SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

 X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---        ACT OF 1934 - For the fiscal year ended December 31, 2003

Commission file number      1-3919

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

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

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

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

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

         None.

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


              Title of each class
      ---------------------------------
         Common Stock, $1 par value

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.  Yes           No  X

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes   No   X

Indicate by a check mark whether the  Registrant  is a shell company (as defined
in Rule 12b.2 of the Exchange Act). Yes   No X

The  aggregate  market  value of the  5,077,832  shares of voting  stock held by
nonaffiliates  of the Registrant,  as of June 27, 2003 (the last business day of
the  Registrant's   most-recently   completed   second  fiscal   quarter),   was
approximately $1.9 million.

As of November 28, 2005 10,000,000 shares of common stock were outstanding.

                       Documents incorporated by reference

None.


<PAGE>

                                     PART I

ITEM 1. BUSINESS.

Bankruptcy

     On February 26, 2004, Keystone Consolidated Industries, Inc. ("Keystone" or
the  "Company")  and five of its  direct  and  indirect  subsidiaries  filed for
voluntary  protection under Chapter 11 of the Federal Bankruptcy Code.  Keystone
and its filing  subsidiaries filed their petitions in the U.S.  Bankruptcy Court
for the Eastern District of Wisconsin in Milwaukee (the "Court"). The Company is
managing  its  business  as a  debtor-in-possession  subject to  approval by the
Court.  Keystone  attributed  the need to  reorganize  to  weaknesses in product
selling prices over the last several years,  unprecedented  increases in ferrous
scrap costs, Keystone's primary raw material, and significant liquidity needs to
service employee and retiree medical costs. These problems substantially limited
Keystone's  liquidity and  undermined its ability to obtain  sufficient  debt or
equity capital to operate as a going concern.

     Under  Chapter 11  proceedings,  actions by creditors to collect  claims in
existence at the filing date ("Pre-petition Claims") are stayed, absent specific
authorization  from the Court to pay such claims  while the Company  manages the
business as a debtor-in-possession. Keystone received approval from the Court to
pay  certain  of its  pre-petition  liabilities,  including  employee  wages and
certain employee benefits.

     Keystone filed a plan of reorganization on October 4, 2004 and amended that
plan on May 26, 2005, June 21, 2005 and June 27, 2005.  Keystone's  amended plan
of reorganization  was accepted by the impacted  constituencies and confirmed by
the Court on August 10, 2005. The Company emerged from bankruptcy  protection on
August  31,  2005.   Significant   provisions  of  Keystone's  amended  plan  of
reorganization included, among other things:
     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries,  will be sold at fair market  value to  Keystone,  which
          will  then be used to form and  operate a newly  created  wholly-owned
          subsidiary of reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

     In addition,  Keystone has obtained an $80 million  secured credit facility
from Wachovia Capital Finance (Central). Proceeds from this credit facility were
used to extinguish  Keystone's existing  Debtor-In-Possession  credit facilities
and to provide  working  capital for  reorganized  Keystone.  See Note 19 to the
Consolidated Financial Statements.

     Unless otherwise  indicated or required by applicable rules or regulations,
the information  contained in this Form 10-K is as of December 31, 2003, and has
not been updated for events occurring after such date.


General

     Keystone believes it is a leading domestic manufacturer of steel fabricated
wire  products,  nails,  industrial  wire  and  wire  rod for the  agricultural,
industrial,  construction,  original equipment  manufacturer and retail consumer
markets, and believes it is one of the largest  manufacturers of fabricated wire
products and nails in the United  States based on tons shipped  (254,000 tons in
2003). Keystone is vertically  integrated,  converting  substantially all of its
fabricated  wire products,  nails and industrial  wire from wire rod produced in
its steel mini-mill. The Company's vertical integration has historically allowed
it to benefit from the higher and more stable margins associated with fabricated
wire products as compared to wire rod, as well as from lower production costs of
wire rod as compared to wire  fabricators  which  purchase  wire rod in the open
market.  Moreover,  management  believes Keystone's  downstream  fabricated wire
products,  nails and  industrial  wire  businesses  better  insulate it from the
effects of wire rod imports as compared to non-integrated wire rod producers. In
2003,  Keystone  had net  sales  of  $306.7  million.  Approximately  69% of the
Company's net sales were generated from sales of fabricated wire products, nails
and industrial wire with the balance generated  primarily from sales of wire rod
not used in Keystone's downstream operations.

     The Company's fabricated wire products, which comprised 46% of its 2003 net
sales, include agricultural fencing,  barbed wire, hardware cloth and welded and
woven  wire  mesh.  These  products  are  sold  to  agricultural,  construction,
industrial,  consumer do-it-yourself and other end-user markets. Keystone serves
these markets  through  distributors,  agricultural  retailers,  building supply
centers and consumer  do-it-yourself  chains such as Tractor Supply Co.,  Lowe's
Companies, Inc., and Ace Hardware Corporation. A significant proportion of these
products are sold to agricultural,  consumer  do-it-yourself  and other end-user
markets  which in  management's  opinion are  typically  less cyclical than many
steel consuming end-use markets such as the automotive,  construction, appliance
and  machinery  manufacturing  industries.  Management  believes  the  Company's
ability to service these customers with a wide range of fabricated wire products
through multiple production and distribution locations provides it a competitive
advantage in accessing these growing and less cyclical markets.

     Keystone   sells  bulk  and  packaged  nails   primarily  to   construction
contractors and building product  manufacturers  and  distributors.  The Company
sells  approximately  63% of its nails  through  PrimeSource,  Inc.,  one of the
largest nail distributors in the United States, under PrimeSource's Grip-Rite(R)
label. During 2003, nails accounted for approximately 10% of Company net sales.

     Approximately  60% of Keystone's net sales of fabricated  wire products and
nails are generated by sales under the RED BRAND trademark,  a widely recognized
brand name in the agricultural  fencing and  construction  marketplaces for more
than 75 years.

     The Company also sells industrial wire, an intermediate product used in the
manufacture of fabricated wire products,  to third parties who are generally not
competitors.  Keystone's  industrial  wire customers  include  manufacturers  of
nails,  coat hangers,  barbecue grills,  air  conditioners,  tools,  containers,
refrigerators  and  other  appliances.  In 2003,  net sales of  industrial  wire
accounted for 13% of Company net sales. In addition,  Keystone also sells carbon
steel rod into the open market which it is not able to consume in its downstream
fabricated  wire products,  nails and industrial wire  operations.  During 2003,
open market sales of wire rod accounted for 26% of Company net sales.

     Prior to July 2003,  the  Company  owned a 51%  interest in Garden Zone LLC
("Garden  Zone"),  a  distributor  of wire,  plastic  and wood  lawn and  garden
products to  retailers.  In July 2003,  Garden  Zone  purchased  Keystone's  51%
ownership in Garden Zone.  During 2003, sales by Garden Zone accounted for 4% of
Company net sales.  In addition,  Keystone is engaged in ferrous scrap recycling
through its  unconsolidated  50%  interest in Alter  Recycling  Company,  L.L.C.
("ARC"). See Note 2 to the Consolidated Financial Statements.

     See "Business -- Products, Markets and Distributions" and Notes 2 and 12 to
the Consolidated Financial Statements.

     The Company's annual billet production capacity is 1 million tons. However,
since  Keystone's  rod  production is constrained by the 800,000 ton capacity of
its rod mill, the Company  anticipates any excess billet production will be sold
externally.

     The Company is the successor to Keystone  Steel & Wire  Company,  which was
founded in 1889. Contran  Corporation  ("Contran") and other entities controlled
by Mr. Harold C. Simmons  beneficially  own  approximately  50% of the Company's
voting stock at December 31, 2003.  Substantially  all of Contran's  outstanding
voting stock is held by trusts  established for the benefit of certain  children
and  grandchildren of Mr. Simmons,  of which Mr. Simmons is sole trustee,  or is
held by Mr.  Simmons  or  persons  or other  entities  related  to Mr.  Simmons.
Keystone may be deemed to be controlled by Contran and Mr. Simmons. Contran also
owns 54,956  shares of the 71,899 shares of the  Company's  Redeemable  Series A
Preferred Stock.  Each share of Series A Preferred Stock is convertible,  at the
option of the holder,  into 250 shares of the Company's common stock (equivalent
to a $4.00 per share exchange rate). See Note 19 to the  Consolidated  Financial
Statements.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Annual  Report on Form 10-K  relating to matters that are not  historical  facts
including,  but not limited to,  statements  found in this Item 1 -  "Business",
Item 3 - "Legal Proceedings",  Item 7 - "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations",  and Item 7A - "Quantitative and
Qualitative Disclosures About Market Risk", are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes",   "intends",  "may",  "should",  "could",   "anticipates",
"expected",  or  comparable  terminology,  or by  discussions  of  strategies or
trends.   Although  Keystone   believes  the  expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  substantial  risks and  uncertainties  that could  significantly  mpact
expected  results,  and actual future results could differ materially from those
described  in such  forward-looking  statements.  While  it is not  possible  to
identify all factors,  Keystone  continues to face many risks and uncertainties.
Among the factors that could cause actual  future  results to differ  materially
are the  risks and  uncertainties  discussed  in this  Annual  Report  and those
described  from time to time in the Company's  other filings with the Securities
and Exchange Commission (the "SEC"), including, but not limited to:

     o    Future  supply  and  demand  for  the  Company's  products  (including
          cyclicality thereof),
     o    Customer inventory levels,
     o    Changes in raw  material  and other  operating  costs (such as ferrous
          scrap and energy),
     o    The possibility of labor disruptions,
     o    General global economic and political conditions,
     o    Competitive products and substitute products,
     o    Customer and competitor strategies,
     o    The impact of pricing and production decisions,
     o    Environmental  matters (such as those requiring emission and discharge
          standards for existing and new facilities),
     o    Government regulations and possible changes therein,
     o    Significant  increases  in the cost of providing  medical  coverage to
          employees and retirees,
     o    The ultimate resolution of pending litigation,
     o    International  trade policies of the United States and certain foreign
          countries,
     o    Operating  interruptions   (including,   but  not  limited  to,  labor
          disputes,  fires,  explosions,  unscheduled or unplanned  downtime and
          transportation interruptions),
     o    The ability of the Company to renew or refinance credit facilities,
     o    Any possible future litigation, and
     o    Other risks and  uncertainties  as  discussed  in this Annual  Report,
          including, without limitation, the sections referenced above.

Should one or more of these risks  materialize  (or the  consequences  of such a
development  worsen),  or should the  underlying  assumptions  prove  incorrect,
actual  results  could  differ  materially  from those  forecasted  or expected.
Keystone  disclaims  any  intention  or  obligation  to  update  or  revise  any
forward-looking statement whether as a result of new information,  future events
or otherwise.

Manufacturing

     The Company's  manufacturing  operations consist of an electric arc furnace
mini-mill,  a rod mill and three wire and wire product  fabrication  facilities.
The  manufacturing  process  commences at the  Company's  Keystone  Steel & Wire
("KSW")  facility in Peoria,  Illinois  with ferrous  scrap being loaded into an
electric  arc  furnace  where  it  is  converted  into  molten  steel  and  then
transferred to a ladle refining  furnace where  chemistries and temperatures are
monitored and adjusted to specifications  prior to casting. The Company believes
it is one of the largest  recyclers  of ferrous  scrap in the State of Illinois.
The  molten  steel  is  transferred  from  the  ladle  refining  furnace  into a
six-strand  continuous  casting machine which produces  five-inch square strands
referred to as billets that are cut to  predetermined  lengths.  These  billets,
along with any billets  purchased,  if any,  from  outside  suppliers,  are then
transferred to the adjoining rod mill.

     Upon entering the rod mill, the billets are brought to rolling  temperature
in a reheat furnace and are fed to the rolling mill,  where they are finished to
a variety of diameters and specifications. After rolling, the wire rod is coiled
and  cooled.  After  cooling,  the  coiled  wire rod passes  through  inspection
stations for  metallurgical,  surface and diameter  checks.  Finished  coils are
compacted and tied, and either transferred to the Company's other facilities for
processing into industrial  wire,  nails and fabricated wire products or shipped
to wire rod customers.

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

Products, Markets and Distribution

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

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                      2001                        2002                        2003
                                ----------------            ----------------           -----------
                                  Percent       Percent       Percent       Percent      Percent       Percent
                                  of Tons          Of         of Tons         of         of Tons          of
           Product                Shipped        Sales        Shipped        Sales       Shipped        Sales
      -----------------           -------        -----        -------        -----       -------        -----

Fabricated wire
<S>                                <C>           <C>           <C>           <C>          <C>           <C>
  products                         31.0%         46.5%         31.2%         46.0%        32.7%         48.0%
Nails                              11.2          13.9          11.0          13.5          8.6          10.0
Industrial wire                    14.2          13.6          14.3          13.3         14.9          14.0
Wire rod                           43.6          26.0          42.7          27.0         41.0          26.8
Billets                             -             -              .8            .2          2.8           1.2
                                  -----         -----         -----         -----        -----         -----
                                  100.0%        100.0%        100.0%        100.0%       100.0%        100.0%
                                  =====         =====         =====         =====        =====         =====
</TABLE>


     Fabricated Wire Products.  Keystone is one of the leading  suppliers in the
United  States of  agricultural  fencing,  barbed  wire,  stockade  panels and a
variety  of welded and woven wire mesh,  fabric and  netting  for  agricultural,
construction and industrial applications. The Company produces these products at
KSW and at its Sherman Wire ("Sherman") facilities,  in Sherman, Texas. Prior to
July 2003,  the Company  also  manufactured  these  products at its  facility in
Caldwell,  Texas. During July 2003,  Keystone  transferred the operations at the
Caldwell  facility to KSW and Sherman and  discontinued  operations in Caldwell.
The Company's  fabricated wire products are distributed by Keystone through farm
supply distributors,  agricultural retailers,  building supply centers, building
and industrial materials distributors and consumer do-it-yourself chains such as
Tractor Supply Co., Lowe's Companies,  Inc., and Ace Hardware Corporation.  Many
of the  Company's  fencing and related  wire  products  are  marketed  under the
Company's RED BRAND label,  a recognized  trademark of Keystone for more than 75
years.  As  part  of  its  marketing  strategy,   Keystone  designs  merchandise
packaging,  and  supportive  product  literature  for  marketing  many of  these
products to the retail consumer market.  Keystone also manufactures products for
residential  and  commercial  construction,  including  rebar  ty  wire,  stucco
netting,  welded wire mesh,  forms and  reinforcing  building  fabric at KSW and
Sherman,  and at its Engineered Wire Products,  Inc. ("EWP") subsidiary in Upper
Sandusky,  Ohio.  The primary  customers  for these  products  are  construction
contractors and building materials  manufacturers and distributors.  EWP was not
one of the  Company's  subsidiaries  that filed for Chapter 11 on  February  26,
2004.

     Keystone  believes its fabricated wire products are less susceptible to the
cyclical  nature of the steel business than nails,  industrial  wire or wire rod
because  the  commodity-priced  raw  materials  used in such  products,  such as
ferrous  scrap,  represent  a  lower  percentage  of  the  total  cost  of  such
value-added  products  when  compared  to wire  rod or  other  less  value-added
products.

     Nails.  Keystone  manufacturers  bulk and  packaged  nails at KSW and sells
these nails primarily to construction  contractors,  building  manufacturers and
distributors  and  do-it-yourself  retailers.  During  2003,  the  Company  sold
approximately  63% of its nails through  PrimeSource,  Inc.,  one of the largest
nail distributors in the United States, under PrimesSource's Grip-Rite(R) label.
Prior to August 2003, the Company also  manufactured  and  distributed  collated
nails at its Keystone  Fasteners  division in  Springdale,  Arkansas.  In August
2003, the Company sold the Keystone  Fasteners  division and exited the collated
nails business.

     Industrial Wire. Keystone is one of the largest manufacturers of industrial
wire in the United States. At KSW and Sherman the Company produces  custom-drawn
industrial  wire in a variety of  gauges,  finishes  and  packages  for  further
consumption  by Keystone's  fabricated  wire products  operations or for sale to
industrial fabrication and original equipment manufacturer  customers.  Prior to
July 2003,  the Company  also  manufactured  these  products at its  facility in
Caldwell,  Texas. During July 2003,  Keystone  transferred the operations at the
Caldwell  facility to KSW and Sherman and  discontinued  operations in Caldwell.
The Company's  industrial wire is used by customers in the production of a broad
range of finished goods,  including nails,  coat hangers,  barbecue grills,  air
conditioners, tools, containers,  refrigerators and other appliances. Management
believes  that with a few  exceptions,  its  industrial  wire  customers  do not
generally compete with Keystone.

     Wire Rod.  Keystone  produces  primarily low carbon steel wire rod at KSW's
rod mill. Low carbon steel wire rod, with carbon content of up to 0.38%, is more
easily  shaped and formed  than higher  carbon  wire rod and is  suitable  for a
variety of applications  where ease of forming is a  consideration.  High carbon
steel wire rod,  with carbon  content of up to 0.65%,  is used for high  tensile
wire applications as well as for furniture and bedding springs. Although Sherman
and  EWP  on  occasion  buy  wire  rod  from  outside  suppliers,  during  2003,
approximately  55%  of  the  wire  rod  manufactured  by the  Company  was  used
internally to produce  industrial wire, nails and fabricated wire products.  The
remainder of Keystone's  wire rod  production  was sold directly to producers of
construction  products,  fabricated wire products and industrial wire, including
products similar to those manufactured by the Company.

     Billets.  KSW's  annual  billet  production  capacity  is 1  million  tons.
However,  since KSW's rod  production is constrained by the 800,000 ton capacity
of its rod  mill,  periodic  excess  billet  production  is sold  externally  to
producers of products  manufactured  from low carbon steel.  Keystone sold 5,000
and 17,000 tons of excess  billets in 2002 and 2003,  respectively.  The company
did not sell any excess billets during 2001.

     Business Dispositions. Prior to July 2003, the Company owned a 51% interest
in Garden Zone. In July 2003, Garden Zone purchased  Keystone's 51% ownership in
Garden  Zone  for  approximately  $1.1  million.  Keystone  recorded  a gain  of
approximately  $800,000 as a result of the sale.  Garden Zone's  revenues during
2001,  2002 and 2003 were  approximately  $8.0  million,  $9.5 million and $11.2
million,  respectively.  Garden  Zone  recorded  operating  profit of  $200,000,
$100,000 and $700,000 in 2001, 2002 and 2003, respectively.

     Prior to August 2003, the Company  manufactured  and  distributed  collated
nails at Keystone  Fasteners.  In August  2003,  the Company  sold the  Keystone
Fasteners division to a third party for approximately $2.2 million.  The Company
recorded  a gain of  approximately  $300,000  as a result of the sale.  Keystone
Fasteners' revenues during 2001, 2002 and 2003 approximated $14.5 million, $14.7
million and $7.3 million, respectively. Keystone Fasteners recorded an operating
loss of  $400,000  and  $900,000  during 2001 and 2003,  respectively.  Keystone
Fasteners recorded $100,000 of operating profit during 2002.

Industry and Competition

     The  fabricated  wire  products,   nails,  industrial  wire  and  wire  rod
businesses  in the  United  States  are  highly  competitive  and are  comprised
primarily of several large mini-mill wire rod producers,  many small independent
wire companies and a few large diversified wire producers.  Keystone's principal
competitors in the fabricated  wire products,  nails and industrial wire markets
are  Leggett  and  Platt,  Deacero,   Merchants  Metals,  Inc.  and  Davis  Wire
Corporation.  Competition in the fabricated wire products,  nails and industrial
wire  markets  is  based  on  a  variety  of  factors,   including  channels  of
distribution,  price, delivery performance,  product quality, service, and brand
name  preference.  Since  wire  rod is a  commodity  steel  product,  management
believes the domestic wire rod market is more  competitive  than the  fabricated
wire  products,  nails and  industrial  wire  markets,  and price is the primary
competitive factor. Among Keystone's principal domestic wire rod competitors are
Gerdau Ameristeel and Rocky Mountain Steel.

     The Company also competes with many small  independent  wire  companies who
purchase rod from domestic and foreign sources. Due to the breadth of Keystone's
fabricated wire products,  nails and industrial  wire offerings,  its ability to
service diverse geographic and product markets, and the low relative cost of its
internal  supply of wire rod,  the  Company  believes it is well  positioned  to
compete effectively with  non-diversified wire rod producers and wire companies.
Foreign steel and  industrial  wire  producers also compete with the Company and
other domestic producers.

     The domestic steel wire rod industry continues to experience consolidation.
During  the  last  five  years,   the  majority  of  Keystone's  major  domestic
competitors have either filed for protection  under federal  bankruptcy laws and
discontinued operations or reduced or completely shut-down their operations. The
Company  believes  these  shut-downs  or  production  curtailments  represent  a
significant  decrease in estimated  domestic annual wire rod capacity.  However,
worldwide  overcapacity in the steel industry  continues to exist and imports of
wire rod and certain  fabricated  wire  products in recent years have  increased
significantly.  In an effort to stem increasing  levels of imported wire rod, in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the domestic market), and a labor union petitioned the U.S. International
Trade  Commission  (the "ITC") seeking relief under Section 201 of the Trade Act
of 1974. In February 2000,  President Clinton announced the  implementation of a
Tariff-Rate  Quota  ("TRQ").  The tariff was  imposed on wire rod  imports  from
countries  subject to the TRQ once imports initially exceed 1.6 million net tons
in 2000 and 2001 and 1.7 million net tons in 2002 and 2003.  The tariff rate was
10% in 2000,  7.5% in 2001 and 5% in 2002. The Company does not believe the TRQ,
which expired in March 2003,  had a major impact on the domestic wire rod market
and high levels of imported rod continue.

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



<PAGE>


Raw Materials and Energy

     The primary raw material  used in Keystone's  operations is ferrous  scrap.
The Company's  steel mill is located  close to numerous  sources of high density
automobile,  industrial and railroad  ferrous scrap,  all of which are currently
available.  The purchase of ferrous  scrap is highly  competitive  and its price
volatility is influenced by periodic shortages,  export activity, freight costs,
weather,  and other  conditions  beyond the control of the Company.  The cost of
ferrous  scrap can fluctuate  significantly  and product  selling  prices cannot
always be  adjusted,  especially  in the  short-term,  to  recover  the costs of
increases  in  ferrous  scrap  prices.  The  Company  has not  entered  into any
long-term contracts for the purchase or supply of ferrous scrap and Keystone is,
therefore,  subject to the price fluctuation of ferrous scrap. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     Keystone's  manufacturing  processes consume large amounts of energy in the
form of electricity and natural gas. The Company purchases electrical energy for
its Peoria,  Illinois  facility  from a utility under an  interruptible  service
contract which  provides for more  economical  electricity  rates but allows the
utility  to  refuse  or  interrupt   power  to   Keystone's   Peoria,   Illinois
manufacturing  facilities.  This utility has in the past, and may in the future,
refuse or interrupt service to the Company resulting in decreased production and
increased costs associated with the related downtime.  In addition,  in the past
the utility has had the right to pass through  certain of its costs to consumers
through fuel adjustment charges.  However,  the Company's current agreement with
the utility does not provide for such fuel adjustment  charges.  During the 1999
third  quarter,  Keystone  recorded  a $2.2  million  charge  as a result  of an
unexpected fuel adjustment  charge received from the Peoria plant's  electricity
provider.  The $2.2 million charge was paid during 2000,  although  during 2001,
the Company received a $1.7 million credit on the 1999 fuel adjustment charge.

Trademarks

     The  Company has  registered  the  trademark  RED BRAND for field fence and
related products.  Adopted by Keystone in 1924, the RED BRAND trademark has been
widely advertised and enjoys high levels of market recognition. The Company also
maintains  other  trademarks  for various  products  which have been promoted in
their respective markets.


Employment

     As of December 31, 2003,  Keystone employed  approximately 1,300 people, of
whom  approximately  900  are  represented  by the  Independent  Steel  Workers'
Alliance ("ISWA") at KSW,  approximately 70 are represented by the International
Association  of  Machinists  and  Aerospace  Workers  (Local 1570)  ("IAMAW") at
Sherman and approximately 60 are represented by Local Union #40, An Affiliate to
the International  Brotherhood of Teamsters' Chauffeurs Warehousemen and Helpers
of  America,  AFL-CIO  ("IBTCWHA")  at EWP.  The current  collective  bargaining
agreements  with the ISWA,  IAMAW and IBTCWHA expire in May 2006,  October 2005,
and November 2006, respectively.  The Company believes its relationship with its
employees  are good.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations."

Customers

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

     A listing of end-user markets by products follows:

Product                      Principal Markets Served

Fencing products           Agricultural, construction, do-it-yourself retailers
Wire mesh products         Agricultural, construction
Nails                      Construction, do-it-yourself retailers
Industrial wire            Producers of fabricated wire products
Wire rod                   Producers of industrial wire and
                            fabricated wire products
Billets                    Producers of products manufactured from low carbon
                            steel
Lawn and garden products   Do-it-yourself retailers

     Keystone's industrial wire customers include manufacturers and producers of
nails,  coat hangers,  barbecue grills,  air  conditioners,  tools,  containers,
refrigerators  and other  appliances.  With few exceptions,  these customers are
generally not in  competition  with the Company.  Keystone's  wire rod customers
include other  downstream  industrial  wire,  nail and fabricated  wire products
companies  including  manufacturers of products similar to those manufactured by
the Company.

     The Company's ten largest customers represented  approximately 33%, 37% and
35% of  Keystone's  net sales in 2001,  2002 and 2003,  respectively.  No single
customer  accounted  for more than 9% of the  Company's net sales during each of
2001, 2002 or 2003. Keystone's fabricated wire products,  nails, industrial wire
and rod business is not dependent upon a single customer or a few customers, the
loss of any one, or a few, of which would have a material  adverse effect on its
business.

Backlog

     The Company's  backlog of unfilled  cancelable  fabricated  wire  products,
nails,  industrial wire and rod purchase orders,  for delivery  generally within
three  months,  approximated  $22  million at both  December  31, 2002 and 2003.
Keystone believes backlog is not a significant  factor in its business,  and all
of the backlog at December 31, 2003 was shipped during 2004.

Environmental Matters

     Keystone's production facilities are affected by a variety of environmental
laws and regulations, including laws governing the discharge of water pollutants
and air contaminants,  the generation,  transportation,  storage,  treatment and
disposal of solid  wastes and  hazardous  substances  and the  handling of toxic
substances, including certain substances used in, or generated by, the Company's
manufacturing operations.  Many of these laws and regulations require permits to
operate the facilities to which they pertain. Denial, revocation,  suspension or
expiration of such permits could impair the ability of the affected  facility to
continue operations.

     The Company records  liabilities  related to  environmental  issues at such
time as information  becomes available and is sufficient to support a reasonable
estimate of a range of probable  loss. If Keystone is unable to determine that a
single amount in an estimated  range is more likely,  the minimum  amount of the
range is recorded.  Costs of future  expenditures for environmental  remediation
obligations   are  not  discounted  to  their  present   value.   Recoveries  of
environmental  remediation  costs from other parties are recorded as assets when
their receipt is deemed probable.

     Keystone  believes  its  current  operating   facilities  are  in  material
compliance  with  all  presently  applicable  federal,   state  and  local  laws
regulating  the  discharge  of  materials  into the  environment,  or  otherwise
relating to the protection of the  environment.  Environmental  legislation  and
regulations  have changed rapidly in recent years and the Company may be subject
to increasingly stringent environmental standards in the future.

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

Acquisition and Restructuring Activities

     The Company  routinely  compares  its  liquidity  requirements  against its
estimated future cash flows. As a result of this process, the Company has in the
past  and may in the  future  seek to raise  additional  capital,  refinance  or
restructure  indebtedness,  consider  the  sale of  interests  in  subsidiaries,
business  units or other assets,  or take a  combination  of such steps or other
steps, to increase  liquidity,  reduce  indebtedness and fund future activities.
Such  activities  have  in  the  past  and  may in the  future  involve  related
companies. From time to time, the Company and related entities also evaluate the
restructuring  of  ownership   interests  among  its  subsidiaries  and  related
companies  and  expects  to  continue  this  activity  in the  future and may in
connection with such activities,  consider issuing  additional equity securities
and increasing the indebtedness of the Company or its subsidiaries.

Website and Availability of Company Reports Filed with the SEC

     The Company does not maintain a website on the  internet.  The Company will
provide  without  charge  copies of this Annual Report on Form 10-K for the year
ended December 31, 2003, any copies of the Company's  Quarterly  Reports on Form
10-Q for 2003 and any  Current  Reports  on Form 8-K for 2003 and 2004,  and any
amendments  thereto, as soon as they are filed with the SEC upon written request
to the  Company.  Such  requests  should be  directed  to the  attention  of the
Corporate  Secretary  at the  Company's  address  on the cover page of this Form
10-K.

     The general  public may read and copy any  materials the Company files with
the SEC at the SEC's Public Reference Room at 450 Fifth Street,  NW, Washington,
DC 20549,  and may obtain  information on the operation of the Public  Reference
Room by calling the SEC at  1-800-SEC-0330.  The Company is an electronic filer,
and the SEC maintains an Internet website at www.sec.gov that contains  reports,
proxy and information  statements,  and other information regarding issuers that
file electronically with the SEC, including the Company.


<PAGE>


ITEM 2. PROPERTIES.

     The  Company's  principal  executive  offices are located in  approximately
1,200 square feet of leased space at 5430 LBJ Freeway, Suite 1740, Dallas, Texas
75240-2697.

     Keystone's   fabricated  wire  products,   industrial  wire  and  wire  rod
production   facilities  utilize  approximately  2.4  million  square  feet  for
manufacturing  and office  space,  approximately  84% of which is located at the
Company's Peoria, Illinois facility.

     The following table sets forth the location, size and general product types
produced for each of the Company's operating facilities,  all of which are owned
by the Company.

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

<S>                               <C>                         <C>           <C>
Keystone Steel & Wire             Peoria, IL                  2,012,000     Fabricated wire products, nails,
                                                                              industrial wire, wire rod
Sherman Wire                      Sherman, TX                   299,000     Fabricated wire products and
                                                                             industrial wire
Engineered Wire                   Upper Sandusky, OH                        Fabricated wire products
 Products                                                        79,000
                                                              ---------

                                                              2,390,000
                                                              =========
</TABLE>

     The  Company  believes  all of  its  facilities  are  well  maintained  and
satisfactory for their intended purposes.

ITEM 3. LEGAL PROCEEDINGS.

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code.  Keystone and its filing  subsidiaries filed their petitions in
the U.S.  Bankruptcy  Court for the Eastern  District of Wisconsin in Milwaukee.
The Chapter 11 cases were  consolidated  for  procedural  purposes only and were
jointly  administered  under  the name FV  Steel  and  Wire  Company  - Case No.
04-22421-SVK. Each of the filing companies continued to operate its business and
manage its  property  as a  debtor-in-possession.  As a result of the Chapter 11
filings,  litigation relating to prepetition claims against the filing companies
was stayed during the Chapter 11 proceedings.  Keystone  emerged from Chapter 11
on August 31, 2005.

     Keystone  is  also  involved  in  various  legal  proceedings.  Information
required by this Item is included in Notes 1, 13, 15 and 19 to the  Consolidated
Financial Statements, which information is incorporated herein by reference.

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2003.




<PAGE>


                                     PART II

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

     Prior to December 13, 2001,  Keystone's  common stock was listed and traded
on the New York Stock Exchange (symbol:  KES).  Subsequent to December 12, 2001,
Keystone's common stock is traded on the OTC Bulletin Board (Symbol:  KESNQ.PK).
The number of holders of record of the Company's common stock as of November 28,
2005 was 2. The following table sets forth the high and low closing sales prices
of the Company's  common stock for the calendar  years  indicated,  according to
published sources.

<TABLE>
<CAPTION>
                                                                                     High               Low
                                                                                    ------             ------
Year ended December 31, 2003

<S>                                                                                 <C>                 <C>
  First quarter                                                                     $ .55               $ .32
  Second quarter                                                                    $ .40               $ .25
  Third quarter                                                                     $ .45               $ .20
  Fourth quarter                                                                    $ .35               $ .10

Year ended December 31, 2002

  First quarter                                                                     $1.39               $ .34
  Second quarter                                                                    $1.30               $ .78
  Third quarter                                                                     $1.01               $ .44
  Fourth quarter                                                                    $ .70               $ .39
</TABLE>



     The Company  has not paid cash  dividends  on its common  stock since 1977.
Keystone is subject to certain  covenants under its commercial  revolving credit
facilities  that restrict its ability to pay dividends,  including a prohibition
against the payment of dividends on its common stock without lender consent.

     All of the  Company's  outstanding  common  stock at December  31, 2003 was
cancelled in connection with Keystone's  emergence from Chapter 11 on August 31,
2005. See Note 19 to the Consolidated Financial Statements.



<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

     The  following  selected  consolidated  financial  data  should  be read in
conjunction  with  Keystone's  Consolidated  Financial  Statements and Item 7 --
"Management's  Discussion  And  Analysis Of Financial  Condition  And Results Of
Operations."

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                       ------------------------------------------
                                                      1999          2000          2001           2002           2003
                                                      ----          ----          ----           ----           ----
                                                           (In thousands, except per share and per ton amounts)

Statement of Operations Data:
<S>                                                 <C>            <C>          <C>            <C>            <C>
  Net sales                                         $373,103       $355,795     $325,187       $334,835       $306,671
  Cost of goods sold                                 350,354        348,241      313,931        315,579        310,881
                                                    --------       --------     --------       --------       --------
  Gross profit (loss)                               $ 22,749       $  7,554     $ 11,256       $ 19,256       $ (4,210)
                                                    ========       ========     ========       ========       ========

  Selling expenses                                  $  6,848       $  6,733     $  6,400       $  7,754       $  6,934
  General and administrative
    expenses                                          20,527         16,374       14,723         16,385         10,689
  Operating income (loss)                                934        (15,173)      (4,388)        (3,279)       (28,731)
  Gain on early extinguishment of
   debt                                                    -              -            -         54,739           -
  Interest expense                                    14,058         15,346       14,575          5,569          3,941

  Income (loss) before income taxes                 $(12,238)      $(32,436)    $(20,395)      $ 40,045       $(37,218)
  Minority interest in after-tax
   earnings                                             -              -               1              1            299
  Provision for income taxes (benefit)                (4,754)       (11,370)       5,998         21,622           -
                                                    ---------      --------     --------       --------       -----
  Income (loss) before cumulative
   effect of change in accounting
   principle                                          (7,484)       (21,066)     (26,394)        18,422        (37,517)
  Cumulative effect of change in
   accounting principle                                 -              -            -            19,998           -
                                                    --------       --------     --------       --------       -----

  Net income (loss)                                 $ (7,484)      $(21,066)    $(26,394)      $ 38,420       $(37,517)
                                                    ========       ========     ========       ========       ========
  Net income (loss) available for
   common shares (1)                                $ (7,484)      $(21,066)    $(26,394)      $ 33,737       $(43,457)
                                                    ========       ========     ========       ========       ========

 Basic net income (loss) available
  For common shares per share                       $   (.75)     $  (2.10)     $  (2.62)     $   3.35       $  (4.32)
                                                    ========      ========      ========      ========       ========
 Diluted net income (loss) available
  For common shares per share                       $   (.75)     $  (2.10)     $  (2.62)     $   1.76       $  (4.32)
                                                    ========      ========      ========      ========       ========
  Weighted average common and common
   equivalent shares outstanding (3):
    Basic                                              9,904         10,039       10,062         10,067         10,068
                                                    ========       ========     ========       ========       ========
    Diluted                                            9,904         10,039       10,062         21,823         10,068
                                                    ========       ========     ========       ========       ========

Other Financial Data:
  Capital expenditures                              $ 16,873       $ 13,052     $  3,889       $  7,973       $  2,683
  Depreciation and amortization                       21,051         17,224       16,992         17,396         16,461

Other Steel and Wire Products
 operating data:
  Shipments (000 tons):
    Fabricated wire products                             223            223          207            209            201
    Nails                                                 92             87           74             74             53
    Industrial wire                                      144            128           94             96             91
    Wire rod                                             237            257          291            287            252
    Billets                                             -              -            -                 5             17
                                                    --------       --------     --------       --------       --------
      Total                                              696            695          666            671            614
                                                    ========       ========     ========       ========       ========

  Average selling prices (per ton):
    Fabricated wire products                        $    741       $    723     $    711       $    712       $    703
    Nails                                                657            611          589            592            558
    Industrial wire                                      484            474          454            448            452
    Wire rod                                             277            283          283            304            314
    Billets                                                -              -            -            156            192

    Steel and wire products in total                     518            501          474            482            479

  Average ferrous scrap purchase cost
   per ton                                          $     94       $    100     $     85       $     94        $   115
</TABLE>


<PAGE>



<TABLE>
<CAPTION>
                                                                           As of December 31,
                                                   1999           2000           2001           2002            2003
                                                   ----           ----           ----           ----            ----
                                                                             (In thousands)

Balance Sheet Data:
<S>                                              <C>            <C>             <C>            <C>            <C>
  Working capital (deficit) (2)                  $(13,920)      $(39,243)       $(30,982)      $(41,790)      $(90,210)
  Property, plant and equipment, net              150,156        144,696         129,600        119,984        105,316
  Total assets                                    410,918        385,703         366,900        215,495        282,194
  Total debt                                      146,857        146,008         146,455         97,241         87,675
  Redeemable preferred stock (3)                        -           -                  -          2,112          2,112
  Stockholders' equity (deficit)                   46,315         26,058            (336)      (136,900)       (10,050)
</TABLE>

     (1)  Includes  dividends on preferred stock of $4,683,000 and $5,940,000 in
          2002 and 2003, respectively.

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

     (3)  All of  the  Company's  outstanding  common  and  preferred  stock  at
          December  31,  2003  was  cancelled  in  connection   with  Keystone's
          emergence  from  Chapter  11 on August  31,  2005.  See Note 19 to the
          Consolidated Financial Statements.




<PAGE>


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


Bankruptcy

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S.
Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company
is managing  its business as a debtor-in  possession  subject to approval by the
Court.  Keystone  attributed  the need to  reorganize  to  weaknesses in product
selling prices over the last several years,  unprecedented  increases in ferrous
scrap costs, Keystone's primary raw material, and significant liquidity needs to
service employee and retiree medical costs. These problems substantially limited
Keystone's  liquidity and  undermined its ability to obtain  sufficient  debt or
equity capital to operate as a going concern.

