**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-K**

**ANNUAL          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE**
**ACT          OF 1934 - For the fiscal year ended **
**December          31, 2006**

**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 ofIncorporation                  or organization) |   | (IRS                  EmployerIdentification                  No.) |

| **5430                  LBJ Freeway, Suite 1740,****Three                  Lincoln Centre, Dallas, Texas** |   | **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:** | **None.**                           |

| **Securities                  registered pursuant to Section 12(g) of the Act:** | **Title                  of each class**      |
|----------------------------------------------------------------------------------|-----------------------------------------------|
|                                                                             | Common                  Stock, $.01 par value |

**Indicate        by check mark:**

----

----

**PART        I**

| ·   | Future                supply and demand for our products (including cyclicality thereof), |
|--------------------|-------------------------------------------------------------------------------------------|
| ·   | Customer                inventory levels, |
|--------------------|-------------------------------------------|
| ·   | Changes                in raw material and other operating costs (such as ferrous scrap                and                energy), |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The                possibility of labor disruptions, |
|--------------------|------------------------------------------------------|
| ·   | General                global economic and political conditions, |
|--------------------|------------------------------------------------------------------|
| ·   | Competitive                products and substitute products, |
|--------------------|--------------------------------------------------------------|
| ·   | Customer                and competitor strategies, |
|--------------------|----------------------------------------------------|
| ·   | The                impact of pricing and production decisions, |
|--------------------|----------------------------------------------------------------|
| ·   | Environmental                matters (such as those requiring emission and discharge standards                for                existing and new facilities), |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Government                regulations and possible changes therein, |
|--------------------|---------------------------------------------------------------------|
| ·   | Significant                increases in the cost of providing medical coverage to employees, |
|--------------------|----------------------------------------------------------------------------------------------|
| ·   | The                ultimate resolution of pending litigation, |
|--------------------|---------------------------------------------------------------|
| ·   | International                trade policies of the United States and certain foreign countries, |
|--------------------|-------------------------------------------------------------------------------------------------|
| ·   | Operating                interruptions (including, but not limited to, labor disputes, fires,                explosions, unscheduled or unplanned downtime and transportation                interruptions), |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Our                ability to renew or refinance credit facilities,                and |
|--------------------|----------------------------------------------------------------------------------------|
| ·   | Any                possible future litigation. |
|--------------------|------------------------------------------------|

----

**ITEM        1. BUSINESS.**

| ·   | Keystone                Steel and Wire (“KSW”), located in Peoria, Illinois, operates an electric                arc furnace mini-mill and manufactures and sells wire rod, industrial                wire, nails, coiled rebar and fabricated wire products for agricultural,                industrial, construction, commercial, original equipment manufacturers                and                retail consumer markets; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Engineered                Wire Products (“EWP”), located in Upper Sandusky, Ohio, manufactures and                sells welded wire reinforcement in both roll and sheet form that                is                utilized in concrete construction products including pipe, pre-cast                boxes                and applications for use in roadways, buildings and bridges; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Keystone                Wire Products (“KWP”), located in Sherman, Texas, manufactures and sells                industrial wire and fabricated wire products for agricultural, industrial,                construction, commercial, original equipment manufacturers and retail                consumer markets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Manufacturing**

*Overview*

** **

*Raw        Materials and Energy*

----

*Employment*

| ·   | 800                are represented by the Independent Steel Workers’ Alliance at KSW under an                agreement expiring in May 2009, |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 30                are represented by the International Association of Machinists and                Aerospace Workers (Local 1570) at KWP under an agreement expiring                in                October 2008, and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 60                are represented by Local Union #40, an Affiliate to the International                Brotherhood of Teamsters' Chauffeurs Warehousemen and Helpers of                America,                AFL-CIO at EWP under an agreement expiring in November 2009. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Products,        Markets and Distribution**

|                                       |   | **               Year                  Ended December                  31,                ** |   |
|--------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                       |   | **      2004      **                                                                                                                                                                        |   | **      2005      ** |   | **      2006      ** |   |
|   **Product**                    |   | **Percent****of                  Tons****Shipped**                                                                                                                                                                                                      |   | **Percent****Of****Sales** |   | **Percent****of                  Tons****Shipped** |   | **Percent****of****Sales** |   | **Percent****of                  Tons****Shipped** |   | **Percent****of****Sales** |   |
|                                       |   |                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Fabricated                  wire products  |   |                                                                                                                                                                                                                                                    | 22.6   | % |   | 31.4 | % |   | 19.2 | % |   | 30.1 | % |   | **16.5** | **%** |   | **26.6** | **%** |
| Welded                  wire reinforcement |   |                                                                                                                                                                                                                                                    | 13.8   |   |   | 16.3 |   |   | 13.6 |   |   | 17.2 |   |   | **10.0** |   |   | **13.5** |   |
| Nails                                      |   |                                                                                                                                                                                                                                                    | 5.4    |   |   | 5.8 |   |   | 3.2 |   |   | 3.4 |   |   | **2.6** |   |   | **2.8** |   |
| Industrial                  wire           |   |                                                                                                                                                                                                                                                    | 16.0   |   |   | 16.1 |   |   | 13.7 |   |   | 14.4 |   |   | **11.2** |   |   | **12.6** |   |
| Coiled                  rebar              |   |                                                                                                                                                                                                                                                    | -      |   |   | - |   |   | - |   |   | - |   |   | **0.2** |   |   | **0.1** |   |
| Wire                  rod                  |   |                                                                                                                                                                                                                                                    | 38.9   |   |   | 29.6 |   |   | 44.9 |   |   | 32.4 |   |   | **51.6** |   |   | **40.1** |   |
| Billets                                    |   |                                                                                                                                                                                                                                                    | 3.3    |   |   | .8 |   |   | 5.4 |   |   | 2.5 |   |   | **7.9** |   |   | **4.3** |   |
|                                       |   |                                                                                                                                                                                                                                                    | 100.0  | % |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |   | **100.0** | **%** |   | **100.0** | **%** |
|                                       |   |                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

*Fabricated        Wire Products*
** **
** **

----

*Welded        Wire Reinforcement.*

*Nails*

*Industrial        Wire*

*Coiled        rebar.*

*Wire        Rod.*

----

*Billets.*

*Trademarks*

*RED        BRAND*
*RED        BRAND*

*Customers*

|                                       | **   2004   ** |   | **   2005   ** |   | **   2006   ** |
|--------------------------------------------|----------------------------------------------|--------|----------------------------------------------|--------|----------------------------------------------|
|                                       | **%                  of Sales**              |
|                                       |                                         |   |                                         |   |                                         |
| **Ten                  largest customers** | 48%                                          |   | 43%                                          |   | **44%**                                      |
|                                       |                                         |   |                                         |   |                                         |
| **Single                  customer**       | 12%                                          |   | 11%                                          |   | **14%**                                      |

*Seasonality*

*Backlog*

----

**Industry        and Competition**

| ·   | the                breadth of our fabricated wire products, welded wire reinforcement                and                industrial wire offerings; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | our                ability to service diverse geographic and product markets; and |
|--------------------|-----------------------------------------------------------------------------------|
| ·   | the                relatively low cost of our internal supply of wire                rod. |
|--------------------|-------------------------------------------------------------------------------------------|

*Fabricated        Wire Products and Industrial Wire.*
*RED        BRAND*

*Welded        Wire Reinforcement.*

*Coiled        Rebar*

----

*Wire        Rod and Billets.*

**Environmental        Matters**

**Acquisition        and Restructuring Activities**

----

*Acquisition        and Amendment of Credit Facility in 2007*

*Restructuring*

*Bankruptcy*

----

**Availability        of Company Reports Filed with the SEC **

**ITEM        1A. RISK FACTORS.**

**Our        leverage may impair our financial condition or limit our ability to operate        our        businesses.**

| ·   | making                it more difficult for us to satisfy our obligations with respect                to our                liabilities; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | increasing                our vulnerability to adverse general economic and industry                conditions; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|
| ·   | requiring                a portion of our cash flow from operations be used for the payment                of                interest on our debt, therefore reducing our ability to use our cash                flow                to fund working capital, capital expenditures, acquisitions and general                corporate requirements; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | limiting                our ability to obtain additional financing to fund future working                capital,                capital expenditures, acquisitions and general corporate                requirements; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | limiting                our flexibility in planning for, or reacting to, changes in our business                and the industry in which we operate; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | placing                us at a competitive disadvantage relative to other less-leveraged                competitors. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

**We        are vulnerable to business downturns.**

----

**Demand        for, and prices of, certain of our products are cyclical and we may experience        prolonged depressed market conditions for our products, which may result        in        reduced earnings or operating losses. **

**We        sell the majority of our products in mature and highly competitive industries        and face price pressures in the markets in which we operate, which may result        in        reduced earnings or operating losses.**

**Many        of EWP’s products are ultimately used in infrastructure projects by local, State        or Federal governments.**

**Wire        rod imported into the U.S. continues at high levels. Global producers of        wire        rod are able to import their products into the U.S. with minimal tariffs        and        duties.**

**Higher        costs or limited availability of ferrous scrap may decrease our        liquidity.**

----

**Our        relationships with our union employees could deteriorate. At December 31,        2006,        we employed approximately 1,100 persons in our various businesses of which        approximately 78% are subject to collective bargaining or similar        arrangements.**

**Our        forecasted operating results for Calumet may not come to        fruition.**

**ITEM        1B. UNRESOLVED STAFF COMMENTS.**

**ITEM        2. PROPERTIES.**

|   **      Facility                    Name     ** |   |   **   Location   ** |                                  | **Approximate****Size****(Square                    Feet)** |   |   **       Products                    Produced       ** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|---------------------------------------|-------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                               |   |                                                         |                                  |                                                        |   |                                                                                                                                     |   |
| Keystone                    Steel & Wire                                                                       |   |                                                         | Peoria,                    IL         |                                                        |   | 2,012,000                                                                                                                                |   |   | Fabricated                    wire products, nails, industrial wire, coiled rebar and wire                    rod                    (1) |   |
| Keystone                    Wire Products                                                                          |   |                                                         | Sherman,                    TX        |                                                        |   | 299,000                                                                                                                                  |   |   | Fabricated                    wire products and industrial wire (2) |   |
| Engineered                    Wire Products                                                                        |   |                                                         | Upper                    Sandusky, OH |                                                        |   | 79,000                                                                                                                                   | (3)    |   | Welded                    wire reinforcement |   |
|                                                                                                               |   |                                                         |                                  |                                                        |   |                                                                                                                                     |   |   |   |   |
|                                                                                                               |   |                                                         |                                  |                                                        |   | 2,390,000                                                                                                                                |   |   |   |   |

----

**ITEM        3. LEGAL PROCEEDINGS.**

**ITEM        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

----

**PART        II**

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

|                                                                     |   | **  High  ** |   | **  Low  ** |   |
|--------------------------------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
|                                                                     |   |                             |   |                            |   |
| *Year                  ended December 31, 2006*                          |   |                             |   |                            |   |   |   |
|                                                                     |   |                             |   |                            |   |   |   |
|   First                  quarter                               |   |                             | N/A    |                            |   | N/A |   |
|                    Second quarter (April 1 to June 22)              |   |                             | N/A    |                            |   | N/A |   |
|   Second                  quarter (June 23 to June 30)         |   | $                                | 2.25   |                            | $      | 2.00 |   |
|   Third                  quarter                               |   | $                                | 14.00  |                            | $      | 2.55 |   |
|   Fourth                  quarter                              |   | $                                | 18.50  |                            | $      | 11.70 |   |
|                                                                     |   |                             |   |                            |   |   |   |
| *Year                  ended December 31, 2005*                          |   |                             |   |                            |   |   |   |
|                                                                     |   |                             |   |                            |   |   |   |
|   First                  quarter                               |   | $                                | .23    |                            | $      | .09 |   |
|   Second                  quarter                              |   | $                                | .17    |                            | $      | .08 |   |
|   Third                  quarter (July 1 to August 31)         |   | $                                | .08    |                            | $      | .01 |   |
|   Third                  quarter (September 1 to September 30) |   |                             | N/A    |                            |   | N/A |   |
|   Fourth                  quarter                              |   |                             | N/A    |                            |   | N/A |   |
|                                                                     |   |                             |   |                            |   |   |   |

*Performance        Graph*

----

|                                   |   |
|----------------------------------------|--------|
|                                   |   | June                  23, 2006 |   | December                  31, 2006 |   |
|                                   |   |   |   |   |   |
| Keystone                  common stock |   | **$** | **100** |   | **$** | **750** |   |
| S&P                  500 Index     |   |   | **100** |   |   | **115** |   |
| S&P                  Steel Index   |   |   | **100** |   |   | **117** |   |

----

**ITEM        6. SELECTED FINANCIAL DATA.**

|                                                                                                         |   | **   ****             Years                  ended December                  31,               ****  ** |    |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                         |   | **2002**                                                                                                                                                                                                                                                                     |    | **2003** |   | **2004** |   | **2005** |   | **2006** |   |
|                                                                                                         |   | **(In                  thousands, except per share and per ton amounts)**                                                                                                                                                                                                    |    |
| Statement                  of Operations Data:                                                               |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Net                  sales                                                                       |   | $                                                                                                                                                                                                                                                                            | 334,835 |   | $ | 306,671 |   | $ | 364,335 |   | $ | 367,545 |   | $ | 440,540 |   |
|   Operating                  income (loss)                                                         |   |                                                                                                                                                                                                                                                                         | (7,699  | ) |   | (31,446 | ) |   | 26,641 |   |   | 22,718 |   |   | 80,963 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Defined                  benefit pension expense  (credit)                             |   |                                                                                                                                                                                                                                                                         | (1,604  | ) |   | 6,898 |   |   | (6,752 | ) |   | (11,710 | ) |   | (55,978 | ) |
|   Other                  postretirement benefit expense (credit)                              |   |                                                                                                                                                                                                                                                                         | 14,260  |   |   | 17,503 |   |   | 20,909 |   |   | 8,885 |   |   | (8,297 | ) |
|   Gain                  on cancellation of debt                                                    |   |                                                                                                                                                                                                                                                                         | -       |   |   | - |   |   | - |   |   | 32,510 |   |   | - |   |
|   Gain                  on early extinguishment of debt                                       |   |                                                                                                                                                                                                                                                                         | 54,739  |   |   | - |   |   | - |   |   | - |   |   | - |   |
|   Gain                  on legal settlement                                                        |   |                                                                                                                                                                                                                                                                         | -       |   |   | - |   |   | 5,284 |   |   | - |   |   | - |   |
|   Reorganization                  costs                                                            |   |                                                                                                                                                                                                                                                                         | -       |   |   | - |   |   | 11,158 |   |   | 10,308 |   |   | 679 |   |
|   Provision                  for income taxes                                                      |   |                                                                                                                                                                                                                                                                         | 21,622  |   |   | - |   |   | 1,379 |   |   | 430 |   |   | 17,055 |   |
|   Cumulative                  effect of change in  accounting principle (4)              |   |                                                                                                                                                                                                                                                                         | 19,998  |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Net                  income (loss)                                                               |   | $                                                                                                                                                                                                                                                                            | 38,420  |   | $ | (37,517 | ) | $ | 16,060 |   | $ | 39,232 |   | $ | 57,732 |   |
|   Net                  income (loss) available for common shares (1)                          |   | $                                                                                                                                                                                                                                                                            | 33,737  |   | $ | (43,457 | ) | $ | 14,837 |   | $ | 39,232 |   | $ | 57,732 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Basic                  net income (loss) available for common shares per share                    |   | $                                                                                                                                                                                                                                                                            | 3.35    |   | $ | (4.32 | ) | $ | 1.47 |   | $ | 4.12 |   | $ | 5.77 |   |
|  Diluted                  net income (loss) available for common shares per                  share |   | $                                                                                                                                                                                                                                                                            | 1.76    |   | $ | (4.32 | ) | $ | .57 |   | $ | 1.88 |   | $ | 5.77 |   |
|   Weighted                  average common and common equivalent shares outstanding (3):      |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic                                                                                |   |                                                                                                                                                                                                                                                                         | 10,067  |   |   | 10,068 |   |   | 10,068 |   |   | 10,046 |   |   | 10,000 |   |
|     Diluted                                                                              |   |                                                                                                                                                                                                                                                                         | 21,823  |   |   | 10,068 |   |   | 28,043 |   |   | 22,029 |   |   | 10,000 |   |
|  Other                  Steel and Wire Products operating data:                                    |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Shipments                  (000 tons):                                                           |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Fabricated                  wire products                                            |   |                                                                                                                                                                                                                                                                         | 146     |   |   | 135 |   |   | 116 |   |   | 101 |   |   | 112 |   |
|     Welded                  wire reinforcement                                           |   |                                                                                                                                                                                                                                                                         | 63      |   |   | 66 |   |   | 71 |   |   | 71 |   |   | 67 |   |
|     Nails                                                                                |   |                                                                                                                                                                                                                                                                         | 74      |   |   | 53 |   |   | 28 |   |   | 17 |   |   | 18 |   |
|     Industrial                  wire                                                     |   |                                                                                                                                                                                                                                                                         | 96      |   |   | 91 |   |   | 82 |   |   | 72 |   |   | 75 |   |
|     Coiled                  rebar                                                        |   |                                                                                                                                                                                                                                                                         | -       |   |   | - |   |   | - |   |   | - |   |   | 1 |   |
|     Wire                  rod                                                            |   |                                                                                                                                                                                                                                                                         | 287     |   |   | 252 |   |   | 200 |   |   | 236 |   |   | 349 |   |
|     Billets                                                                              |   |                                                                                                                                                                                                                                                                         | 5       |   |   | 17 |   |   | 17 |   |   | 29 |   |   | 53 |   |
|       Total                                                                    |   |                                                                                                                                                                                                                                                                         | 671     |   |   | 614 |   |   | 514 |   |   | 526 |   |   | 675 |   |
|  Per-ton                  selling prices:                                                               |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Fabricated                  wire products                                            |   | $                                                                                                                                                                                                                                                                            | 791     |   | $ | 783 |   | $ | 984 |   | $ | 1,090 |   | $ | 1,037 |   |
|     Welded                  wire reinforcement                                           |   |                                                                                                                                                                                                                                                                         | 526     |   |   | 539 |   |   | 829 |   |   | 881 |   |   | 870 |   |
|     Nails                                                                                |   |                                                                                                                                                                                                                                                                         | 592     |   |   | 558 |   |   | 759 |   |   | 742 |   |   | 692 |   |
|     Industrial                  wire                                                     |   |                                                                                                                                                                                                                                                                         | 448     |   |   | 452 |   |   | 709 |   |   | 731 |   |   | 726 |   |
|     Coiled                  rebar                                                        |   |                                                                                                                                                                                                                                                                         | -       |   |   | - |   |   | - |   |   | - |   |   | 529 |   |
|     Wire                  rod                                                            |   |                                                                                                                                                                                                                                                                         | 304     |   |   | 314 |   |   | 539 |   |   | 503 |   |   | 500 |   |
|     Billets                                                                              |   |                                                                                                                                                                                                                                                                         | 156     |   |   | 192 |   |   | 176 |   |   | 321 |   |   | 354 |   |
|     Steel                  and wire products in total                                    |   |                                                                                                                                                                                                                                                                         | 482     |   |   | 479 |   |   | 707 |   |   | 696 |   |   | 645 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Average                  per-ton ferrous scrap purchase cost                                |   | $                                                                                                                                                                                                                                                                            | 94      |   | $ | 115 |   | $ | 205 |   | $ | 220 |   | $ | 210 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  Financial Data:                                                                       |   |                                                                                                                                                                                                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Capital                  expenditures                                                       |   | $                                                                                                                                                                                                                                                                            | 7,973   |   | $ | 2,683 |   | $ | 5,080 |   | $ | 9,772 |   | $ | 18,739 |   |
|   Depreciation                  and amortization                                                   |   |                                                                                                                                                                                                                                                                         | 17,396  |   |   | 16,461 |   |   | 15,812 |   |   | 15,745 |   |   | 15,222 |   |

