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 June 30, 2003
                         -------------

Commission file number 1-3919
                       ------

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


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

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


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

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

                           Yes   X                            No
                                ---                              ---

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

                           Yes                                No   X
                               ---                                ---

Number of shares of common stock outstanding at August 14, 2003: 10,068,450



<PAGE>





                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


                                                                      Page
                                                                     number

PART I.      FINANCIAL INFORMATION

  Item 1.         Financial Statements

                  Consolidated Balance Sheets - December 31, 2002
                   and June 30, 2003                                   3-4

                  Consolidated Statements of Operations - Three months
                   and six months ended June 30, 2002 and 2003         5-6

                  Consolidated Statements of Cash Flows - Six months
                   ended June 30, 2002 and 2003                         7

                  Consolidated Statement of Stockholders'
                   Deficit - Six months ended June 30, 2003             8

                  Notes to Consolidated Financial Statements           9-23

  Item 2.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                24-35

  Item 4.         Controls and Procedures                              36


PART II. OTHER INFORMATION

  Item 1.         Legal Proceedings                                    37

  Item 6.         Exhibits and Reports on Form 8-K                     37



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)


<TABLE>
<CAPTION>
                                                       December 31,     June 30,
                                   ASSETS                  2002           2003
                                                       ------------     -------

Current assets:
<S>                                                      <C>            <C>
  Notes and accounts receivable ..................       $ 22,578       $ 43,550
  Inventories ....................................         50,089         39,945
  Prepaid expenses and other .....................            893          2,385
                                                         --------       --------

     Total current assets ........................         73,560         85,880
                                                         --------       --------

Property, plant and equipment ....................        373,833        374,594
Less accumulated depreciation ....................        253,849        261,735
                                                         --------       --------

     Net property, plant and equipment ...........        119,984        112,859
                                                         --------       --------

Other assets:
  Restricted investments .........................          5,730          5,773
  Unrecognized net pension obligation ............         11,852         11,852
  Deferred financing costs .......................          2,319          1,963
  Goodwill .......................................            752            752
  Other ..........................................          1,298          1,219
                                                         --------       --------

     Total other assets ..........................         21,951         21,559
                                                         --------       --------

                                                         $215,495       $220,298
                                                         ========       ========
</TABLE>






<PAGE>

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>
<CAPTION>
 LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                     December 31,       June 30,
                                                         2002            2003
                                                     ------------       -------

Current liabilities:
  Notes payable and current maturities of
<S>                                                    <C>            <C>
    long-term debt ...............................     $  33,935      $  77,696
  Accounts payable ...............................        23,696         25,233
  Accounts payable to affiliates .................         1,448          2,253
  Accrued OPEB cost ..............................        11,372         11,385
  Accrued preferred stock dividends ..............         4,683          7,653
  Other accrued liabilities ......................        40,216         41,092
                                                       ---------      ---------

      Total current liabilities ..................       115,350        165,312
                                                       ---------      ---------

Noncurrent liabilities:
  Long-term debt .................................        63,306         32,258
  Accrued OPEB cost ..............................       102,717        105,020
  Accrued pension costs ..........................        48,571         51,971
  Other ..........................................        20,337         18,329
                                                       ---------      ---------

      Total noncurrent liabilities ...............       234,931        207,578
                                                       ---------      ---------

Minority interest ................................             2            334
                                                       ---------      ---------

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

Stockholders' deficit:
  Common stock ...................................        10,798         10,798
  Additional paid-in capital .....................        48,388         45,418
  Accumulated other comprehensive loss -
   pension liabilities ...........................      (170,307)      (170,307)
  Accumulated deficit ............................       (25,767)       (40,935)
  Treasury stock, at cost ........................           (12)           (12)
                                                       ---------      ---------

      Total stockholders' deficit ................      (136,900)      (155,038)
                                                       ---------      ---------

                                                       $ 215,495      $ 220,298
                                                       =========      =========
</TABLE>





<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                             Three months ended              Six months ended
                                                                 June 30,                        June 30,
                                                            2002           2003            2002            2003
                                                            ----           ----            ----            ----

<S>                                                     <C>             <C>            <C>             <C>
  Net sales                                             $ 99,005        $ 96,749       $189,446        $177,838
  Cost of goods sold                                      88,194          92,924        169,902         172,575
                                                        --------        --------       --------        --------
    Gross margin                                          10,811           3,825         19,544           5,263
                                                        --------        --------       --------        --------

  Selling expense                                          1,735           2,305          3,574           4,534
  General and administrative                               5,324           3,618         10,523           7,835
  Defined benefit pension expense     (credit)
                                                           (750)           1,700         (1,500)          3,400
                                                       --------         --------       --------        --------
                                                           6,309           7,623         12,597          15,769
                                                        --------        --------       --------        --------

      Operating income (loss)                              4,502          (3,798)         6,947         (10,506)
                                                        --------        --------       --------        --------

General corporate income (expense):
  Corporate expense                                       (1,488)         (1,034)        (2,204)         (2,341)
  Interest expense                                          (953)         (1,090)        (3,647)         (2,082)
  Interest income                                             21               5             41              20
  Gain on early extinguishment of
   debt                                                     -               -            54,739            -
  Other income (expense), net                                 36              58             37              73
                                                        --------        --------       --------        --------
                                                          (2,384)         (2,061)        48,966          (4,330)
                                                        --------        --------       --------        --------

  Income (loss) before income taxes
   and cumulative effect of change
   in accounting principle                                 2,118          (5,859)        55,913         (14,836)

Provision for income taxes                                 -               -             21,622           -

Minority interest in after-tax
  earnings                                                   114             303            274             332
                                                        --------        --------       --------        --------

Income (loss) before cumulative
 effect of change in accounting
 principle                                                 2,004          (6,162)        34,017         (15,168)

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

   Net income (loss)                                       2,004          (6,162)        54,015         (15,168)

Dividends on preferred stock                               1,713           1,485          1,713           2,970
                                                        --------        --------       --------        --------

Net income (loss) available for
 common shares                                          $    291        $ (7,647)      $ 52,302        $(18,138)
                                                        ========        ========       ========        ========
</TABLE>



<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Three months ended              Six months ended
                                                                  June 30,                        June 30,
                                                            2002           2003            2002            2003
                                                            ----           ----            ----            ----

Basic earnings (loss) per share available for common shares:

  Income (loss) before cumulative
   effect of change in accounting
<S>                                                     <C>             <C>            <C>             <C>
   principle                                            $    .03        $   (.76)      $   3.21        $  (1.80)

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

    Net income (loss)                                   $    .03        $   (.76)      $   5.20        $  (1.80)
                                                        ========        ========       ========        ========

Basic shares outstanding                                  10,068          10,068         10,066          10,068
                                                        ========        ========       ========        ========

Diluted earnings (loss) per share available for common shares:

  Income (loss) before cumulative
   effect of change in accounting
   principle                                            $    .03        $   (.76)      $   1.94        $  (1.80)

  Cumulative effect of change in
   accounting principle                                     -               -              1.14            -
                                                        --------        --------       --------        ---------

    Net income (loss)                                   $    .03        $   (.76)      $   3.08        $  (1.80)
                                                        ========        ========       ========        ========

Diluted shares outstanding                                10,068          10,068         17,491          10,068
                                                        ========        ========       ========        ========
</TABLE>






<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                              Six months ended
                                                                  June 30,
                                                             2002         2003
                                                             ----         ----

Cash flows from operating activities:
<S>                                                        <C>         <C>
  Net income (loss) ....................................   $ 54,015    $(15,168)
  Depreciation and amortization ........................      8,931       8,516
  Amortization of deferred financing costs .............        334         371
  Deferred income taxes ................................     21,622        --
  Non-cash defined benefit pension expense (credit) ....     (1,500)      3,400
  Non-cash OPEB expense ................................      2,192       2,316
  Gain on early extinguishment of debt .................    (54,739)       --
  Cumulative effect of change in accounting principle ..    (19,998)       --
  Other, net ...........................................        124          34
  Change in assets and liabilities:
    Notes and accounts receivable ......................    (15,369)    (21,034)
    Inventories ........................................      3,107      10,144
    Accounts payable ...................................        378       2,342
    Other, net .........................................      6,452      (2,308)
                                                           --------    --------

      Net cash provided (used) by operating activities .      5,549     (11,387)
                                                           --------    --------

Cash flows from investing activities:
  Capital expenditures .................................     (3,271)     (1,523)
  Collection of notes receivable .......................      1,127          75
  Other, net ...........................................        273         137
                                                           --------    --------