     Under Chapter 11 proceedings,  actions by creditors to collect Pre-petition
Claims are  stayed,  absent  specific  authorization  from the Court to pay such
claims  while  the  Company  manages  the  business  as a  debtor-in-possession.
Keystone  received  approval  from the Court to pay certain of its  pre-petition
liabilities, including employee wages and certain employee benefits.

         Keystone filed a plan of reorganization on October 4, 2004 and amended
that plan on May 26, 2005, June 21, 2005 and June 27, 2005. Keystone's amended
plan of reorganization was accepted by the impacted constituencies and confirmed
by the Court on August 10, 2005. The Company emerged from bankruptcy protection
on August 31, 2005. Significant provisions of Keystone's amended plan of
reorganization included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries,  will be sold at fair market  value to  Keystone,  which
          will  then be used to form and  operate a newly  created  wholly-owned
          subsidiary of reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

In addition,  Keystone has obtained an $80 million  secured credit facility from
Wachovia Capital Finance (Central). Proceeds from this credit facility were used
to extinguish Keystone's existing  Debtor-In-Possession credit facilities and to
provide  working  capital  for  reorganized   Keystone.   See  Note  19  to  the
Consolidated Financial Statements.

Summary

     The  Company  reported  a  loss  before  cumulative  effect  of  change  in
accounting  principles of $37.5  million in 2003 and $26.4 million in 2001,  and
income  before  cumulative  effect of change in  accounting  principle  of $18.4
million in 2002.  The primary  reasons for the increase in earnings from 2001 to
2002 were (i) lower  interest  expense  and (ii) a $54.7  million  gain upon the
extinguishment of certain  indebtedness.  The primary reasons for the decline in
earnings  from  2002 to 2003 were (i) the gain upon  extinguishment  of  certain
indebtedness  recognized in 2002, (ii) higher defined benefit pension expense in
2003 and (iii)  significantly  higher  cost for  ferrous  scrap  (the  Company's
primary raw material in 2003).

General

     The  Company  believes  it is a  leading  domestic  manufacturer  of  steel
fabricated  wire  products,   nails,  industrial  wire  and  wire  rod  for  the
agricultural,  industrial,  construction,  original  equipment  manufacturer and
retail consumer  markets and believes it is one of the largest  manufacturers of
fabricated  wire  products and nails in the United  States based on tons shipped
(254,000 tons in 2003).  Keystone's operations benefit from vertical integration
as the Company's  mini-mill supplies wire rod produced from ferrous scrap to its
downstream fabricated wire products, nails and industrial wire operations. Sales
of fabricated  wire  products,  nails and  industrial  wire by these  downstream
fabrication  operations  accounted  for  69%  of  2003  net  sales.   Keystone's
fabricated wire products  typically yield higher and less volatile gross margins
compared to wire rod. Management  believes  Keystone's  fabricated wire products
businesses help mitigate the adverse effect of wire rod imports on market prices
compared  to  producers  that  rely  primarily  on  wire  rod  sales.  Moreover,
historically  over time, the Company's wire rod production  costs have generally
been below the market price for wire rod providing a significant  cost advantage
over wire producers who purchase wire rod as a raw material.

     The Company's annual billet production capacity is 1 million tons. However,
Keystone's wire rod production is constrained by the 800,000 ton capacity of its
rod mill.  The Company  anticipates  any excess billet  production  will be sold
externally.

     The Company's  steel making  operations  provided  577,000 tons and 723,000
tons of  billets in 2003 and 2002,  respectively.  The  723,000  tons of billets
produced by Keystone in 2002 was an annual production record. As a result of the
lower billet  production in 2003, wire rod production  declined 19% from 687,000
tons (86% of  estimated  capacity)  in 2002 to  559,000  tons (70% of  estimated
capacity).  Keystone's  estimated  current  fabricated  wire products,  nail and
industrial  wire production  capacity is 558,000 tons. The Company's  fabricated
wire products,  nail and industrial wire production facilities operated at about
68%,  67%  and  55% of  their  annual  capacity  during  2001,  2002  and  2003,
respectively.

     The  Company's  profitability  is dependent in large part on its ability to
utilize  effectively  its  production   capacity,   which  is  affected  by  the
availability of raw materials, plant efficiency and other production factors and
to  control  its  manufacturing  costs,  which are  comprised  primarily  of raw
materials,  energy and labor costs.  Keystone's  primary raw material is ferrous
scrap, and during 2003 ferrous scrap costs represented approximately 24% of cost
of goods sold.  The price of ferrous scrap is highly  volatile and ferrous scrap
prices are  affected by periodic  shortages,  export  activity,  freight  costs,
weather and other conditions largely beyond the control of the Company.  Ferrous
scrap prices can vary widely from period to period.  The average  per-ton  price
paid for ferrous  scrap by the Company was $85 in 2001,  $94 in 2002 and $115 in
2003. Keystone's product selling prices cannot always be adjusted, especially in
the short-term, to recover any increases in ferrous scrap costs.

     The domestic  wire rod  industry  continues  to  experience  consolidation.
During  the  last  five  years,   the  majority  of  Keystone's  major  domestic
competitors have either filed for protection  under Federal  bankruptcy laws and
discontinued operations or reduced or completely shut-down their operations. The
Company  believes  these  shut-downs  or  production  curtailments  represent  a
significant  decrease in  domestic  annual  capacity.  However,  worldwide  over
capacity  in the steel  industry  continues  to exist and  imports  of wire rod,
certain  fabricated  wire  products  and nails in recent  years  have  increased
significantly.  In an effort to stem increasing  levels of imported wire rod, in
December 1998, Keystone,  joined by six other companies  (representing more than
75% of the domestic market), and a labor union petitioned the U.S. International
Trade  Commission  (the "ITC") seeking relief under Section 201 of the Trade Act
of 1974. In February 2000,  President Clinton announced the  implementation of a
Tariff-Rate  Quota  ("TRQ") for three years.  The tariff was imposed on wire rod
imports  from  countries  subject to the TRQ once imports  initially  exceed 1.6
million net tons in 2000 and 2001 and 1.7 million net tons in 2002 and 2003. The
tariff rate was 10% in 2000,  7.5% in 2001 and 5% in 2002.  The Company does not
believe the TRQ, which expired in March 2003, had a major impact on the domestic
wire rod market and high levels of imported rod continue.

     Keystone  consumes  a  significant  amount of  energy in its  manufacturing
operations and, accordingly, its profitability can also be adversely affected by
the  volatility in the price of coal, oil and natural gas resulting in increased
energy,  transportation,  freight,  ferrous scrap and supply costs. During 2003,
energy costs  represented  approximately  10% of cost of goods sold. The Company
purchases  electrical  energy for its Peoria,  Illinois  facility from a utility
under an  interruptible  service  contract  which  provides for more  economical
electricity  rates but allows the  utility to refuse or  interrupt  power to its
manufacturing  facilities.  The utility has in the past,  and may in the future,
refuse or interrupt  service to Keystone  resulting in decreased  production and
increased costs associated with the related downtime.  In addition,  in the past
the utility has had the right to pass through  certain of its costs to consumers
through fuel  adjustment  charges.  The  Company's  current  agreement  with the
utility does not provide for such fuel adjustment charges. During the 1999 third
quarter, the Company received an unexpected $2.2 million  fuel-adjustment charge
from the Peoria plant's electricity provider.  The $2.2 million charge,  accrued
in 1999, was paid during 2000,  although during 2001 the Company received a $1.7
million credit with respect to the 1999 fuel-adjustment charge.

     In July 2003,  Keystone sold its 51% interest in Garden Zone back to Garden
Zone. The Company recorded a gain of  approximately  $800,000 as a result of the
sale. Garden Zone distributes wire, plastic and wood lawn and garden products to
retailers.  Garden Zone's revenues during 2001, 2002 and 2003 were approximately
$8.0 million, $9.5 million and $11.2 million, respectively. Garden Zone recorded
operating  profit of $200,000,  $100,000  and  $700,000 in 2001,  2002 and 2003,
respectively.

     In August 2003, the Company sold its Keystone Fasteners division to a third
party.  Keystone  recorded a gain of  approximately  $300,000 as a result of the
sale. Keystone Fasteners  manufacturers and distributes collated nails. Keystone
Fasteners' revenues during 2001, 2002 and 2003 approximated $14.5 million, $14.7
million and $7.3 million, respectively. Keystone Fasteners recorded an operating
loss of  $400,000  and  $900,000  during 2001 and 2003,  respectively.  Keystone
Fasteners recorded $100,000 of operating profit during 2002.

     Keystone is also  engaged in the  operation  of a ferrous  scrap  recycling
facility.  The  operations  of Garden Zone,  Keystone  Fasteners and the ferrous
scrap recycling  facility were  insignificant  when compared to the consolidated
operations  of the Company.  As such,  the results of their  operations  are not
separately addressed in the discussion that follows.

Results of Operations

     The  following  table  sets  forth  Keystone's  steel and wire  production,
ferrous scrap costs, sales volume and pricing data, for the periods indicated.

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                           2001            2002            2003
                                                                           ----            ----            ----
                                                                                   (Tons in thousands)

Production volume (tons):
<S>                                                                          <C>             <C>              <C>
  Billets                                                                    686             723              577
  Wire rod                                                                   651             687              559

Average per-ton ferrous scrap purchase cost                                 $ 85            $ 94             $115

Sales volume (tons):
  Fabricated wire products                                                   207             209              201
  Nails                                                                       74              74               53
  Industrial wire                                                             94              96               91
  Wire rod                                                                   291             287              252
  Billets                                                                     -                5               17
                                                                            ----            ----             ----
                                                                             666             671              614
                                                                            ====            ====             ====

Per-ton selling prices:
  Fabricated wire products                                                  $711            $712             $703
  Nails                                                                      589             592              558
  Industrial wire                                                            454             448              452
  Wire rod                                                                   283             304              314
  Billets                                                                      -             156              192
  All steel and wire products                                                474             482              479
</TABLE>




<PAGE>


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

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                              2001             2002            2003
                                                                              ----             ----            ----
                                                                                          (In millions)

Steel and wire products:
<S>                                                                           <C>              <C>             <C>
  Fabricated wire products                                                    $146.9           $148.9          $141.2
  Nails                                                                         43.8             43.8            29.5
  Industrial wire                                                               42.9             43.1            41.3
  Wire rod                                                                      82.3             87.4            78.9
  Billets                                                                         -                .8             3.4
  Other                                                                          1.3              1.3             1.2
                                                                                ----             ----            ----
                                                                               317.2            325.3           295.5
Lawn and garden products                                                         8.0              9.5            11.2
                                                                                ----             ----           -----
                                                                              $325.2           $334.8          $306.7
                                                                              ======           ======          ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                                2001           2002           2003
                                                                                ----           ----           ----

<S>                                                                           <C>             <C>           <C>
Net sales                                                                     100.0%          100.0%        100.0 %
Cost of goods sold                                                             96.5            94.2         101.4
                                                                              -----           -----         -----
Gross margin (loss)                                                             3.5%            5.8%         (1.4)%
                                                                              =====           =====         =====

Selling expense                                                                 2.0%            2.3%          2.3 %
General and administrative expense                                              4.5             4.9           3.5
Defined benefit pension expense (credit)                                       (1.7)            (.5)          2.2
Corporate expense                                                                .7             1.8           1.9
Gain on early extinguishment of debt                                             -            (16.3)           -

Income (loss) before income taxes and
 cumulative effect of change in accounting
 principle                                                                     (6.3)%          12.0%        (12.2)%
Income tax provision                                                            1.8             6.5           -
                                                                              -----           -----         ---
Income (loss) before cumulative effect of
 change in accounting principle                                                (8.1)            5.5         (12.2)
Cumulative effect of change in accounting
 principle                                                                      -               6.0            -
                                                                              -----           -----         ----
Net income (loss)                                                              (8.1)%          11.5%        (12.2)%
                                                                              =====           =====         =====
</TABLE>


Year ended December 31, 2003 compared to year ended December 31, 2002

Discussion of operating results

     Net sales declined $28.2 million,  or 8.4%, in 2003 from 2002 due primarily
to an 8.5%  decline  in  shipment  volume of steel and wire  products  and a .6%
decline in overall  per-ton  steel and wire  product  selling  prices  partially
offset by a $1.7 million  increase,  or 17.9%,  in Garden  Zone's net sales from
$9.5 million in 2002 to $11.2 million in 2003.  There was no significant  change
in Keystone's steel and wire products mix between 2002 and 2003. The .6% decline
in overall  per-ton steel and wire product selling prices ($3 per ton) adversely
impacted net sales by approximately $1.8 million.

     Fabricated  wire  products  per-ton  selling  prices  declined  by 1.3% and
shipment  volume  declined by 3.8% in 2003 as compared to 2002.  Per-ton selling
prices of nails  declined  by 5.7% and  shipments  declined  by 28.4% in 2003 as
compared to 2002.  However,  per-ton  selling prices of industrial wire and wire
rod  increased by .9% and 3.3%,  respectively  in 2003 as compared to 2002 while
shipment  volume of  industrial  wire and wire rod  declined  by 5.2% and 12.2%,
respectively. The Company believes the lower shipment volumes across all product
lines and lower per-ton  selling  prices of  fabricated  wire products and nails
were due primarily to increased  imports and lower demand.  Despite these market
conditions,  the  Company  was able to slightly  increase  the  per-ton  product
selling prices of its industrial wire and wire rod product lines.

     Billet production during 2003 declined by 146,000 tons to 577,000 tons from
723,000 tons in 2002. The primary reason for the lower billet  production levels
in 2003 was intentional production  curtailments as a result of weakening demand
and excess inventory levels. Wire rod production during 2003 declined by 128,000
tons to 559,000 tons from 687,000 tons in 2002. The lower wire rod production in
2003 was due primarily to the lower billet  production and unplanned  production
outages  during the 2003 first  quarter to effect  repairs to the  Company's rod
mill.

     Despite a 57,000 ton decline (8.5%) in shipment volume in 2003, as compared
to 2002, cost of goods sold only declined by 1.5% in 2003 to $310.9 million from
$315.6 million in 2002. As a result, the cost of goods sold percentage increased
from 94.2% in 2002 to 101.4% of net sales in 2003.  This increase in the cost of
goods sold  percentage  was due primarily to increased  costs for ferrous scrap,
Keystone's primary raw material,  and natural gas costs at the Company's Peoria,
Illinois facility  partially offset by lower costs for electricity at the Peoria
facility.  In addition,  during  2002,  Keystone  received  $900,000 in business
interruption insurance proceeds related to incidents in prior years. The Company
did not receive any such insurance proceeds in 2003.  Keystone's per-ton ferrous
scrap costs  increased  22% during 2003 as compared to 2002.  During  2003,  the
Company  purchased  634,000  tons of ferrous  scrap at an average  price of $115
per-ton as compared to 2002 purchases of 810,000 tons at an average price of $94
per ton. This increase in per-ton ferrous scrap costs  adversely  impacted gross
profit during 2003 by approximately  $13.3 million.  Keystone's  average ferrous
scrap costs in 2004 was approximately  $205 per-ton.  The cost of natural gas at
the Company's Peoria facility in 2003 was approximately $3.9 million higher than
2002  although  prices  for  electrical  power in 2003 were  approximately  $2.5
million lower than in 2002.

     As a result of increased  costs and lower per-ton  product  selling prices,
gross  margin  of  $19.3  million  in  2002  declined  to a loss in 2003 of $4.2
million.  As a result, the gross margin percentage in 2002 of 5.8% declined to a
1.4% loss in 2003.

     During the first nine months of 2003,  selling  expense was higher than the
same period in 2002 due  primarily to increased  advertising  costs and employee
related  expenses.  However,  during the last 3 months of 2003, due to declining
liquidity,   the  Company  dramatically  reduced  all  non-essential   expenses,
including selling expense.  As a result,  selling expense for the entire year in
2003 declined 10.6% to $6.9 million from $7.8 million in 2002.

     General  and  administrative  expense  of  $10.7  million  in 2003 was $5.7
million lower than general and administrative  expense in 2002 of $16.4 million.
The primary reason for this decline was due to lower employee related and travel
costs.

     During 2003,  Keystone  recorded  defined  benefit  pension expense of $6.9
million as compared to recording a pension  credit in 2002 of $1.6 million.  The
higher pension expense in 2003 is due primarily to a $46 million decline in plan
assets  during  2002 and the  resulting  lower  expected  return on plan  assets
component of defined benefit pension plan expense. As a result of an $85 million
increase in plan assets  during 2003,  the  Company's  defined  benefit  pension
credit was  approximately  $6.8 million in 2004.  In addition,  Keystone was not
required  to make  any cash  contributions  for  defined  benefit  pension  plan
fundings in 2004.  However,  future  variances  from  assumed  actuarial  rates,
including the rate of return on pension plan assets,  may result in increases or
decreases in pension expense or credit and future funding requirements. See Note
9 to the  Consolidated  Financial  Statements  and the  following  discussion of
Assumptions on Defined Benefit pension Plans - Defined benefit pension plan.

     General corporate expenses during 2003 of $6.0 million approximated general
corporate expenses during 2002.

     Interest  expense  during  2003 was  lower  than  2002 due  principally  to
slightly lower debt levels and lower interest rates.  Average  borrowings by the
Company  approximated  $101.4  million during 2003 as compared to $106.5 million
during 2002. During 2003, the average interest rate on outstanding  indebtedness
was 2.7% per annum as  compared  to 4.5% per annum in 2002.  Keystone  currently
anticipates  average  interest  rates and debt  levels in 2004 will  approximate
those at the end of 2003.

     In the first  quarter of 2002,  the Company  completed  an  exchange  offer
related  to its 9 5/8%  Notes  whereby  94% of the  holders  of the 9 5/8% Notes
exchanged their notes for either a discounted cash amount and common stock,  new
preferred  equity and  subordinated  secured debt  securities,  or  subordinated
unsecured debt  securities (the "Exchange  Offer").  As a result of the Exchange
Offer,  for financial  reporting  purposes the Company  reported a $54.7 million
pre-tax gain ($33.1 million net of income taxes). See Note 5 to the Consolidated
Financial Statements.

     In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone
for  approximately  $1.1  million in cash.  In  addition,  Garden  Zone repaid a
$493,000  advance that had been made in a prior year,  and Keystone was released
from its guarantee of 51% of Garden Zone's revolving  credit facility.  Keystone
reported a pre-tax gain of  approximately  $786,000 in the third quarter of 2003
as a result of this transaction.

     In August 2003,  Keystone sold  substantially all of the assets of Keystone
Fasteners  for $2.2  million  in  cash.  Keystone  reported  a  pre-tax  gain of
approximately  $287,000  in the  third  quarter  of  2003  as a  result  of this
transaction.

     The principal reasons for the difference between the U.S. federal statutory
income tax rate and the  Company's  effective  income tax rates are explained in
Note 7 to the  Consolidated  Financial  Statements.  At December 31,  2003,  the
Company had net operating loss carryforwards of approximately  $54.5 million and
other tax attributes and net deductible temporary differences aggregating into a
gross deferred  income tax asset of $39.1 million.  Because the Company does not
currently  believe the benefit of such net operating loss carryforward and other
net   deductible   temporary   differences   meets  the   "more-likely-than-not"
recognition  criteria of GAAP,  the Company  had  recorded a deferred  tax asset
valuation  allowance of $39.1 million at December 31, 2003,  resulting in no net
deferred tax assets.  Keystone  periodically  reviews the  recoverability of its
deferred   tax   assets   to   determine    whether   such   assets   meet   the
"more-likely-than-not" recognition criteria. The Company will continue to review
the  recoverability  of its  deferred  tax  assets,  and based on such  periodic
reviews,  Keystone could recognize a change in the recorded valuation  allowance
related to its  deferred tax assets in the future.  While the Company  currently
expects to report pre-tax income for financial  reporting  purposes during 2004,
the  Company  does not  believe it will have  sufficient  positive  evidence  to
conclude   that   its  net   deferred   income   tax   assets   will   meet  the
"more-likely-than-not"  recognition criteria anytime during 2004. As a result of
the  deferred tax asset  valuation  allowance,  the Company does not  anticipate
recognizing a tax provision  associated with its expected  pre-tax income during
2004 will be  appropriate.  As a result  of the  deferred  tax  asset  valuation
allowance,  other than the $21.6  million tax  provision  recorded in connection
with the Exchange Offer in 2002, the Company did not record a tax benefit during
2002 or 2003 associated with its remaining pre-tax losses.

     During the 2002 first quarter,  the Company adopted  Statement of Financial
Accounting  Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As
a result of adopting  SFAS No. 142,  negative  goodwill of  approximately  $20.0
million  recorded at January 1, 2002 was  eliminated  as a cumulative  effect of
change in accounting principle at that date.

     As a result of the items  discussed  above,  Keystone  recorded  a net loss
during  2003 of $37.5  million  as  compared  to  recording  net income of $38.4
million in 2002.

     At December 31, 2003, the Company's  financial  statements  reflected total
accrued  liabilities  of $19.8  million  to cover  estimated  remediation  costs
arising from environmental issues.  Although Keystone has established an accrual
for  future  required  environmental  remediation  costs that are  probable  and
reasonably  estimable,  there is no assurance  regarding  the  ultimate  cost of
remedial measures that might eventually be required by environmental authorities
or  that  additional   environmental   hazards,   requiring   further   remedial
expenditures,  might not be asserted  by such  authorities  or private  parties.
Accordingly,  the costs of remedial measures may exceed the amounts accrued. See
Note 13 to the Consolidated Financial Statements.

Year ended December 31, 2002 compared to year ended December 31, 2001

     Net sales increased $9.6 million,  or 3.0%, in 2002 from 2001 due primarily
to a .8% increase in shipment volume of steel and wire products  combined with a
1.7% increase in overall per-ton steel and wire product  selling  prices.  There
was no  significant  change in Keystone's  steel and wire  products  product mix
between  2001 and 2002.  The 1.7%  increase  in overall  per-ton  steel and wire
product  selling  prices  ($8  per-ton)  favorably  impacted  net  sales by $5.4
million.  In addition,  Garden  Zone's net sales  increased by 18.8% during 2002
from $8.0 million to $9.5 million.

     Fabricated wire products  per-ton selling prices were relatively  unchanged
from 2001 to 2002 while  shipments  increased  1.0%. Nail per-ton selling prices
increased  .5% in 2002 when  compared to 2001 while  shipments  were  relatively
unchanged.  Industrial  wire per-ton  selling prices  declined 1.3% in 2002 when
compared to 2001 while  shipments  increased  2.1%. The per-ton selling price of
wire rod  increased  7.4%  during  2002 as  compared  to 2001,  while  shipments
declined 1.4%. The increase in shipment  volume of fabricated  wire products and
industrial  wire was due to higher  demand.  As the  demand  for these  products
increased, the Company decreased the volume of rod sold to external customers.

     Due in part to a 5,000 ton increase in volume  during 2002,  as compared to
2001, cost of goods sold of $315.6 million during 2002 increased by $1.6 million
over the 2001 cost of goods  sold of $313.9  million  and the cost of goods sold
percentage  declined  from 96.5% in 2001 to 94.2% in 2002.  This  decline in the
cost of goods sold  percentage  was due  primarily to lower wire rod  conversion
costs,  fixed costs at the  Company's  Peoria,  Illinois  facility,  natural gas
costs,  healthcare costs for active employees and zinc costs partially offset by
higher  costs  for  ferrous  scrap,   Keystone's   primary  raw  material,   and
electricity.  In addition,  during 2002,  Keystone received $900,000 in business
interruption insurance proceeds related to incidents in prior years (as compared
to $1.8 million in 2001).  Also in 2001,  the Company  received a favorable $1.7
million utility settlement  relative to a charge by the utility in a prior year,
and, during the 2001 fourth quarter, Keystone recorded a $1.3 million benefit as
a result of a favorable  legal  settlement  with an electrode  vendor related to
alleged  price fixing.  No such  settlements  were received in 2002.  Keystone's
per-ton  ferrous  scrap  costs  increased  11% during  2002 as compared to 2001.
During 2002, the Company  purchased  810,000 tons of ferrous scrap at an average
price of $94 per-ton as compared to 2001 purchases of 788,000 tons at an average
price of $85 per-ton.  This increase in per-ton  ferrous  scrap costs  adversely
impacted gross profit during 2002 by  approximately  $7.5 million as compared to
2001. The Company did not purchase any billets in either of 2002 or 2001. Prices
for  electrical  power during 2002 were  approximately  $1.8 million higher than
2001's  prices  although  natural  gas  prices in 2002 were  approximately  $1.9
million lower than in 2001.  Lower rod  conversion  costs and fixed costs at the
Company's Peoria,  Illinois facility were due primarily to increased  production
efficiencies combined with lower employee related costs and workers compensation
expense.  The decline in healthcare  costs for active employees is due primarily
to the Company  increasing  the number of employees  required to  contribute  to
their healthcare coverage during 2002.

     Gross profit of $19.3  million  during 2002  increased by $8.0 million over
the 2001 gross profit of $11.3 million as the gross margin  increased  from 3.5%
in 2001 to 5.8% in 2002.  This increase in gross margin was due primarily to the
increased overall steel and wire product per-ton selling prices in 2002 combined
with lower costs in 2002.

     Selling  expense  increased 21.2% to $7.8 million in 2002 from $6.4 million
in 2001 due  primarily to  increased  advertising  expenses and higher  employee
related costs.

     General and administrative  expense of $16.4 million in 2002 increased $1.7
million  from $14.7  million in 2001 due  primarily to higher legal costs during
2002 as  compared to 2001.  In  addition,  during  2001,  the  Company  recorded
amortization  of negative  goodwill of  approximately  $1.4  million.  Effective
January 1, 2002, the Company's  recorded  negative  goodwill was eliminated as a
cumulative  effect of change in  accounting  principle  and as such,  no further
amortization  was  recorded.  Legal  expenses  increased by  approximately  $1.0
million in 2002 primarily due to Keystone pursuing a trademark infringement case
against several companies that Keystone believes are infringing upon a number of
Keystone's trademarks as well as a $650,000 reimbursement of legal fees that was
received in 2001. No such reimbursement was received in 2002.

     During 2002, Keystone recorded a non-cash pension credit of $1.6 million as
compared to $5.5 million in 2001. The lower pension credit in 2002 was primarily
the result of higher  amortization of prior years'  actuarial losses and a lower
expected  return on plan assets  during  2002.  Although  the rate of return was
unchanged  from 2001 to 2002, the lower,  expected  return on plan assets during
2002 was due primarily to a $10.5  million  decline in plan assets from December
31,  2000  to  December  31,  2001.  See  Note 9 to the  Consolidated  Financial
Statements.  See following  discussion of Assumptions on Defined Benefit Pension
Plans and OPEB Plans - Defined benefit pension plan.

     Interest  expense during 2002 was lower than 2001 due  principally to lower
debt levels and interest rates.  Average borrowings by the Company  approximated
$106.5 million  during 2002 as compared to $149.0 million in 2001.  During 2002,
the average  interest  rate on  outstanding  indebtedness  was 4.5% per annum as
compared to 8.9% per annum in 2001. The decline in both debt levels and interest
rates during 2002 was due primarily to the Exchange Offer.

     As a result of the deferred tax asset valuation  allowance,  other than the
$21.6 million tax provision  recorded in connection with the Exchange Offer, the
Company did not record a tax benefit during 2002  associated  with its remaining
pre-tax loss.

     On January 1, 2002,  Keystone  adopted SFAS No. 142, and as such,  negative
goodwill  of  approximately  $20.0  million  recorded  at  January  1,  2002 was
eliminated  as a  cumulative  effect of change in  accounting  principle at that
date.

     The Exchange Offer, resulted in Keystone recording, for financial reporting
purposes,  a $54.7 million pre-tax gain ($33.1 million net of income taxes). See
Note 5 to Consolidated Financial Statements.

     As a result of the items discussed above,  Keystone  recorded net income of
$38.4 million during 2002 as compared to a net loss in 2001 of $26.4 million.

SEGMENT RESULTS OF OPERATIONS:

     Keystone's  operating  segments are defined as components  of  consolidated
operations  about which  separate  financial  information  is available  that is
regularly  evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing  performance.  The Company's chief operating
decision maker is Mr. David L. Cheek,  President and Chief Executive  Officer of
Keystone.  Each  operating  segment is separately  managed,  and each  operating
segment represents a strategic business unit offering different products. During
2003,  the Company  expanded the  composition of its  reportable  segments.  The
corresponding segment information for prior periods has been restated to conform
to the  current  year  presentation.  See Note 2 to the  Consolidated  Financial
Statements.

     The  Company's  operating  segments are organized  along its  manufacturing
facilities  and include two  reportable  segments:  (i) Keystone  Steel and Wire
("KSW") which  manufacturers and sells wire rod,  industrial wire and fabricated
wire products for agricultural,  industrial, construction,  commercial, original
equipment  manufacturers  and retail consumer  markets and, (ii) Engineered Wire
Products ("EWP") which  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.  EWP  is  not  included  in  the  Company's  February  2004  bankruptcy
proceedings.

     Prior to July 2003,  the Company  owned a 51%  interest in Garden  Zone,  a
distributor of wire, plastic and wood lawn and garden products to retailers.  In
July 2003, Keystone sold its 51% ownership in Garden Zone.

     In addition,  prior to July 2003,  Keystone also operated three  businesses
that did not constitute  reportable  business  segments.  These  businesses sell
industrial  wire and  fabricated  wire  products for  agricultural,  industrial,
construction,  commercial,  original  manufacturers and retail consumer markets.
The results of operations of these  businesses are aggregated and included under
the "All Other"  heading in the  following  tables.  During July 2003,  Keystone
transferred  its  operations at one of these three  businesses to other Keystone
facilities, and during August 2003 Keystone sold another of the businesses. As a
result,  as of August 2003, the "All Other" heading in the following tables only
includes Sherman Wire.

     The net  proceeds  from the sale of  Garden  Zone  and  Keystone  Fasteners
aggregated $3.3 million.  The gain on the sale of these  businesses,  as well as
the results of operations of each of Garden Zone and Keystone  Fasteners are not
significant,  individually  and in the aggregate.  Accordingly,  the Company has
elected not to present their results of  operations as  discontinued  operations
for all periods presented due to their immateriality.

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting  policies except that (i) defined benefit
pension  expense for each  segment is  recognized  and  measured on the basis of
estimated  current  service  cost of each  segment,  with the  remainder  of the
Company's net defined  benefit  pension  expense or credit not allocated to each
segment but still is reported as part of operating  profit or loss, (ii) segment
OPEB  expense is  recognized  and measured  based on the basis of the  estimated
expense of each segment, with the remainder of the Company's actual OPEB expense
not allocated to each segment but still is reported as part of operating  profit
or loss,  (iii)  elimination of intercompany  profit or loss on ending inventory
balances  is not  allocated  to each  segment  but still is  reported as part of
operating  profit  or loss,  (iv) LIFO  inventory  reserve  adjustments  are not
allocated to each  segment but still are reported as a part of operating  profit
or loss, and (v) amortization of goodwill and negative  goodwill are included in
general  corporate  expenses  and are not  allocated  to any segment and are not
included in total reported  operating profit or loss.  General corporate expense
also includes OPEB and  environmental  expense  relative to facilities no longer
owned  by the  Company.  Intercompany  sales  between  reportable  segments  are
generally  recorded  at prices that  approximate  market  prices to  third-party
customers.

<TABLE>
<CAPTION>
                                               Principal
         Business Segment                      Entities                    Location                   Products

<S>                                 <C>                              <C>                   <C>
Keystone Steel & Wire               Keystone Steel & Wire            Peoria, IL            Billets, wire rod, industrial
                                                                                           wire, nails and fabricated wire
                                                                                           products

Engineered Wire Products            Engineered Wire Products         Upper Sandusky,       Fabricated wire products
                                                                      OH

Garden Zone                         Garden Zone (1)                  Charleston, SC        Wire, wood and plastic lawn and
                                                                                           garden products

All Other                           Sherman Wire                     Sherman, TX           Industrial wire and fabricated
                                                                                           wire products
                                    Sherman Wire of Caldwell(2)      Caldwell, TX          Industrial wire and fabricated
                                                                                           wire products
                                    Keystone Fasteners(3)            Springdale, AR        Nails
</TABLE>

(1) 51.0% subsidiary - interest sold in July 2003. (2) Transferred operations in
July 2003 to Sherman and KSW. (3) Business sold in August 2003.


<TABLE>
<CAPTION>
                                                                2001             2002          2003
                                                                ----             ----          ----

Revenues:
<S>                                                             <C>            <C>             <C>
  Keystone Steel and Wire                                       $274,525       $290,818        $274,284
  Engineered Wire Products                                        34,177         32,935          35,260
  Garden Zone                                                      8,483         10,744          12,082
  All other                                                       51,670         45,485          28,127
  Elimination of intersegment
    Revenues                                                     (43,668)       (45,147)        (43,082)
                                                                --------       --------        --------

                                                                $325,187       $334,835        $306,671
                                                                ========       ========        ========

Operating profit (loss):
  Keystone Steel and Wire                                       $(12,779)      $ (3,921)       $(21,388)
  Engineered Wire Products                                         4,156          2,743           2,721
  Garden Zone                                                        210             85             700
  All Other                                                       (2,603)        (2,971)         (4,579)
  GAAP adjustments and eliminations                                6,628            785          (6,185)
                                                                --------       ----            --------

                                                                $ (4,388)      $ (3,279)       $(28,731)
                                                                ========       ========        ========
</TABLE>

Keystone Steel & Wire

     KSW's net sales in 2003 declined by $16.5 million or 5.7% to $274.3 million
from $290.8  million in 2002 due primarily to lower shipment  volumes  partially
offset by higher overall per-ton product selling prices.  KSW sold approximately
14,000 less tons of  products in 2003 as compared to 2002 at selling  prices $13
per-ton higher than per-ton  product  selling prices in 2002. The primary reason
for the decline in shipment  volume  during 2003 at KSW was a 50,000 ton decline
in wire rod  shipments  that were in turn due to lower  demand and an  unplanned
production  outage  during  the first  quarter  of 2003.  During  2003 and 2002,
approximately  11% and 12%,  respectively  of KSW's net sales were made to other
Keystone  entities.  Significantly  all of the sales to other Keystone  entities
were sales of wire rod.

     During 2003,  KSW recorded a $21.4  million  operating  loss as compared to
recording a $3.9 million  operating  loss in 2002.  The primary  reasons for the
increased operating loss in 2003 were increased costs for ferrous scrap, natural
gas, and OPEB expense  partially offset by higher per-ton product selling prices
and lower costs for electricity. In addition, during 2002, KSW received $900,000
of business interruption insurance proceeds related to incidents in prior years.
No such settlements were received by KSW during 2003.

     KSW's net sales of $290.8  million in 2002  increased  approximately  $16.3
million or 6%, from 2001 due  primarily  to higher  shipment  volumes and higher
overall per-ton product selling prices.  During 2002, KSW sold 129,000 more tons
of products than during 2001 at per-ton product selling prices approximately $15
per-ton higher than the per-ton  selling  prices in 2001.  During 2002 and 2001,
approximately  12% and 13%,  respectively  of KSW's net sales were made to other
Keystone entities. The majority of these sales were sales of wire rod.

     During 2002,  KSW recorded a $3.9 million  operating  loss as compared to a
$12.8 million  operating loss recorded  during 2001. The primary reasons for the
lower operating loss in 2002 were the increased per-ton selling prices and lower
rod conversion cost, fixed costs, natural gas cost,  healthcare costs for active
employees and zinc cost all partially  offset by higher costs for ferrous scrap,
electricity,  legal and OPEB costs.  In  addition,  during  2002,  KSW  received
$900,000 of business  interruption  insurance  proceeds  related to incidents in
prior years as compared to $1.8 million received in 2001. Also, during 2001, KSW
received  total legal  settlements  of $3.0 million.  No such  settlements  were
received by KSW during 2002.

Engineered Wire Products

     EWP's net  sales of $35.3  million  during  2003  were  approximately  $2.3
million or 7% higher than during 2002 due primarily to both  increased  shipment
volume and higher overall per-ton product selling prices.  During 2003, EWP sold
3,000 more tons of product than during 2002 at per-ton  product  selling  prices
approximately $13 per ton higher than per-ton selling prices in 2002.

     Despite  higher  net  sales  in 2003 as  compared  to  2002,  EWP  recorded
operating  income of $2.7 million in each year due  primarily to increased  wire
rod costs,  EWP's primary raw  material.  EWP purchases the majority of its wire
rod requirements from KSW.

     EWP's net  sales of $32.9  million  in 2002  decreased  approximately  $1.2
million or 4%,  from 2001 due  primarily  to lower  shipment  volumes  and lower
overall per-ton product selling prices. During 2002, EWP sold 1,000 less tons of
product than during 2001 at per-ton  product  selling  prices  approximately  $9
per-ton lower than the per-ton selling prices in 2001.

     During 2002, EWP recorded  operating  income of $2.7 million as compared to
$4.2 million of operating  income  recorded during 2001. The primary reasons for
the  lower  operating  income in 2002 were the  lower  overall  pre-ton  product
selling prices and higher costs for wire rod.

Garden Zone

     Keystone  sold its 51%  interest in Garden Zone in July 2003.  Despite only
recording a partial year of sales in 2003,  Garden  Zone's net sales during 2003
of $12.1 million  increased  $1.3 million or 12% from Garden Zone's net sales in
2002 of $10.7  million.  Garden  Zone's  increased  sales  level  during 2003 as
compared to 2002 was due  primarily to increased  market  penetration  by Garden
Zone during 2003.  As a result of  increased  net sales in 2003,  Garden  Zone's
operating  income in 2003 prior to the  disposition  by  Keystone,  increased to
$700,000 from $85,000 in 2002.

     Garden  Zone's net sales of $10.7 million in 2002  increased  approximately
$2.3 million or 27%, from 2001 due primarily to increased market  penetration by
Garden Zone during 2002. During 2002,  Garden Zone recorded  operating income of
$85,000 as compared to $210,000  during 2001.  The primary  reason for the lower
operating income in 2002 was increased selling and administrative  costs despite
the higher level of net sales during 2002.