----

|                                                                            |   | ** ****               As                  of December                  31,                 ** |     |
|---------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                            |   | **2002**                                                                                                                                                                                                                                                           |     | **2003** |   | **2004** |   | **2005** |   | **2006** |   |
|                                                                            |   | **(In                  thousands)**                                                                                                                                                                                                                                |     |
| Balance                  Sheet Data:                                            |   |                                                                                                                                                                                                                                                               |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Working                  capital (deficit) (2)                      |   | $                                                                                                                                                                                                                                                                  | (41,790  | ) | $ | (90,210 | ) | $ | 11,910 |   | $ | 36,373 |   | $ | 31,776 |   |
|   Property,                  plant and equipment,  net      |   |                                                                                                                                                                                                                                                               | 119,984  |   |   | 105,316 |   |   | 94,033 |   |   | 86,773 |   |   | 88,695 |   |
|   Total                  assets(5)                                    |   |                                                                                                                                                                                                                                                               | 215,495  |   |   | 282,194 |   |   | 323,282 |   |   | 358,364 |   |   | 763,936 |   |
|   Total                  debt                                         |   |                                                                                                                                                                                                                                                               | 98,684   |   |   | 88,897 |   |   | 65,985 |   |   | 99,895 |   |   | 76,448 |   |
|   Redeemable                  preferred stock (3)                     |   |                                                                                                                                                                                                                                                               | 2,112    |   |   | 2,112 |   |   | 2,112 |   |   | - |   |   | - |   |
|   Stockholders’                  equity  (deficit)(5) |   |                                                                                                                                                                                                                                                               | (136,900 | ) |   | (10,050 | ) |   | 4,787 |   |   | 67,531 |   |   | 403,662 |   |

|   | (1) | Includes                    the effect of dividends on preferred stock of $4,683,000, $5,940,000                    and                    $1,223,000 in 2002, 2003 and 2004, respectively. We discontinued                    accruing                    dividends on our preferred stock upon filing for Chapter 11 on                    February                    26, 2004. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (3) | All                    of our outstanding common and preferred stock at August 31, 2005                    was                    cancelled in connection with our emergence from Chapter 11 on                    August 31,                    2005, and at that time, we issued 10 million shares of a new                    issue of                    common stock. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Upon                    adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142,                    effective January 1, 2002, negative goodwill with a net book                    value of                    $20.0 million was eliminated as a cumulative effect of change                    in                    accounting principle. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | We                    adopted SFAS No. 158 effective December 31, 2006. See Note 14                    to our                    Consolidated Financial                    Statements. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**ITEM        7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        RESULTS OF OPERATIONS.**

**RESULTS        OF OPERATIONS**

**Business        Overview**

----

|                                                        |   | ** Years                  ended December 31, ** |   |
|-------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                        |   | **2004**                                                  |   | **2005** |   | **2006** |   |
|                                                        |   | **(In                  thousands)**                       |   |
| Operating                  income as reported               |   | $                                                         | 26,641 |   | $ | 22,718 |   | **$** | **80,963** |   |
|   Defined                  benefit pension credit |   |                                                      | (6,752 | ) |   | (11,710 | ) |   | **(55,978** | **)** |
|   OPEB                  expense (credit)          |   |                                                      | 20,909 |   |   | 8,885 |   |   | **(8,297** | **)** |
| Operating                  income before pension/OPEB       |   | $                                                         | 40,798 |   | $ | 19,893 |   | **$** | **16,688** |   |

| ·   | lower                selling prices; |
|--------------------|--------------------------------------|
| ·   | increased                costs for ferrous scrap; |
|--------------------|---------------------------------------------------|
| ·   | increased                costs for natural gas; and |
|--------------------|-----------------------------------------------------|
| ·   | increased                advertising and marketing expenses resulting from our efforts to                recapture                the portion of the market that we lost during                bankruptcy. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | lower                overall per-ton selling prices in 2006; |
|--------------------|--------------------------------------------------------------|
| ·   | increased                conversion costs in 2006 resulting from production interruptions                due to                operating issues with our wire rod mill reheat furnace; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | an                extra week of operations as 2006 was a 53-week year as compared to                a                52-week year in 2005; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | lower                costs for ferrous scrap in 2006; and |
|--------------------|-----------------------------------------------------------|
| ·   | lower                costs for natural gas in 2006. |
|--------------------|-----------------------------------------------------|

*Outlook        for 2007*

| ·   | lower                shipment volume due to a 52-week year in 2007 as compared to a 53-week                year in 2006, the decision to discontinue our nail business and the                use of                a higher percentage of our billets and wire rod in our downstream                businesses, partially offset by increased shipment volumes of fabricated                wire products and welded wire reinforcement (resulting from an expansion                project at EWP); |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | increased                overall per-ton selling price; |
|--------------------|---------------------------------------------------------|
| ·   | lower                ferrous scrap costs; |
|--------------------|-------------------------------------------|
| ·   | increased                energy costs as a result of the deregulation of electricity in Illinois; |
|--------------------|---------------------------------------------------------------------------------------------------|
| ·   | lower                conversion costs as a result of the rod mill reheat furnace overhaul                during the fourth quarter of 2006; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | slightly                higher depreciation expense related to the expansion project at EWP                and                the new reheat furnace at KSW; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | lower                costs as a result of the relocation of KWP’s industrial wire manufacturing                operations to KSW and the discontinuance of nail                operations. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | higher                defined benefit pension credit in 2007; |
|--------------------|---------------------------------------------------------------|
| ·   | increased                interest expense in 2007 due, in part, to the additional financing                obtained for the CaluMetals acquisition;                and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                provision for income taxes that more approximates the statutory rate                in                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

**Segment        Operating Results**

| ·   | Keystone                Steel and Wire (“KSW”), located in Peoria, Illinois, operates an electric                arc furnace mini-mill and manufactures and sells wire rod, industrial                wire, nails, coiled rebar and fabricated wire products for agricultural,                industrial, construction, commercial, original equipment manufacturers                and                retail consumer markets; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Engineered                Wire Products (“EWP”), located in Upper Sandusky, Ohio, manufactures and                sells welded wire reinforcement in both roll and sheet form that                is                utilized in concrete construction products including pipe, pre-cast                boxes                and applications for use in roadways, buildings and bridges; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Keystone                Wire Products (“KWP”), located in Sherman, Texas, manufactures and sells                industrial wire and fabricated wire products for agricultural, industrial,                construction, commercial, original equipment manufacturers and retail                consumer markets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                    |   |   **KSW**                 |        |   **EWP** |   |  **Sherman/****  KWP  ** |   | **Allocation****differences/****eliminations****(1)** |       |   **Total** |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------|-------------|---------------------|--------|---------------------------------------------------|--------|-------------------------------------------------------|------------|-----------------------|--------|
|                                                                                    |   | **(In                  thousands)** |        |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |
| For                  the year ended December 31, 2004:                                  |   |                                |        |                |   |                                              |   |                                                  |       |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
|  Net                  sales                                                        |   | $                                   | 346,703     |                | $      | 58,982                                            |   | $                                                     | 16,193     |                  | $      | (57,543 | ) | $ | 364,335 |   |
|  Cost                  of goods sold                                               |   |                                | 302,827     |                |   | 43,821                                            |   |                                                  | 15,020     |                  |   | (53,582 | ) |   | 308,086 |   |
|    Gross                  margin                                         |   |                                | 43,876      |                |   | 15,161                                            |   |                                                  | 1,173      |                  |   | (3,961 | ) |   | 56,249 |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
|  Selling                  and administrative                  expense         |   |                                | 9,877       |                |   | 4,345                                             |   |                                                  | 878        |                  |   | 351 |   |   | 15,451 |   |
|  Operating                  income (loss) before pension/OPEB                      |   | $                                   | 33,999      |                | $      | 10,816                                            |   | $                                                     | 295        |                  | $      | (4,312 | ) | $ | 40,798 |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
| For                  the year ended December 31, 2005:                                  |   |                                |        |                |   |                                              |   |                                                  |       |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
|  Net                  sales                                                        |   | $                                   | 342,139     |                | $      | 62,777                                            |   | $                                                     | 18,024     |                  | $      | (55,395 | ) | $ | 367,545 |   |
|  Cost                  of goods sold                                               |   |                                | 319,578     |                |   | 48,801                                            |   |                                                  | 18,726     |                  |   | (57,516 | ) |   | 329,589 |   |
|    Gross                  margin                                         |   |                                | 22,561      |                |   | 13,976                                            |   |                                                  | (702       | )                     |   | 2,121 |   |   | 37,956 |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
|  Selling                  and administrative                  expense         |   |                                | 12,440      |                |   | 4,277                                             |   |                                                  | 1,135      |                  |   | 211 |   |   | 18,063 |   |
|  Operating                  income (loss) before pension/OPEB                 |   | $                                   | 10,121      |                | $      | 9,699                                             |   | $                                                     | (1,837     | )                     | $      | 1,910 |   | $ | 19,893 |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
| **For                  the year ended December 31, 2006:**                              |   |                                |        |                |   |                                              |   |                                                  |       |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
| ** Net                  sales**                                                    |   | **$**                               | **414,927** |                | **$**  | **58,748**                                        |   | **$**                                                 | **17,664** |                  | **$**  | **(50,799** | **)** | **$** | **440,540** |   |
| ** Cost                  of goods sold**                                           |   |                                | **393,871** |                |   | **45,397**                                        |   |                                                  | **17,937** |                  |   | **(51,486** | **)** |   | **405,719** |   |
| **   Gross                  margin**                                     |   |                                | **21,056**  |                |   | **13,351**                                        |   |                                                  | **(273**   | **)**                 |   | **687** |   |   | **34,821** |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |
| ** Selling                  and ****administrative                  expense** |   |                                | **13,551**  |                |   | **3,887**                                         |   |                                                  | **674**    |                  |   | **21** |   |   | **18,133** |   |
| ** Operating                  income (loss) before pension/OPEB**             |   | **$**                               | **7,505**   |                | **$**  | **9,464**                                         |   | **$**                                                 | **(947**   | **)**                 | **$**  | **666** |   | **$** | **16,688** |   |
|                                                                                    |   |                                |        |                |   |                                              |   |                                                  |       |                  |   |   |   |   |   |   |

** **

----

|                                                                   |   |                                  |    |
|------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                   |   |  **2004**                        |    | **%                  of****sales** |   |  **2005** |   | **%                  of****sales** |   |  **2006** |   | **%                  of****sales** |   |
|                                                                   |   | **($                  in thousands)** |    |
|                                                                   |   |                                  |    |
| Net                  sales                                             |   | $                                     | 346,703 |   |   | 100.0 | % | $ | 342,139 |   |   | 100.0 | % | **$** | **414,927** |   |   | **100.0** | **%** |
| Cost                  of goods sold                                    |   |                                  | 302,827 |   |   | 87.3 |   |   | 319,578 |   |   | 93.4 |   |   | **393,871** |   |   | **94.9** |   |
|   Gross                  margin                              |   |                                  | 43,876  |   |   | 12.7 |   |   | 22,561 |   |   | 6.6 |   |   | **21,056** |   |   | **5.1** |   |
|                                                                   |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                  and administrative                            |   |                                  | 9,877   |   |   | 2.8 |   |   | 12,440 |   |   | 3.6 |   |   | **13,551** |   |   | **3.3** |   |
|   Operating                  income before pension/OPEB |   | $                                     | 33,999  |   |   | 9.9 | % | $ | 10,121 |   |   | 3.0 | % | **$** | **7,505** |   |   | **1.8** | **%** |
|                                                                   |   |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                              |   | **2004** |   | **2005** |   | **2006** |   |
|-------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Sales                  volume(000 tons):                          |   |     |   |     |   |     |   |   |   |   |
|   Fabricated                  wire products             |   |     | 116    |     |   | 101      |   |   | **112** |   |
|   Nails                                                 |   |     | 28     |     |   | 17       |   |   | **18** |   |
|   Industrial                  wire                      |   |     | 75     |     |   | 64       |   |   | **69** |   |
|   Coiled                  rebar                         |   |     | -      |     |   | -        |   |   | **1** |   |
|   Wire                  rod                             |   |     | 295    |     |   | 325      |   |   | **422** |   |
|   Billets                                               |   |     | 23     |     |   | 29       |   |   | **62** |   |
|     Total                                     |   |     | 537    |     |   | 536      |   |   | **684** |   |
|                                                              |   |     |   |     |   |     |   |   |   |   |
|                                                              |   |     |   |     |   |     |   |   |   |   |
| Per-ton                  selling prices:                          |   |     |   |     |   |     |   |   |   |   |
|   Fabricated                  wire products             |   | $        | 984    |     | $      | 1,090    |   | **$** | **1,037** |   |
|   Nails                                                 |   |     | 759    |     |   | 742      |   |   | **692** |   |
|   Industrial                  wire                      |   |     | 709    |     |   | 735      |   |   | **729** |   |
|   Coiled                  rebar                         |   |     | -      |     |   | -        |   |   | **529** |   |
|   Wire                  rod                             |   |     | 517    |     |   | 497      |   |   | **494** |   |
|   Billets                                               |   |     | 236    |     |   | 321      |   |   | **359** |   |
|   All                  products                         |   |     | 645    |     |   | 635      |   |   | **599** |   |
|                                                              |   |     |   |     |   |     |   |   |   |   |
| Average                  per-ton ferrous scrap purchase cost |   | $        | 205    |     | $      | 220      |   | **$** | **210** |   |
|                                                              |   |     |   |     |   |     |   |   |   |   |
| Average                  electricity cost per kilowatt hour  |   | $        | 0.04   |     | $      | 0.04     |   | **$** | **0.04** |   |
|                                                              |   |     |   |     |   |     |   |   |   |   |
| Average                  natural gas cost per therm               |   | $        | 0.65   |     | $      | 0.89     |   | **$** | **0.77** |   |

