SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


 X           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---          SECURITIES EXCHANGE ACT OF 1934

For the quarterly period March 31, 2006
                         --------------

                         Commission file number 1-3919


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


          Delaware                                      37-0364250
---------------------------------------------     --------------------
(State or other jurisdiction of                      I.R.S. 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
                                                       --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during  the  preceding  12  months,  and (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes   X                            No
                                ---                               ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                           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
                                        ---         ---

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes X No .

Number of shares of common stock outstanding at May 15, 2006: 10,000,000



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                          number
                                                                                                          ------
PART I.      FINANCIAL INFORMATION

<S>        <C>                                                                                               <C>
  Item 1.  Financial Statements

                  Consolidated Balance Sheets - December 31, 2005;
                   March 31, 2006 (Unaudited)                                                                 3

                  Consolidated Statements of Operations - Three months
                   ended March 31, 2005 and 2006 (Unaudited)                                                  5

                  Consolidated Statements of Cash Flows - Three months
                   ended March 31, 2005 and 2006 (Unaudited)                                                  6

                  Consolidated Statement of Stockholders'
                   Equity - Three months ended March 31, 2006 (Unaudited)                                     7

                  Notes to Consolidated Financial Statements (Unaudited)                                      8

  Item 2.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                                                       22

  Item 3.         Quantitative and Qualitative Disclosures About Market Risk                                 30

  Item 4.         Controls and Procedures                                                                    31


PART II. OTHER INFORMATION

  Item 1.         Legal Proceedings                                                                          33

  Item 1A.        Risk Factors                                                                               33

  Item 6.         Exhibits                                                                                   33

  Items 2, 3, 4 and 5 are omitted because they are not applicable.
</TABLE>

                                     - 2 -

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                            December 31,          March 31,
                                 ASSETS                                         2005                2006
                                                                            -----------          -----------
                                                                                                 (Unaudited)

 Current assets:
<S>                                                                              <C>                <C>
   Accounts receivable, net                                                      $ 46,199           $ 52,332
   Inventories, net                                                                69,691             73,417
   Restricted investments                                                           1,040              1,040
   Prepaid expenses and other                                                       2,760              1,638
                                                                                 --------           --------

      Total current assets                                                        119,690            128,427
                                                                                 --------           --------

 Property, plant and equipment                                                    369,777            371,999
 Less accumulated depreciation                                                    283,004            286,799
                                                                                 --------           --------

      Net property, plant and equipment                                            86,773             85,200
                                                                                 --------           --------

 Other assets:
   Restricted investments                                                           4,758              4,001
   Prepaid pension cost                                                           145,152            157,313
   Deferred financing costs                                                           902                842
   Goodwill                                                                           752                752
   Other                                                                              337                276
                                                                                 --------           --------

      Total other assets                                                          151,901            163,184
                                                                                 --------           --------

                                                                                 $358,364           $376,811
                                                                                 ========           ========
</TABLE>



                                     - 3 -

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                            December 31,           March 31,
                                                                                 2005                2006
                                                                             -----------          -----------
                                                                                                  (Unaudited)

 Current liabilities:
   Notes payable and current maturities of
<S>                                                                             <C>                  <C>
     long-term debt                                                             $  41,640            $ 66,371
   Accounts payable                                                                 9,797               9,617
   Accrued OPEB cost                                                                4,256               4,256
   Other accrued liabilities                                                       27,624              24,050
                                                                                ---------            --------

       Total current liabilities                                                   83,317             104,294
                                                                                ---------            --------

 Noncurrent liabilities:
   Long-term debt                                                                  58,255              37,266
   Accrued OPEB cost                                                              133,208             130,177
   Other                                                                            5,577               5,488
                                                                                ---------            --------

       Total noncurrent liabilities                                               197,040             172,931
                                                                                ---------            --------

 Liabilities subject to compromise                                                 10,476              10,326
                                                                                ---------            --------

 Stockholders' equity:
   Common stock                                                                       100                 100
   Additional paid-in capital                                                      75,423              75,423
   Retained earnings (accumulated deficit)                                         (7,992)             13,737
                                                                                ---------            --------

       Total stockholders' equity                                                  67,531              89,260
                                                                                ---------            --------

                                                                                $ 358,364            $376,811
                                                                                =========            ========
</TABLE>




Commitments and contingencies (Notes 10 and 11).


          See accompanying notes to consolidated financial statements.
                                     - 4 -

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                        Three months ended
                                                                                              March 31,
                                                                                         2005            2006
                                                                                       --------        --------

<S>                                                                                    <C>             <C>
 Net sales                                                                             $ 89,537        $119,115
 Cost of goods sold                                                                      84,482         104,089
                                                                                       --------        --------
   Gross margin                                                                           5,055          15,026
                                                                                       --------        --------

 Selling expense                                                                          1,435           1,776
 General and administrative expense                                                       2,704           2,729
 Defined benefit pension credit                                                          (3,225)        (12,161)
                                                                                       --------        --------

                                                                                            914          (7,656)
                                                                                       --------        --------

 Operating income                                                                         4,141          22,682
                                                                                       --------        --------

 Nonoperating income (expense):
   Corporate income (expense)                                                            (1,296)            486
   Interest expense                                                                        (857)         (1,202)
   Interest income                                                                           35               2
   Other income, net                                                                         88            -
                                                                                       --------        ---------

                                                                                         (2,030)           (714)
                                                                                       --------        --------

       Income before income taxes and
        reorganization costs                                                              2,111          21,968

 Reorganization costs                                                                     3,294             150
                                                                                       --------        --------

   Income (loss) before income taxes                                                     (1,183)         21,818

 Provision for income taxes                                                                  93              89
                                                                                       --------        --------

       Net income (loss)                                                               $ (1,276)       $ 21,729
                                                                                       ========        ========

 Basic and diluted income (loss) per share                                             $  ( .13)       $   2.17
                                                                                       ========        ========

 Basic and diluted shares outstanding                                                    10,068          10,000
                                                                                       ========        ========
</TABLE>



          See accompanying notes to consolidated financial statements.
                                     - 5 -



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                           Three months ended
                                                                                                March 31,
                                                                                          2005            2006
                                                                                          ----            ----

 Cash flows from operating activities:
<S>                                                                                   <C>              <C>
   Net income (loss)                                                                  $ (1,276)        $ 21,729
   Depreciation and amortization                                                         3,927            3,846
   Amortization of deferred financing costs                                                247               68
   Non-cash defined benefit pension credit                                              (3,225)         (12,161)
   OPEB expense (credit)                                                                 4,367           (2,100)
   OPEB payments                                                                        (1,158)            (931)
   Reorganization costs accrued                                                          3,294              150
   Reorganization costs paid                                                            (2,368)          (2,994)
   Other, net                                                                               20              190
   Change in assets and liabilities:
     Accounts receivable                                                               (12,952)          (6,340)
     Inventories                                                                        (9,931)          (3,726)
     Accounts payable                                                                   (1,379)            (234)
     Other, net                                                                         (2,527)             228
                                                                                      --------         --------

       Net cash used by operating activities                                           (22,961)          (2,275)
                                                                                      --------         --------

 Cash flows from investing activities:
   Capital expenditures                                                                 (1,960)          (2,293)
   Collection of notes receivable                                                           75               75
   Restricted investments, net                                                            (173)             757
   Other, net                                                                              157                2
                                                                                      --------         --------

       Net cash used by investing activities                                            (1,901)          (1,459)
                                                                                      --------         --------

