IEPA selected a capping and
soil vapor extraction  remedy estimated by the PRP group to have a present value
cost of  approximately  $2.5 million.  IEPA is also demanding  reimbursement  of
$460,000  in  past  costs  for  prior   oversight  costs  and  may  also  demand
reimbursement of future oversight costs.

         In August  1987,  Keystone  was  notified by U.S.  EPA that it is a PRP
responsible  for  the  alleged  hazardous  substance  contamination  of  a  site
previously  owned  by the  Company  in  Cortland,  New  York.  Four  other  PRPs
participated  in the RI/FS and a contribution  action is pending  against eleven
additional  viable  companies which  contributed  wastes to the site.  Following
completion  of the RI/FS,  U.S. EPA  published in November  1997, a PRAP for the
site  that  recommends  the  excavation  and  disposal  of  contaminated   soil,
installation  of an  impervious  cap over a portion of the site,  placement of a
surface  cover  over  the  remainder  of the site  and  semi-annual  groundwater
monitoring until drinking water standards are met by natural  attenuation.  U.S.
EPA estimates the costs of this recommended plan to be $3.1 million. The highest
cost remedy  evaluated by U.S. EPA but not  recommended in the PRAP is estimated
by U.S. EPA to have a cost of $19.8  million.  In September  1998,  Keystone and
four other PRPs who had funded the prior  remedial  actions  and RI/FS  signed a
proposed  Consent  Decree with U.S.  EPA  calling for them to be  "nonperforming
parties" for the  implementation of a March 1998 Record of Decision.  Under this
proposed  Consent Decree,  Keystone is responsible  for an unspecified  share of
U.S. EPA's past site costs of $686,000.

         Prior to its  acquisition by Keystone,  DeSoto 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.  Sherman is paying on a  non-binding  interim
basis,  approximately  10% of the costs for this  site.  Remediation  costs,  at
Sherman's  present  allocation  level,  are  estimated  at a range of from  $1.5
million to $4 million.

         In 1984,  U.S.  EPA filed suit  against  DeSoto by amending a complaint
against Midwest Solvent Recovery,  Inc. et al ("Midco").  DeSoto was a defendant
based upon  alleged  shipments  to an  industrial  waste  recycling  storage and
disposal operation site located in Gary,  Indiana.  The amended complaint sought
relief  under  CERCLA  to  force  the  defendants  to  clean  up the  site,  pay
non-compliance  penalties and reimburse the  government for past clean up costs.
In June 1992,  DeSoto settled its portion of the case by entering into a partial
consent decree, and all but one of the eight remaining primary defendants and 93
third party  defendants  entered into a main consent decree.  Under the terms of
the partial consent decree,  DeSoto agreed to pay its pro rata share (13.47%) of
all costs under the main consent decree.  At December 31, 2000 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,  Sherman  also has certain  funds  available  in other trust funds due it
under the partial  consent  decree.  These  credits can be used by Sherman (with
certain  limitations) to fund its future  liabilities  under the partial consent
decree.

         In 1995, DeSoto was notified by the Texas Natural Resource Conservation
Commission  ("TNRCC") that there were certain  deficiencies  in prior reports to
TNRCC relative to one of its  non-operating  facilities  located in Gainesville,
Texas.  During 1999,  Sherman entered into TNRCC's  Voluntary  Cleanup  Program.
Remediation  costs are  presently  estimated  to be between  $1  million  and $5
million.  Investigation  activities are on-going  including  additional soil and
groundwater sampling.

         In December 1991, DeSoto and approximately 600 other PRPs were named in
a complaint  alleging DeSoto and the PRPs generated wastes that were disposed of
at a Pennsauken,  New Jersey municipal landfill. The plaintiffs in the complaint
were ordered by the court to show in what manner the  defendants  were connected
to the site. The  plaintiffs  provided an alleged nexus  indicating  garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such  waste  allegedly  contained  hazardous  material  to which
DeSoto objected.  The claim was dismissed  without  prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in  discovery  stage at  December  31,  2000.  Sherman  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, Sherman is allegedly involved
at various  other  sites and in related  toxic tort  lawsuits  which it does not
currently expect to incur significant liability.