----

----

|                                                                               |   |  **2004**                        |   | **%                  of****sales** |   |  **2005** |   | **%                  of****sales** |   |  **2006** |   | **%                  of****sales** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------|--------|----------------|--------|------------------------------------|--------|----------------|--------|------------------------------------|--------|
|                                                                               |   | **($                  in thousands)** |   |
|                                                                               |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |
| Net                  sales                                                         |   | $                                     | 58,982 |                               |   | 100.0          | %      | $                                  | 62,777 |           |   | 100.0                              | %      | **$** | **58,748** |   |   | **100.0** | **%** |
| Cost                  of goods sold                                                |   |                                  | 43,821 |                               |   | 74.3           |   |                               | 48,801 |           |   | 77.7                               |   |   | **45,397** |   |   | **77.3** |   |
|   Gross                  margin                                          |   |                                  | 15,161 |                               |   | 25.7           |   |                               | 13,976 |           |   | 22.3                               |   |   | **13,351** |   |   | **22.7** |   |
|                                                                               |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |   |   |   |   |   |   |
| Selling                  and administrative                                        |   |                                  | 4,345  |                               |   | 7.4            |   |                               | 4,277  |           |   | 6.8                                |   |   | **3,887** |   |   | **6.6** |   |
|   Operating                  income before   pension/OPEB |   | $                                     | 10,816 |                               |   | 18.3           | %      | $                                  | 9,699  |           |   | 15.5                               | %      | **$** | **9,464** |   |   | **16.1** | **%** |
|                                                                               |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |   |   |   |   |   |   |

|                                                                          |   | **2004** |   | **2005** |   | **2006** |   |
|-------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Sales                  volume (000 tons) -                                    |   |     |   |     |   |     |   |   |   |   |
|   Welded                  wire reinforcement                        |   |     | 71     |     |   | 71       |   |   | **67** |   |
|                                                                          |   |     |   |     |   |     |   |   |   |   |
| Per-ton                  selling prices -                                     |   |     |   |     |   |     |   |   |   |   |
|   Welded                  wire reinforcement                        |   | $        | 829    |     | $      | 881      |   | **$** | **870** |   |
|                                                                          |   |     |   |     |   |     |   |   |   |   |
| Average                  per-ton wire rod purchase                  cost |   | $        | 516    |     | $      | 536      |   | **$** | **504** |   |
|                                                                          |   |     |   |     |   |     |   |   |   |   |

----

*Sherman/KWP*

|                                                                          |   |  **2004**                        |   | **%                  of****sales** |   |  **2005** |   | **%                  of****sales** |   |  **2006** |   | **%                  of****sales** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------|--------|----------------|--------|------------------------------------|--------|----------------|--------|------------------------------------|--------|
|                                                                          |   | **($                  in thousands)** |   |
|                                                                          |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |
| Net                  sales                                                    |   | $                                     | 16,193 |                               |   | 100.0          | %      | $                                  | 18,024 |           |   | 100.0                              | %      | **$** | **17,664** |   |   | **100.0** | **%** |
| Cost                  of goods sold                                           |   |                                  | 15,020 |                               |   | 92.8           |   |                               | 18,726 |           |   | 103.9                              |   |   | **17,937** |   |   | **101.5** |   |
|   Gross                  margin                                     |   |                                  | 1,173  |                               |   | 7.2            |   |                               | (702   | )              |   | (3.9                               | )      |   | **(273** | **)** |   | **(1.5** | **)** |
|                                                                          |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |   |   |   |   |   |   |
| Selling                  and administrative                                   |   |                                  | 878    |                               |   | 5.4            |   |                               | 1,135  |           |   | 6.3                                |   |   | **674** |   |   | **3.8** |   |
|   Operating                  income (loss) before pension/OPEB |   | $                                     | 295    |                               |   | 1.8            | %      | $                                  | (1,837 | )              |   | (10.2                              | )%     | **$** | **(947** | **)** |   | **(5.3** | **)%** |
|                                                                          |   |                                  |   |                               |   |           |   |                               |   |           |   |                               |   |   |   |   |   |   |   |

|                                                    |   | **2004** |   | **2005** |   | **2006** |   |
|---------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Sales                  volume(000 tons):                |   |     |   |     |   |     |   |   |   |   |
|   Fabricated                  wire products   |   |     | 10     |     |   | 11       |   |   | **12** |   |
|   Industrial                  wire            |   |     | 8      |     |   | 9        |   |   | **8** |   |
|     Total                           |   |     | 18     |     |   | 20       |   |   | **20** |   |
|                                                    |   |     |   |     |   |     |   |   |   |   |
| Per-ton                  selling prices:                |   |     |   |     |   |     |   |   |   |   |
|   Fabricated                  wire products   |   | $        | 942    |     | $      | 1,003    |   | **$** | **968** |   |
|   Industrial                  wire            |   |     | 708    |     |   | 698      |   |   | **678** |   |
|                                                    |   |     |   |     |   |     |   |   |   |   |
| Average                  per-ton wire rod purchase cost |   | $        | 331    |     | $      | 439      |   | **$** | **443** |   |
|                                                    |   |     |   |     |   |     |   |   |   |   |

----

**Pension        and Postretirement Benefit Expense or Credits, Interest Expense, Provision        for        Income Taxes, and Other Items**

|                                            |   | **2004**                              |   | **2005** |   | **2006** |   |
|-------------------------------------------------|--------|---------------------------------------|--------|----------|--------|----------|--------|
|                                            |   | **($                  in thousands)** |   |
|                                            |   |                                  |   |     |   |     |   |
| Average                  debt balance           |   | $                                     | 99,612 |     | $      | 91,582   |   | **$** | **89,375** |   |
|                                            |   |                                  |   |     |   |     |   |   |   |   |
| Weighted                  average interest rate |   |                                  | 2.2    | %        |   | 4.2      | %      |   | **5.0** | **%** |

----

**LIQUIDITY        AND CAPITAL RESOURCES**

**Working        Capital and Borrowing Availability**

|                                                  |   | ** ****  December                  31,  ** |   |
|-------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                  |   | **2005**                                                            |   | **2006** |   |
|                                                  |   | **(In                  thousands)**                                 |   |
|                                                  |   |                                                                |   |   |   |
| Working                  Capital                      |   | $                                                                   | 36,373 |   | **$** | **31,776** |   |
| Revolver                                              |   |                                                                | 36,174 |   |   | **17,734** |   |
| Current                  maturities of long-term debt |   |                                                                | 5,466  |   |   | **25,965** |   |
|                                                  |   |                                                                |   |   |   |   |   |
| Borrowing                  availability               |   |                                                                | 21,573 |   |   | **23,697** |   |

----

**Historical        Cash Flows**

*Operating        Activities*

| ·   | lower                operating income before pension/OPEB in                2005; |
|--------------------|-----------------------------------------------------------------------------------|
| ·   | higher                reorganization costs of $1.9 million paid in                2005; |
|--------------------|-----------------------------------------------------------------------------------------|
| ·   | higher                OPEB payments made in 2005 of $3.1                million; |
|--------------------|----------------------------------------------------------------------------------|
| ·   | relative                changes in our accounts receivable and inventory balances primarily                due to                decreased demand during the fourth quarter of 2004 and increased                demand                during the third and fourth quarters of                2005; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | less                cash generated from accounts payable in 2005 as the increase in accounts                payable from 2003 to 2004 was primarily related to the non-payment                of                certain items as a result of us operating under bankruptcy protection                during 2004; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | more                cash used in operations in 2005 due to the $5.2 million payment to                our                creditors upon emergence from bankruptcy on August 31, 2005, higher                environmental costs of $2.8 million paid in 2005, higher income tax                payments of $1.0 million in 2005 and relative changes in our                self-insurance and workers compensation                accruals. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | lower                operating income before pension/OPEB in 2006; |
|--------------------|--------------------------------------------------------------------|
| ·   | lower                reorganization costs of $6.4 million paid in                2006; |
|--------------------|----------------------------------------------------------------------------------------|
| ·   | lower                OPEB payments made in 2006 of $4.4 million as a result of our emergence                from bankruptcy; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|
| ·   | higher                net cash generated from relative changes in our accounts receivable                in                2006 of $34.1 million primarily due to an abnormally low accounts                receivable balance at December 31, 2004 as a result of decreased                demand                during the fourth quarter of 2004 and an abnormally high accounts                receivable balance at December 31, 2005 as a result of increased                demand                during the third and fourth quarters of                2005; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | higher                net cash generated from relative changes in our inventory in 2006                of $25.1                million due to the net effects of operating issues with our wire                rod mill                reheat furnace during 2006, a more significant shutdown for planned                major                maintenance during the fourth quarter of 2006 than in 2005 and weaker                than                anticipated sales during 2005 due in part to our customers’ concerns about                our financial stability while we were operating under Chapter 11                protection; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | less                cash generated from accounts payable in 2006 as the increase in accounts                payable from 2004 to 2005 was the result of obtaining credit terms                from                vendors subsequent to our emergence from bankruptcy;                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | less                cash used in operations in 2006 due to lower environmental costs                of $1.2                million paid in 2006, lower income tax payments in 2006, $4.0 million                received related to an insurance settlement during 2006 that was                recorded                as a liability subject to compromise (see Notes 2 and 10) and the                $5.2                million payment to our creditors upon emergence from bankruptcy on                August                31, 2005. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Investing        Activities *

*Financing        Activities *

----

**Summary        of Debt and Other Contractual Commitments**

|                                              |   | **                Payment                  due                  date               ** |   |
|---------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|  **Contractual                  commitment** |   |  **2007**                                                                                                                                                                                                                                   |   |  **2008/2009** |   |  **2010/2011** |   | **2012                  and****after ** |   |  **Total** |   |
|                                              |   | **(In                  thousands)**                                                                                                                                                                                                              |   |
|                                              |   |                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| Indebtedness:                                     |   |                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Principal                       |   | $                                                                                                                                                                                                                                                | 25,964 |   | $ | 29,130 |   | $ | 21,354 |   | $ | - |   | $ | 76,448 |   |
|    Interest                        |   |                                                                                                                                                                                                                                             | 3,858  |   |   | 6,123 |   |   | 1,625 |   |   | - |   |   | 11,606 |   |
|                                              |   |                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  leases                 |   |                                                                                                                                                                                                                                             | 497    |   |   | 815 |   |   | 132 |   |   | - |   |   | 1,444 |   |
|                                              |   |                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Product                  supply agreements        |   |                                                                                                                                                                                                                                             | 1,200  |   |   | 2,400 |   |   | 2,400 |   |   | 300 |   |   | 6,300 |   |
|                                              |   |                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   | $                                                                                                                                                                                                                                                | 31,519 |   | $ | 38,468 |   | $ | 25,511 |   | $ | 300 |   | $ | 95,798 |   |

**Off-balance        Sheet Financing **

**Environmental        Obligations**

----

**Pension        and Other Postretirement Obligations**

**Income        Taxes**

**Acquisition        and Amendment to Credit Facility in 2007**

**Liquidity        Outlook**

| ·   | scheduled                payment of the $10.0 million term loan from the County of Peoria,                Illinois; |
|--------------------|---------------------------------------------------------------------------------------------------------------------|
| ·   | scheduled                principal payment of $8.3 million on our 8% Notes, |
|--------------------|-----------------------------------------------------------------------------|
| ·   | scheduled                principal and interest payments of $2.1 million on our UC                Note; |
|--------------------|---------------------------------------------------------------------------------------------------------|
| ·   | scheduled                monthly payments amounting to $2.9 million on our Wachovia Term Loan;                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------|
| ·   | approximately                $6.0 million in capital expenditures related to the EWP plant expansion. |
|--------------------|-------------------------------------------------------------------------------------------------------|

----

**CRITICAL        ACCOUNTING POLICIES AND ESTIMATES**

*Impairment        of long-lived assets.*

*Accounting        for the Impairment or Disposal of Long-Lived Assets*

*Deferred        income tax valuation allowance. *

----

*Contingencies.*

*Assumptions        on defined benefit pension plans*
***.***
*Employer’s        Accounting for Pensions, *
* *

| **                         Discount                  rates used                  for:                        ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Obligations                  at****December                  31, 2004 and ****expense                  in 2005   **                                                                                                                                                                                                                            | **Obligations                  at****December                  31, 2005 and ****expense                  in 2006   ** | **Obligations                  at****December                  31, 2006 and ****expense                  in 2007   ** |
|                                                                                                                                                                                                                                                                                                                                                                 |   |   |
| 5.7%                                                                                                                                                                                                                                                                                                                                                                 | 5.5% | **5.8%** |

----

----

*Assumptions        on other postretirement benefit plans.*
** **
*Employers        Accounting for Postretirement Benefits other than Pensions, *

----

**Related        Party Transactions**

----

**ITEM        7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET        RISK.**

|                                                                               |   | **               Contracted                  Maturity                  Date               **** ** |   | **Estimated****   Fair                  Value   ** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|
|                                                                               |   | **2007**                                                                                                                                                                                                                                                     |   | **2008**                                                                         |   | **2009** |   | **2010** |   | **Thereafter** |   | **Total** |   | **December                  31, 2006** |   |
|                                                                               |   | **($                  In thousands)**                                                                                                                                                                                                                        |   |
| Fixed-rate                  debt -                                                 |   |                                                                                                                                                                                                                                                         |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Principal                  amount                                      |   | $                                                                                                                                                                                                                                                            | 21,372 |                                                                             | $      | 9,660 |   | $ | 10,290 |   | $ | - |   | $ | - |   | $ | 41,322 |   | $ | 33,821 |   |
|                                                                               |   |                                                                                                                                                                                                                                                         |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Weighted-average    interest                  rate |   |                                                                                                                                                                                                                                                         | 1.0    | %                                                                                |   | 1.3 | % |   | .9 | % |   | - | % |   | - | % |   | 1.1 | % |   |   |   |
|                                                                               |   |                                                                                                                                                                                                                                                         |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Variable-rate                  debt-                                               |   |                                                                                                                                                                                                                                                         |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Principal                  amount                                      |   | $                                                                                                                                                                                                                                                            | 4,592  |                                                                             | $      | 4,590 |   | $ | 4,590 |   | $ | 21,354 |   | $ | - |   | $ | 35,126 |   | $ | 35,126 |   |
|                                                                               |   |                                                                                                                                                                                                                                                         |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Weighted-average    interest                  rate |   |                                                                                                                                                                                                                                                         | 8.5    | %                                                                                |   | 8.5 | % |   | 8.5 | % |   | 8.5 | % |   | - | % |   | 8.5 | % |   |   |   |

**ITEM        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**

**ITEM        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL        DISCLOSURE.**

**ITEM        9A. CONTROLS AND PROCEDURES.**

*Evaluation        of Disclosure Controls and Procedures *

----

*Internal        Control Over Financial Reporting*

*Changes        in Internal Control Over Financial Reporting *

**ITEM        9**
**B.        OTHER INFORMATION.**

----

**PART        III**

**ITEM        10. **
**DIRECTORS,        EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

**ITEM        11. EXECUTIVE COMPENSATION.**

**ITEM        12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED        STOCKHOLDER MATTERS.**

**ITEM        13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR        INDEPENDENCE.**

**ITEM        14. PRINCIPAL ACCOUNTING FEES AND SERVICES.**

----

**PART        IV**

**ITEM        15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.**

*The        Registrant*

| Exhibit                  No. | Exhibit                  Item                                                                                                                                                                                                                                                                                                                                                      |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                          | Amended                  and Restated Certificate of Incorporation of the Registrant dated                  August                  31, 2005, as filed with the Secretary of State of Delaware. (Incorporated                  by reference to Exhibit 3.3 to the Registrant's Annual Report on                  Form 10-K                  for the year ended December 31, 2003). |
|                         |                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2                          | Amended                  and Restated Bylaws of the Registrant dated August 31, 2005. (Incorporated                  by reference to Exhibit 3.6 to the Registrant's Annual Report on                  Form 10-K                  for the year ended December 31, 2003).                                                                                                           |
|                         |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1                          | Loan                  Agreement dated as of March 13, 2002 between Registrant and the                  County of                  Peoria, Illinois. (Incorporated by reference to Exhibit 4.17 to                  the                  Registrant's Annual Report on Form 10-K for the year ended December                  31,                  2001).                           |
|                         |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2                          | Subordinate                  Security Agreement dated as of March 13, 2002 made by Registrant                  in favor                  of the County of Peoria, Illinois. (Incorporated by reference to                  Exhibit                  4.18 to the Registrant's Annual Report on Form 10-K for the year                  ended                  December 31, 2001).   |
|                         |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.3                          | Form                  of Registrant’s 8% Subordinated Secured Note dated as of March 15, 2002.                  (Incorporated by reference to Exhibit 4.23 to the Registrant's                  Annual                  Report on Form 10-K for the year ended December 31,                  2001).                                                                          |

