SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

For the quarterly period September 30, 2005

Commission file number 1-3919


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


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

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


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

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

                           Yes                                No   X

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

                           Yes                                No   X

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

Number of shares of common stock outstanding at March 31, 2006: 10,000,000



<PAGE>



                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


                                                                        Page
                                                                       number

PART I.      FINANCIAL INFORMATION

  Item 1.  Financial Statements

    Consolidated Balance Sheets - December 31, 2004;
     and September 30, 2005 (Unaudited)                                  3-4

    Consolidated Statements of Operations - Three months
     and nine months ended September 30, 2004 and 2005 (Unaudited)         5

    Consolidated Statements of Cash Flows - Nine months
     ended September 30, 2004 and 2005 (Unaudited)                         6

    Consolidated Statement of Stockholders' Equity
      - Nine months ended September 30, 2005 (Unaudited)                   7

    Notes to Consolidated Financial Statements (Unaudited)              8-29

  Item 2.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                 30-44

  Item 4.         Controls and Procedures                              45-46


PART II. OTHER INFORMATION

  Item 1.         Legal Proceedings                                       47

  Item 6.         Exhibits                                                47

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            December 31,       September 30,
                                 ASSETS                                         2004                2005
                                                                            ------------       --------------
                                                                             (Restated)

 Current assets:
<S>                                                                              <C>                <C>
   Notes and accounts receivable                                                 $ 26,729           $ 42,216
   Inventories                                                                     53,017             60,454
   Restricted investments                                                           5,373              5,470
   Prepaid expenses and other                                                       2,017              3,384
                                                                                 --------           --------

      Total current assets                                                         87,136            111,524
                                                                                 --------           --------

 Property, plant and equipment                                                    369,036            370,220
 Less accumulated depreciation                                                    275,003            283,131
                                                                                 --------           --------

      Net property, plant and equipment                                            94,033             87,089
                                                                                 --------           --------

 Other assets:
   Restricted investments                                                           5,965              6,283
   Prepaid pension cost                                                           133,443            143,119
   Deferred financing costs                                                         1,226                985
   Goodwill                                                                           752                752
   Other                                                                              727                277
                                                                                 --------           --------

      Total other assets                                                          142,113            151,416
                                                                                 --------           --------

                                                                                 $323,282           $350,029
                                                                                 ========           ========
</TABLE>


<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                            December 31,         September 30,
                                                                                 2004                2005
                                                                            ------------         -------------
                                                                             (Restated)


 Current liabilities:
   Notes payable and current maturities of
<S>                                                                             <C>                  <C>
     long-term debt                                                             $  51,640            $ 30,691
   Accounts payable                                                                 3,801               6,053
   Accounts payable to affiliates                                                     821                   -
   Accrued OPEB cost                                                                    -               7,254
   Other accrued liabilities                                                       18,964              37,751
                                                                                ---------            --------

       Total current liabilities                                                   75,226              81,749
                                                                                ---------            --------

 Noncurrent liabilities:
   Long-term debt                                                                  14,345              59,094
   Accrued OPEB cost                                                               13,478             136,466
   Other                                                                              988               4,603
                                                                                ---------            --------

       Total noncurrent liabilities                                                28,811             200,163
                                                                                ---------            --------

 Liabilities subject to compromise                                                212,346              10,649
                                                                                ---------            --------

 Redeemable Series A preferred stock                                                2,112                -
                                                                                ---------            --------

 Stockholders' equity:
   Common stock                                                                    10,798                 100
   Additional paid-in capital                                                      41,225              75,423
   Accumulated deficit                                                            (47,224)            (18,055)
   Treasury stock, at cost                                                            (12)               -
                                                                                ---------            --------

       Total stockholders' equity                                                   4,787              57,468
                                                                                ---------            --------

                                                                                $ 323,282            $350,029
                                                                                =========            ========
</TABLE>




Commitments and contingencies (Notes 11 and 12).


         See accompanying notes to consolidated financial statements.

<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                         Three months ended             Nine months ended
                                                           September 30,                   September 30,
                                                        ------------------------        -----------------------
                                                          2004            2005           2004            2005
                                                        --------        --------        ------          -------

<S>                                                     <C>             <C>             <C>            <C>
 Net sales                                              $112,505        $ 84,770        $281,509       $263,299
 Cost of goods sold                                       92,540          75,854         244,268        247,370
                                                        --------        --------        --------       --------
   Gross margin                                           19,965           8,916          37,241         15,929
                                                        --------        --------        --------       --------

 Selling expense                                           1,638           1,630           4,347          4,647
 General and administrative
  expense                                                  2,881           3,050           8,305          8,460
 Defined benefit pension credit                           (1,500)         (3,226)         (4,500)        (9,675)
                                                        --------        --------        --------       --------

                                                           3,019           1,454           8,152          3,432
                                                        --------        --------        --------       --------

 Operating income                                         16,946           7,462          29,089         12,497
                                                        --------        --------        --------       --------

 General corporate income
  (expense):
   Corporate expense                                      (1,134)           (566)         (2,639)        (2,757)
   Interest expense                                         (874)         (1,040)         (2,899)        (2,816)
   Interest income                                            85             138             117            220
   Other income, net                                          56             167              73            271
                                                        --------        --------        --------       --------

                                                          (1,867)         (1,301)         (5,348)        (5,082)
                                                        --------        --------        --------       --------

       Income before income taxes
        and reorganization items                          15,079           6,161          23,741          7,415
                                                        --------        --------        --------       --------

 Reorganization items:
   Reorganization costs                                   (3,257)         (4,342)         (8,276)       (10,323)
   Gain on cancellation of debt                             -             32,349            -            32,349
                                                        --------        --------        --------       --------

                                                          (3,257)         28,007          (8,276)        22,026
                                                        --------        --------        --------       --------

   Income before income taxes                             11,822          34,168          15,465         29,441

 Provision for income taxes                                  935              64           1,223            272
                                                        --------        --------        --------       --------

       Net income                                         10,887          34,104          14,242         29,169

 Dividends on preferred stock                               -               -              1,223           -
                                                        --------        --------        --------       --------

 Net income available for
  common shares                                         $ 10,887        $ 34,104        $ 13,019       $ 29,169
                                                        ========        ========        ========       ========

 Basic income per share available
  for common shares                                     $   1.08        $   3.61        $   1.29       $   3.11
                                                        ========        ========        ========       ========

 Basic shares outstanding                                 10,068          10,046          10,068         10,061
                                                        ========        ========        ========       ========

 Diluted income per share available
  for common shares                                     $    .39        $   1.64        $    .51       $   1.20
                                                        ========        ========        ========       ========

 Diluted shares outstanding                               28,043          22,029          28,043         26,039
                                                        ========        ========        ========       ========
</TABLE>

       See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                           Nine months ended
                                                                                             September 30,
                                                                                       ------------------------
                                                                                         2004            2005
                                                                                       --------         -------

 Cash flows from operating activities:
<S>                                                                                    <C>             <C>
   Net income                                                                          $ 14,242        $ 29,169
   Depreciation and amortization                                                         11,840          11,775
   Amortization of deferred financing costs                                                 640             604
   Non-cash defined benefit pension credit                                               (4,500)         (9,675)
   Non-cash OPEB expense                                                                 13,641           6,817
   Reorganization costs accrued                                                           8,276          10,322
   Reorganization costs paid                                                             (4,589)         (7,639)
   Gain on cancellation of debt                                                               -         (32,349)
   Other, net                                                                               108              19
   Change in assets and liabilities:
     Notes and accounts receivable                                                      (31,603)        (15,541)
     Inventories                                                                        (21,348)         (7,437)
     Accounts payable                                                                    12,807             720
     Other, net                                                                           5,604          (5,126)
                                                                                       --------        --------

       Net cash provided (used) by operating activities                                   5,118         (18,341)
                                                                                       --------        --------

 Cash flows from investing activities:
   Capital expenditures                                                                  (1,902)         (6,057)
   Collection of notes receivable                                                            75              75
   Restricted investments                                                               (10,686)           (415)
   Other, net                                                                                75           1,261
                                                                                       --------        --------

       Net cash used by investing activities                                            (12,438)         (5,136)
                                                                                       --------        --------

 Cash flows from financing activities:
   Revolving credit facilities, net                                                      (6,268)         17,451
   Other notes payable and long-term debt:
     Additions                                                                           16,028          22,553
     Principal payments                                                                  (1,876)        (16,004)
   Deferred financing costs paid                                                           (564)           (523)
                                                                                       --------        --------

       Net cash provided by financing activities                                          7,320          23,477
                                                                                       --------        --------

 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                                               $  1,834        $  2,255
     Income taxes, net                                                                    $   -        $    680
   Common stock issued in exchange for extinguishment
    of certain prepetition unsecured and DIP claims                                       $   -        $ 21,400
   Note issued in exchange for extinguishment of
    certain prepetition unsecured claims                                                  $   -        $  4,800
</TABLE>

       See accompanying notes to consolidated financial statements.

<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                      Nine months ended September 30, 2005
                                 (In thousands)
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                         Additional
                                             Common        paid-in        Accumulated       Treasury
                                              stock        capital          deficit           stock            Total
                                              -----        -------        -----------       ---------          -----

<S>                                        <C>            <C>              <C>                 <C>             <C>
 Balance - December 31, 2004               $10,798        $41,225          $(47,224)           $(12)           $ 4,787

 Net income                                   -              -               29,169              -              29,169

 Cancellation of common stock              (10,798)        10,786               -                12               -

 Cancellation of Series A
  Preferred Stock                                -          2,112               -                 -              2,112

 Issuance of common stock                      100         21,300               -                 -             21,400
                                           -------        -------          --------            ----            -------

 Balance - September 30, 2005              $   100        $75,423          $(18,055)           $  -            $57,468
                                           =======        =======          ========            ====            =======
</TABLE>

       See accompanying notes to consolidated financial statements.


<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - Restatement, organization and basis of presentation:

Restatement.

     In connection with finalizing the preparation of the Company's consolidated
financial  statements  for  the  year  ended  December  31,  2005,  the  Company
determined  that cash  overdrafts,  which  currently  are financed by borrowings
under the Company's revolving credit facility,  and cash receipts which would be
applied against the revolving  credit  facility,  were improperly  classified as
part of accounts payable.  Under accounting principles generally accepted in the
United  States of  America  ("GAAP"),  such  cash  overdrafts  should  have been
classified as part of the current  portion of long-term  debt. In addition,  the
relative  changes  in such  cash  overdrafts  were  improperly  included  in the
determination of cash flows from operating activities,  while under GAAP changes
in such cash overdrafts  should have been included in the  determination of cash
flows from financing activities.

     Accordingly,  the Company has restated its  consolidated  balance  sheet at
December 31, 2004, as contained in this Form 10-Q,  to reflect this  correction.
The $2.7  million  adjustment  to the  2004  balance  sheet is a result  of $3.8
million of cash receipts net of $1.1 million of cash overdrafts.

     The following table shows (i) selected  consolidated  financial  statements
data as of December 31, 2004, as previously  reported,  (ii) adjustments to such
consolidated  financial statement data to reflect the effect of this restatement
and (iii) such consolidated financial statement data, as restated.

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                    SELECTED CONSOLIDATED BALANCE SHEET DATA
                                December 31, 2004
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                December 31, 2004
                                                              ---------------------------------------------------
                                                              Previously
                                                               Reported           Adjustments         As restated
                                                              -----------         -----------         -----------

Selected balance sheet items:

Notes payable and current maturities
<S>                                                              <C>                 <C>                  <C>
 of long-term debt                                               $ 54,336            $ (2,696)            $ 51,640
                                                                 ========            ========             ========

Accounts payable                                                 $  1,105            $  2,696             $  3,801
                                                                 ========            ========             ========

Total current liabilities                                        $ 75,226            $   -                $ 75,226
                                                                 ========            ========             ========
</TABLE>

Organization and basis of presentation.

     The consolidated balance sheet of Keystone  Consolidated  Industries,  Inc.
("Keystone"  or the  "Company") at December 31, 2004 has been condensed from the
Company's audited consolidated financial statements at that date included in the
Company's 2005 Form 10-K. The  consolidated  balance sheet at September 30, 2005
and the  consolidated  statements of  operations  and cash flows for the interim
periods ended  September 30, 2004 and 2005,  and the  consolidated  statement of
common  stockholders'  deficit for the interim period ended  September 30, 2005,
have each been prepared by the Company,  without audit, in accordance with GAAP.
In the  opinion  of  management,  all  adjustments,  consisting  only of  normal
recurring  adjustments  necessary to present fairly the  consolidated  financial
position,  results of operations  and cash flows,  have been made.  However,  it
should be understood that  accounting  measurements at interim dates may be less
precise than at year end. The results of operations for the interim  periods are
not necessarily indicative of the operating results for a full year or of future
operations.

     Certain information  normally included in financial  statements prepared in
accordance  with GAAP has been  condensed  or omitted,  and  certain  prior year
amounts have been reclassified to conform to the current year presentation.  The
accompanying  consolidated  financial  statements  should be read in conjunction
with the  consolidated  financial  statements  included in the Company's  Annual
Report on Form 10-K for the year ended December 31, 2005 (the "Annual Report").

     At September 30, 2005, Contran  Corporation  ("Contran") and other entities
related to Mr. Harold C. Simmons,  beneficially  owned  approximately 51% of the
outstanding  common  stock  of  the  Company.  Substantially  all  of  Contran's
outstanding  voting  stock is held by  trusts  established  for the  benefit  of
certain children and grandchildren of Mr. Simmons,  of which Mr. Simmons is sole
trustee,  or is held by Mr. Simmons or persons or other entities  related to Mr.
Simmons. Keystone may be deemed to be controlled by Contran and Mr. Simmons.

     On  February  26,  2004,  Keystone  and  five of its  direct  and  indirect
subsidiaries  filed for  voluntary  protection  under  Chapter 11 of the Federal
Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S.
Bankruptcy  Court for the  Eastern  District  of  Wisconsin  in  Milwaukee  (the
"Court"). Keystone's amended plan of reorganization was accepted by the impacted
constitutencies  and  confirmed  by the Court on August 10,  2005.  The  Company
emerged from bankruptcy protection on August 31, 2005. See Notes 2 and 9.