 Cash flows from financing activities:
   Revolving credit facilities, net                                                     25,484            5,162
   Other notes payable and long-term debt:
     Additions                                                                              45              150
     Principal payments                                                                   (660)          (1,570)
   Deferred financing costs paid                                                            (7)              (8)
                                                                                      --------         --------

       Net cash provided by financing activities                                        24,862            3,734
                                                                                      --------         --------

 Net change in cash and cash equivalents                                                  -                -

 Cash and cash equivalents, beginning of period                                           -                -
                                                                                      --------         --------

 Cash and cash equivalents, end of period                                             $   -            $   -
                                                                                      ========         ========

 Supplemental disclosures:
   Cash paid for:
     Interest, net of amount capitalized                                              $    597         $  1,002
     Income taxes, net                                                                     600                -
</TABLE>


          See accompanying notes to consolidated financial statements.
                                     - 6 -



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                        Three months ended March 31, 2006
                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                 Retained
                                                                Additional       earnings
                                                    Common       paid-in       (accumulated
                                                     stock       capital         deficit)          Total
                                                    -------   -  --------   --   ---------         -----

<S>                                                    <C>         <C>         <C>                   <C>
 Balance - December 31, 2005                           $100        $75,423     $(7,992)              $67,531

 Net income                                              -            -         21,729                21,729
                                                       ----        -------     -------               -------

 Balance - March 31, 2006                              $100        $75,423     $13,737               $89,260
                                                       ====        =======     =======               =======
</TABLE>



          See accompanying notes to consolidated financial statements.
                                     - 7 -



<PAGE>




                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - Organization and basis of presentation:

     The consolidated balance sheet of Keystone  Consolidated  Industries,  Inc.
("Keystone"  or the  "Company")  at December  31, 2005 has been derived from the
Company's audited consolidated financial statements at that date included in the
Company's  Annual Report on Form 10-K for the year ended  December 31, 2005 (the
"2005 Annual Report").  The consolidated balance sheet at March 31, 2006 and the
consolidated  statements  of operations  and cash flows for the interim  periods
ended March 31, 2005 and 2006, and the  consolidated  statement of stockholders'
equity for the interim  period ended March 31, 2006,  have each been prepared by
the Company,  without audit, in accordance with accounting  principles generally
accepted in the United States of America ("GAAP"). In the opinion of management,
all adjustments,  consisting only of normal recurring  adjustments  necessary to
present fairly the consolidated  financial  position,  results of operations and
cash  flows,  have been  made.  As  permitted  by  regulations  of the SEC,  the
consolidated  balance  sheet data as of  December  31, 2005 does not include all
disclosures required by GAAP.

     The  results of  operations  for the interim  periods  are not  necessarily
indicative  of the  operating  results for a full year or of future  operations.
Certain  information  normally  included  in  financial  statements  prepared in
accordance   with  GAAP  has  been  condensed  or  omitted.   The   accompanying
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated financial statements included in the 2005 Annual Report.

     At March 31, 2006, Contran Corporation  ("Contran")  beneficially owned 51%
of the outstanding  common stock of the Company.  Substantially all of Contran's
outstanding  voting  stock is held by  trusts  established  for the  benefit  of
certain  children  and  grandchildren  of Mr.  Harold C.  Simmons,  of which Mr.
Simmons is sole trustee,  or is held by Mr. Simmons or persons or other entities
related to Mr. Simmons.  Consequently,  Mr. Simmons may be deemed to control the
Company.

     Net income  (loss) per share is based upon the weighted  average  number of
common  shares  outstanding  during the  periods.  Options to purchase  Keystone
common stock that were outstanding during the first quarter of 2005 were omitted
from  the   calculation  of  diluted   earnings  per  share  because  they  were
antidilutive.  Keystone had no other dilutive securities  outstanding during the
first quarter of 2005 and 2006.

Note 2 - 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.  Keystone
attributed  the need to reorganize to weaknesses in product  selling prices over
the preceding  several  years,  unprecedented  increases in ferrous scrap costs,
Keystone's  primary raw material,  and  significant  liquidity  needs to service
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 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.

                                     - 8 -
<PAGE>

     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,  that related  primarily to
          greater employee participation in healthcare costs;
     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   ("SWC"),   one  of  Keystone's   pre-petition   wholly-owned
          subsidiaries, will be sold at fair market value (fair market value and
          book value both approximate $2.0 million) 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. ("KWP");
     o    SWC was also  reorganized and the proceeds of the operating asset sale
          to Keystone and  liquidation  of SWC's  remaining  real estate  assets
          (book value approximately $1.6 million) as well as other funds will be
          distributed,  on a pro rata  basis,  to SWC's  pre-petition  unsecured
          creditors as their claims are finally adjudicated;
     o    SWC'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) 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.

                                     - 9 -
<PAGE>
          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).

     Upon  emergence  from  Chapter  11 on August  31,  2005,  the  pre-petition
litigation  claims against Sherman  continue to be stayed while these claims are
adjudicated.  Environmental  liabilities  related to  non-owned  Keystone  sites
($868,000)  were  discharged  in  connection  with the  Chapter 11  proceedings.
Recorded environmental  liabilities related to non-owned SWC sites ($7.8 million
at March 31, 2006) and an owned SWC site ($.8 million) continue to be negotiated
and adjudicated  subsequent to Keystone's emergence from Chapter 11. In general,
as a result of the Company's  Chapter 11  reorganization  and discharge  when it
exited bankruptcy in August 2005, any future  government or third-party  private
actions against  Keystone arising from its alleged  pre-petition  responsibility
for hazardous  contamination  at any  environmental  sites that are not owned by
Keystone have been barred.  The Company's  Chapter 11 discharge  does not affect
the Company's  liability for hazardous  contamination of property that was owned
by Keystone as of the petition  date and any  associated  clean up costs remains
the responsibility of the Company.

Note 3 - Business Segment Information:

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include three  reportable  segments:  (i) Keystone Steel and Wire
("KSW")  which  manufacturers  and sells wire rod,  wire and wire  products  for
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail consumer markets, (ii) Engineered Wire Products ("EWP")
which  manufacturers and sells welded wire  reinforcement in both roll and sheet
form that is utilized in concrete construction products including pipe, pre-cast
boxes and  applications  for use in  roadways,  buildings  and bridges and (iii)
Sherman Wire ("Sherman"),  an operating division of SWC which  manufacturers and
sells  wire  and  wire  products  for  agricultural,  industrial,  construction,
commercial,  original  equipment  manufacturers and retail consumer markets.  In
connection  with the  Company's  emergence  from  Chapter 11 on August 31, 2005,
certain  operating  assets and existing  operations of Sherman were sold at fair
market value to Keystone,  which then used these assets to form and operate KWP.
As such,  operating  results of this segment prior to Keystone's  emergence from
Chapter 11 were operating results of Sherman.  Operating results of this segment
after  Keystone's  emergence from Chapter 11, were operating  results of KWP. In
accordance with Keystone's plan of  reorganization,  the remaining assets of SWC
will eventually be liquidated.

