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

 X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
         ACT OF 1934 - For the fiscal year ended December 31, 2002
                                                 -----------------

Commission file number      1-3919

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

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

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

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

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

                                                         Name of each exchange
            Title of each class                           on which registered

         Common Stock, $1 par value                              None

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

         None.

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

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

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

The  aggregate  market  value of the  5,077,977  shares of voting  stock held by
nonaffiliates  of the Registrant,  as of June 28, 2002 (the last business day of
the  Registrant's   most-recently   completed   second  fiscal   quarter),   was
approximately $5.1 million.

As of March 31, 2003 10,068,450 shares of common stock were outstanding.

                       Documents incorporated by reference

Certain of the  information  required by Part III is  incorporated  by reference
from the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.





                                     PART I

ITEM 1. BUSINESS.

General

     Keystone  Consolidated  Industries,  Inc.  ("Keystone"  or  the  "Company")
believes  it  is a  leading  domestic  manufacturer  of  steel  fabricated  wire
products,  industrial  wire  and  wire  rod  for the  agricultural,  industrial,
construction,  original equipment  manufacturer and retail consumer markets, and
believes it is one of the largest  manufacturers  of fabricated wire products in
the United  States based on tons  shipped  (283,000  tons in 2002).  Keystone is
vertically  integrated,  converting  substantially  all of its  fabricated  wire
products and industrial wire from wire rod produced in its steel mini-mill.  The
Company's vertical  integration has historically  allowed it to benefit from the
higher and more stable  margins  associated  with  fabricated  wire  products as
compared  to wire rod,  as well as from  lower  production  costs of wire rod as
compared  to wire  fabricators  which  purchase  wire  rod in the  open  market.
Moreover, management believes Keystone's downstream fabricated wire products and
industrial  wire  businesses  better  insulate  it from the  effects of wire rod
imports as compared to non-integrated wire rod producers.  In 2002, Keystone had
net sales of $318  million.  Approximately  71% of the  Company's net sales were
generated from sales of fabricated  wire products and  industrial  wire with the
balance  generated  primarily  from  sales of wire  rod not  used in  Keystone's
downstream operations.

     The Company's fabricated wire products, which comprised 58% of its 2002 net
sales,  include  agricultural  fencing,  barbed wire, hardware cloth, welded and
woven  wire  mesh  and  nails.   These   products  are  sold  to   agricultural,
construction,  industrial,  consumer  do-it-yourself and other end-user markets.
Keystone  serves these markets  through  distributors,  agricultural  retailers,
building  supply  centers  and  consumer  do-it-yourself  chains such as Tractor
Supply Co., Lowe's Companies,  Inc., and Ace Hardware Corporation. A significant
proportion of these products are sold to agricultural,  consumer  do-it-yourself
and other  end-user  markets which in  management's  opinion are typically  less
cyclical  than many steel  consuming  end-use  markets  such as the  automotive,
construction,  appliance  and  machinery  manufacturing  industries.  Management
believes the Company's  ability to service these  customers with a wide range of
fabricated wire products through multiple production and distribution  locations
provides it a competitive advantage in accessing these growing and less cyclical
markets.  Approximately 63% of Keystone's fabricated wire products net sales are
generated by sales under the RED BRAND trademark, a widely recognized brand name
in the  agricultural  and  construction  fencing  marketplaces  for more than 75
years.

     The Company also sells industrial wire, an intermediate product used in the
manufacture of fabricated wire products,  to third parties who are generally not
competitors.  Keystone's  industrial  wire customers  include  manufacturers  of
nails,  coat hangers,  barbecue grills,  air  conditioners,  tools,  containers,
refrigerators  and  other  appliances.  In 2002,  net sales of  industrial  wire
accounted for 13% of Company net sales. In addition,  Keystone also sells carbon
steel rod into the open market which it is not able to consume in its downstream
fabricated  wire products and  industrial  wire  operations.  During 2002,  open
market sales of wire rod accounted for 26% of Company net sales.

     Keystone is also engaged in the distribution of wire, plastic and wood lawn
and garden products to retailers  through its 51% owned  subsidiary  Garden Zone
LLC ("Garden  Zone").  During  2002,  sales by Garden Zone  accounted  for 3% of
Company net sales.  In addition,  Keystone is engaged in ferrous scrap recycling
through its  unconsolidated  50%  interest in Alter  Recycling  Company,  L.L.C.
("ARC"). See Note 2 to the Consolidated Financial Statements.

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

     The Company's operating strategy is to enhance profitability by:

o    Establishing  a  leading  position  as  a  supplier  of  choice  among  its
     fabricated  wire products and industrial wire customers by offering a broad
     product  line  and by  satisfying  growing  customer  quality  and  service
     requirements;

o    Shifting its product mix towards higher margin, value-added fabricated wire
     products;

o    Achieving  manufacturing cost savings and production  efficiencies  through
     capital  improvements  and  investment  in new and upgraded  steel and wire
     production equipment; and

o    Increasing  vertical  integration  through  internal  growth and  selective
     acquisitions of fabricated wire products manufacturing facilities.

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

     The Company is the successor to Keystone  Steel & Wire  Company,  which was
founded in 1889. Contran  Corporation  ("Contran") and other entities controlled
by Mr. Harold C. Simmons  beneficially  own  approximately  50% of the Company's
voting stock at December 31, 2002.  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.  In October  2002,
Contran purchased 54,956 shares of the 59,399 shares of the Company's Redeemable
Series A Preferred Stock. After 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).

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

o    Future supply and demand for the Company's products (including  cyclicality
     thereof),
o    Customer inventory levels,
o    Changes in raw material and other  operating  costs (such as ferrous  scrap
     and energy),
o    General economic conditions,
o    Competitive products and substitute products,
o    Customer and competitor strategies,
o    The impact of pricing and production decisions,
o    The possibility of labor disruptions,
o    Environmental  matters  (such as those  requiring  emission  and  discharge
     standards for existing and new facilities),
o    Government regulations and possible changes therein,
o    Significant  increases  in  the  cost  of  providing  medical  coverage  to
     employees and retirees,
o    The ultimate resolution of pending litigation,
o    International  trade  policies  of the United  States and  certain  foreign
     countries,
o    Any possible future litigation, and
o    Other  risks  and   uncertainties  as  discussed  in  this  Annual  Report,
     including, without limitation, the sections referenced above.

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

Manufacturing

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

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

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

Products, Markets and Distribution

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



                                                    Year Ended December 31,
                                           2000                        2001                        2002
                                     ----------------            ----------------           -----------
                                  Percent       Percent       Percent       Percent      Percent       Percent
                                  of Tons          Of         of Tons         of         of Tons          of
           Product                Shipped        Sales        Shipped        Sales       Shipped        Sales
      -----------------           -------        -----        -------        -----       -------        -----

Fabricated wire
                                                                                      
  products                         44.7%         61.9%         42.2%         60.9%        42.2%         60.0%
Industrial wire                    18.4          17.4          14.2          13.5         14.3          13.2
Wire rod                           36.9          20.7          43.6          25.6         42.7          26.6
Billets                             -             -             -             -             .8            .2
                                  -----         -----         -----         -----        -----         -----
                                  100.0%        100.0%        100.0%        100.0%       100.0%        100.0%
                                  =====         =====         =====         =====        =====         =====



     Fabricated Wire Products.  Keystone is one of the leading  suppliers in the
United  States of  agricultural  fencing,  barbed  wire,  stockade  panels and a
variety  of welded and woven wire mesh,  fabric and  netting  for  agricultural,
construction and industrial applications. The Company produces these products at
its Peoria,  Illinois,  Sherman,  Texas and Caldwell,  Texas  facilities.  These
products  are  distributed  by  Keystone   through  farm  supply   distributors,
agricultural  retailers,   building  supply  centers,  building  and  industrial
materials distributors and consumer do-it-yourself chains such as Tractor Supply
Co., Lowe's Companies, Inc., and Ace Hardware Corporation. Many of the Company's
fencing and related wire  products are marketed  under the  Company's  RED BRAND
label, a recognized trademark of Keystone for more than 75 years. As part of its
marketing  strategy,  Keystone  designs  merchandise  packaging,  and supportive
product  literature for marketing many of these products to the retail  consumer
market.  Keystone also  manufactures  products for  residential  and  commercial
construction, including bulk, packaged and collated nails, rebar ty wire, stucco
netting,  welded wire mesh, forms and reinforcing building fabric at its Peoria,
Illinois;  Sherman,  Texas;  Caldwell,  Texas;  Springdale,  Arkansas; and Upper
Sandusky,  Ohio  facilities.  The  primary  customers  for  these  products  are
construction  contractors and building materials manufacturers and distributors.
The Company sells approximately 64% of its nails through PrimeSource,  Inc., one
of the largest  nail  distributors  in the United  States,  under  PrimeSource's
Grip-Rite(R) label.

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

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

     Wire Rod.  Keystone  produces carbon steel wire rod at its rod mill located
in Peoria,  Illinois.  Low carbon steel wire rod,  with carbon  content of up to
0.38%,  is more  easily  shaped and formed  than  higher  carbon wire rod and is
suitable for a variety of applications where ease of forming is a consideration.
High carbon steel wire rod, with carbon content of up to 0.65%, is used for high
tensile wire applications as well as for furniture and bedding springs. Although
Keystone's  five  wire  fabrication  facilities  on  occasion  buy wire rod from
outside suppliers,  during 2002,  approximately 58% of the wire rod manufactured
by the Company was used internally to produce wire and fabricated wire products.
The remainder of Keystone's  wire rod  production was sold directly to producers
of  construction  products,   fabricated  wire  products  and  industrial  wire,
including products similar to those manufactured by the Company.

     Billets.  Keystone's annual billet  production  capacity is 1 million tons.
However,  since the Company's rod  production is  constrained by the 800,000 ton
capacity of its rod mill,  periodic excess billet  production is sold externally
to producers of products manufactured from low carbon steel. Keystone sold 5,000
tons of excess  billets in 2002.  The  company  did not sell any excess  billets
during 2000 or 2001.

     Business Disposition.  In January 2001, Keystone's wholly-owned subsidiary,
Fox Valley Steel & Wire ("Fox  Valley") sold its sole business which was located
in Hortonville,  Wisconsin to a management group. The Company did not record any
significant  gain or loss as a  result  of the  sale.  Fox  Valley  manufactured
industrial wire and fabricated wire products  (primarily ladder rods and nails).
Fox Valley's revenues in 2000 amounted to $10.3 million and approximately 32% of
Fox Valley's sales were to a single  customer.  That customer is,  subsequent to
the sale, being serviced by Keystone's Peoria,  Illinois facility.  During 2000,
Fox Valley recorded an operating loss of $686,000.

Industry and Competition

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

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

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

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

Raw Materials and Energy

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

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

Trademarks

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

Employment

     As of December 31, 2002,  Keystone employed  approximately 1,580 people, of
whom  approximately  1,000 are  represented  by the  Independent  Steel Workers'
Alliance  ("ISWA") at its Peoria,  Illinois  facilities,  approximately  100 are
represented by the International Association of Machinists and Aerospace Workers
(Local 1570) ("IAMAW") at its Sherman, Texas facilities and approximately 60 are
represented by Local Union #40, An Affiliate to the International Brotherhood of
Teamsters' Chauffeurs  Warehousemen and Helpers of America,  AFL-CIO ("IBTCWHA")
at  its  Upper  Sandusky,  Ohio  facility.  The  current  collective  bargaining
agreements  with the ISWA,  IAMAW and IBTCWHA expire in May 2006,  October 2005,
and November 2006, respectively.  The Company believes its relationship with its
employees  are good.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations."

Customers

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

         A listing of end-user markets by products follows:

Product                               Principal Markets Served

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

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

     The Company's ten largest customers represented  approximately 34%, 33% and
37% of  Keystone's  net sales in 2000,  2001 and 2002,  respectively.  No single
customer  accounted  for more than 9% of the  Company's net sales during each of
2000, 2001 or 2002. Keystone's fabricated wire products, industrial wire and rod
business is not dependent upon a single customer or a few customers, the loss of
any  one,  or a few,  of which  would  have a  material  adverse  effect  on its
business.

Backlog

     The Company's  backlog of unfilled  cancelable  fabricated  wire  products,
industrial wire and rod purchase  orders,  for delivery  generally  within three
months,  approximated  $24  million  at  December  31,  2001 and $22  million at
December 31, 2002.  Keystone believes backlog is not a significant factor in its
business,  and all of the backlog at December 31, 2002 is expected to be shipped
during 2003.

Environmental Matters

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

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

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

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

Acquisition and Restructuring Activities

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

Website and Availability of Company Reports Filed with the SEC

     The Company does not maintain a website on the  internet.  The Company will
provide  without  charge  copies of this Annual Report on Form 10-K for the year
ended December 31, 2002, copies of the Company's  Quarterly Reports on Form 10-Q
for 2002 and 2003 and any Current Reports on Form 8-K for 2002 and 2003, and any
amendments  thereto, as soon as they are filed with the SEC upon written request
to the  Company.  Such  requests  should be  directed  to the  attention  of the
Corporate  Secretary  at the  Company's  address  on the cover page of this Form
10-K.

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

ITEM 2. PROPERTIES.

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

     Keystone's   fabricated  wire  products,   industrial  wire  and  wire  rod
production   facilities  utilize  approximately  2.5  million  square  feet  for
manufacturing  and office  space,  approximately  79% of which is located at the
Company's Peoria, Illinois facility.

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



                                                           Approximate
                                                               Size
     Facility Name                   Location              (Square Feet)              Products Produced

                                                                  
Keystone Steel & Wire             Peoria, IL                 2,012,000     Fabricated wire products, industrial
                                                                             wire, wire rod
Sherman Wire                      Sherman, TX                  299,000     Fabricated wire products and
                                                                            industrial wire
Engineered Wire Products          Upper Sandusky, OH            83,000     Fabricated wire products
Keystone Fasteners                Springdale, AR                76,000     Fabricated wire products
Sherman Wire of Caldwell          Caldwell, TX                  73,000     Fabricated wire products and
                                                             ---------     industrial wire
                                                             2,543,000



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






ITEM 3. LEGAL PROCEEDINGS.

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

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2002.







                                     PART II

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

     Prior to December 13, 2001,  Keystone's  common stock was listed and traded
on the New York Stock Exchange (symbol:  KES).  Subsequent to December 12, 2001,
Keystone's common stock is traded on the OTC Bulletin Board (Symbol:  KESN). The
number of holders of record of the  Company's  common stock as of March 21, 2003
was 1,660.  The following table sets forth the high and low closing sales prices
of the Company's  common stock for the calendar  years  indicated,  according to
published sources.



                                                             High               Low

Year ended December 31, 2002

                                                                     
  First quarter ................................           $   1.39        $    .34
  Second quarter ...............................           $   1.30        $    .78
  Third quarter ................................           $   1.01        $    .44
  Fourth quarter ...............................           $    .70        $    .39

Year ended December 31, 2001

  First quarter ................................           $   2.50        $   1.50
  Second quarter ...............................           $   2.00        $   1.20
  Third quarter ................................           $   1.70        $    .96
  Fourth quarter ...............................           $   1.40        $    .48



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






ITEM 6. SELECTED FINANCIAL DATA.

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



                                                                    Years ended December 31,
                                                        ------------------------------------------
                                                  1998        1999         2000        2001          2002
                                                  ----        ----         ----        ----          ----
                                                    (In thousands, except per share and per ton amounts)

Statement of Operations Data:
                                                                                   
  Net sales .................................   $370,022   $ 355,688    $ 338,321    $ 308,670    $ 317,980
  Cost of goods sold ........................    339,625     332,644      331,167      295,339      295,157
                                                --------   ---------    ---------    ---------    ---------
  Gross profit ..............................   $ 30,397   $  23,044    $   7,154    $  13,331    $  22,823
                                                ========   =========    =========    =========    =========

  Selling expenses ..........................   $  6,042   $   6,845    $   6,737    $   6,378    $   7,717
  General and administrative
    expenses ................................     19,139      20,850       18,388       19,070       25,935
  Operating income (loss) ...................     14,021       2,578      (15,415)      (4,463)      (5,616)
  Gain on early extinguishment of
   debt .....................................       --          --           --           --         54,739
  Interest expense ..........................     10,460      14,058       15,346       14,575        5,569

  Income (loss) before income taxes .........   $  5,006   $ (12,238)   $ (32,436)   $ (20,395)   $  40,045
  Minority interest in after-tax
   earnings .................................       --          --           --              1            1
  Provision (benefit) for income taxes ......      1,095      (4,754)     (11,370)       5,998       21,622
                                                --------   ---------    ---------    ---------    ---------
  Income (loss) before cumulative
   effect of change in accounting
   principle ................................      3,911      (7,484)     (21,066)     (26,394)      18,422
  Cumulative effect of change in
   accounting principle .....................       --          --           --           --         19,998
                                                --------   ---------    ---------    ---------    ---------

  Net income (loss) .........................   $  3,911   $  (7,484)   $ (21,066)   $ (26,394)   $  38,420
                                                ========   =========    =========    =========    =========
  Net income (loss) available for
   common shares (1) ........................   $  3,754   $  (7,484)   $ (21,066)   $ (26,394)   $  33,737
                                                ========   =========    =========    =========    =========

 Basic net income (loss) available
  for common shares per share ...............   $    .41   $    (.75)   $   (2.10)   $   (2.62)   $    3.35
                                                ========   =========    =========    =========    =========
 Diluted net income (loss) available
  for common shares per share ...............   $    .40   $    (.75)   $   (2.10)   $   (2.62)   $    1.76
                                                ========   =========    =========    =========    =========
  Weighted average common and common
   equivalent shares outstanding:
    Basic ...................................      9,544       9,904       10,039       10,062       10,067
                                                ========   =========    =========    =========    =========
    Diluted .................................      9,669       9,904       10,039       10,062       21,823
                                                ========   =========    =========    =========    =========

Other Financial Data:
  Capital expenditures ......................   $ 64,541   $  16,873    $  13,052    $   3,889    $   7,973
  Depreciation and amortization .............     20,140      21,051       17,224       16,992       17,396

Other Steel and Wire Products
 operating data:
  Shipments (000 tons):
    Fabricated wire products ................        327         315          310          281          283
    Industrial wire .........................        170         144          128           94           96
    Wire rod ................................        212         237          257          291          287
    Billets .................................       --          --           --           --              5
                                                --------   ---------    ---------    ---------    ---------
      Total .................................        709         696          695          666          671
                                                ========   =========    =========    =========    =========

  Average selling prices (per ton):
    Fabricated wire products ................   $    662   $     683    $     660    $     649    $     651
    Industrial wire .........................        476         462          449          426          422
    Wire rod ................................        288         261          266          264          284
    Billets .................................       --          --           --           --            140

    Steel and wire products in total ........        506         493          475          449          457

  Average total production cost per ton .....   $    464   $     461    $     470    $     434    $     429
  Average ferrous scrap purchase cost per ton        112          94          100           85           94









                                                                        As of December 31,
                                                   1998           1999           2000           2001            2002
                                                   ----           ----           ----           ----            ----
                                                                             (In thousands)

Balance Sheet Data:
                                                                                               
  Working capital (deficit) (2)                  $    555       $(13,920)      $(39,243)       $(30,982)      $(41,790)
  Property, plant and equipment, net              156,100        150,156        144,696         129,600        119,984
  Total assets                                    405,857        410,918        385,703         366,900        215,495
  Total debt                                      131,764        146,857        146,008         146,455         97,241
  Redeemable preferred stock                            -              -           -                  -          2,112
  Stockholders' equity (deficit)                   53,077         46,315         26,058            (336)      (136,900)


(1)  Includes  dividends on preferred  stock of $157,000 and  $4,683,000 in 1998
     and 2002, respectively.