      Net cash used by investing activities ............     (1,871)     (1,311)
                                                           --------    --------

Cash flows from financing activities:
  Revolving credit facilities, net .....................    (15,980)     13,714
  Other notes payable and long-term debt:
    Additions ..........................................     15,066          58
    Principal payments .................................       (299)     (1,059)
    Deferred financing costs paid ......................     (2,465)        (15)
                                                           --------    --------

      Net cash provided (used) by financing activities .     (3,678)     12,698
                                                           --------    --------

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 ................   $  1,835    $  1,486
    Income taxes .......................................        108          52
</TABLE>




<PAGE>


                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

                        Three months ended June 30, 2003
                                 (In thousands)


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

<S>                           <C>       <C>         <C>          <C>         <C>     <C>
Balance - December 31, 2002   $10,798   $ 48,388    $(170,307)   $(25,767)   $(12)   $(136,900)

Net loss ..................      --         --           --       (15,168)    --       (15,168)

Preferred stock dividends .      --       (2,970)        --          --       --        (2,970)
                              -------   --------    ---------    --------    ----    ---------

Balance - June 30, 2003 ...   $10,798   $ 45,418    $(170,307)   $(40,935)   $(12)   $(155,038)
                              =======   ========    =========    ========    ====    =========
</TABLE>





<PAGE>




                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and basis of presentation:

     The consolidated balance sheet of Keystone  Consolidated  Industries,  Inc.
("Keystone"  or the  "Company") at December 31, 2002 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated  balance sheet at June 30, 2003 and the consolidated  statements of
operations and cash flows for the interim  periods ended June 30, 2002 and 2003,
and the consolidated  statement of common stockholders'  deficit for the interim
period ended June 30,  2003,  have each been  prepared by the  Company,  without
audit, in accordance with accounting principles generally accepted in the United
States of America  ("GAAP").  In the  opinion of  management,  all  adjustments,
consisting only of normal recurring  adjustments necessary to present fairly the
consolidated financial position, results of operations and cash flows, have been
made. 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, 2002 (the "Annual Report").

     At June 30,  2003,  Contran  Corporation  ("Contran")  and  other  entities
related to Mr. Harold C. Simmons,  beneficially  owned  approximately 50% 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.  Keystone may be deemed to be controlled by Contran and Mr. Simmons. At
June 30,  2003,  Contran also owned  54,956  shares of the 59,399  shares of the
Company's outstanding  Redeemable Series A Preferred Stock.  Effective March 15,
2003, each share of Series A Preferred  Stock is  convertible,  at the option of
the holder, into 250 shares of the Company's common stock (equivalent to a $4.00
per share exchange rate).

     Although  Keystone  management  expects  to  report a net loss for the year
ending December 31, 2003,  management  currently  believes its available  credit
facilities  will be  sufficient to fund the  anticipated  needs of the Company's
operations  and capital  expenditures  for the year ending  December  31,  2003.
However,  such expectation is based on various operating  assumptions and goals.
Failure to achieve  these  goals  could  have a material  adverse  effect on the
Company's ability to achieve its intended business  objectives and may result in
cash flow needs in excess of its current borrowing  availability  under existing
credit facilities. See Note 4.

     Employee  stock  options.  As  disclosed  in the  Annual  Report,  Keystone
accounts for  stock-based  employee  compensation  in accordance with Accounting
Principles  Board  Opinion  ("APBO")  No.  25,  Accounting  for Stock  Issued to
Employees, and its various  interpretations.  Under APBO No. 25, no compensation
cost is generally recognized for fixed stock options in which the exercise price
is equal to or greater  than the market  price on the grant  date.  Compensation
cost related to stock options  recognized by the Company in accordance with APBO
No. 25 was not  significant  during the interim  periods ended June 30, 2002 and
2003.

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

<TABLE>
<CAPTION>
                                                              Three months ended                  Six months ended
                                                                   June 30,                          June 30,
                                                          ------------------------        -----------------------------
                                                            2002             2003             2002              2003
                                                            ----             ----             ----              ----
                                                                                  (In thousands)

Net income (loss) available for
<S>                                                        <C>           <C>              <C>                <C>
 common shares as reported                                 $291          $ (7,647)        $52,302            $(18,138)
Adjustments, net of applicable
 income tax effects:
  Stock-based employee compensation
   expense under APBO No. 25                                 -              -                -                  -
  Stock-based employee compensation
   expense under SFAS No. 123                               (46)               (1)            (99)                (25)
                                                           ----          --------         -------            --------

Pro forma net income (loss)
 available for common shares                               $245          $ (7,648)        $ 52,203           $(18,163)
                                                           ====          ========         ========           ========

Basic net income (loss) available for common shares per share:
 As reported                                               $.03          $   (.76)        $  5.20            $  (1.80)
 Pro forma                                                 $.03          $   (.76)        $  5.19            $  (1.80)

Diluted net income (loss) available for common shares per share:
 As reported                                               $.03          $   (.76)        $  3.08            $  (1.80)
 Pro forma                                                 $.03          $   (.76)        $  3.07            $  (1.80)
</TABLE>

Note 2 - Business Segment Information:

     Keystone's  operating  segments are defined as components  of  consolidated
operations  about which  separate  financial  information  is available  that is
regularly  evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing  performance.  The Company's chief operating
decision maker is Mr. David L. Cheek,  President and Chief Executive  Officer of
Keystone.  Each  operating  segment is separately  managed,  and each  operating
segment represents a strategic business unit offering different products. During
2003,  the Company  expanded the  composition of its  reportable  segments.  The
corresponding segment information for prior periods has been restated to conform
to the current  year  presentation.  In  addition,  the  information  below also
provides  disclosure  of segment  information  with  respect to each year in the
three-year period ended December 31, 2002.

     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)
Garden Zone which distributes wire, plastic and wood lawn and garden products to
retailers. Keystone owns 51% of Garden Zone. See Note 10. Keystone also operates
three  businesses that do not constitute  reportable  business  segments.  These
businesses   sell  wire  and  wire   products  for   agricultural,   industrial,
construction,  commercial,  original  manufacturers and retail consumer markets.
The results of operations of these  businesses are aggregated and included under
the "All Other" heading in the following tables.

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

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

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

Keystone Steel & Wire                         Keystone Steel & Wire                        Peoria, Illinois

Engineered Wire Products                      Engineered Wire Products                     Upper Sandusky, Ohio

Garden Zone                                   Garden Zone (1)                              Charleston, South
                                                                                             Carolina

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

(1)          51.0% subsidiary.

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

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

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



<PAGE>
<TABLE>
<CAPTION>
                                                                                                             GAAP
                                                                                                         Adjustments,
                                                                                                           Corporate
                                                                                                             Items
                                                                   Garden        All        Segment           and
                                         KSW           EWP          Zone        Other        Total       Eliminations       Total
                                         ---           ---         ------       -----       -------      ------------       -----
                                                                              (In thousands)
Three months ended June 30, 2002:
<S>                                     <C>           <C>          <C>           <C>        <C>             <C>            <C>
  Third party net sales                 $ 75,559      $ 9,310      $ 3,352       $10,784    $ 99,005        $   -          $ 99,005
  Intercompany sales                       9,169         -             442         2,617      12,228         (12,228)          -
                                        --------      -------      -------       -------    --------        --------       --------

                                        $ 84,728      $ 9,310      $ 3,794       $13,401    $111,233        $(12,228)      $ 99,005
                                        ========      =======      =======       =======    ========        ========       ========

Operating income (loss)                 $  3,334      $ 1,111      $   248       $  (507)   $  4,186        $    316       $  4,502
                                        ========      =======      =======       =======    ========        ========       ========

Three months ended June 30, 2003:
  Third party net sales                 $ 74,699      $ 9,844      $ 6,140       $ 6,066    $ 96,749        $   -          $ 96,749
  Intercompany sales                       9,460         -              84         3,226      12,770         (12,770)          -
                                        --------      -------      -------       -------    --------        --------       --------

                                        $ 84,159      $ 9,844      $ 6,224       $ 9,292    $109,519        $(12,770)      $ 96,749
                                        ========      =======      =======       =======    ========        ========       ========

Operating income (loss)                 $ (3,295)     $   951      $   670       $(1,303)   $ (2,977)       $   (821)      $ (3,798)
                                        ========      =======      =======       =======    ========        ========       ========

Six months ended June 30, 2002:
  Third party net sales                 $145,956      $15,222      $ 7,255       $21,013    $189,446        $   -         $189,446
  Intercompany sales                      16,730         -             879         5,289      22,898         (22,898)          -
                                        --------      -------      -------       -------    --------        --------       --------