<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

Sherman Wire/Keystone                         Sherman Wire/Keystone                        Sherman, Texas
 Wire Products                                 Wire Products
</TABLE>


                                     - 10 -
<PAGE>



<TABLE>
<CAPTION>
                                                                         Three months ended
                                                                              March 31,
                                                                        2005            2006
                                                                        ----            ----
                                                                           (In thousands)

Net sales:
<S>                                                                     <C>             <C>
  KSW                                                                   $ 89,194        $117,680
  EWP                                                                     12,051          12,618
  Sherman/KWP                                                              5,053           4,922
  Eliminations                                                           (16,761)        (16,105)
                                                                        --------        --------

     Total net sales                                                    $ 89,537        $119,115
                                                                        ========        ========

Operating income:
  KSW                                                                   $ (1,452)       $  8,199
  EWP                                                                      1,639             873
  Sherman/KWP                                                               (169)            (64)
  GAAP adjustments                                                         4,123          13,674
                                                                        --------        --------

     Total operating income                                                4,141          22,682

Nonoperating income (expense):
  Interest income                                                             35               2
  Other income                                                                88               -
  Corporate income (expense)                                              (1,296)            486
  Interest expense                                                          (857)         (1,202)
                                                                         -------         -------

  Income before income taxes and reorganization costs                    $ 2,111         $21,968
                                                                         =======         =======
</TABLE>

     In the above tables,  GAAP  adjustments  are principally (i) the difference
between the defined benefit pension credit and OPEB expense or credit  allocated
to the  operating  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.

     Approximately  $3.4  million and $3.5  million of  Sherman\KWP's  net sales
during the first quarter of 2005 and 2006, respectively,  were sales to KSW. The
remainder  of the  elimination  of net  sales  during  each of the 2005 and 2006
periods were sales by KSW to EWP and Sherman\KWP.


                                     - 11 -
<PAGE>
Note 4 - Inventories:
<TABLE>
<CAPTION>
                                                                               December 31,           March 31,
                                                                                   2005                 2006
                                                                               ------------           --------
                                                                                       (In thousands)

<S>                                                                               <C>                  <C>
 Raw materials                                                                    $10,914              $14,095
 Work in process                                                                   29,550               28,223
 Finished goods                                                                    28,018               26,265
 Supplies                                                                          16,421               17,721
                                                                                  -------              -------
                                                                                   84,903               86,304
   Less LIFO reserve                                                               15,212               12,887
                                                                                  -------              -------
                                                                                  $69,691              $73,417
                                                                                  =======              =======
</TABLE>
Note 5 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                                              December 31,           March 31,
                                                                                  2005                 2006
                                                                              ------------           --------
                                                                                     (In thousands)

<S>                                                                              <C>                 <C>
 Wachovia revolving credit facility                                              $36,174             $ 41,336
 8% Notes                                                                         26,532               26,136
 UC Note                                                                           4,997                5,147
 Term loans:
   Wachovia                                                                       21,980               20,833
   County                                                                         10,000               10,000
   Other                                                                             212                  185
                                                                                 -------             --------
                                                                                  99,895              103,637
   Less current maturities                                                        41,640               66,371
                                                                                 -------             --------

                                                                                 $58,255             $ 37,266
                                                                                 =======             ========
</TABLE>
Note 6 - Income taxes:

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

<TABLE>
<CAPTION>
                                                                                           Three months ended
                                                                                                March 31,
                                                                                         2005                2006
                                                                                         ----                ----
                                                                                             (In thousands)
<S>                                                                                     <C>                  <C>
Expected tax (benefit) provision, at statutory rate                                     $  (414)             $ 7,636
U. S. state income taxes, net                                                                76                  797
Deferred tax asset valuation allowance                                                     (703)              (8,416)
Capitalize reorganization costs                                                           1,133                   52
Other, net                                                                                    1                   20
                                                                                        -------              -------

Provision for income taxes                                                              $    93              $    89
                                                                                        =======              =======

Comprehensive provision for income taxes:
  Currently payable:
    U.S. federal                                                                        $    42              $    43
    U.S. state                                                                               51                   46
                                                                                        -------              -------
      Net currently payable                                                                  93                   89

  Deferred income taxes, net                                                               -                    -
                                                                                        -------              -------

                                                                                        $    93              $    89
                                                                                        =======              =======
</TABLE>
                                     - 12 -
<PAGE>


     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 March  31,  2006,  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,  natural gas, labor and
employee benefits, environmental remediation, and OPEB benefits; 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. As a result of the deferred tax asset valuation
allowance,  the Company does not anticipate recognizing  significant tax expense
associated  with its expected  pre-tax income during 2006 until such time as the
Company determines (which might or might not occur during 2006) that recognition
of the  benefit of its gross  deferred  income tax assets is  appropriate  under
GAAP. Accordingly,  during the first three months of 2006, the Company decreased
the  deferred  tax asset  valuation  allowance by  approximately  $8.4  million.
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 7 - Other accrued liabilities:

<TABLE>
<CAPTION>
                                                                              December 31,           March 31,
                                                                                  2005                  2006
                                                                                  ----                  ----
                                                                                        (In thousands)

Current:
<S>                                                                               <C>                  <C>
  Employee benefits                                                               $12,085              $11,750
  Self insurance                                                                    4,455                4,163
  Environmental                                                                     3,000                2,386
  Pre-petition unsecured creditor settlement                                        1,061                1,061
  Income taxes                                                                        939                  621
  Legal and professional                                                              247                  393
  Reorganization costs                                                              3,057                   63
  Other                                                                             2,780                3,613
                                                                                  -------              -------

                                                                                  $27,624              $24,050
                                                                                  =======              =======
Noncurrent:
  Environmental                                                                   $ 3,921              $ 3,921
  Workers compensation payments                                                     1,595                1,513
  Other                                                                                61                   54
                                                                                      ---              -------

                                                                                  $ 5,577              $ 5,488
                                                                                  =======              =======
</TABLE>

Note 8 - Liabilities subject to compromise:

<TABLE>
<CAPTION>
                                                                            December 31,                 March 31,
                                                                                2005                       2006
                                                                            ------------                 --------
                                                                                       (In thousands)

<S>                                                                             <C>                       <C>
Environmental                                                                   $ 8,491                   $ 8,571
Accounts payable                                                                    850                       794
Disposition of former facilities                                                    684                       676
Legal and professional                                                              244                       109
Other                                                                               207                       176
                                                                                -------                   -------

                                                                                $10,476                   $10,326
                                                                                =======                   =======
</TABLE>

                                     - 13 -
<PAGE>

Note 9 - Employee benefit plans:

     Defined  benefit  plans.  The  components of net periodic  defined  benefit
pension credit are presented in the table below.

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                        2005            2006
                                                                                        ----            ----
                                                                                           (In thousands)

<S>                                                                                    <C>             <C>
Service cost                                                                           $    938        $    959
Interest cost                                                                             5,434           5,106
Expected return on plan assets                                                          (10,733)        (16,863)
Amortization of unrecognized:
  Prior service cost                                                                        221             227
  Actuarial losses                                                                          915          (1,590)
                                                                                       --------        --------

                                                                                       $ (3,225)       $(12,161)
                                                                                       ========        ========
</TABLE>

     Postretirement benefits other than pensions ("OPEB"). The components of net
periodic OPEB expense (credit) are presented in the table below.