     Under  Chapter 11  proceedings,  actions by creditors to collect  claims in
existence at the filing date ("Pre-petition Claims") are stayed, absent specific
authorization  by the Court to pay such claims,  while the Company  continues to
manage the business as a  debtor-in-possession.  Keystone received approval from
the Court to pay certain of its Pre-petition Claims including employee wages and
certain  employee  benefits.  At  September  30,  2005,  the  Company  was still
negotiating  the  settlement  of certain  alleged  claims with  certain  alleged
pre-petition unsecured creditors.

Note 2 - Bankruptcy

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

     Under Chapter 11 proceedings,  actions by creditors to collect Pre-petition
Claims in existence at the filing date are stayed, absent specific authorization
from the Court to pay such claims  while the Company  manages the  business as a
debtor-in-possession.

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

     o    Assumption of the  previously  negotiated  amendment to the collective
          bargaining  agreement with the Independent Steel Workers Alliance (the
          "ISWA"),  Keystone's  largest  labor union that  related  primarily to
          greater employee participation in healthcare costs;
     o    Assumption  of  the  previously  negotiated  agreements  reached  with
          certain  retiree  groups  that  will  provide  relief  by  permanently
          reducing  healthcare  related  payments to these  retiree  groups from
          pre-petition levels;
     o    The Company's  obligations due to  pre-petition  secured lenders other
          than its Debtor-In-Possession  lenders were reinstated in full against
          reorganized Keystone;
     o    All shares of Keystone's common and preferred stock outstanding at the
          petition date (February 26, 2004) were cancelled;
     o    Pre-petition  unsecured creditors with allowed claims against Keystone
          will receive,  on a pro rata basis, in the aggregate,  $5.2 million in
          cash, a $4.8 million secured promissory note and 49% of the new common
          stock of reorganized Keystone;
     o    Certain  operating  assets and  existing  operations  of Sherman  Wire
          Company ("Sherman Wire"), one of Keystone's pre-petition  wholly-owned
          subsidiaries, will be sold at fair market value (fair market value and
          book value both approximate $2.0 million) to Keystone, which will then
          be used to form and operate a newly created wholly-owned subsidiary of
          reorganized Keystone named Keystone Wire Products Inc.;
     o    Sherman Wire was also  reorganized  and the proceeds of the  operating
          asset sale to Keystone and  liquidation  of Sherman  Wire's  remaining
          real estate assets (book value  approximately  $1.6 million) and other
          funds will be  distributed,  on a pro rata  basis,  to Sherman  Wire's
          pre-petition   unsecured   creditors   as  their  claims  are  finally
          adjudicated;
     o    Sherman Wire's pre-petition wholly-owned  non-operating  subsidiaries,
          J.L. Prescott Company,  and DeSoto Environmental  Management,  Inc. as
          well as Sherman Wire of Caldwell,  Inc., a wholly-owned  subsidiary of
          Keystone, will ultimately be liquidated and the pre-petition unsecured
          creditors  with allowed  claims  against  these  entities will receive
          their  pro-rata  share  of the  respective  entity's  net  liquidation
          proceeds;
     o    Pre-petition  unsecured creditors with allowed claims against FV Steel
          & Wire Company,  another one of Keystone's wholly-owned  subsidiaries,
          will receive cash in an amount equal to their allowed claims;
     o    One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an
          affiliate of Contran) converted $5 million of its DIP credit facility,
          certain  of  its   pre-petition   unsecured  claims  and  all  of  its
          administrative  claims  against  Keystone  into 51% of the new  common
          stock of reorganized Keystone; and
     o    The Board of Directors of  reorganized  Keystone now consists of seven
          individuals,  two each of which were  designated  by  Contran  and the
          Official Committee of Unsecured Creditors (the "OCUC"),  respectively.
          The remaining three directors qualify as independent directors (two of
          the  independent  directors  were appointed by Contran with the OCUC's
          consent and one was appointed by the OCUC with Contran's consent).

     In addition,  Keystone has obtained a five-year, $80 million secured credit
facility from Wachovia Capital Finance (Central). See Notes 5 and 9.

     Prior to Keystone's  emergence from Chapter 11 on August 31, 2005,  Contran
and  other  entities  related  to Mr.  Harold  C.  Simmons,  beneficially  owned
approximately 50% of the outstanding common stock of the Company.  In connection
with    Keystone's    emergence    from   Chapter   11,   one   of    Keystone's
Debtor-In-Possession  ("DIP")  lenders,  EWP  Financial,  LLC (an  affiliate  of
Contran)  converted  $5  million  of its DIP  credit  facility,  certain  of its
pre-petition  unsecured  claims  and all of its  administrative  claims  against
Keystone  into 51% of the new common  stock of  reorganized  Keystone.  As such,
Contran, or one of its affiliates, may be deemed to control Keystone both prior,
and subsequent  to,  Keystone's  emergence  from Chapter 11. Because  Keystone's
emergence  from Chapter 11 did not result in a change of control of the Company,
Keystone did not qualify to use Fresh Start  Accounting  upon its emergence from
Chapter 11.

Note 3 - Business Segment Information:

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

<TABLE>
<CAPTION>
Business Segment                              Principal entities                           Location
----------------                              ------------------                           --------

<S>                                           <C>                                          <C>
Keystone Steel & Wire                         Keystone Steel & Wire                        Peoria, Illinois

Engineered Wire Products                      Engineered Wire Products                     Upper Sandusky, Ohio

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


<TABLE>
<CAPTION>
                                                                                                 GAAP
                                                                                             Adjustments,
                                                                                               Corporate
                                                                                                 Items
                                                                  Sherman/      Segment           and
                                         KSW           EWP          KWP          Total       Eliminations       Total
                                         ---           ---        --------      --------     ------------       -----
                                                                        (In thousands)

Three months ended September 30, 2004:

<S>                                     <C>           <C>           <C>         <C>             <C>            <C>
  Third party net sales                 $ 91,938      $18,538       $2,024      $112,500        $      5       $112,505
  Intercompany sales                      13,146         -           2,718        15,864         (15,864)          -
                                        --------      -------      -------      --------        --------       --------

                                        $105,084      $18,538      $ 4,742      $128,364        $(15,859)      $112,505
                                        ========      =======      =======      ========        ========       ========

Operating income                        $ 10,989      $ 3,423      $   136      $ 14,548        $  2,398       $ 16,946
                                        ========      =======      =======      ========        ========       ========

Three months ended September 30, 2005:

  Third party net sales                 $ 64,811      $17,986      $ 1,973      $ 84,770           $   -       $ 84,770
  Intercompany sales                      11,644         -           5,737        17,381         (17,381)          -
                                        --------      -------      -------      --------        --------       --------

                                        $ 76,455      $17,986      $ 7,710      $102,151        $(17,381)      $ 84,770
                                        ========      =======      =======      ========        ========       ========

Operating income (loss)                 $   (489)     $ 2,453      $  (264)     $  1,700        $  5,762       $  7,462
                                        ========      =======      =======      ========        ========       ========

Nine months ended September 30, 2004:

  Third party net sales                 $231,369      $45,577       $4,514      $281,460        $     49       $281,509
  Intercompany sales                      37,526         -           7,725        45,251         (45,251)          -
                                        --------      -------      -------      --------        --------       --------

                                        $268,895      $45,577      $12,239      $326,711        $(45,202)      $281,509
                                        ========      =======      =======      ========        ========       ========

Operating income (loss)                 $ 14,296      $ 8,024      $  (425)     $ 21,895        $  7,194       $ 29,089
                                        ========      =======      =======      ========        ========       ========

Nine months ended September 30, 2005:

  Third party net sales                 $210,706      $47,792      $ 4,801      $263,299           $   -       $263,299
  Intercompany sales                      36,830         -          12,075        48,905         (48,905)          -
                                        --------      -------      -------      --------        --------       --------

                                        $247,536      $47,792      $16,876      $312,204        $(48,905)      $263,299
                                        ========      =======      =======      ========        ========       ========

Operating income (loss)                 $(11,060)     $ 7,084      $  (814)     $ (4,790)       $ 17,287       $ 12,497
                                        ========      =======      =======      ========        ========       ========
</TABLE>


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

<TABLE>
<CAPTION>
                                                             Three months ended                Nine months ended
                                                               September 30,                     September 30,
                                                            -------------------------        -------------------------
                                                              2004             2005            2004             2005
                                                            --------         --------        --------          -------
                                                                                (In thousands)

<S>                                                          <C>              <C>             <C>              <C>
Operating income (loss)                                      $16,946          $ 7,462         $29,089          $12,497
General corporate items:
  Interest income                                                 85              138             117              220
  Other income                                                    56              167              73              271
  Corporate expenses                                          (1,134)            (566)         (2,639)          (2,757)
  Interest expense                                              (874)          (1,040)         (2,899)          (2,816)
                                                             -------          -------         -------          -------

  Income before income taxes and
   reorganization items                                      $15,079          $ 6,161         $23,741          $ 7,415
                                                             =======          =======         =======          =======
</TABLE>


Note 4 - Inventories:

<TABLE>
<CAPTION>
                                                                               December 31,     September 30,
                                                                                  2004                 2005
                                                                                ----------        ------------
                                                                                       (In thousands)

 Steel and wire products:
<S>                                                                               <C>               <C>
   Raw materials                                                                  $15,142           $13,561
   Work in process                                                                 21,305            19,171
   Finished goods                                                                  28,941            32,642
   Supplies                                                                        14,844            17,377
                                                                                  -------           -------
                                                                                   80,232            82,751
   Less LIFO reserve                                                               27,215            22,297
                                                                                  -------           -------
                                                                                  $53,017           $60,454
                                                                                  =======           =======
</TABLE>


Note 5 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                                              December 31,        September 30,
                                                                                  2004                2005
                                                                              -------------       -------------
                                                                               (Restated)
                                                                                        (In thousands)

<S>                                                                                 <C>               <C>
 Wachovia revolving credit facility                                                 $  -              $25,311
 DIP facilities:
   Congress                                                                       15,108                    -
   EWP                                                                             5,000                    -
 EWP revolving credit facility                                                     1,989                    -
 8% Notes                                                                         28,116               26,928
 UC Note                                                                               -                4,800
 Term loans:
   County                                                                         10,000               10,000
   EWP                                                                             5,513                    -
   Wachovia                                                                            -               22,508
   Other                                                                             259                  238
                                                                                 -------              -------

                                                                                  65,985               89,785
   Less current maturities                                                        51,640               30,691
                                                                                 -------              -------

                                                                                 $14,345              $59,094
                                                                                 =======              =======
</TABLE>

     In connection with Keystone's emergence from Chapter 11 on August 31, 2005,
the Company's  obligations  due to  pre-petition  secured lenders other than its
Debtor-In-Possession ("DIP") lenders were reinstated in full against reorganized
Keystone.  In addition,  one of Keystone's DIP lenders,  EWP Financial,  LLC (an
affiliate of Contran)  converted $5 million of its DIP credit facility,  certain
of its  pre-petition  unsecured  claims  and  all of its  administrative  claims
against Keystone into 51% of the new common stock of reorganized  Keystone.  See
Note 9.

     The indenture  governing  Keystone's 8% Notes  provides the holders of such
Notes with the right to  accelerate  the maturity of the Notes in the event of a
default by Keystone  resulting in an  acceleration of the maturity of any of the
Company's other secured debt. As such, the 8% Notes were classified as a current
liability at December 31, 2004. Upon emergence from Chapter 11, the Company paid
all the then delinquent payments on the 8% Notes. In addition,  the Company paid
the scheduled September 2005, payment on the 8% Notes. As such, at September 30,
2005, only the scheduled principal payments during the next 12 months were shown
as current on Keystone's balance sheet.

     Keystone has obtained a five-year, $80 million secured credit facility from
Wachovia  Capital Finance  (Central) in connection with the Company's  emergence
from Chapter 11 (the "Wachovia  Facility").  Proceeds from the Wachovia Facility
were used to extinguish Keystone's existing DIP credit facilities,  the EWP Term
Loan, the EWP Revolver and to provide working capital for reorganized  Keystone.
The Wachovia Facility includes a term loan in the amount of up to $25.0 million,
subject  to a  borrowing  base  calculation  based  on the  market  value of the
Company's  real  property  and  equipment.  To the  extent  there is  sufficient
borrowing  base, the term loan portion of the Wachovia  Facility can be reloaded
in the amount of $10.0 million.  The portion of the credit facility in excess of
the term loan balance is available to the Company as a revolving credit facility
subject to a  borrowing  base  calculation  based on  eligible  receivables  and
inventory  balances.  Interest rates on the credit facility range from the prime
rate to the prime rate plus .5% depending on Keystone's excess availability,  as
defined in the credit agreement.  The Wacovia Facility also provides for a LIBOR
interest rate option.  Under the terms of the Wachovia Facility,  the Company is
required  to  annually  pay down the term loan  portion of the  facility  in the
amount of 25% of excess  cash flow,  as defined in the  agreement,  subject to a
$2.0 million annual and a $5.0 million aggregate limit. Otherwise, the principal
portion of the term notes are amortized over either 60 or 84 months depending on
the  underlying  collateral.  All unpaid term note principal and interest is due
upon  maturity of the Wachovia  Facility.  The Wachovia  Facility  also includes
performance  covenants  related to minimum  levels of cash flow and fixed charge
coverage ratio.  Keystone paid the lender  approximately  $400,000 of diligence,
commitment and closing fees in connection  with this facility.  At September 30,
2005,  unused credit  available for  borrowing  under the Wachovia  facility was
$29.2  million.  The Wachovia  Facility  requires the  Company's  daily net cash
receipts to be used to reduce the outstanding  borrowings,  which results in the
Company  maintaining  zero  cash  balances  so long as there  is an  outstanding
balance under this facility.  Accordingly,  any  outstanding  balances under the
revolving  credit  portion of the Wachovia  Facility are always  classified as a
current liability, regardless of the maturity date of the facility. The Wachovia
Facility matures in August 2010.