                                        $162,686      $15,222      $ 8,134       $26,302    $212,344        $(22,898)      $189,446
                                        ========      =======      =======       =======    ========        ========       ========

Operating income (loss)                 $  4,693      $ 1,490      $   604       $  (953)   $  5,834        $  1,113       $  6,947
                                        ========      =======      =======       =======    ========        ========       ========

Six months ended June 30, 2003:
  Third party net sales                 $140,668      $15,294      $10,851       $11,025    $177,838        $   -          $177,838
  Intercompany sales                      17,435         -             860         8,540      26,835         (26,835)          -
                                        --------      -------      -------       -------    --------        --------       --------

                                        $158,103      $15,294      $11,711       $19,565    $204,673        $(26,835)      $177,838
                                        ========      =======      =======       =======    ========        ========       ========

Operating income (loss)                 $ (8,699)     $ 1,157      $   758       $(1,860)   $ (8,644)       $ (1,862)      $(10,506)
                                        ========      =======      =======       =======    ========        ========       ========

Year ended December 31, 2002:
  Third party net sales                 $243,039      $31,247      $ 9,523      $ 34,171    $317,980        $   -          $317,980
  Intercompany sales                      31,839         -           1,221         9,398      42,458         (42,458)          -
                                        --------      -------      -------      --------    --------        --------       --------
                                        $274,878      $31,247      $10,744      $ 43,569    $360,438        $(42,458)      $317,980
                                        ========      =======      =======      ========    ========        ========       ========
  Depreciation and
   amortization                         $ 14,693      $ 1,006      $     -      $  1,646    $ 17,345        $     51       $ 17,396
  Operating profit (loss)                 (3,921)       2,743           85        (2,971)     (4,064)           (561)        (4,625)
  Identifable segment assets             157,321       18,130        4,186        18,537     198,174          17,321        215,495
  Capital expenditures                     7,597          164            -           208       7,969               4          7,973

Year ended December 31, 2001:
  Third party net sales                 $227,018      $32,409      $ 8,011      $ 41,232    $308,670        $   -          $308,670
  Intercompany sales                      32,124         -             472         8,363      40,959         (40,959)          -
                                        --------      -------      -------      --------    --------        --------       --------
                                        $259,142      $32,409      $ 8,483      $ 49,595    $349,629        $(40,959)      $308,670
                                        ========      =======      =======      ========    ========        ========       ========
  Depreciation and
   amortization                         $ 15,312      $ 1,043      $     -      $  1,815    $ 18,170        $ (1,178)      $ 16,992
  Operating profit (loss)                (12,779)       4,156          210        (2,603)    (11,016)          6,610         (4,406)
  Identifable segment assets             162,796       18,252        2,812        22,923     206,783         159,817        366,900
  Capital expenditures                     3,534          269            -            85       3,888               1          3,889

Year ended December 31, 2000:
  Third party net sales                 $241,665      $31,909      $ 6,346      $ 58,401    $338,321        $   -          $338,321
  Intercompany sales                      32,232         -             414         8,280      40,926         (40,926)          -
                                        --------      -------      -------      --------    --------        --------       --------
                                        $273,897      $31,909      $ 6,760      $ 66,681    $379,247        $(40,926)      $338,321
                                        ========      =======      =======      ========    ========        ========       ========
  Depreciation and
   amortization                         $ 15,289      $ 1,067      $     -      $  2,090    $ 18,446        $ (1,222)      $ 17,224
  Equity in loss of
   unconsolidated
   affiliate                                (281)           -            -             -        (281)              -           (281)
  Operating profit (loss)                (23,989)       3,134          345        (1,964)    (22,474)          6,885        (15,589)
  Identifable segment assets             172,563       19,187        3,990        29,453     225,193         160,510        385,703
  Capital expenditures                    12,191          352            -           502      13,045               7         13,052
</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>
                                                     Years ended December 31,
                                                  2000        2001        2002
                                                  ----        ----        ----
                                                         (In thousands)

<S>                                            <C>         <C>         <C>
Operating loss .............................   $(15,589)   $ (4,406)   $ (4,625)
Equity in loss of unconsolidated affiliate .       (281)       --          --
General corporate items:
  Interest income ..........................        599         253          66
  Other income .............................        183         565          34
  General income (expenses), net ...........     (2,002)     (2,232)     (4,600)
  Gain on early extinguishment of debt .....       --          --        54,739
  Interest expense .........................    (15,346)    (14,575)     (5,569)
                                               --------    --------    --------

  Income (loss) before income taxes ........   $(32,436)   $(20,395)   $ 40,045
                                               ========    ========    ========
</TABLE>

Note 3 - Inventories:

     Inventories are stated at the lower of cost or market. At December 31, 2002
and June 30, 2003, the last-in,  first-out ("LIFO") method was used to determine
the cost of approximately 77% and 74% respectively, of total inventories and the
first-in,  first-out or average cost methods were used to determine  the cost of
other inventories.

<TABLE>
<CAPTION>
                                                          December 31,   June 30,
                                                             2002          2003
                                                          -----------    --------
                                                               (In thousands)

Steel and wire products:
<S>                                                        <C>           <C>
  Raw materials ....................................       $ 8,825       $ 7,138
  Work in process ..................................        14,920        10,334
  Finished goods ...................................        21,178        17,400
  Supplies .........................................        14,710        14,077
                                                           -------       -------
                                                            59,633        48,949
  Less LIFO reserve ................................        13,352        13,352
                                                           -------       -------
                                                            46,281        35,597

Lawn and garden products - finished goods ..........         3,808         4,348
                                                           -------       -------

                                                           $50,089       $39,945
                                                           =======       =======
</TABLE>



<PAGE>


Note 4 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                    December 31,         June 30,
                                                       2002                2003
                                                    -----------          --------
                                                           (In thousands)

Revolving credit facilities:
<S>                                                   <C>               <C>
  Keystone .................................          $ 28,328          $ 37,798
  EWP ......................................             1,362             4,111
  Garden Zone ..............................             1,650             3,145
8% Notes ...................................            28,908            28,512
6% Notes ...................................            16,031            16,031
9 5/8% Notes ...............................             6,150             6,150
Keystone Term Loan .........................             4,167             3,542
County Term Loan ...........................            10,000            10,000
Other ......................................               645               665
                                                      --------          --------
                                                        97,241           109,954
  Less current maturities ..................            33,935            77,696
                                                      --------          --------

                                                      $ 63,306          $ 32,258
                                                      ========          ========
</TABLE>

     At June 30, 2003,  Keystone was not in  compliance  with certain  financial
covenants  included in its primary  revolving  credit  facility  (the  "Keystone
Revolver").  Under the terms of the  Keystone  Revolver,  failure to comply with
these covenants is considered an event of default and gives the lender the right
to accelerate  the maturity of both the Keystone  Revolver and the Keystone Term
Loan. As such, the Keystone Term Loan was  classified as a current  liability at
June 30, 2003. The Company is currently  negotiating with the Keystone  Revolver
and Keystone Term Loan lender to obtain waivers of such  financial  covenants or
otherwise amend the respective  loan agreements to cure the defaults.  There can
be no  assurance  Keystone  will be  successful  in  obtaining  such  waivers or
amendments  and if Keystone is  unsuccessful  there is no assurance  the Company
would have the liquidity or other  financial  resources  sufficient to repay the
applicable  indebtedness  if such  indebtedness  is  accelerated.  The indenture
governing  Keystone's 8% Notes provides the holders of such Notes with the right
to  accelerate  the  maturity of the Notes in the event of a default by Keystone
resulting  in an  acceleration  of the  maturity of any of the  Company's  other
secured debt. As such, the 8% Notes were also classified as a current  liability
at June 30, 2003.

     In addition,  a  wholly-owned  subsidiary of Contran has agreed to loan the
Company up to an aggregate of $6 million  under the terms of a revolving  credit
facility  that,  as  amended,  matures  on August 31,  2003.  This  facility  is
collateralized by the common stock of EWP owned by Keystone.  Through August 13,
2003, the Company has not borrowed any amounts under such facility.

Note 5 - Income taxes:

     At June 30,  2003,  the Company  expects that its  long-term  profitability
should  ultimately  be  sufficient  to enable it to realize  full benefit of its
future tax  attributes in part due to the long-term  nature of its net operating
loss  carryforwards.  However,  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, 2002,  the
Company had provided a deferred tax asset valuation  allowance of  approximately
$86.5 million.  As a result of the deferred tax asset valuation  allowance,  the
Company  does not  anticipate  recognizing  a tax  benefit  associated  with its
expected pre-tax losses during 2003 will be appropriate. Accordingly, during the
first six months of 2003, the Company increased the deferred tax asset valuation
allowance by  approximately  $5.6 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.