All Other

     The three businesses in this segment recorded net sales of $28.1 million in
2003, as compared to net sales of $45.5 million during 2002.  This $17.4 million
decline was due primarily to the sale of one of these  businesses in August 2003
and the transfer of another one of the businesses to other Keystone  segments in
July 2003. As a result of the disposition and transfer of businesses within this
segment during 2003,  tons shipped by the businesses in this segment during 2003
declined by 25,000 tons from 2002  shipment  levels.  In  addition,  the overall
per-ton product  selling price for this segment  declined by  approximately  $31
per-ton  during 2003 as compared to 2002.  Sherman  Wire was the only  remaining
business in this segment at December 31,  2003.  Sherman Wire  shipments in 2003
approximated  2002 shipment  levels.  However,  Sherman Wire's  per-ton  product
selling prices declined by approximately  $134 per-ton in 2003.  During 2003 and
2002,  approximately 36% and 21%,  respectively of this segment's net sales were
made to other Keystone  entities.  These sales to other  Keystone  entities were
sales of industrial  wire and fabricated  wire  products.  During 2003 and 2002,
approximately 55% and 10%, respectively of Sherman Wire's net sales were made to
other  Keystone  entities,  primarily  KSW.  The  majority  of these  sales were
fabricated wire products.

     During 2003,  these  facilities  recorded a $4.6 million  operating loss as
compared to a $3.0 million  operating  loss in 2002. The primary reason for this
increased  operating loss in 2003 was the lower overall  per-ton product selling
prices and increased  costs for wire rod, this  segment's  primary raw material.
The  businesses  in this  segment  purchase  the  majority  of  their  wire  rod
requirements  from KSW. During 2003,  Sherman Wire recorded an operating loss of
$2.5 million as compared to an operating loss of $2.1 million in 2002.

     Facilities  in this segment  recorded net sales of $45.5 million in 2002, a
decrease of approximately  $6.2 million or 12%, from 2001 due primarily to lower
shipment  volumes  partially  offset by higher overall  per-ton  product selling
prices.  During  2002,  these  facilities  sold 12,000 less tons of product than
during 2001 at per-ton product selling prices  approximately  $17 per-ton higher
than the per-ton selling prices in 2001. During 2002 and 2001, approximately 21%
and 16%,  respectively  of this  segment's net sales were made to other Keystone
entities.

     During 2002,  these  facilities  recorded a $3.0 million  operating loss as
compared to a $2.6 million  operating  loss  recorded  during 2001.  The primary
reasons for the increased operating loss in 2002 were higher selling and general
and administrative expenses.

     GAAP adjustments and eliminations in the above table consisted primarily of
adjustments  to reflect  the  difference  between the  defined  benefit  pension
expense or credit and OPEB  expense  allocated  to the  segments  and the actual
expense or credit  included in the  determination  of operating  profit or loss.
GAAP adjustments and  eliminations  included a defined benefit pension credit of
$8.8 million and $4.9  million  during 2001 and 2002,  respectively  and defined
benefit pension expense of $3.8 million during 2003. During 2001, 2002 and 2003,
GAAP  adjustments and eliminations  included OPEB expense of $2.2 million,  $3.7
million and $3.3 million, respectively.


<PAGE>


Related Party Transactions

     As further discussed in Note 11 to the Consolidated  Financial  Statements,
the Company is party to certain transactions with related parties.

Outlook for 2004

     During  2004,  rod imports  continued at high  levels.  Despite  these high
import levels,  per-ton sales prices of the Company's products rose, in part, to
successful  prosecution of trade cases against selected countries.  In addition,
the weakening of the U.S. dollar also resulted in increased  prices for imported
wire rod. As a result,  management  believes  these  factors,  combined with the
business  dispositions in 2003,  resulted in a 16% lower shipment volume in 2004
as compared to 2003.  However, a 47% increase in overall per-ton product selling
prices and the effects of the Company's restructuring efforts in 2004, mitigated
the impact of a 78% increase in the cost of ferrous scrap,  as well as the $11.2
million  of legal and other  professional  fees  associated  with the  Company's
bankruptcy and related restructuring  efforts. As a result,  Keystone expects it
will  report  net  income  for 2004.  In  addition,  Keystone  expects to report
positive  cash flows  from  operating  activities  in 2004,  in part  because no
contribution  to the Company's  defined  benefit  pension plan was required.  In
addition,  as a result of  significant  accumulated  net operating  losses,  the
benefit of which has not been  previously  recognized  for  financial  reporting
purposes   as   the   Company   does   not    currently    believe   meets   the
"more-likely-than-not"  recognition  criteria,  the  Company  does not expect to
record  significant  net tax expense  associated  with its pre-tax income during
2004.

Critical Accounting Policies and Estimates

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

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

     o    The Company  maintains  allowances for doubtful accounts for estimated
          losses  resulting from the inability of its customers to make required
          payments and other factors.  The Company takes into  consideration the
          current  financial  condition  of  the  customers,   the  age  of  the
          outstanding   balance  and  the  current  economic   environment  when
          assessing the adequacy of the allowance. If the financial condition of
          the  Company's   customers  were  to  deteriorate,   resulting  in  an
          impairment of their ability to make  payments,  additional  allowances
          may be required.  During 2001,  2002 and 2003,  the net amount written
          off against the allowance for doubtful accounts as a percentage of the
          balance of the allowance for doubtful  accounts as of the beginning of
          the year ranged from approximately 25% to 57%.

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

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

          Under applicable GAAP (SFAS No. 144,  Accounting for the Impairment or
          Disposal of Long-Lived Assets), property and equipment is not assessed
          for impairment unless certain impairment  indicators,  as defined, are
          present.  During 2003, impairment indicators were present with respect
          to the property and  equipment  associated  with the Company's KSW and
          Sherman  segments,  which  represented  a  significant  portion of the
          Company's  consolidated  net property  and  equipment as of such date.
          Keystone  completed  an  impairment  review of such net  property  and
          equipment  and  related  net  assets as of  December  31,  2003.  Such
          analysis  indicated no impairment was present as the estimated  future
          undiscounted  cash flows  associated  with such segments  exceeded the
          carrying value of such segments' net assets by  approximately  31% and
          79%, respectively. Significant judgment is required in estimating such
          undiscounted  cash flows.  Such  estimated  cash flows are  inherently
          uncertain,  and there can be no  assurance  that the future cash flows
          reflected in these projections will be achieved.

          Under  applicable  GAAP (SFAS No. 142,  Goodwill and Other  Intangible
          Assets,)  goodwill is required to be reviewed for  impairment at least
          on an annual basis.  Goodwill will also be reviewed for  impairment at
          other times during each year when impairment  indicators,  as defined,
          are  present.  As  discussed  in  Notes  1 and 17 to the  Consolidated
          Financial Statements, the Company has assigned its goodwill to the EWP
          reporting  unit (as that term is defined in SFAS No. 142). No goodwill
          impairment  was  deemed to exist as a result of the  Company's  annual
          impairment  review  completed during the third quarter of 2003, as the
          estimated  fair  value  of the EWP  reporting  unit  exceeded  the net
          carrying  value by over  300%.  The  estimated  fair  value of the EWP
          reporting   unit  was  determined   based  on  discounted   cash  flow
          projections.  Significant  judgment  is  required  in  estimating  the
          discounted  cash flows for the EWP reporting unit. Such estimated cash
          flows are inherently uncertain, and there can be no assurance that EWP
          will achieve the future cash flows reflected in its projections.

     o    Keystone  records a valuation  allowance to reduce its deferred income
          tax assets to the amount that is  believed  to be  realized  under the
          "more-likely-than-not"  recognition  criteria.  While the  Company has
          considered  future taxable income and ongoing prudent and feasible tax
          planning  strategies in assessing the need for a valuation  allowance,
          it is possible  that in the future the Company may change its estimate
          of  the  amount  of  the   deferred   income  tax  assets  that  would
          "more-likely-than-not"  be  realized in the  future,  resulting  in an
          adjustment to the deferred income tax asset  valuation  allowance that
          would either increase or decrease, as applicable,  reported net income
          or loss in the period such change in  estimate  was made.  At December
          31, 2003,  the Company  believes its gross  deferred tax assets do not
          currently  meet  the  "more-likely-than-not"  realizability  test  and
          accordingly  has  provided a valuation  allowance  for the total gross
          deferred tax assets.

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

     o    Keystone   sponsors   a  defined   benefit   pension   plan   covering
          substantially all employees who meet certain eligibility requirements.
          For  financial  reporting  purposes at December 31, 2002,  the pension
          plan's accumulated  benefit obligation exceeded the plan's assets, and
          as such,  the  Company's  financial  statements  reflect an additional
          minimum pension liability,  an intangible asset equal to the amount of
          unrecognized prior service cost and a charge to stockholders'  deficit
          on its balance sheet.  However, as a result of increases in the market
          value of the plan's  assets  during 2003,  at December  31, 2003,  the
          Plan's assets exceeded the Plan's accumulated benefit obligation,  and
          as such,  the additional  minimum  pension  liability,  and intangible
          asset were  eliminated.  In addition,  the Company was not required to
          make cash  contributions  to the pension  plan during 2003 and was not
          required to make cash  contributions  to its pension plan during 2004.
          The determination of additional minimum  liability,  intangible asset,
          charge to stockholders' equity and pension expense is dependent on the
          selection of certain actuarial assumptions which attempt to anticipate
          future  events.  These  pension  actuarial   assumptions,   which  are
          described in Note 9 to the Consolidated Financial Statements,  include
          discount  rate,  expected  return  on  plan  assets,  rate  of  future
          compensation  increases,  and  mortality  rates.  Actual  results that
          differ from the Company's pension actuarial  assumptions are generally
          accumulated and amortized over future periods and therefore, generally
          affect the pension asset or liability and pension expense or credit in
          future  periods.  While the Company  believes  its  pension  actuarial
          assumptions are appropriate,  future material  differences between the
          Company's  pension   actuarial   assumptions  and  actual  results  or
          significant  changes in the Company's pension  actuarial  assumptions,
          could  result in a material  increase or decrease in the amount of the
          reported  pension  asset or  liability  and  expense  or  credit,  and
          therefore  have a material  impact on the  Company's  reported  future
          results of operations.  In addition, the plan could become underfunded
          under applicable federal regulations,  which would require the Company
          to make  cash  contributions  to the  plan.  See  also  the  following
          discussion of  Assumptions on Defined  Benefit  Pension Plans and OPEB
          Plans - Defined Benefit Pension Plan.

     o    The  determination  of the Company's  obligation  and expense for OPEB
          benefits  is   dependent  on  the   selection  of  certain   actuarial
          assumptions  which attempt to  anticipate  future  events.  These OPEB
          actuarial  assumptions,  which  are  also  described  in Note 9 to the
          Consolidated  Financial  Statements,  include  discount rate,  rate of
          future  increases in healthcare  costs,  and mortality  rates.  Actual
          results that differ from the Company's OPEB actuarial assumptions are,
          in accordance  with GAAP,  generally  accumulated  and amortized  over
          future periods and therefore,  generally  affect OPEB  obligations and
          expense  in  future  periods.  While  the  Company  believes  its OPEB
          actuarial assumptions are appropriate,  future differences between the
          Company's OPEB actuarial assumptions and actual results or significant
          changes in the Company's OPEB actuarial  assumptions  could materially
          affect the reported amount of the Company's future OPEB obligation and
          expense,  and  therefore  have a  material  impact  on  the  Company's
          reported  future  results of operations.  In addition,  the amount the
          Company  ultimately  pays  for  future  cash  OPEB  benefits  could be
          materially  different  from  the  amounts  inherent  in the  actuarial
          assumptions.  See also the  following  discussion  of  Assumptions  on
          Defined Benefit Pension Plans and OPEB Plans - OPEB plans.

Accounting Principles Newly Adopted in 2003

     See Note 17 to the Consolidated Financial Statements.

Accounting Principles Not Yet Adopted

     See Note 18 to the Consolidated Financial Statements.

Assumptions on Defined Benefit Pension Plans and OPEB Plans

     Defined benefit pension plan. The Company  accounts for its defined benefit
pension plan using SFAS No. 87, Employer's  Accounting for Pensions.  Under SFAS
No. 87,  defined  benefit  pension plan expense or credit and prepaid or accrued
pension  costs  are each  recognized  based on  certain  actuarial  assumptions,
principally the assumed  discount rate, the assumed  long-term rate of return on
plan assets and the assumed increase in future compensation  levels. The Company
recognized a consolidated defined benefit pension plan credit of $5.5 million in
2001 and $1.6 million in 2002 and a consolidated defined benefit pension expense
of $6.9  million in 2003.  The amount of funding  requirements  for the  defined
benefit  pension plan is based upon applicable  regulations,  and will generally
differ from pension expense or credit recognized under SFAS No. 87 for financial
reporting  purposes.  No contributions were required to be made to the Company's
defined benefit pension plan during the past three years.

     The discount rates the Company  utilizes for  determining  defined  benefit
pension  expense  or credit and the  related  pension  obligations  are based on
current  interest  rates earned on  long-term  bonds that receive one of the two
highest ratings given by recognized  rating agencies.  In addition,  the Company
receives advice about appropriate discount rates from the Company's  third-party
actuaries,  who may in some cases utilize their own market indices. The discount
rates  are  adjusted  as of each  valuation  date  (December  31st)  to  reflect
then-current  interest  rates on such long-term  bonds.  Such discount rates are
used to determine the actuarial  present value of the pension  obligations as of
December 31st of that year,  and such discount  rates are also used to determine
the interest  component  of defined  benefit  pension  expense or credit for the
following year.

     The Company  used the  following  discount  rates for its  defined  benefit
pension plan during the last three years:

<TABLE>
<CAPTION>
                            Discount rates used for:
                       ------------------------------------------------------------------------------------------------
                               Obligations at                   Obligations at                   Obligations at
                       December 31, 2001 and expense     December 31, 2002 and expense       December 31, 2003 and
                                 in 2002                           in 2003                     expense in 2004
                       -------------------------------  --------------------------------  -----------------------------


<S>                                  <C>                                <C>                            <C>
                                     7.00%                              6.50%                          6.00%
</TABLE>

     The  assumed  long-term  rate of  return  on  plan  assets  represents  the
estimated  average rate of earnings  expected to be earned on the funds invested
or to be invested  in the plans'  assets  provided to fund the benefit  payments
inherent in the projected benefit  obligations.  Unlike the discount rate, which
is adjusted each year based on changes in current long-term  interest rates, the
assumed  long-term  rate of return on plan  assets will not  necessarily  change
based upon the actual,  short-term  performance  of the plan assets in any given
year.  Defined  benefit  pension  expense or credit  each year is based upon the
assumed long-term rate of return on plan assets for the plan and the actual fair
value of the plan assets as of the  beginning of the year.  Differences  between
the  expected  return on plan assets for a given year and the actual  return are
deferred and  amortized  over future  periods  based upon the  expected  average
remaining service life of the active plan participants.

     In  determining  the  expected  long-term  rate of  return  on  plan  asset
assumptions,  the Company  considers  the long-term  asset mix (e.g.  equity vs.
fixed  income) for the assets of its plan and the  expected  long-term  rates of
return for such asset components. In addition, the Company receives advice about
appropriate long-term rates of return from the Company's third-party  actuaries.
Substantially  all of Keystone's plan assets are invested in the Combined Master
Retirement Trust ("CMRT"),  a collective  investment trust  established by Valhi
Inc. ("Valhi"), a majority owned subsidiary of Contran, to permit the collective
investment by certain master trusts which fund certain  employee  benefits plans
sponsored by Contran and certain of its  affiliates.  Harold Simmons is the sole
trustee of the CMRT. The CMRT's long-term  investment  objective is to provide a
rate of return  exceeding a composite  of broad  market  equity and fixed income
indices  (including  the S&P 500 and certain  Russell  indicies)  utilizing both
third-party  investment managers as well as investments directed by Mr. Simmons.
During the 16-year  history of the CMRT through  December 31, 2003,  the average
annual  rate of return has been  12.4%.  For 2001,  2002 and 2003,  the  assumed
long-term rate of return  utilized for plan assets invested in the CMRT was 10%.
In determining the  appropriateness of such long-term rate of return assumption,
the Company  considered,  among other things,  the historical rate of return for
the CMRT,  the current and  projected  asset mix of the CMRT and the  investment
objectives of the CMRT's  managers.  In addition,  the Company  receives  advice
about  appropriate  long-term  rates of return  from the  Company's  third-party
actuaries.  At  December  31,  2003,  the  asset mix of the CMRT was 63% in U.S.
equity  securities,  24% in U.S. fixed income  securities,  7% in  international
securities and 6% in cash and other investments.

     The Company  regularly  reviews its actual asset allocation for its defined
benefit  pension plan, and will  periodically  rebalance the  investments in the
plan  to  more  accurately  reflect  the  targeted  allocation  when  considered
appropriate.

     As noted above,  the  Company's  assumed  long-term  rate of return on plan
assets was 10% for each of 2001, 2002 and 2003. The Company currently expects to
utilize the same long-term  rate of return on plan assets  assumption in 2004 as
it used in 2003 for purposes of  determining  the 2004 defined  benefit  pension
plan expense or credit.

     To the extent the defined benefit pension plan's particular pension benefit
formula  calculates  the  pension  benefit in whole or in part based upon future
compensation  levels, the projected benefit  obligations and the pension expense
will be based in part upon expected increases in future compensation levels. For
pension  benefits  which are so  calculated,  the  Company  generally  bases the
assumed expected increase in future  compensation  levels upon average long-term
inflation rates.

     Based on the actuarial  assumptions  described above,  Keystone expects its
defined benefit pension credit will approximate $6.8 million in 2004 compared to
a defined  benefit  pension  expense of $6.9  million in 2003.  Keystone was not
required to make  contributions  to the defined benefit pension plan during 2004
(none were required in 2003, 2002 or 2001).

     As noted above,  defined  benefit pension expense or credit and the amounts
recognized  as  prepaid or accrued  pension  costs are based upon the  actuarial
assumptions   discussed  above.  The  Company  believes  all  of  the  actuarial
assumptions  used are  reasonable and  appropriate.  If Keystone had lowered the
assumed  discount rate by 25 basis points as of December 31, 2003, the Company's
projected  and  accumulated   benefit   obligations   would  have  increased  by
approximately $9.6 million and $9.2 million,  respectively at that date, and the
defined  benefit  pension credit would be expected to decrease by  approximately
$400,000 during 2004. Similarly,  if Keystone lowered the assumed long-term rate
of return on plan  assets by 25 basis  points for its  defined  benefit  pension
plan,  the  defined  benefit  pension  credit  would be  expected to decrease by
approximately $700,000 during 2004.

     OPEB plans.  The Company  currently  provides  certain health care and life
insurance  benefits  for  eligible  retired   employees.   See  Note  9  to  the
Consolidated  Financial  Statements.  The Company  accounts  for such OPEB costs
under SFAS No. 106, Employers Accounting for Postretirement  Benefits other than
Pensions.  Under SFAS No. 106,  OPEB expense and accrued OPEB costs are based on
certain  actuarial  assumptions,  principally the assumed  discount rate and the
assumed rate of increases in future  health care costs.  The Company  recognized
consolidated  OPEB expense of $12.0  million in 2001,  $14.3 million in 2002 and
$17.5 million in 2003.  Similar to defined benefit pension benefits,  the amount
of funding  will differ  from the expense  recognized  for  financial  reporting
purposes,  and  contributions to the plans to cover benefit payments  aggregated
$9.8 million in 2001, $9.2 million in 2002 and $10.3 million in 2003.

     The  assumed  discount  rates the Company  utilizes  for  determining  OPEB
expense and the related accrued OPEB obligations are generally based on the same
discount rates the Company utilizes for its defined benefit pension plan.

     In estimating  the health care cost trend rate,  the Company  considers its
actual health care cost experience,  future benefit structures,  industry trends
and advice from its third-party actuaries.  During each of the past three years,
the  Company  has  assumed  the  relative  increase  in health  care  costs will
generally  trend downward over the next several years,  reflecting,  among other
things,   assumed  increases  in  efficiency  in  the  health  care  system  and
industry-wide cost containment  initiatives.  For example, at December 31, 2003,
the  expected  rate of  increase  in future  health  care costs was 10% in 2004,
declining to 5% in 2009 and thereafter.

     Based on the actuarial assumptions described above, the Company expects its
consolidated OPEB expense will approximate $20.9 million in 2004. In comparison,
the Company  made  approximately  $5.3  million of  contributions  to such plans
during 2004. The amount of OPEB contributions made by the Company in 2004, which
was lower than the Company's contributions in 2003 of $10.3 million, reflects in
part certain interim relief related to the Company's  retiree medical plans that
were approved by the Bankruptcy  Court in connection with the Company's  Chapter
11 filing.

     As noted  above,  OPEB  expense and the amount  recognized  as accrued OPEB
costs are based upon the  actuarial  assumptions  discussed  above.  The Company
believes all of the actuarial  assumptions  used are reasonable and appropriate.
If the Company had lowered the assumed  discount rate by 25 basis points for all
of its OPEB plans as of December 31, 2003, the Company's  aggregate  accumulated
OPEB  obligations  would have  increased by  approximately  $8.5 million at that
date,  and the Company's  OPEB expense would be expected to increase by $461,000
during 2004.  Similarly,  if the assumed  future health care cost trend rate had
been increased by 100 basis points,  the Company's  accumulated OPEB obligations
would have  increased by  approximately  $39.7 million at December 31, 2003, and
OPEB expense would have increased by $4.4 million in 2003.

Liquidity and Capital Resources

     At December  31,  2003,  Keystone  had  negative  working  capital of $90.2
million,  including  $34.6  million of notes  payable and current  maturities of
long-term debt as well as outstanding  borrowings under the Company's  revolving
credit  facilities of $20.9 million.  The amount of available  borrowings  under
these  Keystone's  revolving  credit  facilities is based on  formula-determined
amounts of trade  receivables  and  inventories,  less the amount of outstanding
letters of credit.  At December 31, 2003,  unused credit available for borrowing
under   Keystone's  $45  million   revolving   credit  facility  (the  "Keystone
Revolver"),  which expires March 31, 2005 and EWP's $7 million  revolving credit
facility (the "EWP  Revolver"),  which, as amended,  expires  September 30, 2005
were $726,000 and $1.9 million,  respectively.  The Keystone  Revolver  requires
daily cash receipts be used to reduce outstanding  borrowings,  which results in
the Company  maintaining zero cash balances when there are balances  outstanding
under this credit  facility.  Accordingly,  any  outstanding  balances under the
Keystone Revolver are always classified as a current liability regardless of the
maturity  date of the  facility.  Keystone  retired  the EWP  Revolver  with the
proceeds of its exit  financing  upon  emergence  from  Chapter 11 on August 31,
2005.

     In addition,  EWP Financial LLC ("EWPFLLC"),  a wholly-owned  subsidiary of
Contran,  has agreed to loan the Company up to an aggregate of $6 million  under
the terms of a revolving  credit facility that matured on February 24, 2004. The
Company did not borrow any amounts  under such  facility.  However,  EWPFLLC has
issued a $250,000  letter of credit for the  benefit  of the  Company  under the
revolving credit facility.

     In January 2004,  EWP received a new $6.75 million term loan ("the EWP Term
Loan") from the same lender providing the EWP Revolver.  The EWP Term Loan bears
interest at LIBOR plus 2.5%, is due in 60 monthly  installments of $112,500 plus
accrued interest,  is collateralized by a lien on all of the fixed assets of EWP
and cross-collateralized with the EWP Revolver.  Proceeds from the EWP Term Loan
were used to repay  intercompany  indebtedness  to Keystone.  Keystone  used the
proceeds to reduce the outstanding balance of the Keystone Revolver. The Company
retired the EWP Term Loan with the proceeds of its exit financing upon emergence
from Chapter 11 on August 31, 2005.

     On  March  15,  2004,  the  Court  approved  two  new  debtor-in-possession
financing facilities (the "DIP Order). The first debtor-in-possession  financing
facility consists of an Assumption  Agreement whereby the pre-petition lender on
the  Keystone  Revolver  and a term note (the  "Keystone  Term Note")  agreed to
convert   those   credit   facilities   to   a   debtor-in-possession   facility
(collectively,  the  "Congress  DIP  Facility").  The  terms  of the  respective
facilities  comprising the Congress DIP Facility are  relatively  unchanged from
the respective  pre-petition facilities with the exception of the elimination of
the existing financial  covenants and the granting of a second lien on the stock
of EWP owned by Keystone.  In  connection  with the approval of the Congress DIP
Facility,  the Keystone Term Note was  increased by $4.0 million.  Approximately
$2.0 million of these proceeds were applied to the Keystone  Revolver portion of
the Congress DIP Facility and the remainder was used to fund Keystone's  working
capital  needs.  However,  the  Congress  DIP  Facility  lender also  applied an
availability  reserve of approximately $2.0 million to the borrowing base of the
Keystone  Revolver  in  connection  with the  increase  in  Keystone  Term  Note
resulting in no net increase in availability under the Keystone Revolver at that
time. The Keystone Term Note requires  monthly  principal  payments of $100,000.
The  Congress  DIP  Facility,  as  amended,  matures  the  earliest  to occur of
September 30, 2005,  payment in full of the Congress DIP Facility,  confirmation
of a plan of  reorganization  of  Keystone,  an event of default or upon certain
other  events.  The Congress  DIP Facility  required a facility fee of $375,000,
half of which was paid at inception and half of which was paid in August, 2004.

     The second debtor-in-possession financing facility comprising the DIP Order
is a $5 million revolving credit facility with EWPFLLC (the "EWP DIP Facility").
Advances  under the EWP DIP Facility  bear  interest at the prime rate plus 3.0%
per annum and are  collateralized  by the common stock of EWP owned by Keystone.
Proceeds from the EWP DIP Facility were used to fund Keystone's  working capital
needs.  The EWP DIP  Facility  requires  Keystone  to  abide by  specified  cash
budgets.  In  addition,  the  EWP  DIP  Facility  requires  EWPFLLC  to  fund an
additional $2 million through a participation  in the Congress DIP Facility upon
the Company's realization of certain milestones. The Company met such milestones
and in April 2004,  this additional  funding was made. The EWP DIP Facility,  as
amended,  matures upon  confirmation  of a plan of  reorganization  of Keystone,
closing of a sale of EWP, an event of default  under the EWP Term Note, an event
of default under the Congress DIP Facility or upon certain other events. The EWP
DIP  Facility  required a facility  fee of  $100,000,  half of which was paid at
inception and half of which was paid in August 2004.

     On August 31,  2005,  in  connection  with its  emergence  from Chapter 11,
Keystone entered into a new $80.0 million secured credit facility. Proceeds from
this   credit   facility   were   used   to   extinguish   Keystone's   existing
Debtor-In-Possession  credit facilities,  the EWP Term Loan and the EWP Revolver
and to provide working capital for reorganized Keystone. The facility includes a
term loan in the  amount of up to $25.0  million,  subject to a  borrowing  base
calculation  based  on the  market  value of the  Company's  real  property  and
equipment.  To the extent  there is  sufficient  borrowing  base,  the term loan
portion of this credit  facility can be reloaded in the amount of $10.0 million.
The  portion  of the  credit  facility  in excess of the term  loan  balance  is
available to the Company as a revolving  credit facility  subject to a borrowing
base calculation based on eligible receivables and inventory balances.  Interest
rates on the  credit  facility  range from the prime rate to the prime rate plus
..5%  depending  on  Keystone's  excess  availability,  as  defined in the credit
agreement.  The facility also provides for a LIBOR  interest rate option.  Under
the terms of the credit  facility,  the Company is required to annually pay down
the term loan  portion of the facility in the amount of 25% of excess cash flow,
as defined in the agreement, subject to a $2.0 million annual and a $5.0 million
aggregate limit.  The facility also includes  performance  covenants  related to
minimum levels of cash flow and fixed charge coverage  ratio.  Keystone paid the
lender  $400,000 of diligence,  commitment  and closing fees in connection  with
this facility.

     During 2003, the Company's operating activities provided approximately $5.9
million  of cash,  compared  to $10.1  million  of cash  provided  by  operating
activities  in 2002.  Cash  flow  from  operating  activities  declined  in 2003
compared to 2002 due  primarily to a $22.2 million  higher loss from  operations
and  relative  changes  in the  levels  of  assets  and  liabilities  (primarily
inventory and accounts payable).  Due to Keystone's limited liquidity during the
last half of 2003, the Company was not able to operate on a continuous basis. As
such, production levels declined and Keystone was forced to substantially reduce
its normal inventory levels over the last half of 2003 in order to meet customer
shipment demand. In addition, as the Company's liquidity deteriorated throughout
2003, many vendors and suppliers  discontinued trade terms and required Keystone
to pay cash in  advance  for all  goods as well as pay down old  trade  payables
prior to  shipment  of new  goods.  As such,  trade  accounts  payable  declined
substantially during 2003.

     During 2003,  Keystone  made capital  expenditures  of  approximately  $2.7
million primarily related to upgrades of production equipment at its facility in
Peoria,  Illinois, as compared to $8.0 million in 2002. Capital expenditures for
2004 were  approximately  $5.0 million and were related primarily to upgrades of
production  equipment.  Such capital  expenditures  were funded using cash flows
from operations  together with borrowing  availability  under Keystone's  credit
facilities.

     At December 31, 2003, the Company's financial  statements reflected accrued
liabilities  of  $19.8  million  for  estimated   remediation  costs  for  those
environmental  matters  which  Keystone  believes are  probable  and  reasonably
estimable.  Although the Company has established an accrual for estimated future
required  environmental  remediation costs, there is no assurance  regarding the
ultimate  cost of  remedial  measures  that  might  eventually  be  required  by
environmental  authorities or that additional  environmental hazards,  requiring
further  remedial  expenditures,  might not be asserted by such  authorities  or
private  parties.  Accordingly,  the costs of remedial  measures  may exceed the
amounts accrued.  Keystone  believes it is not possible to estimate the range of
costs for certain sites. The upper end of range of reasonably  possible costs to
Keystone  for sites for which the  Company  believes  it is possible to estimate
costs is approximately $21.6 million.

     Keystone was not required to make  contributions to its pension plan during
2004.  Future  variances  from assumed  actuarial  rates,  including the rate of
return on pension plan  assets,  may result in increases or decreases to pension
expense or credit and funding  requirements in future periods. See Note 9 to the
Consolidated Financial Statements.

     The Company  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria.  At  December  31,  2003,  the Company  expects  that its
long-term  profitability should ultimately be sufficient to enable it to realize
full benefit of its future tax deductions,  in part due to the long-term  nature
of its net operating loss carryforwards, which expire in 2019 to 2023. Although,
considering all factors believed to be relevant,  including the Company's recent
operating results, its expected future near-term productivity rates; cost of raw
materials,  electricity, labor and employee benefits, environmental remediation,
and retiree medical  coverage;  interest  rates;  product mix; sales volumes and
selling  prices and the fact that accrued OPEB expenses  will become  deductible
over an extended period of time and require the Company to generate  significant
amounts of future taxable  income,  the Company  believes its gross deferred tax
assets do not currently meet the  "more-likely-than-not"  realizability test. As
such,  during the fourth  quarter of 2001,  the Company  provided a deferred tax
asset valuation allowance of approximately $14.5 million.  During 2002 and 2003,
Keystone  increased the valuation  allowance by $5.5 million and $19.1  million,
respectively,  and at December 31, 2003,  the Company has  recognized a deferred
tax asset valuation allowance of $39.1 million, or all of the Company's deferred
tax asset.  Keystone will continue to review the  recoverability of its deferred
tax assets,  and based on such  periodic  reviews,  the Company could change the
valuation  allowance  related  to its  deferred  tax assets in the  future.  The
Company  does  not  currently  expect  to  record  significant  net tax  expense
associated with its expected pre-tax income during 2004.

     Keystone  incurs  significant  ongoing  costs for plant and  equipment  and
substantial employee medical benefits for both current and retired employees. As
such,  Keystone is vulnerable to business  downturns and increases in costs, and
accordingly,  routinely  compares its liquidity  requirements  and capital needs
against its estimated future operating cash flows.  Despite  reductions in fixed
costs and increases in certain product  selling  prices,  Keystone was unable to
maintain sufficient operating liquidity during 2004 and as a result, on February
26, 2004  Keystone  and five of its direct and indirect  subsidiaries  filed for
voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Subsequent
to filing for Chapter 11, the Company  negotiated  a favorable  amendment to the
collective  bargaining  agreement  with its  largest  labor  union and  received
interim  relief with  respect to certain  OPEB  payments to  retirees.  Keystone
incurred legal and professional fees of approximately  $11.2 million during 2004
with respect to its reorganization efforts,  including related to the Chapter 11
filing.  In addition,  the Company is taking additional action towards improving
its liquidity. These actions include, but are not limited to, reducing inventory
levels through more efficient  production  schedules and modifying coverages and
participant  contribution  levels  of  medical  plans  for  both  employees  and
retirees. Keystone has also considered, and may in the future consider, the sale
of certain  divisions  or  subsidiaries  that are not  necessary  to achieve the
Company's  long-term  business  objectives.  However,  there can be no assurance
Keystone  will be  successful  in any of  these  or  other  efforts,  or that if
successful,  they will provide sufficient liquidity for the Company's operations
during the next year. See Note 19 to the Consolidated Financial Statements.

     Under Chapter 11 proceedings,  actions by creditors to collect pre-petition
claims are  stayed,  absent  specific  authorization  from the Court to pay such
claims  while  the  Company  manages  the  business  as a  debtor-in-possession.
Keystone  received  approval  from the Court to pay certain of its  pre-petition
Claims, including employee wages and certain employee benefits.

     Keystone filed a plan of reorganization on October 4, 2004 and amended that
Plan on May 26, 2005, June 21, 2005 and June 27, 2005.  Keystone's  amended plan
of reorganization  was accepted by the impacted  constituencies and confirmed by
the Court on August 10, 2005. The Company emerged from bankruptcy  protection on
August  31,  2005.   Significant   provisions  of  Keystone's  amended  plan  of
reorganization included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries,  will be sold at fair market  value to  Keystone,  which
          will  then be used to form and  operate a newly  created  wholly-owned
          subsidiary of reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

In addition,  Keystone has obtained an $80 million  secured credit facility from
Wachovia Capital Finance (Central). Proceeds from this credit facility were used
to extinguish Keystone's existing  Debtor-In-Possession credit facilities and to
provide  working  capital  for  reorganized   Keystone.   See  Note  19  to  the
Consolidated Financial Statements.

  Summary of Debt and Other Contractual Commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts in the future. See Notes 5, 14, 15 and 19 to the Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment:

<TABLE>
<CAPTION>
                                                    Payment due date
                                                                                           2009 and
Contractual commitment                           2004      2005/2006       2007/2008        after            Total
----------------------                           ----      ---------       ---------       -------           -----
                                                                          (In thousands)

Indebtedness:
<S>                                               <C>            <C>             <C>            <C>           <C>
   Principal                                      $19,390        $ 8,868         $34,278        $25,139       $ 87,675
   Interest                                         1,458          1,971             767          4,234          8,430

Operating leases                                    1,157          1,215              70             48          2,490

Deferred vendor payment
 agreements                                         3,227          6,454             807             -          10,488

Product supply agreement                            1,200          2,400           2,400          2,700          8,700
                                                   ------         ------          ------         ------         ------

                                                  $26,432        $20,908         $38,322        $32,121       $117,783
                                                  =======        =======         =======        =======       ========
</TABLE>

     The  timing  and  amounts  shown  in the  above  table  for  the  Company's
commitments  related to indebtedness  (both  principal and interest),  operating
leases,  deferred  vendor payment  agreements and product supply  agreements are
based upon the contractual  payment amount and the contractual  payment date for
such commitments. Therefore, such timing and amounts shown in the above table do
not  reflect  any  effect on such  commitments  that  arise  from the  Company's
emergence from Chapter 11 proceedings.  Due to the Chapter 11 filings,  Keystone
was not  permitted to make  principal or interest  payments on its  pre-petition
debt or deferred  vendor  payments.  As discussed in Note 5 to the  Consolidated
Financial  Statements,  certain  indebtedness of the Company  aggregating  $34.5
million has been classified as a current  liability at December 31, 2003 because
such indebtedness is in default. However, such $34.5 million has been classified
in the above table based on the contractual  maturity date of such  indebtedness
because the lender has not accelerated payment of such indebtedness, and because
payment  on  such  indebtedness  was  stayed  as a  result  of  the  Chapter  11
proceedings.  In addition,  balances due under the  Company's  revolving  credit
facilities  are  shown  as  current  maturities  in the  Company's  Consolidated
Financial  Statements at December 31, 2003.  However,  the above table  reflects
maturities  of these  facilities  only  upon the  contracted  expiration  of the
respective facility.

     The Company has many executory  contracts,  including the operating  leases
and product  supply  agreement  included  in the above table that were  rejected
during the Chapter 11 proceedings.

     Payments under the deferred  payment  agreements in the above table reflect
the minimum payments  required under the agreements.  Certain  provisions of the
agreements may require  acceleration  of the timing of the payments,  but not an
increase  in the total  amount to be paid.  Payments  under the  product  supply
agreement in the above table  reflect the minimum  payments  required  under the
agreement.

     In addition,  the Company is party to an agreement that requires  quarterly
contributions  of $75,000 to an  environmental  trust fund.  Monies in the trust
fund will be made available to the Company when the related  environmental  site
is remediated  or when the trust fund has a minimum  excess of $2.0 million over
the related site's estimated remaining  remediation costs. At December 31, 2003,
estimated  remaining  remediation costs exceeded the amount in the environmental
trust fund.

     The above table does not reflect any amounts that the Company  might pay to
fund its defined  benefit pension plans and OPEB plans, as the timing and amount
of any such future  fundings are unknown and  dependent  on, among other things,
the future  performance of defined  benefit  pension plan assets,  interest rate
assumptions  and actual  future  retiree  medical  costs.  Such defined  benefit
pension plans and OPEB plans are discussed above in greater detail.


<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Keystone's  exposure  to changes in interest  rates  relates  primarily  to
long-term  debt  obligations.  At December  31, 2003,  approximately  91% of the
Company's long-term debt was comprised of fixed rate instruments, which minimize
earnings  volatility  related to interest  expense.  Keystone does not currently
participate in interest rate-related derivative financial instruments.