     In  connection  with  Keystone's  emergence  from  Chapter  11, the Company
provided a $4.8 million note to its  pre-petition  unsecured  creditors (the "UC
Note").  The UC Note will accrue  interest  until October 2006 at 12% per annum,
compounded  on the first  business day of each calendar  quarter.  Such interest
will be deferred and converted to principal  and beginning in October 2006,  the
UC Note will bear interest at 8% per annum and interest  payments will be due on
the first day of each  calendar  quarter  beginning in January  2007.  The first
principal  payment  on the UC Note is due on  January  1, 2007 in the  amount of
$1,542,235. Thereafter, quarterly principal payments of $391,603 each are due on
the first day of each calendar quarter until such time as the UC Note is paid in
full. The UC Note is  collateralized by a lien on the Company's equity interests
in EWP and  any  proceeds  thereof.  The UC Note  contains  identical  financial
covenants to the Wachovia Facility.

     At September 30, 2005, the aggregate future maturities of notes payable and
long-term  debt  (including a total of  approximately  $665,000 of interest that
will be  converted  to  principal  during  2005 and 2006) are shown in the table
below:

<TABLE>
<CAPTION>
                 Year ending December 31,                                             Amount
                                                                                  --------------
                                                                                  (In thousands)

                           <S>                                                          <C>
                           2005                                                         $26,876
                           2006                                                           5,462
                           2007                                                          25,948
                           2008                                                          14,254
                           2009                                                          14,910
                           2010                                                           3,000
                                                                                        -------
                                                                                        $90,450
                                                                                        =======
</TABLE>


     The  Company  determined  there was  insufficient  collateral  to cover the
interest portion of scheduled  payments on its  pre-petition  unsecured debt. As
such, the Company  discontinued  accruing interest on its unsecured 6% Notes and
unsecured 9 5/8% Notes as of February  26, 2004,  the filing  date.  Contractual
interest on those obligations  during the third quarter and first nine months of
2005 was approximately $ 217,000 and $841,000, respectively.

Note 6 - Series A Preferred Stock:

     All of the Company's  Series A Preferred Stock (with an aggregate  carrying
value of $2.1  million) was cancelled in connection  with  Keystone's  emergence
from Chapter 11 on August 31, 2005. The  cancellation  of the Series A Preferred
Stock  was  accounted  for  as  a  direct  increase  to  the  Company's   common
stockholders'  equity  (additional  paid-in capital).  The Company  discontinued
accruing dividends on its Series A Preferred Stock upon filing for Chapter 11 on
February 26, 2004.  The accrued  dividends at that date were  compromised in the
Chapter 11 proceedings. See Notes 2 and 9.

Note 7 - Income taxes:

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

<TABLE>
<CAPTION>
                                                                                            Nine months ended
                                                                                              September 30,
                                                                                         --------------------------
                                                                                         2004                2005
                                                                                         ----                ------
                                                                                             (In thousands)

<S>                                                                                       <C>               <C>
Expected tax provision, at statutory rate                                                 $ 5,413           $10,304
U. S. state income taxes, net                                                                 751             1,788
Deferred tax asset valuation allowance                                                     (7,781)          (15,714)
Capitalize reorganization costs                                                             2,897             3,613
Other, net                                                                                    (57)              281
                                                                                          -------           -------

Provision for income taxes                                                                $ 1,223           $   272
                                                                                          =======           =======

Comprehensive provision for income taxes:
  Currently payable:
    U.S. federal                                                                          $   811           $    80
    U.S. state                                                                                412               192
                                                                                          -------           -------
      Net currently payable                                                                 1,223               272

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

                                                                                          $ 1,223           $   272
                                                                                          =======           =======
</TABLE>


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

     At September  30, 2005,  considering  all factors  believed to be relevant,
including the Company's recent operating results,  its expected future near-term
productivity  rates;  cost of raw  materials,  electricity,  labor and  employee
benefits,  environmental  remediation,  and retiree medical  coverage;  interest
rates;  product mix; sales volumes and selling prices; and the fact that accrued
OPEB expenses will become deductible over an extended period of time and require
the  Company to  generate  significant  amounts of future  taxable  income,  the
Company  believes  its  gross  deferred  tax  assets do not  currently  meet the
"more-likely-than-not"  realizability  test. As such, at December 31, 2004,  the
Company had provided a deferred tax asset valuation  allowance of  approximately
$30.3 million.  As a result of the deferred tax asset valuation  allowance,  the
Company does not anticipate recognizing tax expense associated with its expected
pre-tax income during 2005 will be  appropriate.  Accordingly,  during the first
nine months of 2005,  the Company  decreased  the deferred  tax asset  valuation
allowance by approximately  $16.2 million.  Keystone will continue to review the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
Keystone  could  recognize a change in the  valuation  allowance  related to its
deferred tax assets in the future.

Note 8 - Other accrued liabilities:

<TABLE>
<CAPTION>

                                                                              December 31,         September 30,
                                                                                  2004                  2005
                                                                              ------------         -------------
                                                                                        (In thousands)

Current:
<S>                                                                               <C>                    <C>
  Employee benefits                                                               $12,019                $11,159
  Environmental                                                                         -                  6,921
  Reorganization costs                                                              2,883                  5,567
  Pre-petition unsecured creditor settlement                                            -                  5,200
  Self insurance                                                                    1,064                  3,927
  Legal and professional                                                              358                    713
  Income taxes                                                                      1,405                    780
  Other                                                                             1,235                  3,484
                                                                                  -------                -------

                                                                                  $18,964                $37,751
                                                                                  =======                =======
Noncurrent:
  Environmental                                                                      $  -                $ 2,869
  Workers compensation payments                                                       988                  1,661
  Other                                                                              -                        73
                                                                                  -------                -------

                                                                                  $   988                $ 4,603
                                                                                  =======                =======
</TABLE>



Note 9 - Liabilities subject to compromise

<TABLE>
<CAPTION>
                                                                              December 31,             September 30,
                                                                                  2004                     2005
                                                                              ------------             -------------
                                                                                       (In thousands)

<S>                                                                            <C>                        <C>
Accrued OPEB cost                                                              $123,425                   $  -
Environmental                                                                    19,432                     8,507
6% Notes                                                                         16,031                      -
Accrued preferred stock dividends                                                11,846                      -
Accounts payable                                                                 10,776                       877
Deferred vendor payments                                                         10,518                      -
9 5/8% Notes                                                                      6,150                      -
Self insurance                                                                    4,549                      -
Accounts payable to affiliates                                                    3,027                      -
Workers compensation                                                              1,847                      -
Accrued and deferred interest                                                     1,237                      -
Legal and professional                                                              726                       374
Disposition of former facilities                                                    665                       684
Other                                                                             2,117                       207
                                                                               --------                   -------

                                                                               $212,346                   $10,649
                                                                               ========                   =======
</TABLE>

     In connection with Keystone's emergence from Chapter 11 on August 31, 2005,
pre-petition  unsecured  creditors  (other than  Contran)  with  allowed  claims
against Keystone received,  in the aggregate,  on a pro rata basis, $5.2 million
in cash, a $4.8 million secured  promissory note and 49% of the new common stock
of  reorganized  Keystone  (valued at $10.5  million).  Also in connection  with
Keystone's  emergence from Chapter 11,  Contran  received an aggregate of 51% of
the new  common  stock of  reorganized  Keystone  (valued at $10.9  million)  in
exchange for its $5.0 million of DIP  financing  and  Contran's  claims  against
Keystone.  The new common stock of reorganized  Keystone represents an aggregate
of 10.0  million  shares.  Such shares  were  valued at $2.14 per share,  by the
Company with the assistance of its independent financial advisors.

     As of September 30, 2005, the pre-petition  unsecured  creditors had yet to
provide a trust  account to receive  their $5.2 million cash  payment.  As such,
Keystone  has recorded a $5.2 million  liability to the  pre-petition  unsecured
creditors  which  is  included  in  other  current  accrued  liabilities  on the
Company's September 30, 2005 balance sheet. See Note 8. In addition, the Company
has escrowed these funds in a separate  demand account and, as such,  Keystone's
balance  sheet at September  30, 2005  includes a restricted  investment of $5.2
million  in  current  assets  that  will  be used to  fund  the  payment  to the
pre-petition unsecured creditors.

     Accrued OPEB liabilities, certain accrued environmental liabilities related
to properties  owned by Keystone and other  liabilities  were reinstated in full
against  reorganized  Keystone in connection  with the Company's  emergence from
Chapter  11.  The  Company  continues  to  negotiate  claims  related to certain
pre-petition  environmental  and other  liabilities  at September 30, 2005.  See
Notes 10 and 11. In addition,  pre-petition unsecured creditors of Keystone with
balances due to them of less than $1,900, will be paid in full.

     The  remaining  liabilities  subject to  compromise  at September 30, 2005,
relate to Sherman Wire Company.

     As a result of the  foregoing,  the Company  recorded a $32.3  million gain
from  cancellation of debt during the third quarter of 2005. The following table
summarizes the significant components of compromised liabilities and the related
recorded gain from cancellation of debt.

<TABLE>
<CAPTION>
                                                                   Unsecured
                                                                     claims
                                                                   other than        Contran
                                                                    Contran          claims          Total
                                                                    -------          --------        -------
                                                                                (In thousands)

Liabilities compromised:
<S>     <C>                                                           <C>              <C>            <C>
        6% Notes                                                      $16,031          $  -           $16,031
        Accrued Series A Preferred Stock
         dividends                                                      1,098           10,748         11,846
        Accounts payable - pre-petition                                 7,758            3,279         11,037
        Accounts payable - post-petition                                    -            1,179          1,179
        Deferred vendor payments                                       10,518             -            10,518
        9 5/8% Notes                                                    6,150             -             6,150
        DIP loan                                                            -            5,000          5,000
        Accrued interest                                                1,236             -             1,236
        Other, net                                                        752             -               752
                                                                      -------          -------        -------
           Total liabilities compromised                               43,543           20,206         63,749
                                                                      -------          -------        -------

Consideration provided:
        Cash                                                            5,200               -           5,200
        Secured Note                                                    4,800               -           4,800
        Common stock                                                   10,486           10,914         21,400
                                                                      -------          -------        -------
           Total consideration provided                                20,486           10,914         31,400
                                                                      -------          -------        -------

Gain on cancellation of debt                                          $23,057          $ 9,292        $32,349
                                                                      =======          =======        =======
</TABLE>

Note 10 - Employee benefit plans:

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

<TABLE>
<CAPTION>
                                                             Three months ended                Nine months ended
                                                                September 30,                    September 30,
                                                            ------------------------       --------------------------
                                                             2004             2005            2004             2005
                                                            ------           -------       ---------          -------
                                                                                (In thousands)

<S>                                                         <C>             <C>             <C>               <C>
Service cost                                                $   875         $    938        $  2,625          $  2,813
Interest cost                                                 5,439            5,432          16,317            16,300
Expected return on plan assets                               (9,373)         (10,732)        (28,120)          (32,216)
Amortization of unrecognized:
  Prior service cost                                            221              221             662               662
  Actuarial losses                                            1,338              915           4,016             2,766
                                                            -------         --------        --------          --------

                                                            $(1,500)        $ (3,226)       $ (4,500)         $ (9,675)
                                                            =======         ========        ========          ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                               Three months ended                Nine months ended
                                                                  September 30,                    September 30,
                                                             ------------------------        --------------------------
                                                              2004             2005            2004             2005
                                                             ------           -------        --------          --------
                                                                                (In thousands)

<S>                                                           <C>            <C>              <C>             <C>
Service cost                                                  $  725         $    514         $ 2,175         $  1,995
Interest cost                                                  3,496            2,196          10,487            8,248
Amortization of unrecognized:
  Prior service cost                                             (86)             (86)           (258)            (257)
  Prior service cost due to
   plan amendment                                               (625)          (1,915)         (1,875)          (3,335)
  Actuarial losses                                             1,015            1,512           3,046            4,305
Settlement loss                                                1,250             -              3,750             -
                                                              ------         --------         -------          -------

                                                              $5,775         $  2,221         $17,325          $10,956
                                                              ======         ========         =======          =======
</TABLE>

     During 2004, the Company  entered into an agreement (the "1114  Agreement")
with certain  retiree groups that  substantially  reduced the OPEB benefits that
will be paid to these retiree  groups in the future.  Prior to  confirmation  of
Keystone's definitive plan of reorganization, the Court could have rescinded the
1114 Agreement and therefore the 1114 Agreement was not definitive  until it was
confirmed by the Court in connection with  Keystone's  emergence from Chapter 11
on August 31, 2005. As such, and in accordance with GAAP, the Company  continued
to record OPEB expense  through  August 31, 2005 at the  estimated  level ($11.6
million for the first eight  months of 2005) as if Keystone had not entered into
the 1114 Agreement. However, at the time of the Company's emergence from Chapter
11 on August 31, 2005, and concurrent  confirmation of the 1114 Agreement,  GAAP
then requires the effect of the substantially reduced OPEB benefits agreed to as
part of the 1114 Agreement be accounted for as a plan amendment,  the benefit of
which is amortized into income over future periods.  Accordingly,  Keystone will
ultimately record an OPEB credit of approximately $2.7 million for the last four
months of 2005, resulting in an $8.9 million expense for the year 2005.

     Employer  Contributions.  Keystone  previously  disclosed in its  financial
statements  for the year ended  December  31,  2004,  that it expected not to be
required  to  contribute  to its defined  benefit  pension  plan in 2005.  As of
September  30,  2005,  Keystone  had not made any  contributions  to its defined
benefit pension plan during 2005. The Company also  previously  disclosed in its
financial  statements for the year ended December 31, 2004,  that it expected to
contribute  approximately  $8.3 million to its post retirement  benefit plans in
2005. As of September 30, 2005,  Keystone had contributed  $4.1 million to these
plans during 2005. The 1114 Agreement provides that the Company will make a $3.0
million  aggregate lump sum payment to the covered retirees prior to October 31,
2005.

Note 11 - Environmental matters:

     As a result of the  Chapter 11 filings on  February  26,  2004,  litigation
relating to pre-petition claims against the filing companies, including Keystone
and Sherman Wire, was stayed. Upon emergence from Chapter 11 in August 2005, the
pre-petition  litigation claims against Sherman Wire continue to be stayed while
these claims are  adjudicated.  Environmental  liabilities  related to non-owned
Keystone  sites  ($868,000)  were  discharged in connection  with the Chapter 11
proceedings.  Recorded  environmental  liabilities  related to non-owned Sherman
Wire sites ($7.6 million) and an owned Sherman Wire site ($.9 million)  continue
to be negotiated and adjudicated subsequent to Keystone's emergence from Chapter
11 on August 31, 2005.