     Summarized  below are (i) the differences  between the income tax provision
(benefit)  and the amounts that would be expected by applying  the U.S.  federal
statutory  income tax rate of 35% to the income  (loss)  before income taxes and
cumulative effect of change in accounting principle,  and (ii) the components of
the income tax provision.

<TABLE>
<CAPTION>
                                                         Six months ended
                                                            June 30,
                                                     -----------------------
                                                      2002            2003
                                                      ----            ----

Expected tax provision (benefit), at
<S>                                                  <C>            <C>
 statutory rate                                      $19,570        $(5,193)
U.S. state income taxes, net                           2,471           (446)
Deferred tax asset valuation allowance                  (428)         5,629
Other, net                                                 9             10
                                                     -------        -------

Income tax provision (benefit)                       $21,622        $  -
                                                     =======        =======

Comprehensive provision (benefit) for
 income taxes:
  Currently refundable:
    U.S. federal                                     $   (18)       $   (13)
    U.S. state                                            18             13
                                                     -------        -------
      Net currently refundable                           -              -

  Deferred income taxes, net                          21,622            -
                                                     -------        -------
                                                     $21,622        $   -
                                                     =======        =======

Comprehensive provision for income taxes
 allocable to:
  Income before cumulative effect of change
   in accounting principle                           $21,622        $   -
  Cumulative effect of change in accounting
   principle                                            -               -
                                                     -------        -------

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

<PAGE>


Note 6 - Other accrued liabilities:

<TABLE>
<CAPTION>
                                                     December 31,       June 30,
                                                        2002             2003
                                                     -----------        -------
                                                            (In thousands)

Current:
<S>                                                     <C>             <C>
  Employee benefits                                     $11,455         $11,375
  Self insurance                                         10,336          10,520
  Environmental                                           8,103           8,045
  Deferred vendor payments                                3,338           3,338
  Legal and professional                                  1,176             947
  Disposition of former facilities                          659             655
  Interest                                                  318             345
  Other                                                   4,831           5,867
                                                        -------         -------
                                                        $40,216         $41,092
                                                        =======         =======

Noncurrent:
  Deferred vendor payments                              $10,252         $ 8,777
  Environmental                                           7,087           6,895
  Workers compensation payments                           2,309           2,062
  Interest                                                  298             500
  Other                                                     391              95
                                                        -------         -------
                                                        $20,337         $18,329
                                                        =======         =======
</TABLE>

Note 7 - Environmental matters:

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

     On a  quarterly  basis,  Keystone  evaluates  the  potential  range  of its
liability  at sites where it has been named as a PRP or  defendant  by analyzing
and  estimating the range of reasonably  possible costs to Keystone.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,  managing,  studies,  certain  legal  fees,  clean-up,  removal  and
remediation.  Keystone believes it has provided adequate accruals ($14.9 million
at June 30, 2003) for these matters at 13 sites for which Keystone  believes its
liability  is  probable  and  reasonably  estimable,   but  Keystone's  ultimate
liability may be affected by a number of factors,  including  the  imposition of
more  stringent   standards  or  requirements   under   environmental   laws  or
regulations, new developments or changes in remedial alternatives and costs, the
allocation  of  such  costs  among  PRPs,  the  solvency  of  other  PRPs  or  a
determination  that  Keystone  is  potentially  responsible  for the  release of
hazardous  substances at other sites,  any of which could result in expenditures
in excess of amounts  currently  estimated  by Keystone to be required  for such
matters.  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
certain sites (8 sites). The upper end of the range of reasonably possible costs
to Keystone  for sites for which it is possible to estimate  costs (16 sites) is
approximately $20.6 million.  Keystone's  estimates of such liabilities have not
been  discounted to present  value,  and other than certain  previously-reported
settlements  with respect to certain of Keystone's  former  insurance  carriers,
Keystone has not recognized any material insurance recoveries.  No assurance can
be given that actual costs will not exceed  accrued  amounts or the upper end of
the range for sites for which  estimates have been made, and no assurance can be
given that costs will not be incurred with respect to the 8 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.

     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 six month period ended June 30, 2003 is
as follows:


<TABLE>
<CAPTION>
                                                                    Six months ended
                                                                      June 30, 2003

<S>                                                                    <C>
Balance at beginning of period ............................            $ 15,190
Payments ..................................................                (250)
                                                                       --------

Balance at end of period ..................................            $ 14,940
                                                                       ========
</TABLE>


     The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan  provides  for the  in-place  treatment of seven  hazardous  waste  surface
impoundments  and two waste  piles to be  disposed  of as  special  wastes.  The
Company recorded an estimated  liability for remediation of the impoundments and
waste piles  based on a  six-phase  remediation  plan.  The Company  adjusts the
recorded  liability  for each Phase as actual  remediation  costs become  known.
During 1995,  the Company began  remediation  of Phases II and III and completed
these Phases,  as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant  remediation  efforts  relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney  General's office, the Company is
depositing  $75,000 per quarter  into a trust fund.  The Company  must  continue
these quarterly deposits and cannot withdraw funds from the trust fund until the
fund balance exceeds the sum of the estimated  remaining  remediation costs plus
$2 million.  At December  31, 2002 and June 30, 2003 the trust fund had balances
of $5.1 million and $5.2  million,  respectively,  which amounts are included in
other  noncurrent  assets  because the Company does not expect to have access to
any of these funds until after June 30, 2004.

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

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

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

"Superfund" sites

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

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

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

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

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

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

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

     In December 1991,  DeSoto and  approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken,  New Jersey  municipal  landfill.  The plaintiffs in the complaint
were ordered by the court to show in what manner the  defendants  were connected
to the site. The  plaintiffs  provided an alleged nexus  indicating  garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such  waste  allegedly  contained  hazardous  material  to which
DeSoto objected.  The claim was dismissed  without  prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in discovery stage at June 30, 2003.  Sherman has denied any liability
with regard to this matter and expects to vigorously defend the action.

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

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

     Under the terms of a 1990  asset sale  agreement,  DeSoto  established  two
trust funds totaling $6 million to fund potential clean-up  liabilities relating
to the assets  sold.  Sherman has access to the trust funds for any  expenses or
liabilities it incurs  relative to  environmental  claims  relating to the sites
identified in the trust  agreements.  The trust funds are primarily  invested in
United States Treasury  securities and are classified as restricted  investments
on the balance  sheet.  In October 2000, one of the trust's term expired and the
$3.6 million trust balance was returned to Sherman.  As of December 31, 2002 and
June 30,  2003,  the balance in the trust fund was  approximately  $385,000  and
$268,000 respectively.

Note 8 -  Other commitments and contingencies:

Current litigation

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

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


Note 9 - Earnings per share:

     Net income  (loss) per share is based upon the weighted  average  number of
common shares and dilutive  securities.  A reconciliation  of the numerators and
denominators  used in the  calculations of basic and diluted  earnings per share
computations of income (loss) before  cumulative  effect of change in accounting
principle is presented below. The effect of the assumed conversion of the Series
A Convertible  Preferred  Stock was  antidilutive in the three months ended June
30, 2002 period and the three and six month  periods  ended June 30,  2003.  The
dilutive effect of the assumed conversion of the Series A Preferred Stock in the
six month ended June 30, 2002 period is  calculated  from its  issuance in March
2002. Keystone stock options were omitted from the calculation because they were
antidilutive in all periods presented.


<PAGE>



<TABLE>
<CAPTION>
                                                                   Three months ended               Six months ended
                                                                        June 30,                        June 30,
                                                                 2002            2003            2002            2003
                                                                 ----            ----            ----            ----
                                                                                     (In thousands)

Numerator:
  Net income (loss) before cumulative
   effect of change in accounting
<S>                                                          <C>             <C>             <C>            <C>
   principle                                                 $ 2,004         $(6,162)        $34,017        $(15,168)

  Less  Series A Preferred Stock
   dividends                                                  (1,713)         (1,485)         (1,713)         (2,970)
                                                             -------         -------         -------        ---------
  Basic net income (loss) before
   cumulative effect of change in
   accounting principle                                          291          (7,647)         32,304         (18,138)
    Series A Preferred Stock dividends                          -               -              1,713            -
                                                             -------         -------         -------         --------

  Diluted net income (loss) before
   cumulative effect of change in
   accounting principle                                      $   291         $(7,647)        $34,017         $(18,138)
                                                             =======         =======         =======         ========

Denominator:
  Average common shares outstanding                           10,068          10,068          10,066           10,068
  Dilutive effect of Series A
   Preferred Stock                                              -               -              7,425             -
                                                             -------         -------         -------          -------

  Diluted shares                                              10,068          10,068          17,491           10,068
                                                             =======         =======         =======          =======
</TABLE>

Note 10 - Subsequent events:

     In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone
for  approximately  $1.1  million in cash.  In  addition,  Garden  Zone repaid a
$493,000  advance that had been made in a prior year,  and Keystone was released
from its guarantee of 51% of Garden Zone's revolving  credit facility.  Keystone
expects to report a pre-tax gain of approximately  $800,000 in the third quarter
as a result of this transaction.

