**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

| **For                the quarter ended****March                31, 2007** | **Commission                file number****1-3919** |
|---------------------------------------------------------------------------|-----------------------------------------------------|

| **Keystone                Consolidated Industries, Inc.**                            |
|--------------------------------------------------------------------------------------|
| (Exact                name of Registrant as specified in its                charter) |

| **Delaware**                                                                                |   | **37-0364250**                                                 |
|---------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
| (State                or other jurisdiction ofIncorporation                or organization) |   | (IRS                EmployerIdentification                No.) |

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

| **Registrant’s                telephone number, including area code:** | **(972)                458-0028** |
|------------------------------------------------------------------------------|-----------------------------------|
|                                                                         |                              |

**Indicate      by check mark:**

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**INDEX**

| **Part                I.** **FINANCIAL                INFORMATION**                                                                                                                                             | ** Page ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|
|                                                                                                                                                                                                                 |                 |
| Item                1. Financial                Statements                                                                                                                                                      |                 |
|                                                                                                                                                                                                                 |                 |
| Condensed                Consolidated Balance Sheets - December 31, 2006 -  March                31, 2007 (unaudited)                                                                                      | 3                    |
|                                                                                                                                                                                                                 |                 |
| Condensed                Consolidated Statements of Operations (unaudited) -  Three                months ended March 31, 2006 (as adjusted);   Three                months ended March 31, 2007 | 5                    |
|                                                                                                                                                                                                                 |                 |
| Condensed                Consolidated Statements of Cash Flows (unaudited)- Three                months ended March 31, 2006 (as adjusted);   Three                months ended March 31, 2007        | 6                    |
|                                                                                                                                                                                                                 |                 |
| Condensed                Consolidated Statement of Stockholders' Equity  and                Comprehensive Income -  Three months ended March 31, 2007                  (unaudited)     | 7                    |
|                                                                                                                                                                                                                 |                 |
| Notes                to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                      | 8                    |
|                                                                                                                                                                                                                 |                 |
| Item                2. Management's                Discussion and Analysis of Financial  Condition                and Results of Operations                                                           | 18                   |
|                                                                                                                                                                                                                 |                 |
| Item                3. Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                | 30                   |
|                                                                                                                                                                                                                 |                 |
| Item                4T. Controls                and Procedures                                                                                                                                                  | 30                   |
|                                                                                                                                                                                                                 |                 |
| **PART                II.** **OTHER                INFORMATION**                                                                                                                                                |                 |
|                                                                                                                                                                                                                 |                 |
| Item                1. Legal                Proceedings                                                                                                                                                         | 31                   |
|                                                                                                                                                                                                                 |                 |
| Item                1A. Risk                Factors                                                                                                                                                             | 31                   |
|                                                                                                                                                                                                                 |                 |
| Item                6. Exhibits                                                                                                                                                                                 | 31                   |
|                                                                                                                                                                                                                 |                 |
| Items                2, 3, 4 and 5 of Part II are omitted because there is no information                to                report.                                                                                   |                 |

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**(In      thousands)**

| **ASSETS**                                                               |   | **December                31,****  2006  ** |    | **March                31,****  2007  ** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|--------------------------------------------------------------|--------|
|                                                                     |   |                                                            |    | **(unaudited)**                                              |   |
|                                                                     |   |                                                            |    |                                                         |   |
| Current                assets:                                           |   |                                                            |    |                                                         |   |   |   |
|   Accounts                receivable, net                      |   | $                                                               | 31,661  |                                                         | **$**  | **62,767** |   |
|   Inventories,                net                              |   |                                                            | 61,343  |                                                         |   | **59,877** |   |
|   Restricted                investments                        |   |                                                            | 1,067   |                                                         |   | **1,081** |   |
|   Deferred                income taxes                         |   |                                                            | 12,571  |                                                         |   | **12,571** |   |
|   Prepaid                expenses and other                    |   |                                                            | 3,516   |                                                         |   | **2,146** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
|     Total                current assets              |   |                                                            | 110,158 |                                                         |   | **138,442** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
| Property,                plant and equipment:                            |   |                                                            |    |                                                         |   |   |   |
|   Land                                                         |   |                                                            | 1,193   |                                                         |   | **1,369** |   |
|   Buildings                and improvements                    |   |                                                            | 56,953  |                                                         |   | **57,804** |   |
|   Machinery                and equipment                       |   |                                                            | 300,301 |                                                         |   | **305,977** |   |
|   Construction                in progress                      |   |                                                            | 12,563  |                                                         |   | **17,384** |   |
|                                                                     |   |                                                            | 371,010 |                                                         |   | **382,534** |   |
|   Less                accumulated depreciation                 |   |                                                            | 282,315 |                                                         |   | **285,929** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
|     Net                property, plant and equipment |   |                                                            | 88,695  |                                                         |   | **96,605** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
| Other                assets:                                             |   |                                                            |    |                                                         |   |   |   |
|   Restricted                investments                        |   |                                                            | 6,079   |                                                         |   | **6,177** |   |
|   Pension                asset                                 |   |                                                            | 557,279 |                                                         |   | **574,055** |   |
|   Other,                net                                    |   |                                                            | 1,725   |                                                         |   | **1,788** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
|     Total                other assets                |   |                                                            | 565,083 |                                                         |   | **582,020** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |
|     Total                assets                      |   | $                                                               | 763,936 |                                                         | **$**  | **817,067** |   |
|                                                                     |   |                                                            |    |                                                         |   |   |   |

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS (CONTINUED)**

**(In      thousands)**

| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                           |   | **December                31,****  2006  ** |    | **March                31,****  2007  ** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|--------------------------------------------------------------|--------|
|                                                                                                              |   |                                                            |    | **(unaudited)**                                              |   |
|                                                                                                              |   |                                                            |    |                                                         |   |
| Current                liabilities:                                                                               |   |                                                            |    |                                                         |   |   |   |
|   Notes                payable and current maturities of   long-term                debt |   | $                                                               | 43,699  |                                                         | **$**  | **85,384** |   |
|   Accounts                payable                                                                       |   |                                                            | 9,947   |                                                         |   | **11,721** |   |
|   Accrued                OPEB cost                                                                      |   |                                                            | 4,157   |                                                         |   | **4,157** |   |
|   Other                accrued liabilities                                                              |   |                                                            | 20,579  |                                                         |   | **19,354** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
|     Total                current liabilities                                                  |   |                                                            | 78,382  |                                                         |   | **120,616** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
| Noncurrent                liabilities:                                                                            |   |                                                            |    |                                                         |   |   |   |
|   Long-term                debt                                                                         |   |                                                            | 32,749  |                                                         |   | **27,376** |   |
|   Accrued                OPEB cost                                                                      |   |                                                            | 31,005  |                                                         |   | **30,536** |   |
|   Deferred                income taxes                                                                  |   |                                                            | 197,712 |                                                         |   | **204,028** |   |
|   Other                                                                                                 |   |                                                            | 6,414   |                                                         |   | **6,368** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
|     Total                noncurrent liabilities                                               |   |                                                            | 267,880 |                                                         |   | **268,308** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
| Liabilities                subject to compromise                                                                  |   |                                                            | 14,012  |                                                         |   | **13,966** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
| Stockholders'                equity:                                                                              |   |                                                            |    |                                                         |   |   |   |
|   Common                stock                                                                           |   |                                                            | 100     |                                                         |   | **100** |   |
|   Additional                paid-in capital                                                             |   |                                                            | 75,423  |                                                         |   | **75,423** |   |
|   Accumulated                other comprehensive income                                                 |   |                                                            | 278,399 |                                                         |   | **274,450** |   |
|   Retained                earnings                                                                      |   |                                                            | 49,740  |                                                         |   | **64,204** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
|     Total                stockholders' equity                                                 |   |                                                            | 403,662 |                                                         |   | **414,177** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |
|     Total                liabilities and stockholders’ equity                           |   | $                                                               | 763,936 |                                                         | **$**  | **817,067** |   |
|                                                                                                              |   |                                                            |    |                                                         |   |   |   |