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

     On a  quarterly  basis,  Keystone  evaluates  the  potential  range  of its
liability  at sites where it has been named as a PRP or  defendant  by analyzing
and  estimating the range of reasonably  possible costs to Keystone.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,  managing,  studies,  certain  legal  fees,  clean-up,  removal  and
remediation.  Keystone believes it has provided adequate accruals ($18.3 million
at September 30, 2005, $8.5 million of which is reflected in liabilities subject
to  compromise  on the  Company's  September  30, 2005 balance  sheet) for these
matters at ten sites for which  Keystone  believes its liability is probable and
reasonably  estimable,  but Keystone's  ultimate  liability may be affected by a
number of factors,  including  the  imposition  of more  stringent  standards or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes in remedial  alternatives  and costs, the allocation of such costs among
PRPs, the solvency of other PRPs or a determination that Keystone is potentially
responsible for the release of hazardous substances at other sites, any of which
could  result in  expenditures  in  excess of  amounts  currently  estimated  by
Keystone to be required  for such  matters.  With  respect to other PRPs and the
fact  that the  Company  may be  jointly  and  severally  liable  for the  total
remediation  cost at certain sites,  the Company could  ultimately be liable for
amounts in excess of its accruals due to, among other  things,  reallocation  of
costs among PRPs or the insolvency of one or more PRPs. In addition,  the actual
timeframe for payments by Keystone for these matters may be substantially in the
future.

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

     The upper end of the range of  reasonably  possible  costs to Keystone  for
sites for which it is  possible to  estimate  costs (14 sites) is  approximately
$18.3 million. Keystone's estimates of such liabilities have not been discounted
to present value,  and other than certain  previously-reported  settlements with
respect to certain of Keystone's  former  insurance  carriers,  Keystone has not
recognized  any material  insurance  recoveries.  No assurance can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs  will not be  incurred  with  respect  to the  eight  sites as to which no
estimate  of  liability   can   presently   be  made   because  the   respective
investigations  are in early stages.  The extent of CERCLA  liability  cannot be
determined  until the  Remedial  Investigation/Feasibility  Study  ("RI/FS")  is
complete,  the U.S.  EPA  issues a Record  of  Decision  ("ROD")  and  costs are
allocated  among PRPs.  The extent of liability  under  analogous  state cleanup
statutes and for common law equivalents is subject to similar uncertainties.

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

     More  detailed  descriptions  of  certain  legal  proceedings  relating  to
environmental  matters  are set  forth  below.  A  summary  of  activity  in the
Company's environmental accruals for the nine months ended September 30, 2005 is
as follows:

<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                           September 30,
                                                                                         -----------------
                                                                                           (In thousands)

<S>                                                                                             <C>
 Balance at December 31, 2004                                                                   $19,432
 Expense                                                                                              -
 Payments                                                                                          (699)
 Reclassification                                                                                   432
 Discharged in connection with Chapter 11 proceedings                                              (868)
                                                                                                -------

 Balance at September 30, 2005                                                                  $18,297
                                                                                                =======
</TABLE>

     Approximately   $8.5  million  of  the  Company's  $18.3  million  recorded
environmental  accrual at September 30, 2005 is included in liabilities  subject
to compromise on the Company's balance sheet. All of the recorded  environmental
liability  included  in  liabilities  subject  to  compromise  on the  Company's
September 30, 2005 balance sheet relates to sites involving  Sherman Wire or one
of its predecessors.  Sherman Wire's  environmental  liabilities  continue to be
negotiated and adjudicated subsequent to Keystone's emergence from Chapter 11 on
August 31, 2005.

     The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan  provides  for the  in-place  treatment of seven  hazardous  waste  surface
impoundments  and two waste  piles to be  disposed  of as  special  wastes.  The
Company recorded an estimated  liability for remediation of the impoundments and
waste piles  based on a  six-phase  remediation  plan.  The Company  adjusts the
recorded  liability  for each Phase as actual  remediation  costs become  known.
During 1995,  the Company began  remediation  of Phases II and III and completed
these Phases,  as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant  remediation  efforts  relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney  General's office, the Company is
depositing  $75,000  per  quarter  into a trust  fund  and must  continue  these
quarterly  deposits until the  remediation  is complete.  The Company is able to
fund the  remediation  costs out of this trust fund.  At  December  31, 2004 and
September  30,  2005,  the trust  fund had a balance  of $5.7  million  and $6.0
million, respectively, which amounts are included in other noncurrent assets.

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

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

     In June 2000, the IAG filed a Complaint For Injunction And Civil  Penalties
against  Keystone.  The complaint alleges the Company's Peoria facility violated
its National Pollutant Discharge  Elimination System ("NPDES") permit limits for
ammonia and zinc discharges from the facility's  wastewater  treatment  facility
into the Illinois River. The complaint alleges specific violations of the 30-day
average ammonia limit in the NPDES permit for three months in 1996, 11 months in
1997, 12 months in 1998, 11 months in 1999 and the first two months of 2000. The
complaint  further alleges two violations of the daily maximum limit for zinc in
October and December of 1999. In February 2004, the Company reached a settlement
agreement  with the IEPA which  provided for Keystone to make a $75,000  penalty
payment to the IEPA, and to implement  certain  corrective  actions to prevent a
recurrence of the NPDES violations.  The Company did not pay the $75,000 penalty
because the enforcement  action was stayed by Keystone's  Chapter 11 filing. The
Company  reached a  settlement  agreement  with the IEPA in 2005 to satisfy  the
penalty obligation through a RCRA trust fund controlled by the IEPA.

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

"Superfund" sites

     The Company is subject to federal and state  "Superfund"  legislation  that
imposes  cleanup and remediation  responsibility  upon present and former owners
and  operators of, and persons that  generated  hazardous  substances  deposited
upon,  sites  determined  by state or federal  regulators  to contain  hazardous
substances.  Keystone  has been  notified  by U.S.  EPA that  the  Company  is a
potentially  responsible party ("PRP") under the federal "Superfund" legislation
for the alleged  release or threat of release of hazardous  substances  into the
environment at nine sites.  These  situations  involve  cleanup of landfills and
disposal facilities which allegedly received hazardous  substances  generated by
discontinued   operations  of  the  Company.   Although  Keystone  believes  its
comprehensive  general liability insurance policies provide  indemnification for
certain costs the Company incurs at the "Superfund"  sites  discussed  below, it
has only recorded receivables for the estimated insurance recoveries at three of
those sites.  During 2002,  2003 and the first nine months of 2005,  the Company
received approximately $43,000, $32,000 and $80,000, respectively,  from certain
of its  insurers in exchange  for  releasing  such  insurers  from  coverage for
certain years of environmental related liabilities. Such amounts are included in
Keystone's self insurance accruals.  Keystone did not receive any such insurance
recoveries during 2004.

     In July 1991, the United States filed an action  against a former  division
of the Company and four other PRPs in the United States  District  Court for the
Northern  District of Illinois  (Civil  Action No.  91C4482)  seeking to recover
investigation  and  remediation  costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron,  Illinois.  In April 1992,  Keystone filed a third-party
complaint  in  this  civil  action   against  15  additional   parties   seeking
contribution  in the event the Company is held liable for any response  costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any  investigation  of the nature and extent of the  contamination.  In December
1996,  Keystone,  U.S. EPA and the Department of Justice  entered into the Fifth
Partial  Consent  Decree to settle  Keystone's  liability for EPA response costs
incurred at the site  through  April 1994 for a payment of  $690,000.  Under the
agreement  Keystone is  precluded  from  recovering  any portion of the $690,000
settlement payment from other parties to the lawsuit.  In January 1997, Keystone
paid the $690,000  settlement.  Keystone will remain  potentially liable for EPA
response  costs  incurred  after April 30,  1994,  and natural  resource  damage
claims, if any, that may be asserted in the future. Keystone recovered a portion
of the  $690,000  payment  from its  insurer.  In March 1997,  U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated  soils be performed at an  estimated  cost of $63,000,  that a soil
cover be placed over the site, an on-site  groundwater  pump and treat system be
installed  and  operated  for an  estimated  period of 15  years,  and that both
on-site and  off-site  groundwater  monitoring  be conducted  for an  indefinite
period. U.S. EPA's cost estimate for the recommended plan is $5.1 million.  U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately  $6 million.  The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a  Comprehensive   Environmental   Response,   Compensation  and  Liability  Act
("CERCLA")  special  notice  letter  notifying  them  for  the  first  time of a
September  1998 Record of Decision  ("ROD") and  requesting a  commitment  on or
before  May 19,  1999 to  perform  soils  work  required  by that  ROD  that was
estimated to cost approximately $300,000. In addition, the special notice letter
also  requested  the PRPs to reimburse  U.S. EPA for costs  incurred at the site
since May 1994 in the amount of $1.1  million,  as well as for all future  costs
the U.S.  EPA will incur at the site in  overseeing  the  implementation  of the
selected soils remedy and any future  groundwater  remedy.  Keystone  refused to
agree to the U.S.  EPA's past and future cost demand.  In August 1999,  U.S. EPA
issued a  groundwater  PRAP with an estimated  present value cost of $3 million.
Keystone filed public  comments  opposing the PRAP in September 1999. In October
2002, Keystone and the other remaining PRPs entered into a second Consent Decree
with the U.S. EPA, in order to resolve their  liability for  performance  of the
U.S.  EPA's  September  1998  ROD  for a  soils  remedy  at the  site,  for  the
performance of the U.S. EPA's  December 1999 ROD for remedial  action  regarding
the  groundwater  component of Operable  Unit No. 4 at the site,  for payment of
U.S.  EPA's  site  costs  incurred  since  May 1994 as well as future  U.S.  EPA
oversight  costs,  and  for the  transfer  of  certain  funds  that  may be made
available to the PRPs as a result of a consent decree  reached  between U.S. EPA
and another site PRP. Under the terms of the second Consent Decree,  and the PRP
Agreement  was executed to implement  the PRPs'  performance  under that decree,
Keystone is  required  to pay  approximately  $700,000  (of which  approximately
$600,000 has already  been paid into a PRP Group trust  fund),  and would remain
liable for 18.57% of future U.S. EPA oversight  costs as well as a similar share
of any  unanticipated  cost increases in the soils remedial action work.  (Under
the agreements, the City of Byron, Illinois, would assume responsibility for any
cost  overruns  associated  with the  municipal  water supply  components of the
groundwater contamination remedy.) The U.S. EPA served the PRP Group in February
2003 with its first oversight cost claim under the second Consent Decree, in the
amount of  $186,000  for the period  from March 1, 2000 to  November  25,  2002.
Keystone's share of that claim is approximately  $35,000.  The U.S. EPA has also
requested  changes to the  groundwater  monitoring  program at the site that may
require future increases in the PRP Group's groundwater  monitoring reserves. In
September  2002,  the IAG served a demand  letter on Keystone  and 3 other PRP's
seeking recovery of  approximately  $1.3 million in state cleanup costs incurred
at the Byron Salvage Yard site. The PRP's are currently negotiating with the IAG
in an attempt to settle  this claim.  The four PRP's named in the demand  letter
are also attempting to include other site PRP's in the negotiations. Pursuant to
a settlement agreement,  the United States was given a $228,000 allowed claim in
Keystone's Chapter 11 proceedings.  Any further liability of Keystone related to
this site was discharged in the Chapter 11 proceedings.

     In September 1991, the Company along with 53 other PRPs, executed a consent
decree to undertake  the  immediate  removal of hazardous  wastes and initiate a
Remedial  Investigation/Feasibility  Study ("RI/FS") of the Interstate Pollution
Control site located in Rockford,  Illinois. The Company's percentage allocation
within  the group of PRPs  agreeing  to fund this  project is  currently  2.14%.
However, the Company's ultimate allocation,  and the ultimate costs of the RI/FS
and any remedial action, are subject to change depending, for example, upon: the
number and financial condition of the other participating PRPs, field conditions
and sampling  results,  results of the risk  assessment and  feasibility  study,
additional  regulatory  requirements,  and the success of a contribution  action
seeking to compel additional parties to contribute to the costs of the RI/FS and
any remedial action. The RI/FS began in 1993, was completed in 1997 and approved
by IEPA in 1998.  In the summer of 1999,  IEPA selected a capping and soil vapor
extraction  remedy  estimated  by the PRP group to have a present  value cost of
approximately  $2.5  million.  IEPA  may also  demand  reimbursement  of  future
oversight  costs.  The three largest PRPs at the site are  negotiating a consent
order with IEPA for the performance of the site remedy. Purusant to a settlement
agreement,  the PRP group was given a $125,000  allowed  claim in the Chapter 11
proceedings  and  Keystone  received a site  release.  Any further  liability of
Keystone related to this site was discharged in the Chapter 11 proceedings.

     In  August  1987,  Keystone  was  notified  by  U.S.  EPA  that it is a PRP
responsible  for  the  alleged  hazardous  substance  contamination  of  a  site
previously  owned  by the  Company  in  Cortland,  New  York.  Four  other  PRPs
participated  in the RI/FS and a contribution  action is pending  against eleven
additional  viable  companies which  contributed  wastes to the site.  Following
completion  of the RI/FS,  U.S. EPA  published in November  1997, a PRAP for the
site  that  recommends  the  excavation  and  disposal  of  contaminated   soil,
installation  of an  impervious  cap over a portion of the site,  placement of a
surface  cover  over  the  remainder  of the site  and  semi-annual  groundwater
monitoring until drinking water standards are met by natural  attenuation.  U.S.
EPA estimates the costs of this recommended plan to be $3.1 million. The highest
cost remedy  evaluated by U.S. EPA but not  recommended in the PRAP is estimated
by U.S. EPA to have a cost of $19.8  million.  In September  1998,  Keystone and
four other PRPs who had funded the prior  remedial  actions  and RI/FS  signed a
proposed  Consent  Decree with U.S.  EPA  calling for them to be  "nonperforming
parties" for the  implementation of a March 1998 Record of Decision.  Under this
Consent Decree, Keystone could have been responsible for an unspecified share of
U.S.  EPA's  future  costs in the event  that  changes to the  existing  ROD are
required.  There were no claims related to this site filed in Keystone's Chapter
11 proceedings.