     In addition,  during July 2003,  Keystone  discontinued  substantially  all
manufacturing  operations at its Sherman of Caldwell Inc.  ("Caldwell") facility
in Caldwell, Texas.  Substantially all of Caldwell's equipment will be relocated
to other Keystone  facilities and customers  previously served from the Caldwell
facility  will in the  future be  served by  Keystone's  facilities  in  Peoria,
Illinois and Sherman, Texas.



<PAGE>


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

OVERALL RESULTS OF OPERATIONS:

     Keystone  believes it is a leading  manufacturer  of steel  fabricated wire
products,  industrial  wire  and  wire  rod  for the  agricultural,  industrial,
construction,  original  equipment  manufacturer  and retail  consumer  markets.
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  distribution  of wire,  plastic and wood lawn and garden
products to retailers through Garden Zone and in scrap recycling through ARC.

     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    General economic conditions,
o    Competitive products and substitute products,
o    Changes in 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    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.
<PAGE>

<TABLE>
<CAPTION>
                                                             Three months ended               Six months ended
                                                                  June 30,                        June 30,
                                                            2002            2003            2002            2003
                                                            ----            ----            ----            ----
                                                                            (Tons in thousands)

Production volume (tons):
<S>                                                            <C>             <C>             <C>             <C>
 Billets                                                       209             167             384             338
 Wire rod                                                      192             166             374             332

Average per-ton ferrous scrap
 purchase cost                                                $ 93            $117            $ 88            $112

Sales volume(tons):
 Fabricated wire products                                       85              72             159             139
 Industrial wire                                                28              27              52              52
 Wire rod                                                       80              86             162             150
 Billets                                                        -                8              -               11
                                                              ----            ----            ----            ----

                                                               193             193             373             352
                                                              ====            ====            ====            ====

Per-ton selling prices:
  Fabricated wire products                                    $689            $689            $691            $687
  Industrial wire                                             $447            $437            $446            $441
  Wire rod                                                    $305            $315            $297            $309
  Billets                                                      $ -            $223             $ -            $207
  All steel and wire products                                 $494            $467            $486            $474
</TABLE>

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

<TABLE>
<CAPTION>
                                                             Three months ended               Six months ended
                                                                  June 30,                        June 30,
                                                            2002            2003            2002            2003
                                                            ----            ----            ----            ----
                                                                               (In millions)

Steel and wire products:
<S>                                                         <C>             <C>            <C>             <C>
  Fabricated wire products                                  $58.4           $49.3          $110.1          $ 95.1
  Industrial wire                                            12.3            12.0            23.4            22.8
  Wire rod                                                   24.6            27.2            48.0            46.2
  Billets                                                     -               1.8             -               2.2
  Other                                                        .4              .3              .6              .6
                                                            -----           -----          ------          ------
                                                             95.7            90.6           182.1           166.9

Lawn and garden products                                      3.3             6.1             7.3            10.9
                                                            -----           -----          ------          ------

                                                            $99.0           $96.7          $189.4          $177.8
                                                            =====           =====          ======          ======
</TABLE>



<PAGE>


     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               Six months ended
                                                                  June 30,                         June 30,
                                                             --------------------           -----------------------
                                                             2002            2003             2002            2003
                                                             ----            ----             ----            ----

<S>                                                          <C>             <C>              <C>            <C>
Net sales                                                    100.0 %         100.0 %          100.0 %        100.0 %
Cost of goods sold                                             89.1            96.0             89.7           97.0
                                                              -----           -----            -----          -----
Gross profit                                                  10.9 %           4.0 %           10.3 %          3.0 %
                                                             =====            ====            =====           ====

Selling expense                                                1.8 %           2.4 %            1.9 %          2.5 %
General and administrative expense                             5.4 %           3.7 %            5.6 %          4.4 %
Defined benefit pension expense
 (credit)                                                      (.8)%           1.8 %            (.8)%          1.9 %
Corporate expense                                              1.5 %           1.1 %            1.2 %          1.3 %
Gain on early extinguishment of
 debt                                                            - %             - %          (28.9)%            - %

Income (loss) before income taxes
 and cumulative effect of change in
 accounting principle                                          2.1 %          (6.1)%           29.5 %         (8.3)%
Income tax provision                                              -               -             11.4              -
Minority interest in after-tax
  earnings                                                       .1              .3               .1             .2
                                                                ---             ---              ---            ---

Net income (loss) before cumulative
 effect of change in accounting
 principle                                                     2.0 %          (6.4)%           18.0 %         (8.5)%
                                                              ====           =====            =====          =====
</TABLE>


     Net sales of $96.7  million in the 2003  second  quarter  were down 2% from
$99.0 million  during the same period in 2002. The decline in sales was due to a
$27 per-ton decline in steel and wire product selling prices partially offset by
a $2.8  million  increase in Garden  Zone's sales as Garden Zone  increased  its
market  penetration.  Shipments of wire rod increased 8% while  per-ton  selling
prices of wire rod  increased  3%.  Industrial  wire  shipments  during the 2003
second  quarter  declined 4% from the 2002 quarter while per-ton  selling prices
declined  2%.  Fabricated  wire product  shipments  declined 15% during the 2003
second  quarter as compared to the 2002 second  quarter  while  per-ton  selling
prices  declined 1%. In addition,  during the second  quarter of 2003,  Keystone
sold  8,000  tons of billets as  compared  to none sold  during the 2002  second
quarter.  The  lower  per-ton  selling  price of the  Company's  steel  and wire
products  during the 2003 second quarter  adversely  impacted total net sales by
$5.2  million.  Management  believes  the  decline  in  shipment  volume of wire
products during the 2003 second quarter was due to softening  demand due in part
to  prolonged   winter  weather   throughout  most  of  the  United  States  and
uncertainties regarding military action in the Middle East. Although high levels
of imported  steel and wire  products  continue,  these import  levels have been
somewhat mitigated by former competitors of the Company exiting the marketplace.
However,  despite this decline in domestic production capacity, rod imports have
filled the resulting  production  shortfall and as such,  per-ton selling prices
continue to be adversely impacted by the availability of high levels of imported
wire rod.

     Net sales of $177.8  million  in the first six  months of 2003 were down 6%
from $189.4  million in the first six months of 2002.  This decline in sales was
primarily due to a 6% decline in shipments of Keystone's steel and wire products
and a $12  per-ton  decline in selling  prices of the  Company's  steel and wire
products  partially  offset by a $3.6  million  increase in Garden  Zone's sales
during the first six months of 2003.  Garden  Zone's  sales during the first six
months of 2003 amounted to $10.9 million as compared to $7.3 million  during the
same  period in 2002.  Wire rod  shipments  during  the first six months of 2003
declined  7% over the first six  months of 2002  while  per-ton  selling  prices
increased  4%.  Industrial  wire  shipments  during the first six months of 2003
approximated  those of the first six months of 2002 while per-ton selling prices
declined 1%.  Fabricated wire products  shipments during the first six months of
2003  declined  13% as  compared  to the first six months of 2002 while  per-ton
selling prices declined 1%. Despite  increases in per-ton selling prices of wire
rod,  overall  average  per-ton  selling prices  declined  between the first six
months of 2002 and 2003 due to change in mix resulting  from volume  declines in
fabricated  wire products.  Management  believes the decline in shipment  volume
during the first six months of 2003 was due to large  volumes of import  product
and softening demand due in part to prolonged winter weather  throughout most of
the United States and uncertainties regarding military action in the Middle East
during the first six months of 2003.

     Billet  production  during the second quarter of 2003 decreased 42,000 tons
or 20% to 167,000 tons from 209,000 tons during the second  quarter of 2002. The
primary  reason for the lower  production  levels during the 2003 second quarter
was  intentional  production  curtailments  as a result of weakening  demand and
excess inventory  levels.  Wire rod production during the second quarter of 2003
declined to 166,000 tons as compared to  production  of 192,000 tons in the 2002
second quarter,  primarily as a result of the lower billet production during the
2003 second quarter.