----

| Exhibit                  No. | Exhibit                  Item                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4                          | Indenture                  Dated as of March 15, 2002, related to Registrant’s 8% Subordinated                  Secured Notes Between Registrant as Issuer, and U.S. Bank National                  Association, as Trustee. (Incorporated by reference to Exhibit                  4.24 to the                  Registrant's Annual Report on Form 10-K for the year ended December                  31,                  2001).                                                 |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5                          | Supplemental                  Indenture No. 1 dated as of August 31, 2005, related to Registrant’s 8%                  Subordinated Secured Notes between Registrant as issuer, and U.S.                  Bank                  National Association as Trustee. (Incorporated by reference to                  Exhibit                  4.42 to the Registrant’s Annual Report on Form 10-K for the year ended                  December 31, 2005).                        |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6                          | Loan                  and Security Agreement dated August 31, 2005 by and between the                  Registrant                  and Wachovia Capital Finance Corporation (Central). (Incorporated                  by                  reference to Exhibit 4.51 to the Registrant’s Annual Report on Form 10-K                  for the year ended December 31, 2003).                                                                                                        |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7                          | First                  Amendment to Loan and Security Agreement dated as of June 30, 2006                  by and                  between the Registrant and Wachovia Capital Finance Corporation                  (Central).                                                                                                                                                                                                                                                          |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.8                          | Amendment                  No. 2 to Loan and Security Agreement dated as of March 23, 2007                  by and                  between the Registrant and Wachovia Capital Finance Corporation                  (Central).                                                                                                                                                                                                                                                         |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.9                          | Promissory                  Note dated August 31, 2005, from Registrant to Jack B. Fishman                  Esq. as                  trustee for holders of Class A6 claims. (Incorporated by reference                  to                  Exhibit 4.54 to the Registrant’s Annual Report on Form 10-K for the year                  ended December 31, 2005).                                                                                                                  |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.10                         | Securities                  Pledge Agreement dated August 31, 2005, by and between Registrant                  and Jack                  B. Fishman Esq. as trustee for holders of Class A6 claims. (Incorporated                  by reference to Exhibit 4.55 to the Registrant’s Annual Report on Form                  10-K for the year ended December 31, 2005).                                                                                                            |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                         | Agreement                  Regarding Shared Insurance between Registrant, CompX International,                  Inc.,                  Contran Corporation, Kronos Worldwide, Inc., NL Industries, Inc.,                  Titanium                  Metals Corp. and Valhi, Inc. dated as of October 30, 2003. (Incorporated                  by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form                  10-K for the year ended December 31, 2003). |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                         | The                  Combined Master Retirement Trust between Contran Corporation and                  Harold C.                  Simmons as amended and restated effective September 30,                  2005.                                                                                                                                                                                                                                                                        |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3                         | Keystone                  Consolidated Industries, Inc. Master Retirement Trust I between                  the                  Registrant and U.S. Bank National Association as amended and restated                  effective January 1, 2006.                                                                                                                                                                                                                                       |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4                         | Keystone                  Consolidated Industries, Inc. Master Retirement Trust II between                  the                  Registrant and U.S. Bank National Association as amended and restated                  effective January 1, 2006.                                                                                                                                                                                                                                      |
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5*                        | 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).                                                                                                                              |

----

| Exhibit                  No. | Exhibit                  Item                                                                                                                                                                                                                                                                                                                                               |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6                         | Intercorporate                  Services Agreement dated as of September 1, 2005 by and between                  Registrant                  and Contran Corporation. (Incorporated by reference to Exhibit                  10.10 to                  the Registrant's Annual Report on Form 10-K for the year ended                  December                  31, 2005). |
|                         |                                                                                                                                                                                                                                                                                                                                                                        |
| 21.1                         | Subsidiaries                  of the Company                                                                                                                                                                                                                                                                                                                                |
|                         |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1                         | Certification                                                                                                                                                                                                                                                                                                                                                               |
|                         |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2                         | Certification                                                                                                                                                                                                                                                                                                                                                               |
|                         |                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1                         | Certification                                                                                                                                                                                                                                                                                                                                                               |

----

**SIGNATURES**

| KEYSTONE                  CONSOLIDATED INDUSTRIES, INC.(Registrant)   /s/                  GLENN R.                  SIMMONS                                                            Glenn                  R. SimmonsChairman                  of the Board |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  /s/                  GLENN R.                  SIMMONS                                                                                  Glenn                  R. SimmonsChairman                  of the Board                                                                                                  |  /s/                  STEVEN L.                  WATSON                                                                                                                  Steven                  L. WatsonDirector                                                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  /s/                  PAUL M. BASS,                  JR.                                                                     Paul                  M. Bass, Jr.Director                                                                                                             |  /s/                  DONALD P.                  ZIMA                                                                                                             Donald                  P. ZimaDirector                                                                                                                                 |
|   /s/                  RICHARD R.                  BURKHART                                                                         Richard                  R. BurkhartDirector                                                                                                                                                                     |  /s/                  DAVID L.                  CHEEK                                                                                                                                   David                  L. CheekPresident                  and Chief ExecutiveOfficer                                     |
|   /s/                  JOHN R.                  PARKER                                                                                       John                  R. ParkerDirector |  /s/                  BERT E. DOWNING,                  JR.                                                                                   Bert                  E. Downing, Jr.Vice                  President, Chief Financial Officer, Corporate Controllerand                  Treasurer (Principal Accounting and Financial                  Officer) |
|  /s/                  TROY T.                  TAYLOR                                                                        Troy                  T. TaylorDirector                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES**

**ANNUAL        REPORT ON FORM 10-K**

**Items        8, 15(a) and 15(c)**

**Index        of Consolidated Financial Statements **

|                                                                                                                                                              |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                              | **Page** |
|                                                                                                                                                              |     |
|   Report                  of Independent Registered Public Accounting Firm                                                                              | F-2      |
|                                                                                                                                                              |     |
|   Consolidated                  Balance Sheets -   December                  31, 2005 and 2006                                           | F-3      |
|                                                                                                                                                              |     |
|   Consolidated                  Statements of Operations -  Years                  ended December 31, 2004, 2005 and 2006                     | F-5      |
|                                                                                                                                                              |     |
|   Consolidated                  Statements of Stockholders' Equity (Deficit) -  Years                  ended December 31, 2004, 2005 and 2006 | F-7      |
|                                                                                                                                                              |     |
|   Consolidated                  Statements of Cash Flows -  Years                  ended December 31, 2004, 2005 and 2006                     | F-8      |
|                                                                                                                                                              |     |
|                    Notes to Consolidated Financial Statements                                                                                                | F-10     |
|                                                                                                                                                              |     |
|                                                                                                                                                              |     |
|                                                                                                                                                              |     |

----

**Report        of Independent Registered Public Accounting Firm**

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

**December        31, 2005 and 2006**

**(In        thousands, except share data)**

| **ASSETS**                                                                                            |   | **  2005  ** |    | **  2006  ** |   |
|-------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
|                                                                                                  |   |                             |    |                             |   |
|                                                                                                  |   |                             |    |                             |   |
| Current                  assets:                                                                      |   |                             |    |                             |   |   |   |
|   Accounts                  receivable, net of allowances of                  $451 and $304 |   | $                                | 46,199  |                             | **$**  | **31,661** |   |
|   Inventories                                                                               |   |                             | 69,691  |                             |   | **61,343** |   |
|   Restricted                  investments                                                   |   |                             | 1,040   |                             |   | **1,067** |   |
|   Deferred                  income taxes                                                    |   |                             | -       |                             |   | **12,571** |   |
|   Prepaid                  expenses and other                                               |   |                             | 2,760   |                             |   | **3,516** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
|     Total                  current assets                                         |   |                             | 119,690 |                             |   | **110,158** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
| Property,                  plant and equipment:                                                       |   |                             |    |                             |   |   |   |
|   Land                                                                                      |   |                             | 1,193   |                             |   | **1,193** |   |
|   Buildings                  and improvements                                               |   |                             | 54,189  |                             |   | **56,953** |   |
|   Machinery                  and equipment                                                  |   |                             | 310,446 |                             |   | **300,301** |   |
|   Construction                  in progress                                                 |   |                             | 3,949   |                             |   | **12,563** |   |
|                                                                                                  |   |                             | 369,777 |                             |   | **371,010** |   |
|   Less                  accumulated depreciation                                            |   |                             | 283,004 |                             |   | **282,315** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
|     Net                  property, plant and equipment                            |   |                             | 86,773  |                             |   | **88,695** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
| Other                  assets:                                                                        |   |                             |    |                             |   |   |   |
|   Restricted                  investments                                                   |   |                             | 4,758   |                             |   | **6,079** |   |
|   Pension                  asset                                                            |   |                             | 145,152 |                             |   | **557,279** |   |
|   Other,                  net                                                               |   |                             | 1,991   |                             |   | **1,725** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
|     Total                  other assets                                           |   |                             | 151,901 |                             |   | **565,083** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
|                                                                                                  |   |                             |    |                             |   |   |   |
|     Total                  assets                                                 |   | $                                | 358,364 |                             | **$**  | **763,936** |   |
|                                                                                                  |   |                             |    |                             |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS (CONTINUED)**

**December        31, 2005 and 2006**

**(In        thousands, except share data)**

| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                                                                                                            |   |                             |    |                             |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
|                                                                                                                                                                                                                                 |   | **  2005  ** |    | **  2006  ** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |
| Current                  liabilities:                                                                                                                                                                                                |   |                             |    |                             |   |   |   |
|   Notes                  payable and current maturities of  long-term                  debt                                                                                                                      |   | $                                | 41,640  |                             | **$**  | **43,699** |   |
|   Accounts                  payable                                                                                                                                                                                        |   |                             | 9,797   |                             |   | **9,947** |   |
|   Accrued                  OPEB cost                                                                                                                                                                                       |   |                             | 4,256   |                             |   | **4,157** |   |
|   Other                  accrued liabilities                                                                                                                                                                               |   |                             | 27,624  |                             |   | **20,579** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
|     Total                  current liabilities                                                                                                                                                                   |   |                             | 83,317  |                             |   | **78,382** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
| Noncurrent                  liabilities:                                                                                                                                                                                             |   |                             |    |                             |   |   |   |
|   Long-term                  debt                                                                                                                                                                                          |   |                             | 58,255  |                             |   | **32,749** |   |
|   Accrued                  OPEB cost                                                                                                                                                                                       |   |                             | 133,208 |                             |   | **31,005** |   |
|   Deferred                  income taxes                                                                                                                                                                                   |   |                             | -       |                             |   | **197,712** |   |
|   Other                                                                                                                                                                                                                    |   |                             | 5,577   |                             |   | **6,414** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
|     Total                  noncurrent liabilities                                                                                                                                                                |   |                             | 197,040 |                             |   | **267,880** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
| Liabilities                  subject to compromise                                                                                                                                                                                   |   |                             | 10,476  |                             |   | **14,012** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
| Stockholders'                  equity:                                                                                                                                                                                               |   |                             |    |                             |   |   |   |
|   Common                  stock $.01 par value, 11,000,000 shares  authorized                  and 10,000,000 shares issued and outstanding                  at December                  31, 2005 and 2006 |   |                             | 100     |                             |   | **100** |   |
|   Additional                  paid-in capital                                                                                                                                                                              |   |                             | 75,423  |                             |   | **75,423** |   |
|   Accumulated                  other comprehensive income                                                                                                                                                                  |   |                             | -       |                             |   | **278,399** |   |
|   Retained                  earnings (accumulated deficit)                                                                                                                                                                 |   |                             | (7,992  | )                                |   | **49,740** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
|     Total                  stockholders' equity                                                                                                                                                                  |   |                             | 67,531  |                             |   | **403,662** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |
|     Total                  liabilities and stockholders’ equity                                                                                                                                            |   | $                                | 358,364 |                             | **$**  | **763,936** |   |
|                                                                                                                                                                                                                                 |   |                             |    |                             |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS **

**Years        ended December 31, 2004, 2005 and 2006**

**(In        thousands, except per share data)**

|                                                                                        |   | **  2004  ** |    | **  2005  ** |   | **  2006  ** |   |
|---------------------------------------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|----------------------------------|--------|
|                                                                                        |   |                             |    |                             |   |                             |   |
| Net                  sales                                                                  |   | $                                | 364,335 |                             | $      | 367,545                          |   | **$** | **440,540** |   |
| Cost                  of goods sold                                                         |   |                             | 308,086 |                             |   | 329,589                          |   |   | **405,719** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|     Gross                  margin                                       |   |                             | 56,249  |                             |   | 37,956                           |   |   | **34,821** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
| Selling                  expense                                                            |   |                             | 5,336   |                             |   | 6,247                            |   |   | **6,864** |   |
| General                  and administrative expense                                         |   |                             | 10,115  |                             |   | 11,816                           |   |   | **11,269** |   |
| Defined                  benefit pension credit                                             |   |                             | (6,752  | )                                |   | (11,710                          | )      |   | **(55,978** | **)** |
| Other                  postretirement benefit expense (credit)                              |   |                             | 20,909  |                             |   | 8,885                            |   |   | **(8,297** | **)** |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|     Total                  operating costs                              |   |                             | 29,608  |                             |   | 15,238                           |   |   | **(46,142** | **)** |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
| Operating                  income                                                           |   |                             | 26,641  |                             |   | 22,718                           |   |   | **80,963** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
| Nonoperating                  income (expense):                                             |   |                             |    |                             |   |                             |   |   |   |   |
|   Corporate                  expense                                              |   |                             | (439    | )                                |   | (2,525                           | )      |   | **(1,213** | **)** |
|   Interest                  expense                                               |   |                             | (3,705  | )                                |   | (3,992                           | )      |   | **(4,720** | **)** |
|   Interest                  income                                                |   |                             | 132     |                             |   | 266                              |   |   | **361** |   |
|   Gain                  on legal settlement                                       |   |                             | 5,284   |                             |   | -                                |   |   | **-** |   |
|   Other                  income, net                                              |   |                             | 684     |                             |   | 993                              |   |   | **75** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|     Total                  nonoperating income (expense)                |   |                             | 1,956   |                             |   | (5,258                           | )      |   | **(5,497** | **)** |
|                                                                                        |   |                             |    |                             |   |                             |   |   |
|   Income                  before income taxes and  reorganization items |   |                             | 28,597  |                             |   | 17,460                           |   |  **  75,466** |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
| Reorganization                  items:                                                      |   |                             |    |                             |   |                             |   |   |   |   |
|   Reorganization                  costs                                           |   |                             | (11,158 | )                                |   | (10,308                          | )      |   | **(679** | **)** |
|   Gain                  on cancellation of debt                                   |   |                             | -       |                             |   | 32,510                           |   |   | **-** |   |
|     Total                  reorganization items                         |   |                             | (11,158 | )                                |   | 22,202                           |   |   | **(679** | **)** |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|   Income                  before income taxes                                     |   |                             | 17,439  |                             |   | 39,662                           |   |   | **74,787** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
| Provision                  for income taxes                                                 |   |                             | 1,379   |                             |   | 430                              |   |   | **17,055** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|     Net                  income                                         |   |                             | 16,060  |                             |   | 39,232                           |   |   | **57,732** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|   Dividends                  on preferred stock                                   |   |                             | 1,223   |                             |   | -                                |   |   | **-** |   |
|                                                                                        |   |                             |    |                             |   |                             |   |   |   |   |
|     Net                  income available for common shares             |   | $                                | 14,837  |                             | $      | 39,232                           |   | **$** | **57,732** |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS (CONTINUED)**