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







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

General

     The Company  believes it is a leading  domestic  manufacturer of fabricated
wire products,  industrial wire and wire rod for the  agricultural,  industrial,
construction,  original  equipment  manufacturer and retail consumer markets and
believes it is one of the largest  manufacturers  of fabricated wire products in
the United States based on tons shipped (283,000 in 2002). Keystone's operations
benefit from vertical  integration as the Company's  mini-mill supplies wire rod
produced  from ferrous  scrap to its  downstream  fabricated  wire  products and
industrial  wire  operations.  Sales of fabricated  wire products and industrial
wire by these downstream  fabrication  operations  accounted for 71% of 2002 net
sales.  Keystone's  fabricated  wire  products  typically  yield higher and less
volatile  gross margins  compared to wire rod.  Management  believes  Keystone's
fabricated  wire businesses help mitigate the adverse effect of wire rod imports
on market prices  compared to producers  that rely  primarily on wire rod sales.
Moreover,  historically  over time, the Company's wire rod production costs have
generally been below the market price for wire rod providing a significant  cost
advantage over wire producers who purchase wire rod as a raw material.

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

     The Company's  steel making  operations  provided  723,000 tons and 686,000
tons and tons of billets in 2002 and 2001,  respectively.  The  723,000  tons of
billets  produced  by  Keystone in 2002 was an annual  production  record.  As a
result of the higher billet production in 2002, wire rod production increased 6%
from 651,000  tons (81% of  estimated  capacity) in 2001 to 687,000 tons (86% of
estimated  capacity).  Keystone's estimated current fabricated wire products and
industrial  wire production  capacity is 614,000 tons. The Company's  fabricated
wire products and industrial wire production  facilities  operated at about 78%,
68% and 67% of their annual capacity during 2000, 2001 and 2002, respectively.

     The  Company's  profitability  is dependent in large part on its ability to
utilize  effectively  its  production   capacity,   which  is  affected  by  the
availability of raw materials, plant efficiency and other production factors and
to  control  its  manufacturing  costs,  which are  comprised  primarily  of raw
materials,  energy and labor costs.  Keystone's  primary raw material is ferrous
scrap, and during 2002 ferrous scrap costs represented  approximately one-fourth
of cost of goods sold. The price of ferrous scrap is highly volatile and ferrous
scrap prices are affected by periodic shortages, export activity, freight costs,
weather and other conditions largely beyond the control of the Company.  Ferrous
scrap prices can vary widely from period to period.  The average  per-ton  price
paid for ferrous  scrap by the Company was $100 in 2000,  $85 in 2001 and $94 in
2002. Keystone's product selling prices cannot always be adjusted, especially in
the short-term, to recover the costs of any increases in ferrous scrap prices.

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

     Keystone  consumes  a  significant  amount of  energy in its  manufacturing
operations and, accordingly, its profitability can also be adversely affected by
the  volatility in the price of coal, oil and natural gas resulting in increased
energy,  transportation,  freight,  ferrous scrap and supply costs. During 2002,
energy costs  represented  approximately  10% of cost of goods sold. The Company
purchases  electrical  energy for its Peoria,  Illinois  facility from a utility
under an  interruptible  service  contract  which  provides for more  economical
electricity  rates but allows the  utility to refuse or  interrupt  power to its
manufacturing  facilities.  The utility has in the past,  and may in the future,
refuse or interrupt  service to Keystone  resulting in decreased  production and
increased costs associated with the related downtime.  In addition,  in the past
the utility has had the right to pass through  certain of its costs to consumers
through fuel  adjustment  charges.  The  Company's  current  agreement  with the
utility does not provide for such fuel adjustment charges. During the 1999 third
quarter, the Company received an unexpected $2.2 million  fuel-adjustment charge
from the Peoria plant's electricity provider.  The $2.2 million charge,  accrued
in 1999, was paid during 2000,  although during 2001 the Company received a $1.7
million credit with respect to the 1999 fuel-adjustment charge.

     In January 2001,  Keystone's  wholly-owned  subsidiary,  Fox Valley Steel &
Wire ("Fox  Valley")  sold its sole business  which was located in  Hortonville,
Wisconsin to a management group. The Company did not record any significant gain
or loss as a result of the sale.  Fox Valley  manufactured  industrial  wire and
fabricated  wire  products  (primarily  ladder  rods and  nails).  Fox  Valley's
revenues in 2000 amounted to $10.3 million and approximately 32% of Fox Valley's
sales were to a single customer. That customer is, subsequent to the sale, being
serviced  by  Keystone's  Peoria  facility.  During  2000,  Fox Valley  recorded
operating losses of $686,000.

     Keystone is also engaged in the marketing and  distribution  of wire,  wood
and plastic  products to the consumer lawn and garden market,  and the operation
of a ferrous scrap recycling facility.  These operations were insignificant when
compared to the consolidated  operations of the Company. As such, the results of
their operations are not separately addressed in the discussion that follows.






Results Of Operations

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



                                                        Years Ended December 31,
                                                        2000      2001      2002
                                                        ----      ----      ----
                                                           (Tons in thousands)

Production volume (tons):
  Billets:
                                                                    
    Produced .....................................       675       686       723
    Purchased ....................................         8       --        --
  Wire rod .......................................       678       651       687

Average per-ton ferrous scrap purchase cost ......      $100      $ 85      $ 94

Sales volume (tons):
  Fabricated wire products .......................       310       281       283
  Industrial wire ................................       128        94        96
  Wire rod .......................................       257       291       287
  Billets ........................................       --        --          5
                                                        ----      ----      ----
                                                         695       666       671
                                                        ====      ====      ====

Per-ton selling prices:
  Fabricated wire products .......................      $660      $649      $651
  Industrial wire ................................       449       426       422
  Wire rod .......................................       266       264       284
  Billets ........................................       --        --        140
  All steel and wire products ....................       475       449       457



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



                                                    Years Ended December 31,
                                                 2000         2001          2002
                                                 ----         ----          ----
                                                          (In millions)

Steel and wire products:
                                                                 
  Fabricated wire products ..............       $204.7       $182.4       $184.3
  Industrial wire .......................         57.4         40.3         40.6
  Wire rod ..............................         68.4         76.7         81.6
  Billets ...............................         --           --             .7
  Other .................................          1.5          1.3          1.2
                                                ------       ------       ------
                                                 332.0        300.7        308.4
Lawn and garden products ................          6.3          8.0          9.5
                                                ------       ------       ------
                                                $338.3       $308.7       $317.9
                                                ======       ======       ======







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



                                                     Years Ended December 31,
                                                    2000       2001       2002
                                                    ----       ----       ----

                                                                
Net sales .....................................    100.0%     100.0%     100.0%
Cost of goods sold ............................     97.9       95.7       92.8
                                                   -----      -----      -----
Gross profit ..................................      2.1%       4.3%       7.2%
                                                   =====      =====      =====

Selling expenses ..............................      2.0%       2.1%       2.4%
General and administrative expense ............      5.4        6.2        8.2
Overfunded defined benefit pension credit .....      (.1)      (1.8)       (.5)

Income (loss) before income taxes .............     (9.6)%     (6.6)%     12.6%
Provision for income taxes (benefit) ..........     (3.4)       1.9        6.8
                                                   -----      -----      -----
Income (loss) before cumulative effect of
 change in accounting principle ...............     (6.2)      (8.5)       5.8
Cumulative effect of change in accounting
 principle ....................................     --         --          6.3
                                                   -----      -----      -----
Net income (loss) .............................     (6.2)%     (8.5)%     12.1%
                                                   =====      =====      =====



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

     Net sales increased $9.3 million,  or 3.0%, in 2002 from 2001 due primarily
to a .8% increase in shipment volume of steel and wire products  combined with a
1.8% increase in overall per-ton steel and wire product  selling  prices.  There
was no  significant  change in Keystone's  steel and wire  products  product mix
between  2001 and 2002.  The 1.8%  increase  in overall  per-ton  steel and wire
product  selling  prices  ($8  per-ton)  favorably  impacted  net  sales by $5.4
million.  In addition,  Garden  Zone's net sales  increased by 18.8% during 2002
from $8.0 million to $9.5 million.

     Fabricated wire products per-ton selling prices increased .3% and shipments
increased  .7% in 2002 as  compared to 2001.  Industrial  wire  per-ton  selling
prices  declined  .9% in 2002 when  compared to 2001 while  shipments  increased
2.1%.  The  per-ton  selling  price of wire rod  increased  7.6%  during 2002 as
compared to 2001, while shipments declined 1.4%. The increase in shipment volume
of fabricated wire products and industrial wire was due to higher demand. As the
demand for these  products  increased,  the Company  decreased the volume of rod
sold to external customers.

     Despite a 5,000 ton increase in volume  during  2002,  as compared to 2001,
cost of goods sold of $295.2  million  during 2002 declined by $182,000 over the
2001 cost of goods sold of $295.3  million as the cost of goods sold  percentage
declined from 95.7% in 2001 to 92.8% in 2002.  This decline in the cost of goods
sold percentage was due primarily to lower rod conversion costs,  fixed costs at
the Company's Peoria, Illinois facility, natural gas costs, healthcare costs for
active  employees  and zinc costs  partially  offset by higher costs for ferrous
scrap,  Keystone's primary raw material,  and electricity.  In addition,  during
2002,  Keystone received $900,000 in business  interruption  insurance  proceeds
related to incidents in prior years (as compared to $1.8 million in 2001).  Also
in 2001,  the  Company  received a favorable  $1.7  million  utility  settlement
relative to a charge by the utility in a prior year, and, during the 2001 fourth
quarter,  Keystone  recorded a $1.3  million  benefit as a result of a favorable
legal  settlement with an electrode  vendor related to alleged price fixing.  No
such settlements were received in 2002.  Keystone's  per-ton ferrous scrap costs
increased  11%  during  2002 as  compared  to 2001.  During  2002,  the  Company
purchased  810,000 tons of ferrous  scrap at an average  price of $94 per-ton as
compared to 2001  purchases of 788,000 tons at an average  price of $85 per-ton.
This increase in per-ton  ferrous scrap costs  adversely  impacted  gross profit
during  2002 by  approximately  $7.5  million  as  compared  to  2001.  Keystone
currently  expects  average  ferrous  scrap costs in 2003 will  approximate  $96
per-ton.  The Company did not purchase any billets in either of 2002 or 2001 and
does not anticipate  purchasing  any billets during 2003.  Prices for electrical
power  during 2002 were  approximately  $1.8 million  higher than 2001's  prices
although natural gas prices in 2002 were  approximately  $1.9 million lower than
in 2001.  Lower rod  conversion  costs and fixed costs at the Company's  Peoria,
Illinois  facility  were due  primarily  to  increased  production  efficiencies
combined with lower employee related costs and workers compensation expense. The
decline in healthcare costs for active employees is due primarily to the Company
increasing  the number of employees  required to contribute to their  healthcare
coverage during 2002.

     Gross profit of $22.8  million  during 2002  increased by $9.5 million over
the 2001 gross profit of $13.3 million as the gross margin  increased  from 4.3%
in 2001 to 7.2% in 2002.  This increase in gross margin was due primarily to the
increased overall steel and wire product per-ton selling prices in 2002 combined
with lower costs in 2002.

     Selling  expense  increased 21.0% to $7.7 million in 2002 from $6.4 million
in 2001 due  primarily to  increased  advertising  expenses and higher  employee
related costs.

     General and administrative  expense of $25.9 million in 2002 increased $6.8
million  from $19.1  million in 2001 due to higher  legal and OPEB costs  during
2002 as  compared to 2001.  In  addition,  during  2001,  the  Company  recorded
amortization  of negative  goodwill of  approximately  $1.4  million.  Effective
January 1, 2002, the Company's  recorded  negative  goodwill was eliminated as a
cumulative  effect of change in  accounting  principle  and as such,  no further
amortization was recorded. See Note 17 to the Consolidated Financial Statements.
Legal expenses  increased by approximately $1.0 million in 2002 primarily due to
Keystone  pursuing a trademark  infringement case against several companies that
Keystone believes are infringing upon a number of Keystone's  trademarks as well
as a $650,000  reimbursement  of legal fees that was  received in 2001.  No such
reimbursement  was  received  in 2002.  OPEB  expense  included  in general  and
administrative expense during 2002 was approximately $3.9 million higher than in
2001.

     During 2002, Keystone recorded a non-cash pension credit of $1.6 million as
compared to $5.5 million in 2001. The lower pension credit in 2002 was primarily
the result of higher  amortization of prior years'  actuarial losses and a lower
expected  return on plan assets  during  2002.  Although  the rate of return was
unchanged  from 2001 to 2002, the lower,  expected  return on plan assets during
2002 was due primarily to a $10.5  million  decline in plan assets from December
31, 2000 to December 31, 2001.  The Company  currently  estimates  for financial
reporting purposes, due primarily to a $50 million decline in plan assets during
2002, it will be required to recognize non-cash pension expense of approximately
$11.9 million in 2003 (as compared to a $1.6 million credit in 2002) although it
does not anticipate cash contributions for defined benefit pension plan fundings
will be required in 2003.  However,  future  variances  from  assumed  actuarial
rates,  including  the rate of return on  pension  plan  assets,  may  result in
increases  or  decreases  in  pension  expense  or  credit  and  future  funding
requirements. See Note 8 to the Consolidated Financial Statements. See following
discussion of Assumptions  on Defined  Benefit  Pension Plans - Defined  benefit
pension plan.

     In the first  quarter of 2002,  the Company  completed  an  exchange  offer
related  to its 9 5/8% Notes  whereby  94% of the  holders of the 9 5/8%  Notes,
exchanged their notes for either a discounted cash amount and common stock,  new
preferred  equity and  subordinated  secured debt  securities,  or  subordinated
unsecured debt  securities (the "Exchange  Offer").  As a result of the Exchange
Offer,  for financial  reporting  purposes the Company  reported a $54.7 million
pre-tax gain ($33.1  million net of income  taxes).  See Note 4 to  Consolidated
Financial Statements.

     Interest  expense during 2002 was lower than 2001 due  principally to lower
debt levels and interest rates.  Average borrowings by the Company  approximated
$106.5 million  during 2002 as compared to $149.0 million in 2001.  During 2002,
the average  interest  rate on  outstanding  indebtedness  was 4.5% per annum as
compared to 8.9% per annum in 2001. The decline in both debt levels and interest
rates during 2002 was due primarily to the Exchange Offer. The Company currently
anticipates  average interest rates in 2003 will approximate those at the end of
2002 and  average  debt levels  during 2003 will be slightly  less than the 2002
average debt levels.

     The principal reasons for the difference between the U.S. federal statutory
income tax rate and the  Company's  effective  income tax rates are explained in
Note 6 to the  Consolidated  Financial  Statements.  At December 31,  2002,  the
Company had recorded a deferred tax asset  valuation  allowance of $20.0 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,  other  than the $21.6  million  tax  provision
recorded in connection with the Exchange Offer, the Company did not record a tax
benefit during 2002 associated with its remaining pre-tax loss.

     During the 2002 first quarter,  the Company adopted  Statement of Financial
Accounting  Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As
a result of adopting  SFAS No. 142,  negative  goodwill of  approximately  $20.0
million  recorded at January 1, 2002 was  eliminated  as a cumulative  effect of
change in  accounting  principle at that date.  See Note 17 to the  Consolidated
Financial Statements.

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

     At December 31, 2002, the Company's  financial  statements  reflected total
accrued  liabilities  of $15.2  million  to cover  estimated  remediation  costs
arising from environmental issues.  Although Keystone has established an accrual
for  future  required  environmental  remediation  costs that are  probable  and
reasonably  estimable,  there is no assurance  regarding  the  ultimate  cost of
remedial measures that might eventually be required by environmental authorities
or  that  additional   environmental   hazards,   requiring   further   remedial
expenditures,  might not be asserted  by such  authorities  or private  parties.
Accordingly,  the costs of remedial measures may exceed the amounts accrued. See
Note 13 to the Consolidated Financial Statements.

Year ended December 31, 2001 compared to year ended December 31, 2000

     Net sales declined $29.7 million,  or 8.8%, in 2001 from 2000 due primarily
to a 4.2% decline in shipment volume of steel and wire products  combined with a
5.5%  decline in overall  per-ton  steel and wire  product  selling  prices.  In
addition,  the product mix in 2001 was less favorable  than in 2000.  Fabricated
wire products and industrial  wire sell for higher per-ton selling prices and at
higher  margins  than  wire rod.  During  2001,  fabricated  wire  products  and
industrial wire  represented 59% and 13%,  respectively of net sales as compared
to 60% and 17%  respectively,  in 2000.  This decline in the  percentage  of net
sales represented by fabricated wire products and industrial wire sales resulted
in wire rod sales  increasing  from 20% in 2000 to 25% of net sales in 2001. The
5.5%  decline in overall  per-ton  steel and wire  product  selling  prices ($26
per-ton) adversely  impacted net sales by $17.3 million.  Lower net sales of the
Company's steel and wire products were offset in part by Garden Zone's net sales
which increased by 26.2% during 2001 from $6.3 million to $8.0 million.