     The lower billet production during the first and second quarters of 2003 as
compared to the first two quarters of 2002 resulted in billet  production during
the first six months of 2003 declining  46,000 tons to 338,000 tons from 384,000
tons during the first six months of 2002.  Lower wire rod production  during the
first and  second  quarters  of 2003 as  compared  to the 2002  first and second
quarters  resulted in a decline of 42,000 tons of wire rod  produced  during the
first six months of 2003 to 332,000  tons from 374,000 tons during the first six
months of 2002. The low wire rod production  during the first six months of 2003
was due  primarily  to the lower  billet  production  and  unplanned  production
outages  during the 2003 first  quarter to effect  repairs to the  Company's rod
mill.

     Gross profit during the 2003 second  quarter  declined to $3.8 million from
$10.8 million in the 2002 second quarter as the Company's  gross margin declined
from 10.9% in the 2002 period to 4.0% in the 2003 second  quarter.  This decline
in gross margin was due primarily to the lower overall average per-ton steel and
wire  product  selling  prices and higher  costs for ferrous  scrap,  Keystone's
primary raw  material.  The higher  ferrous  scrap costs  during the 2003 second
quarter adversely impacted gross profit by $4.3 million. In addition, during the
2002 second  quarter,  Keystone  received  $400,000 of insurance  proceeds  from
business  interruption  policies related to incidents in prior years as compared
to none received during the 2003 second quarter.

     Gross profit  during the first six months of 2003  declined to $5.3 million
from $19.5 million in the first six months of 2002 as the Company's gross margin
declined  from 10.3% to 3.0%.  This decline in gross margin was due primarily to
lower overall  average  per-ton  selling prices of the Company's  steel and wire
products combined with  substantially  higher costs for ferrous scrap as well as
higher  costs for  natural  gas all  partially  offset by  increased  production
efficiencies in the Company's steel and wire mills. The higher costs for ferrous
scrap and natural gas adversely  impacted  gross profit by $8.8 million and $2.3
million,  respectively.  In  addition,  during  the  first  six  months of 2002,
Keystone  received  $800,000 of insurance  proceeds from  business  interruption
policies related to incidents in prior years as compared to none received during
the first six months of 2003.

     Selling  expense  was $2.3  million  during the  second  quarter of 2003 as
compared to $1.7 million during the 2002 second quarter. Selling expense of $4.5
million during the first six months of 2003 was  approximately  $960,000  higher
than the same period in 2002.  The primary  reasons  for the  increased  selling
expenses during the 2003 periods were increased  advertising  costs and employee
related expenses.

     General and administrative expenses during the 2003 second quarter declined
from $5.3 million in the 2002 second  quarter to $3.6  million due  primarily to
lower  employee  related  and travel  costs.  Due to the  decline in general and
administrative  expenses during each of the first and second quarters of 2003 as
compared  to the 2002  first and second  quarters,  general  and  administrative
expenses  for the first six  months of 2003  declined  $2.7  million  from $10.5
million in 2002 to $7.8 million in 2003.

     During  the second  quarter  of 2003,  Keystone  recorded  defined  benefit
pension  expense of $1.7 million as opposed to a $750,000 credit recorded in the
first quarter of 2002.  During the first six months of 2003,  Keystone  recorded
defined  benefit  pension  expense of $3.4  million as opposed to a $1.5 million
credit  recorded  during  the  first  six  months  of 2002.  Keystone  currently
anticipates the total 2003 pension expense will  approximate  $6.8 million.  The
anticipated  higher  pension  expense in 2003 is due  primarily to a $50 million
decline in plan assets during 2002 and the resulting  lower  expected  return on
plan assets  component of defined  benefit  pension plan expense.  However,  the
Company does not anticipate cash contributions for defined benefit pension plans
will be required in 2003.

     General corporate  expenses during the second quarter of 2003 declined from
$1.5 million during the 2002 second quarter to $1.0 million.  The primary reason
for this decline was due  primarily to the higher  legal and  professional  fees
during the 2002 second quarter.  These legal and professional  fees were related
primarily  to the  Company's  debt  restructuring  completed  in the 2002  first
quarter.  General corporate  expenses during the first six months of 2003 in the
amount of $2.3 million were  relatively  unchanged  from the first six months of
2002.

     Interest  expense in the second  quarter of 2003 was higher than the second
quarter of 2002 due principally to higher debt levels  partially offset by lower
interest rates.  Average borrowings by Keystone  approximated  $109.2 million in
the second quarter of 2003 as compared to $97.1 million in the second quarter of
2002. During the second quarter of 2003,  Keystone's  weighted-average  interest
rate was 2.8% per annum as compared  to 3.0% per annum in the second  quarter of
2002.

     Interest expense in the first half of 2003 was lower than the first half of
2002 due principally to lower debt levels and interest rates. Average borrowings
by Keystone approximated $106.3 million in the first half of 2003 as compared to
$116.5  million  in the  first  half of 2002.  During  the  first  half of 2003,
Keystone's weighted-average interest rate was 2.8% per annum as compared to 5.8%
per annum in the first half of 2002.

     As a result of the Company's  debt  restructuring  completed in March 2002,
Keystone  recognized a $54.7 million  pre-tax gain ($33.1 million net of tax) in
the first half of 2002.

     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 5 to the Consolidated  Financial Statements.  At June 30, 2003, the Company
had recorded a deferred tax asset valuation allowance of $92.1 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.  As a result of the deferred
tax asset valuation allowance, the Company does not anticipate recognizing a tax
benefit  associated  with  its  expected  pre-tax  losses  during  2003  will be
appropriate.

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
Accounting  Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As
a result of adopting  SFAS No. 142,  negative  goodwill of  approximately  $20.0
million  recorded at December 31, 2001 was eliminated as a cumulative  effect of
change in accounting principle.

     As a result of the items  discussed  above,  Keystone  recorded  a net loss
during the second  quarter of 2003 of $6.2  million as compared to net income of
$2.0 million in the second quarter of 2002, and a net loss during the first half
of 2003 of $15.2  million as compared to net income in the first half of 2002 of
$54.0 million.

SEGMENT RESULTS OF OPERATIONS:

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

     The  Company's  operating  segments are organized  along its  manufacturing
facilities and include 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)
Garden Zone which distributes wire, plastic and wood lawn and garden products to
retailers. Keystone owns 51% of Garden Zone. In July 2003, Keystone sold its 51%
ownership in Garden Zone. See Note 10 to the Consolidated  Financial Statements.
Keystone  also  operates  three  businesses  that do not  constitute  reportable
business   segments.   These   businesses   sell  wire  and  wire  products  for
agricultural,  industrial, construction,  commercial, original manufacturers and
retail  consumer  markets.  The results of  operations of these  businesses  are
aggregated and included under the "All Other" heading in the following tables.

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

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

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

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

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

All Other                           Sherman Wire                     Sherman, TX           Industrial wire and fabricated
                                                                                           wire products
                                    Sherman Wire of Caldwell         Caldwell, TX          Industrial wire and fabricated
                                                                                           wire products
                                    Keystone Fasteners               Springdale, AR        Fabricated wire products
</TABLE>


<TABLE>
<CAPTION>
                                                              Three months ended                   Six months ended
                                                                   June 30,                            June 30,
                                                          --------------------------         ----------------------------
                                                            2002             2003             2002              2003
                                                            ----             ----             ----              ----
                                                                                  (In thousands)

Revenues:
<S>                                                        <C>              <C>               <C>                <C>
  Keystone Steel and Wire                                  $ 84,728         $ 84,159          $162,686           $158,103
  Engineered Wire Products                                    9,310            9,844            15,222             15,294
  Garden Zone                                                 3,794            6,224             8,134             11,711
  All other                                                  13,401            9,292            26,302             19,565

  Elimination of intersegment
    revenues                                                (12,228)         (12,770)          (22,898)           (26,835)
                                                           --------         --------          --------           --------

                                                           $ 99,005         $ 96,749          $189,446           $177,838
                                                           ========         ========          ========           ========

Operating profit (loss):
  Keystone Steel and Wire                                  $  3,334         $ (3,295)         $  4,693           $ (8,699)
  Engineered Wire Products                                    1,111              951             1,490              1,157
  Garden Zone                                                   248              670               604                758
  All Other                                                    (507)          (1,303)             (953)            (1,860)
  GAAP adjustments and eliminations                             316             (821)            1,113             (1,862)
                                                           --------         --------          --------           --------

                                                           $  4,502         $ (3,798)         $  6,947           $(10,506)
                                                           ========         ========          ========           ========
</TABLE>


Keystone Steel & Wire

     KSW's 2003 second quarter net sales of $84.2 million declined approximately
$600,000,  or 1%,  from the same  period  during  2002  due  primarily  to lower
shipment  volumes.  During the 2003 second quarter,  KSW sold 1,000 less tons of
product than the 2002 second  quarter.  KSW's  per-ton  product  selling  prices
during the 2003 second quarter  approximated  the per-ton  selling prices of the
2002  second  quarter.  During the first six months of 2003,  KSW's net sales of
$158.1  declined  $4.6  million  or 3%,  from the first  six  months of 2002 due
primarily to lower shipment  volumes  partially offset by higher product per-ton
selling  prices.  During the first six months of 2003, KSW sold 16,000 less tons
of product than the first six months of 2002 at per-ton selling prices that were
2%  higher  than the same  period in 2002.  During  both the three and six month
periods ended June 30, 2003,  approximately  11% of KSW's net sales were made to
other Keystone entities. The majority of these sales were sales of wire rod.