**Years        ended December 31, 2004, 2005 and 2006**

**(In        thousands, except per share data)**

|                                                                                          |   | **2004** |   | **2005**** ** |   | **2006**** ** |   |
|-----------------------------------------------------------------------------------------------|--------|----------|--------|--------------------|--------|--------------------|--------|
|                                                                                          |   |     |   |               |   |               |   |
| Basic                  earnings per share available                  for common shares   |   | $        | 1.47   |               | $      | 4.12               |   | **$** | **5.77** |   |
|                                                                                          |   |     |   |               |   |               |   |   |   |   |
| Basic                  shares outstanding                                                     |   |     | 10,068 |               |   | 10,046             |   |   | **10,000** |   |
|                                                                                          |   |     |   |               |   |               |   |   |   |   |
| Diluted                  earnings per share available                  for common shares |   | $        | .57    |               | $      | 1.88               |   | **$** | **5.77** |   |
|                                                                                          |   |     |   |               |   |               |   |   |   |   |
| Diluted                  shares outstanding                                                   |   |     | 28,043 |               |   | 22,029             |   |   | **10,000** |   |
|                                                                                          |   |     |   |               |   |               |   |   |   |   |
|                                                                                          |   |     |   |               |   |               |   |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**

**Years        ended December 31, 2004, 2005 and 2006**

**(In        thousands)**

|                                                                                |   |   **  Common                    stock   ** |    |  **Additional****paid-in** |   | **Accumulated****other****comprehensive** |   | **Accumulated****other****comprehensive** |   |  **Retained                    earnings** |   |   ** Treasury**     |   |      |   |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|---------|---------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------------|--------|------------------------------------|--------|-----------|--------|
|                                                                                |   | **Shares**                                                                    |    | **Amount**                      |   | **capital**                               |   | **income                    - Pension**   |   | **income                    - OPEB**           |   | **(accumulated** **deficit)** |   | **stock** |   | **Total** |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |
| Balance                    - December 31, 2003                                      |   |                                                                          | 10,068  |                            | $      | 10,798                                    |   | $                                         | 42,448 |                                           | $      | -                                  |   | $         | -      |   | $ | (63,284 | ) | $ | (12 | ) | $ | (10,050 | ) |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Net                    income                                                       |   |                                                                          | -       |                            |   | -                                         |   |                                      | -      |                                           |   | -                                  |   |      | -      |   |   | 16,060 |   |   | - |   |   | 16,060 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                    stock dividends                                        |   |                                                                          | -       |                            |   | -                                         |   |                                      | (1,223 | )                                              |   | -                                  |   |      | -      |   |   | - |   |   | - |   |   | (1,223 | ) |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    - December 31, 2004                                      |   |                                                                          | 10,068  |                            |   | 10,798                                    |   |                                      | 41,225 |                                           |   | -                                  |   |      | -      |   |   | (47,224 | ) |   | (12 | ) |   | 4,787 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Net                    income                                                       |   |                                                                          | -       |                            |   | -                                         |   |                                      | -      |                                           |   | -                                  |   |      | -      |   |   | 39,232 |   |   | - |   |   | 39,232 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation                    of common stock                                     |   |                                                                          | (10,068 | )                               |   | (10,798                                   | )      |                                      | 10,786 |                                           |   | -                                  |   |      | -      |   |   | - |   |   | 12 |   |   | - |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation                    of Series A Preferred                    Stock |   |                                                                          | -       |                            |   | -                                         |   |                                      | 2,112  |                                           |   | -                                  |   |      | -      |   |   | - |   |   | - |   |   | 2,112 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of common stock                                         |   |                                                                          | 10,000  |                            |   | 100                                       |   |                                      | 21,300 |                                           |   | -                                  |   |      | -      |   |   | - |   |   | - |   |   | 21,400 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    - December 31, 2005                                      |   |                                                                          | 10,000  |                            |   | 100                                       |   |                                      | 75,423 |                                           |   | -                                  |   |      | -      |   |   | (7,992 | ) |   | - |   |   | 67,531 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Net                    income                                                       |   |                                                                          | -       |                            |   | -                                         |   |                                      | -      |                                           |   | -                                  |   |      | -      |   |   | 57,732 |   |   | - |   |   | 57,732 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Adoption                    of SFAS No. 158                                         |   |                                                                          | -       |                            |   | -                                         |   |                                      | -      |                                           |   | 222,202                            |   |      | 56,197 |   |   | - |   |   | - |   |   | 278,399 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |
| Balance                    - December 31, 2006                                      |   |                                                                          | 10,000  |                            | $      | 100                                       |   | $                                         | 75,423 |                                           | $      | 222,202                            |   | $         | 56,197 |   | $ | 49,740 |   | $ | - |   | $ | 403,662 |   |
|                                                                                |   |                                                                          |    |                            |   |                                      |   |                                      |   |                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS **

**Years        ended December 31, 2004, 2005 and 2006**

**(In        thousands)**

|                                                                                              |   | **  2004  ** |    | **  2005  ** |   | **  2006  ** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|----------------------------------|--------|
|                                                                                              |   |                             |    |                             |   |                             |   |
| Cash                  flows from operating activities:                                            |   |                             |    |                             |   |                             |   |   |   |   |
|   Net                  income                                                           |   | $                                | 16,060  |                             | $      | 39,232                           |   | **$** | **57,732** |   |
|   Depreciation                  and amortization                                        |   |                             | 15,812  |                             |   | 15,745                           |   |   | **15,222** |   |
|   Amortization                  of deferred financing costs                             |   |                             | 1,108   |                             |   | 694                              |   |   | **273** |   |
|   Deferred                  income taxes                                                |   |                             | -       |                             |   | -                                |   |   | **17,317** |   |
|   Non-cash                  defined benefit pension credit                              |   |                             | (6,752  | )                                |   | (11,710                          | )      |   | **(55,978** | **)** |
|   OPEB                  expense (credit)                                                |   |                             | 20,909  |                             |   | 8,885                            |   |   | **(8,297** | **)** |
|   OPEB                  payments                                                        |   |                             | (5,254  | )                                |   | (8,324                           | )      |   | **(3,931** | **)** |
|   Reorganization                  costs accrued                                         |   |                             | 11,158  |                             |   | 10,308                           |   |   | **679** |   |
|   Reorganization                  costs paid                                            |   |                             | (8,275  | )                                |   | (10,133                          | )      |   | **(3,722** | **)** |
|   Impairment                  of long-lived assets                                      |   |                             | -       |                             |   | -                                |   |   | **529** |   |
|   Gain                  on cancellation of debt                                         |   |                             | -       |                             |   | (32,510                          | )      |   | **-** |   |
|   Gain                  on legal settlement                                             |   |                             | (5,284  | )                                |   | -                                |   |   | **-** |   |
|   Other,                  net                                                           |   |                             | 576     |                             |   | 29                               |   |   | **838** |   |
|   Change                  in assets and liabilities:                                    |   |                             |    |                             |   |                             |   |   |   |   |
|     Accounts                  receivable                                      |   |                             | (11,049 | )                                |   | (19,473                          | )      |   | **14,610** |   |
|     Inventories                                                               |   |                             | (29,012 | )                                |   | (16,674                          | )      |   | **8,348** |   |
|     Accounts                  payable                                         |   |                             | 8,155   |                             |   | 4,252                            |   |   | **94** |   |
|     Other,                  net                                               |   |                             | 3,702   |                             |   | (11,006                          | )      |   | **(257** | **)** |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |
|     Net                  cash provided by (used in) operating activities |   |                             | 11,854  |                             |   | (30,685                          | )      |   | **43,457** |   |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |
| Cash                  flows from investing activities:                                            |   |                             |    |                             |   |                             |   |   |   |   |
|   Capital                  expenditures                                                 |   |                             | (5,080  | )                                |   | (9,772                           | )      |   | **(18,739** | **)** |
|   Restricted                  investments, net                                          |   |                             | (5,467  | )                                |   | 5,540                            |   |   | **(1,348** | **)** |
|   Other,                  net                                                           |   |                             | 151     |                             |   | 1,336                            |   |   | **108** |   |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |
|     Net                  cash used in investing activities                    |   |                             | (10,396 | )                                |   | (2,896                           | )      |   | **(19,979** | **)** |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |
| Cash                  flows from financing activities:                                            |   |                             |    |                             |   |                             |   |   |   |   |
|   Revolving                  credit facilities, net                                     |   |                             | (14,222 | )                                |   | 28,314                           |   |   | **(18,439** | **)** |
|   Other                  notes payable and long-term debt:                              |   |                             |    |                             |   |                             |   |   |   |   |
|     Additions                                                                 |   |                             | 16,028  |                             |   | 23,372                           |   |   | **468** |   |
|     Principal                  payments                                       |   |                             | (2,537  | )                                |   | (17,575                          | )      |   | **(5,477** | **)** |
|   Deferred                  financing costs paid                                        |   |                             | (727    | )                                |   | (530                             | )      |   | **(30** | **)** |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |
|     Net                  cash provided by (used in) financing activities |   |                             | (1,458  | )                                |   | 33,581                           |   |   | **(23,478** | **)** |
|                                                                                              |   |                             |    |                             |   |                             |   |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS (CONTINUED)**

**Years        ended December 31, 2004, 2005 and 2006**

**(In        thousands)**

|                                                                                                                                                                               |   | **  2004  ** |   | **  2005  ** |   | **  2006  ** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|----------------------------------|--------|
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |
| Cash                  and cash equivalents:                                                                                                                                        |   |                             |   |                             |   |                             |   |   |   |   |
|   Net                  change from operations, investing and                  financing activities                                                                  |   |                             | -      |                             |   | -                                |   |   | **-** |   |
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |   |   |   |
|   Balance                  at beginning of year                                                                                                                          |   |                             | -      |                             |   | -                                |   |   | **-** |   |
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |   |   |   |
|   Balance                  at end of year                                                                                                                                |   | $                                | -      |                             | $      | -                                |   | **$** | **-** |   |
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |   |   |   |
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |   |   |   |
| Supplemental                  disclosures:                                                                                                                                         |   |                             |   |                             |   |                             |   |   |   |   |
|   Cash                  paid for:                                                                                                                                        |   |                             |   |                             |   |                             |   |   |   |   |
|     Interest,                  net of amounts capitalized                                                                                                      |   | $                                | 2,306  |                             | $      | 3,195                            |   | **$** | **3,950** |   |
|     Income                  taxes, net                                                                                                                         |   |                             | (27    | )                                |   | 985                              |   |   | **179** |   |
|   Common                  stock issued in exchange for  extinguishment                  of certain pre-petition unsecured                  and DIP claims |   |                             | -      |                             |   | 21,400                           |   |   | **-** |   |
|   Note                  issued in exchange for extinguishment of                  certain pre-petition unsecured claims                                             |   |                             | -      |                             |   | 4,800                            |   |   | **-** |   |
|                                                                                                                                                                               |   |                             |   |                             |   |                             |   |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**December        31, 2006**

**Note        1 - Summary of significant accounting policies:**

*Organization.*

*Basis        of Presentation.*

*Reclassifications.*

----

|                                                                        |   | **                          Years                  ended December                  31,                      ** |    |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                        |   | ** ****              2004              **                                                                                                                                                                     |    | **                2005              **** ** |   |
|                                                                        |   | **(In                  thousands)**                                                                                                                                                                                                                                                                                                                            |    |
|                                                                        |   | **As                  Previously****Reported**                                                                                                                                                                                                                                                                                                                 |    | **OPEB                  Reclass Increase/****(Decrease)** |   | **As                  Currently****Reported** |   | **As                  Previously****Reported** |   | **OPEB                  Reclass Increase/****(Decrease)** |   | **As                  Currently****Reported** |   |
|                                                                        |   |                                                                                                                                                                                                                                                                                                                                                           |    |   |   |   |   |   |   |   |   |   |   |
| Cost                  of goods sold                                         |   | $                                                                                                                                                                                                                                                                                                                                                              | 322,232 |   | $ | (14,146 | ) | **$** | **308,086** |   | $ | 337,541 |   | $ | (7,952 | ) | **$** | **329,589** |   |
| Gross                  margin                                               |   |                                                                                                                                                                                                                                                                                                                                                           | 42,103  |   |   | 14,146 |   |   | **56,249** |   |   | 30,004 |   |   | 7,952 |   |   | **37,956** |   |
|                                                                        |   |                                                                                                                                                                                                                                                                                                                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                  Expense                                            |   |                                                                                                                                                                                                                                                                                                                                                           | 5,634   |   |   | (298 | ) |   | **5,336** |   |   | 6,251 |   |   | (4 | ) |   | **6,247** |   |
| General                  and administrative                  expense   |   |                                                                                                                                                                                                                                                                                                                                                           | 10,766  |   |   | (651 | ) |   | **10,115** |   |   | 11,804 |   |   | 12 |   |   | **11,816** |   |
| Other                  postretirement benefit                  expense |   |                                                                                                                                                                                                                                                                                                                                                           | -       |   |   | 20,909 |   |   | **20,909** |   |   | - |   |   | 8,885 |   |   | **8,885** |   |
| Total                  operating costs                                      |   |                                                                                                                                                                                                                                                                                                                                                           | 9,648   |   |   | 19,960 |   |   | **29,608** |   |   | 6,345 |   |   | 8,893 |   |   | **15,238** |   |
|                                                                        |   |                                                                                                                                                                                                                                                                                                                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  income                                           |   |                                                                                                                                                                                                                                                                                                                                                           | 32,455  |   |   | (5,814 | ) |   | **26,641** |   |   | 23,659 |   |   | (941 | ) |   | **22,718** |   |
|                                                                        |   |                                                                                                                                                                                                                                                                                                                                                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate                  expense                                          |   |                                                                                                                                                                                                                                                                                                                                                           | 6,253   |   |   | (5,814 | ) |   | **439** |   |   | 3,466 |   |   | (941 | ) |   | **2,525** |   |
| Total                  nonoperating expense                            |   |                                                                                                                                                                                                                                                                                                                                                           | 3,858   |   |   | (5,814 | ) |   | **(1,956** | **)** |   | 6,199 |   |   | (941 | ) |   | **5,258** |   |

*Management's        Estimates. *

*Accounts        receivable.*

*Inventories        and cost of sales. *

*Property,        plant and equipment and depreciation expense.*

----

*,        Accounting for the Impairment or Disposal of Long-Lived Assets*

*Long-term        debt and deferred financing costs.*

*Pension        plans and other postretirement benefits.*

*Environmental        liabilities.*

*Income        taxes.*

*Net        sales.*

----

*Selling,        general and administrative expenses.*
** **

*Corporate        expenses*

*Chapter        11*

*Earnings        per share. *

**Note        2 - Bankruptcy:**

----

| ·   | greater                employee participation in healthcare                costs; |
|--------------------|-----------------------------------------------------------------------------------|
| ·   | a                permanent reduction in healthcare related payments to                retirees; |
|--------------------|-------------------------------------------------------------------------------------------------|
| ·   | cancellation                of all shares of our common and preferred stock outstanding at the                petition date; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|
| ·   | full                reinstatement of obligations due to our pre-petition secured lenders                other                than our DIP lenders; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | pre-petition                unsecured creditors, a debtor-in-possession secured lender and certain                post-petition creditors with allowed claims against us in the amount                of                approximately $63.9 million received, on a pro rata basis, in the                aggregate, $5.2 million in cash, a $4.8 million secured promissory                note                and 100% of our new common stock (valued at $21.4 million). As a                result,                we recorded a $32.5 million gain from cancellation of debt during                2005.                The following table summarizes the significant components of compromised                liabilities and the related gain from cancellation of                debt. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                             |   | **Unsecured****claims****other                  than****Contran** |   |   **Contran**** claims ** |   |    **Total** |   |
|------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------|--------|
|                                                             |   | **(In                  thousands)**                               |   |
|                                                             |   |                                                              |   |                                          |   |                        |   |
| Liabilities                  compromised:                        |   |                                                              |   |                                          |   |                        |   |   |   |   |
| 6%                  Notes                                        |   | $                                                                 | 16,031 |                                          | $      | -                           |   | $ | 16,031 |   |
| Accrued                  Series A Preferred Stock dividends |   |                                                              | 1,098  |                                          |   | 10,748                      |   |   | 11,846 |   |
| Accounts                  payable - pre-petition                 |   |                                                              | 7,576  |                                          |   | 3,279                       |   |   | 10,855 |   |
| Accounts                  payable - post-petition                |   |                                                              | -      |                                          |   | 1,179                       |   |   | 1,179 |   |
| Deferred                  vendor payments                        |   |                                                              | 10,518 |                                          |   | -                           |   |   | 10,518 |   |
| 9                  5/8% Notes                                    |   |                                                              | 6,150  |                                          |   | -                           |   |   | 6,150 |   |
| DIP                  loan                                        |   |                                                              | -      |                                          |   | 5,000                       |   |   | 5,000 |   |
| Accrued                  interest                                |   |                                                              | 1,236  |                                          |   | -                           |   |   | 1,236 |   |
| Accrued                  environmental                           |   |                                                              | 868    |                                          |   | -                           |   |   | 868 |   |
| Other,                  net                                      |   |                                                              | 227    |                                          |   | -                           |   |   | 227 |   |
|    Total                  liabilities compromised |   |                                                              | 43,704 |                                          |   | 20,206                      |   |   | 63,910 |   |
|                                                             |   |                                                              |   |                                          |   |                        |   |   |   |   |
| Consideration                  provided:                         |   |                                                              |   |                                          |   |                        |   |   |   |   |
| Cash                                                             |   |                                                              | 5,200  |                                          |   | -                           |   |   | 5,200 |   |
| Secured                  Note                                    |   |                                                              | 4,800  |                                          |   | -                           |   |   | 4,800 |   |
| Common                  stock                                    |   |                                                              | 10,486 |                                          |   | 10,914                      |   |   | 21,400 |   |
|    Total                  consideration provided  |   |                                                              | 20,486 |                                          |   | 10,914                      |   |   | 31,400 |   |
|                                                             |   |                                                              |   |                                          |   |                        |   |   |   |   |
| Gain                  on cancellation of debt                    |   | $                                                                 | 23,218 |                                          | $      | 9,292                       |   | $ | 32,510 |   |