     Fabricated wire products per-ton selling prices declined 1.6% and shipments
declined  9.4% in 2001 as  compared to 2000.  Industrial  wire  per-ton  selling
prices  declined  5.0% in 2001 when  compared to 2000 while  shipments  declined
26.1% Per-ton  selling price of wire rod declined .9% during 2001 as compared to
2000,  while shipments  increased  13.2%. The decline in both volume and per-ton
selling prices of fabricated  wire products and industrial wire was due to lower
demand.  As the demand for these products  declined,  the Company  increased the
volume of wire rod sold to external customers.

     Cost of goods sold of $295.3  million during 2001 declined by $35.9 million
over the 2000 cost of goods  sold of $331.2  million  as the cost of goods  sold
percentage  declined from 97.9% in 2000 to 95.7% in 2001.  This decline in costs
of goods sold  percentage  was due primarily to lower costs in 2001 related to a
reduction in unplanned  production  outages,  lower costs for ferrous  scrap and
purchased  billets,  $1.8 million of business  interruption  insurance  proceeds
received in 2001 related to incidents in prior years (as compared to $300,000 in
2000) and a favorable $1.7 million utility  settlement that represented a refund
of a fuel  adjustment  charge by the utility in 1999,  all  partially  offset by
higher natural gas and OPEB costs. In addition,  during the 2001 fourth quarter,
Keystone  recorded  a $1.3  million  benefit  as a result of a  favorable  legal
settlement  with an electrode  vendor  related to alleged price  fixing.  During
2000,  Keystone  recorded  a  $2.7  million  benefit  as  a  result  of  similar
settlements  with  electrode  vendors.  The estimated  adverse impact on cost of
goods sold from production  outages  amounted to  approximately  $800,000 during
2001 as compared to $5.3 million in 2000. Keystone's per-ton ferrous scrap costs
declined 15% during 2001 as compared to 2000. During 2001, the Company purchased
788,000 tons of ferrous  scrap at an average price of $85 per-ton as compared to
2000 purchases of 658,000 tons at an average price of $100 per-ton. This decline
in per-ton ferrous scrap costs favorably impacted cost of goods sold during 2001
by approximately $11.8 million as compared to 2000. The Company did not purchase
any billets in 2001 as compared  to 8,000 tons  purchased  in 2000 at an average
cost of $215 per-ton.  Natural gas costs during 2001 were approximately $900,000
higher compared to 2000.

     Gross profit of $13.3  million  during 2001  increased by $6.1 million over
the 2000 gross profit of $7.2 million as the gross margin increased from 2.1% in
2000 to 4.3% in 2001.  This  increase in gross  margin was due  primarily to the
lower costs in 2001 partially offset by the lower overall steel and wire product
per-ton selling prices during 2001.

     Selling expense decreased 5.3% to $6.4 million in 2001 from $6.7 million in
2000 but was relatively constant as a percentage of sales.

     General  and  administrative  expense of $19.1  million  in 2001  increased
$700,000  from  $18.4  million  in  2000  as the  effect  of  higher  legal  and
professional  and OPEB costs and  environmental  expenses  during  2001 was only
partially  offset by the effect of  reductions in salaried  headcount  resulting
from certain salaried  employees  accepting  Keystone's early retirement package
during  the last  quarter  of 2000 and a  $650,000  reimbursement  of legal fees
received in 2001.

     During 2001, Keystone recorded a non-cash pension credit of $5.5 million as
compared to $380,000 in 2000. The lower pension credit in 2000 was primarily the
result of a $3.7  million  charge  relating  to the  implementation  of an early
retirement program for certain salaried employees.  During the fourth quarter of
2000, in connection with Keystone's cost reduction  plans, the Company offered a
group of salaried  employees  enhanced  pension benefits if they would retire by
December 31, 2000, resulting in the $3.7 million charge for termination benefits
for the early retirement window.

     Interest  expense during 2001 was lower than 2000 due  principally to lower
interest rates.  Average borrowings by the Company  approximated  $149.0 million
during 2001 as  compared to $150.9  million in 2000.  During  2001,  the average
interest rate on outstanding indebtedness was 8.9% per annum as compared to 9.6%
per annum in 2000.

     During  2001,  the Company  recorded a provision  for income  taxes of $6.0
million on a loss before income taxes of $20.4 million  compared to an effective
tax rate of 35% in  2000.  During  the  fourth  quarter  of  2001,  the  Company
determined a portion of its gross deferred tax assets did not currently meet the
"more-likely-than-not"  realizability test, and accordingly  provided a deferred
tax asset valuation  allowance of approximately  $14.5 million  resulting in the
$6.0 million provision for income taxes.

     As a result of the items discussed above,  Keystone  incurred a net loss of
$26.4 million during 2001 as compared to a net loss in 2000 of $21.1 million.

Related Party Transactions

     As further discussed in Note 10 to the Consolidated  Financial  Statements,
the Company is party to certain transactions with related parties.

Outlook for 2003

     Rod imports  continue to cause  disruption  in the  marketplace  and market
demand  has  weakened.  However,  management  currently  believes,  despite  the
continued  high level of rod  imports,  shipment  volumes in 2003 will  increase
slightly and average overall per-ton  selling prices will  approximate  those of
the fourth  quarter of 2002. In addition,  management  currently  believes these
volumes and per-ton selling prices combined with anticipated higher energy costs
and a $13.4  million  increase  in  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  extiguishment  of
debt).  However,  despite  anticipating  recording an operating  loss and a loss
before income taxes in 2003,  Keystone  currently believes it will show positive
cash flows from operating activities in 2003, in part because no contribution to
the Company's defined benefit pension plan is currently expected to be required.
In addition,  the Company does not currently  anticipate that  recognizing a tax
benefit associated with its pre-tax losses during 2003 will be appropriate.

Critical Accounting Policies and Estimates

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

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

o    The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of its customers to make required payments and
     other factors.  The Company takes into  consideration the current financial
     condition  of the  customers,  the age of the  outstanding  balance and the
     current economic  environment when assessing the adequacy of the allowance.
     If the financial  condition of the Company's customers were to deteriorate,
     resulting in an impairment of their  ability to make  payments,  additional
     allowances  may be  required.  During 2000,  2001 and 2002,  the net amount
     written off against the allowance for doubtful  accounts as a percentage of
     the allowance for doubtful  accounts as of the beginning of the year ranged
     from 25% to 45%.

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

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

     Under  applicable  GAAP (SFAS No. 144,  Accounting  for the  Impairment  or
     Disposal of Long-Lived Assets),  property and equipment is not assessed for
     impairment unless certain impairment  indicators,  as defined, are present.
     During  2002,  impairment  indicators  were  present  with  respect  to the
     property  and  equipment  associated  with  the  Company's  steel  and wire
     products  segment,  which  represented  significantly  all of the Company's
     consolidated net property and equipment as of such date. Keystone completed
     an  impairment  review of such net property and  equipment  and related net
     assets as of December 31, 2002.  Such analysis  indicated no impairment was
     present as the estimated  future  undiscounted  cash flows  associated with
     such segment  exceeded the carrying  value of such  segment's net assets by
     approximately  31%.  Significant  judgement is required in estimating  such
     undiscounted   cash  flows.   Such  estimated  cash  flows  are  inherently
     uncertain,  and there can be no assurance that the Company's steel and wire
     products  segment  will  achieve  the future  cash flows  reflected  in its
     projections.

o    The Company  reviews  goodwill for  impairment at least on an annual basis.
     Goodwill  will also be reviewed for  impairment  at other times during each
     year when impairment  indicators,  as defined, are present. As discussed in
     Notes 1 and 17 to the Consolidated  Financial  Statements,  the Company has
     assigned  its  goodwill to the  reporting  unit (as that term is defined in
     SFAS No. 142)  consisting of Engineered  Wire Products,  Inc.  ("EWP").  No
     goodwill impairment was deemed to exist as a result of the Company's annual
     impairment  review  completed  during  the third  quarter  of 2002,  as the
     estimated  fair value of EWP exceeded the net carrying  value by over 300%.
     The estimated  fair value of EWP was  determined  based on discounted  cash
     flow  projections.  Significant  judgment  is required  in  estimating  the
     discounted cash flows for the EWP reporting unit. Such estimated cash flows
     are  inherently  uncertain,  and  there can be no  assurance  that EWP will
     achieve the future cash flows reflected in its projections.

o    Keystone  records a valuation  allowance to reduce its deferred  income tax
     assets  to  the  amount  that  is   believed  to  be  realized   under  the
     "more-likely-than-not"   recognition   criteria.   While  the  Company  has
     considered  future  taxable  income and ongoing  prudent and  feasible  tax
     planning strategies in assessing the need for a valuation allowance,  it is
     possible  that in the future the  Company  may change its  estimate  of the
     amount of the deferred income tax assets that would  "more-likely-than-not"
     be realized,  resulting in an adjustment  to the deferred  income tax asset
     valuation allowance that would either increase or decrease,  as applicable,
     reported net income or loss in the period such change in estimate was made.
     At December 31, 2002, the Company believes its gross deferred tax assets do
     not  currently  meet  the  "more-likely-than-not"  realizability  test  and
     accordingly has provided a valuation allowance for the total gross deferred
     tax assets.

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

o    Keystone sponsors a defined benefit pension plan covering substantially all
     employees  who  meet  certain  eligibility   requirements.   For  financial
     reporting  purposes at December 31, 2002,  the pension  plan's  accumulated
     benefit  obligation  exceeded the plan's assets, and as such, the Company's
     financial  statements reflect an additional  minimum pension liability,  an
     intangible asset equal to the amount of unrecognized prior service cost and
     a charge to  stockholders'  deficit on its  balance  sheets.  However,  the
     Company was not  required to make cash  contributions  to the pension  plan
     during  2002  and  does  not   anticipate  a   requirement   to  make  cash
     contributions  to its  pension  plan  during  2003.  The  determination  of
     additional  minimum  liability,  intangible asset,  charge to stockholders'
     equity  and  pension  expense  is  dependent  on the  selection  of certain
     actuarial  assumptions  which attempt to anticipate  future  events.  These
     pension  actuarial  assumptions,  which  are  described  in  Note  8 to the
     Consolidated  Financial Statements,  include discount rate, expected return
     on plan assets, rate of future compensation increases, and mortality rates.
     Actual results that differ from the Company's pension actuarial assumptions
     are generally  accumulated and amortized over future periods and therefore,
     generally  affect the pension  asset or  liability  and pension  expense or
     credit in future periods.  While the Company believes its pension actuarial
     assumptions  are  appropriate,  future  material  differences  between  the
     Company's pension  actuarial  assumptions and actual results or significant
     changes in the Company's pension actuarial  assumptions,  could result in a
     material  increase or decrease in the amount of the reported  pension asset
     or liability and expense or credit, and therefore have a material impact on
     the Company's reported future results of operations.  In addition, the plan
     could become underfunded under applicable federal regulations,  which would
     require the Company to make cash  contributions  to the plan. See following
     discussion of Assumptions on Defined Benefit Pension Plans and OPEB Plans -
     Defined Benefit Pension Plan.

o    The determination of the Company's obligation and expense for OPEB benefits
     is  dependent  on the  selection  of certain  actuarial  assumptions  which
     attempt to anticipate  future  events.  These OPEB  actuarial  assumptions,
     which  are  also  described  in  Note  8  to  the  Consolidated   Financial
     Statements,  include  discount rate, rate of future increases in healthcare
     costs, and mortality  rates.  Actual results that differ from the Company's
     OPEB  actuarial   assumptions  are,  in  accordance  with  GAAP,  generally
     accumulated  and amortized  over future  periods and  therefore,  generally
     affect OPEB  obligations and expense in future  periods.  While the Company
     believes its OPEB actuarial assumptions are appropriate, future differences
     between the Company's  OPEB  actuarial  assumptions  and actual  results or
     significant  changes in the  Company's  OPEB  actuarial  assumptions  could
     materially  affect  the  reported  amount  of  the  Company's  future  OPEB
     obligation  and  expense,  and  therefore  have a  material  impact  on the
     Company's  reported future results of operations.  In addition,  the amount
     the  Company  ultimately  pays  for  future  cash  OPEB  benefits  could be
     materially   different   from  the  amounts   inherent  in  the   actuarial
     assumptions.  See following  discussion of Assumptions  on Defined  Benefit
     Pension Plans and OPEB Plans - OPEB plans.

Accounting Principles Newly Adopted in 2002

     See Note 17 to the Consolidated Financial Statements.

Accounting Principles Not Yet Adopted

     See Note 18 to the Consolidated Financial Statements.

Assumptions on Defined Benefit Pension Plans and OPEB Plans

     Defined benefit pension plan. The Company  accounts for its defined benefit
pension plan using SFAS No. 87, Employer's  Accounting for Pensions.  Under SFAS
No. 87,  defined  benefit  pension plan expense or credit and prepaid or accrued
pension  costs  are each  recognized  based on  certain  actuarial  assumptions,
principally the assumed  discount rate, the assumed  long-term rate of return on
plan assets and the assumed increase in future compensation  levels. The Company
recognized a  consolidated  defined  benefit  pension plan credit of $380,000 in
2000,  $5.5  million  in 2001 and $1.6  million  in 2002.  The amount of funding
requirements  for the  defined  benefit  pension  plan is based upon  applicable
regulations, and will generally differ from pension expense or credit recognized
under  SFAS No. 87 for  financial  reporting  purposes.  No  contributions  were
required to be made to the  Company's  defined  benefit  pension plan during the
past three years.

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

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



                                             Discount rates used for:
                       -----------------------------------------------------------------
                Obligations at                   Obligations at                   Obligations at
        December 31, 2000 and expense     December 31, 2001 and expense       December 31, 2002 and
                  in 2001                           in 2002                     expense in 2003
        -----------------------------     -----------------------------       ---------------------

                                                                               
                   7.25%                               7.0%                           6.5%


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

     In  determining  the  expected  long-term  rate of  return  on  plan  asset
assumptions,  the Company  considers  the long-term  asset mix (e.g.  equity vs.
fixed  income) for the assets of its plan and the  expected  long-term  rates of
return for such asset components. In addition, the Company receives advice about
appropriate long-term rates of return from the Company's third-party  actuaries.
Substantially  all of Keystone's plan assets are invested in the Combined Master
Retirement Trust ("CMRT"),  a collective  investment trust  established by Valhi
Inc. ("Valhi"), a majority owned subsidiary of Contran, to permit the collective
investment by certain master trusts which fund certain  employee  benefits plans
sponsored by Contran and certain of its  affiliates.  Harold Simmons is the sole
trustee of the CMRT. The CMRT's long-term  investment  objective is to provide a
rate of return  exceeding a composite  of broad  market  equity and fixed income
indices  (including  the S&P 500 and certain  Russell  indicies)  utilizing both
third-party  investment managers as well as investments directed by Mr. Simmons.
During the 15-year  history of the CMRT through  December 31, 2002,  the average
annual rate of return has been 10.8%

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

     The Company's  assumed  long-term rate of return on plan assets was 10% for
each of 2000, 2001 and 2002. The Company  currently  expects to utilize the same
long-term  rate of return  assumption  on plan assets in 2003 as it used in 2002
for purposes of determining the 2003 defined benefit pension plan expense.

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

     Based on the actuarial  assumptions  described above,  Keystone expects its
defined benefit pension expense will approximate  $11.9 million in 2003 compared
to a defined benefit pension credit of $1.6 million in 2002.  However,  Keystone
does not currently  expect to be required to make  contributions  to the defined
benefit pension plan during 2003 (none were required in 2002 or 2001).

     As noted above,  defined  benefit  pension expense or credit and the amount
recognized  as  prepaid or accrued  pension  costs are based upon the  actuarial
assumptions   discussed  above.  The  Company  believes  all  of  the  actuarial
assumptions  used are  reasonable and  appropriate.  If Keystone had lowered the
assumed  discount rate by 25 basis points as of December 31, 2002, the Company's
projected  and  accumulated   benefit   obligations   would  have  increased  by
approximately $8.7 million and $8.3 million,  respectively at that date, and the
defined benefit  pension expense would be expected to increase by  approximately
$400,000 during 2003. Similarly,  if Keystone lowered the assumed long-term rate
of return on plan  assets by 25 basis  points for its  defined  benefit  pension
plan,  the  defined  benefit  pension  expense  would be expected to increase by
approximately $700,000 during 2003.

     OPEB plans.  The Company  currently  provides  certain health care and life
insurance  benefits  for  eligible  retired   employees.   See  Note  8  to  the
Consolidated  Financial  Statements.  The Company  accounts  for such OPEB costs
under SFAS No. 106, Employers Accounting for Postretirement  Benefits other than
Pensions.  Under SFAS No. 106,  OPEB expense and accrued OPEB costs are based on
certain  actuarial  assumptions,  principally the assumed  discount rate and the
assumed rate of increases in future  health care costs.  The Company  recognized
consolidated  OPEB  expense of $8.7 million in 2000,  $12.0  million in 2001 and
$14.3 million in 2002.  Similar to defined benefit pension benefits,  the amount
of funding  will differ  from the expense  recognized  for  financial  reporting
purposes,  and  contributions to the plans to cover benefit payments  aggregated
$10.2 million in 2000, $9.8 million in 2001 and $9.2 million in 2002.

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

     In estimating  the health care cost trend rate,  the Company  considers its
actual health care cost experience,  future benefit structures,  industry trends
and advice from its third-party actuaries.  During each of the past three years,
the  Company  has  assumed  the  relative  increase  in health  care  costs will
generally  trend downward over the next several years,  reflecting,  among other
things,   assumed  increases  in  efficiency  in  the  health  care  system  and
industry-wide cost containment  initiatives.  For example, at December 31, 2002,
the  expected  rate of  increase  in future  health  care  costs was 9% in 2003,
declining to 5% in 2007 and thereafter.