     During the second  quarter of 2003,  KSW recorded a $3.3 million  operating
loss as compared to $3.3 million of operating  income  recorded  during the 2002
second  quarter due  primarily to the lower  selling  prices and higher  ferrous
scrap and natural gas costs during the 2003 second quarter. In addition,  during
the 2002 second  quarter,  KSW  received  $400,000 of  insurance  proceeds  from
business  interruption  policies related to incidents in prior years as compared
to none received  during the 2003 second  quarter.  KSW recorded an $8.7 million
operating  loss during the first six months of 2003 as compared to $4.7  million
of operating  income  recorded during the first six months of 2002 due primarily
to the lower  selling  prices and higher  ferrous  scrap and  natural  gas costs
during the 2003 second  quarter all  partially  offset by  increased  production
efficiencies  in KSW's steel and wire mills.  In addition,  during the first six
months of 2002,  KSW  received  $800,000 of  insurance  proceeds  from  business
interruption  policies  related to  incidents in prior years as compared to none
received in the same period during 2003.

Engineered Wire Products

     EWP's  sales  of $9.8  million  during  the  second  quarter  of 2003  were
approximately  6% higher  than sales  during the second  quarter of 2002 of $9.3
million  due  primarily  to higher  shipment  volume  as well as higher  per-ton
product  selling  prices.  EWP's shipment  volume during the 2003 second quarter
increased 3% over the same quarter in 2002 and per-ton  product  selling  prices
also  increased 3%. EWP's sales of $15.3 million  during the first six months of
2003  approximated  EWP's  sales  during  the first six  months of 2003 of $15.2
million as a 2%  decline in  shipment  volume  was  offset by a 2%  increase  in
per-ton product selling prices.

     Despite  increased  sales by EWP during the 2003 periods as compared to the
same  periods  in 2002,  operating  income  during  the  second  quarter of 2003
declined  by  $160,000 to $951,000  and  operating  income  during the first six
months of 2003 declined by $333,000 to $1.1 million. The primary reasons for the
decline in EWP's operating  income levels during the 2003 periods as compared to
the 2002  periods is an  increase  in the cost of wire rod,  EWP's  primary  raw
material. EWP purchases substantially all of its wire rod requirements from KSW.

Garden Zone

     Garden  Zone's  net sales  during  the three  months  ended  June 30,  2003
increased to $6.2 million as compared to $3.8 million  during the second quarter
of 2002 and during the first six months of 2003  increased  to $11.7  million as
compared to $8.1 million during the first six months of 2002. The primary reason
for these increased sales in both periods were increased  market  penetration by
Garden Zone.  These  increased sales levels resulted in an increase in operating
income  during the 2003  periods as  compared to the 2002  periods.  Garden Zone
recorded  operating  income of  $670,000  during the  second  quarter of 2003 as
compared to $248,000  during the 2002  second  quarter and Garden Zone  recorded
operating  income of $758,000 during the first six months of 2003 as compared to
$604,000 during the first six months of 2002.



<PAGE>


All Other

     During the second quarter of 2003, these three locations recorded net sales
of  approximately  $9.3 million as compared to $13.4  million  during the second
quarter  of 2002.  During the first six months of 2003,  these  three  locations
recorded  net sales of $19.6  million as  compared to $26.3  million  during the
first six months of 2002. The primary reason for the decline in sales during the
2003  periods was lower  shipment  volumes  and lower  per-ton  product  selling
prices.  During  the  second  quarter  of 2003 and the first six months of 2003,
shipment volume declined 31% and 21%, respectively from the same periods in 2002
due  primarily  to lower  volume at the Sherman  Wire of Caldwell  facility.  In
addition,  shipment  volume at Keystone  Fasteners  during the 2003 periods were
also down  significantly  from the same  periods  during 2002 due  primarily  to
increased competition from import producers.  In prior periods, the Sherman Wire
of  Caldwell  facility  provided   substantially  all  of  Keystone   Fastener's
industrial wire requirements.  During 2003, the Company began  transitioning the
manufacturing  of  Keystone   Fastener's   industrial  wire  to  other  Keystone
facilities.  See Note 10 to the Consolidated  Financial Statements.  The per-ton
product  selling prices for these  locations  during the 2003 second quarter and
the first six months of 2003 declined by 9% and 6%,  respectively  from the same
periods  during 2002.  Keystone  Fasteners  purchases  substantially  all of its
industrial wire  requirements,  their primary raw material,  from either Sherman
Wire or Sherman Wire of Caldwell, Inc.

     During the second  quarter  of 2003,  these  three  locations  recorded  an
operating  loss of $1.3 million as compared to a $507,000  operating loss during
the 2002  second  quarter  and during the first six months of 2003,  these three
locations  recorded an operating  loss of $1.9 million as compared to a $953,000
loss during the first six months of 2002.  The primary  reason for the increased
operating  losses  during the 2003  periods  was the lower  volume  and  overall
per-ton  product  selling prices and higher cost for wire rod.  These  locations
purchase substantially all of their wire rod requirements from KSW.

     GAAP adjustments and eliminations in the above table consisted primarily of
adjustments  to reflect  the  difference  between the  defined  benefit  pension
expense or credit and OPEB  expense  allocated  to the  segments  and the actual
expense or credit  included in the  determination  of operating  profit or loss.
GAAP adjustments and  eliminations  included a defined benefit pension credit of
$1.6 million  during the three  months  ended June 30, 2002 and defined  benefit
pension  expense of $926,000  during the three months ended June 30, 2003.  GAAP
adjustments and  eliminations  included a defined benefit pension credit of $3.1
million  during the six months ended June 30, 2002 and defined  benefit  pension
expense of $1.9 million  during the six months  ended June 30, 2003.  During the
three month and six month  periods  ended June 30, 2002,  GAAP  adjustments  and
eliminations   included   OPEB  expense  of  $1.1  million  and  $2.2   million,
respectively. GAAP adjustments and eliminations did not include any OPEB expense
during the 2003 periods.

Outlook for 2003

     Due to continued high levels of steel and wire product imports,  management
currently  believes  capacity  utilization and shipment  volumes in 2003 will be
less than 2002 levels and overall  average  per-ton  selling prices for the year
2003 will be less than those of 2002. In addition, management currently believes
these  volumes  and  overall   average  per-ton  selling  prices  combined  with
anticipated  continued  higher  energy  costs,  higher  scrap  costs and an $8.4
million  increase in defined  benefit  pension  expense  will result in Keystone
recording  a loss  before  income  taxes  and  cumulative  effect  of  change in
accounting  principle  for calendar 2003 in excess of the  comparable  amount in
2002  (exclusive  of the $54.7 million gain in 2002 on early  extinguishment  of
debt). The Company does not currently  anticipate that recognizing a tax benefit
associated with its pre-tax losses during 2003 will be appropriate.


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES:

     The  Company's  cash flows from  operating  activities  are affected by the
seasonality  of  its  business  as  sales  of  certain   products  used  in  the
agricultural and construction industries are typically highest during the second
quarter  and  lowest  during the fourth  quarter  of each year.  These  seasonal
fluctuations  impact  the timing of  production,  sales and  purchases  and have
typically  resulted  in a use of  cash  from  operations  and  increases  in the
outstanding  balance under the Company's  revolving credit facilities during the
first quarter of each year.