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                        2005            2006
                                                                                        ----            ----
                                                                                           (In thousands)

<S>                                                                                      <C>             <C>
Service cost                                                                             $   740         $    63
Interest cost                                                                              3,026             495
Amortization of unrecognized:
  Prior service cost                                                                         (86)            (84)
  Prior service cost due to plan amendments                                                 (710)         (4,243)
  Actuarial losses                                                                         1,397           1,669
                                                                                          ------         -------

                                                                                          $4,367         $(2,100)
                                                                                          ======         =======
</TABLE>

Note 10 - 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 ("SWC"),  has been stayed.  Upon emergence from Chapter
11 on August 31, 2005, the pre-petition  litigation  claims against SWC continue
to be stayed  while  these  claims are  adjudicated.  Environmental  liabilities
related to non-owned  Keystone sites ($.9 million) were discharged in connection
with the Chapter 11 proceedings.  Recorded environmental  liabilities related to
non-owned SWC sites ($7.8 million) and an owned SWC site ($.8 million)  continue
to be negotiated and adjudicated subsequent to Keystone's emergence from Chapter
11. In  general,  as a result of the  Company's  Chapter 11  reorganization  and
discharge  when it exited  bankruptcy in August 2005,  any future  government or
third-party   private  actions  against   Keystone   arising  from  its  alleged
pre-petition  responsibility  for hazardous  contamination at any  environmental
sites that are not owned by Keystone have been barred.  The Company's Chapter 11
discharge does not affect the Company's liability for hazardous contamination of
property  that was  owned by  Keystone  or SWC as of the  petition  date and any
associated clean up costs remains the responsibility of Keystone or SWC.

     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

                                     - 14 -
<PAGE>

14 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 ($14.9 million
at March 31, 2006, $8.6 million of which is reflected in liabilities  subject to
compromise on the Company's  March 31, 2006 balance  sheet) for these matters at
10 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.

     The upper end of the range of  reasonably  possible  costs to Keystone  for
sites for which it is  possible to  estimate  costs (14 sites) is  approximately
$15.7 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  four  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.

                                     - 15 -
<PAGE>

     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 months ended March 31, 2006 is as
follows:

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                             March 31,
                                                                                         ------------------
                                                                                           (In thousands)

<S>                                                                                             <C>
 Balance at December 31, 2005                                                                   $15,412
 Expense                                                                                              -
 Payments                                                                                          (618)
 Reclassification                                                                                    84
                                                                                                -------

 Balance at March 31, 2006                                                                      $14,878
                                                                                                =======

 Amounts classified as:
   Current accrued environmental cost                                                           $ 2,386
   Noncurrent accrued environmental cost                                                          3,921
   Liabilities subject to compromise                                                              8,571
                                                                                                -------

                                                                                                $14,878
                                                                                                =======
</TABLE>

     All of the recorded environmental liability included in liabilities subject
to  compromise  on the  Company's  March 31, 2006 balance sheet relates to sites
involving  SWC  or  one of its  predecessors.  SWC's  environmental  liabilities
continue to be negotiated  and  adjudicated  subsequent to Keystone's  emergence
from Chapter 11 on August 31, 2005. See Note 8.

Sites no longer subject to compromise at March 31, 2006.

     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 ("IAG"), the
Company is depositing  $75,000 per quarter into a trust fund. Prior to 2005, the
Company was required to continue these quarterly deposits and could not withdraw
funds  from the  trust  fund  until  the fund  balance  exceeded  the sum of the
estimated  remaining  remediation  costs  plus $2  million.  During  2005,  this

                                     - 16 -
<PAGE>

agreement  was  modified  such  that  the IEPA and IAG now  permit  Keystone  to
withdraw  funds  from the trust  fund as the site is  remediated.  However,  the
requirement  for the  Company to make  quarterly  deposits  of $75,000 in to the
trust fund remains until such time as the site is completely remediated.  During
the first quarter of 2006,  Keystone paid approximately  $614,000 in remediation
costs for this site and received  approximately $834,000 in funds from the trust
fund.  At December 31, 2005 and March 31, 2006,  the trust fund had a balance of
$4.5 million and $3.7  million,  respectively,  which  amounts were  included in
other noncurrent assets.

     In  Febuary  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 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 December 2005, the Company  received a Notice of Violation from the U.S.
EPA regarding air permit issues at its Peoria,  Illinois facility.  The U.S. EPA
alleges  Keystone  failed to perform  stack testing and conduct a review of best
available  emission control  technology in connection with the implementation of
plant construction modifications made pursuant to a 2001 air permit issued under
the Clean Air Act and the Illinois Environmental  Protection Act. During January
2006, the Company and the U.S. EPA reached a preliminary agreement on a plan for
addressing  the  U.S.  EPA's  concerns  without  referring  the  matter  for any
enforcement action.

                                     - 17 -
<PAGE>

"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 not recorded  receivables  for the estimated  insurance  recoveries at those
sites.  During the first three  months of 2005 and 2006,  the  Company  received
approximately $30,000 and $85,000, 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.

Sites still subject to compromise at March 31, 2006.

     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 SWC.
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. Any further  liability of Sherman Wire related to this site was
discharged in the Chapter 11 proceedings.

     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,  SWC also has certain funds  available in other
trust funds due it under the partial consent  decree.  These credits can be used
by SWC (with  certain  limitations)  to fund its  future  liabilities  under the
partial  consent  decree.  The U.S. EPA was granted a $1.1 million  claim in the
Chapter 11  proceedings.  Any further  liability of SWC related to this site was
discharged in the Chapter 11 proceedings.

     In 1995,  DeSoto was notified by the Texas  Natural  Resource  Conservation
Commission  ("TNRCC") that there were certain  deficiencies  in prior reports to

                                     - 18 -
<PAGE>

TNRCC relative to one of its  non-operating  facilities  located in Gainesville,
Texas.  During  1999,  SWC  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.  The
plaintiffs  were  granted a $750,000  claim in the Chapter 11  proceedings.  Any
further  liability of SWC related to this site was  discharged in the Chapter 11
proceedings.

     SWC 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,  SWC has signed a participation  agreement
which would require SWC to pay no less than 3% of the remediation costs. Valspar
continues  to pay for legal fees in this matter and has  reimbursed  SWC for all
assessments.   The  TNRCC  was  granted  a  $15,000  claim  in  the  Chapter  11
proceedings. Any further liability of SWC related to this site was discharged in
the Chapter 11 proceedings.

     In November 2003, SWC received a General Notice of Potential Liability from
the U.S. EPA  advising  them that the U.S. EPA believes SWC 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,  SWC notified their insurance
carriers and asked them to indemnify  and defend SWC with respect to the Notice.
At present, no carrier has agreed to either indemnify or defend. In addition, in
November,  2003,  SWC requested the U.S. EPA to provide any  documentation  that
allegedly  connects  SWC  to the  site.  Subsequently,  the  U.S.  EPA  produced
documents  that may show that SWC  wastes  were sent to the site.  There were no
claims related to this site filed in the Chapter 11  proceedings.  The Company's
emergence from Chapter 11 proceedings in August 2005 precludes subsequent claims
against SWC related to this site.

     In addition to the sites  discussed  above,  SWC is  allegedly  involved at
various  other  sites  and in  related  toxic  tort  lawsuits  which it does not
currently expect to incur significant liability. Pre-petition claims against SWC
continue to be negotiated and adjudicated  subsequent to the Company's emergence
from Chapter 11 on August 31, 2005.

                                     - 19 -
<PAGE>

     SWC 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.
At  December  31,  2005 and March 31,  2006,  the balance in this trust fund was
approximately $254,000 and $255,000, respectively.

Note 11 -  Other commitments and contingencies:

Current litigation

     Pre-petition  claims against SWC continue to be negotiated and  adjudicated
subsequent to Keystone's emergence from Chapter 11 on August 31, 2005.

     In July 2001,  SWC  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 SWC and
demanded  that SWC  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 (now SWC), 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  SWC with respect to the  complaint.  SWC 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.
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 SWC.  SWC  believes  the request for  indemnification  is invalid.
However,  such  Insurance  Company has refused to accept SWC's  response and has
demanded that SWC  participate  in mediation in  accordance  with the terms of a
prior settlement agreement. SWC 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 SWC. 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.