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS **

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

|                                                                            |   | **Three                months ended****  ****      March                31,     **** ** |    |
|---------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                            |   | **  2006  **                                                                                                                              |    | **  2007  ** |   |
|                                                                            |   | **(as                adjusted)**                                                                                                                              |    |   |   |
|                                                                            |   | **(unaudited)**                                                                                                                                               |    |
|                                                                            |   |                                                                                                                                                          |    |   |   |
| Net                sales                                                        |   | $                                                                                                                                                             | 119,115 |   | **$** | **113,098** |   |
| Cost                of goods sold                                               |   |                                                                                                                                                          | 105,032 |   |   | **106,731** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|   Gross                margin                                         |   |                                                                                                                                                          | 14,083  |   |   | **6,367** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Other                operating expenses (income):                               |   |                                                                                                                                                          |    |   |   |   |   |
|   Selling                expense                                      |   |                                                                                                                                                          | 1,791   |   |   | **1,678** |   |
|   General                and administrative expense                   |   |                                                                                                                                                          | 2,758   |   |   | **2,858** |   |
|                  Defined benefit pension credit                            |   |                                                                                                                                                          | (12,161 | ) |   | **(20,378** | **)** |
|                  Other postretirement benefit credit                       |   |                                                                                                                                                          | (2,100  | ) |   | **(2,200** | **)** |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|       Total                other operating income |   |                                                                                                                                                          | (9,712  | ) |   | **(18,042** | **)** |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Operating                income                                                 |   |                                                                                                                                                          | 23,795  |   |   | **24,409** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Nonoperating                income (expense):                                   |   |                                                                                                                                                          |    |   |   |   |   |
|   Corporate                expense                                    |   |                                                                                                                                                          | (270    | ) |   | **(178** | **)** |
|   Interest                expense                                     |   |                                                                                                                                                          | (1,202  | ) |   | **(1,197** | **)** |
|   Interest                and other income                            |   |                                                                                                                                                          | 2       |   |   | **198** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|       Total                nonoperating expense   |   |                                                                                                                                                          | (1,470  | ) |   | **(1,177** | **)** |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|   Income                before income taxes                           |   |                                                                                                                                                          | 22,325  |   |   | **23,232** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Provision                for income taxes                                       |   |                                                                                                                                                          | 89      |   |   | **8,768** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
|   Net                income                                           |   | $                                                                                                                                                             | 22,236  |   | **$** | **14,464** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Basic                and diluted income per share                               |   | $                                                                                                                                                             | 2.22    |   | **$** | **1.45** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |
| Basic                and diluted shares outstanding                             |   |                                                                                                                                                          | 10,000  |   |   | **10,000** |   |
|                                                                            |   |                                                                                                                                                          |    |   |   |   |   |

----

**KEYSTONE        CONSOLIDATED INDUSTRIES, INC.**

**AND        SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In        thousands)**

|                                                                                                                                           |   | **Three                    months ended****March                    31,** |    |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------|
|                                                                                                                                           |   | ** 2006 **                                                      |    | ** 2007 ** |   |
|                                                                                                                                           |   | **(as                    adjusted)**                                      |    |   |   |
|                                                                                                                                           |   | **(unaudited)**                                                           |    |
|                                                                                                                                           |   |                                                                      |    |   |   |
| Cash                    flows from operating activities:                                                                                       |   |                                                                      |    |   |   |   |   |
|   Net                    income                                                                                                      |   | $                                                                         | 22,236  |   | **$** | **14,464** |   |
|   Depreciation                    and amortization                                                                                   |   |                                                                      | 3,846   |   |   | **3,876** |   |
|   Deferred                    income taxes                                                                                           |   |                                                                      | -       |   |   | **8,710** |   |
|   Non-cash                    defined benefit pension credit                                                                         |   |                                                                      | (12,161 | ) |   | **(20,378** | **)** |
|   OPEB                    credit                                                                                                     |   |                                                                      | (2,100  | ) |   | **(2,200** | **)** |
|   OPEB                    payments                                                                                                   |   |                                                                      | (931    | ) |   | **(1,009** | **)** |
|   Reorganization                    costs accrued                                                                                    |   |                                                                      | 150     |   |   | **60** |   |
|   Reorganization                    costs paid                                                                                       |   |                                                                      | (2,994  | ) |   | **(50** | **)** |
|   Other,                    net                                                                                                      |   |                                                                      | 258     |   |   | **283** |   |
|   Change                    in assets and liabilities (net of acquisition):                                                          |   |                                                                      |    |   |   |   |   |
|     Accounts                    receivable                                                                                 |   |                                                                      | (6,340  | ) |   | **(31,171** | **)** |
|     Inventories                                                                                                            |   |                                                                      | (3,726  | ) |   | **4,225** |   |
|     Accounts                    payable                                                                                    |   |                                                                      | (234    | ) |   | **1,773** |   |
|     Other,                    net                                                                                          |   |                                                                      | (279    | ) |   | **63** |   |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
|       Net                    cash used by operating activities                                                   |   |                                                                      | (2,275  | ) |   | **(21,354** | **)** |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
| Cash                    flows from investing activities:                                                                                       |   |                                                                      |    |   |   |   |   |
|   Capital                    expenditures                                                                                            |   |                                                                      | (2,293  | ) |   | **(7,617** | **)** |
|   Acquisition                    of CaluMetals’ assets                                                                         |   |                                                                      | **-**   |   |   | **(6,240** | **)** |
|   Collection                    of notes receivable                                                                                  |   |                                                                      | 75      |   |   | **-** |   |
|   Restricted                    investments, net                                                                                     |   |                                                                      | 757     |   |   | **(112** | **)** |
|   Other,                    net                                                                                                      |   |                                                                      | 2       |   |   | **-** |   |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
|       Net                    cash used by investing activities                                                   |   |                                                                      | (1,459  | ) |   | **(13,969** | **)** |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
| Cash                    flows from financing activities:                                                                                       |   |                                                                      |    |   |   |   |   |
|   Revolving                    credit facilities, net                                                                                |   |                                                                      | 5,162   |   |   | **42,496** |   |
|   Other                    notes payable and long-term debt:                                                                         |   |                                                                      |    |   |   |   |   |
|     Additions                                                                                                              |   |                                                                      | 150     |   |   | **4,065** |   |
|     Principal                    payments                                                                                  |   |                                                                      | (1,570  | ) |   | **(11,030** | **)** |
|   Deferred                    financing costs paid                                                                                   |   |                                                                      | (8      | ) |   | **(208** | **)** |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
|       Net                    cash provided by financing activities                                               |   |                                                                      | 3,734   |   |   | **35,323** |   |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
| 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                                                                 |   | $                                                                         | 1,002   |   | **$** | **1,038** |   |
|     Income                    taxes, net                                                                                   |   |                                                                      | -       |   |   | **46** |   |
|                                                                                                                                           |   |                                                                      |    |   |   |   |   |
|   Non-cash                    issuance of debt for acquisition    of                    CaluMetals’ assets |   |                                                                      | -       |   |   | **781** |   |