*Liabilities        subject to compromise.*

----

|                                              |   | **   December                  31,  ** |   |
|---------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|                                              |   | **2005**                                                        |   | **2006** |   |
|                                              |   | **(In                  thousands)**                             |   |
|                                              |   |                                                            |   |
| Environmental                                     |   | $                                                               | 8,491  |   | **$** | **8,481** |   |
| Accounts                  payable                 |   |                                                            | 850    |   |   | **789** |   |
| Disposition                  of former facilities |   |                                                            | 684    |   |   | **442** |   |
| Legal                  and professional           |   |                                                            | 244    |   |   | **80** |   |
| Other                                             |   |                                                            | 207    |   |   | **4,220** |   |
|                                              |   |                                                            |   |   |   |   |   |
|                                              |   | $                                                               | 10,476 |   | **$** | **14,012** |   |

**Note        3 - Business Segment Information:**

----

| ·   | Keystone                Steel and Wire (“KSW”), located in Peoria, Illinois, operates an electric                arc furnace mini-mill and manufactures and sells wire rod, industrial                wire, nails, coiled rebar and fabricated wire products for agricultural,                industrial, construction, commercial, original equipment manufacturers                and                retail consumer markets; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Engineered                Wire Products (“EWP”), located in Upper Sandusky, Ohio, manufactures and                sells welded wire reinforcement in both roll and sheet form that                is                utilized in concrete construction products including pipe, pre-cast                boxes                and applications for use in roadways, buildings and bridges; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Keystone                Wire Products (“KWP”), located in Sherman, Texas, manufactures and sells                industrial wire and fabricated wire products for agricultural, industrial,                construction, commercial, original equipment manufacturers and retail                consumer markets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                             |   | ** ****                          Years                  ended December                  31,                               **** ** |   |
|----------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                             |   | ** ****                2004                 **                                                                                                                                                                                                                 |   | **                2005                 ** |   |
|                             |   | **(In                  thousands)**                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                             |   | **Operating                  income/(loss) Previously****Reported**                                                                                                                                                                                                                                                                                                                                                                      |   | **Elimination                  of****Pension/OPEB** |   | **Operating                  income Currently****Reported** |   | **Operating                  income/(loss) Previously****Reported** |   | **Elimination                  of****Pension/OPEB** |   | **Operating                  income/(loss) Currently****Reported** |   |
|                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| KSW                              |   | $                                                                                                                                                                                                                                                                                                                                                                                                                                        | 10,126 |   | $ | 23,873 |   | **$** | **33,999** |   | $ | (6,091 | ) | $ | 16,212 |   | **$** | **10,121** |   |
| EWP                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     | 10,598 |   |   | 218 |   |   | **10,816** |   |   | 9,481 |   |   | 218 |   |   | **9,699** |   |
| KWP                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     | (422   | ) |   | 717 |   |   | **295** |   |   | (1,674 | ) |   | (163 | ) |   | **(1,837** | **)** |
| Corporate                  items |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     | 12,153 |   |   | (30,622 | ) |   | **(18,469** | **)** |   | 21,943 |   |   | (17,208 | ) |   | **4,735** |   |
|     Total    |   | $                                                                                                                                                                                                                                                                                                                                                                                                                                        | 32,455 |   | $ | (5,814 | ) | **$** | **26,641** |   | $ | 23,659 |   | $ | (941 | ) | **$** | **22,718** |   |

|                                                                                                   |   | ** ****    Years                  ended December 31,  **** ** |    |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|---------|
|                                                                                                   |   | **2004**                                                                                              |    | **2005** |   | **2006** |   |
|                                                                                                   |   | **(In                  thousands)**                                                                   |    |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |
| Net                  sales:                                                                            |   |                                                                                                  |    |   |   |   |   |   |   |   |
|   KSW                                                                                        |   | $                                                                                                     | 346,703 |   | $ | 342,139 |   | **$** | **414,927** |   |
|   EWP                                                                                        |   |                                                                                                  | 58,982  |   |   | 62,777 |   |   | **58,748** |   |
|   Sherman/KWP                                                                                |   |                                                                                                  | 16,193  |   |   | 18,024 |   |   | **17,664** |   |
|   Elimination                  of intersegment sales:                                        |   |                                                                                                  |    |   |   |   |   |   |   |   |
|     KSW                                                                            |   |                                                                                                  | (47,586 | ) |   | (44,048 | ) |   | **(39,131** | **)** |
|     EWP                                                                            |   |                                                                                                  | -       |   |   | - |   |   | **-** |   |
|     Sherman/KWP                                                                    |   |                                                                                                  | (10,006 | ) |   | (11,347 | ) |   | **(11,668** | **)** |
|     Other                                                                          |   |                                                                                                  | 49      |   |   | - |   |   | - |   |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |   |   |   |
|      Total                  net sales                                         |   | $                                                                                                     | 364,335 |   | $ | 367,545 |   | **$** | **440,540** |   |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |   |   |   |
| Operating                  income (loss):                                                              |   |                                                                                                  |    |   |   |   |   |   |   |   |
|   KSW                                                                                        |   | $                                                                                                     | 33,999  |   | $ | 10,121 |   | **$** | **7,505** |   |
|   EWP                                                                                        |   |                                                                                                  | 10,816  |   |   | 9,699 |   |   | **9,464** |   |
|   Sherman/KWP                                                                                |   |                                                                                                  | 295     |   |   | (1,837 | ) |   | **(947** | **)** |
|   Pension                  credit                                                            |   |                                                                                                  | 6,752   |   |   | 11,710 |   |   | **55,978** |   |
|   OPEB                  credit (expense)                                                     |   |                                                                                                  | (20,909 | ) |   | (8,885 | ) |   | **8,297** |   |
|   Allocation                  differences(1)                                                 |   |                                                                                                  | (4,312  | ) |   | 1,910 |   |   | **666** |   |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |   |   |   |
|     Total                  operating income                                        |   |                                                                                                  | 26,641  |   |   | 22,718 |   |   | **80,963** |   |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |   |   |   |
| Nonoperating                  income (expense):                                                        |   |                                                                                                  |    |   |   |   |   |   |   |   |
|   Corporate                  expense                                                         |   |                                                                                                  | (439    | ) |   | (2,525 | ) |   | **(1,213** | **)** |
|   Interest                  expense                                                          |   |                                                                                                  | (3,705  | ) |   | (3,992 | ) |   | **(4,720** | **)** |
|   Interest                  income                                                           |   |                                                                                                  | 132     |   |   | 266 |   |   | **361** |   |
|   Gain                  on legal settlement                                                  |   |                                                                                                  | 5,284   |   |   | - |   |   | **-** |   |
|   Other                  income, net                                                         |   |                                                                                                  | 684     |   |   | 993 |   |   | **75** |   |
|                                                                                                   |   |                                                                                                  |    |   |   |   |   |   |   |   |
|   Income                  before income taxes and                  reorganization items |   | $                                                                                                     | 28,597  |   | $ | 17,460 |   | **$** | **75,466** |   |

----

|                           |   | **          December                  31,         ** |    |
|--------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                           |   | **2004**                                                                                                                                            |    | **2005** |   | **2006** |   |
|                           |   | **(In                  thousands)**                                                                                                                 |    |
| Total                  assets: |   |                                                                                                                                                |    |   |   |   |   |   |   |   |
|   KSW                |   | $                                                                                                                                                   | 146,869 |   | $ | 178,697 |   | **$** | **160,364** |   |
|   EWP                |   |                                                                                                                                                | 26,708  |   |   | 22,750 |   |   | **19,381** |   |
|   Sherman/KWP        |   |                                                                                                                                                | 7,891   |   |   | 5,260 |   |   | **2,075** |   |
|   Corporate          |   |                                                                                                                                                | 141,814 |   |   | 151,657 |   |   | **582,116** |   |
|                           |   |                                                                                                                                                |    |   |   |   |   |   |   |   |
|     Total  |   | $                                                                                                                                                   | 323,282 |   | $ | 358,364 |   | **$** | **763,936** |   |
|                           |   |                                                                                                                                                |    |   |   |   |   |   |   |   |

|                                            |   |                                                                                                              |   |
|-------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
|                                            |   | ** ****    Years                  ended December 31,    **** ** |   |
|                                            |   | **2004**                                                                                                          |   | **2005** |   | **2006** |   |
|                                            |   | **(In                  thousands)**                                                                               |   |
| Depreciation                  and amortization: |   |                                                                                                              |   |   |   |   |   |   |   |   |
|   KSW                                 |   | $                                                                                                                 | 13,418 |   | $ | 13,486 |   | **$** | **13,221** |   |
|   EWP                                 |   |                                                                                                              | 1,037  |   |   | 1,034 |   |   | **1,040** |   |
|   Sherman/KWP                         |   |                                                                                                              | 1,171  |   |   | 1,133 |   |   | **676** |   |
|   Corporate                           |   |                                                                                                              | 186    |   |   | 92 |   |   | **285** |   |
|                                            |   |                                                                                                              |   |   |   |   |   |   |   |   |
|     Total                   |   | $                                                                                                                 | 15,812 |   | $ | 15,745 |   | **$** | **15,222** |   |
|                                            |   |                                                                                                              |   |   |   |   |   |   |   |   |
| Capital                  expenditures:          |   |                                                                                                              |   |   |   |   |   |   |   |   |
|   KSW                                 |   | $                                                                                                                 | 4,727  |   | $ | 9,450 |   | **$** | **12,242** |   |
|   EWP                                 |   |                                                                                                              | 274    |   |   | 201 |   |   | **6,388** |   |
|   Sherman/KWP                         |   |                                                                                                              | 77     |   |   | 121 |   |   | **48** |   |
|   Corporate                           |   |                                                                                                              | 2      |   |   | - |   |   | **61** |   |
|                                            |   |                                                                                                              |   |   |   |   |   |   |   |   |
|     Total                   |   | $                                                                                                                 | 5,080  |   | $ | 9,772 |   | **$** | **18,739** |   |
|                                            |   |                                                                                                              |   |   |   |   |   |   |   |   |

|                           |   | **   Years                  ended December 31,    ** |    |
|--------------------------------|--------|-----------------------------------------------------------------------------------------|---------|
|                           |   | **2004**                                                                                |    | **2005** |   | **2006** |   |
|                           |   | **(In                  thousands)**                                                     |    |
|                           |   |                                                                                    |    |   |   |   |   |
| United                  States |   | $                                                                                       | 359,575 |   | $ | 360,282 |   | **$** | **431,122** |   |
| Canada                         |   |                                                                                    | 4,437   |   |   | 6,329 |   |   | **8,036** |   |
| Great                  Britain |   |                                                                                    | 180     |   |   | 657 |   |   | **1,156** |   |
| Australia                      |   |                                                                                    | 63      |   |   | 277 |   |   | **226** |   |
| Ireland                        |   |                                                                                    | 80      |   |   | - |   |   | **-** |   |
|                           |   |                                                                                    |    |   |   |   |   |   |   |   |
|                           |   | $                                                                                       | 364,335 |   | $ | 367,545 |   | **$** | **440,540** |   |

----

**Note        4 - Inventories, net:**

|                                                       |   | **   ****  December                  31, ****  ** |   |
|------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|
|                                                       |   | **2005**                                                                                  |   | **2006** |   |
|                                                       |   | **(In                  thousands)**                                                       |   |
|                                                       |   |                                                                                      |   |   |   |
|   Raw                  materials                 |   | $                                                                                         | 10,914 |   | **$** | **9,735** |   |
|   Work                  in process               |   |                                                                                      | 29,550 |   |   | **25,391** |   |
|   Finished                  products             |   |                                                                                      | 28,018 |   |   | **26,513** |   |
|   Supplies                                       |   |                                                                                      | 16,421 |   |   | **18,283** |   |
|                                                       |   |                                                                                      |   |   |   |   |   |
|     Inventory                  at FIFO |   |                                                                                      | 84,903 |   |   | **79,922** |   |
|     Less                  LIFO reserve |   |                                                                                      | 15,212 |   |   | **18,579** |   |
|                                                       |   |                                                                                      |   |   |   |   |   |
|       Total                  |   | $                                                                                         | 69,691 |   | **$** | **61,343** |   |
|                                                       |   |                                                                                      |   |   |   |   |   |

**Note        5 - Notes payable and long-term debt:**

|                                                             |   | **  December                  31, ** |   |
|------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                             |   | **2005**                                            |   | **2006** |   |
|                                                             |   | **(In                  thousands)**                 |   |
|                                                             |   |                                                |   |   |   |
| Wachovia                  revolving credit facility              |   | $                                                   | 36,174 |   | **$** | **17,734** |   |
| 8%                  Notes                                        |   |                                                | 26,532 |   |   | **25,740** |   |
| UC                  Note                                         |   |                                                | 4,997  |   |   | **5,465** |   |
| Term                  loans:                                     |   |                                                |   |   |   |   |   |
|   Wachovia                                             |   |                                                | 21,980 |   |   | **17,390** |   |
|   County                                               |   |                                                | 10,000 |   |   | **10,000** |   |
|   Other                                                |   |                                                | 212    |   |   | **119** |   |
|                                                             |   |                                                |   |   |   |   |   |
|     Total                  debt              |   |                                                | 99,895 |   |   | **76,448** |   |
|     Less                  current maturities |   |                                                | 41,640 |   |   | **43,699** |   |
|                                                             |   |                                                |   |   |   |   |   |
|     Total                  long-term debt    |   | $                                                   | 58,255 |   | **$** | **32,749** |   |

*Wachovia        Facility*

----

*8%        Notes*
*Accounting        by Debtors and Creditors for troubled Debt Restructurings*

----

*UC        Note*

*County          Term Loan.*

| **Year                  ending December 31,** |   | **Amount**                          |   |
|-----------------------------------------------|--------|-------------------------------------|--------|
|                                          |   | **(In                  thousands)** |   |
|                                          |   |                                |   |
| 2007                                          |   | $                                   | 25,964 |   |
| 2008                                          |   |                                | 14,250 |   |
| 2009                                          |   |                                | 14,880 |   |
| 2010                                          |   |                                | 21,354 |   |
|                                          |   | $                                   | 76,448 |   |
|                                          |   |                                |   |   |