     On March 1, 2006, Sears filed a notice with the Bankruptcy Court indicating
it is consenting to the Allstate  Settlement  described  below and will withdraw
its claims with prejudice with respect to this matter on the date the Bankruptcy
Court's   order   approving   the   Allstate   Settlement   becomes   final  and
non-appeasable.  The Chapter 11  proceedings  bar any future claims  against SWC
with respect to this matter.

     On March 27, 2006,  the Bankruptcy  Court  approved a settlement  agreement
with one of DeSoto's former  insurers,  Allstate  Insurance  Company ("AIC") and
Northbrook  Property  and Casualty  Insurance  Company  ("NP&CIC"),  whereby SWC
entered into a policy  buy-back  arrangement  with the insurers and the insurers

                                     - 20 -
<PAGE>

agree to withdraw their claims for retrospective  premiums under the policies in
SWC's bankruptcy with prejudice after of the Bankruptcy  Court's order approving
the agreement becomes final and  non-appealable.  As a result of this agreement,
SWC will receive  approximately $4.0 million from the insurers in exchange for a
release of the insurers from the policies. SWC has not recorded a receivable for
this amount at March 31,  2006.  The $4.0  million may be used by SWC to satisfy
its pre-petition  allowed  unsecured  claims,  including  environmental  related
claims  against  SWC in its  bankruptcy  proceedings.  Any  portion  of the $4.0
million not used to satisfy SWC's allowed  unsecured  claims will revert back to
the bankruptcy  estate of SWC and be distributed in accordance  with  Keystone's
plan of reorganization.  The settlement agreement does not apply to any worker's
compensation  policies  that AIC or NP&CIC  underwrote  for SWC. The  settlement
agreement  also does not apply to Sears,  but Sears is barred  from  bringing  a
claim against SWC's bankruptcy estate.

     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.

Note 13 - Accounting principles newly adopted in 2006:

     Inventory  costs.  The Company adopted 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  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 complied
with the requirements of SFAS No. 151, and as such, the adoption of SFAS No. 151
did not 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  adopted  SFAS No. 123R,  "Share-Based  Payment," as of
January 1, 2006. SFAS No. 123R,  among other things,  eliminated 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  is  generally  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.  Because  the
Company did not have any  outstanding  awards or options at January 1, 2006, the
effect of  adopting  SFAS No.  123R was not  significant.  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.

                                     - 21 -
<PAGE>


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------

Summary

     The Company  reported net income of $21.7  million in the first  quarter of
2006 as compared to a net loss of $1.3 million in the first quarter of 2005. The
primary  reasons for the increase in earnings  from 2005 to 2006 were due to the
net effects of  increased  shipment  volumes,  lower  costs for  ferrous  scrap,
electrical  power, OPEB and  reorganization  costs all partially offset by lower
per-ton selling prices and higher costs for natural gas and interest expense. As
discussed in Note 2 to the Consolidated  Financial  Statements,  the Company was
operating  under the  protection of its Chapter 11 bankruptcy  filing during the
first quarter of 2005.

OVERALL RESULTS OF OPERATIONS:

     Keystone  believes it is a leading  manufacturer  of steel  fabricated wire
products,  wire mesh, 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 in the United States. Historically, the Company has experienced greater
sales and profits  during the first half of the year due to the  seasonality  of
sales in  principal  wire  products  markets,  including  the  agricultural  and
construction  markets.  Keystone is also  engaged in the  operation of a ferrous
scrap  recycling  facility.  The  operations  of this  ferrous  scrap  recycling
facility were insignificant when compared to the consolidated  operations of the
Company. As such, the results of its operations are not separately  addressed in
the discussion that follows.

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

     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)

                                     - 22 -
<PAGE>
     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    The possibility of labor disruptions,
     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 Quarterly  Report
          and the Annual  Report,  including,  without  limitation,  the section
          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.

     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>
                                                                                            Three months ended
                                                                                                March 31,
                                                                                           2005            2006
                                                                                           ----            ----
                                                                                           (Tons in thousands)

Production volume (tons):
<S>                                                                                           <C>             <C>
 Billets                                                                                      141             199
 Wire rod                                                                                     134             177

Average per-ton ferrous scrap purchase cost                                                  $252            $206

Sales volume(tons):
 Fabricated wire products                                                                      33              34
 Wire mesh                                                                                     13              15
 Nails                                                                                          5               5
 Industrial wire                                                                               16              18
 Wire rod                                                                                      43             103
 Billets                                                                                        2              10
                                                                                             ----            ----

                                                                                              112             185
                                                                                             ====            ====
Per-ton selling prices:
  Fabricated wire products                                                                 $1,109          $1,029
  Wire mesh                                                                                $  926          $  876
  Nails                                                                                    $  778          $  697
  Industrial wire                                                                          $  768          $  718
  Wire rod                                                                                 $  567          $  490
  Billets                                                                                  $  257          $  346
  All steel and wire products                                                              $  798          $  639
</TABLE>

                                     - 23 -
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                            Three months ended
                                                                                                March 31,
                                                                                           2005            2006
                                                                                           ----            ----
                                                                                              (In millions)

<S>                                                                                        <C>            <C>
Fabricated wire products                                                                   $35.9          $ 35.0
Wire mesh                                                                                   12.1            12.6
Nails                                                                                        3.8             3.8
Industrial wire                                                                             12.5            12.9
Wire rod                                                                                    24.3            50.5
Billets                                                                                       .6             3.6
Other                                                                                         .3              .7
                                                                                           -----          ------
                                                                                           $89.5          $119.1
                                                                                           =====          ======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                               Three months ended
                                                                                                    March 31,
                                                                                            ------------------------
                                                                                             2005             2006
                                                                                            ------           ------

<S>                                                                                         <C>              <C>
Net sales                                                                                   100.0 %          100.0 %
Cost of goods sold                                                                           94.4              87.4
                                                                                            -----             -----
Gross margin                                                                                  5.6 %           12.6 %
                                                                                             ====            =====

Selling expense                                                                               1.6 %            1.5 %
General and administrative expense                                                            3.0 %            2.4 %
Defined benefit pension credit                                                               (3.6)%          (10.2)%
Corporate (income) expense                                                                    1.4 %            (.4)%
Reorganization costs                                                                          3.7 %             .1 %

Income (loss) before income taxes                                                            (1.3)%           18.3 %
Income tax provision                                                                          (.1)             (.1)
                                                                                             ----             ----

Net income (loss)                                                                            (1.4)%           18.2 %
                                                                                           ======            =====
</TABLE>

Discussion of operating results

     During the first  quarter of 2006,  Keystone  recorded  net sales of $119.1
million which  represented an increase of $29.6 million,  or 33.0%,  over 2005's
first quarter net sales of $89.5  million.  The primary reason for this increase
in net sales during the 2006 first quarter was significantly  increased shipment
volumes  partially  offset by lower overall per-ton  selling prices.  During the
first  quarter of 2006,  the Company  shipped  185,000  tons as compared to only
112,000 tons shipped  during the 2005 first  quarter.  While first  quarter 2006
shipments of fabricated wire products, wire mesh, nails and industrial wire were
all relatively  consistent  with shipment  levels during the 2005 first quarter,
the product mix during the 2006 first quarter was materially  different from the
2005 first  quarter as a result of a 60,000 ton,  or 140%,  increase in wire rod
shipments  during  the 2006  first  quarter  as  compared  to the 2005  wire rod
shipments.  The Company typically realizes a lower gross margin on sales of wire
rod than it does on the majority of its other products. During the first quarter
of 2006,  Keystone's  overall  per-ton  product  selling prices declined to $639
per-ton from $798 per-ton in the 2005 first quarter. This 20% decline in overall
per-ton steel and wire product selling prices ($159 per-ton)  adversely impacted
net sales by approximately $29.4 million during the 2006 first quarter.