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY **

**AND      COMPREHENSIVE INCOME**

**Three      months ended March 31, 2007**

**(In      thousands)**

|                                                                              |   |   **  Common                stock   ** |   |  **Additional** |   | **Accumulated****other****comprehensive** |   | **Accumulated****other****comprehensive** |   |      |   |                     |       |      |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|----------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|---------------------|--------|--------------------------|------------|-----------|--------|
|                                                                              |   | **Shares**                                                                |   | **Amount**           |   | **paid-in****capital**                    |   | **income-pension**                        |   | **income-****OPEB** |   | **Retained****earnings** | ** ** | **Total** |   | **Comprehensive****income** |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   | **(unaudited)**                           |   |                |   |                     |       |      |   |   |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |
| Balance                - December 31, 2006                                        |   |                                                                      | 10,000 |                 | $      | 100                                       |   | $                                         | 75,423 |                | $      | 222,202                  |       | $         | 56,197 |   | $ | 49,740 |   | $ | 403,662 |   |   |   |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |
| Net                income                                                         |   |                                                                      | -      |                 |   | -                                         |   |                                      | -      |                |   | -                        |       |      | -      |   |   | 14,464 |   |   | 14,464 |   | $ | 14,464 |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                of actuarial(gains)   losses, net of tax    |   |                                                                      | -      |                 |   | -                                         |   |                                      | -      |                |   | (2,433                   | )          |      | 1,040  |   |   | - |   |   | (1,393 | ) |   | (1,393 | ) |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                of prior service   cost (credit),net of tax |   |                                                                      | -      |                 |   | -                                         |   |                                      | -      |                |   | 191                      |       |      | (2,747 | ) |   | - |   |   | (2,556 | ) |   | (2,556 | ) |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                income                                               |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   | $ | 10,515 |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |
| Balance                - March 31, 2007                                           |   |                                                                      | 10,000 |                 | $      | 100                                       |   | $                                         | 75,423 |                | $      | 219,960                  |       | $         | 54,490 |   | $ | 64,204 |   | $ | 414,177 |   |   |   |   |
|                                                                              |   |                                                                      |   |                 |   |                                      |   |                                      |   |                |   |                     |       |      |   |   |   |   |   |   |   |   |   |   |   |

----

**KEYSTONE      CONSOLIDATED INDUSTRIES, INC.**

**AND      SUBSIDIARIES**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**March      31, 2007**

**(unaudited)**

**Note      1 - Organization and basis of presentation:**

----

**Note      2 - Acquisition**

**Note      3 - Business Segment Information:**

| ·   | Keystone                Steel and Wire (“KSW”), located in Peoria, Illinois, operates an electric                arc furnace mini-mill and manufactures and sells wire rod, industrial                wire, nails, coiled rebar and fabricated wire products to agricultural,                industrial, construction, commercial, original equipment manufacturers                and                retail consumer markets; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Engineered                Wire Products (“EWP”), located in Upper Sandusky, Ohio, manufactures and                sells welded wire reinforcement in both roll and sheet form that                is                utilized in concrete construction products including pipe, pre-cast                boxes                and applications for use in roadways, buildings and                bridges; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Keystone                Wire Products (“KWP”), located in Sherman, Texas, manufactures and sells                fabricated wire products to agricultural, industrial, construction,                commercial, original equipment manufacturers and retail consumer                markets;                and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Keystone-Calumet                (“Calumet”), located in Chicago Heights, Illinois, manufactures and sells                merchant and special bar quality products and special sections in                carbon                and alloy steel grades for use in agricultural, cold drawn, construction,                industrial chain, service centers, and transportation applications.                See                Note 2. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                |   | **Three                months ended****                   March 31,    ** |    |
|---------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|---------|
|                                                                |   | **2006**                                                                                                     |    | **2007** |   |
|                                                                |   | **(as                adjusted)**                                                                             |    |   |   |
|                                                                |   | **(In                thousands)**                                                                            |    |
|                                                                |   |                                                                                                         |    |   |   |
| Net                sales:                                           |   |                                                                                                         |    |   |   |   |   |
|   KSW                                                     |   | $                                                                                                            | 117,680 |   | **$** | **112,617** |   |
|   EWP                                                     |   |                                                                                                         | 12,618  |   |   | **10,977** |   |
|   KWP                                                     |   |                                                                                                         | 4,922   |   |   | **3,606** |   |
|   Calumet                                                 |   |                                                                                                         | -       |   |   | - |   |
|   Elimination                of intersegment sales:       |   |                                                                                                         |    |   |   |   |   |
|     KSW                                         |   |                                                                                                         | (12,590 | ) |   | **(10,524** | **)** |
|     KWP                                         |   |                                                                                                         | (3,515  | ) |   | **(3,578** | **)** |
|                                                                |   |                                                                                                         |    |   |   |   |   |
|      Total                net sales        |   | $                                                                                                            | 119,115 |   | **$** | **113,098** |   |
|                                                                |   |                                                                                                         |    |   |   |   |   |
| Operating                income:                                    |   |                                                                                                         |    |   |   |   |   |
|   KSW                                                     |   | $                                                                                                            | 8,090   |   | **$** | **966** |   |
|   EWP                                                     |   |                                                                                                         | 911     |   |   | **996** |   |
|   KWP                                                     |   |                                                                                                         | (57     | ) |   | **42** |   |
|   Calumet                                                 |   |                                                                                                         | -       |   |   | **(85** | **)** |
|   Pension                credit                           |   |                                                                                                         | 12,161  |   |   | **20,378** |   |
|   OPEB                credit                              |   |                                                                                                         | 2,100   |   |   | **2,200** |   |
|   Allocation                differences(1)                |   |                                                                                                         | 590     |   |   | **(88** | **)** |
|                                                                |   |                                                                                                         |    |   |   |   |   |
|      Total                operating income |   |                                                                                                         | 23,795  |   |   | **24,409** |   |
|                                                                |   |                                                                                                         |    |   |   |   |   |
| Nonoperating                income (expense):                       |   |                                                                                                         |    |   |   |   |   |
|   Corporate                expense                        |   |                                                                                                         | (270    | ) |   | **(178** | **)** |
|   Interest                expense                         |   |                                                                                                         | (1,202  | ) |   | **(1,197** | **)** |
|   Interest                and other income                |   |                                                                                                         | 2       |   |   | **198** |   |
|                                                                |   |                                                                                                         |    |   |   |   |   |
|   Income                before income taxes               |   | $                                                                                                            | 22,325  |   | **$** | **23,232** |   |