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

<TABLE>
<CAPTION>
                                                                                                          Estimated
                                                   Contracted Maturity Date                               Fair Value
                          -----------------        ----------------------------------------
                             2004      2005     2006     2007      2008      Thereafter    Total       December 31, 2003
                             ----      ----     ----     ----      ----      ----------    -----       -----------------
                                                                 ($ In thousands)

Fixed-rate debt -
<S>                       <C>         <C>      <C>      <C>       <C>          <C>         <C>                <C>
  Principal amount        $28,226     $  23    $  14    $16,155   $   1        $16,031     $60,450            (1)

  Weighted-average
    interest rate             .02%     0.00%    0.00%     3.66%    0.00%         3.82%       2.00%

Variable-rate debt-
  Principal amount        $27,224     $  -     $  -     $  -       $  -        $  -       $27,224          $27,224

  Weighted-average
    interest rate            4.77%       -%       -%       -%        -%          -   %       4.77%
</TABLE>

     At December 31, 2002,  long-term  debt  included  fixed-rate  debt of $61.3
million (fair value - $35.0  million) with a weighted  average  interest rate of
6.3% and $36.0 million of variable-rate debt which approximated fair value, with
a weighted-average interest rate of 4.3%.

     (1)  Due to the significant uncertainties surrounding the Company's Chapter
          11 filings,  management is unable to estimate the aggregate fair value
          of Keystone's fixed rate notes at December 31, 2003.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information  called for by this Item is contained in a separate section
of this  report.  See Index of  Financial  Statements  and  Financial  Statement
Schedule on page F-1.

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

                                     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure  Controls and  Procedures.The  Company maintains a
system of disclosure controls and procedures.  The term "disclosure controls and
procedures,"  as defined by  regulations  of the SEC,  means  controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that the Company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed  to ensure  information  required  to be  disclosed  by the
Company  in the  reports  that it files or  submits  to the SEC under the Act is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive officer and its principal financial officer, as appropriate
to allow timely  decisions to be made  regarding  required  disclosure.  Each of
David L. Cheek, the Company's President and Chief Executive Officer, and Bert E.
Downing, Jr., the Company's Vice President,  Chief Financial Officer,  Corporate
Controller and Treasurer,  have evaluated the Company's  disclosure controls and
procedures as of December 31, 2003. Based upon their evaluation, these executive
officers have  concluded that the Company's  disclosure  controls and procedures
are effective as of the date of such evaluation.

     Internal  Control Over  Financial  Reporting.  The Company also maintains a
system of internal controls over financial reporting. The term "internal control
over financial reporting," as defined by regulations of the SEC, means a process
designed by, or under the supervision of, the Company's  principal executive and
principal  financial  officers,  or persons performing  similar  functions,  and
effected by the Company's board of directors, management and other personnel, to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with GAAP, and includes those policies and procedures that:

     o    Pertain  to the  maintenance  of  records  that in  reasonable  detail
          accurately and fairly reflect the transactions and dispositions of the
          assets of the Company,
     o    Provide  reasonable   assurance  that  transactions  are  recorded  as
          necessary to permit preparation of financial  statements in accordance
          with GAAP, and that receipts and expenditures of the Company are being
          made  only  in  accordance  with   authorizations  of  management  and
          directors of the Company, and
     o    Provide reasonable  assurance regarding prevention or timely detection
          of  unauthorized  acquisition,  use or  disposition  of the  Company's
          assets that could have a material effect on the Company's consolidated
          financial statements.


     The Company currently expects that Section 404 of the Sarbanes-Oxley Act of
2002 will  require  the  Company  to  annually  include a  management  report on
internal  control over financial  reporting  starting with the Company's  Annual
Report  on Form  10-K  for the year  ended  December  31,  2007.  The  Company's
independent  registered public accounting firm will also be required to annually
audit the  Company's  internal  control over  financial  reporting.  In order to
achieve compliance with Section 404, the Company will have to document, test and
evaluate its internal control over financial  reporting,  using a combination of
internal  and  external  resources.  The  process of  documenting,  testing  and
evaluating the Company's  internal  control over financial  reporting  under the
applicable  guidelines  is  expected  to be  complex  and  time  consuming,  and
available internal and external resources necessary to assist the Company in the
documentation  and testing required to comply with Section 404 could be limited.
While the Company currently believes it will be able to dedicate the appropriate
resources,  and that it will be able to fully  comply  with  Section  404 in its
Annual  Report on Form 10-K for the year  ended  December  31,  2007 and be in a
position  to  conclude  that  the  Company's  internal  control  over  financial
reporting  is  effective  as  of  December  31,  2007,  because  the  applicable
requirements are complex and time consuming,  and because  currently  unforeseen
events or circumstances  beyond the Company's control could arise,  there can be
no  assurance  that the Company  will  ultimately  be able to fully  comply with
Section 404 in its Annual  Report on Form 10-K for the year ended  December  31,
2007 or whether it will be able to conclude that the Company's  internal control
over financial reporting is effective as of December 31, 2007.


     Changes in Internal  Control Over  Financial  Reporting.  There has been no
change to the Company's  system of internal  controls over  financial  reporting
during the quarter ended December 31, 2003 that has materially  affected,  or is
reasonably  likely to  materially  affect,  the  Company's  system  of  internal
controls over financial reporting.



<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                                    DIRECTORS

     The bylaws of Keystone provide that the Board of Directors shall consist of
not less than five and not more than nine persons, as determined by the Board of
Directors from time to time. The Board of Directors has currently set the number
of directors at seven. The directors  elected at the Annual Meeting held October
2, 2003,  will hold office  until the next annual  meeting of  shareholders  and
until their  successors are duly elected and qualified or their earlier removal,
resignation or death.

     Set forth below is certain information concerning the directors of Keystone
as of December 31, 2003.  Biographical  information,  including  ages,  is as of
December 31, 2003.

THOMAS E. BARRY                                             Director since 1989

     Dr. Barry,  age 60, is vice  president  for  executive  affairs at Southern
Methodist  University  and has been a professor of marketing in the Edwin L. Cox
School of Business at Southern  Methodist  University  since prior to 1999.  Dr.
Barry is also a director of Valhi, Inc.  ("Valhi"),  a publicly held diversified
holding company related to Keystone.  Dr. Barry ceased being a director upon the
Company's emergence from Chapter 11 on August 31, 2005.

WILLIAM SPIER                                               Director since 1996

     Mr. Spier, age 69, is chairman of the board of Empire  Resources,  Inc. and
has served in such  capacity  since  September  1999.  Mr.  Spier  resigned as a
director in January 2005.

PAUL M. BASS, JR.                                           Director since 1989

     Mr. Bass, age 68, is vice chairman of First Southwest  Company, a privately
owned  investment  banking firm,  and has served in such capacity since prior to
1999.  Mr.  Bass is also a director of CompX  International  Inc.  ("CompX"),  a
manufacturer  of ergonomic  computer  support  systems,  precision  ball bearing
slides and security  products  that is related to Valhi,  and a director of MACC
Private  Equities Inc., a business  development  company.  Mr. Bass is currently
serving as chairman of the board of trustees of Southwestern Medical Foundation,
a foundation  that supports and promotes The  University  of Texas  Southwestern
Medical Center.

KEITH R. COOGAN                                             Director since 2003

     Mr. Coogan, age 51, is chief executive officer of Software Spectrum,  Inc.,
a global  business-to-business  software  services  provider that is currently a
wholly owned  subsidiary of Level 3  Communications,  but from 1991 to June 2002
was a publicly traded corporation.  From 1990 to October 2002, Mr. Coogan served
in various other executive  officer  positions of Software  Spectrum,  including
vice president of finance and operations and chief operating officer. Mr. Coogan
is also a director of CompX.  Mr. Coogan serves as chairman of Keystone's  audit
committee  and the  Board  of  Directors  has  determined  that he is an  "audit
committee  financial  expert"  as defined by the U.S.  Securities  and  Exchange
Commission and is an independent  director under the corporate  governance rules
of the New York Stock  Exchange.  Mr.  Coogan  ceased being a director  upon the
Company's emergency from Chapter 11 on August 31, 2005.

GLENN R. SIMMONS                                             Director since 1986

     Mr. Simmons, age 75, is chairman of the board of Keystone and has served in
such capacity  since prior to 1999.  Since prior to 1999, Mr. Simmons has served
as vice chairman of the board of directors of Valhi and Contran. Mr. Simmons has
been a director of Contran and an executive  officer and/or  director of various
companies related to Contran since prior to 1999. He is chairman of the board of
CompX, a director of NL Industries,  Inc.  ("NL"),  and Kronos  Worldwide,  Inc.
("Kronos  Worldwide"),  both  engaged  in the  maufacture  of  titanium  dioxide
pigments  and related to Valhi;  and a director of Titanium  Metals  Corporation
("TIMET"),  a company engaged in the titanium metals industry that is related to
Valhi. Mr. Simmons is a brother of Harold C. Simmons,  the chairman of the board
of Valhi and Contran.

J. WALTER TUCKER, JR.                                        Director since 1971

     Mr.  Tucker,  age 78, is vice  chairman  of the board of  Keystone  and has
served  in such  capacity  since  prior to 1999.  Mr.  Tucker  has  served  as a
director,  president and chief  executive  officer of Tucker & Branham,  Inc., a
privately owned real estate,  mortgage banking and insurance firm since prior to
1999.  Mr. Tucker is also a director of Valhi.  Since prior to 1999, he has also
been an executive  officer and/or director of various companies related to Valhi
and Contran.  Mr. Tucker  ceased being a director  upon the Company's  emergence
from Chapter 11 on August 31, 2005.

STEVEN L. WATSON                                             Director since 2000

     Mr. Watson,  age 53, has been president and a director of Valhi and Contran
since  1998 and  chief  executive  officer  of Valhi  since  2002.  He is also a
director of CompX,  NL, Kronos  Worldwide and TIMET. Mr. Watson has served as an
executive  officer  and/or  director of various  companies  related to Valhi and
Contran since 1980.

                               EXECUTIVE OFFICERS

     In  addition  to Glenn R.  Simmons as  chairman  of the board and J. Walter
Tucker, Jr. as vice chairman,  the following are currently executive officers of
Keystone.  Each  executive  officer  serves  at the  pleasure  of the  Board  of
Directors. Biographical information, including ages, is as of December 31, 2003:

     DAVID L.  CHEEK,  age 54, is  president  and  chief  executive  officer  of
Keystone and has served in such  capacities  since April 2003.  He was president
and chief  operating  officer  from  October  2001 to April 2003.  Mr. Cheek has
served as president,  Keystone Steel & Wire, a division of Keystone, since March
2000 and was vice president of manufacturing,  Keystone Steel & Wire, from March
1999 to March  2000.  He was  vice  president  of  operations,  Atlantic  Steel,
Atlanta, Georgia from 1996 to 1999.

     BERT E. DOWNING,  JR., age 47, is vice president,  chief financial officer,
corporate controller and treasurer of Keystone and has served in such capacities
since  December  2002. He served as vice  president - corporate  controller  and
treasurer since May 2001, as vice president and corporate controller since March
2000, and as corporate controller since prior to 1999.

     SANDRA K. MYERS, age 60, has served as corporate  secretary of Keystone and
as executive secretary of Contran since prior to 1999.



<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION.

                            COMPENSATION OF DIRECTORS

     Directors of Keystone receive an annual retainer of $15,000,  a fee of $750
per day for each Board of Directors  meeting and/or committee  meeting attended,
and  reimbursement  for  reasonable  expenses  incurred  in  attending  Board of
Directors  and/or  committee  meetings.  Messrs.  Glenn R. Simmons and Steven L.
Watson  ceased  receiving  fees for serving as directors in November  2003.  The
Keystone  Consolidated  Industries,  Inc. 1997 Long-Term Incentive Plan provides
for awards or grants of stock options,  stock  appreciation  rights,  restricted
stock,  performance  grants  and  other  awards  to key  individuals,  including
directors, performing services for Keystone or its subsidiaries.  Under the 1997
Long-Term   Incentive  Plan,   directors  are  annually  granted  stock  options
exercisable for 1,000 shares of Keystone common stock, par value $1.00 per share
(the "Common Stock").  These options have an exercise price equal to the closing
sales price per share of Common  Stock on the date of grant,  have a term of ten
years  and  fully  vest on the  first  anniversary  of the  date of  grant.  The
directors waived their rights to their 2003 annual grant of stock options,  and,
accordingly,  no annual  grants  were made in 2003.  In  addition  to serving as
directors,  Messrs.  Simmons,  Watson and Tucker provide consulting  services to
Keystone.  Keystone pays Contran for the consulting services provided by Messrs.
Simmons  and Watson  pursuant to  Intercorporate  Services  Agreements  approved
periodically  between  Contran and Keystone  (each an  "Intercorporate  Services
Agreement"). See Item 13 - Certain Relationships and Related Transactions.

                             EXECUTIVE COMPENSATION

     The  Summary  Compensation  Table  set  forth  below  provides  information
concerning  annual and  long-term  compensation  paid by Keystone  for  services
rendered in all capacities to Keystone and its  subsidiaries  during 2003,  2002
and 2001 by each of the most highly  compensated  individuals who were executive
officers of Keystone at December 31, 2003 (the "named executive officers").  For
amounts  Keystone  incurred  that were  attributable  to the  services  Glenn R.
Simmons provided Keystone in 2003, 2002 and 2001 under  Intercorporate  Services
Agreements, see Item 13 - Certain Relationships and Related Transactions.

                         SUMMARY COMPENSATION TABLE (1)



<TABLE>
<CAPTION>
                                                               Annual
                                                          Compensation (2)
                Name and                                  ----------------             All Other
           Principal Position               Year               Salary                 Compensation
--------------------------                 ------        ------------------          ---------------

<S>                                         <C>                <C>                       <C>     <C>
David L. Cheek                              2003               $286,540                  $ 5,431 (2)
President and Chief                         2002                250,000                    2,709 (2)
   Executive Officer                        2001                203,388                    1,534 (2)


Bert E. Downing, Jr.......                  2003               $210,000                  $   523 (2)
Vice President, Chief                       2002                200,000                       35 (2)
   Financial Officer,                       2001                170,000                    1,918 (2)
   Corporate Controller
   and Treasurer
--------------
</TABLE>

(1)  For the  periods  presented  for the  named  executive  officers,  no stock
     options  or shares of  restricted  stock  were  granted  nor  payouts  made
     pursuant to  long-term  incentive  plans.  Therefore,  the columns for such
     compensation have been omitted.


<PAGE>


(2)  No bonuses were paid to the executive  officers for the periods  presented.
     An amount for other annual compensation is disclosed only if the amount for
     other annual compensation exceeds the level required for reporting pursuant
     to Securities and Exchange  Commission  (the "SEC") rules.  Therefore,  the
     columns for such compensation have been omitted.

(3)  All other  compensation  for the last three years for each of the following
     named executive officers consisted of accruals to unfunded reserve accounts
     attributable to certain limits under the Internal  Revenue Code of 1986, as
     amended  (the  "Code"),  with  respect  to the 401(k)  Plan and  Keystone's
     pension plan, which amounts are payable upon the named executive  officer's
     retirement,  the  termination  of his  employment  with  Keystone or to his
     beneficiaries upon his death; as follows:


<TABLE>
<CAPTION>
                                                        Unfunded Reserve Account Accruals
                                                        ----------------------------------
                                                Account Accruals Related       Interest Accruals
                                                  to 401(k) and Pension      Above 120% of the AFR
      Named Executive Officer                       Plan Limitations               Rate (a)
                                       Year                                                                 Total
---------------------                 -----         -----------------           ---------------         -------------

<S>                                    <C>                <C>                       <C>   <C>               <C>
David L. Cheek                         2003               $   5,431                 $    -0-                $  5,431
                                       2002                   2,697                       12                   2,709
                                       2001                   1,534                      -0-                   1,534

Bert E. Downing, Jr.                   2003                     523                      -0-                     523
                                       2002                     -0-                       35                      35
                                       2001                   1,845                       73                   1,918

--------------
</TABLE>

     (a)  The agreements for these unfunded  reserve  accounts  provide that the
          balance of such accounts accrue credits in lieu of interest compounded
          quarterly.  Pursuant to SEC rules,  the amounts  shown  represent  the
          portion of the credit accruals to the unfunded  reserve  accounts that
          exceeds 120% of the applicable federal long-term rate as prescribed by
          the Code (the "AFR Rate"). The AFR Rate used for such computations was
          the AFR Rate in effect on December  31, 2003,  2002 and 2001,  for the
          date that the credit accruals for 2003,  2002 and 2001,  respectively,
          were credited to the unfunded reserve account.





<PAGE>
     No Grants of Stock Options or Stock Appreciation  Rights.  Keystone did not
grant any stock options or stock appreciation rights ("SARs") during 2003.

     Stock  Option   Exercises  and  Holdings.   The  following  table  provides
information,  with respect to the named executive officers, concerning the value
of  unexercised  stock options for Common Stock held as of December 31, 2003. In
2003, no named executive officer  exercised any stock options.  Keystone has not
granted any SARs.  The  underlying  Common  Stock  related to these  options was
cancelled in connection with Keystone's  emergence from Chapter 11 on August 31,
2005. See Note 19 to the Consolidated Financial Statements.

                         DECEMBER 31, 2003 OPTION VALUES

<TABLE>
<CAPTION>
                                         Number of Shares Underlying
                                            Unexercised Options at                     Value of Unexercised
                                            December 31, 2003 (#)                      In-the-Money Options
              Name                                                                   at December 31, 2003 (1)
     --------------------               --------------------------                --------------------------
                                   Exercisable         Unexercisable         Exercisable         Unexercisable
                                   -----------         -------------         -----------         -------------

<S>                                       <C>                      <C>               <C>                 <C>
David L. Cheek                            42,000                  -0-                $   -0-             $   -0-
Bert E. Downing, Jr.                      42,000                  -0-                    -0-                 -0-
----------
</TABLE>

(1)  The values shown in the table are based on the $.10 per share closing price
     of the Common Stock on December  31, 2003,  as reported by the OTC Bulletin
     Board, less the exercise price of the options.

     Pension  Plan.  Keystone  maintains a  qualified,  noncontributory  defined
benefit plan which  provides  defined  retirement  benefits to various groups of
eligible employees  including  executive  officers.  Normal retirement age under
Keystone's  pension plan is age 65. The defined benefit for salaried  employees,
including officers, is based on a straight life annuity. An individual's monthly
benefit is the sum of the following:  (a) for credited  service prior to January
1, 1981, the amount  determined by his or her average monthly cash  compensation
for the five  years of his or her  highest  earnings  prior to  January 1, 1981,
multiplied by 1.1%,  multiplied by the years of credited  service,  plus (b) for
each year of service between 1980 and 1989, the amount  determined by the sum of
1.2% multiplied by his or her average monthly cash  compensation that year up to
the social security wage base and 1.75% multiplied by his or her average monthly
cash compensation that year in excess of the social security wage base, plus (c)
for each year  subsequent to 1989, the amount  determined by 1.2%  multiplied by
his or her average monthly cash compensation that year, but not less than $14.00
per month.

     The estimated annual benefits payable upon retirement at normal  retirement
age for each of the named executive officers, assuming continued employment with
Keystone  until normal  retirement  age at current  salary levels are:  David L.
Cheek, $36,847; and Bert E. Downing, Jr., $59,921.


           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     No  member  of the  Compensation  Committee  is or has been an  officer  or
employee  of  Keystone  or any of its  subsidiaries.  No  executive  officer  of
Keystone has served on the compensation  committee,  similar committee, or board
of  directors  of another  entity,  one of whose  executive  officers  served on
Keystone's Compensation Committee or Board of Directors.



<PAGE>


                                 CODE OF ETHICS

     Keystone  has not  adopted a code of  ethics  applicable  to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller,  or persons performing  similar functions.  Keystone has not adopted
such  code  because  of the  limitations  on its  staff,  its  severely  limited
financial resources and other significant additional burdens that its Chapter 11
filing have imposed on its available human and financial resources.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
Keystone's executive officers,  directors and persons who own more than 10% of a
registered  class of Keystone's  equity  securities to file reports of ownership
with the SEC and  Keystone.  Based  solely on the  review of the  copies of such
reports  filed  with  the SEC,  Keystone  believes  that for 2003 its  executive
officers,  directors and 10%  stockholders  complied with all applicable  filing
requirements under Section 16(a).

                        SECURITY OWNERSHIP OF MANAGEMENT

     As of December 31, 2003, Keystone's directors, the named executive officers
and the directors  and executive  officers as a group,  beneficially  owned,  as
defined  by the  rules of the SEC,  the  shares  of  Common  Stock  shown in the
following table. All of the Company's  outstanding  Common Stock at December 31,
2003 was cancelled in connection  with  Keystone's  emergence from Chapter 11 on
August 31, 2005. See Note 19 to the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                                       Common Stock
                                                                              ------------------------------
                                                                          Amount and Nature of        Percent of
                                                                        Beneficial Ownership (1)     Class (1)(2)
                      Name of Beneficial Owner
---------------------------------------------                             -------------------         -----------

<S>                                                                            <C>                        <C>
Thomas E. Barry.....................................................           9,000 (3)(4)                *
Paul M. Bass, Jr....................................................          14,000 (3)(4)                *
David L. Cheek......................................................          42,000 (3)(4)                *
Keith R. Coogan.....................................................             -0-                       *
Bert E. Downing, Jr.................................................          44,007 (3)(4)                *
Glenn R. Simmons....................................................         242,650 (3)(4)(5)            2.4%
William Spier.......................................................         386,262 (3)                  3.8%
J. Walter Tucker, Jr................................................         160,450 (3)(4)               1.6%
Steven L. Watson....................................................           3,250 (3)(4)                *

All directors and executive officers as a group (10 persons) .....
                                                                             925,219 (3)(4)(5)            9.0%
</TABLE>

--------------------
*        Less than 1%.

(1)  All  beneficial  ownership is sole and direct except as otherwise set forth
     herein.  Information  as to the  beneficial  ownership  of Common Stock has
     either been furnished to Keystone by or on behalf of the indicated  persons
     or is taken  from  reports  on file with the SEC.  The number of shares and
     percentage  of ownership  of Common Stock for each person or group  assumes
     the exercise by such person or group  (exclusive of the exercise by others)
     of stock  options  that such  person or group may  exercise  within 60 days
     subsequent to December 31, 2003.

(2)  The percentages are based on 10,068,450  shares of Common Stock outstanding
     as of December 31, 2003.

(3)  The shares of Common  Stock shown as  beneficially  owned by such person or
     group include the  following  number of shares such person or group has the
     right to acquire upon the  exercise of stock  options  granted  pursuant to
     Keystone's  various  stock  option  plans  that  such  person  or group may
     exercise within 60 days subsequent to December 31, 2003:

<TABLE>
<CAPTION>
                                                                                          Shares of Common Stock
                                                                                        Issuable Upon the Exercise
                                                                                       of Stock Options On or Before
                                                                                             February 29, 2004

                                   Name of Beneficial Owner
         -------------------------------------------------                                  -------------------

<S>                                                                                                 <C>
         Thomas E. Barry...........................................................                 7,000
         Paul M. Bass, Jr..........................................................                 7,000
         David L. Cheek............................................................                42,000
         Keith R. Coogan...........................................................                 -0-
         Bert E. Downing, Jr.......................................................                42,000
         Glenn R. Simmons..........................................................               127,000
         William Spier.............................................................                 7,000
         J. Walter Tucker, Jr......................................................                 7,000
         Steven L. Watson..........................................................                 1,000
         All other executive officers of Keystone as a group (1 person)............
                                                                                                   20,000
</TABLE>

(4)  Excludes  certain  shares that such  individual may be deemed to indirectly
     and  beneficially  own as to which  such  individual  disclaims  beneficial
     ownership.   See  footnote  (2)  to  the  "Security  Ownership  of  Certain
     Beneficial Owners" table for a description of such excluded shares.

(5)  Glenn R. Simmons is a brother of Harold C. Simmons. See footnote (2) to the
     "Security Ownership of Certain Beneficial Owners" table.

                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     The  following  table and  footnotes  set forth the  stockholders  known to
Keystone to be beneficial  owners, as defined by regulations of the SEC, of more
than 5% of the  outstanding  shares of Common Stock as of December 31, 2003. The
table  and  footnotes  also set  forth the  shares  of  Keystone's  Series A 10%
Cumulative  Convertible  Pay-In-Kind Preferred Stock, stated value $1,000 and no
par  value  per  share  (the  "Series  A  Preferred  Stock"),  Contran  and  its
subsidiaries  beneficially owned as of December 31, 2003. See footnote (2) below
for  information  concerning  individuals and entities that may be deemed to own
indirectly and beneficially those shares of Common Stock that Contran, Valhi and
NL directly and indirectly hold.


<PAGE>



<TABLE>
<CAPTION>
                                                                                                                     Common and
                                                                                                                      Series A
                                                      Common Stock                  Series A Preferred Stock          Preferred
                                             -------------------------------        -------------------------          Stock
                                           Amount and                               Amount and                        Combined
                                           Nature of                                Nature of                         Percent
                                           Beneficial              Percent of       Beneficial     Percent of             of
        Beneficial Owner                   Ownership (1)            Class (1)       Ownership (1)   Class (1)          Class (1)
----------------------------             --------------            ----------       -------------  ----------        -----------

Harold C. Simmons
<S>                                         <C>                      <C>             <C>              <C>           <C>
     Contran Corporation (2)                4,109,159  (3)           40.8%           54,956  (3)      76.4%         75.0%
     Valhi, Inc. (2)                          326,364  (3)            3.2%              -0-  (3)        -0-%         1.4%
     NL Industries, Inc. (2)                  326,050  (3)            3.2%              -0-  (3)        -0-%         1.4%
     Harold Simmons Foundation, Inc.          188,400                 1.9%              -0-  (3)        -0-%         *
     The Combined Master Retirement
      Trust                                    30,000                 *                 -0-  (3)        -0-%         *
     Annette C. Simmons                        10,645                 *                 -0-  (3)        -0-%         *
                                            ---------                               -------
                                            4,990,618                49.6%           54,956  (3)      76.4%         78.7%
</TABLE>

All of the Company's  outstanding  Common Stock and Series A Preferred  Stock at
December 31, 2003 was cancelled in connection  with  Keystone's  emergence  from
Chapter  11 on  August  31,  2005.  See  Note 19 to the  Consolidated  Financial
Statements.


--------------------
* Less than 1%

(1)  The percentages  are based on 10,068,450  shares of Common Stock and 71,899
     shares of Series A Preferred  Stock  outstanding  as of December  31, 2003.
     Subject to Keystone's Restated Certificate of Incorporation,  each share of
     Series A Preferred Stock entitles its holder to convert such share into 250
     shares of Common Stock (a conversion price equivalent to $4.00 per share of
     the stated value). Except as otherwise provided by law, a share of Series A
     Preferred Stock does not entitle its holder to voting rights.  The combined
     percent of class assumes the full  conversion of only  Contran's  shares of
     Series A Preferred Stock. The terms of the Series A Preferred Stock are set
     forth in Exhibit 3.2 to the  Company's  Annual  Report on Form 10-K for the
     year ended December 31, 2002.  All  information is taken from or based upon
     ownership  filings made by such  persons  with the SEC or upon  information
     provided by such persons.

(2)  The business address of Contran, Valhi and NL is Three Lincoln Centre, 5430
     LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.

     Contran, Valhi, NL, the Harold Simmons Foundation, Inc. (the "Foundation"),
     The Combined  Master  Retirement  Trust (the "Master Trust") and Annette C.
     Simmons,  the  spouse of Harold  C.  Simmons,  are the  direct  holders  of
     approximately 40.8%, 3.2%, 3.2%, 1.9%, 0.3% and 0.1%, respectively,  of the
     outstanding   Common   Stock.   Contran  is  also  the  direct   holder  of
     approximately  76.4% of the outstanding  Series A Preferred Stock, which is
     convertible  into  approximately  57.7%  of the  outstanding  Common  Stock
     assuming only Contran's conversion of all of its Series A Preferred Stock.

     Valhi,  Tremont LLC  ("Tremont")  and Ms. Simmons are the direct holders of
     approximately  63.1%,  21.4% and  0.1%,  respectively,  of the  outstanding
     common stock of NL. Valhi is the sole member of Tremont.

     Valhi Group, Inc. ("VGI"), National City Lines, Inc. ("National"), Contran,
     the Foundation,  the Contran Deferred  Compensation  Trust No. 2 (the "CDCT
     No. 2") and the Master Trust are the direct holders of 77.6%,  9.1%,  3.1%,
     0.9%,  0.4% and 0.1%,  respectively,  of the  outstanding  common  stock of
     Valhi.  National,  NOA,  Inc.  ("NOA") and Dixie  Holding  Company  ("Dixie
     Holding") are the direct holders of approximately  73.3%,  11.4% and 15.3%,
     respectively,  of the outstanding  common stock of VGI. Contran and NOA are
     the direct holders of approximately 85.7% and 14.3%,  respectively,  of the
     outstanding common stock of National.  Contran and Southwest Louisiana Land
     Company,  Inc.  ("Southwest") are the direct holders of approximately 49.9%
     and 50.1%, respectively, of the outstanding common stock of NOA. Dixie Rice
     Agricultural Corporation,  Inc. ("Dixie Rice") is the direct holder of 100%
     of the outstanding common stock of Dixie Holding.  Contran is the holder of
     100% of the outstanding common stock of Dixie Rice and approximately  88.9%
     of the outstanding common stock of Southwest.

     Substantially all of Contran's  outstanding  voting stock is held by trusts
     established for the benefit of certain children and grandchildren of Harold
     C. Simmons (the "Trusts"), of which Mr. Simmons is the sole trustee or held
     by Mr. Simmons or persons or other entities related to Mr. Simmons. As sole
     trustee of the  Trusts,  Mr.  Simmons  has the power to vote and direct the
     disposition of the shares of Contran stock held by the Trusts. Mr. Simmons,
     however,  disclaims  beneficial  ownership  of any Contran  shares that the
     Trusts hold.

     The Foundation  directly holds approximately 1.9% of the outstanding shares
     of Common Stock and 0.9% of the  outstanding  shares of Valhi common stock.
     The  Foundation  is  a  tax-exempt   foundation  organized  for  charitable
     purposes.

     The Master  Trust  directly  holds  approximately  0.3% of the  outstanding
     shares of Common Stock and 0.1% of the  outstanding  shares of Valhi common
     stock.  Valhi  established  the  Master  Trust  as a trust  to  permit  the
     collective  investment by master trusts that maintain the assets of certain
     employee  benefit plans Valhi and related  companies  adopt. Mr. Simmons is
     the sole trustee of the Master  Trust and a member of the trust  investment
     committee for the Master Trust. Mr. Simmons is a participant in one or more
     of the employee benefit plans that invest through the Master Trust.

     Harold C. Simmons is the chairman of the board and chief executive  officer
     of NL, and chairman of the board of Tremont,  Valhi,  VGI,  National,  NOA,
     Dixie Holding, Dixie Rice, Southwest, Contran and the Foundation.

     By virtue of the  holding  of the  offices,  the  stock  ownership  and his
     services as trustee,  all as described  above, Mr. Simmons may be deemed to
     control such entities,  and Mr. Simmons and certain of such entities may be
     deemed to possess  indirect  beneficial  ownership  of the shares of Common
     Stock or Series A Preferred  Stock  directly  held by certain of such other
     entities.  Mr.  Simmons,  however,  disclaims  beneficial  ownership of the
     shares of Common  Stock or Series A  Preferred  Stock  beneficially  owned,
     directly or indirectly,  by any of such  entities,  except to the extent of
     his vested beneficial  interest,  if any, in any shares of Common Stock the
     Master Trust directly holds.

     Harold C.  Simmons'  spouse is the direct owner of 10,645  shares of Common
     Stock and 69,475  shares of NL common stock.  Mr.  Simmons may be deemed to
     share indirect  beneficial  ownership of such shares. Mr. Simmons disclaims
     all such beneficial ownership.

     Messrs.  Barry and Tucker are directors of Valhi. Messrs. Glenn Simmons and
     Watson are  directors  and  executive  officers  of Valhi and  Contran  and
     directors  of NL.  Messrs.  Bass  and  Tucker  are  members  of  the  trust
     investment  committee of the Master Trust.  Messrs. David L. Cheek, Bert E.
     Downing, Jr., Glenn Simmons,  Harold Simmons and Watson are participants in
     one or more of the employee  benefit  plans that invest  through the Master
     Trust. Each of such persons disclaims beneficial ownership of any shares of
     Common Stock directly or indirectly  owned by any of such entities,  except
     to the extent of such person's vested beneficial  interest,  if any, in any
     shares of Common Stock the Master Trust directly holds.

     The CDCT No. 2 directly holds  approximately  0.4% of the outstanding Valhi
     common stock. U.S. Bank National  Association  serves as the trustee of the
     CDCT No. 2. Contran  established  the CDCT No. 2 as an  irrevocable  "rabbi
     trust"  to  assist  Contran  in  meeting  certain   deferred   compensation
     obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets are
     insufficient to satisfy such  obligations,  Contran is obligated to satisfy
     the balance of such obligations as they come due.  Pursuant to the terms of
     the CDCT No. 2,  Contran  (i) retains the power to vote the shares of Valhi
     common  stock held  directly  by the CDCT No. 2, (ii)  retains  dispositive
     power  over such  shares and (iii) may be deemed  the  indirect  beneficial
     owner of such shares.

     For purposes of calculating the outstanding shares of Valhi common stock as
     of December 31, 2003,  1,000,000,  3,522,967 and 1,186,200  shares of Valhi
     common stock held by Valmont Insurance  Company,  a wholly owned subsidiary
     of Valhi ("Valmont"), NL and a subsidiary of NL, respectively, are excluded
     from the amount of Valhi  common  stock  outstanding.  Pursuant to Delaware
     corporate law,  Valhi treats these  excluded  shares held by these majority
     owned subsidiaries as treasury stock for voting purposes.

     The business address of Tremont,  VGI,  National,  NOA, Dixie Holding,  the
     Master  Trust,  the  Foundation  and  Harold and  Annette  Simmons is Three
     Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. The
     business address of Dixie Rice is 600 Pasquiere Street, Gueydan,  Louisiana
     70542.  The  business  address of  Southwest  is 402 Canal  Street,  Houma,
     Louisiana 70360.

     It is possible that Keystone's  Chapter 11 filing may result in a change of
control of Keystone.



<PAGE>


                      EQUITY COMPENSATION PLAN INFORMATION

     The following table provides summary  information  required by SEC rules as
of December 31, 2003 with respect to Keystone's equity  compensation plans under
which  Keystone's  equity  securities may be issued to employees or nonemployees
(such as directors,  consultants,  advisers, vendors,  customers,  suppliers and
lenders)  in  exchange  for  goods  or  services.   The  Keystone   Consolidated
Industries,  Inc. 1992 Incentive Compensation Plan and the Keystone Consolidated
Industries, Inc. 1997 Long-Term Incentive Plan, both of which have been approved
by  Keystone's  stockholders,  are the only such  Keystone  equity  compensation
plans.  The  underlying  Common Stock  related to these options was cancelled in
connection  with  Keystone's  emergence  from Chapter 11 on August 31, 2005. See
Note 19 to the Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                     Column (A)                   Column (B)                   Column (C)
                                 ------------------           ------------------           ------------------
                                                                                               Number of
                                                                                               Securities
                                                                                                Remaining
                                     Number of                                                Available for
                                 Securities to be                                            Future Issuance
                                    Issued upon                Weighted-Average               Under Equity
                                    Exercise of               Exercise Price of            Compensation Plans
                                    Outstanding                  Outstanding                   (Excluding
                                      Options,                     Options,                    Securities
                                    Warrants and                 Warrants and                 Reflected in
  Plan Category                        Rights                       Rights                     Column (A))
----------------                ------------------           ------------------           ------------------

Equity compensation plans
approved by security
<S>                                 <C>                           <C>                         <C>
holders....................         426,000                       $8.13                       245,000

Equity compensation plans
not approved by security
holders....................            -0-                         -0-                           -0-

Total......................         426,000                       $8.13                       245,000
</TABLE>


<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     As set forth in Item 12 under the caption  "Security  Ownership  of Certain
Beneficial  Owners,"  Harold C. Simmons,  through  Contran and other entities or
persons,   may  be  deemed  to  beneficially  own  approximately  49.6%  of  the
outstanding  Common  Stock as of  December  31, 2003  (78.7%  assuming  the full
conversion of only Contran's shares of Series A Preferred Stock) and, therefore,
may be deemed to  control  Keystone.  Keystone  and other  entities  that may be
deemed to be controlled by or affiliated  with Mr. Simmons  sometimes  engage in
(a)  intercorporate  transactions  such as  guarantees,  management  and expense
sharing  arrangements,  shared fee arrangements,  joint ventures,  partnerships,
loans,  options,  advances  of funds on open  account,  and  sales,  leases  and
exchanges of assets,  including  securities issued by both related and unrelated
parties,  and  (b)  common  investment  and  acquisition  strategies,   business
combinations,  reorganizations,  recapitalizations,  securities  repurchases and
purchases and sales (and other  acquisitions and  dispositions) of subsidiaries,
divisions or other business units, which transactions have involved both related
and  unrelated  parties and have  included  transactions  which  resulted in the
acquisition by one related party of a publicly-held  minority equity interest in
another related party.  Keystone continuously  considers,  reviews and evaluates
and understands that Contran and related entities continuously consider,  review
and evaluate  such  transactions.  Depending  upon the  business,  tax and other
objectives  then relevant,  it is possible that Keystone might be a party to one
or more of such transactions in the future. In connection with these activities,
Keystone  may  consider  issuing   additional  equity  securities  or  incurring
additional indebtedness.  Keystone's acquisition activities have in the past and
may in the future include  participation  in the  acquisition  or  restructuring
activities  conducted by other  companies that may be deemed to be controlled by
Harold C. Simmons.  It is the policy of Keystone to engage in transactions  with
related  parties on terms,  in the opinion of  Keystone,  no less  favorable  to
Keystone than could be obtained from unrelated parties.