     Based on the actuarial assumptions described above, the Company expects its
consolidated OPEB expense will approximate $14.7 million in 2003. In comparison,
the  Company  expects to be  required  to make  approximately  $11.4  million of
contributions to such plans during 2003.

     As noted  above,  OPEB  expense and the amount  recognized  as accrued OPEB
costs are based upon the  actuarial  assumptions  discussed  above.  The Company
believes all of the actuarial  assumptions  used are reasonable and appropriate.
If the Company had lowered the assumed  discount rate by 25 basis points for all
of its OPEB plans as of December 31, 2002,  the  Company's  aggregate  projected
benefit  obligations would have increased by approximately  $5.0 million at that
date,  and the Company's  OPEB expense would be expected to increase by $325,000
during 2003.  Similarly,  if the assumed  future health care cost trend rate had
been increased by 100 basis points,  the Company's  accumulated OPEB obligations
would have  increased by  approximately  $31.1 million at December 31, 2002, and
OPEB expense would have increased by $2.4 million in 2002.

Liquidity And Capital Resources

     At December  31,  2002,  Keystone  had  negative  working  capital of $41.8
million,  including  $2.6  million of notes  payable and current  maturities  of
long-term debt as well as outstanding  borrowings under the Company's  revolving
credit  facilities of $31.3 million.  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 December 31, 2002,  unused  credit  available  for  borrowing  under
Keystone's $45 million  revolving  credit  facility (the  "Keystone  Revolver"),
which expires March 31, 2005,  EWP's $7 million  revolving  credit facility (the
"EWP  Revolver"),  which  expires  June 30,  2004 and  Garden  Zone's $4 million
revolving  credit facility ("the Garden Zone  Revolver"),  which expires May 15,
2003 were $14.5  million,  $4.7  million  and $1.4  million,  respectively.  The
Keystone  Revolver  requires  daily cash receipts be used to reduce  outstanding
borrowings,  which  results in the Company  maintaining  zero cash balances when
there are balances  outstanding  under this credit  facility.  Accordingly,  any
outstanding  balances  under the Keystone  Revolver are always  classified  as a
current  liability  regardless of the maturity  date of the  facility.  Keystone
currently intends to renew or replace the Garden Zone Revolver upon its maturity
in May 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 matures on June 30, 2003.  Through March 2003, the Company has not
borrowed any amounts under such facility.

     During 2002,  the Company's  operating  activities  provided  approximately
$10.1  million of cash,  compared to $2.1 million of cash  provided by operating
activities  in 2001.  Cash  flow  from  operating  activites  increased  in 2002
compared to 2001 due  primarily to a smaller loss from  operations  and relative
changes in the levels of assets and liabilities  (primarily accounts receivable,
inventories and accounts payable),  reflecting the Company's emphasis on working
capital management.

     During 2002,  Keystone  made capital  expenditures  of  approximately  $8.0
million primarily related to upgrades of production equipment at its facility in
Peoria,  Illinois, as compared to $3.9 million in 2001. Capital expenditures for
2003 are  currently  estimated  to be  approximately  $9 million and are related
primarily to upgrades of production  equipment.  However, this amount of capital
expenditures  can be adjusted based on the actual amount of available cash flows
during 2003. Keystone currently  anticipates the 2003 capital  expenditures will
be funded using cash flows from operations together with borrowing  availability
under Keystone's credit facilities.

     At December 31, 2002, the Company's financial  statements reflected accrued
liabilities  of  $15.2  million  for  estimated   remediation  costs  for  those
environmental  matters  which  Keystone  believes are  probable  and  reasonably
estimable.  Although the Company has established an accrual for estimated future
required  environmental  remediation costs, there is no assurance  regarding the
ultimate  cost of  remedial  measures  that  might  eventually  be  required  by
environmental  authorities or that additional  environmental hazards,  requiring
further  remedial  expenditures,  might not be asserted by such  authorities  or
private  parties.  Accordingly,  the costs of remedial  measures  may exceed the
amounts accrued.  Keystone  believes it is not possible to estimate the range of
costs for certain sites. The upper end of range of reasonably  possible costs to
Keystone  for sites for which the  Company  believes  it is possible to estimate
costs is approximately $20.7 million.

     Keystone  does not  expect  to be  required  to make  contributions  to its
pension  plan during  2003.  Future  variances  from  assumed  actuarial  rates,
including the rate of return on pension plan assets,  may result in increases or
decreases  to  pension  expense  or credit and  funding  requirements  in future
periods. See Note 8 to the Consolidated Financial Statements.

     The Company  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria.  At  December  31,  2002,  the Company  expects  that its
long-term  profitability should ultimately be sufficient to enable it to realize
full benefit of its future tax deductions,  in part due to the long-term  nature
of its net operating loss carryforwards, which expire in 2019 to 2022. Although,
considering all factors believed to be relevant,  including the Company's recent
operating results, its expected future near-term productivity rates; cost of raw
materials,  electricity, labor and employee benefits, environmental remediation,
and retiree medical  coverage;  interest  rates;  product mix; sales volumes and
selling  prices and the fact that accrued OPEB expenses  will become  deductible
over an extended period of time and require the Company to generate  significant
amounts of future taxable  income,  the Company  believes its gross deferred tax
assets do not currently meet the  "more-likely-than-not"  realizability test. As
such,  during the fourth  quarter of 2001,  the Company  provided a deferred tax
asset valuation allowance of approximately $14.5 million.  During 2002, Keystone
increased the valuation  allowance by $5.5 million and at December 31, 2002, the
Company  has  recognized  a  deferred  tax asset  valuation  allowance  of $20.0
million,  or all of the Company's deferred tax asset.  Keystone will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews,  the  Company  could  change  the  valuation  allowance  related to its
deferred tax assets in the future. The Company does not currently expect 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.

     Management  currently believes the cash flows from operations together with
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. While it is not possible to identify all factors, Keystone continues
to face many risks and uncertainties.  Among the factors that could cause actual
future results to differ materially are the risks and uncertainties discussed in
this Annual Report and those  described from time to time in the Company's other
filings with the SEC,  including,  but not limited to,  future supply and demand
for the Company's products (including  cyclicality thereof),  customer inventory
levels, changes in raw material and other operating costs (such as ferrous scrap
and energy),  general economic  conditions,  competitive products and substitute
products,  customer  and  competitor  strategies,  the  impact  of  pricing  and
production  decisions,  the  possibility  of  labor  disruptions,  environmental
matters (such as those requiring  emission and discharge  standards for existing
and new facilities),  government  regulations and possible changes therein,  any
significant  increases in the cost of providing  medical  coverage to active and
retired employees, the ultimate resolution of pending litigation,  international
trade  policies  of the United  States and  certain  foreign  countries  and any
possible  future  litigation and other risks and  uncertainties  as discussed in
this  Annual  Report.  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  and as a result,  could have a material  adverse  effect on 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.

  Summary of Debt and Other Contractual Commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in the  future.  See Notes 4, 14 and 15 to the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment:



                                        Unconditional payment due date
                                                             2008 and
Contractual commitment           2003   2004/2005 2006/2007    after      Total
- ----------------------           ----    -------   -------   --------     -----
                                                   (In thousands)

                                                         
Indebtedness ...............   $33,935   $ 4,593   $25,522   $ 33,191   $ 97,241

Operating leases ...........       937       684        79       --        1,700

Deferred vendor payment
 agreements ................     3,227     6,454     4,034       --       13,715

Product supply agreement ...     1,200     2,400     2,400      3,900      9,900
                               -------   -------   -------   --------   --------

                               $39,299   $14,131   $32,035   $ 37,091   $122,556
                               =======   =======   =======   ========   ========


     Payments under the deferred  payment  agreements in the above table reflect
the minimum payments  required under the agreements.  Certain  provisions of the
agreements may require  acceleration  of the timing of the payments,  but not an
increase  in the total  amount to be paid.  Payments  under the  product  supply
agreement in the above table  reflect the minimum  payments  required  under the
agreement.  However,  it is probable the Company will make  additional  payments
under the agreement based on actual consumption.

     In addition,  the Company is party to an agreement that requires  quarterly
contributions  of $75,000 to an  environmental  trust fund.  Monies in the trust
fund will be made available to the Company when the related  environmental  site
is remediated  or when the trust fund has a minimum  excess of $2.0 million over
the related site's estimated remaining  remediation costs. At December 31, 2002,
estimated  remaining  remediation costs exceeded the amount in the environmental
trust fund.






ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Keystone's  exposure  to changes in interest  rates  relates  primarily  to
long-term debt obligations. At December 31, 2002, 93% of the Company's long-term
debt was comprised of fixed rate instruments, which minimize earnings volatility
related to interest expense. Keystone does not currently participate in interest
rate-related derivative financial instruments.

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




                                                   Contracted Maturity Date                               Estimated
                                  ---------------------------------------------------------               Fair Value
                             2003      2004     2005     2006      2007      Thereafter    Total       December 31, 2002
                             ----      ----     ----     ----      ----      ----------    -----       -----------------
                                                                 ($ In thousands)

Fixed-rate debt -
                                                                                   
  Principal amount        $   871     $  880   $  797     $792    $24,730     $ 33,191    $ 61,261         $35,000

  Weighted-average
    interest rate             7.9%      8.0%     8.0%      8.0%      5.2%         7.0%        6.3%

Variable-rate debt-
  Principal amount        $33,064     $1,250   $1,667     $ -     $ -         $   -       $ 35,981         $35,981

  Weighted-average
    interest rate            4.3%       4.8%     4.8%       - %     - %          -   %        4.3%



     At December 31, 2001,  long-term  debt included  fixed-rate  debt of $100.2
million (fair value - $25.2  million) with a weighted  average  interest rate of
9.6% and $46.3 million  variable-rate debt which approximated fair value, with a
weighted-average interest rate of 5.4%.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

                                      None.





                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The  information  required by this Item is  incorporated  by  reference  to
Keystone's  Proxy  Statement  to be  filed  with  the  Securities  and  Exchange
Commission  pursuant  to  Regulation  14A  within  120 days after the end of the
fiscal year covered by this report (the "Keystone Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

     The  information  required by this Item is incorporated by reference to the
Keystone Proxy Statement.

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

     The  information  required by this Item is incorporated by reference to the
Keystone Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  information  required by this Item is incorporated by reference to the
Keystone  Proxy  Statement.  See  also  Note  10 to the  Consolidated  Financial
Statements.

ITEM 14.  CONTROLS AND PROCEDURES

     The Company maintains a system of disclosure  controls and procedures.  The
term "disclosure controls and procedures," as defined by regulations of the SEC,
means controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that the Company files or submits to the
SEC under the  Securities  Exchange  Act of 1934,  as amended  (the  "Act"),  is
recorded, processed,  summarized and reported, within the time periods specified
in the SEC's  rules and  forms.  Disclosure  controls  and  procedures  include,
without  limitation,  controls  and  procedures  designed to ensure  information
required to be  disclosed by the Company in the reports that it files or submits
to the SEC  under  the Act is  accumulated  and  communicated  to the  Company's
management,   including  its  principal  executive  officer  and  its  principal
financial officer, as appropriate to allow timely decisions to be made regarding
required  disclosure.  Each of David L. Cheek, the Company's President and Chief
Executive Officer, and Bert E. Downing, Jr., the Company's Vice President, Chief
Financial  Officer,  Corporate  Controller  and  Treasurer,  have  evaluated the
Company's  disclosure controls and procedures as of a date within 90 days of the
filing  date of this Form 10-K.  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.  The term
"internal  controls," as defined by the American  Institute of Certified  Public
Accountants'  Codification of Statement on Auditing  Standards,  AU Section 319,
means controls and other  procedures  designed to provide  reasonable  assurance
regarding the  achievement  of objectives  in the  reliability  of the Company's
financial   reporting,   the  effectiveness  and  efficiency  of  the  Company's
operations and the Company's  compliance with  applicable laws and  regulations.
There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect such controls  subsequent to the
date of their last evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.





                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

     (a)(3)    Exhibits

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

Exhibit No.                          Exhibit


  3.1          Certificate  of  Incorporation,  as  amended  and filed  with the
               Secretary  of State of  Delaware.  (Incorporated  by reference to
               Exhibit 3.1 to the  Registrant's  Annual  Report on Form 10-K for
               the year ended December 31, 1990).

  3.2          Amended and  Restated  Certificate  of  Designations,  Rights and
               Preferences   of  the   Series  A  10%   Cumulative   Convertible
               Pay-In-Kind Preferred Stock of Registrant dated March 12, 2003.

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

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

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

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

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





Exhibit No.                          Exhibit


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

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

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

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

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

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

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

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

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






Exhibit No.                          Exhibit

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

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

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

 4.17          Loan Agreement dated as of March 13, 2002 between  Registrant and
               the County of Peoria,  Illinois.  (Incorporated  by  reference to
               Exhibit 4.17 to the  Registrant's  Annual Report on Form 10-K for
               the year ended December 31, 2001).

 4.18          Subordinate Security Agreement dated as of March 13, 2002 made by
               Registrant   in  favor  of  the  County  of   Peoria,   Illinois.
               (Incorporated  by reference  to Exhibit 4.18 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 2001).

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

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

4.21           Second   Amendment  to  Amended  and  Restated  EWP  Bridge  Loan
               Agreement   dated  as  of  December  31,  2002,  by  and  between
               Registrant and EWP Financial LLC.

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

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

 4.24          Form of  Registrant's  8%  Subordinated  Secured Note dated as of
               March 15, 2002. (Incorporated by reference to Exhibit 4.23 to the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 2001).






Exhibit No.                          Exhibit

 4.25          Indenture Dated as of March 15, 2002,  related to Registrant's 8%
               Subordinated Secured Notes Between Registrant as Issuer, and U.S.
               Bank National Association, as Trustee. (Incorporated by reference
               to Exhibit 4.24 to the  Registrant's  Annual  Report on Form 10-K
               for the year ended December 31, 2001).

 10.1          Intercorporate  Services Agreement with Contran Corporation dated
               as of January 1, 2002.

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

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

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

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

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

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

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

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

 21            Subsidiaries of the Company.

 23.1          Consent of PricewaterhouseCoopers LLP

 99.1          Certification  Pursuant  to 18 U.S.C.  Section  1350,  as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 99.2          Certification  Pursuant  to 18 U.S.C.  Section  1350,  as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 99.3          Annual  report  of the  Keystone  Consolidated  Industries,  Inc.
               Deferred Incentive Plan (Form 11-K) to be filed under Form 10-K/A
               to this Annual Report on Form 10-K within 180 days after December
               31, 2002.

     (b) No reports on Form 8-K were filed during the quarter ended December 31,
2002.

  *Management contract, compensatory plan or agreement.





                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its  behalf  by the  undersigned  and  dated  April  11,  2003,  thereunto  duly
authorized.

                                      KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                              (Registrant)



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

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed  below and dated as of April 11,  2003 by the  following
persons on behalf of the registrant and in the capacities indicated:


/s/ GLENN R. SIMMONS                        /s/ WILLIAM SPIER
- ---------------------------                 -----------------------------------
Glenn R. Simmons                            William Spier
Chairman of the Board                       Director


/s/ J. WALTER TUCKER, JR.                   /s/ STEVEN L. WATSON
- ---------------------------                 -----------------------------------
J. Walter Tucker, Jr.                       Steven L. Watson
Vice Chairman of the Board                  Director


/s/ THOMAS E. BARRY                         /s/ DAVID L. CHEEK
- ------------------------------------        -----------------------------------
Thomas E. Barry                             David L. Cheek
Director                                    President and
                                            Chief Executive Officer


/s/ PAUL M. BASS, JR.                       /s/ BERT E. DOWNING, JR.
- ------------------------------------        --------------------------
Paul M. Bass, Jr.                           Bert E. Downing, Jr.
Director                                    Vice President, Chief
                                            Financial Officer, Corporate
                                            Controller and Treasurer
                                            (Principal Accounting and
                                            Financial Officer)







I, David L.  Cheek,  the  President  and Chief  Executive  Officer  of  Keystone
Consolidated Industries, Inc., certify that:

I have  reviewed  this  annual  report  on Form  10-K of  Keystone  Consolidated
Industries, Inc.;

1)   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

2)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

3)   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4)   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5)   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

A signed  original of this  written  statement  required by Section 906 has been
provided  to  Keystone  Consolidated  Industries,  Inc.  and will be retained by
Keystone  Consolidated  Industries,  Inc. and  furnished to the  Securities  and
Exchange Commission or its staff upon request.

Date: April 11, 2003

/s/ David L. Cheek
David L. Cheek
President and Chief Executive Officer





I, Bert E. Downing, Jr., the Vice President,  Chief Financial Officer, Corporate
Controller  and Treasurer of Keystone  Consolidated  Industries,  Inc.,  certify
that:

I have  reviewed  this  annual  report  on Form  10-K of  Keystone  Consolidated
Industries, Inc.;

1)   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

2)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

3)   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4)   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5)   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

A signed  original of this  written  statement  required by Section 906 has been
provided  to  Keystone  Consolidated  Industries,  Inc.  and will be retained by
Keystone  Consolidated  Industries,  Inc. and  furnished to the  Securities  and
Exchange Commission or its staff upon request.

Date: April 11, 2003

/s/ Bert E. Downing, Jr.
- ------------------------
Bert E. Downing, Jr.
Vice President, Chief Financial Officer, Corporate Controller and Treasurer





F-3


             KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES

                           ANNUAL REPORT ON FORM 10-K

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

   Index of Consolidated Financial Statements and Financial Statement Schedule

                                                                         Page
Financial Statements

  Report of Independent Accountants                                       F-2

  Consolidated Balance Sheets -
   December 31, 2001 and 2002                                             F-3

  Consolidated Statements of Operations -
   Years ended December 31, 2000, 2001 and 2002                           F-5

  Consolidated Statements of Comprehensive Loss -
   Years ended December 31, 2000, 2001 and 2002                           F-7

  Consolidated Statements of Stockholders' Equity (Deficit) -
   Years ended December 31, 2000, 2001 and 2002                           F-8

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2000, 2001 and 2002                           F-9

  Notes to Consolidated Financial Statements                              F-11

Financial Statement Schedule

  Schedule II - Valuation and Qualifying Accounts                         S-1

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








                        REPORT OF INDEPENDENT ACCOUNTANTS

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


     In  our  opinion,  the  consolidated  financial  statements  listed  in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position of Keystone  Consolidated  Industries,  Inc.  and its  subsidiaries  at
December 31, 2001 and 2002,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2002,  in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the  accompanying  index  presents  fairly,  in  all  material   respects,   the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated  financial  statements.  These  financial  statements and financial
statement  schedule are the  responsibility  of the  Company's  management;  our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedule  based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     As  discussed  in  Note 17 to the  consolidated  financial  statements,  on
January 1, 2002 the Company adopted Statement of Financial  Accounting Standards
No. 142.