**Note      4 - Inventories, net:**

|                                                     |   | **December                31,**                    |   | **March                31,**           |   |
|----------------------------------------------------------|--------|----------------------------------------------------|--------|----------------------------------------|--------|
|                                                     |   | **    2006   ** |   | **   2007  ** |   |
|                                                     |   | **(In                thousands)**                  |   |
|                                                     |   |                                               |   |                                   |   |
|   Raw                materials                 |   | $                                                  | 9,735  |                                   | **$**  | **11,759** |   |
|   Work                in process               |   |                                               | 25,391 |                                   |   | **22,579** |   |
|   Finished                products             |   |                                               | 26,513 |                                   |   | **26,337** |   |
|   Supplies                                     |   |                                               | 18,283 |                                   |   | **19,945** |   |
|                                                     |   |                                               |   |                                   |   |   |   |
|     Inventory                at FIFO |   |                                               | 79,922 |                                   |   | **80,620** |   |
|     Less                LIFO reserve |   |                                               | 18,579 |                                   |   | **20,743** |   |
|                                                     |   |                                               |   |                                   |   |   |   |
|       Total                |   | $                                                  | 61,343 |                                   | **$**  | **59,877** |   |
|                                                     |   |                                               |   |                                   |   |   |   |

----

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

|                                                           |   | **December                31,**                    |   | **March                31,**           |   |
|----------------------------------------------------------------|--------|----------------------------------------------------|--------|----------------------------------------|--------|
|                                                           |   | **    2006   ** |   | **   2007  ** |   |
|                                                           |   | **(In                thousands)**                  |   |
|                                                           |   |                                               |   |                                   |   |
| Wachovia                revolving credit facility              |   | $                                                  | 17,734 |                                   | **$**  | **60,231** |   |
| 8%                Notes                                        |   |                                               | 25,740 |                                   |   | **17,424** |   |
| UC                Note                                         |   |                                               | 5,465  |                                   |   | **3,923** |   |
| Term                loans:                                     |   |                                               |   |                                   |   |   |   |
|   Wachovia                                           |   |                                               | 17,390 |                                   |   | **20,285** |   |
|   County                                             |   |                                               | 10,000 |                                   |   | **10,000** |   |
| Other                                                          |   |                                               | 119    |                                   |   | **897** |   |
|                                                           |   |                                               |   |                                   |   |   |   |
|     Total                debt              |   |                                               | 76,448 |                                   |   | **112,760** |   |
|     Less                current maturities |   |                                               | 43,699 |                                   |   | **85,384** |   |
|                                                           |   |                                               |   |                                   |   |   |   |
|     Total                long-term debt    |   | $                                                  | 32,749 |                                   | **$**  | **27,376** |   |

**Note      6 - Environmental matters and other commitments and      contingencies:**

**.**

----

|                                                             |   | **Three                months ended****    March                31,    ** |       |
|------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|------------|
|                                                             |   | **(In                thousands)**                                                                                 |       |
|                                                             |   |                                                                                                              |       |
| Balance                at December 31, 2006                      |   | **$**                                                                                                             | **13,252** |   |
| Expense                                                          |   |                                                                                                              | **-**      |   |
| Payments                                                         |   |                                                                                                              | **(18**    | ) |
|                                                             |   |                                                                                                              |       |   |
| Balance                at March 31, 2007                         |   | **$**                                                                                                             | **13,234** |   |
|                                                             |   |                                                                                                              |       |   |
| Amounts                classified at March 31, 2007 as:          |   |                                                                                                              |       |   |
|   Current                accrued environmental cost    |   | **$**                                                                                                             | **236**    |   |
|   Noncurrent                accrued environmental cost |   |                                                                                                              | **4,521**  |   |
|   Liabilities                subject to compromise     |   |                                                                                                              | **8,477**  |   |
|                                                             |   |                                                                                                              |       |   |
| Total                                                            |   | **$**                                                                                                             | **13,234** |   |

----

*Environmental      liabilities subject to compromise at March 31, 2007*

*Open      sites at March 31, 2007 that are no longer subject to compromise*

----

*Other      current litigation*

----

**Note      7 - Other accrued      liabilities:**

|                                                                          |   | **December                  31,**                        |   | **March                  31,**               |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                          |   | **    2006    ** |   | **   2007   ** |   |
|                                                                          |   | **(In                  thousands)**                      |   |
| Current:                                                                      |   |                                                     |   |                                         |   |   |   |
|   Employee                  benefits                                |   | $                                                        | 10,714 |                                         | **$**  | **9,873** |   |
|   Self                  insurance                                   |   |                                                     | 5,492  |                                         |   | **5,175** |   |
|   Pre-petition                  unsecured creditor settlement  |   |                                                     | 985    |                                         |   | **983** |   |
|   Environmental                                                     |   |                                                     | 250    |                                         |   | **236** |   |
|   Other                                                             |   |                                                     | 3,138  |                                         |   | **3,087** |   |
|                                                                          |   |                                                     |   |                                         |   |   |   |
| Total                                                                         |   | $                                                        | 20,579 |                                         | **$**  | **19,354** |   |
|                                                                          |   |                                                     |   |                                         |   |   |   |
| Noncurrent:                                                                   |   |                                                     |   |                                         |   |   |   |
|   Environmental                                                     |   | $                                                        | 4,521  |                                         | **$**  | **4,521** |   |
|   Workers                  compensation                             |   |                                                     | 1,785  |                                         |   | **1,737** |   |
|   Other                                                             |   |                                                     | 108    |                                         |   | **110** |   |
|                                                                          |   |                                                     |   |                                         |   |   |   |
| Total                                                                         |   | $                                                        | 6,414  |                                         | **$**  | **6,368** |   |