     No  specific   procedures  are  in  place  that  govern  the  treatment  of
transactions among Keystone and its related entities, although such entities may
implement  specific  procedures as appropriate for particular  transactions.  In
addition,  under  applicable  principles  of law, in the absence of  stockholder
ratification  or  approval  by  directors  who  may  be  deemed   disinterested,
transactions  involving  contracts  among companies under common control must be
fair to all companies involved.  Furthermore,  directors owe fiduciary duties of
good faith and fair dealing to all  stockholders of the companies for which they
serve.

     Glenn R.  Simmons,  J.  Walter  Tucker,  Jr.  and  Sandra K.  Myers are not
salaried employees of Keystone.  Keystone has contracted with Contran,  on a fee
basis payable in quarterly  installments,  to provide certain administrative and
other  services to Keystone in addition to the  services of Mr.  Simmons and Ms.
Myers,  including  consulting services of Contran executive officers pursuant to
the Intercorporate  Services  Agreement between Contran and Keystone,  a copy of
which is  included  as Exhibit  10.1 in the  Annual  Report on Form 10-K for the
fiscal  year  ended  December  31,  2001.  The  fee  incurred  during  2003  was
$1,005,000. During 2003, the portion of the amount Keystone incurred pursuant to
the Intercorporate Services Agreements attributable to the services Mr. Glenn R.
Simmons provided Keystone was $242,200.

     Tall Pines Insurance  Company ("Tall  Pines"),  Valmont  Insurance  Company
("Valmont")  and EWI RE, Inc.  ("EWI")  provide for or broker certain  insurance
policies for Contran and certain of its subsidiaries  and affiliates,  including
the Company.  Tall Pines and Valmont are wholly-owned  subsidiaries of Valhi and
EWI is a  wholly-owned  subsidiary  of NL.  Prior to  January  2002,  an  entity
controlled by one of Harold C. Simmons'  daughters  owned a majority of EWI, and
Contran  owned the  remainder of EWI. In January 2002, NL purchased EWI from its
previous  owners.  Consistent  with insurance  industry  practices,  Tall Pines,
Valmont  and  EWI  receive   commissions  from  the  insurance  and  reinsurance
underwriters for the policies that they provide or broker. During 2003, Keystone
and its subsidiaries  paid  approximately  $2.2 million for policies provided or
brokered by Tall Pines,  Valmont and/or EWI. These amounts principally  included
payments for reinsurance and insurance premiums paid to unrelated third parties,
but also included commissions paid to Tall Pines and EWI. In Keystone's opinion,
the amounts that Keystone and its subsidiaries paid for these insurance policies
and the allocation  among the company and its  affiliates of relative  insurance
premiums are  reasonable  and similar to those they could have obtained  through
unrelated  insurance  companies  and/or  brokers.  Keystone  expects  that these
relationships with Tall Pines, Valmont and EWI will continue in 2004.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its subsidiaries and affiliates,  including the Company, have entered
into a loss sharing  agreement under which any uninsured loss is shared by those
entities  who have  submitted  claims  under the  relevant  policy.  The Company
believes  the  benefits in the form of reduced  premiums  and  broader  coverage
associated  with  the  group  coverage  for  such  policies  justifies  the risk
associated with the potential for any uninsured loss.

     Dallas Compressor  Company, a subsidiary of Contran,  sells compressors and
related  services to Keystone.  During  2003,  Keystone  purchased  products and
services from Dallas Compressor Company in the amount of $1,000.

     Aircraft  services were  purchased  from Valhi in the amount of $52,000 for
the year ended December 31, 2003.

     During  2003,  Garden  Zone,  a 51%  owned  subsidiary  of  Keystone,  paid
approximately  $35,000 to one of its other owners for  accounting  and financial
services.

     EWP Financial LLC,  ("EWPFLLC") a wholly owned  subsidiary of Contran,  has
agreed to loan  Keystone up to an aggregate of $6 million  through  February 29,
2004. Borrowings bear interest at the prime rate plus 3%, and are collateralized
by the stock of EWP. In addition, Keystone pays a commitment fee of .375% on the
unutilized  portion of the  facility.  At December  31,  2003,  no amounts  were
outstanding  under the  facility,  and $6 million was available for borrowing by
Keystone.  However,  EWPFLLC  has  issued a  $250,000  letter of credit  for the
benefit of the  Company  under  this  facility.  The  independent  directors  of
Keystone  approved the terms of this loan.  During 2003,  Keystone  paid Contran
unused line fees of $23,000 related to this facility.

     Keystone has a 50% interest in a joint  venture,  Alter  Recycling  Company
L.L.C.  ("ARC"),  to operate a ferrous scrap  recycling  operation at Keystone's
facility in Peoria, Illinois. During 2003, Keystone purchased approximately $5.5
million of ferrous scrap from ARC.

     Keystone  believes the terms of the  transactions  described  above were no
less  favorable  to Keystone  than those that could have been  obtained  from an
unrelated entity.

     See also Notes 3 and 11 to the Consolidated Financial Statements.


<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

     Independent Auditors. The firm of PricewaterhouseCoopers LLP ("PwC") served
as Keystone's  independent  registered public accounting firm for the year ended
December 31, 2003.  Keystone  expects PwC will be considered for  appointment to
audit Keystone's annual  consolidated  financial  statements for the year ending
December 31, 2004.

     Pre-approval  Policies and  Procedures.  Effective May 6, 2003,  Keystone's
audit committee  implemented  pre-approval  policies and procedures that require
the  audit  committee  to  pre-approve  any  services   Keystone's   independent
registered  public  accounting  firm  provides to Keystone or its  subsidiaries.
Prior to May 6, 2003,  Keystone's  audit  committee  pre-approved  all audit and
audit related services PwC rendered to Keystone and its subsidiaries.  The audit
committee did not pre-approve tax and other PwC services provided to Keystone or
its subsidiaries prior to May 6, 2003.

     Fees Paid to PwC.  The  following  table shows the  aggregate  fees PwC has
billed or is expected  to bill to Keystone  and its  subsidiaries  for  services
rendered for 2002 and 2003.

<TABLE>
<CAPTION>
                       Type of Fees                                    2002                        2003
                     ----------------                                  ----                        ----

<S>                                                                     <C>                       <C>
         Audit Fees (1)                                                 $279,057                  $647,821
         Audit-Related Fees (2)                                           83,495                    90,610
         Tax Fees (3)                                                       -                         -
         All Other Fees (4)                                              130,480                     9,100
                                                                        --------                  --------

         Total                                                          $493,032                  $747,531
                                                                        ========                  ========
</TABLE>

-----------------------

(1)  Fees for the following services:

     (a)  audits of Keystone's  consolidated  year-end financial  statements for
          each year ($214,057 and $629,821 in 2002 and 2003, respectively);
     (b)  reviews of the unaudited quarterly financial  statements  appearing in
          Keystone's  Form 10-Q for each of the  first  three  quarters  of each
          year;
     (c)  normally provided  statutory or regulatory  filings or engagements for
          each year; and
     (d)  the  estimated  out-of-pocket  costs PwC incurred in providing  all of
          such services for which Keystone reimburses PwC.
     (e)  accounting  consultations  and attest  services  concerning  financial
          accounting  and reporting  standards  ($65,000 in 2002) and accounting
          consultations  concerning  comment  letters  received  from the United
          States Securities and Exchange Commission ($18,000 in 2003).

(2)  Fees for employee benefit plan audits

(3)  Fees for tax compliance, tax advice and tax planning services.

(4)  Fees for actuarial valuation services related to Keystone's post retirement
     benefit plans.



<PAGE>


                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a)(1),  (2) The Index of Consolidated  Financial  Statements and Financial
Statement Schedule is included on page F-1 of this report.

     (a)(3) Exhibits

               Included as exhibits are the items  listed in the Exhibit  Index.
               The Company  will  furnish a copy of any of the  exhibits  listed
               below upon payment of $4.00 per exhibit to cover the costs to the
               Company in furnishing the exhibits.

Exhibit No.                          Exhibit


  3.1     Restated  Certificate of  Incorporation  dated  September 15, 1995, as
          filed with the Secretary of State of Delaware.

  3.2     Certificate of Amendment of the Restated  Certificate of Incorporation
          dated  October  9,  2003,  as  filed  with the  Secretary  of State of
          Delaware.

  3.3     Amended and Restated  Certificate of  Incorporation  of the Registrant
          dated  August  31,  2005,  as  filed  with the  Secretary  of State of
          Delaware.

  3.4     Amended  and  Restated   Certificate  of   Designations,   Rights  and
          Preferences  of the Series A 10%  Cumulative  Convertible  Pay-In-Kind
          Preferred Stock of Registrant  dated March 12, 2003.  (Incorporated by
          reference  to Exhibit 3.2 to the  Registrant's  Annual  Report on Form
          10-K for the year ended December 31, 2002).

  3.5     Bylaws of the  Company,  as amended  and  restated  December  30, 1994
          (Incorporated by reference to Exhibit 3.2 to the  Registrant's  Annual
          Report on Form 10-K for the year ended December 31, 1994).

  3.6     Amended and Restated Bylaws of the Registrant dated August 31, 2005.

  4.1     Indenture  dated as of August 7, 1997 relating to the  Registrant's  9
          5/8% Senior  Secured  Notes due 2007.  (Incorporated  by  reference to
          Exhibit 4.1 to the Registrant's Form 8-K filed September 4, 1997).

  4.2     First  Supplemental  Indenture Dated as of March 15, 2002 to Indenture
          Dated as of August 7, 1997 Between  Registrant  as Issuer and the Bank
          of New York, as Trustee.  (Incorporated by reference to Exhibit 4.2 to
          the  Registrant's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2001).

  4.3     Second Supplemental  Indenture Dated as of March 15, 2002 to Indenture
          Dated as of August 7, 1997 Between  Registrant  as Issuer and the Bank
          of New York, as Trustee.  (Incorporated by reference to Exhibit 4.3 to
          the  Registrant's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2001).



<PAGE>


Exhibit No.                          Exhibit

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

  4.5     First  Amendment to Amended and Restated  Revolving  Loan And Security
          Agreement  dated as of  September  27,  1996  between  Registrant  and
          Congress Financial Corporation  (Central).  (Incorporated by reference
          to Exhibit 4.1 to Registrant's  Quarterly  Report on Form 10-Q for the
          quarter ended September 30, 1996).

  4.6     Second  Amendment to Amended and Restated  Revolving Loan And Security
          Agreement  dated as of August 4, 1997 between  Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.6 to the Registrant's  Annual Report on Form 10-K for the year ended
          December 31, 2001).

  4.7     Third  Amendment to Amended and Restated  Revolving  Loan And Security
          Agreement  dated as of May 14, 1999  between  Registrant  and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.7 to the Registrant's  Annual Report on Form 10-K for the year ended
          December 31, 2001).

  4.8     Fourth  Amendment to Amended and Restated  Revolving Loan and Security
          Agreement  dated  as of  December  31,  1999  between  Registrant  and
          Congress Financial Corporation (Central) (Incorporated by reference to
          Exhibit 4.4 to the Registrant's  Form 10-K for the year ended December
          31, 1999).

  4.9     Fifth  Amendment to Amended and Restated  Revolving  Loan and Security
          Agreement dated as of February 3, 2000 between Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.6 to the  Registrant's  Form 10-K for the year  ended  December  31,
          1999).

 4.10     Sixth  Amendment to Amended and Restated  Revolving  Loan and Security
          Agreement dated as of January 17, 2001 between Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.10 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).

 4.11     Seventh Amendment to Amended and Restated  Revolving Loan and Security
          Agreement dated as of November 1, 2001 between Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.11 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).

 4.12     Eighth  Amendment to Amended and Restated  Revolving Loan and Security
          Agreement  dated  as of  December  31,  2001  between  Registrant  and
          Congress Financial Corporation  (Central).  (Incorporated by reference
          to Exhibit 4.12 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 2001).

 4.13     Ninth  Amendment to Amended and Restated  Revolving  Loan and Security
          Agreement dated as of January 31, 2002 between Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.13 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).



<PAGE>


Exhibit No.                          Exhibit


 4.14     Tenth  Amendment to Amended and Restated  Revolving  Loan and Security
          Agreement  dated  as of  February  28,  2002  between  Registrant  and
          Congress Financial Corporation  (Central).  (Incorporated by reference
          to Exhibit 4.14 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 2001).

 4.15     Eleventh Amendment to Amended and Restated Revolving Loan and Security
          Agreement  dated as of March 15, 2002 between  Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.15 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).

 4.16     Twelfth Amendment to Amended and Restated  Revolving Loan and Security
          Agreement  dated as of March 15, 2002 between  Registrant and Congress
          Financial Corporation (Central). (Incorporated by reference to Exhibit
          4.16 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).

 4.17     Thirteenth  Amendment  to  Amended  and  Restated  Revolving  Loan and
          Security Agreement dated as of November 17,2003 between Registrant and
          Congress Financial Corporation (Central).

 4.18     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).

 4.19     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).

 4.20     Amended and  Restated EWP Bridge Loan  Agreement  dated as of November
          21,  2001,  by  and  between   Registrant   and  EWP  Financial   LLC.
          (Incorporated by reference to Exhibit 4.19 to the Registrant's  Annual
          Report on Form 10-K for the year ended December 31, 2001).

 4.21     First  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated  as of  March  18,  2002,  by and  between  Registrant  and  EWP
          Financial  LLC.  (Incorporated  by  reference  to Exhibit  4.20 to the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2001).

 4.22     Second  Amendment to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of  December  31,  2002,  by and between  Registrant  and EWP
          Financial  LLC.  (Incorporated  by  reference  to Exhibit  4.21 to the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2002).

 4.23     Third  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of June 30, 2003, by and between Registrant and EWP Financial
          LLC.  (Incorporated  by  reference  to  Exhibit  4.1  to  Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).



<PAGE>


Exhibit No.                          Exhibit

 4.24     Fourth  Amendment to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of July 31, 2003, by and between Registrant and EWP Financial
          LLC.  (Incorporated  by  reference  to  Exhibit  4.2  to  Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

 4.25     Fifth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated  as of  August  31,  2003,  by and  between  Registrant  and EWP
          Financial   LLC.   (Incorporated   by  reference  to  Exhibit  4.1  to
          Registrant's  Quarterly  Report  on Form  10-Q for the  quarter  ended
          September 30, 2003).

 4.26     Sixth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of September  30,  2003,  by and between  Registrant  and EWP
          Financial   LLC.   (Incorporated   by  reference  to  Exhibit  4.2  to
          Registrant's  Quarterly  Report  on Form  10-Q for the  quarter  ended
          September 30, 2003).

 4.27     Seventh  Amendment to Amended and  Restated EWP Bridge Loan  Agreement
          dated as of  October  31,  2003,  by and  between  Registrant  and EWP
          Financial   LLC.   (Incorporated   by  reference  to  Exhibit  4.3  to
          Registrant's  Quarterly  Report  on Form  10-Q for the  quarter  ended
          September 30, 2003).

 4.28     Eighth  Amendment to Amended and  Restated  EWP Bridge Loan  Agreement
          dated  as of  November  25,  2003 by and  between  Registrant  and EWP
          Financial LLC.

 4.29     Ninth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of  December  15,  2003,  by and between  Registrant  and EWP
          Financial LLC.

 4.30     Tenth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of  January  15,  2004,  by and  between  Registrant  and EWP
          Financial LLC.

 4.31     Assumption  Agreement  and  Amendment  to Financing  Agreements  dated
          February 27, 2004 by and between  Registrant  and  Congress  Financial
          Corporation (Central).

 4.32     First Amendment to  Post-Petition  Credit Agreement dated December 10,
          2004 by and between  Registrant  and  Congress  Financial  Corporation
          (Central).

 4.33     Second  Amendment to  Post-Petition  Credit  Agreement dated March 31,
          2005 by and between  Registrant  and  Congress  Financial  Corporation
          (Central).

 4.34     Debtor-in-Possession  Credit  Agreement dated February 27, 2004 by and
          between Registrant and EWP Financial LLC.

 4.35     First Amendment to Debtor-In-Possession  Credit Agreement dated August
          25, 2004 by and between Registrant and EWP Financial LLC.

 4.36     Second  Amendment  to  Debtor-In-Possession   Credit  Agreement  dated
          December 31, 2004 by and between Registrant and EWP Financial LLC.



<PAGE>


Exhibit No.                          Exhibit

 4.37     Stock Pledge  Agreement  dated as of November 21, 2001, by and between
          Registrant  and EWP  Financial  LLC.  (Incorporated  by  reference  to
          Exhibit 4.21 to the  Registrant's  Annual  Report on Form 10-K for the
          year ended December 31, 2001).

 4.38     Form of Registrant's 6% Subordinated  Unsecured Note dated as of March
          15,  2002.   (Incorporated   by  reference  to  Exhibit  4.22  to  the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2001).

 4.39     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).

 4.40     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).

 4.41     Revolving  Credit  Facility  Promissory  Note  dated as of January 5,
          2004, by and between Engineered Wire Products, Inc. and Bank One, N.A.

 4.42     Business Loan Agreement  (Asset Based) dated as of January 5, 2004, by
          and between Engineered Wire Products, Inc. and Bank One, N.A.

 4.43     Term  Promissory  Note dated as of January  5,  2004,  by and  between
          Engineered Wire Products, Inc. and Bank One, N.A.

 4.44     Commercial  Security  Agreement  dated as of January  5, 2004,  by and
          between Engineered Wire Products, Inc. and Bank One, N.A.

 4.45     Amendment  to  Loan  Agreement  dated  May  17,  2004  by and  between
          Engineered Wire Products, Inc. and Bank One, N.A.

 4.46     Business Loan Extension  Agreement  dated June 18, 2004 by and between
          Engineered Wire Products, Inc. and Bank One, N.A.

 4.47     Business  Loan  Extension  Agreement  dated  September 30, 2004 by and
          between Engineered Wire Products, Inc. and Bank One, N.A.

 4.48     Business  Loan  Extension  Agreement  dated  December  22, 2004 by and
          between Engineered Wire Products, Inc. and Bank One, N.A.

 4.49     Business Loan Extension  Agreement dated March 30, 2005 by and between
          Engineered Wire Products, Inc. and Bank One, N.A.

 4.50     Business Loan Extension  Agreement  dated June 27, 2005 by and between
          Engineered Wire Products, Inc. and Bank One, N.A.

 4.51     Loan and Security  Agreement  dated August 31, 2005 by and between the
          Registrant and Wachovia Capital Finance Corporation (Central).

 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.



<PAGE>


Exhibit No.                          Exhibit

 10.2     The Combined Master Retirement Trust between Valhi, Inc. and Harold C.
          Simmons as restated  effective July 1, 1995 (Incorporated by reference
          to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4
          (Registration No. 333-35955)).

 10.3*    Keystone  Consolidated  Industries,  Inc. 1992 Incentive  Compensation
          Plan.  (Incorporated  by  reference  to Exhibit  99.1 to  Registrant's
          Registration Statement on Form S-8 (Registration No. 33-63086)).

 10.4*    Keystone  Consolidated  Industries,  Inc. 1992  Non-Employee  Director
          Stock  Option  Plan.  (Incorporated  by  reference  to Exhibit 99.2 to
          Registrant's  Registration  Statement  on Form S-8  (Registration  No.
          33-63086)).

 10.5*    Keystone Consolidated Industries,  Inc. 1997 Long-Term Incentive Plan.
          (Incorporated by reference to Appendix A to Registrant's  Schedule 14A
          filed April 25, 1997).

 10.6*    Amendment to the Keystone Consolidated Industries, Inc. 1997 Long-Term
          Incentive Plan.  (Incorporated  by reference to Registrant's  Schedule
          14A filed April 24, 1998.)

 10.7*    Form of Deferred  Compensation  Agreement  between the  Registrant and
          certain executive officers. (Incorporated by reference to Exhibit 10.1
          to the  Registrant's  Quarterly  Report on Form 10-Q (File No. 1-3919)
          for the quarter ended March 31, 1999).

 10.8     Account  Reconciliation  Agreement  dated as of March 12, 2002 between
          Registrant  and  Central  Illinois  Light  Company.  (Incorporated  by
          reference to Exhibit 10.8 to the  Registrant's  Annual  Report on Form
          10-K for the year ended December 31, 2001).

 10.9     Account  Reconciliation  Agreement  dated as of March 11, 2002 between
          Registrant and PSC Metals, Inc.  (Incorporated by reference to Exhibit
          10.9 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 2001).

 21       Subsidiaries of the Company.

 31.1     Certification

 31.2     Certification

 32.1     Certification


  *Management contract, compensatory plan or agreement.


<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned  and dated  November  30,  2005,  thereunto  duly
authorized.

                      KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                      (Registrant)



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

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below and dated as of November 30, 2005 by the  following
persons on behalf of the registrant and in the capacities indicated:




/s/ GLENN R. SIMMONS                        /s/ STEVEN L. WATSON
------------------------------------        -----------------------------------
Glenn R. Simmons                            Steven L. Watson
Chairman of the Board                       Director

/s/ PAUL M. BASS, JR.                       /s/ DONALD P. ZIMA
------------------------------------        -----------------------------------
Paul M. Bass, Jr.                           Donald P. Zima
Director                                    Director

/s/ RICHARD R. BURKHART                     /s/ DAVID L. CHEEK
------------------------------------        -----------------------------------
Richard R. Burkhart                         David L. Cheek
Director                                    President and
                                            Chief Executive Officer

/s/ JOHN R. PARKER                          /s/ BERT E. DOWNING, JR.
------------------------------------        --------------------------
John R. Parker                              Bert E. Downing, Jr.
Director                                    Vice President, Chief
                                            Financial Officer, Corporate
                                            Controller and Treasurer
/s/ TROY T. TAYLOR                          (Principal Accounting and
------------------------------------        Financial Officer)
Troy T. Taylor
Director




<PAGE>





             KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES

                           ANNUAL REPORT ON FORM 10-K

                            Items 8, 14(a) and 14(d)

   Index of Consolidated Financial Statements and Financial Statement Schedule

                                                                         Page
Financial Statements

  Report of Independent Registered Public Accounting Firm                 F-2

  Consolidated Balance Sheets -
   December 31, 2002 and 2003                                             F-3

  Consolidated Statements of Operations -
   Years ended December 31, 2001, 2002 and 2003                           F-5

  Consolidated Statements of Comprehensive Loss -
   Years ended December 31, 2001, 2002 and 2003                           F-7

  Consolidated Statements of Stockholders' Equity (Deficit) -
   Years ended December 31, 2001, 2002 and 2003                           F-8

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2001, 2002 and 2003                           F-9

  Notes to Consolidated Financial Statements                              F-11

Financial Statement Schedule

  Report of Independent Registered Public Accounting Firm                 S-1


  Schedule II - Valuation and Qualifying Accounts                         S-2

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


<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of Keystone Consolidated  Industries,
Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  comprehensive  income,  stockholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial   position  of  Keystone   Consolidated   Industries,   Inc.  and  its
subsidiaries  as of  December  31,  2003  and  2002,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in  the  United  States  of  America.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with the  standards  of the  Public
Company Accounting oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

As discussed in Note 1 to the consolidated financial statements, on February 26,
2004 the Company  filed  voluntary  petitions for relief under Chapter 11 of the
United  States  Bankruptcy  Code in the  United  States  Bankruptcy  Court  (the
"Court"). The Company's Plan of Reorganization was substantially  consummated on
August 31, 2005 and the Company emerged from bankruptcy.  The matters  discussed
above and the recurring losses from operations and the substantial deficiency in
stockholders'  equity raise  substantial  doubt about the  Company's  ability to
continue as a going concern. The accompanying  consolidated financial statements
have been  prepared  assuming  that the Company will continue as a going concern
and  do  not  include  any  adjustments   relating  to  the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP

Dallas, Texas
November 28, 2005


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2003
                        (In thousands, except share data)




<TABLE>
<CAPTION>
               ASSETS                                                                    2002            2003
                                                                                       --------         ------

 Current assets:
   Notes and accounts receivable, net of allowances
<S>                                                                                    <C>             <C>
     of $1,762 and $347                                                                $ 22,578        $ 15,781
   Inventories                                                                           50,089          24,005
   Prepaid expenses and other                                                               893           1,253
                                                                                       --------        --------

       Total current assets                                                              73,560          41,039
                                                                                       --------        --------

 Property, plant and equipment:
   Land, buildings and improvements                                                      55,949          56,066
   Machinery and equipment                                                              317,064         311,353
   Construction in progress                                                                 820           1,375
                                                                                       --------        --------
                                                                                        373,833         368,794
   Less accumulated depreciation                                                        253,849         263,478
                                                                                       --------        --------

       Net property, plant and equipment                                                119,984         105,316
                                                                                       --------        --------

 Other assets:
   Restricted investments                                                                 5,730           5,871
   Prepaid pension cost                                                                       -         126,691
   Unrecognized net pension obligation                                                   11,852               -
   Deferred financing costs                                                               2,319           1,607
   Goodwill                                                                                 752             752
   Other                                                                                  1,298             918
                                                                                       --------        --------

       Total other assets                                                                21,951         135,839
                                                                                       --------        --------

                                                                                       $215,495        $282,194
                                                                                       ========        ========
</TABLE>




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2002 and 2003
                        (In thousands, except share data)



<TABLE>
<CAPTION>
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                                                         2002             2003
                                                                                       --------          ------

 Current liabilities:
   Notes payable and current maturities of
<S>                                                                                   <C>             <C>
     long-term debt                                                                   $  33,935       $  55,451
   Accounts payable                                                                      23,696          13,784
   Accounts payable to affiliates                                                         1,448           2,992
   Accrued OPEB cost                                                                     11,372          11,255
   Accrued preferred stock dividends                                                      4,683          10,623
   Other accrued liabilities                                                             40,216          37,144
                                                                                      ---------       ---------

       Total current liabilities                                                        115,350         131,249
                                                                                      ---------       ---------

 Noncurrent liabilities:
   Long-term debt                                                                        63,306          32,224
   Accrued OPEB cost                                                                    102,717         109,993
   Accrued pension costs                                                                 48,571               -
   Other                                                                                 20,337          16,666
                                                                                      ---------       ---------

       Total noncurrent liabilities                                                     234,931         158,883
                                                                                      ---------       ---------

 Minority interest                                                                            2            -
                                                                                      ---------       ------

 Series A preferred stock, $1,000 stated value; 250,000 shares authorized;
  59,399 and 71,899
  shares issued                                                                           2,112           2,112
                                                                                      ---------       ---------

 Stockholders' equity (deficit):
   Common stock, $1 par value, 12,000,000
     and 27,000,000 shares
     authorized; 10,069,584 shares issued at                                             10,798          10,798
     stated value
   Additional paid-in capital                                                            48,388          42,448
   Accumulated other comprehensive loss -
     pension liabilities                                                               (170,307)              -
   Accumulated deficit                                                                  (25,767)        (63,284)
   Treasury stock - 1,134 shares, at cost                                                   (12)            (12)
                                                                                      ---------       ---------

       Total stockholders' equity (deficit)                                            (136,900)        (10,050)
                                                                                      ---------       ---------

                                                                                      $ 215,495       $ 282,194
                                                                                      =========       =========
</TABLE>



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



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 2001, 2002 and 2003
                      (In thousands, except per share data)



<TABLE>
<CAPTION>
                                                                          2001             2002            2003
                                                                        --------         --------        --------


<S>                                                                     <C>              <C>             <C>
 Net sales                                                              $325,187         $334,835        $306,671
 Cost of goods sold                                                      313,931          315,579         310,881
                                                                        --------         --------        --------
   Gross margin (loss)                                                    11,256           19,256          (4,210)
                                                                        --------         --------        --------

 Selling expense                                                           6,400            7,754           6,934
 General and administrative expense                                       14,723           16,385          10,689
 Defined benefit pension expense (credit)                                 (5,479)          (1,604)          6,898
                                                                        --------         --------        --------

                                                                          15,644           22,535          24,521
                                                                        --------         --------        --------

 Operating loss                                                           (4,388)          (3,279)        (28,731)
                                                                        --------         --------        --------

 General corporate income (expense):
   Corporate expense                                                      (2,250)          (5,946)         (5,973)
   Interest expense                                                      (14,575)          (5,569)         (3,941)
   Interest income                                                           253               66              41
   Gain on early extinguishment of debt                                     -              54,739            -
   Gain on sale of business units                                           -                -              1,073
   Other income (expense), net                                               565               34             313
                                                                        --------         --------        --------

                                                                         (16,007)          43,324          (8,487)
                                                                        --------         --------        --------

       Income (loss) before income taxes                                 (20,395)          40,045         (37,218)

 Income tax provision                                                      5,998           21,622               -

 Minority interest in after-tax earnings                                       1                1             299
                                                                        --------         --------        --------

   Income (loss) before cumulative effect of
    change in accounting principle                                       (26,394)          18,422         (37,517)

   Cumulative effect of change in accounting
    principle                                                               -              19,998            -
                                                                        --------         --------        -----

       Net income (loss)                                                 (26,394)          38,420         (37,517)

   Dividends on preferred stock                                             -               4,683           5,940
                                                                        --------         --------        --------

   Net income (loss) available for
    common shares                                                       $(26,394)        $ 33,737        $(43,457)
                                                                        ========         ========        ========
</TABLE>




<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
                  Years ended December 31, 2001, 2002 and 2003
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     2001            2002            2003
                                                                     ----            ----            ----

 Basic earnings (loss) per share available for common shares:
   Income (loss) before cumulative effect
<S>                                                              <C>             <C>              <C>
    of change in accounting principle                            $  (2.62)       $   1.36         $ (4.32)

   Cumulative effect of change in
    accounting principle                                             -               1.99            -
                                                                 --------        --------         ----

     Net income (loss)                                           $  (2.62)       $   3.35         $ (4.32)
                                                                 ========        ========         =======

 Basic shares outstanding                                          10,062          10,067          10,068
                                                                 ========        ========         =======

 Diluted earnings (loss) per share available for common shares:
   Income (loss) before cumulative effect
    of change in accounting principle                            $  (2.62)       $    .84         $ (4.32)

   Cumulative effect of change in
    accounting principle                                             -                .92            -
                                                                 --------        --------         ----

     Net income (loss)                                           $  (2.62)       $   1.76         $ (4.32)
                                                                 ========        ========         =======

 Diluted shares outstanding                                        10,062          21,823          10,068
                                                                 ========        ========         =======
</TABLE>







<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                     2001            2002            2003
                                                                     ----            ----            ----

<S>                                                              <C>             <C>             <C>
 Net income (loss)                                               $(26,394)       $  38,420       $(37,517)

 Other comprehensive income (loss), net
  of tax -
   Pension liabilities adjustment                                    -            (170,307)       170,307
                                                                 --------        ---------       --------

     Comprehensive income (loss)                                 $(26,394)       $(131,887)      $132,790
                                                                 ========        =========       ========
</TABLE>





<PAGE>

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

                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                        Accumulated
                                                                           other
                                                                       comprehensive
                                          Common stock        Additional   loss-
                                       --------------------    paid-in    pension     Accumulated  Treasury
                                       Shares        Amount    capital   liabilities    (deficit)    stock       Total
                                       ------        ------   ---------  -----------    ---------   -------    --------


<S>                                    <C>         <C>         <C>          <C>         <C>          <C>       <C>
 Balance - December 31, 2000           10,062      $10,792     $53,071      $ -         $(37,793)    $(12)     $  26,058

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

 Balance - December 31, 2001           10,062       10,792      53,071        -          (64,187)     (12)          (336)

 Net income                                 -         -           -           -           38,420        -         38,420

 Issuance of common stock                   6            6        -           -                -        -              6

 Preferred stock dividends                  -         -         (4,683)       -                -        -         (4,683)

 Other comprehensive loss                -            -           -       (170,307)            -        -        (170,307)
                                      -------      -------     -------   ---------      --------     ----      ---------

 Balance - December 31, 2002           10,068       10,798      48,388    (170,307)      (25,767)     (12)      (136,900)

 Net loss                                -            -           -           -          (37,517)      -         (37,517)

 Preferred stock dividends               -            -         (5,940)       -             -          -          (5,940)

 Other comprehensive income              -            -           -        170,307          -          -         170,307
                                      -------      -------     -------   ---------      --------     ----      ---------

 Balance - December 31, 2003           10,068      $10,798     $42,448   $    -         $(63,284)    $(12)     $ (10,050)
                                      =======      =======     =======   =========      ========     ====      =========
</TABLE>




<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                            2001           2002            2003
                                                                          --------       -------          ------

 Cash flows from operating activities:
<S>                                                                       <C>             <C>           <C>
   Net income (loss)                                                      $(26,394)       $38,420       $(37,517)
   Depreciation and amortization                                            16,992         17,396         16,461
   Amortization of deferred financing costs                                    540            747            742
   Deferred income taxes                                                     5,902         21,622              -
   Non-cash OPEB expense                                                     2,243          5,064          7,158
   Non-cash defined benefit pension
    expense (credit)                                                        (5,479)        (1,604)         6,898
   Gain on early extinguishment of debt                                          -        (54,739)             -
   Cumulative effect of change in accounting
    principle                                                                    -        (19,998)          -
   Other, net                                                                1,537           (882)        (1,440)
   Change in assets and liabilities:
     Notes and accounts receivable                                          (8,310)         6,901          5,887
     Inventories                                                            10,354         (9,177)        20,097
     Accounts payable                                                      (10,616)         1,497         (6,412)
     Other, net                                                             15,329          4,813         (6,016)
                                                                          --------       --------       --------

       Net cash provided by operating
         activities                                                          2,098         10,060          5,858
                                                                          --------       --------       --------

 Cash flows from investing activities:
   Capital expenditures                                                     (3,889)        (7,973)        (2,683)
   Proceeds from sale of business units                                        757              -          3,344
   Collection of notes receivable                                              735          1,127             75
   Other, net                                                                    2              1           (619)
                                                                          --------       --------       --------

       Net cash provided (used) by investing activities                     (2,395)        (6,845)           117
                                                                          --------       --------       --------

 Cash flows from financing activities:
   Revolving credit facilities, net                                            992        (14,446)        (7,087)
   Other notes payable and long-term debt:
     Additions                                                                  56         15,065          3,588
     Principal payments                                                       (601)        (1,354)        (2,446)
   Deferred financing costs paid                                              (150)        (2,480)           (30)
                                                                           -------       --------       --------

     Net cash provided (used) by financing
        activities                                                             297         (3,215)        (5,975)
                                                                           -------       --------       --------
</TABLE>






<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                            2001           2002          2003
                                                                          -------        --------       ------

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

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

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


 Supplemental disclosures:
   Cash paid for:
     Interest, net of amounts capitalized                                  $ 9,189       $  4,669       $  2,789
     Income taxes paid (refund), net                                          (194)            74             18
</TABLE>






<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of significant accounting policies

     At December 31, 2003, Keystone Consolidated Industries, Inc. ("Keystone" or
"the  Company")  is 50%  owned by  Contran  Corporation  ("Contran")  and  other
entities  related  to Mr.  Harold C.  Simmons.  Substantially  all of  Contran's
outstanding  voting  stock is held by  trusts  established  for the  benefit  of
certain children and grandchildren of Mr. Simmons,  of which Mr. Simmons is sole
trustee.  The Company may be deemed to be controlled by Contran and Mr. Simmons.
At December 31, 2003,  Contran  owned 54,956  shares of the 71,899 shares of the
Company's  Redeemable Series A Preferred Stock. See Notes 5 and 6. Each share of
Series A Preferred Stock is convertible,  at the option of the holder,  into 250
shares of the Company's common stock,  (equivalent to a $4.00 per share exchange
rate).

     The  Company  reported  a  loss  before  cumulative  effect  of  change  in
accounting  principles of $37.5  million in 2003 and $26.4 million in 2001,  and
income  before  cumulative  effect of change in  accounting  principle  of $18.4
million in 2002.  The primary  reasons for the increase in earnings from 2001 to
2002 were (i) lower  interest  expense  and (ii) a $54.7  million  gain upon the
extinguishment of certain  indebtedness.  The primary reasons for the decline in
earnings  from  2002 to 2003 were (i) the gain upon  extinguishment  of  certain
indebtedness  recognized in 2002, (ii) higher defined benefit pension expense in
2003 and (iii)  significantly  higher  cost for  ferrous  scrap  (the  Company's
primary raw material in 2003).

     The  accompanying   financial  statements  have  been  prepared  under  the
assumption the Company will continue to operate on a going concern basis,  which
contemplates continuity of operations,  realization of assets and liquidation of
liabilities  in the ordinary  course of business and do not reflect  adjustments
that might result if Keystone is unable to continue as a going concern. However,
on February 26, 2004, Keystone and five of its direct and indirect  subsidiaries
filed for voluntary  protection under Chapter 11 of the Federal Bankruptcy Code.
Keystone and its subsidiaries filed their petitions in the U.S. Bankruptcy Court
for the Eastern  District of Wisconsin in Milwaukee  (the  "Court").  Keystone's
amended plan of reorganization  was accepted by the impacted  constituencies and
confirmed by the Court on August 10, 2005. The Company  emerged from  bankruptcy
protection on August 31, 2005. See Note 19.

     Under  Chapter 11  proceedings,  actions by creditors to collect  claims in
existence at the filing date ("Pre-petition Claims") are stayed, absent specific
authorization  by the Court to pay such claims,  while the Company  continues to
manage the business as a  debtor-in-possession.  Keystone received approval from
the Court to pay certain of its Pre-petition Claims including employee wages and
certain employee benefits. All of the Company's liabilities at December 31, 2003
(other than  liabilities  of one of the  Company's  subsidiaries  that was not a
party to the bankruptcy filing), to the extent they were not extinguished before
February 26, 2004, are considered Pre-petition Claims.

     Significant   provisions  of  Keystone's  amended  plan  of  reorganization
included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries,  will be sold at fair market  value to  Keystone,  which
          will  then be used to form and  operate a newly  created  wholly-owned
          subsidiary of reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

     In addition,  Keystone has obtained an $80 million  secured credit facility
from Wachovia Capital Finance (Central). Proceeds from this credit facility were
used to extinguish  Keystone's existing  Debtor-In-Possession  credit facilities
and to provide working capital for reorganized Keystone.

     Management's   Estimates.   The  preparation  of  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  ("GAAP")  requires  management to make estimates and  assumptions  that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amount of revenues and expenses during the reporting period. Actual
results may differ from previously-estimated amounts under different assumptions
or conditions.