PricewaterhouseCoopers LLP

Dallas, Texas
April 9, 2003






                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2001 and 2002
                        (In thousands, except share data)






              ASSETS                                        2001           2002
                                                           ------         ------

Current assets:
  Notes and accounts receivable, net of allowances
                                                                  
    of $2,858 and $1,762 .........................       $ 29,411       $ 22,578
  Inventories ....................................         40,912         50,089
  Deferred income taxes ..........................          9,778           --
  Prepaid expenses and other .....................          3,211            893
                                                         --------       --------

      Total current assets .......................         83,312         73,560
                                                         --------       --------

Property, plant and equipment:
  Land, buildings and improvements ...............         55,520         55,949
  Machinery and equipment ........................        311,336        317,064
  Construction in progress .......................            700            820
                                                         --------       --------
                                                          367,556        373,833
  Less accumulated depreciation ..................        237,956        253,849
                                                         --------       --------

      Net property, plant and equipment ..........        129,600        119,984
                                                         --------       --------

Other assets:
  Restricted investments .........................          5,675          5,730
  Prepaid pension cost ...........................        131,985           --
  Unrecognized net pension obligation ............           --           11,852
  Deferred income taxes ..........................         11,844           --
  Deferred financing costs .......................          2,295          2,319
  Goodwill .......................................            752            752
  Other ..........................................          1,437          1,298
                                                         --------       --------

      Total other assets .........................        153,988         21,951
                                                         --------       --------

                                                         $366,900       $215,495
                                                         ========       ========









                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2001 and 2002
                        (In thousands, except share data)


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



                                                           2001          2002
                                                          ------        ------

Current liabilities:
  Notes payable and current maturities of
                                                                
    long-term debt .................................    $  46,332     $  33,935
  Accounts payable .................................       23,014        23,696
  Payables to affiliates ...........................          633         1,448
  Accrued OPEB cost ................................        7,215        11,372
  Accrued preferred stock dividends ................         --           4,683
  Other accrued liabilities ........................       37,100        40,216
                                                        ---------     ---------

      Total current liabilities ....................      114,294       115,350
                                                        ---------     ---------

Noncurrent liabilities:
  Long-term debt ...................................      100,123        63,306
  Accrued OPEB cost ................................      101,810       102,717
  Accrued pension costs ............................         --          48,571
  Negative goodwill ................................       19,998          --
  Other ............................................       31,010        20,337
                                                        ---------     ---------

      Total noncurrent liabilities .................      252,941       234,931
                                                        ---------     ---------

Minority interest ..................................            1             2
                                                        ---------     ---------

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

Stockholders' equity (deficit):
  Common stock, $1 par value, 12,000,000 shares
    authorized; 10,063,103 and 10,069,584 shares
    issued at stated value .........................       10,792        10,798
  Additional paid-in capital .......................       53,071        48,388
  Accumulated other comprehensive loss -
    pension liabilities ............................     (170,307)
  Accumulated deficit ..............................      (64,187)      (25,767)
  Treasury stock - 1,134 shares, at cost ...........          (12)          (12)
                                                        ---------     ---------

      Total stockholders' equity (deficit) .........         (336)     (136,900)
                                                        ---------     ---------

                                                        $ 366,900     $ 215,495
                                                        =========     =========




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






F-5

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 2000, 2001 and 2002
                      (In thousands, except per share data)





                                                 2000        2001          2002
                                                ------      ------        ------

Revenues and other income:
                                                               
  Net sales ...............................   $ 338,321    $ 308,670    $ 317,980
  Gain on early extinguishment of debt ....        --           --         54,739
  Interest ................................         599          253           66
  Other, net ..............................         183          565           34
                                              ---------    ---------    ---------

                                                339,103      309,488      372,819
                                              ---------    ---------    ---------

Costs and expenses:
  Cost of goods sold ......................     331,167      295,339      295,157
  Selling .................................       6,737        6,378        7,717
  General and administrative ..............      18,388       19,070       25,935
  Overfunded defined benefit pension credit        (380)      (5,479)      (1,604)
  Interest ................................      15,346       14,575        5,569
                                              ---------    ---------    ---------

                                                371,258      329,883      332,774
                                              ---------    ---------    ---------

                                                (32,155)     (20,395)      40,045
    Equity in losses of Alter Recycling
      Company L.L.C .......................        (281)        --           --
                                              ---------    ---------    ---------

      Income (loss) before income taxes ...     (32,436)     (20,395)      40,045

Provision for income taxes (benefit) ......     (11,370)       5,998       21,622

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

  Income (loss) before cumulative effect of
   change in accounting principle .........     (21,066)     (26,394)      18,422

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

      Net income (loss) ...................     (21,066)     (26,394)      38,420

  Dividends on preferred stock ............        --           --          4,683
                                              ---------    ---------    ---------

  Net income (loss) available for
   common shares ..........................   $ (21,066)   $ (26,394)   $  33,737
                                              =========    =========    =========







                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
                  Years ended December 31, 2000, 2001 and 2002
                      (In thousands, except per share data)



                                               2000         2001           2002
                                               ----         ----           ----

Basic earnings (loss) per share
 available for common shares:
  Income (loss) before cumulative effect
                                                              
   of change in accounting principle ...   $    (2.10)   $    (2.62)   $     1.36

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

    Net income (loss) ..................   $    (2.10)   $    (2.62)   $     3.35
                                           ==========    ==========    ==========

Basic shares outstanding ...............       10,039        10,062        10,067
                                           ==========    ==========    ==========

Diluted earnings (loss) per share
 available for common shares:
  Income (loss) before cumulative effect
   of change in accounting principle ...   $    (2.10)   $    (2.62)   $      .84

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

    Net income (loss) ..................   $    (2.10)   $    (2.62)   $     1.76
                                           ==========    ==========    ==========

Diluted shares outstanding .............       10,039        10,062        21,823
                                           ==========    ==========    ==========











                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                  Years ended December 31, 2000, 2001 and 2002
                                 (In thousands)





                                                2000        2001         2002
                                                ----        ----         ----

                                                             
Net income (loss) .........................   $(21,066)   $(26,394)   $  38,420

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

    Comprehensive loss ....................   $(21,066)   $(26,394)   $(131,887)
                                              ========    ========    =========









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

                  Years ended December 31, 2000, 2001 and 2002
                                 (In thousands)






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


                                                                         
Balance - December 31, 1999    9,926   $10,656   $ 52,398    $    --      $(16,727)   $(12)   $  46,315

Net loss ..................     --        --         --           --       (21,066)    --       (21,066)

Issuance of stock .........      136       136        673         --          --       --           809
                              ------   -------   --------    ---------    --------    ----    ---------

Balance - December 31, 2000   10,062    10,792     53,071         --       (37,793)    (12)      26,058

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

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

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

Issuance of common stock ..        6         6       --           --          --       --             6

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

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

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









F-9

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2000, 2001 and 2002
                                 (In thousands)




                                                  2000        2001        2002
                                                 ------      ------      ------

Cash flows from operating activities:
                                                              
  Net income (loss) ........................   $(21,066)   $(26,394)   $ 38,420
  Depreciation and amortization ............     17,224      16,992      17,396
  Amortization of deferred financing costs .        479         540         747
  Deferred income taxes ....................    (11,229)      5,902      21,622
  Non-cash OPEB expense ....................     (1,521)      2,243       5,064
  Gain on early extinguishment of debt .....       --          --       (54,739)
  Cumulative effect of change in accounting
   principle ...............................       --          --       (19,998)
  Other, net ...............................       (362)      1,537        (882)
  Change in assets and liabilities:
    Notes and accounts receivable ..........     11,605      (8,310)      6,901
    Inventories ............................     14,080      10,354      (9,177)
    Pensions ...............................       (380)     (5,479)     (1,604)
    Accounts payable .......................      3,855     (10,616)      1,497
    Other, net .............................      1,236      15,329       4,813
                                               --------    --------    --------

      Net cash provided by operating
        activities .........................     13,921       2,098      10,060
                                               --------    --------    --------

Cash flows from investing activities:
  Capital expenditures .....................    (13,052)     (3,889)     (7,973)
  Proceeds from sale of business unit ......       --           757        --
  Collection of notes receivable ...........        103         735       1,127
  Other, net ...............................          7           2           1
                                               --------    --------    --------

      Net cash used by investing activities     (12,942)     (2,395)     (6,845)
                                               --------    --------    --------

Cash flows from financing activities:
  Revolving credit facilities, net .........        777         992     (14,446)
  Other notes payable and long-term debt:
    Additions ..............................         26          56      15,065
    Principal payments .....................     (1,652)       (601)     (1,354)
  Deferred financing costs paid ............       (130)       (150)     (2,480)
                                               --------    --------    --------

    Net cash provided (used) by financing
       activities ..........................       (979)        297      (3,215)
                                               --------    --------    --------










                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2000, 2001 and 2002
                                 (In thousands)




                                                   2000        2001        2002
                                                  -------     -------     ------

Cash and cash equivalents:
  Net change from operations, investing
                                                                 
   and financing activities .................        --          --         --

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

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


Supplemental disclosures:
  Cash paid for:
    Interest, net of amounts capitalized ....    $ 14,867     $ 9,189     $4,669
    Income taxes paid (refund), net .........        (807)       (194)        74

  Common stock contributed to employee
    benefit plan ............................    $    809     $  --       $ --



  See Note 4.






                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of significant accounting policies

     Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") is 50%
owned by  Contran  Corporation  ("Contran")  and other  entities  related to Mr.
Harold C. Simmons.  Substantially all of Contran's  outstanding  voting stock is
held by trusts established for the benefit of certain children and grandchildren
of Mr. Simmons, of which Mr. Simmons is sole trustee.  The Company may be deemed
to be controlled by Contran and Mr. Simmons.  In October 2002, Contran purchased
54,956  shares  of the  59,399  shares  of the  Company's  Redeemable  Series  A
Preferred Stock. See Notes 4 and 5. After 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).

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

     Principles of consolidation.  The consolidated financial statements include
the  accounts of Keystone  and its  majority-owned  subsidiaries.  All  material
intercompany  accounts and  balances  have been  eliminated.  The Company has no
involvement with any variable  interest entity covered by the Scope of Financial
Accounting  Standards  Board  Interpretation  ("FIN") No. 46,  Consolidation  of
Variable Interest Entities. Certain prior year amounts have been reclassified to
conform with the 2002 presentation.

     Although  Keystone  management  expects  to  report a net loss for the year
ending  December 31, 2003,  management also expects to report positive cash flow
from operating activities during 2003. As such,  Keystone's  management believes
its available credit facilities and cash flows from operating activities 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.

     Fiscal year.  The  Company's  fiscal year is 52 or 53 weeks and ends on the
last Sunday in December.  Each of fiscal 2001 and 2002 were 52-week  years,  and
2000 was a 53 week year.

     Net sales.  Sales are recorded when products are shipped  because title and
other risks and rewards of ownership  have passed to the  customer.  In general,
sales from Keystone's steel and wire products segment include prepaid freight to
the customer with the resulting freight cost absorbed by the Company. Keystone's
reported  sales in 2000,  2001 and 2002 are stated net of shipping  and handling
costs of $19.9  million,  $19.2  million  and $19.5  million,  respectively.  In
general, sales from Keystone's lawn and garden products segment are also shipped
freight prepaid to the customer with the resulting  freight cost absorbed by the
Company.  Shipping and handling costs of the Company's lawn and garden  products
segment  are  included  in cost of goods sold and were  approximately  $169,000,
$208,000 and $155,000 in 2000, 2001 and 2002, respectively.  The Company adopted
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101, as
amended in 2000. SAB No. 101 provides guidance on the recognition,  presentation
and disclosure of revenue. The impact of adopting SAB No. 101 was not material.

     Inventories.  Inventories  are stated at the lower of cost or  market.  The
last-in,   first-out   ("LIFO")   method  is  used  to  determine  the  cost  of
approximately 74% and 77% of the inventories held at December 31, 2001 and 2002,
respectively.  The  first-in,  first-out  or average  cost  methods  are used to
determine the cost of all other inventories.

     Property, plant, equipment and depreciation.  Property, plant and equipment
are stated at cost.  Depreciation for financial  reporting  purposes is computed
using principally the straight-line method over the estimated useful lives of 10
to 30 years for buildings and  improvements  and three to 12 years for machinery
and  equipment.  Accelerated  depreciation  methods  are  used  for  income  tax
purposes,   as  permitted.   Depreciation   expense   amounted  to  $18,252,000,
$18,184,000 and  $17,376,000  during the years ended December 31, 2000, 2001 and
2002,  respectively.  Upon sale or retirement of an asset,  the related cost and
accumulated  depreciation  are removed from the accounts and any gain or loss is
recognized in income currently.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures  for major  improvements  are  capitalized.  Keystone  will perform
certain planned major  maintenance  activities during the year (generally during
the fourth  quarter).  Repair and maintenance  costs estimated to be incurred in
connection with such planned major maintenance activities are accrued in advance
and are included in cost of goods sold.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of construction costs.  Interest costs capitalized in
2000, 2001 and 2002 amounted to $124,000, $17,000 and $79,000 respectively.

     When events or changes in circumstances indicate assets may be impaired, an
evaluation  is performed to determine if an  impairment  exists.  Such events or
changes in circumstances  include,  among other things, (i) significant  current
and prior periods or current and projected periods with operating losses, (ii) a
significant  decrease  in the  market  value of an asset or (iii) a  significant
change in the extent or manner in which an asset is used.  All relevant  factors
are considered.  The test for impairment is performed by comparing the estimated
future  undiscounted cash flows (exclusive of interest expense)  associated with
the asset to the asset's net carrying  value to  determine  if a  write-down  to
market value or  discounted  cash flow value is required.  Through  December 31,
2001,  if the asset  being  tested for  impairment  was  acquired  in a business
combination  accounted for by the purchase method,  any goodwill which arose out
of that business  combination  was also considered in the impairment test if the
goodwill related  specifically to the acquired asset and not to other aspects of
the acquired  business,  such as the customer base or product  lines.  Effective
January 1, 2002,  the  Company  commenced  assessing  impairment  of goodwill in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 142,
Goodwill  and Other  Intangible  Assets,  and the  Company  commenced  assessing
impairment  of other  long-lived  assets  (such as property  and  equipment)  in
accordance  with SFAS No.  144,  Accounting  for the  Impairment  of Disposal of
Long-Lived Assets. See Note 17.

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

     Retirement  plans  and   post-retirement   benefits  other  than  pensions.
Accounting  and  funding  policies  for  retirement  plans  and post  retirement
benefits other than pensions ("OPEB") are described in Note 8.

     Environmental   liabilities.   Keystone  records   liabilities  related  to
environmental  issues  at such  time as  information  becomes  available  and is
sufficient  to support a reasonable  estimate of range of probable  loss. If the
Company is unable to determine  that a single  amount in an  estimated  range is
more  likely,  the  minimum  amount  of the range is  recorded.  Costs of future
expenditures  for  environmental  remediation  obligations are not discounted to
their present value.  Recoveries of environmental  remediation  costs from other
parties are recorded as assets when their  receipt is deemed  probable.  At both
December 31, 2001 and 2002  Keystone had such assets  recorded of  approximately
$323,000.

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

     Advertising  costs.  Advertising  costs,  expensed  as  incurred,  were $.9
million in 2000, $.6 million in 2001 and $.8 million in 2002.

     Income (loss) per share. Basic and diluted income (loss) per share is based
upon the weighted  average number of common shares actually  outstanding  during
each year.  The impact of  outstanding  stock options was  antidilutive  for all
periods  presented.  The weighted  average number of  outstanding  stock options
which were excluded from the  calculation of diluted  earnings per share because
their  impact would have been  antidilutive  approximated  795,000,  651,000 and
606,000 in 2000, 2001 and 2002, respectively.

     Deferred  financing costs. At December 31, 2001,  deferred  financing costs
related  primarily  to the  issuance  of  Keystone's  9 5/8%  Notes (the "9 5/8%
Notes") and were  amortized by the interest  method over 10 years (term of the 9
5/8% Notes). At December 31, 2002, deferred financing costs related primarily to
the issuance of  substantially  all of Keystone's  long-term debt as well as its
primary  revolving credit facility and are amortized by the interest method over
the respective  terms of these debt  facilities.  Deferred  financing  costs are
stated net of accumulated  amortization of $2,501,000 and $4,957,000 at December
31, 2001 and 2002, respectively.

     Goodwill and negative goodwill. Goodwill represents the excess of cost over
fair value of individual net assets acquired in business combinations  accounted
for by the purchase method. Through December 31, 2001, goodwill was amortized by
the straight-line  method over not more than 40 years. Upon adoption of SFAS No.
142,  effective  January 1, 2002,  goodwill  was no longer  subject to  periodic
amortization.   Goodwill   is  stated  net  of   accumulated   amortization   of
approximately  $477,000 at December 31, 2001 and 2002.  Amortization of goodwill
amounted to $125,000 in each of 2000 and 2001.

     Through  December  31,  2001,  when  events  or  changes  in  circumstances
indicated  that  goodwill  may be  impaired,  an  evaluation  was  performed  to
determine if an  impairment  existed.  All relevant  factors were  considered in
determining  whether an impairment existed. If an impairment had been determined
to  exist,  goodwill,  and if  appropriate,  the  underlying  long-lived  assets
associated  with the  goodwill,  would have been  written  down to  reflect  the
estimated  future  discounted  cash  flows  expected  to  be  generated  by  the
underlying business.  Effective January 1, 2002, the Company commenced assessing
impairment of goodwill in accordance with SFAS No. 142.