**Note      8 - Liabilities subject to compromise:**

|                                            |   | **December                31,**                          |   | **March                31,**           |   |
|-------------------------------------------------|--------|----------------------------------------------------------|--------|----------------------------------------|--------|
|                                            |   | **    2006    ** |   | **   2007  ** |   |
|                                            |   | **(In                thousands)**                        |   |
|                                            |   |                                                     |   |
| Environmental                                   |   | $                                                        | 8,481  |                                   | **$**  | **8,477** |   |
| Accounts                payable                 |   |                                                     | 789    |                                   |   | **789** |   |
| Disposition                of former facilities |   |                                                     | 442    |                                   |   | **448** |   |
| Other                                           |   |                                                     | 4,300  |                                   |   | **4,252** |   |
|                                            |   |                                                     |   |                                   |   |   |   |
| Total                                           |   | $                                                        | 14,012 |                                   | **$**  | **13,966** |   |

**Note      9 - Employee benefit plans:**

|                                                                              |   | **Three                months ended****                     March 31,    ** |    |
|-----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|---------|
|                                                                              |   | **  ****2006****  **                                                                            |    | **  ****2007****  ** |   |
|                                                                              |   | **(In                thousands)**                                                                                   |    |
| Service                cost                                                       |   | $                                                                                                                   | 959     |   | **$** | **969** |   |
| Interest                cost                                                      |   |                                                                                                                | 5,106   |   |   | **5,267** |   |
| Expected                return on plan assets                                     |   |                                                                                                                | (16,863 | ) |   | **(23,012** | **)** |
| Amortization                of accumulated other comprehensive  income: |   |                                                                                                                |    |   |   |   |   |
|   Prior                service cost                                     |   |                                                                                                                | 227     |   |   | **306** |   |
|   Actuarial                gains                                        |   |                                                                                                                | (1,590  | ) |   | **(3,908** | **)** |
|                                                                              |   |                                                                                                                |    |   |   |   |   |
| Total                                                                             |   | $                                                                                                                   | (12,161 | ) | **$** | **(20,378** | **)** |

----

|                                                                              |   | **Three                months ended****     March                31,   ** |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                              |   | **2006**                                                                                                          |   | **2007** |   |
|                                                                              |   | **(In                thousands)**                                                                                 |   |
|                                                                              |   |                                                                                                              |   |   |   |
| Service                cost                                                       |   | $                                                                                                                 | 63     |   | **$** | **61** |   |
| Interest                cost                                                      |   |                                                                                                              | 495    |   |   | **480** |   |
| Amortization                of accumulated other comprehensive  income: |   |                                                                                                              |   |   |   |   |   |
|   Prior                service credit                                   |   |                                                                                                              | (4,327 | ) |   | **(4,411** | **)** |
|   Actuarial                losses                                       |   |                                                                                                              | 1,669  |   |   | **1,670** |   |
|                                                                              |   |                                                                                                              |   |   |   |   |   |
| Total                                                                             |   | $                                                                                                                 | (2,100 | ) | **$** | **(2,200** | **)** |

**Note      10 - Provision for income taxes:**

|                                                     |   | **Three                months ended**                                                          |   |
|----------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|
|                                                     |   | **      March                31,     ** |   |
|                                                     |   | **2006**                                                                                       |   | **2007** |   |
|                                                     |   | **(as                adjusted)**                                                               |   |   |   |
|                                                     |   | **(In                thousands)**                                                              |   |
|                                                     |   |                                                                                           |   |   |   |
| Expected                tax provision, at statutory rate |   | $                                                                                              | 7,815  |   | **$** | **8,130** |   |
| U.S.                state income taxes, net              |   |                                                                                           | 797    |   |   | **623** |   |
| Deferred                tax asset valuation allowance    |   |                                                                                           | (8,595 | ) |   | **-** |   |
| Other,                net                                |   |                                                                                           | 70     |   |   | **15** |   |
|                                                     |   |                                                                                           |   |   |   |   |   |
| Provision                for income taxes                |   | $                                                                                              | 89     |   | **$** | **8,768** |   |
|                                                     |   |                                                                                           |   |   |   |   |   |

**Note      11 - Recent Accounting Pronouncements:**

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

----

*Planned      Major Maintenance Activities*
**      - **
*Accounting      for Planned Major Maintenance Activities*

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

----

**ITEM      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND**

**RESULTS      OF      OPERATIONS                                                                                                                                                                                                                                                                            **

| ·   | Future                supply and demand for our products (including cyclicality                thereof), |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | Customer                inventory levels, |
|--------------------|-------------------------------------------|

| ·   | Changes                in raw material and other operating costs (such as ferrous scrap                and                energy) |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                possibility of labor disruptions, |
|--------------------|------------------------------------------------------|

| ·   | General                global economic and political conditions, |
|--------------------|------------------------------------------------------------------|

| ·   | Competitive                products and substitute products, |
|--------------------|--------------------------------------------------------------|

| ·   | Customer                and competitor strategies, |
|--------------------|----------------------------------------------------|

| ·   | The                impact of pricing and production decisions, |
|--------------------|----------------------------------------------------------------|

| ·   | Environmental                matters (such as those requiring emission and discharge standards                for                existing and new facilities), |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Government                regulations and possible changes therein, |
|--------------------|---------------------------------------------------------------------|

| ·   | Significant                increases in the cost of providing medical coverage to employees, |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | The                ultimate resolution of pending litigation, |
|--------------------|---------------------------------------------------------------|

| ·   | International                trade policies of the United States and certain foreign countries, |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Operating                interruptions (including, but not limited to, labor disputes, fires,                explosions, unscheduled or unplanned downtime and transportation                interruptions), |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                ability to renew or refinance credit                facilities, |
|--------------------|------------------------------------------------------------------------------------|

| ·   | Any                possible future litigation, and |
|--------------------|----------------------------------------------------|

| ·   | Other                risks and uncertainties as discussed in this Quarterly Report and                the 2006                Annual Report, including, without limitation, the section referenced                above. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**RESULTS      OF OPERATIONS**

**Business      Overview**

----

|                                                      |   | ** Three                months ended**** ****      March                31,      ** |    |
|-----------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                      |   | **2006**                                                                                                                                                  |    | **2007** |   |
|                                                      |   | **(In                thousands)**                                                                                                                         |    |
| Operating                income as reported               |   | $                                                                                                                                                         | 23,795  |   | **$** | **24,409** |   |
|   Defined                benefit pension credit |   |                                                                                                                                                      | (12,161 | ) |   | **(20,378** | **)** |
|   OPEB                credit                    |   |                                                                                                                                                      | (2,100  | ) |   | **(2,200** | **)** |
| Operating                income before pension and OPEB   |   | $                                                                                                                                                         | 9,534   |   | **$** | **1,831** |   |

| ·   | lower                shipment volumes of wire rod due to unusually cold weather impeding                our                ability to ship by barge during 2007 and exceptionally high demand                during                2006 due to competitor production problems that were resolved during                the                fourth quarter of 2006; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | increased                costs for ferrous scrap; |
|--------------------|---------------------------------------------------|
| ·   | increased                costs for electricity due to deregulation on January 1, 2007, following                a                ten year rate freeze in Illinois (where our largest manufacturing                facility                is located); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | increased                costs for zinc; |
|--------------------|------------------------------------------|
| ·   | higher                selling prices primarily in reaction to the increased costs for ferrous                scrap; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|
| ·   | lower                costs for natural gas. |
|--------------------|---------------------------------------------|