     Prior to its acquisition by Keystone,  DeSoto, Inc. ("DeSoto") was notified
by U.S. EPA that it is one of approximately  50 PRPs at the Chemical  Recyclers,
Inc. site in Wylie,  Texas. In January 1999, DeSoto changed its name to Sherman.
Under a consent  order with the U.S.  EPA, the PRP group has performed a removal
action  and  an  investigation  of  soil  and  groundwater  contamination.  Such
investigation  revealed certain environmental  contamination.  A majority of the
PRPs and  Sherman  entered  into a  Participation  Agreement  dated May 26, 1989
pursuant to which the parties agreed to share in the clean up costs of the site.
The site was remediated by the participating  PRPs within the scope of the EPA's
Statement  of  Work  set  forth  in the  administrative  order  as of  Sherman's
bankruptcy  petition date.  The  participation  agreement  provides that Sherman
could  withdraw  from the  agreement  and have no  further  liability  under the
agreement  for clean-up  costs if it gave  written  notice to the other PRPs who
were a party  to the  agreement  that it was  withdrawing  from  the  agreement.
Sherman was current on its  obligations  under the  agreement as of its petition
date and gave formal notice of its  withdrawal on February 18, 2005. On February
28, 2005,  the EPA  indicated  to the other PRPs that it was  possibly  going to
require  additional  remediation  at the site.  The other PRPs did timely file a
claim against  Sherman in its bankruptcy for any future  liability it might have
under the  participation  agreement,  but on September 27, 2005 the Court denied
the  claim  pursuant  to  Section  502(e)(1)(B)  of  the  Bankruptcy  Code  as a
contingent  contribution  claim, which are not allowable claims. The EPA did not
file a claim against Sherman in connection with this site at all. The other PRPs
have  appealed the Court's  September  27, 2005 Order denying their claim to the
U.S.  District  Court of  Wisconsin.  Sherman  and the other PRPs have filed the
necessary  appellate  motion  and reply  brief and the case has not been set for
oral  argument  as of March 28,  2006.  On March 3, 2006,  the U.S.  EPA ordered
further  remedial  action,  the exact  extent of which is not  currently  known.
Further  obligations  by  Sherman  related  to  this  site  were  discharged  in
connection with the Chapter 11 proceedings.

     In 1984, U.S. EPA filed suit against DeSoto by amending a complaint against
Midwest  Solvent  Recovery,  Inc. et al ("Midco").  DeSoto was a defendant based
upon alleged  shipments to an industrial  waste  recycling  storage and disposal
operation site located in Gary,  Indiana.  The amended  complaint  sought relief
under CERCLA to force the  defendants to clean up the site,  pay  non-compliance
penalties and reimburse the  government  for past clean up costs.  In June 1992,
DeSoto  settled  its  portion  of the case by  entering  into a partial  consent
decree,  and all but one of the eight remaining primary  defendants and 93 third
party  defendants  entered  into a main consent  decree.  Under the terms of the
partial consent decree,  DeSoto agreed to pay its pro rata share (13.47%) of all
costs under the main consent decree.  In addition to certain amounts included in
the trust fund discussed below, Sherman Wire also has certain funds available in
other trust funds due it under the partial consent decree.  These credits can be
used by Sherman Wire (with certain  limitations) to fund its future  liabilities
under the partial consent decree. Pursuant to a settlement agreement,  the other
Midco PRPs were given a $1.1 million allowed claim in the Chapter 11 proceedings
and DeSoto was given a site release.  Further  obligations by Sherman related to
this site will be discharged in connection with the Chapter 11 proceedings.

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

     In December 1991,  DeSoto and  approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken,  New Jersey  municipal  landfill.  The plaintiffs in the complaint
were ordered by the court to show in what manner the  defendants  were connected
to the site. The  plaintiffs  provided an alleged nexus  indicating  garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such  waste  allegedly  contained  hazardous  material  to which
DeSoto objected.  The claim was dismissed  without  prejudice in August 1993. In
1996,  DeSoto  received an amended  complaint  containing the same  allegations.
Pursuant to a settlement  agreement,  the Pollution Control Finance Authority of
Cambden County was given a $750,000  allowed claim in the Chapter 11 proceedings
and DeSoto was given a site  release.  The other PRP's claims were  dismissed in
the Chapter 11  proceedings.  Any further  liability of Sherman  related to this
site will be discharged in connection with the Chapter 11 proceedings.

     Sherman Wire has received  notification  from the TNRCC stating that DeSoto
is a PRP at the  Material  Recovery  Enterprises  Site near Ovalo,  Texas,  with
approximately  3% of the total  liability.  The matter has been  tendered to the
Valspar  Corporation  ("Valspar")  pursuant to a 1990 agreement  whereby Valspar
purchased  certain assets of DeSoto.  Valspar has been handling the matter under
reservation  of rights.  At the  request of Valspar,  Sherman  Wire has signed a
participation  agreement which would require Sherman Wire to pay no less than 3%
of the remediation costs. Valspar continues to pay for legal fees in this matter
and has  reimbursed  Sherman Wire for all  assessments.  The TNRCC was granted a
$15,000  claim in the Chapter 11  proceedings.  Further  obligations  by Sherman
related  to this site will be  discharged  in  connection  with the  Chapter  11
proceedings.

     In November  2003,  Sherman  Wire  received a General  Notice of  Potential
Liability from the U.S. EPA advising them that the U.S. EPA believe Sherman Wire
is a PRP at the Lake  Calumet  Cluster Site in Chicago,  Illinois.  The U.S. EPA
advises the 200 acre site  consists  of areas of both  ground  water and surface
water contamination  located in a remnant wetland area. The U.S. EPA's effort at
this  site is part of a  larger  effort  undertaken  along  with  the  State  of
Illinois,  the City of Chicago,  the U.S. Army Corps of Engineers,  and the U.S.
Department of Energy to cleanup  contamination  in the Lake Calumet  basin.  The
U.S. EPA alleges the original  wetland area has been partially  filed by various
waste  handling and disposal  activities  which  started as early as the 1940's.
Incineration  of  hazardous  waste  including   paints,   thinners,   varnishes,
chlorinated solvents,  styrene,  ink, adhesives,  and antifreeze occurred on the
site from 1977 until 1982. In addition,  several landfills  operated in and near
the site from 1967 into the 1990s.  Approximately 1,600 ruptured drums have been
discovered  buried on the site. The U.S. EPA has undertaken or overseen  various
response actions at the site to mitigate remaining above ground contamination in
the site  vicinity.  The  U.S.  EPA  advises  these  activities  have led to the
formation of an extensive ground water  contamination plume and contamination in
the remaining wetland. The origin of the contamination cannot be associated with
any single  prior  activity.  The  ground  water is in direct  contact  with the
wetland waters, and the same contaminants of concern, certain of which are known
to  bioaccumulate,   and  their   concentrations  are  above  human  health  and
environmental  standards.  Sherman did not respond to the November  2003 Notice,
however,  Sherman notified their insurance  carriers and asked them to indemnify
and defend Sherman with respect to the Notice. At present, no carrier has agreed
to either  indemnify or defend.  In addition,  in November,  2003,  Sherman Wire
requested  the U.S. EPA to provide any  documentation  that  allegedly  connects
Sherman Wire to the site. Subsequently, the U.S. EPA produced documents that may
show that Sherman Wire wastes were sent to the site.  There were no claims filed
in  connection  with this site in the  Chapter  11  proceedings.  The  Company's
emergence from Chapter 11 proceedings in August 2005 precludes subsequent claims
against Sherman related to this site.

     In  addition  to the sites  discussed  above,  Sherman  Wire was  allegedly
involved at various other sites and in related toxic tort lawsuits  which,  as a
result of the  Chapter 11  proceedings,  it does not  currently  expect to incur
significant  liability.  Prepetition  claims  against  Sherman  continue  to  be
negotiated and adjudicated subsequent to the Company's emergence from Chapter 11
on August 31, 2005.

     Sherman Wire has access to a trust fund  relative to another  environmental
site for any expenses or liabilities it incurs relative to environmental  claims
at that site.  The trust  fund is  included  in  restricted  investments  on the
balance sheet.  At December 31, 2004 and September 30, 2005, the balance in this
trust fund was approximately $248,000 and $252,000, respectively.

Note 12 -  Other commitments and contingencies:

Current litigation

     Prepetition   claims  against   Sherman   continue  to  be  negotiated  and
adjudicated  subsequent to the Company's emergence from Chapter 11 on August 31,
2005.

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

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

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

     On March 27, 2006,  the Bankruptcy  Court  approved a settlement  agreement
with one of DeSoto's former  insurers,  Allstate  Insurance  Company ("AIC") and
Northbrook Property and Casualty Insurance Company  ("NP&CIC"),  whereby Sherman
entered into a policy  buy-back  arrangement  with the insurers and the insurers
agree to withdraw their claims for retrospective  premiums under the policies in
Sherman's  bankruptcy  with  prejudice  after of the  Bankruptcy  Court's  order
approving the agreement  becomes final and  non-appealable.  As a result of this
agreement,  Sherman will receive approximately $4.0 million from the insurers in
exchange for a release of the insurers from the  policies.  The $4.0 million may
be used by  Sherman  to  satisfy  its  pre-petition  allowed  unsecured  claims,
including  environmental  related  claims  against  Sherman  in  its  bankruptcy
proceedings.  Any  portion of the $4.0  million  not used to  satisfy  Sherman's
allowed  unsecured  claims will revert back to the bankruptcy  estate of Sherman
and be distributed in accordance  with Keystone's  plan of  reorganization.  The
settlement agreement does not apply to any Worker's  Compensation  policies that
AIC or NP&CIC  underwrote for Sherman.  The  settlement  agreement also does not
apply to Sears, but Sears will be barred from bringing a claim against Sherman's
bankruptcy  estate after the Bankruptcy  Court's order  approving the settlement
becomes final and non-appealable.

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


Note 13 - Earnings per share:

     Net income per share is based upon the  weighted  average  number of common
shares  and  dilutive  securities.   A  reconciliation  of  the  numerators  and
denominators  used in the  calculations of basic and diluted  earnings per share
computations of income is presented  below.  Keystone stock options were omitted
from the calculation because they were antidilutive in all periods presented.

<TABLE>
<CAPTION>
                                                                     Three months ended              Nine months ended
                                                                       September 30,                   September 30,
                                                                   ----------------------       -----------------------
                                                                    2004           2005           2004            2005
                                                                   ------         -------       --------        -------
                                                                                       (In thousands)

Numerator:
<S>                                                                <C>            <C>            <C>          <C>
  Net income                                                       $10,887        $34,104        $14,242      $ 29,169

  Cancellation of Series A Preferred
   Stock                                                                 -          2,112              -         2,112
  Less Series A Preferred Stock
   dividends                                                          -              -            (1,223)         -
                                                                   -------        -------       --------     ---------
  Basic net income                                                  10,887         36,216         13,019        31,281
    Series A Preferred Stock dividends                                -              -             1,223          -
                                                                   -------        -------       --------     ---------

  Diluted net income                                               $10,887        $36,216        $14,242      $ 31,281
                                                                   =======        =======        =======      ========

Denominator:
  Average common shares outstanding                                 10,068         10,046         10,068        10,061
  Dilutive effect of Series A
   Preferred Stock                                                  17,975         11,983         17,975        15,978
                                                                   -------        -------       --------     ---------

  Diluted shares                                                    28,043         22,029         28,043        26,039
                                                                   =======        =======        =======      ========
</TABLE>

Note 14 - Stock Options:

     At December 31, 2004, the Company had 369,000 options outstanding under two
different option plans. In connection with Keystone's  emergence from Chapter 11
on August 31, 2005, all of Keystone's  common stock  outstanding at the February
2004 petition date (10.1 million  shares) was  cancelled.  As such,  the related
stock  options were also  cancelled.  As a result,  at September  30, 2005,  the
Company did not have any outstanding stock options.

Note 15 - Accounting principles not yet adopted:


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

     Stock options. Based on guidance issued by the U.S. Securities and Exchange
Commission,  the Company will adopt SFAS No. 123R,  "Share-Based Payment," as of
January 1, 2006. SFAS No. 123R,  among other things,  eliminates the alternative
in existing GAAP to use the intrinsic value method of accounting for stock-based
employee  compensation  under APBO No. 25. Upon  adoption of SFAS No. 123R,  the
Company will  generally be required to recognize  the cost of employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award,  with the cost  recognized over the period during which
an  employee  is  required  to  provide  services  in  exchange  for  the  award
(generally,  if the vesting period of the award).  No compensation  cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard to all new awards  granted on or after January 1, 2006.  Because all of
the Company's  outstanding  options upon emergence from Chapter 11 on August 31,
2005 were  cancelled  and the Company is not expected to grant any options prior
to January 1, 2006,  the effect of adopting  SFAS No. 123R is not expected to be
significant  in so far as it  relates  to  existing  stock  options.  Should the
Company,  however,  grant a  significant  number of options in the  future,  the
effect on the Company's consolidated financial statements could be material.


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

Bankruptcy:

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

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

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

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

In addition,  Keystone has obtained an $80 million  secured credit facility from
Wachovia Capital Finance (Central). Proceeds from this credit facility were used
to extinguish Keystone's existing  Debtor-In-Possession credit facilities and to
provide working capital for reorganized Keystone. See Note 2 to the Consolidated
Financial Statements.

Summary

     As discussed in Note 1 to the Consolidated  Financial Statements,  Keystone
restated its 2003 and 2004  consolidated  balance  sheets and statements of cash
flows to properly classify certain cash overdrafts.

     The Company  reported net income of $34.1  million in the third  quarter of
2005 as  compared to net income of $10.9  million in the third  quarter of 2004.
During the first nine months of 2005,  the Company  reported net income of $29.2
million as compared to net income of $14.2 million  during the first nine months
of 2004.  The primary  reasons  for the  increase in net income from both of the
2004 periods to the respective  periods in 2005 were (i) a $32.3 million gain on
cancellation of debt in connection with the Company's  emergence from Chapter 11
on August 31, 2005 in both of the 2005 periods,  (ii) a higher  defined  benefit
pension credit in both of the 2005 periods,  and (iii)  significantly lower OPEB
expense during both of the 2005 periods,  all partially offset by lower shipment
volumes during both of the 2005 periods.