     Principles of consolidation.  The consolidated financial statements include
the  accounts of Keystone  and its  majority-owned  subsidiaries.  All  material
intercompany  accounts and balances  have been  eliminated.  Certain  prior year
amounts have been reclassified to conform with the 2003 presentation.

     Fiscal year.  The  Company's  fiscal year is 52 or 53 weeks and ends on the
last Sunday in December. Each of fiscal 2001, 2002 and 2003 were 52-week years.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
or market. The last-in,  first-out ("LIFO") method is used to determine the cost
of  approximately  77% and 66% of the inventories  held at December 31, 2002 and
2003, respectively.  The first-in, first-out or average cost methods are used to
determine  the cost of all other  inventories.  Cost of sales  include costs for
materials, packing and finishing, utilities, salaries and benefits, maintenance,
shipping and handling costs and depreciation.

     Property, plant and equipment and depreciation expense. Property, plant and
equipment are stated at cost.  Depreciation for financial  reporting purposes is
computed using  principally the  straight-line  method over the estimated useful
lives of 10 to 30 years for buildings and improvements and three to 12 years for
machinery and equipment.  Accelerated  depreciation  methods are used for income
tax  purposes,  as  permitted.  Depreciation  expense  for  financial  reporting
purposes amounted to $18,184,000,  $17,376,000 and $16,459,000  during the years
ended December 31, 2001, 2002 and 2003, respectively. Upon sale or retirement of
an asset,  the related cost and  accumulated  depreciation  are removed from the
accounts and any gain or loss is recognized in income currently.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures for major  improvements are capitalized.  Keystone performs certain
planned  major  maintenance  activities  during the year  (generally  during the
fourth  quarter).  The costs  estimated to be incurred in connection  with these
maintenance  activities are accrued in advance on a straight-line  basis and are
included in cost of goods sold.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of construction costs.  Interest costs capitalized in
2001, 2002 and 2003 amounted to $17,000, $79,000 and $3,000 respectively.

     When events or changes in circumstances indicate assets may be impaired, an
evaluation  is performed to determine if an  impairment  exists.  Such events or
changes in circumstances  include,  among other things, (i) significant  current
and prior periods or current and projected periods with operating losses, (ii) a
significant  decrease  in the  market  value of an asset or (iii) a  significant
change in the extent or manner in which an asset is used.  All relevant  factors
are considered.  The test for impairment is performed by comparing the estimated
future  undiscounted cash flows (exclusive of interest expense)  associated with
the asset to the asset's net carrying  value to  determine  if a  write-down  to
market value or  discounted  cash flow value is required.  Through  December 31,
2001,  if the asset  being  tested for  impairment  was  acquired  in a business
combination  accounted for by the purchase method,  any goodwill which arose out
of that business  combination  was also considered in the impairment test if the
goodwill related  specifically to the acquired asset and not to other aspects of
the acquired  business,  such as the customer base or product  lines.  Effective
January 1, 2002,  the  Company  commenced  assessing  impairment  of goodwill in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 142,
Goodwill  and Other  Intangible  Assets,  and the  Company  commenced  assessing
impairment  of other  long-lived  assets  (such as property  and  equipment)  in
accordance  with SFAS No.  144,  Accounting  for the  Impairment  of Disposal of
Long-Lived  Assets.  The effects of the  Company's  Chapter 11  proceedings  and
reorganization  or  liquidation  could cause  management to reassess its present
estimate of future cash flows  currently  used in its impairment  analysis.  The
effects  of  the  Company's   Chapter  11  proceedings  and   reorganization  or
liquidation  could cause  management to reassess its present  estimate of future
cash flows currently used in its impairment analysis. See Note 19.

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

     Deferred financing costs.  Deferred financing costs relate primarily to the
issuance  of  substantially  all of  Keystone's  long-term  debt  as well as its
primary  revolving credit facility and are amortized by the interest method over
the respective  terms of these debt  facilities.  Deferred  financing  costs are
stated net of accumulated  amortization of $4,957,000 and $5,699,000 at December
31, 2002 and 2003, respectively.

     Goodwill and negative goodwill. Goodwill represents the excess of cost over
fair value of individual net assets acquired in business combinations  accounted
for by the purchase method. Through December 31, 2001, goodwill was amortized by
the straight-line  method over not more than 40 years. Upon adoption of SFAS No.
142,  effective  January 1, 2002,  goodwill  was no longer  subject to  periodic
amortization.

     Through  December  31,  2001,  when  events  or  changes  in  circumstances
indicated  that  goodwill  may be  impaired,  an  evaluation  was  performed  to
determine if an  impairment  existed.  All relevant  factors were  considered in
determining  whether an impairment existed. If an impairment had been determined
to  exist,  goodwill,  and if  appropriate,  the  underlying  long-lived  assets
associated  with the  goodwill,  would have been  written  down to  reflect  the
estimated  future  discounted  cash  flows  expected  to  be  generated  by  the
underlying business.  Effective January 1, 2002, the Company commenced assessing
impairment of goodwill in accordance  with SFAS No. 142. The Company's  recorded
goodwill  relates to a business  segment that was not included in the Chapter 11
petitions filed in February 2004. See Note 19.

     Negative  goodwill  represented  the  excess  of fair  value  over  cost of
individual  net assets  acquired in business  combinations  accounted for by the
purchase  method and was  amortized  by the  straight-line  method over 20 years
through  December  31,  2001.  Negative  goodwill  is stated net of  accumulated
amortization of approximately  $7,118,000 at December 31, 2001.  Amortization of
negative goodwill in 2001 amounted to $1,356,000. Upon adoption of SFAS No. 142,
effective  January 1, 2002,  negative  goodwill was  eliminated  as a cumulative
effect of change in accounting principle.

     Retirement  plans  and   post-retirement   benefits  other  than  pensions.
Accounting  and  funding  policies  for  retirement  plans  and post  retirement
benefits other than pensions ("OPEB") are described in Note 9.

     Environmental   liabilities.   Keystone  records   liabilities  related  to
environmental  remediation when estimated  future  expenditures are probable and
reasonably estimable. If the Company is unable to determine that a single amount
in an  estimated  range is more  likely,  the  minimum  amount  of the  range is
recorded. Such accruals are adjusted as further information becomes available or
circumstances change.  Estimated future expenditures are not discounted to their
present value. Recoveries of environmental  remediation costs from other parties
are recorded as assets when their receipt is deemed  probable.  At both December
31, 2002 and 2003 Keystone had such assets recorded of approximately $323,000.

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

     Net sales.  Sales are recorded when products are shipped  because title and
other risks and rewards of ownership have passed to the customer. Shipping terms
of products shipped are generally FOB shipping point, although in some instances
shipping  terms are FOB  destination  point (for which sales are not  recognized
until the product is received by the customer). Amounts charged to customers for
shipping and handling are included in net sales.  Sales are stated net of price,
early payment and distributor discounts and volume rebates.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative expenses include costs related to marketing, sales, distribution,
and  administrative  functions  such as  accounting,  treasury and finance,  and
includes costs for salaries and benefits, travel and entertainment,  promotional
materials and professional fees.  Advertising costs, expensed as incurred,  were
$.6 million in 2001, $.8 million in 2002 and $1.0 million in 2003.

     Business interruption insurance recoveries. Business interruption insurance
recoveries  related to production outages due primarily to equipment failures or
malfunctions are recorded as a reduction of cost of goods sold when the recovery
is received.  During 2001 and 2002 Keystone received such business  interruption
insurance recoveries of approximately $1.8 million, and $934,000,  respectively.
Keystone did not receive any such recoveries during 2003.

     Income (loss) per share. Basic and diluted income (loss) per share is based
upon the weighted  average number of common shares actually  outstanding  during
each year.  Diluted  earnings per share includes the diluted impact,  if any, of
the Company's  convertible  preferred  stock.  The impact of  outstanding  stock
options was antidilutive for all periods presented.  The weighted average number
of outstanding stock options which were excluded from the calculation of diluted
earnings  per  share   because   their  impact  would  have  been   antidilutive
approximated 651,000, 606,000 and 462,000 in 2001, 2002 and 2003, respectively.

     Employee  stock  options.   Keystone  accounts  for  stock-based   employee
compensation in accordance with Accounting Principles Board Opinion ("APBO") No.
25, Accounting for Stock Issued to Employees,  and its various  interpretations.
See  Notes 8 and 18.  Under  APBO No.  25,  no  compensation  cost is  generally
recognized  for fixed stock  options in which the exercise  price is equal to or
greater  than the market price on the grant date.  Compensation  cost related to
stock options  recognized by the Company in accordance  with APBO No. 25 has not
been significant in each of the past three years.

     <PAGE>


     The following  table  presents what the Company's  consolidated  net income
(loss), and related per share amounts, would have been in 2001, 2002 and 2003 if
Keystone would have elected to account for its stock-based employee compensation
related to stock options in  accordance  with the fair  value-based  recognition
provisions of SFAS No. 123,  Accounting for  Stock-Based  Compensation,  for all
awards granted subsequent to January 1, 1995.


<TABLE>
<CAPTION>
                                                                                  Years ended December 31,

                                                                             2001           2002            2003
                                                                             ----           ----            ----
                                                                                  (In thousands except per
                                                                                         share amounts)

Net income (loss) available for common
<S>                                                                     <C>              <C>            <C>
 shares as reported                                                     $(26,394)        $38,420        $(36,888)
Adjustments, net of applicable income
 tax effects:
  Stock-based employee compensation
   expense under APBO No. 25                                                -               -              -
  Stock-based employee compensation
   expense under SFAS No. 123                                               (498)           (185)            (25)
                                                                        --------         -------        --------

Pro forma net income (loss) available for
 common shares                                                          $(26,892)        $38,235        $(36,913)
                                                                        ========         =======        ========

Basic net income (loss) available for common shares per share:
 As reported                                                            $  (2.62)        $  3.35        $  (4.32)
 Pro forma                                                              $  (2.67)        $  3.33        $  (4.32)

Diluted net income (loss) available for common shares per share:
 As reported                                                            $  (2.62)        $  1.76        $  (4.32)
 Pro forma                                                              $  (2.67)        $  1.75        $  (4.32)
</TABLE>

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

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

     Reclassifications.  Certain  prior year amounts have been  reclassified  to
conform to the 2003 presentation.



<PAGE>


Note 2 - Business Segment Information:

     Keystone's  operating  segments are defined as components  of  consolidated
operations  about which  separate  financial  information  is available  that is
regularly  evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing  performance.  The Company's chief operating
decision maker is Mr. David L. Cheek,  President and Chief Executive  Officer of
Keystone.  Each  operating  segment is separately  managed,  and each  operating
segment represents a strategic business unit offering different products. During
2003,  the Company  expanded the  composition of its  reportable  segments.  The
corresponding segment information for prior periods has been restated to conform
to the current year presentation.

     The  Company's  operating  segments are organized  along its  manufacturing
facilities  and include two  reportable  segments:  (i) Keystone  Steel and Wire
("KSW") which  manufacturers  and sells wire rod, wire,  nails and wire products
for  agricultural,  industrial,  construction,  commercial,  original  equipment
manufacturers  and retail  consumer  markets and, (ii)  Engineered Wire Products
("EWP") which  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. EWP
is not included in the Company's February 2004 bankruptcy proceedings.  See Note
19.

     Prior to July 2003,  the  Company  owned a 51%  interest in Garden Zone LLC
("Garden  Zone"),  a  distributor  of wire,  plastic  and wood  lawn and  garden
products to  retailers.  In July 2003,  Garden  Zone  purchased  Keystone's  51%
ownership in Garden Zone.

     In addition,  prior to July 2003,  Keystone also operated three  businesses
that did not constitute reportable business segments. These businesses sold wire
and  wire  products  for  agricultural,  industrial,  construction,  commercial,
original manufacturers and retail consumer markets. The results of operations of
these  businesses  are  aggregated and included under the "All Other" heading in
the following tables.  During July 2003, Keystone  transferred its operations at
one of these three  businesses to other Keystone  facilities,  and during August
2003 Keystone sold another of the  businesses.  As a result,  as of August 2003,
the "All Other"  heading in the  following  tables only  includes  Sherman  Wire
("Sherman").

     Keystone is also engaged in a scrap recycling joint venture through its 50%
interest in Alter Recycling Company,  L.L.C.  ("ARC"), an unconsolidated  equity
affiliate.

     KSW's  products  and  EWP's  products  are  distributed  primarily  in  the
Midwestern,  Southwestern and Southeastern United States. Garden Zone's products
were distributed primarily in the Southeastern United States.

<TABLE>
<CAPTION>
<S>                                           <C>                                          <C>
Business Segment                              Principal entities                           Location

Keystone Steel & Wire                         Keystone Steel & Wire                        Peoria, Illinois

Engineered Wire Products                      Engineered Wire Products                     Upper Sandusky, Ohio

Garden Zone                                   Garden Zone (1)                              Charleston, South
                                                                                             Carolina

All other                                     Sherman Wire                                 Sherman, Texas
                                              Sherman Wire
                                               of Caldwell, Inc. (2)                       Caldwell, Texas
                                              Keystone Fasteners (3)                       Springdale, Arkansas
</TABLE>

(1)  51.0% subsidiary - interest sold in July 2003.
(2)  Transferred  operations  in July 2003 to Sherman Wire and Keystone  Steel &
     Wire.
(3)  Business sold in August 2003.

     The net  proceeds  from the sale of  Garden  Zone  and  Keystone  Fasteners
aggregated $3.3 million.  The gain on the sale of these  businesses,  as well as
the results of operations of each of Garden Zone and Keystone  Fasteners are not
significant,  individually  and in the aggregate.  Accordingly,  the Company has
elected not to present their results of  operations as  discontinued  operations
for all periods presented due to their immateriality.

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

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting  policies except that (i) defined benefit
pension  expense for each  segment is  recognized  and  measured on the basis of
estimated  current  service  cost of each  segment,  with the  remainder  of the
Company's net defined  benefit  pension  expense or credit not allocated to each
segment but still is reported as part of operating  profit or loss, (ii) segment
OPEB  expense is  recognized  and measured  based on the basis of the  estimated
expense of each segment with the remainder of the Company's  actual OPEB expense
not allocated to each segment but still is reported as part of operating  profit
or loss,  (iii)  elimination of intercompany  profit or loss on ending inventory
balances  is not  allocated  to each  segment  but still is  reported as part of
operating  profit  or loss,  (iv) LIFO  inventory  reserve  adjustments  are not
allocated to each segment but still are reported as part of operating  profit or
loss,  and (v)  amortization  of goodwill and negative  goodwill are included in
general  corporate  expenses  and are not  allocated  to any segment and are not
included in total reporting operating profit or loss. General corporate expenses
also includes OPEB and  environmental  expenses relative to facilities no longer
owned  by the  Company.  Intercompany  sales  between  reportable  segments  are
generally  recorded  at prices that  approximate  market  prices to  third-party
customers.





<PAGE>



     Segment assets are comprised of all assets  attributable to each reportable
operating  segment.  Corporate  assets consist  principally  of pension  related
assets,  restricted  investments,  deferred tax assets and  corporate  property,
plant and equipment.

<TABLE>
<CAPTION>
                                                                                                           GAAP
                                                                                                       Adjustments,
                                                                                                         Corporate
                                                                                                           Items
                                                                 Garden         All       Segment           and
                                       KSW           EWP          Zone         Other       Total       Eliminations       Total
                                       ---           ---         ------        -----      -------      ------------       -----
                                                                            (In thousands)
Year ended December 31, 2003:

<S>                                   <C>           <C>          <C>          <C>         <C>             <C>            <C>
  Third party net sales               $244,069      $35,260      $11,203      $ 16,139    $306,671        $   -          $306,671
  Intercompany sales                    30,215         -             879        11,988      43,082         (43,082)          -
                                      --------      -------      -------      --------    --------        --------       -----
                                      $274,284      $35,260      $12,082      $ 28,127    $349,753        $(43,082)      $306,671
                                      ========      =======      =======      ========    ========        ========       ========
  Depreciation and
   amortization                       $ 13,903      $ 1,014      $  -         $  1,491    $ 16,410        $     51       $ 16,461
  Operating profit (loss)              (21,388)       2,721          700        (4,579)    (22,546)         (6,185)       (28,731)
  Identifiable segment assets          121,826       20,635            -         7,765     150,226         131,968        282,194
  Capital expenditures                   2,197          380           32            74       2,683               -          2,683

Year ended December 31, 2002:

  Third party net sales               $256,290      $32,935      $ 9,523      $ 36,087    $334,835        $   -          $334,835
  Intercompany sales                    34,528         -           1,221         9,398      45,147         (45,147)          -
                                      --------      -------      -------      --------    --------        --------       -----
                                      $290,818      $32,935      $10,744      $ 45,485    $379,982        $(45,147)      $334,835
                                      ========      =======      =======      ========    ========        ========       ========
  Depreciation and                                                  $  -
   amortization                       $ 14,693      $ 1,006                   $  1,646    $ 17,345        $     51       $ 17,396
  Operating profit (loss)               (3,921)       2,743           85        (2,971)     (4,064)            785         (3,279)
  Identifiable segment assets          157,321       18,130        4,186        18,537     198,174          17,321        215,495
  Capital expenditures                   7,597          164            -           208       7,969               4          7,973

Year ended December 31, 2001:

  Third party net sales               $239,692      $34,177      $ 8,011      $ 43,307    $325,187           $   -       $325,187
  Intercompany sales                    34,833         -             472         8,363      43,668         (43,668)          -
                                      --------      -------      -------      --------    --------        --------       -----
                                      $274,525      $34,177      $ 8,483      $ 51,670    $368,855        $(43,668)      $325,187
                                      ========      =======      =======      ========    ========        ========       ========
  Depreciation and                                                   $ -
   amortization                       $ 15,312      $ 1,043                    $ 1,815    $ 18,170        $ (1,178)      $ 16,992
  Operating profit (loss)              (12,779)       4,156          210        (2,603)    (11,016)          6,628         (4,388)
  Identifiable segment assets          162,796       18,252        2,812        22,923     206,783         160,117        366,900
  Capital expenditures                   3,534          269            -            85       3,888               1          3,889
</TABLE>


     In the above tables,  GAAP  adjustments  relate to operating profit (loss),
Corporate  items relate to  depreciation  and  amortization,  segment assets and
capital  expenditures and eliminations relate to net sales. GAAP adjustments are
principally  (i) the difference  between the defined  benefit pension expense or
credit and OPEB expense  allocated  to the  segments  and the actual  expense or
credit  included in the  determination  of  operating  profit or loss,  (ii) the
elimination  of  intercompany  profit or loss on ending  inventory  balances and
(iii) LIFO inventory reserve adjustments.

<PAGE>


<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                           2001            2002             2003
                                                                           ----            ----             ----
                                                                                      (In thousands)

<S>                                                                        <C>              <C>             <C>
Operating loss                                                             $ (4,388)        $(3,279)        $(28,731)
General corporate items:
  Interest income                                                               253              66               41
  Other income                                                                  565              34            1,386
  General income (expenses), net                                             (2,250)         (5,946)          (5,973)
  Gain on early extinguishment of debt                                            -          54,739                -
  Interest expense                                                          (14,575)         (5,569)          (3,941)
                                                                           --------         -------         --------

  Income (loss) before income taxes                                        $(20,395)        $40,045         $(37,218)
                                                                           ========         =======         ========
</TABLE>

     All of the Company's  assets are located in the United States.  Information
concerning  geographic  concentration of net sales based on location of customer
is as follows:

<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                        2001              2002             2003
                                                                        ----              ----             ----
                                                                                    (In thousands)

<S>                                                                     <C>               <C>               <C>
United States                                                           $307,064          $316,361          $303,668
Canada                                                                     1,217             1,400             2,876
Great Britain                                                                100               214               125
Australia                                                                      -                 5              -
Mexico                                                                       189                 -              -
Japan                                                                        100              -                    2
                                                                        --------          --------          --------

                                                                        $308,670          $317,980          $306,671
                                                                        ========          ========          ========
</TABLE>

Note 3 - Joint ventures

     In January 1999,  Keystone and two unrelated  parties formed Garden Zone to
supply wire,  wood and plastic  products to the consumer lawn and garden market.
Prior to July 2003,  Keystone owned 51% of Garden Zone and, as such,  Keystone's
consolidated  financial  statements include the accounts of Garden Zone. Neither
Keystone nor the other owners  contributed  capital or assets to the Garden Zone
joint  venture,  but  Keystone  did  guarantee  51% of Garden  Zone's $4 million
revolving  credit  agreement.  See Note 5. Garden Zone  commenced  operations in
February  1999 and its net  income  since  that  date,  of which 51%  accrued to
Keystone for financial reporting purposes, has been insignificant. In July 2003,
Garden Zone purchased Keystone's 51% ownership in Garden Zone.

     In July 1999, Keystone formed ARC, a joint venture with Alter Peoria, Inc.,
to operate a ferrous scrap recycling operation at Keystone's facility in Peoria,
Illinois.  ARC sells  ferrous  scrap to  Keystone  and others.  Upon  formation,
Keystone  contributed  the property and  equipment of its Peoria  ferrous  scrap
facility  (net book value of  approximately  $335,000)  to the joint  venture in
return for its 50% ownership interest.  Keystone is not required to, nor does it
currently  anticipate it will, make any other  contributions  to fund or operate
this joint venture.  Keystone has not guaranteed any debt or other  liability of
the joint venture. Keystone recognized no gain or loss upon formation of ARC and
the  investment  in ARC is  accounted  for by the equity  method.  In  addition,
Keystone  sold its  ferrous  scrap  facility's  existing  inventory  to ARC upon
commencement  of ARC's  operations.  Prior to 2001,  Keystone  had  reduced  its
investment in ARC to zero due to operating  losses incurred by ARC. During 2001,
2002 and 2003, Keystone purchased  approximately $6.0 million, $5.2 million, and
$5.5 million respectively of ferrous scrap from ARC.

Note 4 - Inventories

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                         2002           2003
                                                                                         ----           ----
                                                                                           (In thousands)
 Steel and wire products:
<S>                                                                                      <C>            <C>
   Raw materials                                                                         $ 8,825        $ 5,937
   Work in process                                                                        14,920          5,694
   Finished products                                                                      21,178         12,818
   Supplies                                                                               14,710         12,693
                                                                                         -------        -------
                                                                                          59,633         37,142
   Less LIFO reserve                                                                      13,352         13,137
                                                                                         -------        -------
                                                                                          46,281         24,005

 Lawn and garden products - finished products                                              3,808           -
                                                                                         -------        ----

                                                                                         $50,089        $24,005
                                                                                         =======        =======
</TABLE>

Note 5 - Notes payable and long-term debt

     The following  description  of the Company's  indebtedness  at December 31,
2003 is  presented  without  regard to the  affect of the  Company's  Chapter 11
proceedings,  unless otherwise indicated.  Substantially all of the indebtedness
described below,  other than EWP's revolving credit facility,  is a Pre-petition
Claim under the Chapter 11 filing.

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                         2002           2003
                                                                                         ----           ----
                                                                                           (In thousands)

 Revolving credit facilities:
<S>                                                                                      <C>            <C>
   Keystone                                                                              $ 28,328       $ 16,863
   EWP                                                                                      1,362          3,997
   Garden Zone                                                                              1,650           -
 8% Notes                                                                                  28,908         28,116
 6% Notes                                                                                  16,031         16,031
 9 5/8% Notes                                                                               6,150          6,150
 Keystone Term Loan                                                                         4,167          6,365
 County Term Loan                                                                          10,000         10,000
 Other                                                                                        645            153
                                                                                          -------        -------
                                                                                           97,241         87,675
   Less current maturities                                                                 33,935         55,451
                                                                                          -------        -------

                                                                                          $63,306        $32,224
                                                                                          =======        =======
</TABLE>

     During  March 2002,  Keystone  completed an exchange  offer (the  "Exchange
Offer") with respect to the 9 5/8% Notes pursuant to which,  among other things,
holders of $93.9 million  principal amount of the 9 5/8% Notes exchanged their 9
5/8% Notes (along with accrued interest of  approximately  $10.1 million through
the date of exchange,  including  $2.1 million  which  accrued  during the first
quarter of 2002) for various forms of consideration, including newly-issued debt
and equity securities of the Company,  as described below, and such 9 5/8% Notes
were retired:

o    $79.2 million principal amount of 9 5/8% Notes were exchanged for (i) $19.8
     million principal amount of 8% Subordinated Secured Notes due 2009 (the "8%
     Notes") and (ii) 59,399  shares of the Company's  Series A 10%  Convertible
     Pay-In-Kind Preferred Stock,

o    $14.5  million  principal  amount of 9 5/8% Notes were  exchanged for $14.5
     million  principal amount of 6% Subordinated  Unsecured Notes due 2011 (the
     "6% Notes"), and

o    $175,000  principal  amount of 9 5/8% Notes were  exchanged  for $36,000 in
     cash and 6,481 shares of Keystone common stock.

     As a result of the Exchange Offer, the collateral previously securing the 9
5/8% Notes was released,  and the 9 5/8% Note indenture was amended to eliminate
substantially  all  covenants  related  to  the  9  5/8%  Notes,  including  all
financial-related covenants.

     The 8% Notes bear simple  interest at 8% per annum,  one-half of which will
be paid in cash on a semi-annual basis and one-half will be deferred and be paid
together  with the principal in three  installments,  one-third in each of March
2007, 2008 and 2009. The 8% Notes are  collateralized by a second-priority  lien
on substantially  all of the existing fixed and intangible assets of the Company
and its  subsidiaries  (excluding  EWP),  other than the real property and other
fixed assets  comprising  Keystone's  steel mill in Peoria,  Illinois,  on which
there is a third-priority lien. Keystone may redeem the 8% Notes, at its option,
in whole or in part at any time  with no  prepayment  penalty.  The 8% Notes are
subordinated to all existing senior indebtedness of Keystone, including, without
limitation,  the revolving  credit  facilities of Keystone and EWP, the Keystone
Term Loan (as defined  below) and, to the extent of the Company's  steel mill in
Peoria,  Illinois,  the County Term Loan (as defined  below).  The 8% Notes rank
senior to any expressly subordinated indebtedness of Keystone,  including the 6%
Notes.  In October  2002,  Contran  purchased  $18.3  million of the total $19.8
million  principal  amount at maturity of the 8% Notes.  As such,  approximately
$26.6  million of the recorded  $28.9  million  liability for the 8% Notes as of
December 31, 2002 and $26.0 million of the recorded  $28.1 million  liability as
of December 31, 2003 was payable to Contran.

     The 6% Notes bear simple interest at 6% per annum, of which one-fourth will
be paid in cash on a semi-annual basis and three-fourths will accrue and be paid
together  with the principal in four  installments,  one-fourth in each of March
2009, 2010, 2011 and May 2011.  Keystone may redeem the 6% Notes, at its option,
in whole or in part at any time  with no  prepayment  penalty.  The 6% Notes are
subordinated  to all existing and future senior or secured  indebtedness  of the
Company,  including,  without  limitation,  the revolving  credit  facilities of
Keystone,  EWP and Garden Zone, the Keystone Term Loan (as defined  below),  the
County  Term  Loan  (as  defined  below),  the 8%  Notes  and any  other  future
indebtedness of the Company which is not expressly subordinated to the 6% Notes.

     Keystone  accounted for the 9 5/8% Notes  retired in the Exchange  Offer in
accordance  with SFAS No. 15,  Accounting  by Debtors and Creditors for Troubled
Debt Restructurings. In accordance with SFAS No. 15:

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

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

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

o    The 6% Notes were  recorded  at the $16.0  million  carrying  amount of the
     associated 9 5/8% Notes (both principal and interest),  and future interest
     expense on such debt will be recognized on the effective interest method at
     a rate of 3.8%.

     As a result, for financial  reporting purposes the Company reported a $54.7
million pre-tax gain ($33.1 million net of income taxes) in the first quarter of
2002 related to the exchange of the 9 5/8% Notes. Because of differences between
the income tax treatment and the financial  reporting treatment of the exchange,
the Company  reported  $65.8  million of income for federal  income tax purposes
resulting from the exchange.  However,  all of the taxable income generated from
the exchange was offset by  utilization  of the  Company's  net  operating  loss
carryforwards,  and no cash income tax  payments  were  required to be paid as a
result of the exchange.

     As part of its  efforts  to  restructure  the 9 5/8%  Notes,  in April 2002
Keystone  received  a new $10  million  term  loan from the  County  of  Peoria,
Illinois (the "County Term Loan").  The County Term Loan does not bear interest,
requires no amortization of principal, is due in 2007 and is collateralized by a
second  priority  lien on the real  property and other fixed  assets  comprising
KSW's steel mill in Peoria,  Illinois.  Proceeds  from the County Term Loan were
used by  Keystone  to reduce the  outstanding  balance of  Keystone's  revolving
credit facility.

     Also as a part of its efforts to  restructure  the 9 5/8%  Notes,  in April
2002,  Keystone  received a new $5 million term loan (the  "Keystone Term Loan")
from the same lender  providing  the Keystone  revolving  credit  facility.  The
Keystone  Term Loan bears  interest  at prime plus 1.0%  (5.0% at  December  31,
2003). The Keystone Term Loan is collateralized by a first-priority  lien on all
of the  fixed  assets  of the  Company  and its  subsidiaries,  other  than EWP.
Proceeds  from the  Keystone  Term  Loan  were used by  Keystone  to reduce  the
outstanding balance of Keystone's  revolving credit facility.  In November 2003,
Keystone  increased  the then $3.0 million  outstanding  balance on the Keystone
Term Loan by $3.5 million.  Principal payments on the amended Keystone Term Loan
are due in 48 monthly  installments  through  December  2007.  Proceeds from the
amended  Keystone  Term Loan were used by  Keystone  to reduce  the  outstanding
balance  of  Keystone's  revolving  credit  facility.  The  Keystone  Term  Loan
comprises a portion of the Company's Debtor-In-Possession ("DIP") Financing.

     Keystone's primary revolving credit facility ("the Keystone Revolver"),  as
amended in November 2003, provides for revolving borrowings of up to $45 million
based upon  formula-determined  amounts of trade  receivables  and  inventories.
Borrowings  bear  interest  at the prime  rate plus  1.0%,  mature no later than
March, 2005 and are collateralized by certain of the Company's trade receivables
and inventories. In addition, the Keystone Revolver is cross-collateralized with
junior liens on certain of the  Company's  property,  plant and  equipment.  The
effective  interest rate on outstanding  borrowings under the Keystone  Revolver
was 5.0% at December 31, 2003. At December 31, 2003,  $3.0 million of letters of
credit were outstanding,  and $726,000 was available for additional  borrowings.
The Keystone  Revolver requires the Company's daily net cash receipts to be used
to reduce the outstanding  borrowings,  which results in the Company maintaining
zero cash balances so long as there is an outstanding balance under the Keystone
Revolver.  Accordingly, any outstanding balances under the Keystone Revolver are
always classified as a current liability, regardless of the maturity date of the
facility.  The  Keystone  Revolver  contains  restrictive  covenants,  including
certain  minimum  working  capital and net worth  requirements,  maintenance  of
financial ratios requirements and other customary provisions relative to payment
of dividends on Keystone's common stock and on the Company's Redeemable Series A
Preferred  Stock.  Due to the  Chapter  11  filings,  the  Company  is no longer
required to adhere to these covenants. The Keystone Revolver comprises a portion
of the Company's DIP Financing.

     EWP's $7 million  revolving credit facility (the "EWP Revolver") as amended
expires in September  2005.  Borrowings  under the EWP  Revolver,  as amended in
March 2005, bear interest at LIBOR plus 2.45% (3.4% at December 31, 2003). Prior
to January 2004,  borrowings  under the EWP Revolver bore interest at either the
prime rate or LIBOR plus 2.25%. At December 31, 2003, $1.9 million was available
for additional borrowings under the EWP revolver.  EWP's accounts receivable and
inventories  collateralize the EWP Revolver. The EWP Revolver Agreement contains
covenants with respect to working  capital,  additional  borrowings,  payment of
dividends and certain other matters.

     At December  31,  2002,  Garden Zone had a $4.0  million  revolving  credit
facility (the "Garden Zone Revolver") which bore interest at the LIBOR rate plus
2.4%.  During 2002 the Garden Zone Revolver bore interest at the LIBOR rate plus
2%. Garden Zone's accounts receivable and inventories  collateralized the Garden
Zone Revolver.

     In addition,  EWP Financial LLC ("EWPFLLC"),  a wholly-owned  subsidiary of
Contran had agreed to loan the Company up to an  aggregate  of $6 million  under
the terms of a revolving credit facility that matured on February 29, 2004. This
facility was  collateralized  by the common stock of EWP owned by Keystone.  The
Company did not borrow any amounts under such facility.  However, EWPFLLC issued
a $250,000  letter of credit for the benefit of the Company under this revolving
credit facility.

     At December 31,  2002,  other notes  payable and  long-term  debt  included
$474,000  advanced to Garden Zone by one of its other  owners.  The advance bore
interest at the prime rate.  Interest paid on this advance during 2001, 2002 and
2003 amounted to approximately $34,000, $23,000 and $11,000, respectively.

     At December 31, 2003, Keystone was not in compliance with certain financial
covenants  included in the  Keystone  Revolver.  Under the terms of the Keystone
Revolver,  failure to comply  with these  covenants  is  considered  an event of
default and gives the lender the right to  accelerate  the  maturity of both the
Keystone  Revolver and the Keystone Term Loan.  As such,  the Keystone Term Loan
was  classified as a current  liability at December 31, 2003.  In addition,  the
indenture governing  Keystone's 8% Notes provides the holders of such Notes with
the right to  accelerate  the maturity of the Notes in the event of a default by
Keystone  resulting in an  acceleration  of the maturity of any of the Company's
other  secured  debt.  As such,  the 8% Notes were also  classified as a current
liability at December 31, 2003.  As a result,  aggregate  future  maturities  of
other notes  payable and  long-term  debt at December 31, 2003 amounted to $55.5
million,  $23,000,  $14,000,  $16.2  million,  $1,000 and $16.0 million in 2004,
2005, 2006, 2007 and 2008 and thereafter, respectively.

     The  balances due under the  Keystone  Revolver  and Keystone  Term Note at
February 26, 2004 were  converted  to  debtor-in-possession  credit  facilities.
Certain  of  the  Company's   indebtedness  was  cancelled  or  restructured  in
connection  with the  Company's  Chapter  11  filing  and  Keystone's  emergence
therefrom.  See Note 19.  Accordingly,  the Company has not presented a table of
aggregate future maturities of indebtedness, as such table is not meaningful.

     The  Company's  revolving  credit  facilities  and the  Keystone  Term Loan
reprice with changes in interest  rates.  The aggregate fair value of Keystone's
fixed rate notes,  based on management's  estimate of fair value at December 31,
2002  approximated  $35.0 million ($61.3 million book value).  The book value of
all other  indebtedness  at December 31, 2002 was deemed to  approximate  market
value. Due to the significant uncertainties surrounding the Company's Chapter 11
filings, management is unable to estimate the aggregate fair value of Keystone's
fixed rate notes ($60.5 million book value) at December 31, 2003. The book value
of all other  indebtedness at December 31, 2003 is deemed to approximate  market
value.


Note 6 - Series A preferred stock:

     In connection  with the Exchange  Offer,  Keystone  issued 59,399 shares of
Series A 10% Cumulative  Convertible  Pay-In-Kind Preferred Stock (the "Series A
Preferred Stock"). The Series A Preferred Stock has a stated value of $1,000 per
share and has a  liquidation  preference  of $1,000 per share plus  accrued  and
unpaid dividends. The Series A Preferred Stock has an annual dividend commencing
in December 2002 of $100 per share,  and such  dividends may be paid in cash or,
at the  Company's  option,  in whole or in part in new Series A Preferred  Stock
based on their stated  value.  The amount of  dividends  accrued at December 31,
2002 ($4.7  million) and December 31, 2003 ($10.6  million) has been  determined
based on the  assumption  such dividends will be paid in cash rather than in the
form of additional shares of Series A Preferred Stock. Effective March 15, 2003,
each  share of Series A  Preferred  Stock may be  converted  into 250  shares of
Keystone  common  stock at the  exchange  rate of $4.00 per  share  based on the
stated  value of each  Series A share.  The  Company  may  redeem  the  Series A
Preferred  Stock at any  time,  in whole or in part,  at a  redemption  price of
$1,000 per share plus accrued and unpaid dividends. In addition, in the event of
certain sales of the Company's  assets outside the ordinary  course of business,
the Company  will be  required  to offer to purchase a specified  portion of the
Series A Preferred  Stock,  at a purchase price of $1,000 per share plus accrued
and unpaid  dividends,  based upon the  proceeds to the Company  from such asset
sale.  Otherwise,  holders of the  Series A  Preferred  Stock have no  mandatory
redemption rights.

     In connection with the Company's restructuring activities in December 2003,
the Company issued 12,500  additional  Shares of Series A Preferred Stock to the
employees  of  KSW's  primary  labor  union.  Based on the  Company's  financial
position  at the  issuance  date and  subsequent  Chapter 11 filing,  management
believes the fair value of the 12,500  additional shares issued in December 2003
was deminimis and as such, did not assign a value to the newly issued shares.

     The Company does not  currently  believe it is probable that holders of the
Series A Preferred  Stock will be able to require the Company to purchase any of
their stock, and accordingly the Company is not accreting the Series A Preferred
Stock up to its redemption  value.  In October 2002,  Contran  purchased  54,956
shares of the  original  59,399  shares  of the  Company's  Redeemable  Series A
Preferred Stock.

     All of the Company's  Series A Preferred  Stock was cancelled in connection
with  Keystone's  emergence  from  Chapter 11 on August 31, 2005.  As such,  the
Company will not be required to pay the accrued dividends related to this stock.
See Note 19.

Note 7 - Income taxes

     Summarized  below are (i) the differences  between the provision  (benefit)
for income taxes and the amounts that would be expected  using the U. S. federal
statutory  income tax rate of 35%, and (ii) the components of the  comprehensive
provision (benefit) for income taxes.