----

|                                                 |   | **Three                months ended****     March                31,    ** |   |
|------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
|                                                 |   | **2006**                                                                                                                |   | **2007** |   |
|                                                 |   |                                                                                                                    |   |
|                                                 |   |                                                                                                                    |   |   |   |
|                                                 |   |                                                                                                                    |   |   |   |
| Sales                volume(000 tons):               |   |                                                                                                                    |   |   |   |   |   |
|   Fabricated                wire products  |   |                                                                                                                    | 34     |   |   | **34** |   |
|   Welded                wire reinforcement |   |                                                                                                                    | 15     |   |   | **12** |   |
|   Nails                                    |   |                                                                                                                    | 5      |   |   | - |   |
|   Industrial                wire           |   |                                                                                                                    | 18     |   |   | **23** |   |
|   Coiled                Rebar              |   |                                                                                                                    | -      |   |   | **6** |   |
|   Bars                and shapes           |   |                                                                                                                    | -      |   |   | **-** |   |
|   Wire                rod                  |   |                                                                                                                    | 103    |   |   | **86** |   |
|   Billets                                  |   |                                                                                                                    | 10     |   |   | **-** |   |
|     Total                        |   |                                                                                                                    | 185    |   |   | **161** |   |
|                                                 |   |                                                                                                                    |   |   |   |   |   |
|                                                 |   |                                                                                                                    |   |   |   |   |   |
| Per-ton                selling prices:               |   |                                                                                                                    |   |   |   |   |   |
|   Fabricated                wire products  |   | $                                                                                                                       | 1,029  |   | **$** | **1,068** |   |
|   Welded                wire reinforcement |   |                                                                                                                    | 876    |   |   | **879** |   |
|   Nails                                    |   |                                                                                                                    | 697    |   |   | **754** |   |
|   Industrial                wire           |   |                                                                                                                    | 718    |   |   | **733** |   |
|   Coiled                Rebar              |   |                                                                                                                    | -      |   |   | **526** |   |
|   Bars                and shapes           |   |                                                                                                                    | -      |   |   | **-** |   |
|   Wire                rod                  |   |                                                                                                                    | 490    |   |   | **517** |   |
|   Billets                                  |   |                                                                                                                    | 346    |   |   | **132** |   |
|   All                products              |   |                                                                                                                    | 639    |   |   | **693** |   |

*Outlook      for 2007*

| ·   | lower                shipment volume due to a 52-week year in 2007 as compared to a 53-week                year in 2006, the decision to discontinue our nail business and the                use of                a higher percentage of our billets and wire rod in our downstream                businesses, partially offset by increased shipment volumes of fabricated                wire products and welded wire reinforcement (resulting from an expansion                project at EWP) and the addition of the Calumet                operations; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | increased                overall per-ton selling price; |
|--------------------|---------------------------------------------------------|

| ·   | higher                ferrous scrap costs; |
|--------------------|--------------------------------------------|

| ·   | increased                energy costs as a result of the January 1, 2007 deregulation of                electricity in Illinois following a ten year rate freeze; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | lower                conversion costs as a result of the rod mill reheat furnace overhaul                during the fourth quarter of 2006; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | higher                depreciation expense related to the expansion project at EWP, the                new                reheat furnace at KSW and the Calumet acquisition; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | lower                costs as a result of the relocation of KWP’s industrial wire manufacturing                operations to KSW and the discontinuance of nail operations;                and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | additional                costs due to the acquisition of the Calumet operations that will                likely                result in a relatively small contribution to 2007 operating income                before                pension and OPEB. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | higher                defined benefit pension credit in                2007; |
|--------------------|------------------------------------------------------------------------------|

| ·   | increased                interest expense in 2007 due, in part, to the additional financing                obtained for the Calumet acquisition;                and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                provision for income taxes that more approximates the statutory rate                in                2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

**Segment      Operating Results:**

| ·   | Keystone                Steel and Wire (“KSW”), located in Peoria, Illinois, operates an electric                arc furnace mini-mill and manufactures and sells wire rod, industrial                wire, nails, coiled rebar and fabricated wire products to agricultural,                industrial, construction, commercial, original equipment manufacturers                and                retail consumer markets; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Engineered                Wire Products (“EWP”), located in Upper Sandusky, Ohio, manufactures and                sells welded wire reinforcement in both roll and sheet form that                is                utilized in concrete construction products including pipe, pre-cast                boxes                and applications for use in roadways, buildings and bridges; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Keystone                Wire Products (“KWP”), located in Sherman, Texas, manufactures and sells                fabricated wire products to agricultural, industrial, construction,                commercial, original equipment manufacturers and retail consumer                markets. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Keystone-Calumet,                Inc. (“Calumet”), located in Chicago Heights, Illinois, manufactures and                sells merchant and special bar quality products and special sections                in                carbon and alloy steel grades for use in agricultural, cold drawn,                construction, industrial chain, service centers, and transportation                applications. See Note 2 to our Condensed Consolidated Financial                Statements. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                            |   |   **KSW**               |        |   **EWP** |   |  **Sherman/****  KWP  ** |   | **Allocation****differences/****eliminations****(1)** |      |   **Total** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------|---------------------|--------|---------------------------------------------------|--------|-------------------------------------------------------|-----------|-----------------------|--------|
|                                                                                            |   | **(In                thousands)** |        |
| Three                months ended March 31, 2006:                                               |   |
|                                                                                            |   |                              |        |                |   |                                              |   |                                                  |      |                  |   |
|  Net                sales                                                                  |   | $                                 | 117,680     |                | $      | 12,618                                            |   | $                                                     | 4,922     |                  | $      | (16,105 | ) | $ | 119,115 |   |
|  Cost                of goods sold                                                         |   |                              | 106,206     |                |   | 10,724                                            |   |                                                  | 4,803     |                  |   | (16,701 | ) |   | 105,032 |   |
|    Gross                margin                                                   |   |                              | 11,474      |                |   | 1,894                                             |   |                                                  | 119       |                  |   | 596 |   |   | 14,083 |   |
|                                                                                            |   |                              |        |                |   |                                              |   |                                                  |      |                  |   |   |   |   |   |   |
|  Selling                and    administrative                expense        |   |                              | 3,384       |                |   | 983                                               |   |                                                  | 176       |                  |   | 6 |   |   | 4,549 |   |
|  Operating                profit (loss) before                pension/OPEB            |   | $                                 | 8,090       |                | $      | 911                                               |   | $                                                     | (57       | )                     | $      | 590 |   | $ | 9,534 |   |
|                                                                                            |   |                              |        |                |   |                                              |   |                                                  |      |                  |   |   |   |   |   |   |
| **Three                months ended March 31, 2007:**                                           |
|                                                                                            |
| ** Net                sales**                                                              |   | **$**                             | **112,617** |                | **$**  | **10,977**                                        |   | **$**                                                 | **3,606** |                  | **$**  | **(14,102** | **)** | **$** | **113,098** |   |
| ** Cost                of goods sold**                                                     |   |                              | **108,121** |                |   | **9,128**                                         |   |                                                  | **3,455** |                  |   | **(13,973** | **)** |   | **106,731** |   |
| **   Gross                margin**                                               |   |                              | **4,496**   |                |   | **1,849**                                         |   |                                                  | **151**   |                  |   | **(129** | **)** |   | **6,367** |   |
|                                                                                            |   |                              |        |                |   |                                              |   |                                                  |      |                  |   |   |   |   |   |   |
| ** Selling                and****   administrative                expense** |   |                              | **3,530**   |                |   | **853**                                           |   |                                                  | **109**   |                  |   | **44** |   |   | **4,536** |   |
| ** Operating                profit (loss)**** before                pension/OPEB**    |   | **$**                             | **966**     |                | **$**  | **996**                                           |   | **$**                                                 | **42**    |                  | **$**  | **(173** | **)** | **$** | **1,831** |   |
|                                                                                            |   |                              |        |                |   |                                              |   |                                                  |      |                  |   |   |   |   |   |   |