----

*Cancellation        of debt upon emergence from bankruptcy.*

*Pre-emergence        debt.*

----

**Note        6 - Series A Preferred Stock:**

**Note        7 - Income taxes:**

|                                                                                          |   | **  Years                  ended December 31, ** |        |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|-------------|
|                                                                                          |   | **2004**                                                        |        | **2005** |   | **2006** |   |
|                                                                                          |   | **(In                  thousands)**                             |        |
|                                                                                          |   |                                                            |        |   |   |   |   |
|                                                                                          |   |                                                            |        |   |   |   |   |
| Expected                  tax provision (benefit), at statutory                  rate    |   | $                                                               | 6,104       |   | $ | 13,882 |   | **$** | **26,175** |   |
| U.S.                  state income taxes (benefit), net                                       |   |                                                            | 559         |   |   | 2,265 |   |   | **2,432** |   |
| Deferred                  tax asset valuation allowance                                       |   |                                                            | (8,808      | ) |   | (19,651 | ) |   | **(10,675** | **)** |
| Capitalize                  reorganization costs                                              |   |                                                            | 3,840       |   |   | 3,608 |   |   | **237** |   |
| Release                  of contingency reserve                                               |   |                                                            | -           |   |   | - |   |   | **(1,011** | **)** |
| Other,                  net                                                                   |   |                                                            | (316        | ) |   | 326 |   |   | **(103** | **)** |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
| Provision                  for income taxes                                                   |   | $                                                               | 1,379       |   | $ | 430 |   | **$** | **17,055** |   |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
| Provision                  (benefit) for income taxes:                                        |   |                                                            |        |   |   |   |   |   |   |   |
|   Currently                  payable (refundable):                                  |   |                                                            |        |   |   |   |   |   |   |   |
|     U.S.                  federal                                         |   | $                                                               | 914         |   | $ | 75 |   | **$** | **273** |   |
|     U.S.                  state                                           |   |                                                            | 465         |   |   | 355 |   |   | **(535** | **)** |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
|      Net                  currently payable                          |   |                                                            | 1,379       |   |   | 430 |   |   | **(262** | **)** |
|   Deferred                  income taxes, net                                       |   |                                                            | -           |   |   | - |   |   | **17,317** |   |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
|                                                                                          |   | $                                                               | 1,379       |   | $ | 430 |   | **$** | **17,055** |   |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
| Comprehensive                  provision for income taxes                  allocable to: |   |                                                            |        |   |   |   |   |   |   |   |
|    Net                  income                                                 |   | $                                                               | 1,379       |   | $ | 430 |   | **$** | **17,055** |   |
|    Adoption                  of SFAS 158:                                      |   |                                                            |        |   |   |   |   |   |   |   |
|       Pension                  plans                            |   |                                                            | **-**       |   |   | **-** |   |   | **133,947** |   |
|       OPEB                  plans                               |   |                                                            | **-**       |   |   | **-** |   |   | **33,877** |   |
|                                                                                          |   |                                                            |        |   |   |   |   |   |   |   |
| **    **                                                                  |   |  **$**                                                     | **-**  |   | **$** | **-** |   | **$** | **184,879** |   |

----

|                                                                                                                                                                                             |   | **               December                  31,                 ** |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                             |   | **        2005       **                                                                                                                                |    | **        2006       ** |   |
|                                                                                                                                                                                             |   | **Assets**                                                                                                                                                                                                                        |    | **Liabilities** |   | **Assets** |   | **Liabilities** |   |
|                                                                                                                                                                                             |   | **(In                  thousands)**                                                                                                                                                                                               |    |
|                                                                                                                                                                                             |   |                                                                                                                                                                                                                              |    |   |   |   |   |   |   |
| Tax                  effect of temporary differences relating to:                                                                                                                                |   |                                                                                                                                                                                                                              |    |   |   |   |   |   |   |   |   |   |   |
|   Inventories                                                                                                                                                                          |   | $                                                                                                                                                                                                                                 | 4,697   |   | $ | - |   | $ | 4,919 |   | $ | - |   |
|   Property                  and equipment                                                                                                                                              |   |                                                                                                                                                                                                                              | -       |   |   | (14,960 | ) |   | - |   |   | (12,654 | ) |
|   Pension                  asset                                                                                                                                                       |   |                                                                                                                                                                                                                              | -       |   |   | (56,610 | ) |   | - |   |   | (209,593 | ) |
|   Accrued                  OPEB cost                                                                                                                                                   |   |                                                                                                                                                                                                                              | 53,611  |   |   | - |   |   | 12,869 |   |   | - |   |
|   Accrued                  liabilities                                                                                                                                                 |   |                                                                                                                                                                                                                              | 11,334  |   |   | - |   |   | 9,256 |   |   | - |   |
|   Other                  deductible differences                                                                                                                                        |   |                                                                                                                                                                                                                              | 3,954   |   |   | - |   |   | 4,211 |   |   | - |   |
|   Other                  taxable differences                                                                                                                                           |   |                                                                                                                                                                                                                              | -       |   |   | (3,026 | ) |   | - |   |   | - |   |
|   Net                  operating loss carryforwards                                                                                                                                    |   |                                                                                                                                                                                                                              | 4,372   |   |   | - |   |   | 333 |   |   | - |   |
|   Alternative                  minimum tax and other credit carryforwards                                                                                                              |   |                                                                                                                                                                                                                              | 7,303   |   |   | - |   |   | 5,518 |   |   | - |   |
|   Deferred                  tax asset valuation allowance                                                                                                                              |   |                                                                                                                                                                                                                              | (10,675 | ) |   | - |   |   | - |   |   | - |   |
|                                                                                                                                                                                             |   |                                                                                                                                                                                                                              |    |   |   |   |   |   |   |   |   |   |   |
|     Gross                  deferred tax assets / (liabilities)                                                                                                               |   |                                                                                                                                                                                                                              | 74,596  |   |   | (74,596 | ) |   | 37,106 |   |   | (222,247 | ) |
| Reclassification,                  principally netting by tax jurisdiction                                                                                                                  |   |                                                                                                                                                                                                                              | (74,596 | ) |   | 74,596 |   |   | (37,106 | ) |   | 37,106 |   |
|                                                                                                                                                                                             |   |                                                                                                                                                                                                                              |    |   |   |   |   |   |   |   |   |   |   |
|     Net                  deferred tax asset / (liability)                                                                                                                    |   |                                                                                                                                                                                                                              | -       |   |   | - |   |   | - |   |   | (185,141 | ) |
| Less                  current deferred tax asset, net of pro rata  allocation                  of deferred                     tax asset valuation  allowance |   |                                                                                                                                                                                                                              | -       |   |   | - |   |   | - |   |   | 12,571 |   |
|                                                                                                                                                                                             |   |                                                                                                                                                                                                                              |    |   |   |   |   |   |   |   |   |   |   |
|  Noncurrent                  net deferred tax asset / (liability)                                                                                                                           |   | $                                                                                                                                                                                                                                 | -       |   | $ | - |   | $ | - |   | $ | (197,712 | ) |

|                                                                                                                                                                                                                                                                |   | **  Years                  ended December 31, ** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                |   | **2004**                                                        |   | **2005** |   | **2006** |   |
|                                                                                                                                                                                                                                                                |   | **(In                  thousands)**                             |   |
|                                                                                                                                                                                                                                                                |   |                                                            |   |   |   |   |   |
| Increase                  (decrease) in valuation allowance:                                                                                                                                                                                                        |   |                                                            |   |   |   |   |   |   |   |   |
|   Increase                  in certain deductible temporary differences                  which the Company believes do   not                  meet the "more-likely-than-not"   recognition                  criteria: |   |                                                            |   |   |   |   |   |   |   |   |
|       Recognized                  in net income (loss)                                                                                                                                                                                |   | $                                                               | (8,808 | ) | $ | (19,651 | ) | **$** | **(10,675** | **)** |
|                                                                                                                                                                                                                                                                |   |                                                            |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                |   | $                                                               | (8,808 | ) | $ | (19,651 | ) | **$** | **(10,675** | **)** |

----

**Note        8 - Pensions and other postretirement benefits:**

|                                                                                                |   | **    Pension                  Benefits    ** |     | **  ****   Other                  Benefits   ****  ** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   | **2005**                                                                              |     | **2006**                                                                                                |   | **2005** |   | **2006** |   |
|                                                                                                |   | **(In                  thousands)**                                                   |     |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |
| Change                  in projected benefit   obligations                  ("PBO"): |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|   Benefit                  obligations at beginning of year                               |   | $                                                                                     | 384,701  |                                                                                                    | $      | 392,216 |   | $ | 206,309 |   | $ | 38,705 |   |
|   Service                  cost                                                           |   |                                                                                  | 3,798    |                                                                                                    |   | 3,569 |   |   | 2,056 |   |   | 247 |   |
|   Interest                  cost                                                          |   |                                                                                  | 21,499   |                                                                                                    |   | 21,041 |   |   | 8,785 |   |   | 1,972 |   |
|   Plan                  amendment                                                         |   |                                                                                  | 876      |                                                                                                    |   | 4,790 |   |   | (191,657 | ) |   | - |   |
|   Actuarial                  loss (gain)                                                  |   |                                                                                  | 8,655    |                                                                                                    |   | (17,174 | ) |   | 21,536 |   |   | (1,830 | ) |
|   Benefits                  paid                                                          |   |                                                                                  | (27,313  | )                                                                                                       |   | (27,558 | ) |   | (8,324 | ) |   | (3,931 | ) |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|     Benefit                  obligations at end of year                         |   | $                                                                                     | 392,216  |                                                                                                    | $      | 376,884 |   | $ | 38,705 |   | $ | 35,163 |   |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
| Change                  in plan assets:                                                             |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|   Fair                  value of plan assets at beginning of                  year   |   | $                                                                                     | 424,380  |                                                                                                    | $      | 701,221 |   | $ | - |   | $ | - |   |
|   Actual                  return on plan assets                                           |   |                                                                                  | 304,154  |                                                                                                    |   | 260,500 |   |   | - |   |   | - |   |
|   Employer                  contributions                                                 |   |                                                                                  | -        |                                                                                                    |   | - |   |   | 8,324 |   |   | 3,931 |   |
|   Benefits                  paid                                                          |   |                                                                                  | (27,313  | )                                                                                                       |   | (27,558 | ) |   | (8,324 | ) |   | (3,931 | ) |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|   Fair                  value of plan assets at end of                  year         |   | $                                                                                     | 701,221  |                                                                                                    | $      | 934,163 |   | $ | - |   | $ | - |   |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
| Funded                  status at end of the year:                                                  |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|   Plan                  assets greater (less) than PBO                                    |   | $                                                                                     | 309,005  |                                                                                                    | $      | 557,279 |   | $ | (38,705 | ) | $ | (35,163 | ) |
|    Unamortized                  actuarial losses (gains)                             |   |                                                                                  | (173,892 | )                                                                                                       |   | (369,853 | ) |   | 122,978 |   |   | 114,020 |   |
|    Unamortized                  prior service cost  (credit)               |   |                                                                                  | 10,039   |                                                                                                    |   | 13,704 |   |   | (221,737 | ) |   | (204,092 | ) |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|                                                                                                |   | $                                                                                     | 145,152  |                                                                                                    | $      | 201,130 |   | $ | (137,464 | ) | $ | (125,235 | ) |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
| Amounts                  recognized in the balance sheet:                                           |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|   Pension                  asset                                                          |   | $                                                                                     | 145,152  |                                                                                                    | $      | 557,279 |   | $ | - |   | $ | - |   |
|   Accrued                  OPEB cost:                                                     |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|    Current                                                                           |   |                                                                                  | -        |                                                                                                    |   | - |   |   | (4,256 | ) |   | (4,157 | ) |
|    Noncurrent                                                                        |   |                                                                                  | -        |                                                                                                    |   | - |   |   | (133,208 | ) |   | (31,005 | ) |
|   Accumulated                  other comprehensive income                                 |   |                                                                                  | -        |                                                                                                    |   | (356,149 | ) |   | - |   |   | (90,073 | ) |
|                                                                                                |   |                                                                                  |     |                                                                                                    |   |   |   |   |   |   |   |   |   |
|                                                                                                |   | $                                                                                     | 145,152  |                                                                                                    | $      | 201,130 |   | $ | (137,464 | ) | $ | (125,235 | ) |

----

|                                                                                                  |   | **Before                  application****of                  SFAS**** No. 158** |    |    **Adjustments** |   | **After                  application of SFAS**** No. 158** |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|---------|-----------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                  |   | **(In                  thousands)**                                                       |    |
|                                                                                                  |   |                                                                                      |    |                              |   |                                                                 |   |
| Pension                  asset                                                                        |   | $                                                                                         | 201,130 |                              | $      | 356,149                                                              |   | $ | 557,279 |   |
| Total                  other assets                                                                   |   |                                                                                      | 208,934 |                              |   | 356,149                                                              |   |   | 565,083 |   |
| Total                  assets                                                                         |   |                                                                                      | 407,787 |                              |   | 356,149                                                              |   |   | 763,936 |   |
|                                                                                                  |   |                                                                                      |    |                              |   |                                                                 |   |   |   |   |
| Noncurrent                  accrued OPEB cost                                                         |   |                                                                                      | 121,078 |                              |   | (90,073                                                              | )      |   | 31,005 |   |
| Noncurrent                  deferred income taxes                                                     |   |                                                                                      | 29,889  |                              |   | 167,823                                                              |   |   | 197,712 |   |
| Total                  noncurrent liabilities                                                         |   |                                                                                      | 190,130 |                              |   | 77,750                                                               |   |   | 267,880 |   |
|                                                                                                  |   |                                                                                      |    |                              |   |                                                                 |   |   |   |   |
| Accumulated                  other comprehensive income:                                         |   |                                                                                      |    |                              |   |                                                                 |   |   |   |   |
|    Pension                  plans                                                      |   |                                                                                      | -       |                              |   | 222,202                                                              |   |   | 222,202 |   |
|    OPEB                  plans                                                         |   |                                                                                      | -       |                              |   | 56,197                                                               |   |   | 56,197 |   |
|    Total                  accumulated other comprehensive                  income |   |                                                                                      | -       |                              |   | 278,399                                                              |   |   | 278,399 |   |
| Total                  stockholders’ equity                                                     |   |                                                                                      | 125,263 |                              |   | 278,399                                                              |   |   | 403,662 |   |
|                                                                                                  |   |                                                                                      |    |                              |   |                                                                 |   |   |   |   |
| Total                  liabilities and                  stockholders’ equity               |   |                                                                                      | 407,787 |                              |   | 356,149                                                              |   |   | 763,936 |   |

|                                           |   | ** Pension                  Benefits ** |   | **Other                  Benefits** |   |
|------------------------------------------------|--------|---------------------------------------------------|--------|-------------------------------------|--------|
|                                           |   | **2005**                                          |   | **2006**                            |   | **2005** |   | **2006** |   |
|                                           |   |                                              |   |                                |   |   |   |   |   |
| Discount                  rate                 |   |                                              | 5.5    | %                                   |   | 5.8 | % |   | 5.5 | % |   | 5.8 | % |
| Rate                  of compensation increase |   |                                              | 3.0    | %                                   |   | 3.0 | % |   | - |   |   | - |   |

|                                            |   | **     Pension                  Benefits      ** |   | **      Other                  Benefits      ** |   |
|-------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                                            |   | **2004**                                                                                                |   | **2005**                                                                                                    |   | **2006** |   | **2004** |   | **2005** |   | **2006** |   |
|                                            |   |                                                                                                    |   |                                                                                                        |   |   |   |   |   |   |   |   |   |
| Discount                  rate                  |   |                                                                                                    | 6.0    | %                                                                                                           |   | 5.7 | % |   | 6.0 | % |   | 6.0 | % |   | 5.5 | % |   | 5.5 | % |
| Expected                  return on plan assets |   |                                                                                                    | 10.0   | %                                                                                                           |   | 10.0 | % |   | 10.0 | % |   | - |   |   | - |   |   | - |   |
| Rate                  of compensation increase  |   |                                                                                                    | 3.0    | %                                                                                                           |   | 3.0 | % |   | 3.0 | % |   | - |   |   | - |   |   | - |   |

----

|                                                     |   | **    Pension                  Benefits    ** |    | **     Other                  Benefits      ** |   |
|----------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------|--------|
|                                                     |   | **2004**                                                                              |    | **2005**                                                                                              |   | **2006** |   | **2004** |   | **2005** |   | **2006** |   |
|                                                     |   | **(In                  thousands)**                                                   |    |
|                                                     |   |                                                                                  |    |                                                                                                  |   |   |   |   |   |   |   |   |   |
| Service                  cost                            |   | $                                                                                     | 3,335   |                                                                                                  | $      | 3,798 |   | $ | 3,569 |   | $ | 2,866 |   | $ | 2,056 |   | $ | 247 |   |
| Interest                  cost                           |   |                                                                                  | 20,902  |                                                                                                  |   | 21,499 |   |   | 21,041 |   |   | 11,033 |   |   | 8,785 |   |   | 1,972 |   |
| Expected                  return on plan assets          |   |                                                                                  | (35,860 | )                                                                                                     |   | (41,037 | ) |   | (73,152 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                  of:                        |   |                                                                                  |    |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Prior                  service cost (credit) |   |                                                                                  | 882     |                                                                                                  |   | 926 |   |   | 1,126 |   |   | (3,024 | ) |   | (8,003 | ) |   | (17,645 | ) |
|   Actuarial                  losses (gains)    |   |                                                                                  | 3,989   |                                                                                                  |   | 3,104 |   |   | (8,562 | ) |   | 4,879 |   |   | 6,047 |   |   | 7,129 |   |
|                                                     |   |                                                                                  |    |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  periodic benefit cost (credit)      |   |                                                                                  | (6,752  | )                                                                                                     |   | (11,710 | ) |   | (55,978 | ) |   | 15,754 |   |   | 8,885 |   |   | (8,297 | ) |
| Settlement                  loss                         |   |                                                                                  | -       |                                                                                                  |   | - |   |   | - |   |   | 5,155 |   |   | - |   |   | - |   |
|                                                     |   |                                                                                  |    |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  benefit cost (credit)             |   | $                                                                                     | (6,752  | )                                                                                                     | $      | (11,710 | ) | $ | (55,978 | ) | $ | 20,909 |   | $ | 8,885 |   | $ | (8,297 | ) |
|                                                     |   |                                                                                  |    |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                         |   | **Pension****Benefits**             |    | **Other****Benefits** |   |
|------------------------------|--------|-------------------------------------|---------|-----------------------|--------|
|                         |   | **(In                  thousands)** |    |
|                         |   |                                |    |                  |   |
| 2007                         |   | $                                   | 27,350  |                  | $      | 4,157 |   |
| 2008                         |   |                                | 27,340  |                  |   | 4,382 |   |
| 2009                         |   |                                | 27,180  |                  |   | 2,577 |   |
| 2010                         |   |                                | 27,130  |                  |   | 2,529 |   |
| 2011                         |   |                                | 27,120  |                  |   | 2,487 |   |
| 2012                  - 2016 |   |                                | 137,770 |                  |   | 11,896 |   |