OVERALL RESULTS OF OPERATIONS:

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

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

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

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

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

<TABLE>
<CAPTION>
                                                                Three months ended              Nine months ended
                                                                  September 30,                   September 30,
                                                               --------------------            -------------------
                                                               2004            2005            2004           2005
                                                               ----            ----            ----           ----
                                                                               (Tons in thousands)

Production volume (tons):
<S>                                                               <C>             <C>             <C>             <C>
 Billets                                                          169             166             455             403
 Wire rod                                                         161             148             428             380

Average per-ton ferrous
 scrap purchase cost                                             $210            $201            $193            $225

Sales volume(tons):
 Fabricated wire products                                          46              40             154             133
 Nails                                                              4               4              25              12
 Industrial wire                                                   22              19              66              50
 Wire rod                                                          79              61             142             149
 Billets                                                            3               5              17              11
                                                               ------           -----            ----          ------

                                                                  154             129             404             355
                                                               ======           =====            ====          ======
Per-ton selling prices:
  Fabricated wire products                                     $1,005            $958            $901          $1,014
  Nails                                                          $863            $718            $749          $  768
  Industrial wire                                                $776            $704            $691          $  741
  Wire rod                                                       $571            $470            $526          $  520
  Billets                                                        $226            $277            $176          $  295
  All steel and wire products                                    $731            $656            $695          $  738
</TABLE>

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

<TABLE>
<CAPTION>
                                                                Three months ended              Nine months ended
                                                                  September 30,                  September 30,
                                                               --------------------           ----------------------
                                                               2004            2005            2004           2005
                                                               ----            ----           -----           ------
                                                                                  (In millions)

<S>                                                          <C>              <C>             <C>             <C>
Fabricated wire products                                     $ 46.0           $38.4           $138.4          $135.1
Nails                                                           3.6             2.7             18.7             9.3
Industrial wire                                                17.1            13.6             46.0            37.2
Wire rod                                                       44.7            28.4             74.4            77.4
Billets                                                          .7             1.5              3.0             3.2
Other                                                            .4              .2              1.0             1.1
                                                             ------           -----           ------          ------
                                                             $112.5           $84.8           $281.5          $263.3
                                                             ======           =====           ======          ======
</TABLE>



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

<TABLE>
<CAPTION>
                                                                Three months ended              Nine months ended
                                                                   September 30,                   September 30,
                                                               --------------------            -----------------------
                                                               2004            2005             2004           2005
                                                               ----            ----            ------         --------

<S>                                                            <C>             <C>              <C>             <C>
Net sales                                                      100.0 %         100.0 %          100.0 %         100.0 %
Cost of goods sold                                              82.3            89.5             86.8            94.0
                                                               -----           -----            -----           -----
Gross margin                                                    17.7 %          10.5 %           13.2 %           6.0 %
                                                               =====           =====            =====           =====

Selling expense                                                  1.5 %           1.9 %            1.5 %           1.8 %
General and administrative expense                               2.6 %           3.6 %            3.0 %           3.2 %
Defined benefit pension credit                                   1.3 %           3.8 %            1.6 %           3.7 %
Corporate expense                                                1.0 %           0.7 %             .9 %           1.0 %
Reorganization costs                                             2.9 %           5.1 %            2.9 %           3.9 %
Gain on cancellation of debt                                       - %          38.2 %              - %          12.3 %

Income before income taxes                                      10.5 %          40.3 %            5.5 %          11.2 %
Income tax provision                                              .8              .1               .4              .1
                                                               -----           -----            -----           -----

Net income                                                       9.7 %          40.2 %            5.1 %          11.1 %
                                                               =====           =====            =====           =====
</TABLE>

Discussion of operating results

     Net sales during the third quarter of 2005 declined $27.7 million, or 24.6%
from the third quarter of 2004 due primarily to a 25,000 ton decline in shipment
volume and a 10.3% decline in per-ton product  selling  prices.  There was not a
significant  change in the Company's  product mix between the third  quarters of
2004 and 2005.  The  10.3%  decline  ($75 per ton) in  overall  per-ton  product
selling prices during the third quarter of 2005 adversely  impacted net sales in
that  period by  approximately  $9.7  million.  Net sales  during the first nine
months of 2005  declined  $18.2  million,  or 6.5% from the first nine months of
2004 as a 49,000 ton decline in shipment  volume more than offset higher per-ton
product  selling  prices.  As a result of lower shipment  volumes in all product
lines  except  wire rod during the first nine  months of 2005 as compared to the
same period in 2004,  Keystone's  product mix in the 2005 period  consisted of a
lower  percentage of fabricated  wire products,  nails and industrial  wire than
during the respective 2004 period.  Keystone was able to supplement  these lower
shipment  volumes of fabricated wire products,  nails and industrial wire during
the 2005 period  with  increased  shipments  of wire rod.  However,  the Company
typically realizes a lower gross margin on sales of wire rod than it does on its
other  products.  The 6.2%  increase  ($43 per ton) in overall  per-ton  product
selling prices during the first nine months of 2005 favorably impacted net sales
in that period by approximately $15.3 million.

     During the third quarter of 2005, Keystone experienced a decline in per-ton
selling prices in all product lines except billets over those of the same period
during 2004. During the third quarter of 2005,  fabricated wire products per-ton
selling prices declined by 4.7%, nails declined 16.8%,  industrial wire declined
9.3%,  wire rod declined 17.7% and the per-ton  selling prices of billets during
the third  quarter of 2005  increased  22.6% as compared to the third quarter of
2004. During the third quarter of 2005, fabricated wire products shipment volume
declined 13.0%, industrial wire declined 13.6% and wire rod declined 22.8% while
billet  shipments  increased by 66.7% in the third quarter of 2005 from the 2004
third  quarter  levels.  Shipments of nails  during the 2005 third  quarter were
unchanged  from the 2004 third quarter  levels.  During the first nine months of
2005,  fabricated wire products per-ton selling prices increased by 12.5%, nails
increased 2.5%, industrial wire increased 7.2% and billets increased 67.6% while
the  per-ton  selling  price of wire rod during  the first  nine  months of 2005
declined  1.1% as compared  to the first nine  months of 2004.  During the first
nine months of 2005,  fabricated  wire products  shipment volume declined 13.6%,
nails  declined  52.0%,  industrial  wire  declined  24.2% and billet  shipments
declined  35.3% while wire rod shipment  volume in the first nine months of 2005
increased 4.9% from the first nine months of 2004 levels.  The Company  believes
the  lower  shipment  volume in the 2005  periods  of both its  fabricated  wire
products and  industrial  wire were due to high  inventory  levels at Keystone's
customers. In addition,  Keystone believes the late winter and inclement weather
during the spring also adversely impacted fabricated wire product shipments. The
Company also believes the lower  shipment  volume of nails during the first nine
months of 2005  period  was due  primarily  to a Company  initiative  that began
during the last  quarter  of 2003 to  discontinue  sales to its less  profitable
customers.  Throughout  2004, the Company  implemented  several price  increases
primarily as a reaction to rapidly  increasing  ferrous scrap costs,  Keystone's
primary raw material.  As a result of these efforts,  with the exception of wire
rod,  during  the first nine  months of 2005,  the  Company  was able to realize
increases in the per-ton  product  selling prices of all of its product lines as
compared to per-ton  selling  prices during the  respective  period during 2004.
During the third quarter of 2005,  the cost of ferrous scrap was actually  lower
than the 2004 third quarter,  and as such, the Company's overall per-ton product
selling  prices  declined  during the 2005 third quarter as compared to the 2004
third quarter.

     Billet  production  during the 2005 third quarter declined by 3,000 tons to
166,000  tons from  169,000  tons  during the third  quarter  of 2004.  Wire rod
production  during the third  quarter of 2005 declined by 13,000 tons to 148,000
tons from  161,000  tons  during the third  quarter of 2004.  Billet  production
during the first nine months of 2005  declined  by 52,000  tons to 403,000  tons
from  455,000  tons  during the first nine months of 2004.  Wire rod  production
during the first nine months of 2005  declined  by 48,000  tons to 380,000  tons
from  428,000 tons during the first nine months of 2004.  With the  exception of
the  increase  in billet  production  during the 2005 third  quarter,  the lower
billet and wire rod  production  during the 2005  periods was due  primarily  to
Keystone  limiting  production  schedules during the 2005 periods as a result of
the lower market demand.

     Cost of goods sold during the 2005 third quarter declined by 18.0% to $75.9
million from $92.5 million during the 2004 third quarter.  However,  the cost of
goods sold percentage increased from 82.3% in the 2004 third quarter to 89.5% of
net sales in the third quarter of 2005.  This increase in the cost of goods sold
percentage was due primarily to the lower per-ton  product selling prices during
the 2005  third  quarter  partially  offset by lower  costs for  ferrous  scrap,
natural gas and electrical power at the Company's Peoria,  Illinois facility and
lower retiree medical costs during the 2005 quarter.  Keystone's per-ton ferrous
scrap costs  declined 4.5% during the 2005 third quarter as compared to the 2004
third quarter. During the 2005 third quarter, the Company purchased 183,000 tons
of ferrous  scrap at an average  price of $201 per-ton as compared to 2004 third
quarter  purchases  of 192,000  tons at an average  price of $210 per ton.  This
decline in per-ton  ferrous scrap costs  favorably  impacted gross profit during
the 2005 third quarter by  approximately  $1.7 million.  The cost of natural gas
and electrical  power at the Company's Peoria facility in the 2005 third quarter
was approximately $400,000 lower than the 2004 quarter.

     During 2004, the Company  entered into an agreement (the "1114  Agreement")
with  certain  retiree  groups that  substantially  reduced the post  retirement
("OPEB") benefits that will be paid to these retiree groups in the future. Prior
to confirmation of Keystone's definitive plan of reorganization, the Court could
have  rescinded the 1114  Agreement  and  therefore  the 1114  Agreement was not
definitive  until it was  confirmed by the Court in connection  with  Keystone's
emergence  from Chapter 11 on August 31, 2005. As such,  and in accordance  with
GAAP,  the Company  continued to record OPEB expense  through August 31, 2005 at
the  estimated  level  ($11.6  million for the first eight months of 2005) as if
Keystone had not entered into the 1114  Agreement.  However,  at the time of the
Company's  emergence  from  Chapter  11  on  August  31,  2005,  and  concurrent
confirmation  of the 1114  Agreement,  GAAP  then  required  the  effect  of the
substantially  reduced OPEB benefits  agreed to as part of the 1114 Agreement be
accounted for as a plan amendment, the benefit of which is amortized into income
over  future  periods.  Accordingly,  Keystone  will  record  an OPEB  credit of
approximately  $2.7  million for the last four months of 2005,  resulting  in an
$8.9 million expense for the year 2005.

     Despite a 6.5%  decline in sales  during  the first nine  months of 2005 as
compared to the same  period in 2004,  cost of goods sold  increased  by 1.3% to
$247.4  million from $244.3  million  during the first nine months of 2004. As a
result, the cost of goods sold percentage increased from 86.8% in the first nine
months  of 2004 to 94.0% of net  sales in the first  nine  months of 2005.  This
increase in the cost of goods sold  percentage was due primarily to higher costs
for ferrous  scrap,  natural gas and electrical  power at the Company's  Peoria,
Illinois  in the 2005  period as well as the less  favorable  product  mix,  all
partially  offset by the increased  product  per-ton  selling prices in the 2005
periods and the lower retiree  medical costs.  Keystone's  per-ton ferrous scrap
costs  increased  16.6%  during the first nine months of 2005 as compared to the
same period in 2004. During the first nine months of 2005, the Company purchased
447,000 tons of ferrous scrap at an average price of $225 per-ton as compared to
purchases  during  the first nine  months of 2004 of 511,000  tons at an average
price of $193 per ton.  This increase in per-ton  ferrous scrap costs  adversely
impacted gross profit during the 2005 period by approximately $14.3 million. The
cost of natural gas and electrical power at the Company's Peoria facility in the
first nine months of 2005 was $1.3 million higher than during the 2004 period.

     As a result of the above items,  the gross  margin of $20.0  million in the
2004 third  quarter  declined to $8.9 million in the 2005 third  quarter and the
gross margin of $37.2  million  during the first nine months of 2004 declined to
$15.9  million  during the first  nine  months of 2005.  As a result,  the gross
margin percentage in the third quarter of 2004 of 17.7% declined to 10.5% in the
2005 third  quarter and the gross margin  percentage in the first nine months of
2004 of 13.2% declined to 6.0% in the first nine months of 2005.

     Selling expense during the 2005 third quarter of $1.6 million was relativey
unchanged from the third quarter of 2004.  However,  selling  expense during the
first nine months of 2004 of $4.3 million  increased to $4.6 million  during the
first nine months of 2005 due primarily to increased advertising expenses.

     General  and  administrative  expense  of $3.1  million  in the 2005  third
quarter was approximately $169,000 more than general and administrative expenses
during the third quarter of 2004 and general and  administrative  expense during
the first nine months of 2005 of $8.1 million was  approximately  $155,000  more
than the $8.3  million of general and  administrative  expense in the first nine
months of 2004 due  primarily to increased  non-Chapter  11 related  legal costs
partially offset by lower retiree medical costs.

     During the third quarter and first nine months of 2005, Keystone recorded a
defined benefit  pension credit of $3.2 million and $9.7 million,  respectively,
as compared to recording a defined  benefit  pension  credit in the same periods
during  2004 of $1.5  million  and $4.5  million,  respectively.  The  increased
pension credit during the 2005 periods was a result of a $52 million increase in
plan assets from the end of 2003 to the end of 2004.  In addition,  Keystone was
not required to make any cash  contributions  for defined  benefit  pension plan
fundings during either 2005 or 2004. The Company  currently  anticipates  during
2005 it will record a defined  benefit  pension credit of $11.7 million and that
no plan fundings will be required during 2005.  However,  future  variances from
assumed  actuarial  rates,  including the rate of return on pension plan assets,
may result in increases  or  decreases  in pension  expense or credit and future
funding requirements.

     During the third quarter of 2005, the Company recorded  $566,000 of general
corporate  expense as compared to recording  $1.1  million of general  corporate
expenses  during 2004 third quarter.  The primary reason for this  difference is
lower  retiree  medical  costs.  In  addition,  general  insurance  expense  was
approximately  $500,000  less in the 2005 third quarter than in the same quarter
in 2004. During the first nine months of 2005, Keystone recorded $2.8 million of
general corporate expense which was a $118,000 increase from the $2.6 million of
general  corporate  expenses  recorded  in the first  nine  months of 2004.  The
primary  reasons for this increase was increased state franchise taxes partially
offset by lower retiree medical costs and general insurance expense.