         Under the terms of a 1990 asset sale agreement,  DeSoto established two
trust funds totaling $6 million to fund potential clean-up  liabilities relating
to the assets  sold.  Sherman has access to the trust funds for any  expenses or
liabilities it incurs  relative to  environmental  claims  relating to the sites
identified in the trust  agreements.  The trust funds are primarily  invested in
United States Treasury  securities and are classified as restricted  investments
on the balance  sheet.  In October 2000, one of the trust's term expired and the
$3.6 million trust balance was returned to Sherman.  As of December 31, 1999 and
2000,  the balance in the trust funds were  approximately  $4.6 million and $1.5
million, respectively.

Note 14 - Lease commitments

         During years prior to its acquisition by Keystone,  DeSoto sold four of
its real  properties to a real property trust created by DeSoto's  pension plan.
This trust entered into ten-year leases of the properties to DeSoto.  The amount
paid to DeSoto by the trust and DeSoto's  annual  rental  obligation  were based
upon independent appraisals and approved by DeSoto's Board of Directors.  During
1998,  the Plan sold two of the locations  and, as part of the terms of the sale
of one of the  locations,  DeSoto  leased back the  property for a period of two
years.  The Plan sold the  third  and  fourth  locations  during  1999 and 2000,
respectively,  and  Sherman  was  released  from the  leases.  Payments,  net of
subtenant rent payments,  under these leases during 1998, 1999 and 2000 amounted
to approximately $679,000, $324,000, and $24,000, 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>
2001                      $2,022             $47          $1,975
2002                       1,370               -           1,370
2003                         460               -             460
2004                         137               -             137
2005                          38              -               38
                          ------             ---          ------
                          $4,027             $47          $3,980
                          ======             ===          ======
</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 2000, the matter was settled by the insurance carrier.

         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.

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
facility and, after completion of the plant,  provide Keystone with all, subject
to certain  limitations,  of its gaseous oxygen and nitrogen needs for a 15-year
period.  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 1998,
1999 and 2000 amount to $399,000, $2.1 million and $2.7 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  33% of steel and wire product sales in
1998, and 34% in 1999 and 2000. These customers  accounted for approximately 22%
of steel and wire  products  notes and accounts  receivable at December 31, 1999
and 20% at December 31, 2000.

         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 2000 and lawn and garden  products  notes and  accounts  receivable  at
December 31, 1999 and 2000.

         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 1998, sales to Sears accounted for
approximately 85% of total sales related to household cleaning products.


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           SCHEDULE II - VALUATION AND
                               QUALIFYING ACCOUNTS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                Additions
                                                  Balance at    Charged to    Deductions  Balance at
                                                   beginning    costs and      (net of      end of
Description                                        of period     expenses    recoveries)    period

Year ended December 31, 1998:

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

Year ended December 31, 2000:

  Allowance for doubtful accounts and
    Notes receivable                                 $2,297        $  200       $  816      $1,681
                                                     ======        ======       ======      ======
</TABLE>
<PAGE>

                                                                   EXHIBIT 10.1


                       INTERCORPORATE SERVICES AGREEMENT

     This INTERCORPORATE  SERVICES AGREEMENT (the "Agreement"),  effective as of
January 1, 2000,  amends and  supersedes  that certain  Intercorporate  Services
Agreement  effective  as of  January  1, 1999  between  CONTRAN  CORPORATION,  a
Delaware corporation ("Contran"),  and KEYSTONE CONSOLIDATED INDUSTRIES, INC., a
Delaware corporation ("Recipient").

                                    Recitals

     A.  Employees and agents of Contran and  affiliates  of Contran,  including
Harold C. Simmons,  perform management,  financial and administrative  functions
for Recipient without direct compensation from Recipient.

     B. Recipient does not separately  maintain the full internal  capability to
perform all necessary  management,  financial and administrative  functions that
Recipient requires.