** **

----

*Keystone      Steel & Wire*

|                                                                                    |   | ** ****      Three                months ended March                31,     ** |    |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                    |   |  **2006**                                                                                                                             |    | **%                of****sales** |   |  **2007** |   | **%                of****Sales** |   |
|                                                                                    |   | **($                in thousands)**                                                                                                        |    |
|                                                                                    |   |                                                                                                                                       |    |   |   |   |   |   |   |
| Net                sales                                                                |   | $                                                                                                                                          | 117,680 |   |   | 100.0 | % | **$** | **112,617** |   |   | **100.0** | **%** |
| Cost                of goods sold                                                       |   |                                                                                                                                       | 106,206 |   |   | 90.2 |   |   | **108,121** |   |   | **96.0** |   |
|   Gross                margin                                                 |   |                                                                                                                                       | 11,474  |   |   | 9.8 |   |   | **4,496** |   |   | **4.0** |   |
|                                                                                    |   |                                                                                                                                       |    |   |   |   |   |   |   |   |   |   |   |
| Selling                and administrative expense                                       |   |                                                                                                                                       | 3,384   |   |   | 2.9 |   |   | **3,530** |   |   | **3.1** |   |
|   Operating                income before pension                and OPEB |   | $                                                                                                                                          | 8,090   |   |   | 6.9 | % | **$** | **966** |   |   | **0.9** | **%** |

|                                                                                  |   | **Three                months ended****     March                31,    ** |   |
|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                  |   | **2006**                                                                                                                |   | **2007** |   |
| Sales                volume(000 tons):                                                |   |                                                                                                                    |   |   |   |   |   |
|   Fabricated                wire products                                   |   |                                                                                                                    | 34     |   |   | **34** |   |
|   Nails                                                                     |   |                                                                                                                    | 5      |   |   | - |   |
|   Industrial                wire                                            |   |                                                                                                                    | 16     |   |   | **26** |   |
|   Coiled                rebar                                               |   |                                                                                                                    | -      |   |   | **6** |   |
|   Wire                rod                                                   |   |                                                                                                                    | 130    |   |   | **101** |   |
|   Billets                                                                   |   |                                                                                                                    | 10     |   |   | - |   |
|   Total                sales                                                |   |                                                                                                                    | 195    |   |   | **167** |   |
|                                                                                  |   |                                                                                                                    |   |   |   |   |   |
|                                                                                  |   |                                                                                                                    |   |   |   |   |   |
| Per-ton                selling prices:                                                |   |                                                                                                                    |   |   |   |   |   |
|   Fabricated                wire products                                   |   | $                                                                                                                       | 1,029  |   | **$** | **1,070** |   |
|   Nails                                                                     |   |                                                                                                                    | 697    |   |   | **754** |   |
|   Industrial                wire                                            |   |                                                                                                                    | 723    |   |   | **710** |   |
|   Coiled                rebar                                               |   |                                                                                                                    | -      |   |   | **526** |   |
|   Wire                rod                                                   |   |                                                                                                                    | 483    |   |   | **526** |   |
|   Billets                                                                   |   |                                                                                                                    | 346    |   |   | **132** |   |
|   All                products                                               |   |                                                                                                                    | 596    |   |   | **667** |   |
|                                                                                  |   |                                                                                                                    |   |   |   |   |   |
| Average                per-ton ferrous   scrap                purchase cost |   | $                                                                                                                       | 205    |   | **$** | **224** |   |
|                                                                                  |   |                                                                                                                    |   |   |   |   |   |
| Average                electricity  cost                per kilowatt hour   |   | $                                                                                                                       | 0.03   |   | **$** | **0.05** |   |
|                                                                                  |   |                                                                                                                    |   |   |   |   |   |
| Average                natural gas cost                per therm                 |   | $                                                                                                                       | 0.95   |   | **$** | **0.78** |   |

----

*Engineered      Wire Products*

|                                                                                    |   | **    Three                months ended March 31,    ** |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|
|                                                                                    |   |  **2006**                                                                                  |   | **%                of****sales** |   |  **2007** |   | **%                of****sales** |   |
|                                                                                    |   | **($                in thousands)**                                                             |   |
|                                                                                    |   |                                                                                            |   |   |   |   |   |   |   |
| Net                sales                                                                |   | $                                                                                               | 12,618 |   |   | 100.0 | % | **$** | **10,977** |   |   | **100.0** | **%** |
| Cost                of goods sold                                                       |   |                                                                                            | 10,724 |   |   | 85.0 |   |   | **9,128** |   |   | **83.2** |   |
|   Gross                margin                                                 |   |                                                                                            | 1,894  |   |   | 15.0 |   |   | **1,849** |   |   | **16.8** |   |
|                                                                                    |   |                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Selling                and administrative expense                                       |   |                                                                                            | 983    |   |   | 7.8 |   |   | **853** |   |   | **7.8** |   |
|   Operating                income before pension                and OPEB |   | $                                                                                               | 911    |   |   | 7.2 | % | **$** | **996** |   |   | **9.0** | **%** |

|                                                                                         |   | **Three                months ended****    March                31,    ** |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                         |   | **2006**                                                                                                          |   | **2007** |   |
|                                                                                         |   |                                                                                                              |   |   |   |
| Sales                volume (000 tons) -  Welded                wire reinforcement |   |                                                                                                              | 15     |   |   | **12** |   |
|                                                                                         |   |                                                                                                              |   |   |   |   |   |
| Per-ton                selling prices -  Welded                wire reinforcement  |   | $                                                                                                                 | 876    |   | **$** | **879** |   |
|                                                                                         |   |                                                                                                              |   |   |   |   |   |
| Average                per-ton wire rod  purchase                cost              |   | $                                                                                                                 | 491    |   | **$** | **515** |   |