**Note        9 - Environmental matters:**

----

|                                            |   | ** Years                  ended December 31, ** |   |
|-------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                            |   | **2004**                                                  |   | **2005** |   | **2006** |   |
|                                            |   | **(In                  thousands)**                       |   |
|                                            |   |                                                      |   |   |   |   |   |
| Balance                  at beginning of period |   | $                                                         | 19,766 |   | $ | 19,432 |   | **$** | **15,412** |   |
| Expense                                         |   |                                                      | -      |   |   | - |   |   | **-** |   |
| Payments,                  net                  |   |                                                      | (334   | ) |   | (3,152 | ) |   | **(2,160** | **)** |
| Cancellation                  of debt           |   |                                                      | -      |   |   | (868 | ) |   | - |   |
|                                            |   |                                                      |   |   |   |   |   |   |   |   |
| Balance                  at end of period       |   | $                                                         | 19,432 |   | $ | 15,412 |   | **$** | **13,252** |   |

----

|                                                    |   | ** Years                  ended December 31, ** |   |
|---------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                    |   | **2005**                                                  |   | **2006** |   |
|                                                    |   | **(In                  thousands)**                       |   |
|                                                    |   |                                                      |   |   |   |
| Other                  accrued liabilities - current    |   | $                                                         | 3,000  |   | **$** | **250** |   |
| Other                  accrued liabilities - noncurrent |   |                                                      | 3,921  |   |   | **4,521** |   |
| Liabilities                  subject to compromise      |   |                                                      | 8,491  |   |   | **8,481** |   |
|                                                    |   |                                                      |   |   |   |   |   |
|                                                    |   | $                                                         | 15,412 |   | **$** | **13,252** |   |

**Open        sites at December 31, 2006 that are no longer subject to        compromise**

----

----

**Environmental        liabilities subject to compromise at December 31, 2006**

*Awaiting        adjudication.*

*SWC-related        sites discharged in the Chapter 11 proceedings. *

----

**Note        10 - Other commitments and contingencies:**

**Current        litigation**

**Settled        litigation**

----

**Lease        commitments**

|   |   | **Lease                  commitment** |   |
|--------|--------|---------------------------------------|--------|
|   |   | **(In                  thousands)**   |   |
|   |   |                                  |   |   |
| 2007   |   | $                                     | 497    |   |
| 2008   |   |                                  | 453    |   |
| 2009   |   |                                  | 362    |   |
| 2010   |   |                                  | 86     |   |
| 2011   |   |                                  | 46     |   |
|   |   | $                                     | 1,444  |   |

**Product        supply agreement**

**Concentration        of credit risk**

----

|                                                                                          |   | **  2004  ** |   | **  2005  ** |   | **  2006  ** |   |
|-----------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|----------------------------------|--------|
| Ten                  largest external customers (% of segment’s sales):                 |   |                             |   |                             |   |                             |   |
|    KSW                                                                         |   |                             | 47     | %                                |   | 45                               | %      |   | **47** | **%** |
|    EWP                                                                         |   |                             | 49     | %                                |   | 54                               | %      |   | **56** | **%** |
|    Sherman/KWP                                                                 |   |                             | 28     | %                                |   | 25                               | %      |   | **26** | **%** |
|                                                                                          |   |                             |   |                             |   |                             |   |   |   |   |
| Ten                  largest external customers (%                  of segment’s AR):   |   |                             |   |                             |   |                             |   |   |   |   |
|    KSW                                                                         |   |                             | 51     | %                                |   | 66                               | %      |   | **51** | **%** |
|    EWP                                                                         |   |                             | 40     | %                                |   | 48                               | %      |   | **37** | **%** |
|    Sherman/KWP                                                                 |   |                             | 85     | %                                |   | 75                               | %      |   | **95** | **%** |
|                                                                                          |   |                             |   |                             |   |                             |   |   |   |   |
| Intersegment                  sales (%                  of segment’s sales):            |   |                             |   |                             |   |                             |   |   |   |   |
|    KSW                                                                         |   |                             | 14     | %                                |   | 13                               | %      |   | **9** | **%** |
|    EWP                                                                         |   |                             | -      |                             |   | -                                |   |   | **-** |   |
|    Sherman/KWP                                                                 |   |                             | 62     | %                                |   | 69                               | %      |   | **66** | **%** |
|                                                                                          |   |                             |   |                             |   |                             |   |   |   |   |
| Intersegment                  accounts receivable (%                  of segment’s AR): |   |                             |   |                             |   |                             |   |   |   |   |
|    KSW                                                                         |   |                             | 4      | %                                |   | 5                                | %      |   | **7** | **%** |
|    EWP                                                                         |   |                             | -      |                             |   | -                                |   |   | **-** |   |
|    Sherman/KWP                                                                 |   |                             | 6      | %                                |   | 5                                | %      |   | **-** |   |
|                                                                                          |   |                             |   |                             |   |                             |   |   |   |   |
|                                                                                          |   |                             |   |                             |   |                             |   |   |   |   |
| Single                  external customer (%                  of segment’s sales):      |   |                             |   |                             |   |                             |   |   |   |   |
|    KSW                                                                         |   |                             | -      |                             |   | 11                               | %      |   | **14** | **%** |
|    EWP                                                                         |   |                             | -      |                             |   | 13                               | %      |   | **11** | **%** |
|    Sherman/KWP                                                                 |   |                             | 19     | %                                |   | 16                               | %      |   | **12** | **%** |

**Note        11 - Other accrued liabilities:**

|                                                                    |   | ** ****   December                  31, **** ** |   |
|-------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                                                    |   | **2005**                                                                      |   | **2006** |   |
|                                                                    |   | **(In                  thousands)**                                           |   |
| Current:                                                                |   |                                                                          |   |   |   |   |   |
|   Employee                  benefits                          |   | $                                                                             | 12,085 |   | **$** | **12,220** |   |
|   Self                  insurance                             |   |                                                                          | 4,455  |   |   | **3,986** |   |
|   Pre-petition                  unsecured creditor settlement |   |                                                                          | 1,061  |   |   | **985** |   |
|   Legal                  and professional                     |   |                                                                          | 247    |   |   | **309** |   |
|   Environmental                                               |   |                                                                          | 3,000  |   |   | **250** |   |
|   Income                  taxes                               |   |                                                                          | 939    |   |   | **139** |   |
|   Reorganization                  costs                       |   |                                                                          | 3,057  |   |   | **14** |   |
|   Other                                                       |   |                                                                          | 2,780  |   |   | **2,676** |   |
|                                                                    |   |                                                                          |   |   |   |   |   |
|                                                                    |   | $                                                                             | 27,624 |   | **$** | **20,579** |   |
| Noncurrent:                                                             |   |                                                                          |   |   |   |   |   |
|   Environmental                                               |   | $                                                                             | 3,921  |   | **$** | **4,521** |   |
|   Workers                  compensation payments              |   |                                                                          | 1,595  |   |   | **1,785** |   |
|   Other                                                       |   |                                                                          | 61     |   |   | **108** |   |
|                                                                    |   |                                                                          |   |   |   |   |   |
|                                                                    |   | $                                                                             | 5,577  |   | **$** | **6,414** |   |

----

**Note        12 - Earnings per share:**

|                                                                                                        |   | ** **** Years                  ended December 31,  ** |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                                                                                        |   | **2004**                                                                  |   | **2005** |   | **2006** |   |
|                                                                                                        |   | **(In                  thousands)**                                       |   |
|                                                                                                        |   |                                                                      |   |   |   |   |   |
| Numerator:                                                                                                  |   |                                                                      |   |   |   |   |   |   |   |   |
|   Net                  income                                                                     |   | $                                                                         | 16,060 |   | $ | 39,232 |   | **$** | **57,732** |   |
|                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |
|   Cancellation                  of Series A Preferred Stock                                       |   |                                                                      | -      |   |   | 2,112 |   |   | **-** |   |
|   Less                  Series A Preferred Stock                                                  |   |                                                                      |   |   |   |   |   |   |   |   |
|    dividends                                                                                 |   |                                                                      | (1,223 | ) |   | - |   |   | **-** |   |
|   Basic                  net income                                                               |   |                                                                      | 14,837 |   |   | 41,344 |   |   | **57,732** |   |
|   Series                  A Preferred Stock dividends                                             |   |                                                                      | 1,223  |   |   | - |   |   | **-** |   |
|                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |
|   Diluted                  net income                                                             |   | $                                                                         | 16,060 |   | $ | 41,344 |   | **$** | **57,732** |   |
|                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                |   |                                                                      |   |   |   |   |   |   |   |   |
|   Average                  common shares outstanding                                              |   |                                                                      | 10,068 |   |   | 10,046 |   |   | **10,000** |   |
|   Dilutive                  effect of Series A    Preferred                  Stock |   |                                                                      | 17,975 |   |   | 11,983 |   |   | **-** |   |
|                                                                                                        |   |                                                                      |   |   |   |   |   |   |   |   |
|   Diluted                  shares                                                                 |   |                                                                      | 28,043 |   |   | 22,029 |   |   | **10,000** |   |

**Note        13 - Related party transactions:**

----

----

**Note        14 - Recent Accounting Pronouncements:**

*Inventory        Costs. *
** **
*Inventory        Costs, an amendment of ARB No. 43, Chapter 4,*

*Planned        Major Maintenance Activities. *
** **
*Accounting        for Planned Major Maintenance Activities*

*Pension        and Other Postretirement Plans. *
*Employers’        Accounting for Defined Benefit Pension and Other Postretirement        Plans*

----

*Quantifying        Financial Statement Misstatements*

*Fair        Value Measurements*
**.        **
*Fair        Value Measurements*

*Uncertain        Tax Positions*
**.        **
*Accounting        for Uncertain Tax Positions, *
*Accounting        for Income Taxes, *
*.*

----

*Fair        Value Option. *
*The        Fair Value Option for Financial Assets and Financial        Liabilities*

**Note        15 - Quarterly financial data (unaudited):**

|                                                                                                                   |   | **March                  31,**                             |    | **June                  30,** |   | **September                  30,** |   | **December                  31,** |    |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|-------------------------------|--------|------------------------------------|--------|-----------------------------------|---------|
|                                                                                                                   |   | **(In                  thousands, except per share data)** |    |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |
| Year                  ended December 31, 2005:                                                                         |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Net                  sales                                                                                 |   | $                                                          | 89,537  |                          | $      | 88,992                             |   | $                                 | 84,770  |   | $ | 104,246 |   |
|   Gross                  profit                                                                              |   |                                                       | 9,390   |                          |   | 6,239                              |   |                              | 10,948  |   |   | 11,379 |   |
|   Reorganization                  costs                                                                      |   |                                                       | 3,294   |                          |   | 2,687                              |   |                              | 4,342   |   |   | (15 | ) |
|   Gain                  on cancellation of debt                                                              |   |                                                       | -       |                          |   | -                                  |   |                              | 32,349  |   |   | 161 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Net                  income (loss)                                                                         |   | $                                                          | (852    | )                             | $      | (3,289                             | )      | $                                 | 34,152  |   | $ | 9,221 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Basic                  net income (loss)  per                  share available for common shares |   | $                                                          | (.09    | )                             | $      | (.33                               | )      | $                                 | 3.61    |   | $ | .92 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Diluted                  net income (loss) per share available                  for common shares     |   | $                                                          | (.09    | )                             | $      | (.33                               | )      | $                                 | 1.65    |   | $ | .92 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
| Year                  ended December 31, 2006:                                                                         |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Net                  sales                                                                                 |   | $                                                          | 119,115 |                          | $      | 129,095                            |   | $                                 | 105,212 |   | $ | 87,118 |   |
|   Gross                  profit                                                                              |   |                                                       | 14,083  |                          |   | 8,791                              |   |                              | 8,337   |   |   | 3,610 |   |
|   Reorganization                  costs                                                                      |   |                                                       | 150     |                          |   | 186                                |   |                              | 270     |   |   | 73 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Net                  income                                                                                |   | $                                                          | 22,236  |                          | $      | 13,417                             |   | $                                 | 9,456   |   | $ | 12,623 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Basic                  net income per share                                                                |   | $                                                          | 2.22    |                          | $      | 1.34                               |   | $                                 | .95     |   | $ | 1.26 |   |
|                                                                                                                   |   |                                                       |    |                          |   |                               |   |                              |    |   |   |   |   |
|   Diluted                  net income per share                                                              |   | $                                                          | 2.22    |                          | $      | 1.34                               |   | $                                 | .95     |   | $ | 1.26 |   |

----

|                                 |   | **Previously                  Reported****Gross Profit** |   | **Adoption                  of FSP No.****AUG                  AIR-1** |   |  **OPEB****Reclass** |   | **Currently                  Reported****Gross Profit** |   |
|--------------------------------------|--------|----------------------------------------------------------|--------|------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------------------------------------|--------|
|                                 |   | **(In                  thousands)**                      |   |
|                                 |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |
| 2005                  Quarter Ended: |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |   |   |   |   |
|                                 |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |   |   |   |   |
| March                  31            |   | $                                                        | 5,055  |                                                                   | $      | 424                       |   | $                                                       | 3,911  |   | $ | 9,390 |   |
| June                  30             |   |                                                     | 1,958  |                                                                   |   | 370                       |   |                                                    | 3,911  |   |   | 6,239 |   |
| September                  30        |   |                                                     | 8,916  |                                                                   |   | 48                        |   |                                                    | 1,984  |   |   | 10,948 |   |
| December                  31         |   |                                                     | 14,075 |                                                                   |   | (842                      | )      |                                                    | (1,854 | ) |   | 11,379 |   |
|                                 |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |   |   |   |   |
| 2006                  Quarter Ended: |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |   |   |   |   |
|                                 |   |                                                     |   |                                                                   |   |                      |   |                                                    |   |   |   |   |   |
| March                  31            |   | $                                                        | 15,026 |                                                                   | $      | 507                       |   | $                                                       | (1,450 | ) | $ | 14,083 |   |
| June                  30             |   |                                                     | 9,287  |                                                                   |   | 954                       |   |                                                    | (1,450 | ) |   | 8,791 |   |
| September                  30        |   |                                                     | 9,195  |                                                                   |   | 592                       |   |                                                    | (1,450 | ) |   | 8,337 |   |

|                            |   | **Increase                  (decrease)****   in                  net income   ** |   | **Increase                  (decrease) in net**** income                  per basic share** |   |
|---------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|                            |   | **2005**                                                                                                       |   | **2006**                                                                                         |   | **2005** |   | **2006** |   |
|                            |   | **(In                  thousands)**                                                                            |   |                                                                                             |   |   |   |
|                            |   |                                                                                                           |   |                                                                                             |   |   |   |   |   |
| Quarter                  Ended: |   |                                                                                                           |   |                                                                                             |   |   |   |   |   |   |   |   |   |
|                            |   |                                                                                                           |   |                                                                                             |   |   |   |   |   |   |   |   |   |
| March                  31       |   | $                                                                                                              | 424    |                                                                                             | $      | 507 |   | $ | .04 |   | $ | .05 |   |
| June                  30        |   |                                                                                                           | 370    |                                                                                             |   | 387 |   |   | .04 |   |   | .04 |   |
| September                  30   |   |                                                                                                           | 48     |                                                                                             |   | 362 |   |   | - |   |   | .04 |   |
| December                  31    |   |                                                                                                           | (842   | )                                                                                                |   | - |   |   | (.08 | ) |   | - |   |
|                            |   |                                                                                                           |   |                                                                                             |   |   |   |   |   |   |   |   |   |

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**Note        16 - Subsequent Events:**

----