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                                2001          2002          2003
                                                                                ----          ----          ----
                                                                                         (In thousands)

 Expected tax provision (benefit), at
<S>                                                                             <C>           <C>          <C>
  statutory rate                                                                $(7,138)      $14,016      $(13,026)
 U.S. state income taxes (benefit), net                                            (399)        2,022        (1,093)
 Amortization of goodwill and negative goodwill                                    (431)            -             -
 Deferred tax asset valuation allowance                                          14,510         5,536        19,088
 Release of tax contingency reserve                                                   -             -        (5,292)
 Other, net                                                                        (544)           48           323
                                                                                -------       -------      --------

 Provision (benefit) for income taxes                                           $ 5,998       $21,622      $   -
                                                                                =======       =======      =====

 Provision (benefit) for income taxes:
   Currently payable (refundable):
     U.S. federal                                                               $   (37)      $   (34)     $    (27)
     U.S. state                                                                     133            34            27
                                                                                -------       -------      --------

       Net currently payable (refundable)                                            96             -          -
   Deferred income taxes, net                                                     5,902        21,622          -
                                                                                -------       -------      -----

                                                                                $ 5,998       $21,622      $   -
                                                                                =======       =======      =====
 Comprehensive provision for income taxes (benefit) allocable to:
   Income (loss) before cumulative effect
    of change in accounting principle                                           $ 5,998       $21,622      $   -
   Other comprehensive loss -
     Pension liability                                                             -             -             -
                                                                                -------       -------      -----

                                                                                $ 5,998       $21,622      $   -
                                                                                =======       =======      =====
</TABLE>




<PAGE>



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

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                2002                        2003
                                                                      --------------------------------------------------------
                                                                         Assets      Liabilities      Assets      Liabilities
                                                                        --------       --------     ---------      --------
                                                                                          (In thousands)

 Tax effect of temporary differences relating to:
<S>                                                                      <C>              <C>        <C>            <C>
   Inventories                                                           $  3,049         $  -       $  3,524       $   -
   Property and equipment                                                       -       (5,201)             -         (5,218)
   Pensions                                                                14,320            -              -        (49,409)
   Accrued OPEB cost                                                       44,483            -         46,172              -
   Accrued liabilities and other deductible
    differences                                                            14,294            -         14,322              -
   Other taxable differences                                                    -       (2,343)         2,607           -
   Net operating loss carryforwards                                        11,604            -         20,876              -
   Alternative minimum tax credit carryforwards                             6,260            -          6,260              -
   Deferred tax asset valuation allowance                                 (86,466)        -           (39,134)          -
                                                                         --------      -------       --------       -----

     Gross deferred tax assets                                              7,544       (7,544)        54,627        (54,627)
 Reclassification, principally netting by tax
  jurisdiction                                                             (7,544)       7,544        (54,627)        54,627
                                                                         --------     --------       --------       --------

     Net deferred tax asset                                                     -            -              -              -
 Less current deferred tax asset, net of pro rata
  allocation of deferred tax asset valuation
  allowance                                                                  -            -              -              -
                                                                         --------     --------        -------        ----

     Noncurrent net deferred tax asset                                   $   -        $   -           $  -           $  -
                                                                         ========     ========        =======        ====
</TABLE>

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                                2001          2002          2003
                                                                                ----          ----          ----
                                                                                         (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:
<S>                                                                             <C>           <C>          <C>
       Recognized in net income (loss)                                          $14,510       $ 5,536      $ 21,995
       Offset to the change in gross deferred
        income tax assets due principally to
        redetermination of certain tax attributes                                     -             -        (2,907)
       Recognized in other comprehensive loss -
        pension liabilities                                                        -           66,420       (66,420)
                                                                                -------       -------      --------

                                                                                $14,510       $71,956      $(47,332)
                                                                                =======       =======      ========
</TABLE>

     At December  31,  2003,  Keystone  had (i)  approximately  $6.3  million of
alternative  minimum tax credit  carryforwards which have no expiration date and
(ii) net  operating  loss  carryforwards  of  approximately  $54.5 million which
expire in 2019  through  2023,  and which may be used to reduce  future  taxable
income of the entire Company. See Note 19.

     The Company's  emergence  from Chapter 11 on August 31, 2005 did not result
in an ownership change within the meaning of Section 382 of the Internal Revenue
Code.

     At December  31,  2003,  considering  all factors  believed to be relevant,
including the Company's recent operating results,  its expected future near-term
productivity  rates;  cost of raw  materials,  electricity,  labor and  employee
benefits,  environmental  remediation,  and retiree medical  coverage;  interest
rates;  product mix; sales volumes and selling prices;  financial  restructuring
efforts and the fact that accrued OPEB expenses will become  deductible  over an
extended period of time and require the Company to generate  significant amounts
of future taxable income,  the Company believes its gross deferred tax assets do
not currently meet the  "more-likely-than-not"  realizability test. As such, the
Company has  provided a deferred  tax asset  valuation  allowance  to offset its
gross  deferred  income  tax  asset.   Keystone  will  continue  to  review  the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
Keystone  could  recognize a change in the  valuation  allowance  related to its
deferred tax assets in the future.

Note 8 - Stock options, warrants and stock appreciation rights plan

     In 1997,  Keystone  adopted its 1997  Long-Term  Incentive  Plan (the "1997
Plan").  Under the 1997 Plan, the Company may make awards that include, but need
not be limited to, one or more of the  following  types:  stock  options,  stock
appreciation rights,  restricted stock, performance grants and any other type of
award  deemed  consistent  with the  purposes  of the plan.  Subject  to certain
adjustments,  an aggregate of not more than 500,000 shares of Keystone's  common
stock may be issued under the 1997 Plan.  Stock  options  granted under the 1997
Plan may include  options  that qualify as  incentive  stock  options as well as
options  which are not so  qualified.  Incentive  stock options are granted at a
price not less than 100%, or in certain  instances,  110% of a fair market value
of such stock on the date of the grant.  Stock  options  granted  under the 1997
Plan may be exercised over a period of ten, or in certain instances, five years.
The vesting period,  exercise price, length of period during which awards can be
exercised, and restriction periods of all awards are determined by the Incentive
Compensation  Committee of the Board of Directors.  At December 31, 2003,  there
were 255,000 options outstanding under this plan.

     During 1997,  the Company  granted all remaining  options  available  under
Keystone's  1992 Option Plan. At December 31, 2003,  there were 171,000  options
outstanding under this plan.

     Changes in outstanding  options,  including  options  outstanding under the
former 1992  Option  Plan,  pursuant to which no further  grants can be made are
summarized in the table below.



<PAGE>




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

<S>                                                           <C>          <C>                        <C>
 Outstanding at December 31, 2000                              758,066     $4.25 -$13.94              $6,317,130

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

 Outstanding at December 31, 2001                              656,300      4.25 - 13.94               5,453,506

   Canceled                                                   (169,000)     5.50 -  9.19              (1,465,838)
                                                              --------     -------------             -----------

 Outstanding at December 31, 2002                              487,300      4.25 - 13.94               3,987,668

   Canceled                                                    (61,300)     5.13 - 10.25                (522,824)
                                                              --------     -------------             -----------

 Outstanding at December 31, 2003                              426,000     $4.25 -$13.94             $ 3,464,844
                                                              ========     =============             ===========
</TABLE>



<PAGE>


     The following table  summarizes  weighted average  information  about fixed
stock options outstanding at December 31, 2003.

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

<C>                      <C>               <C>               <C>         <C>                <C>              <C>
$ 4.25-$ 5.50             82,500            6.2 years         $ 5.17      82,500             6.2 years        $ 5.17
$ 7.63-$10.25            323,500            3.7 years         $ 8.53     323,500             3.7 years        $ 8.53
    $13.94                20,000            3.8 years         $13.94      20,000             3.8 years        $13.94
                         -------                                         -------
                         426,000            4.2 years         $ 8.13     426,000             4.2 years        $ 8.13
                         =======                                         =======
</TABLE>

     At December 31, 2003,  options to purchase all 426,000  shares  outstanding
were exercisable  (none at prices lower than the December 31, 2003 quoted market
price of $.10 per share).  At December 31, 2003, an aggregate of 245,000  shares
were available for future grants under the 1997 Plan.

     As a result of the Company's  Chapter 11 filings,  the equity of Keystone's
common  shareholders may be  significantly  diluted or eliminated  entirely.  As
such, the Company's outstanding stock options may also be eliminated.

     The pro forma information  included in Note 1, required by SFAS No. 123, as
amended,  is  based  on an  estimation  of the  fair  value  of  options  issued
subsequent to January 1, 1995.  There were no options  granted in 2001,  2002 or
2003. The fair values of the options  granted  subsequent to January 1, 1995 and
prior to January 1, 2001 were calculated  using the  Black-Scholes  stock option
valuation  model. The  Black-Scholes  model was not developed for use in valuing
employee stock  options,  but was developed for use in estimating the fair value
of traded options that have no vesting  restrictions and are fully transferable.
In  addition,   it  requires  the  use  of  subjective   assumptions   including
expectations of future  dividends and stock price  volatility.  Such assumptions
are only used for making the  required  fair  value  estimate  and should not be
considered as indicators of future dividend policy or stock price  appreciation.
Because  changes in the subjective  assumptions  can materially  affect the fair
value  estimate,   and  because  employee  stock  options  have  characteristics
significantly   different  from  those  of  traded  options,   the  use  of  the
Black-Scholes  option-pricing  model may not provide a reliable  estimate of the
fair value of employee stock options.  The pro forma impact on net income (loss)
per share disclosed in Note 1 is not necessarily indicative of future effects on
net income (loss) or earnings (loss) per share.

     All of the  Company's  outstanding  common  stock  and stock  options  were
cancelled in connection  with the Company's  emergence from Chapter 11 on August
25, 2005. See Note 19.



<PAGE>


Note 9 - Pensions and other post retirement benefits plans

     Keystone  sponsors several pension plans and other post retirement  benefit
plans for its employees and certain  retirees.  Under plans currently in effect,
most active  employees  would be entitled to receive OPEB upon  retirement.  The
Company uses a December 31st  measurement  date for its defined  benefit pension
and OPEB plans. The following tables provide a reconciliation  of the changes in
the plans' projected benefit  obligations and fair value of assets for the years
ended December 31, 2002 and 2003:

<TABLE>
<CAPTION>
                                                             Pension Benefits                   Other Benefits
                                                          -----------------------         -------------------------
                                                           2002             2003             2002             2003
                                                           ----             ----             ----             ----
                                                                               (In thousands)

Change in projected benefit obligations ("PBO"):
<S>                                                      <C>             <C>              <C>              <C>
  Benefit obligations at beginning of year               $314,106        $ 341,388        $ 152,298        $ 171,252
  Service cost                                              3,041            3,456            1,890            2,826
  Interest cost                                            21,938           21,586           10,722           11,849
  Participant contributions                                     -                -            1,785            1,734
  Actuarial loss                                           28,773           21,914           15,538           57,460
  Benefits paid                                           (26,470)         (26,280)         (10,981)         (12,079)
                                                         --------        ---------        ---------        ---------

    Benefit obligations at end of year                   $341,388        $ 362,064        $ 171,252        $ 233,042
                                                         ========        =========        =========        =========

Change in plan assets:
  Fair value of plan assets at beginning
    of year                                              $332,990         $286,992        $    -              $    -
  Actual return (loss) on plan assets                     (19,528)         111,506             -                   -
  Employer contributions                                        -                -            9,196           10,345
  Participant contributions                                     -                -            1,785            1,734
  Benefits paid                                           (26,470)         (26,280)         (10,981)         (12,079)
                                                         --------        ---------        ---------        ---------

    Fair value of plan assets at end
     of year                                             $286,992        $ 372,218        $    -           $    -
                                                         ========        =========        =========        ======

Funded status at end of the year:
  Plan assets greater (less) than PBO                    $(54,396)       $  10,154        $(171,252)       $(233,042)
    Unrecognized actuarial losses                         176,132          105,566           59,656          113,944
    Unrecognized prior service cost
     (credit)                                              11,852           10,971           (2,493)          (2,150)
                                                         --------        ---------        ---------        ---------

                                                         $133,588        $ 126,691        $(114,089)       $(121,248)
                                                         ========        =========        =========        =========

Amounts recognized in the balance sheet:
  Prepaid pension cost                                   $   -           $ 126,691           $    -        $    -
  Unrecognized net pension obligations                     11,852                -                -                -
  Accrued benefit costs:
    Current                                                     -                -          (11,372)         (11,255)
    Noncurrent                                            (48,571)               -         (102,717)        (109,993)
  Accumulated other comprehensive loss -
    pension liabilities                                   170,307             -                -                -
                                                         --------        ---------        ---------        ------

                                                         $133,588        $ 126,691        $(114,089)       $(121,248)
                                                         ========        =========        =========        =========
</TABLE>


<PAGE>


     The rate  assumptions  used in determining  the actuarial  present value of
benefit  obligations as of December 31, 2002 and 2003 are shown in the following
table:

<TABLE>
<CAPTION>
                                                                        Pension Benefits             Other Benefits
                                                                      2002         2003            2002         2003

<S>                                                                     <C>          <C>             <C>         <C>
Discount rate                                                           6.5%         6.0%            6.5%        6.0%
Rate of compensation increase                                           3.0%         3.0%            -           -
</TABLE>


     The rate assumptions used in determining the net periodic pension and other
retiree  benefit  expense during 2001,  2002 and 2003 are shown in the following
table:

<TABLE>
<CAPTION>
                                                   Pension Benefits                        Other Benefits
                                              ---------------------------          ------------------------------
                                             2001        2002         2003         2001        2002        2003
                                             ----        ----         ----         ----        ----        ----

<S>                                           <C>          <C>         <C>           <C>         <C>         <C>
Discount rate                                 7.25%        7.0%        6.5%          7.25%       7.0%        6.5%
Expected return on plan assets                10.0%       10.0%       10.0%          -           -           -
Rate of compensation increase                  3.0%        3.0%        3.0%          -           -           -
</TABLE>


     The following  table provides the  components of net periodic  benefit cost
for the plans for the years ended December 31, 2001, 2002 and 2003:

<TABLE>
<CAPTION>
                                                       Pension Benefits                    Other Benefits
                                                -------------------------------     ------------------------------
                                                 2001        2002        2003       2001        2002         2003
                                                 ----        ----        ----       ----        ----         ----
                                                                          (In thousands)

<S>                                             <C>         <C>          <C>       <C>          <C>          <C>
Service cost                                    $  2,954    $  3,041     $ 3,456   $ 1,506      $ 1,890      $ 2,826
Interest cost                                     21,419      21,938      21,586     9,739       10,722       11,849
Expected return on plan assets                   (33,142)    (31,983)    (27,376)        -            -            -
Amortization of unrecognized:
  Prior service cost                                 882         882         882      (343)        (343)        (343)
  Actuarial losses                                 2,408       4,518       8,350     1,137        1,991        3,171
                                                --------    --------     -------   -------      -------      -------

Net periodic benefit cost (credit)               $(5,479)    $(1,604)    $ 6,898   $12,039      $14,260      $17,503
                                                 =======     =======     =======   =======      =======      =======
</TABLE>


     At December 31, 2003, the accumulated  benefit obligation for the Company's
pension and OPEB plans was  approximately  $354.9  million  and $232.0  million,
respectively (2002 - $335.6 million and $187.4 million, respectively).

     At December 31, 2001,  the Company's  defined  benefit  pension plan's (the
"Plan") assets exceeded the Plan's  accumulated  benefit obligation and as such,
was considered  over-funded for financial  reporting  purposes.  At December 31,
2002,  the  accumulated  benefit  obligation  for the Plan  approximated  $335.6
million.  Due to a decline in the value of the Plan's assets during 2002,  and a
decrease  in the  discount  rate from  December  31,  2001 to 2002,  the  Plan's
accumulated  benefit  obligation at December 31, 2002 exceeded the Plan's assets
at that date.  As a result,  SFAS No. 87,  Employers'  Accounting  for Pensions,
provides that the Company is required to record an additional  minimum liability
that is at least  equal to the  amount by which the Plan's  accumulated  benefit
obligation  exceeds the Plan's assets (or $182.2  million at December 31, 2002),
eliminate any recorded prepaid pension cost, record an intangible asset equal to
the  amount  of any  unrecognized  prior  service  cost and  charge  a  separate
component of stockholders' equity for the difference. As such, during the fourth
quarter of 2002,  Keystone  recorded an additional  minimum pension liability of
$182.2  million,  an  intangible  pension  asset of $11.9  million and charged a
separate component of stockholders' equity for $170.3 million.  During 2003, the
Plan's  assets  exceeded  the  accumulated  benefit  obligation.  As  such,  the
previously recorded additional minimum liability,  intangible pension asset were
eliminated through the separate component of stockholders' equity.

     At  December  31,  2003,  substantially  all of the plan's net assets  were
invested  in  the  Combined  Master  Retirement  Trust  ("CMRT"),  a  collective
investment  trust  established  by  Valhi,  Inc.  ("Valhi"),   a  majority-owned
subsidiary of Contran,  to permit the  collective  investment by certain  master
trusts which fund certain employee  benefit plans  maintained by Contran,  Valhi
and related companies, including the Company. The remainder of the Plan's assets
at December 31, 2003 were primarily  invested in real estate.  Harold C. Simmons
is the sole trustee of the CMRT. Mr. Simmons and two members of Keystone's board
of directors and Master Trust Investment Committee comprise the Trust Investment
Committee for the CMRT.  Neither Mr. Simmons nor the Keystone  directors receive
any compensation for serving in such capacities.

     The CMRT's  long-term  investment  objective is to provide a rate of return
exceeding a composite of broad market equity and fixed income indices (including
the S&P 500 and certain Russell indicies) utilizing both third-party  investment
managers as well as investments directed by Mr. Simmons. The trustee of the CMRT
and the CMRT's Trust Investment Committee actively manage the investments of the
CMRT. Such parties have in the past, and may in the future, change the asset mix
of  the  CMRT  based  upon,  among  other  factors,  advice  they  receive  from
third-party  advisors and their  expectations as to what asset mix will generate
the greatest  overall  long-term  rate of return.  For 2001,  2002 and 2003, the
assumed  long-term rate of return for plan assets  invested in the CMRT was 10%.
In determining the  appropriateness of such long-term rate of return assumption,
the Company  considered,  among other things,  the historical rate of return for
the CMRT,  the current and  projected  asset mix of the CMRT and the  investment
objectives of the CMRT's  managers.  In addition,  the Company  receives  advice
about  appropriate  long-term  rates of return  from the  Company's  third-party
actuaries. During the 16-year history of the CMRT through December 31, 2003, the
average  annual rate of return has been 12.4%.  At December 31, 2003,  the asset
mix of the CMRT was 63% in U.S.  equity  securities,  24% in U.S.  fixed  income
securities, 7% in international securities and 6% in cash and other investments.

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

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



<PAGE>


     At Deceber 31, 2003, the expected  increase in future health care costs was
10% for 2004,  declining gradually to 5% in 2009 and thereafter.  Assumed health
care cost trend rates have a significant  effect on the amounts reported for the
health care plans.  A  one-percentage-point  change in assumed  health care cost
trend rates would have the following effects:


<TABLE>
<CAPTION>
                                                                            Change in Health Care Cost Trend
                                                                         --------------------------------------
                                                                         1% Increase               1% Decrease
                                                                         -----------               -----------
                                                                                     (In thousands)

Increase (decrease):
  Effect on total of service and interest
    cost components for the year ended
<S>                                                                           <C>                      <C>
    December 31, 2003                                                         $ 2,833                  $ (2,157)

  Effect on postretirement benefit
    obligation at December 31, 2003                                           $39,710                  $(31,145)
</TABLE>

     Keystone's  post  retirement  benefit plans were altered in connection with
the Company's Chapter 11 filing and emergence therefrom. See Note 19.

     The  Company  was not  required  to make any  contributions  to its defined
benefit pension plan during 2004,  while the Company  contributed  approximately
$5.3 million to its OPEB plans during 2004.

     The following benefit payments,  which reflect expected future service,  as
appropriate, are expected to be paid during the years ended December 31,:

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

<C>                                                                           <C>                      <C>
2004                                                                          $ 27,259                 $ 6,183
2005                                                                          $ 26,944                 $ 7,917
2006                                                                          $ 26,774                 $ 4,254
2007                                                                          $ 26,635                 $ 4,453
2008                                                                          $ 26,547                 $ 4,500
2009 - 2013                                                                   $132,680                 $22,500
</TABLE>

     The Company also  maintains  several  defined  contribution  pension plans.
Expense  related to these plans was $1.6  million in 2001,  $2.5 million in 2002
and $1.5 million in 2003.



<PAGE>


Note 10 - Other accrued liabilities

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                       2002             2003
                                                                                       ----             ----
                                                                                           (In thousands)

 Current:
<S>                                                                                     <C>              <C>
   Environmental                                                                        $13,122          $13,044
   Employee benefits                                                                     11,455           10,320
   Self insurance                                                                         5,317            4,937
   Deferred vendor payments                                                               3,338            3,477
   Legal and professional                                                                 1,176              964
   Disposition of former facilities                                                         659              680
   Interest                                                                                 318              326
   Other                                                                                  4,831            3,396
                                                                                        -------          -------

                                                                                        $40,216          $37,144
                                                                                        =======          =======
 Noncurrent:
   Deferred vendor payments                                                             $10,252          $ 7,193
   Environmental                                                                          7,087            6,722
   Workers compensation payments                                                          2,309            1,941
   Interest                                                                                 298              709
   Other                                                                                    391              101
                                                                                        -------          -------

                                                                                        $20,337          $16,666
                                                                                        =======          =======
</TABLE>

     During  the first  quarter  of 2002,  two of the  Company's  major  vendors
representing  approximately  $16.1 million of trade payables,  agreed to be paid
over a five-year period ending in March 2007 with no interest.  The repayment of
a portion of such deferred  vendor  payments could be accelerated if the Company
achieves specified levels of future earnings.

     Keystone generally  undertakes  planned major maintenance  activities on an
annual  basis,  usually  in  the  fourth  quarter  of  each  year.  These  major
maintenance  activities are conducted  during a shut-down of the Company's steel
and wire rod mills.  Repair and  maintenance  costs incurred in connection  with
these major  maintenance  activities  are accrued in advance on a  straight-line
basis throughout the year and are included in cost of goods sold.

Note 11 - Related party transactions

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

     It is the policy of the  Company  to engage in  transactions  with  related
parties  on terms,  in the  opinion of the  Company,  no less  favorable  to the
Company than could be obtained from unrelated parties.

     J.  Walter  Tucker,  Jr.,  Vice  Chairman  of the  Company,  is a principal
stockholder of Tucker & Branham,  Inc., Orlando,  Florida.  Although the Company
does not pay Mr.  Tucker a salary,  the  Company  has  contracted  with Tucker &
Branham,  Inc. for management  consulting  services by Mr. Tucker.  Fees paid to
Tucker & Branham,  Inc. were $52,000 in 2001 and $5,100 in 2002. The Company did
not make any such payments to Mr. Tucker in 2003.

     Under the terms of an  intercorporate  services  agreement  ("ISA") entered
into between the Company and Contran,  employees of Contran will provide certain
management,  tax planning,  financial and administrative services to the Company
on a fee basis. Such charges are based upon estimates of the time devoted by the
employees of Contran to the affairs of the Company, and the compensation of such
persons.  Because of the large number of companies  affiliated with Contran, the
Company  believes it benefits from cost savings and economies of scale gained by
not having certain management, financial and administrative staffs duplicated at
each entity,  thus allowing certain  individuals to provide services to multiple
companies but only be compensated by one entity. The ISA fees charged by Contran
to the Company aggregated  approximately  $1,005,000 in 2001, $1,025,000 in 2002
and  $1,005,000 in 2003. At December 31, 2002 and 2003, the Company owed Contran
approximately  $1.4 million and $2.8  million,  respectively,  primarily for ISA
fees.  Such  amounts are  included in payables to  affiliates  on the  Company's
balance sheets. In addition,  Keystone  purchased certain aircraft services from
Valhi in the amount of $124,000 in 2001, $74,000 in 2002 and $52,000 in 2003.

     Tall Pines Insurance  Company ("Tall  Pines"),  Valmont  Insurance  Company
("Valmont"),  and EWI RE, Inc. provide for or broker certain insurance  policies
for  Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company. Tall Pines and Valmont are wholly-owned  subsidiaries of Valhi, and EWI
is a wholly-owned  subsidiary of NL. Prior to January 2002, an entity controlled
by one of Harold C.  Simmons'  daughters  owned a majority  of EWI,  and Contran
owned the  remainder of EWI. In January 2002, NL purchased EWI from its previous
owners.  Consistent with insurance industry practices,  Tall Pines,  Valmont and
EWI receive commissions from the insurance and reinsurance  underwriters for the
policies that they provide or broker. The aggregate premiums paid to Tall Pines,
Valmont and EWI were $2.2 million in each of 2001, 2002 and 2003.  These amounts
principally  included  payments for insurance and  reinsurance  premiums paid to
third parties,  but also included  commissions  paid to Tall Pines,  Valmont and
EWI. At December 31, 2003,  the Company owed Tall Pines  $236,000 for  insurance
premiums.  In the Company's opinion, the amounts that the Company paid for these
insurance  policies and the  allocation  among the Company and its affiliates of
relative  insurance premiums are reasonable and similar to those they could have
obtained  through   unrelated   insurance   companies   and/or  brokers.   These
relationships with Tall Pines, Valmont and EWI continued in 2004.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its subsidiaries and affiliates,  including the Company, have entered
into a loss sharing  agreement under which any uninsured loss is shared by those
entities  who have  submitted  claims  under the  relevant  policy.  The Company
believes  the  benefits in the form of reduced  premiums  and  broader  coverage
associated  with  the  group  coverage  for  such  policies  justifies  the risk
associated with the potential for any uninsured loss.

     Dallas Compressor  Company, a subsidiary of Contran,  sells compressors and
related  services to Keystone.  During 2001,  2002 and 2003  Keystone  purchased
products and services from Dallas  Compressor  Company in the amount of $31,000,
$267 and $1,000, respectively.

     During each of 2001 and 2002, Garden Zone paid approximately $60,000 to one
of its other owners for accounting and financial  services.  During 2003, Garden
Zone paid approximately $35,000 to such owner for these services.

     EWPFLLC  had agreed to loan the  Company up to an  aggregate  of $6 million
through  February 29, 2004.  Borrowings bore interest at the prime rate plus 3%,
and are  collateralized  by the stock of EWP. In  addition,  the Company  paid a
commitment fee of .375% on the unutilized  portion of the facility.  At December
31, 2003, no amounts were  outstanding  under the  facility,  and $6 million was
available for borrowing by the Company.  However,  EWPFLLC has issued a $250,000
letter of credit for the benefit of the Company under this  facility.  The terms
of this loan were approved by the independent directors of the Company. The loan
matured in February  2004.  During  2001,  the Company  paid EWPFLLC an up-front
facility fee of $120,000 related to this facility. During each of 2002 and 2003,
Keystone paid EWPFLLC unused line fees of $23,000, related to this facility. See
Note 19.

Note 12 - Quarterly financial data (unaudited)

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

 Year ended December 31, 2003:
<S>                                                      <C>              <C>              <C>            <C>
   Net sales                                             $81,089          $ 96,749         $80,452        $ 48,381
   Gross profit (loss)                                     1,438             3,825          (3,260)         (6,213)

   Net loss                                              $(9,006)         $ (6,162)       $(11,836)       $(10,513)
                                                         =======          ========        ========        ========

   Basic and diluted net loss per share                  $ (1.04)         $   (.76)        $ (1.32)       $  (1.20)
                                                         =======          ========         =======        ========

 Year ended December 31, 2002:
   Net sales                                             $90,441          $ 99,005         $83,844        $ 61,545
   Gross profit (loss)                                     8,733            10,811           4,334          (4,622)

   Net gain on early extinguishment of debt               33,117                 -               -               -
   Change in accounting principle                         19,998                 -               -               -

   Net (income) loss                                     $52,011           $ 2,004         $(4,801)       $(10,794)
                                                         =======           =======         =======        ========

   Basic net income (loss)
    per share available for common shares                $  5.17           $   .03         $  (.63)       $  (1.22)
                                                         =======           =======         =======        ========

   Diluted net income (loss) per share
    available for common shares                          $  4.87           $   .03         $  (.63)       $  (1.22)
                                                         =======           =======         =======        ========
</TABLE>


     Due to timing of the issuance of  preferred  stock in  connection  with the
Exchange  Offer,  the sum of the  quarterly  2002 diluted net income  (loss) per
share available for common shares is different than diluted net income per share
available for common shares for the full year.

     As a result of a  significant  decline in value of the assets of Keystone's
defined  benefit  pension  plan  during  2002,  the plan's  accumulated  benefit
obligation at December 31, 2002 exceeded the plan's assets. Accordingly,  during
the fourth quarter of 2002, the Company  recorded an additional  minimum pension
liability of $182.2  million and an intangible  pension asset of $11.9  million.
During 2003, the pension plan experienced  better than expected  performance and
at December 31, 2003, the pension plan's assets exceeded the accumulated benefit
obligation.  As such, during the fourth quarter of 2003 the previously  recorded
additional  minimum  pension  liability  and  intangible  asset were  eliminated
through the separate component of stockholders' equity.

     See Notes 3, 7 and 9.

Note 13 - Environmental matters

     As a result of the  Chapter 11 filings on  February  26,  2004,  litigation
relating to prepetition claims against the filing companies,  including Keystone
and Sherman Wire Company ("Sherman"), has been stayed.

     Keystone  has been  named as a  defendant,  potentially  responsible  party
("PRP"),  or  both,  pursuant  to  the  Comprehensive   Environmental  Response,
Compensation and Liability Act ("CERCLA") or similar state laws in approximately
25 governmental  and private  actions  associated  with  environmental  matters,
including  waste disposal sites and  facilities  currently or previously  owned,
operated  or used  by  Keystone,  certain  of  which  are on the  United  States
Environmental Protection Agency's (the "U.S. EPA") Superfund National Priorities
List or similar state lists.  These proceedings seek cleanup costs,  damages for
personal  injury or  property  damage  and/or  damages  for  injury  to  natural
resources.  Certain of these proceedings involve claims for substantial amounts.
Although  Keystone may be jointly and severally  liable for such costs,  in most
cases,  it is only one of a number of PRPs who may also be jointly and severally
liable.

     On a  quarterly  basis,  Keystone  evaluates  the  potential  range  of its
liability  at sites where it has been named as a PRP or  defendant  by analyzing
and  estimating the range of reasonably  possible costs to Keystone.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,  managing,  studies,  certain  legal  fees,  clean-up,  removal  and
remediation.  Keystone believes it has provided adequate accruals ($19.8 million
at December 31, 2003) for these matters at 13 sites for which Keystone  believes
its liability is probable and  reasonably  estimable,  but  Keystone's  ultimate
liability may be affected by a number of factors,  including  the  imposition of
more  stringent   standards  or  requirements   under   environmental   laws  or
regulations, new developments or changes in remedial alternatives and costs, the
allocation  of  such  costs  among  PRPs,  the  solvency  of  other  PRPs  or  a
determination  that  Keystone  is  potentially  responsible  for the  release of
hazardous  substances at other sites,  any of which could result in expenditures
in excess of amounts  currently  estimated  by Keystone to be required  for such
matters. With respect to other PRPs and the fact that the Company may be jointly
and  severally  liable  for the total  remediation  cost at certain  sites,  the
Company could ultimately be liable for amounts in excess of its accruals due to,
among other things, reallocation of costs among PRPs or the insolvency of one or
more PRPs. In addition,  the actual timeframe for payments by Keystone for these
matters may be substantially in the future.

     Keystone  believes it is not  possible  to estimate  the range of costs for
eight  sites.  For these  sites,  generally  the  investigation  is in the early
stages,  and it is either unknown as to whether or not the Company  actually had
any association  with the site, or if the Company had association with the site,
the nature of its responsibility,  if any, for the contamination at the site and
the  extent of  contamination.  The  timing  on when  information  would  become
available  to the  Company to allow the  Company to  estimate a range of loss is
unknown and dependent on events outside the control of the Company, such as when
the party alleging liability provides information to the Company.

     The upper end of the range of  reasonably  possible  costs to Keystone  for
sites for which it is  possible to  estimate  costs (17 sites) is  approximately
$21.6 million. Keystone's estimates of such liabilities have not been discounted
to present value,  and other than certain  previously-reported  settlements with
respect to certain of Keystone's  former  insurance  carriers,  Keystone has not
recognized  any material  insurance  recoveries.  No assurance can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs  will not be  incurred  with  respect  to the  seven  sites as to which no
estimate  of  liability   can   presently   be  made   because  the   respective
investigations  are in early stages.  The extent of CERCLA  liability  cannot be
determined  until the  Remedial  Investigation/Feasibility  Study  ("RI/FS")  is
complete,  the U.S.  EPA  issues a Record  of  Decision  ("ROD")  and  costs are
allocated  among PRPs.  The extent of liability  under  analogous  state cleanup
statutes and for common law equivalents is subject to similar uncertainties.

     The exact time frame over which the Company makes  payments with respect to
its accrued  environmental  costs is unknown and is dependent upon,  among other
things,  the timing of the actual  remediation  process which in part depends on
factors  outside the control of the  Company.  At each balance  sheet date,  the
Company makes an estimate of the amount of its accrued environmental costs which
will be paid out over the subsequent 12 months,  and the Company classifies such
amount as a current liability.  The remainder of the accrued environmental costs
are classified as a noncurrent liability.


     More  detailed  descriptions  of  certain  legal  proceedings  relating  to
environmental  matters  are set  forth  below.  A  summary  of  activity  in the
Company's  environmental accruals for the three years ended December 31, 2003 is
as follows:

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,
                                                                                2001          2002          2003
                                                                                ----          ----          ----
                                                                                         (In thousands)

<S>                                                                             <C>           <C>           <C>
 Balance at beginning of period                                                 $21,680       $20,552       $20,209
 Expense                                                                            553           394          -
 Payments                                                                        (1,770)         (780)         (475)
 Reclassifications                                                                   89            43            32
                                                                                -------       -------       -------

 Balance at end of period                                                       $20,552       $20,209       $19,766
                                                                                =======       =======       =======
</TABLE>

     The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan  provides  for the  in-place  treatment of seven  hazardous  waste  surface
impoundments  and two waste  piles to be  disposed  of as  special  wastes.  The
Company recorded an estimated  liability for remediation of the impoundments and
waste piles  based on a  six-phase  remediation  plan.  The Company  adjusts the
recorded  liability  for each Phase as actual  remediation  costs become  known.
During 1995,  the Company began  remediation  of Phases II and III and completed
these Phases,  as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant  remediation  efforts  relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney  General's office, the Company is
depositing  $75,000 per quarter  into a trust fund.  The Company  must  continue
these quarterly deposits and cannot withdraw funds from the trust fund until the
fund balance exceeds the sum of the estimated  remaining  remediation costs plus
$2 million.  At December  31, 2002 and 2003 the trust fund had  balances of $5.1
million and $5.5  million,  respectively,  which  amounts are  included in other
noncurrent  assets  because the Company does not expect to have access to any of
these funds until after 2004.

     In  February  2000,  Keystone  received  a notice  from the  United  States
Environmental  Protection  Agency ("U.S.  EPA") giving formal notice of the U.S.
EPA's intent to issue a unilateral  administrative order to Keystone pursuant to
section  3008(h) of the Resource  Conservation  and Recovery Act  ("RCRA").  The
draft order enclosed with this notice would require Keystone to: (1) investigate
the nature and extent of hazardous  constituents  present at and  released  from
five  alleged  solid  waste  management  units  at  the  Peoria  facility;   (2)
investigate  hazardous  constituent  releases  from "any  other  past or present
locations at the Peoria facility where past waste treatment, storage or disposal
may pose an unacceptable risk to human health and the environment"; (3) complete
by  June  30,  2001  an  "environmental  indicators  report"  demonstrating  the
containment of hazardous  substances that could pose a risk to "human receptors"
and further  demonstrating  that  Keystone  "has  stabilized  the  migration  of
contaminated  groundwater  at or from the  facility;"  (4) submit by January 30,
2002 proposed "final corrective  measures  necessary to protect human health and
the environment  from all current and future  unacceptable  risks of releases of
hazardous waste or hazardous  constituents at or from the Peoria  facility;  and
(5)  complete  by June 30,  2001  the  closure  of the  sites  discussed  in the
preceding  paragraph now  undergoing  RCRA closure under the  supervision of the
IEPA. Keystone has complied with deadlines in the draft order. During the fourth
quarter  of 2000,  Keystone  entered  into a  modified  Administrative  Order on
Consent,  which may require the Company to conduct cleanup activities at certain
solid waste management units at its Peoria facility  depending on the results of
soil and  groundwater  sampling and risk  assessment to be conducted by Keystone
during future periods pursuant to the order.

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

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

     "Superfund" sites

     The Company is subject to federal and state  "Superfund"  legislation  that
imposes  cleanup and remediation  responsibility  upon present and former owners
and  operators of, and persons that  generated  hazardous  substances  deposited
upon,  sites  determined  by state or federal  regulators  to contain  hazardous
substances.  Keystone  has been  notified  by U.S.  EPA that  the  Company  is a
potentially  responsible party ("PRP") under the federal "Superfund" legislation
for the alleged  release or threat of release of hazardous  substances  into the
environment at eight sites.  These  situations  involve cleanup of landfills and
disposal facilities which allegedly received hazardous  substances  generated by
discontinued   operations  of  the  Company.   Although  Keystone  believes  its
comprehensive  general liability insurance policies provide  indemnification for
certain costs the Company incurs at the "Superfund"  sites  discussed  below, it
has only recorded receivables for the estimated insurance recoveries at three of
those sites.  During 2001,  2002 and 2003,  the Company  received  approximately
$88,000,  $43,000 and  $31,000,  respectively,  from  certain of its insurers in
exchange  for  releasing  such  insurers  from  coverage  for  certain  years of
environmental related liabilities.  Such amounts are included in Keystone's self
insurance accruals.