                                     - 24 -
<PAGE>

     During the first quarter of 2006,  Keystone  realized lower per-ton selling
prices over those  achieved  during the 2005 first  quarter in all product lines
with the exception of billets. However, the Company's shipment volume of billets
is relatively  insignificant to total product  shipments.  During the 2006 first
quarter,  fabricated  wire product per-ton selling prices declined 7%, wire mesh
declined  5%,  nails  declined  10%,  industrial  wire  declined 7% and wire rod
declined  14% as  compared to the 2005 first  quarter.  Billet  per-ton  selling
prices increased 35% during the 2006 first quarter as compared to the 2005 first
quarter. During the 2006 first quarter, shipment volume increased in all product
lines as compared to 2005  shipment  levels with the  exception  of nails.  Nail
shipments  during the 2006 first quarter were  unchanged from 2005 first quarter
shipment levels. Fabricated wire product shipments during the 2006 first quarter
increased 3%, wire mesh increased 15%,  industrial  wire increased 13%, wire rod
increased  140% and billets  increased  400% when compared to 2005 first quarter
shipment levels.  Keystone  believes the lower per-ton selling prices during the
2006 first quarter were in part due to significantly  lower ferrous scrap costs,
the Company's  primary raw material.  The significantly  increased  shipments of
wire rod during the 2006 first quarter was primarily due to increased  shipments
to two existing customers.

     Billet production during the 2006 first quarter increased by 58,000 tons to
199,000  tons from  141,000  tons  during the first  quarter  of 2005.  Wire rod
production  during the first quarter of 2005 increased by 43,000 tons to 177,000
tons from 134,000 tons during the first quarter of 2005.  The higher  production
levels in 2006 were due primarily to increased market demand.

     Cost of goods sold  increased  by 23%  during the first  quarter of 2006 to
$104.1 million from $84.5 million during the 2005 first  quarter.  However,  the
cost of goods sold  percentage  declined  from 94% in the 2005 quarter to 87% of
net sales in the first  quarter of 2006.  This decline in the cost of goods sold
percentage  was due  primarily  to the lower  per-ton  cost for  ferrous  scrap,
electrical power at the Company's Peoria, Illinois facility and OPEB in the 2006
first  quarter,  partially  offset by  increased  costs for  natural  gas at the
Company's  Peoria,  Illinois  facility.  Keystone's  per-ton ferrous scrap costs
declined  18%  during  the 2006  first  quarter  as  compared  to the 2005 first
quarter.  During the 2006 first quarter,  the Company  purchased 216,000 tons of
ferrous  scrap at an average  price of $206  per-ton as  compared  to 2005 first
quarter  purchases  of 151,000  tons at an average  price of $252 per ton.  This
decline in per-ton  ferrous scrap costs  favorably  impacted gross profit during
the 2006 first quarter by approximately  $10.0 million.  The cost of natural gas
and electrical  power at the Company's Peoria facility in the 2006 first quarter
was  approximately  $1.7 million higher and $341,000 lower,  respectively,  than
they were in the 2005 first quarter.  As a result of the 1114 Agreement that was
entered  into in  connection  with the  Company's  emergence  from Chapter 11 in
August  2005,   OPEB  expense  during   periods   subsequent  to  that  date  is
substantially  less than in periods prior to that date. During the first quarter
of 2005,  Keystone  recorded  OPEB expense of  approximately  $4.4 million ($3.9
million  of which was  included  in cost of goods  sold) as  compared  to a $2.1
million OPEB credit  recorded in the 2006 first  quarter  ($1.5 million of which
was included in cost of goods sold).

     As a result of the above  items,  the gross  margin of $5.1  million in the
2005 first  quarter  improved to $15.0 million in the 2006 first  quarter.  As a
result,  the  gross  margin  percentage  in the  first  quarter  of 2005 of 5.6%
increased to 12.6% in the 2006 first quarter.

     Selling expense during the 2006 first quarter increased 24% to $1.8 million
from $1.4  million  during the 2005 first  quarter due  primarily  to  increased
advertising costs.

                                     - 25 -
<PAGE>

     General  and  administrative  expense  of $2.7  million  in the 2006  first
quarter was  relatively  unchanged from the general and  administrative  expense
recorded in the first quarter of 2005.

     During the first  quarter  of 2006,  Keystone  recorded  a defined  benefit
pension credit of $12.2 million as compared to a defined  benefit pension credit
in the 2005 first quarter of $3.2 million.  The increased  pension credit during
the first quarter of 2006 was a result of a $277 million increase in plan assets
from the end of 2004 to the end of 2005. In addition,  Keystone was not required
to make any cash  contributions for defined benefit pension plan fundings during
either  2006 or 2005.  The  Company  currently  anticipates  during 2006 it will
record a  defined  benefit  pension  credit  of $49.6  million  and that no plan
fundings will be required during 2006.  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.

     During  the first  quarter of 2006,  Keystone  recorded  general  corporate
income of $486,000 as compared to recording  $1.3  million of general  corporate
expenses during the first quarter of 2005.  This reduction in general  corporate
expenses is due primarily to lower general  insurance  expense,  franchise taxes
and retiree  medical costs during the 2006 first quarter as compared to the 2005
first  quarter.  As a result  of the 1114  Agreement  that was  entered  into in
connection  with the Company's  emergence  from Chapter 11 in August 2005,  OPEB
expense during  periods  subsequent to that date is  substantially  less than in
periods prior to that date. During the first quarter of 2005,  Keystone recorded
OPEB expense of approximately $4.4 million ($.5 million of which was included in
general  corporate  expenses) as compared to a $2.1 million OPEB credit recorded
in the 2006  first  quarter  ($.6  million  of which  was  included  in  general
corporate expenses).

     During the first quarters of 2006 and 2005,  Keystone incurred $150,000 and
$3.3  million,  respectively,  of legal and  professional  fees  relative to its
Chapter  11  proceedings  and  related   reorganization   activities   including
activities  post  emergence   related  to  closing  the  Chapter  11  cases  and
liquidation of certain pre-petition subsidiaries.

     Interest expense during the first quarter of 2006 was higher than the first
quarter of 2005 due primarily to higher debt levels and higher average  interest
rates during 2006.  The overall  average  interest rates in the 2005 period were
impacted by the fact the Company discontinued  accruing interest on pre-petition
unsecured  debt  upon  filing  for  Chapter  11 on  February  2,  2004.  Average
borrowings by the Company approximated $95.3 million during the first quarter of
2006 as compared to $76.5 million  during the first quarter of 2005.  During the
first quarter of 2006, the average interest rate on outstanding indebtedness was
5.0% per  annum as  compared  3.0% per  annum  during  the 2005  first  quarter.
Keystone  currently  anticipates  average interest rates and debt levels in 2006
will be higher than their respective levels during 2005.