     Negative  goodwill  represented  the  excess  of fair  value  over  cost of
individual  net assets  acquired in business  combinations  accounted for by the
purchase  method and was  amortized  by the  straight-line  method over 20 years
through  December  31,  2001.  Negative  goodwill  is stated net of  accumulated
amortization of approximately  $7,118,000 at December 31, 2001.  Amortization of
negative goodwill in each of 2000 and 2001 amounted to $1,356,000. Upon adoption
of SFAS No. 142, effective January 1, 2002,  negative goodwill was eliminated as
a cumulative effect of change in accounting principle. See Note 17.

     Employee  stock  options.   Keystone  accounts  for  stock-based   employee
compensation in accordance with Accounting Principles Board Opinion ("APBO") No.
25, Accounting for Stock Issued to Employees,  and its various  interpretations.
See Note 7. Under APBO No. 25, no compensation cost is generally  recognized for
fixed stock options in which the exercise  price is equal to or greater than the
market  price on the grant  date.  Compensation  cost  related to stock  options
recognized  by  the  Company  in  accordance  with  APBO  No.  25 has  not  been
significant in each of the past three years.

     The following  table  presents what the Company's  consolidated  net income
(loss), and related per share amounts, would have been in 2000, 2001 and 2002 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.




                                                 Years ended December 31,
                                             2000         2001            2002
                                             ----         ----            ----
                                                  (In thousands except per
                                                      share amounts)

                                                            
Net income (loss) as reported ........   $  (21,066)   $  (26,394)   $   38,420
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 ........         (573)         (498)         (185)
                                         ----------    ----------    ----------

Pro forma net income (loss) ..........   $  (21,639)   $  (26,892)   $   38,235
                                         ==========    ==========    ==========

Basic net income (loss) per share:
 As reported .........................   $    (2.10)   $    (2.62)   $     3.35
 Pro forma ...........................   $    (2.16)   $    (2.67)   $     3.33

Diluted net income (loss) per share:
 As reported .........................   $    (2.10)   $    (2.62)   $     1.76
 Pro forma ...........................   $    (2.16)   $    (2.67)   $     1.75



     Business interruption insurance recoveries. Business interruption insurance
recoveries  related to production outages due primarily to equipment failures or
malfunctions are recorded as a reduction of cost of goods sold when the recovery
is  received.  During  2000,  2001  and 2002  Keystone  received  such  business
interruption  insurance recoveries of approximately  $300,000,  $1.8 million and
$934,000, respectively.

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

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

Note 2 - Joint ventures

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

     In July 1999,  Keystone formed Alter Recycling Company,  L.L.C.  ("ARC"), a
joint  venture with Alter Peoria,  Inc.,  to operate a ferrous  scrap  recycling
operation at Keystone's facility in Peoria, Illinois. ARC sells ferrous scrap to
Keystone  and others.  Upon  formation,  Keystone  contributed  the property and
equipment of its Peoria ferrous scrap facility (net book value of  approximately
$335,000)  to the  joint  venture  in  return  for its 50%  ownership  interest.
Keystone is not required to, nor does it currently  anticipate it will, make any
other  contributions  to fund or operate  this joint  venture.  Keystone has not
guaranteed any debt or other liability of the joint venture. Keystone recognized
no gain or loss upon formation of ARC and the investment in ARC is accounted for
by the equity method.  In addition,  Keystone sold its ferrous scrap  facility's
existing inventory to ARC upon commencement of ARC's operations. At December 31,
2001 and 2002, due to operating losses incurred by ARC, Keystone had reduced its
investment  in ARC to zero.  During  2000,  2001 and  2002,  Keystone  purchased
approximately  $7.2  million,  $6.0 million and $5.2  million,  respectively  of
ferrous scrap from ARC. At December 31, 2001,  ARC owed  Keystone  approximately
$1.0 million,  primarily for the ferrous scrap  inventory  purchased by ARC from
Keystone  at  formation,  and such  amount was  included  in notes and  accounts
receivable  at December 31, 2001.  However,  during the fourth  quarter of 2001,
Keystone  recorded a $1.0 million  charge to provide an  allowance  for the full
amount of the net  receivable  from ARC.  During 2002,  Keystone  increased  the
allowance by $152,000.  Such  allowance  was included in allowance for notes and
accounts  receivable  on the  December  31, 2001  balance  sheet.  During  2002,
Keystone wrote off the ARC receivable against the recorded allowance.

Note 3 - Inventories



                                                                December 31,
                                                             2001           2002
                                                             ----           ----
                                                                (In thousands)
Steel and wire products:
                                                                   
  Raw materials ......................................      $ 9,818      $ 8,825
  Work in process ....................................        9,912       14,920
  Finished products ..................................       16,132       21,178
  Supplies ...........................................       13,446       14,710
                                                            -------      -------
                                                             49,308       59,633
  Less LIFO reserve ..................................       10,768       13,352
                                                            -------      -------
                                                             38,540       46,281

Lawn and garden products - finished products .........        2,372        3,808
                                                            -------      -------

                                                            $40,912      $50,089


Note 4 - Notes payable and long-term debt



                                                              December 31,
                                                           2001           2002
                                                           ----           ----
                                                             (In thousands)

Revolving credit facilities:
                                                                   
  Keystone ..................................          $ 40,823          $28,328
  EWP .......................................             3,225            1,362
  Garden Zone ...............................             1,738            1,650
8% Notes ....................................              --             28,908
6% Notes ....................................              --             16,031
9 5/8% Notes ................................           100,000            6,150
Keystone Term Loan ..........................              --              4,167
County Term Loan ............................              --             10,000
Other .......................................               669              645
                                                       --------          -------
                                                        146,455           97,241
  Less current maturities ...................            46,332           33,935
                                                       --------          -------

                                                       $100,123          $63,306


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

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

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

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

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

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

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

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

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

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

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

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

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

     As part of its  efforts  to  restructure  the 9 5/8%  Notes,  in April 2002
Keystone  received  a new $10  million  term  loan from the  County  of  Peoria,
Illinois (the "County Term Loan"), and a new $5 million term loan (the "Keystone
Term  Loan")  from the same  lender  providing  the  Keystone  revolving  credit
facility. The County Term Loan does not bear interest,  requires no amortization
of principal and is due in 2007.  The Keystone Term Loan bears interest at prime
plus .5% (4.75% at December  31, 2002) or LIBOR plus 2.5% (4.26% at December 31,
2002)  at  the  Company's  option,  with  principal  payments  amortized  over a
four-year  period and due in March 2005. The County Term Loan is  collateralized
by a second priority lien on the real property and other fixed assets comprising
Keystone's  steel  mill  in  Peoria,   Illinois.   The  Keystone  Term  Loan  is
collateralized  by a  first-priority  lien  on all of the  fixed  assets  of the
Company and its subsidiaries,  other than EWP and Garden Zone. Proceeds from the
Keystone  Term Loan and  County  Term Loan were used by  Keystone  to reduce the
outstanding balance of Keystone's revolving credit facility.

     Keystone's primary revolving credit facility ("the Keystone Revolver"),  as
amended in April 2002,  provides for  revolving  borrowings of up to $45 million
based upon  formula-determined  amounts of trade  receivables  and  inventories.
Borrowings  bear interest,  at the Company's  option,  at prime rate plus .5% or
LIBOR plus 2.5%,  mature no later than  March,  2005 and are  collateralized  by
certain of the Company's trade  receivables and  inventories.  In addition,  the
Keystone  Revolver is  cross-collateralized  with junior liens on certain of the
Company's  property,  plant  and  equipment.  The  effective  interest  rate  on
outstanding borrowings under the Keystone Revolver was 5.5% and 4.4% at December
31, 2001 and 2002,  respectively.  At December 31, 2002, $2.2 million of letters
of credit were  outstanding,  and $14.5  million was  available  for  additional
borrowings. The Keystone Revolver requires the Company's daily net cash receipts
to be used to reduce the  outstanding  borrowings,  which results in the Company
maintaining zero cash balances so long as there is an outstanding  balance under
the Keystone Revolver.  Accordingly, any outstanding balances under the Keystone
Revolver  are  always  classified  as a  current  liability,  regardless  of the
maturity  date of the  facility.  The  Keystone  Revolver  contains  restrictive
covenants, including certain minimum working capital and net worth requirements,
maintenance of financial  ratios  requirements  and other  customary  provisions
relative to payment of dividends on Keystone's common stock and on the Company's
Redeemable Series A Preferred Stock.

     EWP's $7 million revolving credit facility (the "EWP Revolver")  expires in
June 2004.  Borrowings  under the EWP Revolver bear interest at either the prime
rate or  LIBOR  plus  2.25%  (4.2%  and 4.1% at  December  31,  2001  and  2002,
respectively).  At December 31, 2002,  $4.7 million was available for additional
borrowings under the EWP revolver.  EWP's accounts  receivable,  inventories and
property,  plant and equipment  collateralize the EWP Revolver. The EWP Revolver
Agreement  contains  covenants  with  respect  to  working  capital,  additional
borrowings, payment of dividends and certain other matters.

     Garden Zone has a $4.0 million  revolving credit facility (the "Garden Zone
Revolver")  which matures May 15, 2003 and bears interest at the LIBOR rate plus
2.4%.  During 2001 and 2002 the Garden Zone  Revolver bore interest at the LIBOR
rate plus 2% (4.6% and 4.2% at December 31, 2001 and 2002, respectively). Garden
Zone's  accounts  receivable  and  inventories  collateralize  the  Garden  Zone
Revolver.  At December 31, 2002,  approximately  $1.4 million was  available for
additional  borrowings  under the Garden Zone Revolver.  Keystone has guaranteed
51% of the outstanding  borrowings  under the Garden Zone revolver.  The Company
currently intends to renew or replace the Garden Zone Revolver upon its maturity
in May 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 matures on June 30, 2003. This facility is  collateralized  by the
common stock of EWP owned by Keystone.  Through March 2003,  the Company has not
borrowed any amounts under such facility.

     At December  31,  2001 and 2002,  other notes  payable and  long-term  debt
included  $474,000  advanced  to  Garden  Zone by one of its other  owners.  The
advance bears  interest at the prime rate.  Interest paid on this advance during
2000,  2001 and 2002  amounted to  approximately  $64,000,  $34,000 and $23,000,
respectively.

     Aggregate  future  maturities of other notes payable and long-term  debt at
December 31, 2002 amounted to $2.6 million, $2.1 million, $2.5 million, $792,000
and $24.7 million in 2003, 2004, 2005, 2006 and 2007, respectively.

     The  Company's  revolving  credit  facilities  and the  Keystone  Term Loan
reprice with changes in interest  rates.  The aggregate fair value of Keystone's
fixed rate notes,  based on management's  estimate of fair value at December 31,
2001 approximated  $25.0 million ($100.00 million book value). The book value of
all other  indebtedness  at December 31, 2001 was deemed to  approximate  market
value.  At December 31, 2002, the aggregate fair value of Keystone's  fixed rate
notes, based on management's estimate of fair value,  approximated $35.0 million
($61.3 million book value). The book value of all other indebtedness at December
31, 2002 is deemed to approximate market value.


Note 5 -Series A preferred stock:

     In connection  with the Exchange  Offer,  Keystone  issued 59,399 shares of
Series A 10% Cumulative  Convertible  Pay-In-Kind Preferred Stock (the "Series A
Preferred Stock"). The Series A Preferred Stock has a stated value of $1,000 per
share and has a  liquidation  preference  of $1,000 per share plus  accrued  and
unpaid dividends. The Series A Preferred Stock has an annual dividend commencing
in December 2002 of $100 per share,  and such  dividends may be paid in cash or,
at the  Company's  option,  in whole or in part in new Series A Preferred  Stock
based on their stated  value.  The amount of  dividends  accrued at December 31,
2002 ($4.7 million) has been  determined  based on the assumption such dividends
will be paid in cash  rather than in the form of  additional  shares of Series A
Preferred  Stock.  After March 15, 2003,  each share of Series A Preferred Stock
may be converted  into 250 shares of Keystone  common stock at the exchange rate
of $4.00 per share based on the stated value of each Series A share. The Company
may redeem the Series A Preferred  Stock at any time,  in whole or in part, at a
redemption  price of $1,000 per share plus  accrued  and  unpaid  dividends.  In
addition,  in the event of certain  sales of the  Company's  assets  outside the
ordinary course of business, the Company will be required to offer to purchase a
specified portion of the Series A Preferred Stock, at a purchase price of $1,000
per share plus  accrued  and unpaid  dividends,  based upon the  proceeds to the
Company from such asset sale. Otherwise, holders of the Series A Preferred Stock
have no mandatory  redemption  rights. The Company does not currently believe it
is probable that holders of the Series A Preferred Stock will be able to require
the Company to purchase any of their stock,  and  accordingly the Company is not
accreting the Series A Preferred  Stock up to its redemption  value.  In October
2002,  Contran  purchased  54,956  shares of the 59,399  shares of the Company's
Redeemable Series A Preferred Stock.

Note 6 - Income taxes

     At December 31, 2002, 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;  financial  restructuring
efforts and the fact that accrued OPEB expenses will become  deductible  over an
extended period of time and require the Company to generate  significant amounts
of future taxable income,  the Company believes its gross deferred tax assets do
not  currently  meet the  "more-likely-than-not"  realizability  test.  As such,
during the fourth  quarter of 2001,  the Company  provided a deferred  tax asset
valuation allowance of approximately  $14.5 million.  The resulting net deferred
tax asset of approximately  $21.6 million at December 31, 2001  approximated the
tax expense for financial reporting purposes which was recorded during the first
quarter of 2002 related to the  cancellation  of indebtedness  income  resulting
from the  Exchange  Offer.  As a result  of the  deferred  tax  asset  valuation
allowance,  the Company did not  recognize  a tax  benefit  associated  with its
pre-tax loss,  exclusive of the gain  recognized in connection with the Exchange
Offer, during 2002. In addition, during 2002, the Company increased the deferred
tax asset valuation  allowance  related to its net losses by approximately  $5.5
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 provision  (benefit)
for income taxes and the amounts that would be expected  using the U. S. federal
statutory  income tax rate of 35%, and (ii) the components of the  comprehensive
provision (benefit) for income taxes.



                                                     Years ended December 31,
                                                    2000        2001         2002
                                                    ----        ----         ----
                                                          (In thousands)

Expected tax provision (benefit), at
                                                                
 statutory rate ..............................   $(11,353)   $ (7,138)   $ 14,016
U.S. state income taxes (benefit), net .......        157        (399)      2,022
Amortization of goodwill and negative goodwill       (431)       (431)       --
Deferred tax asset valuation allowance .......       --        14,510       5,536
Other, net ...................................        257        (544)         48
                                                 --------    --------    --------

Provision (benefit) for income taxes .........   $(11,370)   $  5,998    $ 21,622
                                                 ========    ========    ========

Provision (benefit) for income taxes:
  Currently payable (refundable):
    U.S. federal .............................   $   (278)   $    (37)   $    (34)
    U.S. state ...............................        137         133          34
                                                 --------    --------    --------

      Net currently payable (refundable) .....       (141)         96        --
  Deferred income taxes, net .................    (11,229)      5,902      21,622
                                                 --------    --------    --------

                                                 $(11,370)   $  5,998    $ 21,622
                                                 ========    ========    ========
Comprehensive provision for income taxes
 (benefit) allocable to:
  Income (loss) before cumulative effect
   of change in accounting principle .........   $(11,370)   $  5,998    $ 21,622
  Cumulative effect of change in
   accounting principle ......................       --          --          --
  Other comprehensive loss -
    Pension liability ........................       --          --          --
                                                 --------    --------    --------

                                                 $(11,370)   $  5,998    $ 21,622
                                                 ========    ========    ========





     At  December  31,  2002,   Keystone  had  approximately   $6.3  million  of
alternative minimum tax credit carryforwards which have no expiration date.

     At December  31, 2002  Keystone had net  operating  loss  carryforwards  of
approximately  $29.8 million which expire in 2019 through 2022, and which may be
used to reduce future taxable income of the entire Company.






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



                                                                           December 31,
                                                                       -------------------
                                                                 2001                    2002
                                                        ---------------------------------------------
                                                         Assets    Liabilities    Assets  Liabilities
                                                                      (In thousands)

Tax effect of temporary differences relating to:
                                                                                
  Inventories .......................................   $  2,453    $   --      $  3,049    $  --
  Property and equipment ............................       --        (5,513)       --       (5,201)
  Pensions ..........................................       --       (51,474)     14,320       --
  Accrued OPEB cost .................................     42,507        --        44,483       --
  Accrued liabilities and other deductible
   Differences ......................................     14,130        --        14,294       --
  Other taxable differences .........................       --        (6,260)       --       (2,343)
  Net operating loss carryforwards ..................     34,029        --        11,604       --
  Alternative minimum tax credit carryforwards ......      6,260        --         6,260       --
  Deferred tax asset valuation allowance ............    (14,510)       --       (86,466)      --
                                                        --------    --------    --------    -------

    Gross deferred tax assets .......................     84,869     (63,247)      7,544     (7,544)
Reclassification, principally netting by tax
 jurisdiction .......................................    (63,247)     63,247      (7,544)     7,544
                                                        --------    --------    --------    -------

    Net deferred tax asset ..........................     21,622        --          --         --
Less current deferred tax asset, net of pro rata
 allocation of deferred tax asset valuation allowance      9,778        --          --         --
                                                        --------    --------    --------    -------

    Noncurrent net deferred tax asset ...............   $ 11,844    $   --      $   --      $  --
                                                        ========    ========    ========    =======




                                                      Years ended December 31,
                                                    2000        2001        2002
                                                    ----        ----        ----
                                                            (In thousands)

Increase in valuation allowance:
  Increase in certain deductible temporary
   differences which the Company believes do
   not meet the "more-likely-than-not"
   recognition criteria:
                                                                
Recognized in net income (loss) ...............    $  --      $14,510    $ 5,536
Recognized in other comprehensive loss -
 pension liabilities ..........................       --         --       66,420
                                                   -------    -------    -------

                                                   $  --      $14,510    $71,956
                                                   =======    =======    =======



Note 7 - Stock options, warrants and stock appreciation rights plan

     In 1997,  Keystone  adopted its 1997  Long-Term  Incentive  Plan (the "1997
Plan").  Under the 1997 Plan, the Company may make awards that include, but need
not be limited to, one or more of the  following  types:  stock  options,  stock
appreciation rights,  restricted stock, performance grants and any other type of
award  deemed  consistent  with the  purposes  of the plan.  Subject  to certain
adjustments,  an aggregate of not more than 500,000 shares of Keystone's  common
stock may be issued under the 1997 Plan.  Stock  options  granted under the 1997
Plan may include  options  that qualify as  incentive  stock  options as well as
options  which are not so  qualified.  Incentive  stock options are granted at a
price not less than 100%, or in certain  instances,  110% of a fair market value
of such stock on the date of the grant.  Stock  options  granted  under the 1997
Plan may be exercised over a period of ten, or in certain instances, five years.
The vesting period,  exercise price, length of period during which awards can be
exercised, and restriction periods of all awards are determined by the Incentive
Compensation  Committee of the Board of Directors.  At December 31, 2002,  there
were 292,000 options outstanding under this plan.