     C. The cost of maintaining the additional  personnel by Recipient necessary
to perform the functions provided for by this Agreement would exceed the fee set
forth in Section 3 of this Agreement and that the terms of this Agreement are no
less favorable to Recipient than could  otherwise be obtained from a third party
for comparable services.

     D. Recipient  desires to continue  receiving the management,  financial and
administrative  services presently provided by Contran and affiliates of Contran
and Contran is willing to continue to provide such  services  under the terms of
this Agreement.

                                    Agreement

     For  and in  consideration  of the  mutual  premises,  representations  and
covenants herein contained, the parties hereto mutually agree as follows:

         Section 1. Services to be Provided. Contran agrees to make available to
Recipient,  upon request, the following services (the "Services") to be rendered
by the internal staff of Contran and affiliates of Contran:

          (a) Consultation and assistance in the development and  implementation
     of Recipient's corporate business strategies, plans and objectives;

          (b) Consultation and assistance in management and conduct of corporate
     affairs and corporate governance  consistent with the charter and bylaws of
     Recipient;

          (c)  Consultation  and assistance in maintenance of financial  records
     and  controls,  including  preparation  and  review of  periodic  financial
     statements and reports to be filed with public and regulatory  entities and
     those  required to be prepared for  financial  institutions  or pursuant to
     indentures and credit agreements;

          (d)  Consultation  and assistance in cash  management and in arranging
     financing necessary to implement the business plans of Recipient;

          (e) Consultation and assistance in tax management and  administration,
     including,  without limitation,  preparation and filing of tax returns, tax
     reporting, examinations by government authorities and tax planning;

          (f)  Consultation  and  assistance  in performing  internal  audit and
     control functions;

          (g)  Consultation  and  assistance  with respect to insurance and risk
     management;

          (h) Consultation and assistance with respect to employee benefit plans
     and incentive compensation arrangements; and

          (i) Such other  services as may be requested by Recipient from time to
     time.

     Section 2. Miscellaneous  Services.  It is the intent of the parties hereto
that Contran provide only the Services requested by Recipient in connection with
routine  management,  financial  and  administrative  functions  related  to the
ongoing  operations  of  Recipient  and not with  respect to  special  projects,
including  corporate  investments,  acquisitions and  divestitures.  The parties
hereto  contemplate that the Services rendered in connection with the conduct of
Recipient's  business  will  be on a scale  compared  to  that  existing  on the
effective  date of this  Agreement,  adjusted for internal  corporate  growth or
contraction, but not for major corporate acquisitions or divestitures,  and that
adjustments  may be required to the terms of this Agreement in the event of such
major corporate acquisitions,  divestitures or special projects.  Recipient will
continue to bear all other costs required for outside  services  including,  but
not  limited  to,  the  outside  services  of  attorneys,   auditors,  trustees,
consultants, transfer agents and registrars, and it is expressly understood that
Contran  assumes no  liability  for any  expenses or  services  other than those
stated in Section 1. In addition to the fee paid to Contran by Recipient for the
Services provided pursuant to this Agreement,  Recipient will pay to Contran the
amount of out-of-pocket costs incurred by Contran in rendering such Services.

     Section 3. Fee for Services.  Recipient  agrees to pay to Contran  $187,500
quarterly, commencing as of January 1, 2000, pursuant to this Agreement.

     Section 4. Original  Term.  Subject to the  provisions of Section 5 hereof,
the original  term of this  Agreement  shall be from January 1, 2000 to December
31, 2000.

     Section  5.   Extensions.   This   Agreement   shall  be   extended   on  a
quarter-to-quarter  basis  after the  expiration  of its  original  term  unless
written  notification  is given by  Contran  or  Recipient  thirty  (30) days in
advance of the first day of each  successive  quarter or unless it is superseded
by a subsequent written agreement of the parties hereto.

     Section 6.  Limitation of Liability.  In providing its Services  hereunder,
Contran  shall  have a duty  to act,  and to  cause  its  agents  to  act,  in a
reasonably  prudent  manner,  but  neither  Contran nor any  officer,  director,
employee or agent of Contran or its affiliates  shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection  with the  matter  to which  this  Agreement  relates,  except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Contran.