     Interest  expense during the third quarter of 2005 was slightly higher than
in the third  quarter of 2004 due  primarily to higher  interest  rates and debt
levels in the 2005  quarter.  Interest  expense  during the first nine months of
2005 was slightly  lower than in the first nine months of 2004 due  primarily to
lower interest rates in 2005 partially  offset by lower debt levels in 2005. The
overall   average   interest  rates  were  impacted  by  the  fact  the  Company
discontinued  accruing  interest on pre-petition  unsecured debt upon filing for
Chapter 11 on February 2, 2004. Average  borrowings by the Company  approximated
$88.6  million  during the third  quarter of 2005 as compared  to $76.6  million
during the third quarter of 2004. Average borrowings by the Company approximated
$87.1 million during the first nine months of 2005 as compared to $100.5 million
during the first nine  months of 2004.  During  the third  quarter of 2005,  the
average interest rate on outstanding indebtedness was 4.2% per annum as compared
2.6% per annum  during  the 2004  third  quarter.  During the nine six months of
2005, the average  interest rate on outstanding  indebtedness was 4.0% per annum
as  compared  3.2% per annum  during  the first  nine  months of 2004.  Keystone
currently  anticipates  average interest rates and debt levels for the year 2005
will be higher than their respective levels during 2004.

     In connection with Keystone's emergence from Chapter 11 on August 31, 2005,
pre-petition  unsecured  creditors  and  certain  post-petition  creditors  with
allowed claims against the Company in the amount of approximately  $63.7 million
received,  on a pro rata basis,  in the aggregate,  $5.2 million in cash, a $4.8
million secured  promissory note and 100% of the new common stock of reorganized
Keystone  (valued at $21.4 million).  As a result,  the Company recorded a $32.3
million gain from cancellation of debt during the third quarter of 2005.

     During the third quarters of 2005 and 2004,  Keystone incurred $4.3 million
and $3.3 million,  respectively of legal and  professional  fees relative to its
Chapter 11 proceedings and related reorganization  activities.  During the first
nine month periods of 2005 and 2004,  Keystone  incurred  $10.3 million and $8.3
million,  respectively  of legal and  professional  fees  relative to these same
activities.

     The principal reasons for the difference between the U.S. federal statutory
income tax rate and the  Company's  effective  income tax rates are explained in
Note 7 to the  Consolidated  Financial  Statements.  At September 30, 2005,  the
Company had  recorded a deferred tax asset  valuation  allowance of $7.3 million
resulting  in no net  deferred  tax assets.  Keystone  periodically  reviews the
recoverability  of its deferred tax assets to determine whether such assets meet
the  "more-likely-than-not"  recognition criteria.  The Company will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews,  Keystone could recognize a change in the recorded valuation  allowance
related to its  deferred tax assets in the future.  While the Company  currently
expects to report pre-tax income for financial  reporting  purposes during 2005,
it does not believe it will have sufficient  positive  evidence to conclude that
its  net  deferred  income  tax  assets  will  meet  the  "more-likely-than-not"
recognition  criteria anytime during 2005. As a result of the deferred tax asset
valuation allowance, the Company does not anticipate recognizing a tax provision
associated with its expected pre-tax income during 2005 will be appropriate.

     As a result of the items  discussed  above,  Keystone  recorded  net income
during the third  quarter of 2005 of $34.1  million as compared to net income of
$10.9  million  in the third  quarter  of 2004 and net  income of $29.2  million
during the first nine months of 2005 as compared to net income of $14.2  million
during the first nine months of 2004.

SEGMENT RESULTS OF OPERATIONS:

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include three  reportable  segments:  (i) Keystone Steel and Wire
("KSW")  which  manufacturers  and sells wire rod,  wire and wire  products  for
agricultural,   industrial,   construction,   commercial,   original   equipment
manufacturers and retail consumer markets, (ii) Engineered Wire Products ("EWP")
which  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,  (iii)
Sherman Wire ("Sherman")  which  manufacturers  and sells wire and wire products
for  agricultural,  industrial,  construction,  commercial,  original  equipment
manufacturers  and retail  consumer  markets.  In connection  with the Company's
emergence  from  Chapter 11 on August 31,  2005,  certain  operating  assets and
existing operations of Sherman were sold at fair market value to Keystone, which
then  used  these  assets  to form  and  operate  a newly  created  wholly-owned
subsidiary of reorganized Keystone named Keystone Wire Products Inc. ("KWP"). As
such,  operating  results of this segment  prior to  Keystone's  emergence  from
Chapter 11 were operating results of Sherman.  Operating results of this segment
after  Keystone's  emergence from Chapter 11, were operating  results of KWP. In
accordance  with  Keystone's  plan of  reorganization,  the remaining  assets of
Sherman will eventually be liquidated.

<TABLE>
<CAPTION>
                                                            Three months ended                Nine months ended
                                                              September 30,                     September 30,
                                                         -------------------------        ------------------------
                                                          2004             2005             2004            2005
                                                         ------            -------        -------          -------
                                                                              (In thousands)

Revenues:
<S>                                                      <C>              <C>              <C>             <C>
  Keystone Steel and Wire                                $105,084         $ 76,455         $268,895        $247,536
  Engineered Wire Products                                 18,538           17,986           45,577          47,792
  Sherman/KWP                                               4,742            7,710           12,239          16,876
  Elimination of intersegment
    revenues                                              (15,859)         (17,381)         (45,202)        (48,905)
                                                         --------         --------         --------        --------

                                                         $112,505         $ 84,770         $281,509        $263,299
                                                         ========         ========         ========        ========

Operating profit (loss):
  Keystone Steel and Wire                                $ 10,989         $   (489)        $ 14,296        $(11,060)
  Engineered Wire Products                                  3,423            2,453            8,024           7,084
  Sherman/KWP                                                 136             (264)            (425)           (814)
  GAAP adjustments and
   eliminations                                             2,398            5,762            7,194          17,287
                                                         --------         --------         --------        --------

                                                         $ 16,946         $  7,462         $ 29,089        $ 12,497
                                                         ========         ========         ========        ========
</TABLE>

     GAAP adjustments and eliminations in the above table consisted primarily of
adjustments to reflect the difference between the defined benefit pension credit
and OPEB expense  allocated  to the  segments  and the actual  expense or credit
included in the  determination of operating profit or loss. GAAP adjustments and
eliminations  included a defined benefit pension credit of $4.1 million and $3.1
million during the three months ended September 30, 2005 and 2004, respectively,
and $12.4  million and $7.2 million  during the nine months ended  September 30,
2005 and 2004, respectively.

Keystone Steel & Wire

     KSW's net sales in the 2005  third  quarter  declined  by $28.6  million or
27.2% to $76.5  million  from  $105.1  million in the third  quarter of 2004 due
primarily to lower shipment  volumes and lower overall  per-ton  product selling
prices.  KSW's net sales during the first nine months of 2005  declined by $21.4
million or 7.9% to $247.5  million  from  $268.9  million  during the first nine
months of 2004 due  primarily  to lower  shipment  volumes  partially  offset by
higher overall per-ton product selling.  KSW sold approximately 29,000 less tons
of products in the 2005 third  quarter as compared to the third quarter of 2004,
at selling prices $84 per-ton lower than per-ton  product  selling prices in the
2004 third quarter.  KSW sold approximately  22,000 less tons of products in the
first nine months of 2005 as compared to the first nine months of 2004, although
at selling prices $32 per-ton higher than per-ton  product selling prices in the
same period  during 2004.  KSW believes  the lower  shipment  volume in the 2005
periods of both its  fabricated  wire products and  industrial  wire were due to
high inventory  levels at KSW's  customers.  In addition,  KSW believes the late
winter  and  inclement  weather  during  the  spring  also  adversely   impacted
fabricated wire product  shipments.  KSW also believes the lower shipment volume
of nails during the 2005 periods was due primarily to an  initiative  that began
during the last  quarter  of 2003 to  discontinue  sales to its less  profitable
customers. KSW was able to supplement these lower shipment volumes of fabricated
wire products,  nails and industrial wire during the 2005 periods with increased
shipments of wire rod. However,  KSW typically  realizes a lower gross margin on
sales of wire rod  than it does on its  other  products.  Throughout  2004,  KSW
implemented  several  price  increases  primarily  as a reaction  to  increasing
ferrous scrap costs,  KSW's primary raw material.  As a result of these efforts,
during the first nine months of 2005,  KSW was able to realize  increases in its
per-ton product selling prices over the same period in 2004. However, during the
third  quarter of 2005,  the cost of ferrous  scrap was actually  lower than the
2004 third quarter,  and as such, the Company's  overall per-ton product selling
prices  declined  during the 2005 third  quarter as  compared  to the 2004 third
quarter.  During both the 2005 and 2004 third quarters,  approximately  15.2% of
KSW's net sales  were made to other  Keystone  entities.  During  the first nine
months of both 2005 and 2004,  approximately  14.9% of KSW's net sales were made
to other Keystone entities. Significantly all of the KSW sales to other Keystone
entities were sales of wire rod.

     During  the third  quarter  of 2005,  KSW  recorded  an  operating  loss of
$489,000  as  compared to  operating  income of $11.0  million in the 2004 third
quarter. During the first nine months of 2005, KSW recorded an operating loss of
$11.1 million as compared to $14.3 million of operating  income during the first
nine months of 2004. The primary reasons for the lower  operating  profit in the
third  quarter  of 2005 were the lower  shipment  volumes  and  per-ton  product
selling  prices in the 2005 third  quarter  partially  offset by lower costs for
ferrous scrap,  natural gas and electrical power and lower retiree medical costs
in the 2005 third quarter.  The primary reasons for the lower  operating  profit
during  the first  nine  months  of 2005 were  lower  shipment  volumes,  a less
favorable  product  mix and  higher  costs for  ferrous  scrap and  natural  gas
electrical  power all partially offset by lower retiree medical costs and higher
per-ton product selling prices in the first nine months of 2005.

Engineered Wire Products

     EWP's net sales of $18.0  million  during  the third  quarter  of 2005 were
approximately  $500,000 or 3.0% lower than during the third  quarter of 2004 due
primarily to slightly lower overall  per-ton  product  selling prices  partially
offset by slightly higher shipment volume. During the first nine months of 2005,
EWP's net sales of $47.8 million were  approximately $2.2 million or 4.9% higher
than  during  the first  nine  months of 2004 due  primarily  to higher  overall
per-ton product selling prices partially offset by lower shipment volume. During
the 2005 third quarter,  EWP sold  approximately  300 more tons of products than
during the third quarter of 2004 at per-ton product selling prices approximately
$40 per-ton lower than per-ton selling prices in the 2004 third quarter.  During
the first nine months of 2005,  EWP sold 3,000 less tons of products than during
the first nine months of 2004 at per-ton  product  selling prices  approximately
$85  per-ton  higher  than  per-ton  selling  prices in the same period in 2004.
During 2004, EWP implemented  several price increases primarily as a reaction to
rapidly  increasing wire rod costs,  EWP's primary raw material.  As a result of
these  efforts,  during the first nine  months of 2005,  EWP was able to realize
increases in its per-ton  product  selling  prices over the same period in 2004.
However,  during the third  quarter of 2005,  the cost of wire rod was  actually
lower than the 2004 third quarter,  and as such,  EWP's overall  per-ton product
selling  prices  declined  during the 2005 third quarter as compared to the 2004
third quarter. EWP sources the majority of its wire rod requirements from KSW.

     Primarily as a result of the lower selling  prices during the third quarter
of 2005,  partially  offset by lower cost for wire rod, EWP  reported  operating
income of $2.5  million  as  compared  to $3.4  million  during  the 2004  third
quarter.  During the first nine months of 2005,  EWP's  higher  per-ton  product
selling  prices were more that offset by higher costs,  primarily wire rod, and,
as such, EWP's operating income declined from $8.0 million during the first nine
months of 2004 to $7.1 million during the first nine months of 2005.

Sherman Wire/Keystone Wire Products

     This  segment's  net sales of $7.7  million in the 2005 third  quarter were
approximately  $3.0 million more than net sales during the third quarter of 2004
of $4.7  million as  increased  shipment  volume  more than  offset a decline in
per-ton  product selling  prices.  In addition,  during the first nine months of
2005,  this  segment's  net sales  increased  37.9% to $16.9  million from $12.2
million  during the first  nine  months of 2004 also due to  increased  shipment
volumes  partially offset by lower per-ton product selling prices.  Tons shipped
by this segment  during the third  quarter of 2005  increased by 5,400 tons,  or
94.9% from shipment  levels  during the third  quarter of 2004.  Tons shipped by
this segment  during the first nine months of 2005  increased by 6,300 tons from
shipment  levels  during  the same  period  of 2004.  Management  believes  this
segment's  higher shipment volumes during the 2005 periods were due to increased
demand from existing  customers during the 2005 period.  This segment's  overall
per-ton product selling price declined by approximately  $138 per-ton during the
2005 third quarter as compared to the per-ton  product selling prices during the
third quarter of 2004.  This segment's  overall  per-ton  product  selling price
declined by  approximately  $33 per-ton  during the first nine months of 2005 as
compared to the per-ton  product  selling prices during the first nine months of
2004.  Management  believes the decline in per-ton  product  selling prices from
this  segment  during both the 2005 periods was due to lower costs for wire rod,
this segment's primary raw material,  and declining market prices.  This segment
sources the  majority of its wire rod  requirements  from KSW.  During the third
quarter of 2005 and 2004,  approximately 74% and 57%,  respectively,  and during
the first nine months of 2005 and 2004, approximately 72% and 63%, respectively,
of this segment's net sales were made to other Keystone entities, primarily KSW.
The majority of these sales were fabricated wire products.

     During the third quarter of 2005,  this segment  recorded an operating loss
of $264,000 as compared to $136,000 of  operating  income  recorded in the third
quarter of 2004. During the first nine months of 2005, Sherman Wire/KWP recorded
an $814,000  operating loss as compared to a $425,000  operating loss during the
first nine months of 2004.  The  primary  reason for this  decline in  operating
performance  in the first nine months of 2005 was a less  favorable  product mix
during the 2005  period as well as  increased  costs  during the 2005 period for
utilities and repair and maintenance  partially  offset by lower retiree medical
costs.