     At June 30, 2003 Keystone had negative  working  capital of $79.4  million,
including  $2.6  million of notes  payable and current  maturities  of long-term
debt,  $30.0 million of long-term debt  classified as current as a result of the
Company's  failure to comply with  certain  financial  covenants in the Keystone
Revolver as well as outstanding  borrowings under the Company's revolving credit
facilities  of  $45.1  million.  The  outstanding  borrowings  under  Keystone's
revolving  credit  facilities at June 30, 2003 include $3.1 million  outstanding
under Garden Zone's revolving credit facility.  In July 2003,  Keystone sold its
51%  interest  in  Garden  Zone.  See  Note  10 to  the  Consolidated  Financial
Statements.  The amount of available  borrowings  under these  revolving  credit
facilities  is based on  formula-determined  amounts  of trade  receivables  and
inventories, less the amount of outstanding letters of credit. At June 30, 2003,
unused credit  available for borrowing  under  Keystone's $45 million  revolving
credit facility (the "Keystone Revolver"), which expires in March 2005 and EWP's
$7 million  revolving  credit  facility,  which expires in June 2004,  (the "EWP
Revolver")  were $4.5  million  and $2.9  million,  respectively.  The  Keystone
Revolver requires daily cash receipts be used to reduce outstanding  borrowings,
which  results in the  Company  maintaining  zero cash  balances  when there are
balances  outstanding under this credit facility.  A wholly-owned  subsidiary of
Contran has agreed to loan  Keystone up to an aggregate of $6 million  under the
terms of a revolving  credit  facility that matures on August 31, 2003.  Through
August 13, 2003, the Company had not borrowed any amounts under such facility.

     During  the  first  six  months  of 2003,  notes  and  accounts  receivable
increased by $21.0  million and  inventories  declined by $10.1  million.  These
changes in accounts  receivable and inventory balances from December 31, 2002 to
June 20, 2003 are consistent with trends in prior years. The Company's  business
is highly seasonal due to Keystone's principal wire products markets,  including
the agricultural and construction markets. As a result of this seasonality,  the
Company  must  typically  build  inventory  levels  during  the first and fourth
quarters of each year in order to serve its customers thoughout the peak selling
season that generally lasts through May of each year.  During the second quarter
of each  year,  these high  inventory  levels are  reduced as the  inventory  is
converted to sales and there is a  corresponding  seasonal  increase in accounts
receivable balances.

     Keystone's  total  debt  balances  during  the  first  six  months  of 2003
increased by $12.7 million. The Company's operations used $11.4 million of cash,
including  the net use of $10.9  million  related to  accounts  receivables  and
inventories  discussed above, capital expenditures  amounted to $1.5 million and
Keystone made principal  payments of $1.1 million on long-term debt.  These uses
of cash  resulted  in an  increase  of $13.7  million  in  borrowings  under the
Company's revolving credit facilities.

     During the first half of 2003,  Keystone made capital  expenditures of $1.5
million  as  compared  to  $3.3  million  in the  first  half of  2002.  Capital
expenditures for calendar year 2003 are currently  estimated to be approximately
$3.0  million and are related  primarily  to upgrades of  production  equipment.
Keystone currently  anticipates these capital  expenditures will be funded using
cash  flows from  operations  together  with  borrowing  availability  under the
Company's credit facilities.

     See Notes 7 and 8 to the Consolidated  Financial Statements for discussions
of the Company's environmental liabilities and current litigation.

     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 June 30, 2003, the Company expects that its long-term
profitability  should  ultimately  be  sufficient  to enable it to realize  full
benefit of its future tax deductions. 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 the gross  deferred tax assets may not currently  meet the
"more-likely-than-not" realizability test. As such, at June 30, 2003 the Company
has a deferred tax asset valuation allowance of approximately $92.1 million. The
Company 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 benefit  associated
with its expected pre-tax losses during 2003.

     Keystone  incurs  significant  ongoing  costs for plant and  equipment  and
substantial employee medical benefits for both current and retired employees. As
such,  Keystone is vulnerable to business  downturns and increases in costs, and
accordingly,  routinely  compares its liquidity  requirements  and capital needs
against  its  estimated  future  operating  cash  flows.  In addition to planned
reductions in fixed costs and  announced  increases in certain  product  selling
prices,  Keystone is taking  additional  action towards improving its liquidity.
These actions include, but are not limited to, reducing inventory levels through
more  efficient  production  schedules and modifying  coverages and  participant
contribution  levels of medical plans for both employees and retirees.  Keystone
has  also  considered,  and may in the  future  consider,  the  sale of  certain
divisions  or  subsidiaries  that are not  necessary  to achieve  the  Company's
long-term business objectives.  However, there can be no assurance Keystone will
be successful in any of these or other efforts, or that if successful, they will
provide sufficient liquidity for the Company's operations during the next year.

     At June 30, 2003,  Keystone was not in  compliance  with certain  financial
covenants  included in the  Keystone  Revolver.  Under the terms of the Keystone
Revolver,  failure to comply  with these  covenants  is  considered  an event of
default and gives the lender the right to  accelerate  the  maturity of both the
Keystone  Revolver  and  the  Keystone  Term  Loan.  The  Company  is  currently
negotiating  with the Keystone  Revolver and Keystone Term Loan lender to obtain
waivers of such  financial  covenants or  otherwise  amend the  respective  loan
agreements  to cure the  defaults.  There can be no assurance  Keystone  will be
successful  in  obtaining  such  waivers  or  amendments,  and  if  Keystone  is
unsuccessful,  there is no  assurance  the Company  would have the  liquidity or
other  financial  resources  sufficient  to repay the Keystone  Revolver and the
Keystone Term Loan if such indebtedness is accelerated.  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  acceleration of the maturity of any of the Company's other secured
debt.



<PAGE>


     Management  currently  believes funds available under the Company's  credit
facilities  will be  sufficient to fund the  anticipated  needs of the Company's
operations and capital  improvements for the year ending December 31, 2003. This
belief  is  based  upon   management's   assessment  of  various  financial  and
operational  factors,  including,  but not limited to,  assumptions  relating to
product  shipments,  product  mix  and  selling  prices,  production  schedules,
productivity  rates, raw materials,  electricity,  labor,  employee benefits and
other fixed and variable costs,  interest  rates,  repayments of long-term debt,
capital  expenditures,  and  available  borrowings  under the  Company's  credit
facilities.  However,  there are many  factors  that could cause  actual  future
results to differ materially from management's current assessment,  as discussed
above,  and actual  results  could differ  materially  from those  forecasted or
expected which could materially adversely effect the future liquidity, financial
condition and results of operations  of the Company.  Additionally,  significant
declines in the Company's  end-user  markets or market  share,  the inability to
maintain   satisfactory   billet  and  wire  rod  production  levels,  or  other
unanticipated  costs, if  significant,  could result in a need for funds greater
than the Company currently has available.  There can be no assurance the Company
would be able to obtain an adequate amount of additional financing. See Notes 13
and 15 to the Consolidated Financial Statements in the Annual Report.



<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES

     The Company maintains a system of disclosure  controls and procedures.  The
term  "disclosure  controls and  procedures,"  as defined by  regulations of the
Securities and Exchange Commission ("SEC"),  means controls and other procedures
that are  designed to ensure that  information  required to be  disclosed in the
reports  that the  Company  files or  submits  to the SEC under  the  Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure 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 June 30,
2003. Based upon their evaluation,  these executive officers have concluded that
the Company's disclosure controls and procedures are effective as of the date of
such evaluation.

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


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

There has been no change to the  Company's  system  of  internal  controls  over
financial  reporting  during the quarter ended June 30, 2003 that has materially
affected,  or is reasonably likely to materially affect, the Company's system of
internal controls over financial reporting.




<PAGE>


PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

     Reference  is  made to  disclosure  provided  under  the  caption  "Current
litigation" in Notes 7 and 8 to the Consolidated Financial Statements.


ITEM 6. Exhibits and Reports on Form 8-K

(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:

     4.1  Third  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of June 30, 2003, by and between Registrant and EWP Financial
          LLC.

     4.2  Fourth  Amendment to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of July 31, 2003, by and between Registrant and EWP Financial
          LLC.

     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

(b)  Reports on Form 8-K filed during the quarter ended June 30, 2003:

        None.


<PAGE>



                               S I G N A T U R E S



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


                                   Keystone Consolidated Industries, Inc.
                                               (Registrant)



Date:  August 19, 2003              By /s/Bert E. Downing, Jr.
                                       -------------------------------------
                                       Bert E. Downing, Jr.
                                       Vice President, Chief Financial
                                       Officer, Corporate Controller
                                       and Treasurer
                                       (Principal Financial and Accounting
                                       Officer)