     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 6 to the Consolidated Financial Statements.  At March 31, 2006, the Company
had recorded a deferred tax asset valuation  allowance of $2.3 million 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

                                     - 26 -
<PAGE>
expects to report pre-tax income for financial  reporting  purposes during 2006,
it 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 2006. As a result of the deferred tax asset
valuation allowance,  the Company does not anticipate  recognizing a significant
tax provision associated with its expected pre-tax income during 2006 until such
time as the Company determines (which might or might not occur during 2006) that
recognition  of  the  benefit  of  its  gross  deferred  income  tax  assets  is
appropriate under GAAP.

     As a result of the items  discussed  above,  Keystone  recorded  net income
during the first  quarter of 2006 of $21.7  million as compared to a net loss of
$1.3 million in the first quarter of 2005.

SEGMENT RESULTS OF OPERATIONS:

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include three  reportable  segments:  (i) Keystone Steel and Wire
("KSW")  which  manufacturers  and sells wire rod,  wire and wire  products  for
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail consumer markets, (ii) Engineered Wire Products ("EWP")
which  manufacturers and sells welded wire  reinforcement in both roll and sheet
form that is utilized in concrete construction products including pipe, pre-cast
boxes and  applications  for use in  roadways,  buildings  and bridges and (iii)
Sherman Wire ("Sherman")  which  manufacturers  and sells wire and wire products
for  agricultural,  industrial,  construction,  commercial,  original  equipment
manufacturers  and  retail  consumer  markets.  See  Note 3 to the  Consolidated
Financial Statements.

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                              March 31,
                                                                                        2005             2006
                                                                                        ----             ----
                                                                                           (In thousands)

Revenues:
<S>                                                                                    <C>              <C>
  Keystone Steel and Wire                                                              $ 89,194         $117,680
  Engineered Wire Products                                                               12,051           12,618
  Sherman/KWP                                                                             5,053            4,922
  Eliminations                                                                          (16,761)         (16,105)
                                                                                       --------         --------

                                                                                       $ 89,537         $119,115
                                                                                       ========         ========

Operating profit (loss):
  Keystone Steel and Wire                                                               $(1,452)        $  8,199
  Engineered Wire Products                                                                1,639              873
  Sherman/KWP                                                                              (169)             (64)
  GAAP adjustments and eliminations                                                       4,123           13,674
                                                                                        -------         --------

                                                                                        $ 4,141         $ 22,682
                                                                                        =======         ========
</TABLE>

Keystone Steel & Wire

     KSW's net sales in the 2006 first quarter increased by $28.5 million or 32%
to $117.7  million from $89.2 million in the first quarter of 2005 due primarily
to  substantially  higher  shipment  volumes  partially  offset by lower overall
per-ton  product  selling  prices.  KSW sold  approximately  76,000 more tons of
products,  a 62%  increase,  in the 2006 first  quarter as compared to the first
quarter of 2005  although at selling  prices  $133  per-ton  lower than  per-ton
product  selling  prices in the 2005  first  quarter.  KSW  believes  the higher
shipment  volume  during the first  quarter of 2006 was due to increased  market
demand as well as the abnormally low shipment  volume in the 2005 first quarter.
                                     - 27 -
<PAGE>

During  the  2006  and  2005  first   quarters,   approximately   11%  and  15%,
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 the first  quarter of 2006,  KSW recorded  operating  profit of $8.2
million  as  compared  to an  operating  loss of $1.5  million in the 2005 first
quarter.  The primary  reasons for the  increased  operating  profit in the 2006
period was a result of the net  effects of  increased  shipment  volumes,  lower
costs for ferrous scrap,  electrical power and OPEB expense all partially offset
by lower overall per-ton selling prices and natural gas costs.

Engineered Wire Products

     EWP's net sales of $12.6  million  during  the first  quarter  of 2006 were
approximately $.6 million or 5% higher than during the first quarter of 2005 due
primarily to higher  shipment volume  partially  offset by lower overall per-ton
product selling prices.  During the 2006 first quarter, EWP sold 1,400 more tons
of products  than during the first  quarter of 2005 at per-ton  product  selling
prices  approximately  $50 per-ton lower than per-ton selling prices in the 2005
first quarter.

     Primarily as a result of the lower per-ton  product  selling  prices during
the first quarter of 2006,  partially  offset by lower cost for wire rod,  EWP's
primary raw  material,  EWP recorded a $766,000  decline  from 2005's  operating
income to $873,000.  EWP sources  substantially all of its wire rod requirements
from KSW.

Sherman Wire/Keystone Wire Products

     The 5,523 tons  shipped by this  segment  during the first  quarter of 2006
approximated  shipment  levels  during the first  quarter of 2005.  This segment
recorded net sales of $4.9 million in the 2006 first quarter, as compared to net
sales of $5.1 million during the first quarter of 2005.  This $131,000  decrease
was due primarily to a $33 per-ton  decline in this  segment's  per-ton  product
selling  prices  during the 2006 first  quarter  as  compared  to the 2005 first
quarter. The entities in this segment source substantially all of their wire rod
requirements from KSW. During the first quarter of 2006 and 2005,  approximately
71% and 68%,  respectively,  of this  segment's  net  sales  were  made to other
Keystone  entities,  primarily KSW. The majority of these sales were  fabricated
wire products.

     During the first quarter of 2006, this segment recorded a $64,000 operating
loss as compared to a $169,000  operating  loss in the 2005 first  quarter.  The
primary reason for the improved operating  performance in the 2006 first quarter
was lower OPEB costs resulting from the 1114 Agreement.

Outlook for 2006

     As a result of the  Company's  strengthened  financial  position due to its
emergence from Chapter 11, management  currently  believes Keystone will be able
to  recapture  in 2006 a portion of the market  that it lost during the last two
years.  This  market  was lost due to  customer  concerns  about  the  Company's
financial  stability.  As a  result,  management  expects  shipment  volumes  to
increase  over 2005 levels  during  2006.  However,  due to  anticipated  market
pressures and lower projected ferrous scrap costs, management currently believes
overall per-ton selling prices will decline in 2006 as compared to 2005. Despite
these lower selling  prices,  the Company expects ferrous scrap and energy costs
to remain  relatively  flat in 2006 as  compared to 2005.  However,  these lower
selling prices will be tempered by substantially  lower OPEB and  reorganization
costs.  As a result,  Keystone  expects it will report net income for  financial
reporting  purposes,  and expects to report  positive cash flows from  operating
activities  in 2006. In addition,  as a result of  significant  accumulated  net

                                     - 28 -
<PAGE>
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
2006 until such time as the Company  determines  (which might or might not occur
during 2006) that  recognition of the benefit of its gross  deferred  income tax
assets is appropriate under GAAP.

LIQUIDITY AND CAPITAL RESOURCES:

     At March 31, 2006, Keystone had working capital of $24.1 million, including
$25.0 million of notes payable and current  maturities of long-term debt as well
as outstanding borrowings under the Company's revolving credit facility of $41.4
million.  The amount of available  borrowings under Keystone's  revolving credit
facility  is based  on  formula-determined  amounts  of  trade  receivables  and
inventories,  less the amount of  outstanding  letters  of credit.  At March 31,
2006,  unused credit available for borrowing under  Keystone's  revolving credit
facility was $14.9 million.  The revolving  credit facility  requires daily cash
receipts be used to reduce outstanding borrowings,  which results in the Company
maintaining  zero cash balances when there are balances  outstanding  under this
credit facility.  Accordingly,  any outstanding balances under this facility are
always classified as a current liability  regardless of the maturity date of the
facility.