     During 1997,  the Company  granted all remaining  options  available  under
Keystone's  1992 Option Plan. At December 31, 2002,  there were 195,300  options
outstanding under this plan.

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










                                                      Price per       Amount payable
                                       Options          share          upon exercise

Outstanding at December 31, 1999       728,066      $7.63 -$13.94       $6,587,224

                                                               
  Granted                              146,000       4.25 -  5.50          765,500
  Canceled                            (116,000)      5.13 - 13.38       (1,035,594)
                                      --------      -------------       -----------

Outstanding at December 31, 2000       758,066       4.25 - 13.94        6,317,130

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

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

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

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




     The following table  summarizes  weighted average  information  about fixed
stock options outstanding at December 31, 2002.



                                                   Outstanding                         Exercisable
                                                 Weighted Average                                 Weighted Average
   Range of                                Remaining                                        Remaining
   Exercise                               Contractual        Exercise                      Contractual        Exercise
    Prices               Options              Life             Price     Options               Life            Price
  ----------             -------          -----------        --------    -------           -----------        -------

                                                                                            
$ 4.25-$ 5.50             89,500            7.2 years         $ 5.17      59,670             7.2 years        $ 5.17
$ 7.63-$10.25            377,800            4.6 years         $ 8.59     377,800             4.6 years        $ 8.59
    $13.94                20,000            4.8 years         $13.94      20,000             4.8 years        $13.94
                         -------                                         -------
                         487,300            5.1 years         $ 8.18     457,470             4.9 years        $ 8.38
                         =======                                         =======


     At December 31, 2002,  options to purchase  457,470 shares were exercisable
(none at prices lower than the December 31, 2002 quoted market price of $.53 per
share)  and  options  to  purchase  an  additional  29,830  shares  will  become
exercisable  in 2003. At December 31, 2002, an aggregate of 208,000  shares were
available for future grants under the 1997 Plan.

     The pro forma information  included in Note 1, required by SFAS No. 123, as
amended,  is  based  on an  estimation  of the  fair  value  of  options  issued
subsequent  to January 1, 1995.  The  weighted  average  fair value of  Keystone
options  granted during 2000 was $3.52 per share.  There were no options granted
in 2001 or 2002. The fair values of the 2000 options were  calculated  using the
Black-Scholes  stock option valuation model with the following  weighted-average
assumptions:  stock price volatility of 45%,  risk-free rate of return of 6.66%,
no dividend yield and an expected term of 10 years. The Black-Scholes  model was
not developed for use in valuing  employee stock options,  but was developed for
use in  estimating  the fair  value  of  traded  options  that  have no  vesting
restrictions  and are fully  transferable.  In addition,  it requires the use of
subjective  assumptions  including  expectations  of future  dividends and stock
price  volatility.  Such  assumptions are only used for making the required fair
value  estimate and should not be considered  as  indicators of future  dividend
policy  or  stock  price   appreciation.   Because  changes  in  the  subjective
assumptions can materially affect the fair value estimate,  and because employee
stock options have characteristics  significantly different from those of traded
options,  the use of the  Black-Scholes  option-pricing  model may not provide a
reliable  estimate of the fair value of employee  stock  options.  The pro forma
impact on net income  (loss) per share  disclosed  in Note 1 is not  necessarily
indicative of future effects on net income (loss) or earnings (loss) per share.

Note 8 - Pensions and other post retirement benefits plans

     Keystone  sponsors several pension plans and other post retirement  benefit
plans for its employees and certain  retirees.  Under plans currently in effect,
most active  employees  would be entitled to receive OPEB upon  retirement.  The
following tables provide a reconciliation of the changes in the plans' projected
benefit  obligations  and fair value of assets for the years ended  December 31,
2001 and 2002:



                                                Pension Benefits             Other Benefits
                                             -----------------------     --------------------
                                                2001         2002         2001         2002
                                                ----         ----         ----         ----
                                                               (In thousands)

Change in projected benefit obligations ("PBO"):
                                                                        
  Benefit obligations at beginning of year   $ 308,494    $ 314,106    $ 106,703    $ 152,298
  Service cost ...........................       2,954        3,041        1,506        1,890
  Interest cost ..........................      21,419       21,938        9,739       10,722
  Participant contributions ..............        --           --            933        1,785
  Actuarial loss .........................       6,702       28,773       44,146       15,538
  Benefits paid ..........................     (25,463)     (26,470)     (10,729)     (10,981)
                                             ---------    ---------    ---------    ---------

    Benefit obligations at end of year ...   $ 314,106    $ 341,388    $ 152,298    $ 171,252
                                             =========    =========    =========    =========

Change in plan assets:
  Fair value of plan assets at
   beginning of year .....................   $ 343,501    $ 332,990    $    --      $    --
  Actual return (loss) on plan assets ....      14,952      (19,528)        --           --
  Employer contributions .................        --           --          9,796        9,196
  Participant contributions ..............        --           --            933        1,785
  Benefits paid ..........................     (25,463)     (26,470)     (10,729)     (10,981)
                                             ---------    ---------    ---------    ---------

    Fair value of plan assets at end
     of year .............................   $ 332,990    $ 286,992    $    --      $    --
                                             =========    =========    =========    =========

Funded status at end of the year:
  Plan assets greater (less) than PBO ....   $  18,884    $ (54,396)   $(152,298)   $(171,252)
    Unrecognized actuarial losses ........     100,367      176,132       46,109       59,656
    Unrecognized prior service cost
     (credit) ............................      12,734       11,852       (2,836)      (2,493)
                                             ---------    ---------    ---------    ---------

                                             $ 131,985    $ 133,588    $(109,025)   $(114,089)
                                             =========    =========    =========    =========

Amounts recognized in the balance sheet:
  Prepaid pension cost ...................   $ 131,985    $    --      $    --      $    --
  Unrecognized net pension obligations ...        --         11,852         --           --
  Accrued benefit costs:
    Current ..............................        --           --         (7,215)     (11,372)
    Noncurrent ...........................        --        (48,571)    (101,810)    (102,717)
  Accumulated other comprehensive loss -
    pension liabilities ..................        --        170,307         --           --
                                             ---------    ---------    ---------    ---------

                                             $ 131,985    $ 133,588    $(109,025)   $(114,089)
                                             =========    =========    =========    =========



     The  assumptions   used  in  the  measurement  of  the  Company's   benefit
obligations at December 31, are shown in the following table:



                                        Pension Benefits          Other Benefits
                                     ---------------------    --------------------
                                     2000     2001    2002    2000   2001     2002
                                     ----     ----    ----    ----   ----     ----

                                                            
Discount rate ...................    7.25%     7.0%    6.5%   7.25%    7.0%   6.5%
Expected return on plan assets ..    10.0%    10.0%   10.0%   --      --     --
Rate of compensation increase ...     3.0%     3.0%    3.0%   --      --     --







     The following  table provides the  components of net periodic  benefit cost
for the plans for the years ended December 31, 2000, 2001 and 2002:



                                               Pension Benefits                    Other Benefits
                                        ---------------------------         ---------------------------
                                        2000        2001       2002         2000       2001        2002
                                        ----        ----       ----         ----       ----        ----
                                                                (In thousands)

                                                                               
Service cost .....................   $  2,915    $  2,954    $  3,041    $  1,623    $  1,506    $  1,890
Interest cost ....................     21,333      21,419      21,938       7,427       9,739      10,722
Expected return on plan assets ...    (32,544)    (33,142)    (31,983)       --          --          --
Amortization of unrecognized:
  Net obligation as of
    January 1, 1987 ..............      1,199        --          --          --          --          --
  Prior service cost .............        882         882         882        (343)       (343)       (343)
  Net loss .......................      2,112       2,408       4,518        --         1,137       1,991
                                     --------    --------    --------    --------    --------    --------

Net periodic benefit cost (credit)
                                       (4,103)     (5,479)     (1,604)   $  8,707    $ 12,039    $ 14,260
                                                                         ========    ========    ========
Termination benefits for early
  retirement window                     3,723         -            -
                                     --------     --------     -----

Total pension credit                 $   (380)    $ (5,479)  $ (1,604)
                                     ========     ========   ========


     During the fourth  quarter of 2000,  in  connection  with  Keystone's  cost
reduction  plans,  the Company  offered a group of salaried  employees  enhanced
pension  benefits if they would retire by December  31,  2000,  resulting in the
$3.7 million charge for termination benefits for early retirement window.

     During the fourth  quarter of 2001,  based on an actuarial  valuation,  the
Company recorded an increase in 2001 OPEB expense and liability of approximately
$2.9 million resulting in OPEB expense for the year 2001 of approximately  $12.0
million.  The  Company  had  previously  estimated  OPEB  expense for 2001 would
approximate $9.1 million.

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

     At  December  31,  2002,  substantially  all of the plan's net assets  were
invested in a collective  investment trust (the "Collective  Trust") established
by Valhi, Inc. ("Valhi"), a majority-owned  subsidiary of Contran, to permit the
collective  investment  by certain  master  trusts which fund  certain  employee
benefit plans maintained by Contran, Valhi and related companies,  including the
Company.  The remainder of the Plan's assets at December 31, 2002 were primarily
invested in real estate. Harold C. Simmons is the sole trustee of the Collective
Trust.  Mr. Simmons and two members of Keystone's  board of directors and Master
Trust  Investment  Committee  comprise the Trust  Investment  Committee  for the
Collective  Trust.  Neither Mr. Simmons nor the Keystone  directors  receive any
compensation for serving in such capacities.

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

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

     For  measurement  purposes,  a 9% annual rate of increase in the per capita
cost of covered  health care benefits was assumed for 2003. The rate was assumed
to decrease gradually to 5% in 2007 and remain at that level thereafter.

     Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts  reported for the health care plans.  A  one-percentage-point  change in
assumed health care cost trend rates would have the following effects:



                                                      Change in Health Care Cost Trend
                                                      1% Increase      1% Decrease
                                                             (In thousands)

Increase (decrease):
  Effect on total of service and interest
    cost components for the year ended
                                                                 
  December 31, 2002 ............................        $ 2,391        $ (1,979)

Effect on postretirement benefit
  obligation at December 31, 2002 ..............        $31,088        $(25,864)


     The Company also  maintains  several  defined  contribution  pension plans.
Expense  related to these plans was $2.8  million in 2000,  $1.6 million in 2001
and $2.5 million in 2002.

Note 9 - Other accrued liabilities



                                                                December 31,
                                                           2001            2002
                                                           ----            ----

Current:
                                                                   
  Employee benefits ..............................        $11,168        $11,455
  Self insurance .................................          8,906         10,336
  Environmental ..................................          8,068          8,103
  Deferred vendor payments .......................          2,488          3,338
  Legal and professional .........................            887          1,176
  Disposition of former facilities ...............            530            659
  Interest .......................................          1,287            318
  Other ..........................................          3,766          4,831
                                                          -------        -------

                                                          $37,100        $40,216
                                                          =======        =======
Noncurrent:
  Deferred vendor payments .......................        $13,648        $10,252
  Environmental ..................................          7,508          7,087
  Workers compensation payments ..................          1,762          2,309
  Interest .......................................          7,735            298
  Other ..........................................            357            391
                                                          -------        -------

                                                          $31,010        $20,337
                                                          =======        =======


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

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

Note 10 - Related party transactions

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

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

     J.  Walter  Tucker,  Jr.,  Vice  Chairman  of the  Company,  is a principal
stockholder of Tucker & Branham,  Inc., Orlando,  Florida.  Although the Company
does not pay Mr.  Tucker a salary,  the  Company  has  contracted  with Tucker &
Branham,  Inc. for management  consulting  services by Mr. Tucker.  Fees paid to
Tucker & Branham, Inc. were $87,000 in 2000, $52,000 in 2001 and $5,100 in 2002.

     Under the terms of an  intercorporate  services  agreement  ("ISA") entered
into between the Company and Contran,  employees of Contran will provide certain
management,  tax planning,  financial and administrative services to the Company
on a fee basis. Such charges are based upon estimates of the time devoted by the
employees of Contran to the affairs of the Company, and the compensation of such
persons.  Because of the large number of companies  affiliated with Contran, the
Company  believes it benefits from cost savings and economies of scale gained by
not having certain management, financial and administrative staffs duplicated at
each entity,  thus allowing certain  individuals to provide services to multiple
companies but only be compensated  by one entity.  The ISA agreement is reviewed
and approved by the  applicable  independent  directors of the Company.  The ISA
fees  charged by Contran to the  Company  aggregated  approximately  $750,000 in
2000,  $1,005,000 in 2001 and $1,025,000 in 2002. At December 31, 2001 and 2002,
the Company owed Contran approximately $633,000 and $1.4 million,  respectively,
primarily  for ISA fees.  Such amounts are included in payables to affiliates on
the Company's balance sheets. In addition,  Keystone  purchased certain aircraft
services  from Valhi in the amount of  $111,000  in 2000,  $124,000  in 2001 and
$74,000 in 2002.

     Tall Pines Insurance  Company ("Tall  Pines"),  Valmont  Insurance  Company
("Valmont") and EWI RE, Inc. ("EWI") provide for or broker certain of Keystone's
insurance  policies.  Tall Pines is a wholly-owned  captive insurance company of
Tremont Corporation  ("Tremont"),  a company controlled by Contran. Valmont is a
wholly-owned  captive insurance company of Valhi. Parties related to Contran own
all of the  outstanding  common  stock of EWI.  Through  December  31,  2000,  a
son-in-law of Harold C. Simmons  managed the  operations  of EWI.  Subsequent to
December  31,  2000,  and  pursuant to an  agreement  that,  as amended,  may be
terminated with 90 days written notice by either party, such son-in-law provides
advisory  services to EWI as requested by EWI, for which such son-in-law is paid
$11,875 per month and receives certain other benefits under EWI's benefit plans.
Such  son-in-law  is also  currently  Chairman of the Board of EWI.  The Company
generally does not compensate Tall Pines, Valmont or EWI directly for insurance,
but understands that,  consistent with insurance industry practice,  Tall Pines,
Valmont and EWI receive  commissions  for their  services from the insurance and
reinsurance  underwriters.  During  2000,  2001 and  2002,  the  Company  and it
subsidiaries paid approximately $2.0 million in 2000 and $2.2 million in each of
2001 and 2002, for policies  provided or brokered by Tall Pines,  Valmont and/or
EWI. These amounts  principally  include  payments for reinsurance and insurance
premiums paid to unrelated third parties,  but also include  commissions paid to
Tall Pines, Valmont and EWI. In the Company's opinion, the amounts that Keystone
and its  subsidiaries  paid for these  insurance  policies  are  reasonable  and
similar to those they could have obtained through unrelated  insurance companies
and/or brokers.  The Company expects that these  relationships  with Tall Pines,
Valmont and EWI will continue in 2003.

     Dallas  Compressor  Company,  a  wholly-owned  subsidiary  of Contran sells
compressors  and  related  services  to  Keystone.  During  2000,  2001 and 2002
Keystone  purchased  products and services from Dallas Compressor Company in the
amount of $67,000, $31,000 and $267, respectively.

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

     EWP  Financial,  LLC, a wholly-owned  subsidiary of Contran,  has agreed to
loan the  Company  up to an  aggregate  of $6  million  through  June 30,  2003.
Borrowings  bear interest at the prime rate plus 3%, and are  collateralized  by
the stock of EWP. In addition, the Company pays a commitment fee of .375% on the
unutilized  portion of the  facility.  At December  31,  2002,  no amounts  were
outstanding  under the  facility,  and $6 million was available for borrowing by
the Company.  The terms of this loan were approved by the independent  directors
of the Company.  During 2001, the Company paid Contran an up-front  facility fee
of $120,000 related to this facility.  During 2002, Keystone paid Contran unused
line fees of $23,000 related to this facility.






Note 11 - Quarterly financial data (unaudited)



                                             March 31,    June 30,  September 30, December 31,
                                                 (In thousands, except per share data)

Year ended December 31, 2002:
                                                                     
  Net sales ..............................   $ 85,912    $ 94,244    $ 79,445    $ 58,379
  Gross profit (loss) ....................      8,733      10,811       4,334      (1,055)

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

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

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

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

Year ended December 31, 2001:
  Net sales ..............................   $ 77,763    $ 86,294    $ 82,329    $ 62,284
  Gross profit (loss) ....................      1,406       5,833       6,636        (544)

  Net loss ...............................   $ (3,706)   $ (1,628)   $ (1,250)   $(19,810)
                                             ========    ========    ========    ========

  Basic and diluted net loss per share ...   $   (.37)   $   (.16)   $   (.12)   $  (1.97)
                                             ========    ========    ========    ========



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

     During the fourth quarter of 2001, the Company  recorded a (i) $1.0 million
charge to provide an allowance  for the full amount of the net  receivable  from
ARC, and (ii) a $14.5 million  charge to provide a deferred tax asset  valuation
allowance for the portion of the  Company's  deferred tax asset that the Company
believes does not currently meet the "more-likely-than-not" realizability test.