Outlook for 2005

     During 2005, rod imports have  continued at high levels.  These high import
levels combined with increased  production from domestic mills has resulted in a
decline in per-ton sales prices of the Company's products. In addition, the late
winter and inclement  weather during the spring and summer of 2005 has adversely
impacted  sales. As a result,  management  believes these factors will result in
lower  shipment  volume  in  2005  as  compared  to  2004.  The  Company's  2005
performance  will also be adversely  impacted by higher costs for ferrous  scrap
and the  cost of legal  and  professional  fees  associated  with the  Company's
bankruptcy  and  related  restructuring  efforts.  However,  the  effects of the
Company's  restructuring  efforts in 2004 and 2005 will partially mitigate these
factors,  as the Company expects to report a significant gain upon  cancellation
of debt and  other  liabilities  as well as  substantially  lower  OPEB  expense
concurrent with its emergence from Chapter 11. As a result,  Keystone expects it
will report net income for financial  reporting  purposes although it expects to
report negative cash flows from operating activities in 2005. In addition,  as a
result of significant accumulated net operating losses, the benefit of which has
not been previously  recognized for financial  reporting purposes as the Company
does  not  currently  believe  meets  the   "more-likely-than-not"   recognition
criteria,  the  Company  does not expect to record  significant  net tax expense
associated with its pre-tax income during 2005.

LIQUIDITY AND CAPITAL RESOURCES:

     At September  30,  2005,  Keystone  had working  capital of $29.8  million,
including $5.4 million of notes payable and current maturities of long-term debt
as well as outstanding  borrowings under the Company's revolving credit facility
of $25.3 million.  The amount of available borrowings under the revolving credit
facility  is based  on  formula-determined  amounts  of  trade  receivables  and
inventories,  less the amount of outstanding letters of credit. At September 30,
2005,  unused credit available for borrowing under  Keystone's  revolving credit
facility was $29.2 million.  The Company's  revolving  credit facility  requires
daily cash receipts be used to reduce outstanding  borrowings,  which results in
the Company  maintaining zero cash balances when there are balances  outstanding
under this credit  facility.  Accordingly,  any  outstanding  balances under the
revolving  credit  facility  are  always   classified  as  a  current  liability
regardless of the maturity date of the facility.

     Despite a $14.9 million  increase in earnings between the first nine months
of 2004 and the first nine months of 2005,  cash flow from operating  activities
in the first nine months of 2005 declined by $23.4 million as Keystone generated
$5.1  million of cash from  operations  during the first nine  months of 2004 as
compared  to using  $18.3  million  of cash in  operations  during the first six
months of 2005.  This increase in cash used in  operations  was due primarily to
the $32.3 million non-cash gain on cancellation of debt in the 2005 period,  the
difference  between  recording $13.6 million of non-cash OPEB expense during the
2004 period and $6.8  million of non-cash  OPEB  expense in the 2005  period,  a
$10.6 million  increase in accounts  payable  related to a former  ferrous scrap
supplier  during the 2004 period and a $5.2  million  increase  in the  non-cash
pension  credit  from 2004 to 2005,  all offset by changes in  inventory  levels
between  2004 and 2005.  As a result of the 1114  Agreement,  during  2005,  the
Company  recorded  OPEB  expense of $11.0  million as opposed to OPEB expense of
$17.3 million during the 2004 period. During 2004, as a result of a dispute with
a ferrous  scrap  supplier  relative to consigned  inventories  on the Company's
premises at the bankruptcy  filing date,  Keystone was required to make payments
into a  restricted  cash  account as it  consumed  the  disputed  ferrous  scrap
inventories.  As a result, at September 30, 2004, Keystone had accrued a payable
to the ferrous scrap supplier of approximately  $10.6 million.  This dispute was
resolved and the restricted  cash account was released during the fourth quarter
of  2004.  During  the  2004  period,  the  Company  increased   inventories  by
approximately $21.3 million as opposed to a $7.4 million increase in inventories
during  the  2005  period.  Because  of the  seasonal  nature  of the  Company's
business,  the 2005 change in inventory levels was typical.  The reason the 2004
changes in these inventory  levels was not consistent with 2005's change was due
to  Keystone's  limited  liquidity  during  the last  half of 2003 and the first
portion of 2004, not allowing the Company to operate on a continuous  basis.  As
such, production levels declined and Keystone was forced to substantially reduce
its normal  inventory levels over the last half of 2003 and the first two months
of 2004 in order to meet customer  shipment demand. As such, at the end of 2003,
the  Company's  inventory  balances were at  abnormally  low levels.  Keystone's
operations returned to normal levels during 2004.

     During the first nine months of 2005, Keystone made capital expenditures of
approximately $6.1 million primarily related to upgrades of production equipment
at its  facility in Peoria,  Illinois,  as compared to $1.9 million in the first
nine  months  of  2004.  Capital  expenditures  for  2005  are  expected  to  be
approximately  $7.0 million and are related  primarily to upgrades of production
equipment at EWP. Such capital expenditures are expected to be funded using cash
flows from  operations  together with borrowing  availability  under  Keystone's
credit facilities.

     At September 30, 2005, the Company's financial statements reflected accrued
liabilities  of $18.3 million ($8.5 million of which is included in  liabilities
subject to compromise on the Company's balance sheet) for estimated  remediation
costs for those  environmental  matters which Keystone believes are probable and
reasonably  estimable.  Although  the  Company  has  established  an accrual for
estimated future required environmental remediation costs, there is no assurance
regarding  the  ultimate  cost of remedial  measures  that might  eventually  be
required by environmental  authorities or that additional environmental hazards,
requiring  further  remedial  expenditures,   might  not  be  asserted  by  such
authorities or private parties.  Accordingly, the costs of remedial measures may
exceed the amounts accrued. Keystone believes it is not possible to estimate the
range of costs for certain sites. The upper end of range of reasonably  possible
costs to  Keystone  for sites for which the  Company  believes it is possible to
estimate  costs  is  approximately  $18.3  million.  See  Notes 11 and 12 to the
Consolidated Financial Statements for discussions of the Company's environmental
liabilities and current litigation.

     Keystone  is not  expected  to be  required  to make  contributions  to its
pension  plan during  2005.  Future  variances  from  assumed  actuarial  rates,
including the rate of return on pension plan assets,  may result in increases or
decreases  to  pension  expense  or credit and  funding  requirements  in future
periods.

     The Company  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria.  At  September  30,  2005,  the Company  expects that its
long-term  profitability should ultimately be sufficient to enable it to realize
full benefit of its future tax deductions,  in part due to the long-term  nature
of its  net  operating  loss  carryforwards,  which  expire  in 2023  and  2024.
Although,  considering  all  factors  believed  to be  relevant,  including  the
Company's recent operating results,  its expected future near-term  productivity
rates;  cost  of  raw  materials,  electricity,  labor  and  employee  benefits,
environmental remediation, and retiree medical coverage; interest rates; product
mix;  sales  volumes and selling  prices and the fact that accrued OPEB expenses
will become  deductible  over an extended period of time and require the Company
to generate  significant  amounts of future taxable income, the Company believes
its gross deferred tax assets do not currently  meet the  "more-likely-than-not"
realizability  test.  As such,  the  Company has  provided a deferred  tax asset
valuation  allowance of approximately $7.3 million at September 30, 2005, or all
of the  Company's  deferred  tax asset.  Keystone  will  continue  to review the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
the Company  could change the  valuation  allowance  related to its deferred tax
assets  in the  future.  The  Company  does  not  currently  expect  it  will be
appropriate to recognize a tax provision  associated  with its expected  pre-tax
income during 2005.

     During  the  Company's  Chapter  11  proceedings,   Keystone  was  able  to
significantly reduce its expected annual cash contributions to medical plans for
both  current and  retired  employees.  Despite  these  significant  reductions,
Keystone still incurs  significant  ongoing costs for medical  benefits for both
current  and  retired  employees  as well as for plant and  equipment.  As such,
Keystone is  vulnerable  to  business  downturns  and  increases  in costs,  and
accordingly,  routinely  compares its liquidity  requirements  and capital needs
against its  estimated  future  operating  cash  flows.  In  addition,  Keystone
currently  anticipates  incurring legal and  professional  fees of approximately
$11.0 million  during 2005 related to its  reorganization  efforts.  Keystone is
also taking additional action towards improving its liquidity. Keystone has also
considered,  and may in the future  consider,  the sale of certain  divisions or
subsidiaries that are not necessary to achieve the Company's  long-term business
objectives.  However,  there can be no assurance  Keystone will be successful in
any of  these  or  other  efforts,  or that if  successful,  they  will  provide
sufficient liquidity for the Company's operations during the next year.

     Summary of Debt and Other Contractual Commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in  the  future.  See  Notes  2 and  5 to  the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment:


<TABLE>
<CAPTION>
                                                          Payment due date
                                       -----------------------------------------------------
                                                                                                    2011 and
      Contractual commitment            2005          2006          2007/2008       2009/2010        After          Total
      ----------------------            ----          ----          ---------       ---------       -------         -----
                                                                          (In thousands)

Indebtedness:
<S>                                      <C>           <C>             <C>              <C>               <C>       <C>
   Principal                             $1,566        $5,461          $40,203          $43,220           $ -       $ 90,450
   Interest                                 509         1,876            3,555            1,897             -          7,837

Operating leases                            283           480              275              127             -          1,165

Product supply
 agreement                                  300         1,200            2,400            2,400          1,500         7,800
                                         ------        ------          -------          -------         ------     ---------

                                         $2,658        $9,017          $46,433          $47,644         $1,500      $107,252
                                         ======        ======          =======          =======         ======      ========
</TABLE>


     The  timing  and  amounts  shown  in the  above  table  for  the  Company's
commitments  related to indebtedness  (both  principal and interest),  operating
leases and product  supply  agreements  are based upon the  contractual  payment
amount and the contractual payment date for such commitments  (including a total
of approximately $665,000 of interest that will be converted to principal during
2005 and 2006. In addition,  the $24.3 million due under the Company's revolving
credit  facility is shown as current  maturities in the  Company's  Consolidated
Financial  Statements at September 30, 2005.  However,  the above table reflects
maturities of these facilities only upon the contracted expiration of the credit
facility.

     In addition,  the Company is party to an agreement that requires  quarterly
contributions  of $75,000 to an  environmental  trust fund.  Monies in the trust
fund will be made available to the Company as the related  environmental site is
remediated.

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


ITEM 4.  CONTROLS AND PROCEDURES

     Evaluation of Disclosure  Controls and  Procedures.  The Company  maintains
disclosure   controls  and  procedures.   The  term  "disclosure   controls  and
procedures,"  as defined by Rule 13a-15(e) of the Securities and Exchange Act of
1934 as amended  ("the  Act"),  means  controls  and other  procedures  that are
designed to ensure that information required to be disclosed in the reports that
the Company files or submits to the Securities and Exchange  Commission ("SEC"),
is  recorded,  processed,  summarized  and  reported,  within  the time  periods
specified  in the SEC's  rules and forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information required to be disclosed by the Company in the reports that it files
or  submits  to the SEC under the Act is  accumulated  and  communicated  to the
Company's  management,   including  its  principal  executive  officer  and  its
principal  financial  officer,  or  persons  performing  similar  functions,  as
appropriate to allow timely decisions to be made regarding required  disclosure.
Each of David L. Cheek, the Company's President and Chief Executive Officer, and
Bert E. Downing,  Jr., the Company's Vice President,  Chief  Financial  Officer,
Corporate  Controller  and Treasurer,  have  evaluated the Company's  disclosure
controls and procedures as of September 30, 2005.  Based upon their  evaluation,
and  solely  as a result  of the  material  weaknesses  discussed  below,  these
executive  officers  have  concluded  the  Company's   disclosure  controls  and
procedures were not effective as of September 30, 2005.

     Internal Control Over Financial Reporting. A material weakness is a control
deficiency, or a combination of control deficiencies,  that results in more than
a remote  likelihood  that a  material  misstatement  of the  annual or  interim
financial  statements  will not be  prevented  or  detected.  Management  of the
Company  has  concluded  that  the  following  control  deficiencies  constitute
material weaknesses in the Company's internal control over financial reporting:

     (1)  As of  September  30,  2005,  the Company did not  maintain  effective
          controls over the  completeness  and accuracy of net sales and related
          cost of goods sold.  Specifically,  the Company did not have  controls
          designed and in place to detect  sales made under the terms F.O.B.  at
          the customer's  location.  Additionally,  the Company did not maintain
          effective  controls over the review and monitoring of the accuracy and
          completeness  of net  sales  and  costs of goods  sold.  This  control
          deficiency resulted in adjustments to net sales and cost of goods sold
          in the third quarter of 2005.
     (2)  As of  September  30,  2005,  the Company did not  maintain  effective
          controls over the presentation and  classification of cash overdrafts.
          Specifically,  effective  controls  were not  designed and in place to
          ensure that cash overdrafts  were properly  classified as indebtedness
          in the Company's  consolidated  balance sheet, and that changes in its
          cash overdrafts were properly  included in the  determination  of cash
          flows from financing  activities.  This control deficiency resulted in
          the  restatement  of the Company's  2003 and 2004 annual  consolidated
          financial  statements  and audit  adjustments to both its 2004 interim
          consolidated  financial  statements  and its annual and  interim  2005
          consolidated  financial  statements affecting accounts payable and the
          current portion of long-term debt.

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

     Accordingly,  management  of the  Company  determined  that  each of  these
control deficiencies constitutes a material weakness.

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

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

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

     Changes in Internal  Control Over Financial  Reporting.  There have been no
changes in the Company's  internal  control over financial  reporting during the
quarter ended September 30, 2005 that has materially affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

     Reference  is  made to  disclosure  provided  under  the  caption  "Current
litigation" in Note 12 to the Consolidated Financial Statements.


ITEM 6. Exhibits

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

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

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

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


                               S I G N A T U R E S



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


                           Keystone Consolidated Industries, Inc.
                                      (Registrant)



Date:  March 31, 2006               By /s/Bert E. Downing, Jr.
                                       --------------------------------------
                                       Bert E. Downing, Jr.
                                       Vice President, Chief Financial
                                       Officer, Corporate Controller
                                       and Treasurer
                                       (Principal Financial and Accounting
                                       Officer)