     In July 1991, the United States filed an action  against a former  division
of the Company and four other PRPs in the United States  District  Court for the
Northern  District of Illinois  (Civil  Action No.  91C4482)  seeking to recover
investigation  and  remediation  costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron,  Illinois.  In April 1992,  Keystone filed a third-party
complaint  in  this  civil  action   against  15  additional   parties   seeking
contribution  in the event the Company is held liable for any response  costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any  investigation  of the nature and extent of the  contamination.  In December
1996,  Keystone,  U.S. EPA and the Department of Justice  entered into the Fifth
Partial  Consent  Decree to settle  Keystone's  liability for EPA response costs
incurred at the site  through  April 1994 for a payment of  $690,000.  Under the
agreement  Keystone is  precluded  from  recovering  any portion of the $690,000
settlement payment from other parties to the lawsuit.  In January 1997, Keystone
paid the $690,000  settlement.  Keystone will remain  potentially liable for EPA
response  costs  incurred  after April 30,  1994,  and natural  resource  damage
claims, if any, that may be asserted in the future. Keystone recovered a portion
of the  $690,000  payment  from its  insurer.  In March 1997,  U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated  soils be performed at an  estimated  cost of $63,000,  that a soil
cover be placed over the site, an on-site  groundwater  pump and treat system be
installed  and  operated  for an  estimated  period of 15  years,  and that both
on-site and  off-site  groundwater  monitoring  be conducted  for an  indefinite
period. U.S. EPA's cost estimate for the recommended plan is $5.1 million.  U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately  $6 million.  The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a  Comprehensive   Environmental   Response,   Compensation  and  Liability  Act
("CERCLA")  special  notice  letter  notifying  them  for  the  first  time of a
September  1998 Record of Decision  ("ROD") and  requesting a  commitment  on or
before  May 19,  1999 to  perform  soils  work  required  by that  ROD  that was
estimated to cost approximately $300,000. In addition, the special notice letter
also  requested  the PRPs to reimburse  U.S. EPA for costs  incurred at the site
since May 1994 in the amount of $1.1  million,  as well as for all future  costs
the U.S.  EPA will incur at the site in  overseeing  the  implementation  of the
selected soils remedy and any future  groundwater  remedy.  Keystone  refused to
agree to the U.S.  EPA's past and future cost demand.  In August 1999,  U.S. EPA
issued a  groundwater  PRAP with an estimated  present value cost of $3 million.
Keystone filed public  comments  opposing the PRAP in September 1999. In October
2002, Keystone and the other remaining PRPs entered into a second Consent Decree
with the U.S. EPA, in order to resolve their  liability for  performance  of the
U.S.  EPA's  September  1998  ROD  for a  soils  remedy  at the  site,  for  the
performance of the U.S. EPA's  December 1999 ROD for remedial  action  regarding
the  groundwater  component of Operable  Unit No. 4 at the site,  for payment of
U.S.  EPA's  site  costs  incurred  since  May 1994 as well as future  U.S.  EPA
oversight  costs,  and  for the  transfer  of  certain  funds  that  may be made
available to the PRPs as a result of a consent decree  reached  between U.S. EPA
and another site PRP. Under the terms of the second Consent Decree,  and the PRP
Agreement  was executed to implement  the PRPs'  performance  under that decree,
Keystone is  required  to pay  approximately  $700,000  (of which  approximately
$600,000 has already  been paid into a PRP Group trust  fund),  and would remain
liable for 18.57% of future U.S. EPA oversight  costs as well as a similar share
of any  unanticipated  cost increases in the soils remedial action work.  (Under
the agreements, the City of Byron, Illinois, would assume responsibility for any
cost  overruns  associated  with the  municipal  water supply  components of the
groundwater contamination remedy.) The U.S. EPA served the PRP Group in February
2003 with its first oversight cost claim under the second Consent Decree, in the
amount of  $186,000  for the period  from March 1, 2000 to  November  25,  2002.
Keystone's share of that claim is approximately  $35,000.  The U.S. EPA has also
requested  changes to the  groundwater  monitoring  program at the site that may
require future increases in the PRP Group's groundwater  monitoring reserves. In
September  2002,  the IAG served a demand  letter on Keystone  and 3 other PRP's
seeking recovery of  approximately  $1.3 million in state cleanup costs incurred
at the Byron Salvage Yard site. The PRP's are currently negotiating with the IAG
in an attempt to settle  this claim.  The four PRP's named in the demand  letter
are also attempting to include other site PRP's in the negotiations.  It remains
possible  that  these  negotiations  could  fail  and that  Keystone's  ultimate
liability  for the  Byron  Salvage  Yard site  could  increase  in a  subsequent
settlement agreement or as a result of litigation.

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

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

     Prior to its acquisition by Keystone,  DeSoto, Inc. ("DeSoto") was notified
by U.S. EPA that it is one of approximately  50 PRPs at the Chemical  Recyclers,
Inc. site in Wylie,  Texas. In January 1999, DeSoto changed its name to Sherman.
Under a consent  order with the U.S.  EPA, the PRP group has performed a removal
action  and  an  investigation  of  soil  and  groundwater  contamination.  Such
investigation  revealed certain environmental  contamination.  It is anticipated
U.S. EPA will order further  remedial  action,  the exact extent of which is not
currently known. Sherman is paying on a non-binding interim basis, approximately
10% of the  costs  for  this  site.  Remediation  costs,  at  Sherman's  present
allocation level, are estimated at a range of from $1.5 million to $4 million.

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

     In 1995,  DeSoto was notified by the Texas  Natural  Resource  Conservation
Commission  ("TNRCC") that there were certain  deficiencies  in prior reports to
TNRCC relative to one of its  non-operating  facilities  located in Gainesville,
Texas.  During 1999,  Sherman entered into TNRCC's  Voluntary  Cleanup  Program.
Remediation  costs are  presently  estimated  to be between  $1.2 million and $2
million.  Investigation  activities are on-going  including  additional soil and
groundwater sampling.

     In December 1991,  DeSoto and  approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken,  New Jersey  municipal  landfill.  The plaintiffs in the complaint
were ordered by the court to show in what manner the  defendants  were connected
to the site. The  plaintiffs  provided an alleged nexus  indicating  garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such  waste  allegedly  contained  hazardous  material  to which
DeSoto objected.  The claim was dismissed  without  prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in  discovery  stage at  December  31,  2003.  Sherman  has denied any
liability  with  regard to this  matter  and  expects to  vigorously  defend the
action.

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

     In November 2003, Sherman received a General Notice of Potential  Liability
from the U.S.  EPA advising  them that the U.S. EPA believe  Sherman is a PRP at
the Lake Calumet Cluster Site in Chicago, Illinois. The U.S. EPA advises the 200
acre site consists of areas of both ground water and surface water contamination
located in a remnant wetland area. The U.S. EPA's effort at this site is part of
a larger  effort  undertaken  along  with the  State  of  Illinois,  the City of
Chicago, the U.S. Army Corps of Engineers,  and the U.S. Department of Energy to
cleanup  contamination  in the Lake  Calumet  basin.  The U.S.  EPA  alleges the
original  wetland area has been  partially  filed by various waste  handling and
disposal  activities  which  started  as early as the  1940's.  Incineration  of
hazardous waste including paints,  thinners,  varnishes,  chlorinated  solvents,
styrene,  ink,  adhesives,  and antifreeze  occurred on the site from 1977 until
1982.  In addition,  several  landfills  operated in and near the site from 1967
into the 1990s.  Approximately  1,600 ruptured drums have been discovered buried
on the site. The U.S. EPA has undertaken or overseen various response actions at
the site to mitigate remaining above ground  contamination in the site vicinity.
The U.S. EPA advises these  activities have led to the formation of an extensive
ground water contamination plume and contamination in the remaining wetland. The
origin of the contamination cannot be associated with any single prior activity.
The ground  water is in direct  contact  with the wetland  waters,  and the same
contaminants of concern, certain of which are known to bioaccumulate,  and their
concentrations are above human health and environmental  standards.  Sherman did
not  respond to the  November  2003  Notice,  however,  Sherman  notified  their
insurance  carriers and asked them to indemnify and defend  Sherman with respect
to the Notice. At present,  no carrier has agreed to either indemnify or defend.
In addition,  in November,  2003,  Sherman requested the U.S. EPA to provide any
documentation  that allegedly  connects Sherman to the site.  Subsequently,  the
U.S. EPA produced  documents  that may show that Sherman wastes were sent to the
site.  It is not  possible at this time to  determine  if Sherman has any future
liability with respect to this site.

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

     Under the terms of a 1990 asset sale agreement,  DeSoto established a trust
fund to fund potential clean-up liabilities relating to the assets sold. Sherman
has access to the trust fund for any expenses or liabilities it incurs  relative
to environmental  claims relating to the site identified in the trust agreement.
The trust fund is primarily invested in United States Treasury securities and is
classified as restricted  investments on the balance  sheet.  As of December 31,
2002 and 2003,  the  balance in the trust fund was  approximately  $385,000  and
$135,000 respectively.

     Sherman also has access to a trust fund  relative to another  environmental
site for any expenses or liabilities it incurs relative to environmental  claims
at that site.  The trust  fund is  included  in  restricted  investments  on the
balance sheet.  As of December 31, 2002 and 2003, the balance in this trust fund
was approximately $266,000 and $267,000, respectively.

Note 14 - Lease commitments

     At  December  31,  2003,  the  Company is  obligated  under  certain  other
operating  leases  through  2010.  Future  commitments  under  these  leases are
summarized below.

<TABLE>
<CAPTION>
                                                                           Lease commitment
                                                                            (In thousands)

<C>                                                                                <C>
2004                                                                               $1,157
2005                                                                                  921
2006                                                                                  294
2007                                                                                   42
2008                                                                                   28
Thereafter                                                                             48
                                                                                   ------
                                                                                   $2,490
                                                                                   ======
</TABLE>

     The Company has many executory  contracts,  including the above leases that
were rejected during the Chapter 11 proceedings. See Note 19.

Note 15 -  Other commitments and contingencies

Current litigation

     As a result of the  Chapter 11 filings on  February  26,  2004,  litigation
relating to prepetition claims against the filing companies,  including Keystone
and Sherman has been stayed.  These  liabilities that relate to Sherman continue
to be negotiated and adjudicated subsequent to Keystone's emergence from Chapter
11 on August 31, 2005.

     In July 2001,  Sherman received a letter from a law firm advising them that
Sears  Roebuck & Co.  ("Sears")  had been named as a  defendant  in a lead paint
personal injury case. Sears claimed  contractual  indemnity  against Sherman and
demanded that Sherman  defend and  indemnify  Sears with regard to any losses or
damages Sears may sustain in the case. Sears was named as an additional  insured
on insurance  policies,  in which DeSoto, the manufacturer of the paint, was the
named  insured.  Additional  demands  were made by Sears in 2002 with  regard to
additional lead paint cases.  DeSoto's  insurance  carriers were notified of the
action and asked to indemnify Sherman with respect to the complaint. Sherman has
not  indemnified  Sears and is unaware if the insurors  have agreed to indemnify
Sears.

     In May  2002,  the  Company  was  notified  by an  insurance  company  of a
declaratory  complaint  filed  in Cook  County  Illinois  by Sears  against  the
insurance  company and a second insurance  company  (collectively the "Insurance
Companies")  relative to a certain lead paint personal injury litigation against
Sears.  It is the Company's  understanding  that the  declaratory  complaint has
since been amended to include all lead paint cases where Sears has been named as
a defendant as a result of paint sold by Sears that was  manufactured  by DeSoto
(now Sherman).  Sears was allegedly named as an additional  insured on insurance
policies issued by the Insurance Companies, in which DeSoto, the manufacturer of
the paint, was the named insured.  Sears has demanded  indemnification  from the
Insurance Companies. One of the Insurance Companies has demanded indemnification
and defense from Sherman.  Sherman believes the request for  indemnification  is
invalid.  However,  such  Insurance  Company  has  refused  to accept  Sherman's
response and has demanded  that Sherman  participate  in mediation in accordance
with  the  terms of a prior  settlement  agreement.  Sherman  may be sued by the
Insurance  Companies and, as a result,  could be held  responsible for all costs
incurred by the Insurance Companies in defending Sears and paying for any claims
against Sears as well as for the cost of any  litigation  against  Sherman.  The
total amount of these lead paint  litigation  related  costs and claims could be
significant.  However,  the  Company  does not have a  liability  recorded  with
respect to these matters  because the liability that may result,  if any, cannot
be reasonably estimated at this time.

     The Company is also engaged in various legal proceedings  incidental to its
normal  business  activities.  In the  opinion  of the  Company,  none  of  such
proceedings  is material in relation  to the  Company's  consolidated  financial
position, results of operations or liquidity.

Product supply agreement

     In 1996, Keystone entered into a fifteen-year product supply agreement (the
"Supply  Agreement") with a vendor. The Supply Agreement  provides,  among other
things,  that the vendor will construct a plant at the Company's Peoria facility
and,  after  completion  of the plant,  provide  Keystone  with all,  subject to
certain  limitations,  of its gaseous  oxygen and  nitrogen  needs for a 15-year
period  ending  in  2011.  In  addition  to  specifying  rates to be paid by the
Company,  including a minimum  facility  fee of  approximately  $1.2 million per
year,  the Supply  Agreement also  specifies  provisions for  adjustments to the
rates and term of the Supply  Agreement.  Purchases  made pursuant to the Supply
Agreement during 2001, 2002 and 2003 amounted to $2.2 million,  $1.9 million and
$1.4 million, respectively.

Concentration of credit risk

     All of the Company's  segments perform ongoing credit  evaluations of their
customers' financial condition and, generally,  require no collateral from their
customers.

     Keystone Steel & Wire. KSW sells its products to agricultural,  industrial,
construction,   commercial,   original   equipment   manufacturers   and  retail
distributors primarily in the Midwestern,  Southwestern and Southeastern regions
of the  United  States.  KSW's ten  largest  external  customers  accounted  for
approximately  42% of its  sales  in 2001,  45% in 2002  and 41% in 2003.  These
customers accounted for approximately 29% of KSW's notes and accounts receivable
at December 31, 2002 and 44% at December 31, 2003. KSW's sales to other Keystone
segments  accounted for  approximately 12% of its sales in each of 2001 and 2002
and 11% in 2003. These intercompany customers accounted for approximately 11% of
KSW's notes and  accounts  receivable  at December  31, 2002 and less than 1% at
December 31, 2003. No single  external  customer  accounted for more than 10% of
KSW's sales in each of 2001, 2002 or 2003.

     Engineered  Wire  Products.   EWP  sells  its  products  to  concrete  pipe
manufacturers  and retail  distributors  primarily in the Midwest and East Coast
regions  of the  United  States.  EWP's  ten  largest  customers  accounted  for
approximately  51% of its  sales  in 2001,  53% in 2002  and 52% in 2003.  These
customers accounted for approximately 59% of EWP's notes and accounts receivable
at December 31, 2002 and 61% at December 31, 2003. EWP does not sell products to
other Keystone  segments.  A single external customer accounted for 11% of EWP's
sales during 2001.  Another single external customer  accounted for 10% of EWP's
sales  during  each of 2002 and 2003.  A third  single  external  customer  also
accounted for 11% of EWP's sales during 2003.

     Lawn and  garden  products.  Garden  Zone sold its  products  primarily  to
retailers in the Southeastern United States. Garden Zone's ten largest customers
accounted  for  significantly  all of its sales in 2001,  86% in 2002 and 94% in
2003. Garden Zone's ten largest customers accounted for approximately 73% of its
notes and accounts  receivable  at December  31, 2002.  Garden Zone did not sell
significant  levels of product to other Keystone  segments  during 2001, 2002 or
2003. A single external customer accounted for 38%, 34% and 50% of Garden Zone's
sales  during  2001,  2002  and  2003,  respectively.  Another  single  customer
accounted  for 13%  and  12% of  Garden  Zone's  sales  during  2001  and  2002,
respectively.  A third external customer also accounted for 10% of Garden Zone's
sales during 2003.

     All Other. The Company's  businesses in this segment sell their products to
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail distributors primarily in the Midwestern,  Southwestern
and  Southeastern  regions of the United  States.  This  segment's  ten  largest
external customers  accounted for approximately 39% of its sales in each of 2001
and 2002 and 40% in 2003.  These customers  accounted for  approximately  54% of
this  segment's  notes and accounts  receivable  at December 31, 2002 and 64% at
December 31, 2003. This segments' sales to other Keystone segments accounted for
approximately  4% of its  sales  in  2001,  6% in 2002  and 36% in  2003.  These
intercompany  customers  accounted for  approximately 1% of this segment's notes
and accounts  receivable at December 31, 2002 and none of this  segment's  notes
and  accounts  receivable  at December  31, 2003.  No single  external  customer
accounted for more than 10% of this segment's sales during each of 2001, 2002 or
2003.



<PAGE>


Note 16 - Earnings per share:

     Net income  (loss) per share is based upon the weighted  average  number of
common shares and dilutive  securities.  A reconciliation  of the numerators and
denominators  used in the  calculations of basic and diluted  earnings per share
computations of income (loss) before  cumulative  effect of change in accounting
principle is presented below.  The dilutive effect of the assumed  conversion of
the Series A Preferred  Stock in the 2002 period is calculated from its issuance
in March 2002.  Keystone stock options were omitted from the calculation because
they were antidilutive in all periods presented.

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                          2001             2002            2003
                                                                          ----             ----            ----
                                                                                     (In thousands)

Numerator:
  Net income (loss) before cumulative
   effect of change in accounting
<S>                                                                   <C>               <C>            <C>
   principle                                                          $(26,394)         $18,422        $(37,517)

  Less  Series A Preferred Stock
   Dividends                                                              -              (4,683)         (5,940)
                                                                      --------          -------        --------
  Basic net income (loss) before
   cumulative effect of change in
   accounting principle                                                (26,394)          13,739         (43,457)
  Series A Preferred Stock dividends                                     -                4,683           5,940
                                                                      -------           -------        --------

  Diluted net income (loss) before
   cumulative effect of change in
   accounting principle                                               $(26,394)         $18,422        $(37,517)
                                                                      ========          =======        ========

Denominator:
  Average common shares outstanding                                     10,062           10,067          10,068
  Dilutive effect of Preferred Stock
   Series A                                                               -              11,756            -
                                                                      --------          -------        -----

  Diluted shares                                                        10,062           21,823          10,068
                                                                      ========          =======        ========
</TABLE>

Note 17 - Accounting principles newly adopted in 2002 and 2003:

     Goodwill.  Effective  January 1, 2002,  the Company  adopted  SFAS No. 142.
Under SFAS No. 142,  goodwill,  including  goodwill  arising from the difference
between the cost of an  investment  accounted  for by the equity  method and the
amount of the  underlying  equity in net assets of such equity  method  investee
("equity method goodwill"), is no longer amortized on a periodic basis. Goodwill
(other than  equity  method  goodwill)  is subject to an  impairment  test to be
performed  at least on an annual  basis,  and  impairment  reviews may result in
future periodic  write-downs charged to earnings.  Equity method goodwill is not
tested for  impairment  in  accordance  with SFAS No. 142;  rather,  the overall
carrying  amount of an equity  method  investee will continue to be reviewed for
impairment in accordance with existing GAAP. There is currently no equity method
goodwill associated with any of the Company's equity method investees. Under the
transition provisions of SFAS No. 142, all goodwill existing as of June 30, 2001
ceased to be periodically  amortized as of January 1, 2002.  Also, in connection
with the  adoption of SFAS No. 142,  negative  goodwill of  approximately  $20.0
million  recorded at December 31, 2001 was eliminated as a cumulative  effect of
change in accounting principle as of January 1, 2002.

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

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

     The  Company  completed  its  initial,   transitional  goodwill  impairment
analysis  under SFAS No. 142 as of January 1, 2002,  and no goodwill  impairment
was deemed to exist as of such date. In accordance with requirements of SFAS No.
142, the Company  will review  goodwill of EWP for  impairment  during the third
quarter  of each year  starting  in 2002.  Goodwill  will also be  reviewed  for
impairment   at  other  times  during  each  year  when  events  or  changes  in
circumstances  indicate an impairment  might be present.  Based on the Company's
2002 and 2003 third  quarter  reviews,  no impairment of goodwill were deemed to
exist at September 30, 2002 and 2003.

     As shown in the following table, the Company would have reported a net loss
of $27.6  million,  or $2.74 per basic  share,  for 2001,  if the  goodwill  and
negative goodwill  amortization included in the Company's net loss, as reported,
had not been  recognized.  The per share amounts  shown in the following  tables
reflect  the  dilutive  effect  of  the  assumed  conversion  of  the  Series  A
Convertible Preferred Stock. See Note 5.


<PAGE>



<TABLE>
<CAPTION>
                                                                                      Years ended December 31,
                                                                                2001            2002            2003
                                                                                ----            ----            ----
                                                                                        (In thousands except
                                                                                         per share amounts)
Income (loss) before cumulative effect
 of change in accounting principle
<S>                                                                        <C>                <C>           <C>
 as reported                                                               $(26,394)          $18,422       $(37,517)
Adjustments:
  Goodwill amortization                                                         125              -              -
  Negative goodwill amortization                                           $ (1,356)             -              -
                                                                           --------          -------       ----------
    Adjusted income (loss) before
     cumulative effect of change in
     accounting principle                                                  $(27,625)          $18,422       $(37,517)
                                                                           ========           =======       ========

Basic earnings (loss) per
 share available for common shares
 before cumulative effect of change
 in accounting principle as reported                                       $  (2.62)          $  1.36       $  (4.32)
Adjustments:
  Goodwill amortization                                                         .01               -              -
  Negative goodwill amortization                                               (.13)              -              -
                                                                           --------           --------      ----------
    Adjusted basic earnings
     (loss) per share available
     for common shares before cumulative
     effect of change in accounting
     principle                                                              $ (2.74)           $  1.36       $  (4.32)
                                                                            =======            =======       ========

Diluted earnings (loss) per
 share available for common shares
 before cumulative effect of change
 in accounting principle as reported                                       $ (2.62)            $   .84       $  (4.32)
Adjustments:
  Goodwill amortization                                                        .01                 -              -
  Negative goodwill amortization                                              (.13)                -              -
                                                                           -------             --------      ---------
    Adjusted diluted earnings
     (loss) per share available for
     common shares before cumulative
     effect of change in accounting
     principle                                                             $ (2.74)            $   .84       $  (4.32)
                                                                           =======             =======       ========
</TABLE>



<PAGE>




<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                           2001             2002             2003
                                                                           ----             ----             ----
                                                                                    (In thousands except
                                                                                     per share amounts)

<S>                                                                   <C>               <C>              <C>
Net income (loss) as reported                                         $(26,394)         $ 38,420         $(37,517)
Adjustments:
  Goodwill amortization                                                    125              -                -
  Negative goodwill amortization                                        (1,365)             -                -
  Cumulative effect of change in
   accounting principle                                                    -             (19,998)            -
                                                                       -------          --------         ---------

    Adjusted net income (loss)                                        $(27,625)         $ 18,422         $(37,517)
                                                                      ========          ========         ========

Basic earnings (loss) per
 share available for common shares as
 reported                                                             $ (2.62)          $   3.35         $  (4.32)
Adjustments:
  Goodwill amortization                                                   .01                -                -
  Negative goodwill amortization                                         (.13)               -                -
  Cumulative effect of change in
   accounting principle                                                    -               (1.99)             -
                                                                     ---------          --------         --------

    Adjusted basic earnings
     (loss) per share available for
     common shares                                                    $ (2.74)          $   1.36         $  (4.32)
                                                                      =======           ========         ========

Diluted earnings (loss) per
 share available for common shares as
 reported                                                             $ (2.62)          $   1.76         $  (4.32)
Adjustments:
  Goodwill amortization                                                   .01                -                -
  Negative goodwill amortization                                         (.13)               -                -
  Cumulative effect of change in
   accounting principle                                                    -                (.92)             -
                                                                      ---------         --------         --------
    Adjusted diluted earnings
     (loss) per share available for
     common shares                                                    $ (2.74)          $    .84         $  (4.32)
                                                                      =======           ========         ========
</TABLE>


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

     Gain or loss on early  extinguishment of debt. The Company adopted SFAS No.
145 effective  April 1, 2002.  SFAS No. 145, among other things,  eliminated the
prior  requirement  that all gains and losses from the early  extinguishment  of
debt be  classified  as an  extraordinary  item.  Upon adoption of SFAS No. 145,
gains and losses from the early  extinguishment of debt are now classified as an
extraordinary  item  only if they meet the  "unusual  and  infrequent"  criteria
contained in Accounting  Principles Bulletin ("APBO") No. 30. In addition,  upon
adoption of SFAS No. 145, all gains and losses from the early  extinguishment of
debt that had been classified as an  extraordinary  item are to be reassessed to
determine if they would have met the "unusual and  infrequent"  criteria of APBO
No. 30;  any such gain or loss that would not have met the APBO No. 30  criteria
are  retroactively  reclassified  and reported as a component  of income  before
extraordinary  item. The Company has concluded that its 2002 first quarter $54.7
million pre-tax extraordinary gain ($33.1 million, or $3.29 per basic share, net
of income taxes) discussed in Note 4 would not have met the APBO No. 30 criteria
for classification as an extraordinary  item, and accordingly such gain has been
retroactively  reclassified  and is now reported as a component of income before
extraordinary item.

     Guarantees.  The Company has complied with the disclosure  requirements  of
FIN No. 45, Guarantor's  Accounting and Disclosure  Requirements for Guarantees,
Including  Indirect  Guarantees of  Indebtedness  of Others,  as of December 31,
2002. As required by the transition provisions of FIN No. 45, beginning in 2003,
the Company will adopt the  recognition  and initial  measurement  provisions of
this FIN on a  prospective  basis for any  guarantees  issued or modified  after
December 31, 2002.

     Asset retirement obligations.  The Company adopted SFAS No. 143, Accounting
for Asset Retirement Obligations,  January 1, 2003. Under SFAS No. 143, the fair
value of a liability for an asset retirement  obligation covered under the scope
of SFAS No. 143 is  recognized in the period in which the liability is incurred,
with an  offsetting  increase in the carrying  amount of the related  long-lived
asset.  Over time,  the  liability  is  accreted  to its future  value,  and the
capitalized  cost is  depreciated  over the useful  life of the  related  asset.
Future revisions in the estimated fair value of the asset retirement obligation,
due to changes in the amount and/or timing of the expected  future cash flows to
settle  the  retirement  obligation,  are  accounted  for  prospectively  as  an
adjustment to the  previously-recognized  asset retirement cost. Upon settlement
of the  liability,  an entity will either settle the obligation for its recorded
amount or incur a gain or loss upon  settlement.  The Company  does not have any
asset retirement  obligations which are covered under the scope of SFAS No. 143,
and as such,  the  effect,  to the  Company  of  adopting  SFAS No.  143 was not
material.

     Costs associated with exit or disposal activities. The Company adopted SFAS
No. 146,  Accounting  for Costs  Associated  with Exit or  Disposal  Activities,
January 1, 2003 for exit or disposal activities initiated on or after that date.
Under SFAS No. 146, costs associated with exit activities,  as defined, that are
covered by the scope of SFAS No. 146 will be recognized  and measured  initially
at fair value, generally in the period in which the liability is incurred. Costs
covered by the scope of SFAS No. 146 include  termination  benefits  provided to
employees,  costs to consolidate facilities or relocate employees,  and costs to
terminate contracts (other than a capital lease).  Under prior GAAP, a liability
for such an exit cost was recognized at the date an exit plan was adopted, which
may or may not have  been the date at which  the  liability  was  incurred.  The
effect to the  Company  of  adopting  SFAS No. 146 as of January 1, 2003 was not
material  as the Company  was not  involved  in any exit or disposal  activities
covered by the scope of the new standards as of such date.

Note 18 - Accounting principles not yet adopted:

     Variable  interest  entities.  The  Company is  required to comply with the
consolidation requirements of FASB Interpretation ("FIN") No. 46R, Consolidation
of Variable Interest Entities,  an interpretation of ARB No. 51, as amended,  at
March 31,  2004.  The Company does not believe it has any  involvement  with any
variable interest entity (as that term is defined in FIN No. 46R) covered by the
scope of FIN No. 46R, and  therefore  the impact of adopting  the  consolidation
requirements of FIN No. 46R is not expected to have a significant  effect on the
Company's consolidated financial statements.

     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. Based on guidance issued by the U.S. Securities and Exchange
Commission,  the Company will adopt SFAS No. 123R,  "Share-Based Payment," as of
January 1, 2006. SFAS No. 123R,  among other things,  eliminates the alternative
in existing GAAP to use the intrinsic value method of accounting for stock-based
employee  compensation  under APBO No. 25. Upon  adoption of SFAS No. 123R,  the
Company will  generally be required to recognize  the cost of employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award,  with the cost  recognized over the period during which
an  employee  is  required  to  provide  services  in  exchange  for  the  award
(generally,  if the vesting period of the award).  No compensation  cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard  to all new  awards  granted on or after  January  1, 2006,  and to all
awards  existing  as of  December  31,  2005  which are  subsequently  modified,
repurchased or cancelled.  Additionally, as of January 1, 2006, the Company will
be required to  recognize  compensation  cost for the portion of any  non-vested
award  existing  as of  December  31, 2005 over the  remaining  vesting  period.
Because the is not  expected  to grant any options  prior to January 1, 2006 and
because the number of non-vested  awards as of December 31, 2005 with respect to
options  previously  granted by the Company is not expected to be material,  the
effect of adopting SFAS No. 123R is not expected to be  significant in so far as
it relates to existing  stock  options.  Should the  Company,  however,  grant a
significant  number of  options  in the  future,  the  effect  on the  Company's
consolidated financial statements could be material.

Note 19 - Subsequent events

     In January 2004,  EWP received a new $6.75 million term loan ("the EWP Term
Loan") from the same lender providing the EWP Revolver.  The EWP Term Loan bears
interest at LIBOR plus 2.5%,  is due in monthly  installments  of $112,500  plus
accrued  interest and a balloon  payment upon the maturity date, as amended,  of
March 31, 2005. In addition,  the EWP Term Loan, is  collateralized by a lien on
all of the fixed assets of EWP and  cross-collateralized  with the EWP Revolver.
Proceeds from the EWP Term Loan were used to repay a Keystone intercompany debt.
Keystone  used the  proceeds to reduce the  outstanding  balance of the Keystone
Revolver.

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S.
Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company
is managing  its business as a debtor-in  possession  subject to approval by the
Court.  Keystone  attributed  the need to  reorganize  to  weaknesses in product
selling prices over the last several years,  unprecedented  increases in ferrous
scrap costs, Keystone's primary raw material, and significant liquidity needs to
service  retiree  medical  costs.  These  problems  have  substantially  limited
Keystone's  liquidity and  undermined its ability to obtain  sufficient  debt or
equity capital to operate as a going concern.

     Under Chapter 11 proceedings,  actions by creditors to collect pre-petition
claims in existence at the filing date are stayed, absent specific authorization
from the Court to pay such claims  while the Company  manages the  business as a
debtor-in-possession.  Keystone  received approval from the Court to pay certain
of its pre-petition  liabilities,  including employee wages and certain employee
benefits.

     Keystone filed a plan of reorganization on October 4, 2004 and amended that
plan on May 26, 2005, June 21, 2005 and June 27, 2005.  Keystone's  amended plan
of reorganization  was accepted by the impacted  constituencies and confirmed by
the Court on August 10, 2005. The Company emerged from bankruptcy  protection on
August  31,  2005.   Significant   provisions  of  Keystone's  amended  plan  of
reorganization included, among other things:

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"), Keystone's largest labor union;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries,  will be sold at fair market  value to  Keystone,  which
          will  then be used to form and  operate a newly  created  wholly-owned
          subsidiary of reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and other funds will be  distributed,  on a pro
          rata basis,  to Sherman  Wire's  pre-petition  unsecured  creditors as
          their claims are finally adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate  of  Contran  Corporation  ("Contran"),  Keystone's  largest
          pre-petition  shareholder)  converted  $5  million  of its DIP  credit
          facility,  certain of its pre-petition unsecured claims and all of its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

     In addition,  Keystone has obtained an $80 million  secured credit facility
from Wachovia Capital Finance (Central). Proceeds from this credit facility were
used to extinguish  Keystone's existing  Debtor-In-Possession  credit facilities
and to provide working capital for reorganized Keystone.

     On  March  15,  2004,  the  Court  approved  two  new  debtor-in-possession
financing facilities (the "DIP Order). The first debtor-in-possession  financing
facility consists of an Assumption  Agreement whereby the pre-petition lender on
the  Keystone  Revolver and  Keystone  Term Note agreed to convert  those credit
facilities to a debtor-in-possession  facility (collectively,  the "Congress DIP
Facility").  The terms of the respective  facilities comprising the Congress DIP
Facility are relatively  unchanged from the respective  pre-petition  facilities
with the exception of the  elimination of the existing  financial  covenants and
the  granting  of a second  lien on the  stock  of EWP  owned  by  Keystone.  In
connection  with the approval of the Congress DIP  Facility,  the Keystone  Term
Note was increased by $4.0 million. Approximately $2.0 million of these proceeds
were applied to the Keystone  Revolver  portion of the Congress DIP Facility and
the remainder was used to fund Keystone's  working capital needs.  However,  the
Congress DIP Facility  lender applied an availability  reserve of  approximately
$2.0 million to the borrowing base of the Keystone  Revolver in connection  with
the increase in Keystone Term Note resulting in no net increase in  availability
under the  Keystone  Revolver  at that time.  The  Keystone  Term Note  requires
monthly  principal  payments of $100,000.  The Congress DIP Facility matures the
earliest to occur of  September  30,  2005,  payment in full of the Congress DIP
Facility,  confirmation  of a plan of  reorganization  of Keystone,  an event of
default or upon certain  other  events.  The  Congress  DIP Facility  required a
facility fee of $375,000,  half of which was paid at inception and half of which
was paid in August 2004.

     The second debtor-in-possession financing facility comprising the DIP Order
is a $5 million revolving credit facility with EWPFLLC (the "EWP DIP Facility").
Advances  under the EWP DIP Facility  bear  interest at the prime rate plus 3.0%
per annum and are  collateralized  by the common stock of EWP owned by Keystone.
Proceeds from the EWP DIP Facility were used to fund Keystone's  working capital
needs.  The EWP DIP  Facility  requires  Keystone  to  abide by  specified  cash
budgets.  In addition,  the EWP DIP Facility  requires  EWPFLLC to fund up to an
additional $2 million through a participation  in the Congress DIP Facility upon
the Company's realization of certain milestones. The Company met such milestones
and in April 2004,  this additional  funding was made. The EWP DIP Facility,  as
amended,  matures upon  confirmation  of a plan of  reorganization  of Keystone,
closing of a sale of EWP, an event of default  under the EWP Term Note, an event
of default under the Congress DIP Facility or upon certain other events. The EWP
DIP  Facility  required a facility  fee of  $100,000,  half of which was paid at
inception and half of which was paid in August 2004.

     On August 31,  2005,  in  connection  with its  emergence  from Chapter 11,
Keystone entered into a new $80.0 million secured credit facility. Proceeds from
this   credit   facility   were   used   to   extinguish   Keystone's   existing
Debtor-In-Possession  credit facilities, the EWP Term Loan, the EWP Revolver and
to provide  working capital for reorganized  Keystone.  The facility  includes a
term loan in the  amount of up to $25.0  million,  subject to a  borrowing  base
calculation  based  on the  market  value of the  Company's  real  property  and
equipment.  To the extent  there is  sufficient  borrowing  base,  the term loan
portion of this credit  facility can be reloaded in the amount of $10.0 million.
The  portion  of the  credit  facility  in excess of the term  loan  balance  is
available to the Company as a revolving  credit facility  subject to a borrowing
base calculation based on eligible receivables and inventory balances.  Interest
rates on the  credit  facility  range from the prime rate to the prime rate plus
..5%  depending  on  Keystone's  excess  availability,  as  defined in the credit
agreement.  The facility also provides for a LIBOR  interest rate option.  Under
the terms of the credit  facility,  the Company is required to annually pay down
the term loan  portion of the facility in the amount of 25% of excess cash flow,
as defined in the agreement, subject to a $2.0 million annual and a $5.0 million
aggregate limit.  The facility also includes  performance  covenants  related to
minimum levels of cash flow and fixed charge coverage  ratio.  Keystone paid the
lender  $400,000 of diligence,  commitment  and closing fees in connection  with
this facility.




<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                         ON FINANCIAL STATEMENT SCHEDULE


  To the Board of Directors of Keystone Consolidated Industries, Inc.:


Our audits of the consolidated  financial  statements  referred to in our report
dated November XX, 2005, which contains an explanatory paragraph relating to the
Company's  ability to continue as a going  concern as described in Note 1 to the
financial  statements,  appearing in the 2003 Annual Report to  Shareholders  of
Keystone Consolidated Industries,  Inc. (which report and consolidated financial
statements  are  included in this Annual  Report on Form 10-K) also  included an
audit of the  financial  statement  schedule  listed in the index on page F-1 of
this Form 10-K.  In our opinion,  this  financial  statement  schedule  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Dallas, Texas
November 28, 2005




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)


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

 Year ended December 31, 2001:

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

   Deferred tax asset valuation allowance           $   -         $14,510       $  -       $14,510
                                                    =======       =======       ======     =======

 Year ended December 31, 2002:

   Allowance for doubtful accounts and
    notes receivable                                $ 2,858       $   197       $1,293     $ 1,762
                                                    =======       =======       ======     =======

   Deferred tax asset valuation allowance           $14,510       $ 5,536       $ -        $20,046
                                                    =======       =======       ======     =======

 Year ended December 31, 2003:

   Allowance for doubtful accounts and
    notes receivable                                $ 1,762       $  (406)      $1,009     $   347
                                                    =======       =======       ======     =======

   Deferred tax asset valuation allowance           $20,046       $19,088       $  -       $39,134
                                                    =======       =======       ======     =======
</TABLE>





<PAGE>



<TABLE>
<CAPTION>
                                                                                                 EXHIBIT 21

                                                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                                         SUBSIDIARIES OF THE REGISTRANT




                                                     Jurisdiction of               Percent of
                                                      Incorporation             Voting Securities
      Name of Corporation                             or Organization                 Held (1)

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

FV Steel and Wire Company (3)                               Wisconsin                            100.0%

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

Engineered Wire Products, Inc.                              Ohio                                 100.0%
</TABLE>

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

(2) Formerly DeSoto, Inc.

(3) Formerly Fox Valley Steel and Wire Company.