----

*Keystone        Wire Products*

|                                                                                           |   | **     Three                months ended March                31,     ** |   |
|------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                           |   |  **2006**                                                                                                             |   | **%                of****sales** |   |  **2007** |   | **%                of****sales** |   |
|                                                                                           |   | **($                in thousands)**                                                                                        |   |
|                                                                                           |   |                                                                                                                       |   |   |   |   |   |   |   |
| Net                sales                                                                       |   | $                                                                                                                          | 4,922  |   |   | 100.0 | % | **$** | **3,606** |   |   | **100.0** | **%** |
| Cost                of goods sold                                                              |   |                                                                                                                       | 4,803  |   |   | 97.6 |   |   | **3,455** |   |   | **95.8** |   |
|   Gross                margin                                                        |   |                                                                                                                       | 119    |   |   | 2.4 |   |   | **151** |   |   | **4.2** |   |
|                                                                                           |   |                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Selling                and administrative expense                                              |   |                                                                                                                       | 176    |   |   | 3.6 |   |   | **109** |   |   | **3.0** |   |
|   Operating                profit (loss) before pension                and OPEB |   | $                                                                                                                          | (57    | ) |   | (1.2 | )% | **$** | **42** |   |   | **1.2** | **%** |

|                                                                             |   | **Three                months ended**** ****     March                31,       ** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                             |   | **2006**                                                                                                                                            |   | **2007** |   |
| Sales                volume(000 tons):                                           |   |                                                                                                                                                |   |   |   |   |   |
|   Fabricated                wire products                              |   |                                                                                                                                                | 3      |   |   | **3** |   |
|   Industrial                wire                                       |   |                                                                                                                                                | 2      |   |   | **-** |   |
|   Total                sales                                           |   |                                                                                                                                                | 5      |   |   | **3** |   |
|                                                                             |   |                                                                                                                                                |   |   |   |   |   |
| Per-ton                selling prices:                                           |   |                                                                                                                                                |   |   |   |   |   |
|   Fabricated                wire products                              |   | $                                                                                                                                                   | 1,008  |   | **$** | **1,198** |   |
|   Industrial                wire                                       |   |                                                                                                                                                | 670    |   |   | **786** |   |
|                                                                             |   |                                                                                                                                                |   |   |   |   |   |
| Average                per-ton wire rod purchase                cost        |   | $                                                                                                                                                   | 431    |   | **$** | **-** |   |
|                                                                             |   |                                                                                                                                                |   |   |   |   |   |
| Average                per-ton industrial wire purchase                cost |   | $                                                                                                                                                   | -      |   | **$** | **873** |   |
|                                                                             |   |                                                                                                                                                |   |   |   |   |   |

**Pension      Credits**

----

**Provision      for Income Taxes**

**LIQUIDITY      AND CAPITAL RESOURCES**

**Working      Capital and Borrowing Availability**

|                                                |   | **   December                31,  **  |   | **March                31,** |   |
|-----------------------------------------------------|--------|----------------------------------------------------------------|--------|------------------------------|--------|
|                                                |   | **     2006    ** |   | **  2007 **   |   |
|                                                |   | **  (In                thousands)**                  |   |
|                                                |   |                                                           |   |                         |   |
| Working                capital                      |   | $                                                              | 31,776 |                         | **$**  | **17,826** |   |
| Revolving                credit facility            |   |                                                           | 17,734 |                         |   | **60,231** |   |
| Current                maturities of long-term debt |   |                                                           | 25,965 |                         |   | **25,153** |   |
|                                                |   |                                                           |   |                         |   |   |   |
| Borrowing                availability               |   |                                                           | 23,697 |                         |   | **12,549** |   |

** **

----

**Historical      Cash Flows**

*Operating      Activities*

| ·   | lower                operating income before pension/OPEB in 2007; |
|--------------------|--------------------------------------------------------------------|

| ·   | lower                reorganization costs of $2.9 million paid in                2007; |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | higher                net cash used due to relative changes in our accounts receivable                in 2007                of $24.8 million primarily due to a significant increase in March                2007                sales as compared to March 2006 sales and an abnormally high accounts                receivable balance at December 31, 2005 as a result of exceptional                demand                during the third and fourth quarters of 2005 (the seasonality of                our                business generally results in a significant increase in accounts                receivable during the first quarter of each                year); |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | higher                net cash generated from relative changes in our inventory in 2007                of $8.0                million due to production shutdowns during 2007 to better manage                inventory                levels considering less demand in January and February of 2007 (the                seasonality of our business generally results in a moderate increase                in                inventory during the first quarter of each year as late spring demand                depletes some of the inventories built during the fourth and first                quarters); and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | net                cash generated from accounts payable during the first quarter of                2007 as                we continue to obtain credit terms with suppliers following our emergence                from Chapter 11 in August 2005. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Investing      Activities *

*Financing      Activities *

----

**Commitments      and Contingencies**
* *

**Pension      and Other Postretirement Obligations**

**Income      Taxes**

**Off-balance      Sheet Financing Arrangements **

**Liquidity      Outlook**

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES**

----

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET      RISK**

**ITEM      4T. CONTROLS AND PROCEDURES**

*Evaluation      of Disclosure Controls and Procedures*

*Internal      Control Over Financial Reporting*

*Changes      in Internal Control Over Financial Reporting*

----

**PART      II. OTHER INFORMATION**

**ITEM      1. Legal Proceedings.**

**ITEM      1A. Risk Factors.**

**ITEM      6. Exhibits.**

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

|   | 31.1 | Certification. |
|--------|------|----------------|

|   | 31.2 | Certification. |
|--------|------|----------------|

|   | 32.1 | Certification. |
|--------|------|----------------|

|   |                  4.1 | First                Amendment to Loan Agreement dated as of April 4, 2007 by and between                Registrant and the County of Peoria,                Illinois. |
|--------|---------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SIGNATURES**

| Date:                May                14, 2007 | By:                     /s/                Bert E. Downing,                Jr.                                                                                                                                Bert                E. Downing, Jr.Vice                President, Chief Financial Officer, Corporate                Controller and Treasurer |
|--------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----