     Section  7.  Indemnification  of  Contran  by  Recipient.  Recipient  shall
indemnify  and hold  harmless  Contran,  its  affiliates  and  their  respective
officers,  directors  and  employees  from  and  against  any  and  all  losses,
liabilities,  claims, damages, costs and expenses (including attorneys' fees and
other  expenses of  litigation)  to which  Contran or any such person may become
subject arising out of the Services provided by Contran to Recipient  hereunder,
provided that such indemnity  shall not protect any person against any liability
to  which  such  person  would   otherwise  be  subject  by  reason  of  willful
misfeasance, bad faith or gross negligence on the part of such person.

     Section 8.  Further  Assurances.  Each of the parties  will make,  execute,
acknowledge and deliver such other instruments and documents,  and take all such
other actions,  as the other party may reasonably  request and as may reasonably
be required in order to effectuate  the purposes of this  Agreement and to carry
out the terms hereof.

     Section 9. Notices.  All  communications  hereunder shall be in writing and
shall be addressed,  if intended for Contran,  to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240,  Attention:  President,  or such other
address as it shall have furnished to Recipient in writing,  and if intended for
Recipient,  to Three Lincoln Centre, 5430 LBJ Freeway, Suite 1740, Dallas, Texas
75240, Attention:  Chairman of the Board, or such other address as it shall have
furnished to Contran in writing.

     Section 10. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived,  discharged or terminated other than by agreement
in writing signed by the parties hereto.

     Section 11. Successor and Assigns. This Agreement shall be binding upon and
inure to the benefit of Contran and  Recipient and their  respective  successors
and  assigns,  except  that  neither  party may  assign  its  rights  under this
Agreement without the prior written consent of the other party.

     Section  12.  Governing  Law.  This  Agreement  shall be  governed  by, and
construed and interpreted in accordance with, the laws of the state of Texas.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.


                               CONTRAN CORPORATION




                            By: /s/ STEVEN L. WATSON
                                ---------------------------------------------
                                Steven L. Watson
                                President


                                KEYSTONE CONSOLIDATED INDUSTRIES, INC.




                            By:  /s/ GLENN R. SIMMONS
                                 --------------------------------------------
                                 Glenn R. Simmons
                                 Chairman of the Board

<PAGE>

                                                                      EXHIBIT 21

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES


                         SUBSIDIARIES OF THE REGISTRANT




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

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

Fox Valley Steel and Wire Company                      Wisconsin          100.0%

Sherman Wire Company (2)                               Delaware           100.0%
  J.L. Prescott Company                                New Jersey         100.0%
  DeSoto Environmental
   Management, Inc.                                    Delaware           100.0%

Engineered Wire Products, Inc.                         Ohio               100.0%

Garden Zone LLC                                        Delaware           51.0%
</TABLE>

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

(2)      Formerly DeSoto, Inc.



<PAGE>







                                                                    EXHIBIT 23.1





                       CONSENT OF INDEPENDENT ACCOUNTANTS


We  hereby  consent  to the  incorporation  by  reference  in this  Registration
Statement on Form S-4 (File No. 333-35955) of Keystone Consolidated  Industries,
Inc. of our report dated March 26, 2001 relating to the financial statements and
financial   statements   schedule,   which  appears  in  Keystone   Consolidated
Industries,  Inc.'s Annual  Report on Form 10-K for the year ended  December 31,
2000.







PricewaterhouseCoopers LLP


Dallas, Texas
March 29, 2001




<PAGE>








                                                                    EXHIBIT 23.2






                       CONSENT OF INDEPENDENT ACCOUNTANTS


We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 (No. 333-71441, 333-55891, 333-55865, 333-55867, 33-30137,
33-63086 and 2-93666) of Keystone  Consolidated  Industries,  Inc. of our report
dated  March  26,  2001  relating  to the  financial  statements  and  financial
statement schedule, which appears in this Form 10-K.





PricewaterhouseCoopers LLP


Dallas, Texas
March 29, 2001