     Keystone's   earnings  during  the  first  quarter  of  2006  increased  by
approximately  $23.0  million  over the 2005 first  quarter and net cash used in
operations  during the 2006 first  quarter was $20.7  million less than net cash
used in  operations  during the 2005  first  quarter  as the  Company  used $2.3
million of cash in operations during the 2006 first quarter as compared to $23.0
million of cash used in operations during the 2005 first quarter.  This decrease
in cash used in operations  was due  primarily to smaller  increases in accounts
receivable  and inventory  levels during the 2006 first quarter than in the 2005
first quarter.

     During the first  quarter of 2006,  Keystone made capital  expenditures  of
approximately $2.2 million primarily related to upgrades of production equipment
at KSW and a plant  expansion  at EWP as  compared  to $2.0  million in the 2005
first quarter.  Capital  expenditures  for 2006 are expected to be approximately
$23.0 million and are related primarily to the EWP plant expansion. Such capital
expenditures are expected to be funded using cash flows from operations together
with borrowing availability under Keystone's credit facilities.

     At March 31, 2006, the Company's  financial  statements  reflected  accrued
liabilities  of $14.9 million ($8.6 million of which is included in  liabilities
subject to compromise on the Company's balance sheet) 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  $15.7  million.  See  Notes 10 and 11 to the
Consolidated Financial Statements for discussions of the Company's environmental
liabilities and current litigation.

     Keystone  is not  expected  to be  required  to make  contributions  to its
pension  plan during  2006.  Future  variances  from  assumed  actuarial  rates,

                                     - 29 -
<PAGE>
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.

     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 March 31, 2006,  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, the Company has provided a
deferred tax asset valuation  allowance of  approximately  $2.3 million at March
31, 2006, 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 it will
be appropriate to recognize a tax provision associated with its expected pre-tax
income  during 2006 until such time as the Company  determines  (which  might or
might not occur  during  2006)  that  recognition  of the  benefit  of its gross
deferred income tax assets is appropriate under GAAP.

     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.  Keystone is also taking
additional action towards improving its liquidity. 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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Reference is made to the 2005 Annual  Report for a discussion of the market
risks  associated with changes in interest rates that affect the Company.  There
have been no material  changes in such market risks since the Company  filed the
2005 Annual Report.



                                     - 30 -
<PAGE>


ITEM 4.  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 Rule 13a-15(e) of the Securities and Exchange Act of
1934,  as amended (the "Act"),  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  Securities  and Exchange  Commission  (the
"SEC") 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 that
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,  or  persons  performing  similar  functions,  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 March 31, 2006. Based upon their evaluation, these
executive  officers  have  concluded  the  Company's   disclosure  controls  and
procedures were effective as of the date of such evaluation.

     Remediation of a Prior Material Weakness.  A material weakness is a control
deficiency, or combination of control deficiencies,  that results in more than a
remote  likelihood  that a  material  misstatement  of  the  annual  or  interim
financial  statements  will  not be  prevented  or  detected.  The  Company  has
previously  concluded  that  the  following  control  deficiencies   constituted
material weaknesses in the Company's internal control over financial reporting:

(1)  As of December 31, 2005,  the Company did not maintain  effective  controls
     over the  completeness  and accuracy of net sales and related cost of goods
     sold. Specifically, the Company did not have controls designed and in place
     to detect sales made under the terms  F.O.B.  at the  customer's  location.
     Additionally,  the Company did not  maintain  effective  controls  over the
     review and  monitoring  of the accuracy and  completeness  of net sales and
     costs of goods sold. This control deficiency resulted in adjustments to net
     sales and cost of goods sold in the third quarter of 2005.
(2)  As of December 31, 2005,  the Company did not maintain  effective  controls
     over the presentation and classification of cash overdrafts.  Specifically,
     effective  controls  were not  designed  and in place to  ensure  that cash
     overdrafts  were  properly  classified  as  indebtedness  in the  Company's
     consolidated  balance sheet,  and that changes in its cash  overdrafts were
     properly  included  in the  determination  of  cash  flows  from  financing
     activities.  This control  deficiency  resulted in the  restatement  of the
     Company's 2003 and 2004 annual consolidated  financial statements and audit
     adjustments to both its 2004 interim consolidated  financial statements and
     its annual and interim 2005  consolidated  financial  statements  affecting
     accounts payable and the current portion of long-term debt.

     Each  of  these  two  control   deficiencies   could  have  resulted  in  a
misstatement  of the  aforementioned  accounts  that would  result in a material
misstatement  to  the  Company's  annual  or  interim   consolidated   financial
statements that would not be prevented or detected.

     Accordingly,  management  of the  Company  determined  that  each of  these
control deficiencies constituted a material weakness at December 31, 2005.

                                     - 31 -
<PAGE>

     In order to remediate the first material weakness discussed above, in March
2006, the Company  modified its  information  system to  appropriately  identify
products shipped to its customers under delivery terms of F.O.B. at the customer
location.  In  addition,  the Company  instituted a quarterly  close  procedure,
implemented  for the first time for the quarter  ended March 31, 2006, to review
all sales within a specified  number of weeks prior to the end of the quarter to
ensure the delivery terms are consistent with revenue recognition in the quarter
of shipment.

     In order to remediate the second  material  weakness  discussed  above,  in
March 2006 the Company revised the recurring reclassification journal entry used
in the preparation of its  consolidated  balance sheet to properly  classify the
amount of any cash  overdrafts as part of the current portion of long-term debt.
In addition, the Company instituted quarterly close procedures,  implemented for
the first  time for the  quarter  ended  March 31,  2006,  to ensure  (i) that a
detailed review of the appropriate  classification of any cash overdrafts in the
Company's  balance  sheet and statement of cash flow  consolidation  occurs each
quarter and (ii) the continued  appropriateness of the reclassification  journal
entry to classify bank  overdrafts  as part of the current  portion of long-term
debt.

     Accordingly,  the Company has concluded these material weaknesses no longer
exist at March 31, 2006.

     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 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.  Other than the
remediation  of the  material  weaknesses  discussed  above,  there have been no
changes in the Company's  internal  control over financial  reporting during the
quarter  ended March 31, 2006 that has  materially  affected,  or is  reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


                                     - 32 -
<PAGE>


PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

     Reference  is  made to  disclosure  provided  under  the  caption  "Current
litigation" in Note 11 to the Consolidated Financial Statements.


ITEM 1A. Risk Factors

     Reference  is made to the  2005  Annual  Report  for a  discussion  of risk
factors related to the Company's businesses. There have been no material changes
in such risk factors since the Company filed the 2005 Annual Report.

ITEM 6. Exhibits

(a)  The Company has retained a signed original of any exhibit listed below that
     contains  signatures,  and the Company will provide any such exhibit to the
     Commission  or its staff upon request.  The  following  exhibit is included
     herein:

     31.1 Chief Executive Officer's Certification Pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     31.2 Chief Financial Officer's Certification Pursuant to Section 302 of the
          Sarbanes-Oxley Act of 2002.

     32.1 Chief Executive and Chief Financial Officers'  Certification  Pursuant
          to 18 U.S.C.  Section  1350 as Adopted  Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.





                                     - 33 -
<PAGE>



                               S I G N A T U R E S



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                            Keystone Consolidated Industries, Inc.
                                        (Registrant)



Date:  May 15, 2006                 By /s/Bert E. Downing, Jr.
                                      -------------------------------------
                                       Bert E. Downing, Jr.
                                       Vice President, Chief Financial
                                       Officer, Corporate Controller
                                       and Treasurer
                                       (Principal Financial and Accounting
                                       Officer)



                                     - 34 -