     During the fourth  quarter of 2001,  based on an actuarial  valuation,  the
Company recorded an increase in 2001 OPEB expense and liability of approximately
$2.9 million resulting in OPEB expense for the year 2001 of approximately  $12.0
million.  The  Company  had  previously  estimated  OPEB  expense for 2001 would
approximate $9.1 million.

     During the fourth quarter of 2001, Keystone recorded a $1.3 million benefit
as a result of a favorable legal  settlement with an electrode vendor related to
alleged price fixing.

     As a result of a  significant  decline in value of the assets of Keystone's
defined  benefit  pension  plan  during  2002,  the plan's  accumulated  benefit
obligation at December 31, 2002 exceeded the plan's assets. Accordingly,  during
the fourth quarter of 2002, the Company  recorded an additional  minimum pension
liability of $182.2 million and an intangible pension asset of $11.9 million.

     See Notes 2, 6 and 8.

Note 12 - Operations

     Keystone's  operations are comprised of two segments:  the  manufacture and
sale of carbon steel rod, wire and wire products for  agricultural,  industrial,
construction,  commercial,  original equipment manufacturers and retail consumer
markets and the  distribution of wire, wood and plastic products to the consumer
lawn and garden markets  through Garden Zone.  Keystone owns 51% of Garden Zone.
The  Company's  steel  and  wire  products  are  distributed  primarily  in  the
Midwestern,  Southwestern and Southeastern United States. Garden Zone's products
are distributed primarily in the Southeastern United States.

     In January 2001,  Keystone's  wholly-owned  subsidiary,  Fox Valley Steel &
Wire  ("Fox  Valley")  sold its  business  which  was  located  in  Hortonville,
Wisconsin.  The Company did not record any significant  gain or loss as a result
of the  sale.  Fox  Valley  manufactured  industrial  wire and  fabricated  wire
products  (primarily  ladder rods and nails).  Fox  Valley's  revenues,  in 2000
amounted to $10.3 million.  During 2000 Fox Valley recorded an operating loss of
$686,000.



                                                                                     
Business Segment                              Principal entities                           Location

Steel and wire products                       Keystone Steel & Wire                        Peoria, Illinois
                                              Sherman Wire                                 Sherman, Texas
                                              Sherman Wire
                                               of Caldwell, Inc.                           Caldwell, Texas
                                              Keystone Fasteners                           Springdale, Arkansas
                                              Engineered Wire Products                     Upper Sandusky, Ohio

Lawn and garden products                      Garden Zone LLC (1)                          Charleston, South
                                                                                             Carolina



(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  non-recurring  items  (such as gains or  losses on  disposition  of
business  units)  and  certain  general   corporate  income  and  expense  items
(including  interest income) which are not attributable to the operations of the
reportable operating segments.

     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.

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting  policies except that pension expense for
each  segment is  recognized  and  measured  on the basis of  estimated  current
service cost of each segment.  The  remainder of the  Company's  net  overfunded
defined benefit pension credit is included in net general corporate expenses. In
addition, amortization of goodwill and negative goodwill are included in general
corporate  expenses and are not  allocated to each  segment.  General  corporate
expenses also includes OPEB and environmental expenses relative to facilities no
longer owned by the Company.

     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.











                                Steel and    Lawn and               Corporate
                                  Wire        Garden     Segment       and
                                Products     Products     Total    Eliminations   Total
                                                     (In thousands)

Year ended December 31, 2002:

                                                                 
Net sales ...................   $ 308,457    $10,744   $ 319,201    $ (1,221)   $ 317,980
Depreciation and amortization      17,390       --        17,390           6       17,396
Operating profit (loss) .....      (5,701)        85      (5,616)       --         (5,616)
Identifiable segment assets .     193,109      4,186     197,295      18,200      215,495
Capital expenditures ........       7,969       --         7,969           4        7,973

Year ended December 31, 2001:

Net sales ..................... $ 300,659    $8,483    $ 309,142    $    (472)  $ 308,670
Depreciation and amortization ..   18,215      --         18,215       (1,223)     16,992
Operating profit (loss) ........   (4,673)      210       (4,463)        --        (4,463)
Identifiable segment assets ....  203,060     2,812      205,872      161,028     366,900
Capital expenditures ...........    3,888      --          3,888            1       3,889

Year ended December 31, 2000:

Net sales ......................$ 331,975    $6,760    $ 338,735    $    (414)  $ 338,321
Depreciation and amortization ..   18,446      --         18,446       (1,222)     17,224
Equity in loss of unconsolidated
 affiliate .....................     (281)     --           (281)        --          (281)
Operating profit (loss) ........  (15,760)      345      (15,415)        --       (15,415)
Identifiable segment assets ....  219,662     3,990      223,652      162,051     385,703
Capital expenditures ...........   13,045      --         13,045            7      13,052












                                                      Years ended December 31,
                                                  2000        2001        2002
                                                  ----        ----        ----
                                                          (In thousands)

                                                              
Operating loss .............................   $(15,415)   $ (4,463)   $ (5,616)
Equity in loss of unconsolidated affiliate .       (281)       --          --
General corporate items:
  Interest income ..........................        599         253          66
  General income (expenses), net ...........     (1,993)     (1,610)     (3,575)
  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
                                               ========    ========    ========


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



                                                 Year ended December 31,
                                        2000              2001             2002
                                        ----              ----             ----
                                                     (In thousands)

                                                               
United States ...............         $336,288         $307,064         $316,361
Canada ......................            1,949            1,217            1,400
Great Britain ...............               77              100              214
Australia ...................             --               --                  5
Mexico ......................                7              189             --
Japan .......................             --                100             --
                                      --------         --------         --------

                                      $338,321         $308,670         $317,980
                                      ========         ========         ========







Note 13 - Environmental matters

     At December 31,  2002,  Keystone's  financial  statements  reflected  total
accrued  liabilities of $15.2 million to cover estimated  remediation  costs for
those  environmental  matters which Keystone believes are reasonably  estimable,
including those discussed below. Although the Company has established an accrual
for estimated  future  required  environmental  remediation  costs,  there is no
assurance regarding the ultimate cost of remedial measures that might eventually
be  required  by  environmental  authorities  or that  additional  environmental
hazards, requiring further remedial expenditures,  might not be asserted by such
authorities or private parties.  Accordingly, the costs of remedial measures may
exceed the amounts accrued. Keystone believes it is not possible to estimate the
range of costs for certain sites. The upper end of range of reasonably  possible
costs to  Keystone  for sites for which the  Company  believes it is possible to
estimate costs is approximately $20.4 million.

     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, 2001 and 2002 the trust fund had  balances of $4.8
million and $5.1  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 2003.

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

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

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

"Superfund" sites

     The Company is subject to federal and state  "Superfund"  legislation  that
imposes  cleanup and remediation  responsibility  upon present and former owners
and  operators of, and persons that  generated  hazardous  substances  deposited
upon,  sites  determined  by state or federal  regulators  to contain  hazardous
substances.  Keystone  has been  notified  by U.S.  EPA that  the  Company  is a
potentially  responsible party ("PRP") under the federal "Superfund" legislation
for the alleged  release or threat of release of hazardous  substances  into the
environment at eight sites.  These  situations  involve cleanup of landfills and
disposal facilities which allegedly received hazardous  substances  generated by
discontinued   operations  of  the  Company.   Although  Keystone  believes  its
comprehensive  general liability insurance policies provide  indemnification for
certain costs the Company incurs at the "Superfund"  sites  discussed  below, it
has only recorded receivables for the estimated insurance recoveries at three of
those sites.  During 2000,  2001 and 2002,  the Company  received  approximately
$140,000,  $88,000 and  $43,000,  respectively,  from certain of its insurers in
exchange  for  releasing  such  insurers  from  coverage  for  certain  years of
environmental related liabilities.  Such amounts are included in Keystone's self
insurance accruals.

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

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

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

     Prior to its acquisition by Keystone,  DeSoto, Inc. ("DeSoto") was notified
by U.S. EPA that it is one of approximately  50 PRPs at the Chemical  Recyclers,
Inc. site in Wylie,  Texas. In January 1999,  DeSoto changed its name to Sherman
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  December  31,  2001.  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  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, 2001 and
2002,  the balance in the trust fund was  approximately  $597,000  and  $385,000
respectively.






Note 14 - Lease commitments

     During years prior to its acquisition by Keystone,  DeSoto sold four of its
real properties to a real property trust created by DeSoto's  pension plan. This
trust entered into ten-year leases of the properties to DeSoto.  The amount paid
to DeSoto by the trust and DeSoto's  annual  rental  obligation  were based upon
independent appraisals and approved by DeSoto's Board of Directors. During 1998,
the Plan sold two of the locations  and, as part of the terms of the sale of one
of the locations, DeSoto leased back the property for a period of two years. The
Plan sold the third and fourth locations during 1999 and 2000, respectively, and
Sherman was released from the leases.  Payments, net of subtenant rent payments,
under these leases during 2000 amounted to approximately  $24,000. There were no
payments under these leases in 2001 and 2002 and there are no required  payments
under these leases in subsequent years.

     In addition,  the Company is obligated under certain other operating leases
through 2007. Future commitments under these leases are summarized below.



                                                               Lease commitment
                                                                (In thousands)

                                                                 
2003                                                                $  937
2004                                                                   446
2005                                                                   239
2006                                                                    66
2007                                                                    12
                                                                    ------
                                                                    $1,700


Note 15 -  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.

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

Product supply agreement

     In 1996, Keystone entered into a fifteen-year product supply agreement (the
"Supply  Agreement") with a vendor. The Supply Agreement  provides,  among other
things,  that the vendor will construct a plant at the Company's Peoria facility
and,  after  completion  of the plant,  provide  Keystone  with all,  subject to
certain  limitations,  of its gaseous  oxygen and  nitrogen  needs for a 15-year
period  ending  in  2011.  In  addition  to  specifying  rates to be paid by the
Company,  including a minimum  facility  fee of  approximately  $1.2 million per
year,  the Supply  Agreement also  specifies  provisions for  adjustments to the
rates and term of the Supply  Agreement.  Purchases  made pursuant to the Supply
Agreement during 2000, 2001 and 2002 amounted to $2.7 million,  $2.2 million and
$1.9 million, respectively.

Concentration of credit risk

     Steel and Wire  Products.  The Company sells its products to  agricultural,
industrial,  construction,  commercial,  original  equipment  manufacturers  and
retail distributors  primarily in the Midwestern,  Southwestern and Southeastern
regions of the United States. The Company performs ongoing credit evaluations of
its customers'  financial condition and, generally,  requires no collateral from
its  customers.  The Company's  ten largest  steel and wire  products  customers
accounted for  approximately 34% of steel and wire product sales in each of 2000
and 2001 and 37% in 2002.  These customers  accounted for  approximately  34% of
steel and wire products  notes and accounts  receivable at December 31, 2001 and
25% at December 31, 2002.

     Lawn and garden  products.  The Company  sells its  products  primarily  to
retailers in the Southeastern United States. The Company performs ongoing credit
evaluations of its customers'  financial condition and,  generally,  requires no
collateral  from its  customers.  The  Company's  ten  largest  lawn and  garden
customers  accounted for  significantly  all of lawn and garden product sales in
each of 2000 and 2001 and lawn and garden products notes and accounts receivable
at  December  31,  2000 and 2001.  The  Company's  ten  largest  lawn and garden
customers  accounted  for  approximately  86% of lawn and garden  product  sales
during 2002 and 73% of lawn and garden products notes and accounts receivable at
December 31, 2002.

Note 16 - Earnings per share:

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




                                                   Years ended December 31,
                                               2000         2001         2002
                                               ----         ----         ----
                                                       (In thousands)

Numerator:
  Net income (loss) before cumulative
   effect of change in accounting
                                                              
   principle ............................    $(21,066)    $(26,394)    $ 18,422

  Less  Series A Preferred Stock
   dividends ............................        --           --         (4,683)
                                             --------     --------     --------
  Basic net income (loss) before
   cumulative effect of change in
   accounting principle .................     (21,066)     (26,394)      13,739
  Series A Preferred Stock dividends ....        --           --          4,683
                                             --------     --------     --------

  Diluted net income (loss) before
   cumulative effect of change in
   accounting principle .................    $(21,066)    $(26,394)    $ 18,422
                                             ========     ========     ========

Denominator:
  Average common shares outstanding .....      10,039       10,062       10,067
  Dilutive effect of Preferred Stock
   Series A .............................        --           --         11,756
                                             --------     --------     --------

  Diluted shares ........................      10,039       10,062       21,823
                                             ========     ========     ========


Note 17 - Accounting principles newly adopted in 2002:

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

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

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

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

     As shown in the following table, the Company would have reported a net loss
of $22.3  million,  or $2.23 per basic  share,  for 2000 and a net loss of $27.6
million,  or $2.74 per basic  share,  for 2001,  if the  goodwill  and  negative
goodwill amortization  included in the Company's net loss, as reported,  had not
been recognized. The per share amounts shown in the following tables reflect the
dilutive effect of the assumed conversion of the Series A Convertible  Preferred
Stock. See Note 5.








                                                           Years ended December 31,
                                                        2000          2001          2002
                                                        ----          ----          ----
                                                                (In thousands)
Income (loss) before cumulative effect
 of change in accounting principle
                                                                       
 as reported ....................................   $  (21,066)   $  (26,394)   $   18,422
Adjustments:
  Goodwill amortization .........................          125           125          --
  Negative goodwill amortization ................       (1,356)       (1,356)         --
                                                    ----------    ----------    ----------
    Adjusted income (loss) before
     cumulative effect of change in
     accounting principle .......................   $  (22,297)   $  (27,625)   $   18,422
                                                    ==========    ==========    ==========

Basic earnings (loss) per
 share available for common shares
 before cumulative effect of change
 in accounting principle as reported ............   $     1.36
                                                                  $    (2.10)   $    (2.62)
Adjustments:
  Goodwill amortization .........................          .01           .01          --
  Negative goodwill amortization ................         (.14)         (.13)         --
                                                    ----------    ----------    ----------
    Adjusted basic earnings (loss) per share
     available for common shares before
     cumulative effect of change in accounting
     principle ..................................   $    (2.23)   $    (2.74)   $     1.36
                                                    ==========    ==========    ==========

Diluted earnings (loss) per
 share available for common shares
 before cumulative effect of change
 in accounting principle as reported ............   $    (2.10)   $    (2.62)   $      .84
Adjustments:
  Goodwill amortization .........................          .01           .01          --
  Negative goodwill amortization ................         (.14)         (.13)         --
                                                    ----------    ----------    ----------
    Adjusted diluted earnings (loss)
     per share available for common shares before
     cumulative effect of change in accounting
     principle ..................................   $    (2.23)   $    (2.74)   $      .84
                                                    ==========    ==========    ==========












                                                Years ended December 31,
                                              2000         2001          2002
                                              ----         ----          ----
                                                      (In thousands)

                                                            
Net income (loss) as reported ........   $  (21,066)   $  (26,394)   $   38,420
Adjustments:
  Goodwill amortization ..............          125           125          --
  Negative goodwill amortization .....       (1,356)       (1,356)         --
  Cumulative effect of change in
   accounting principle ..............         --            --         (19,998)
                                         ----------    ----------    ----------
    Adjusted net income (loss) .......   $  (22,297)   $  (27,625)   $   18,422
                                         ==========    ==========    ==========

Basic earnings (loss) per
 share available for common shares as
 reported ............................   $    (2.10)   $    (2.62)   $     3.35
Adjustments:
  Goodwill amortization ..............          .01           .01          --
  Negative goodwill amortization .....         (.14)         (.13)         --
  Cumulative effect of change in
   accounting principle ..............         --            --           (1.99)
                                         ----------    ----------    ----------

    Adjusted basic earnings
     (loss) per share available for
     common shares ...................   $    (2.23)   $    (2.74)   $     1.36
                                         ==========    ==========    ==========

Diluted earnings (loss) per
 share available for common shares as
 reported ............................   $    (2.10)   $    (2.62)   $     1.76
Adjustments:
  Goodwill amortization ..............          .01           .01          --
  Negative goodwill amortization .....         (.14)         (.13)         --
  Cumulative effect of change in
   accounting principle ..............         --            --            (.92)
                                         ----------    ----------    ----------

    Adjusted diluted earnings
     (loss) per share available for
     common shares ...................   $    (2.23)   $    (2.74)   $      .84
                                         ==========    ==========    ==========



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

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

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

Note 18 - Accounting principles not yet adopted

     Asset  retirement  obligations.  The  Company  will  adopt  SFAS  No.  143,
Accounting  for Asset  Retirement  Obligations,  no later than  January 1, 2003.
Under  SFAS No.  143,  the fair  value of a  liability  for an asset  retirement
obligation  covered  under the scope of SFAS No. 143 would be  recognized in the
period in which the liability is incurred,  with an  offsetting  increase in the
carrying amount of the related  long-lived asset. Over time, the liability would
be accreted to its present value,  and the capitalized cost would be depreciated
over the useful life of the related asset. Upon settlement of the liability,  an
entity would either  settle the  obligation  for its recorded  amount or incur a
gain or loss upon  settlement.  The  Company  does not  believe it has any asset
retirement obligations which are covered under the scope of SFAS No. 143, and as
such, the effect,  to the Company of adopting SFAS No. 143 is not expected to be
material.

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





                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           SCHEDULE II - VALUATION AND
                               QUALIFYING ACCOUNTS
                                 (In thousands)




                                                                Additions
                                                  Balance at    Charged to    Deductions  Balance at
                                                   beginning    costs and      (net of      end of
Description                                        of period     expenses    recoveries)    period

Year ended December 31, 2000:

  Allowance for doubtful accounts and
                                                                                
    Notes receivable                                $ 2,297       $   200       $  816      $1,681
                                                    =======       =======       ======      ======

Year ended December 31, 2001:

  Allowance for doubtful accounts and
    notes receivable                                $ 1,681       $ 1,589       $  412      $2,858
                                                    =======       =======       ======      ======

  Deferred tax asset valuation allowance            $   -         $14,510       $  -       $14,510
                                                    =======       =======       ======     =======

Year ended December 31, 2002:

  Allowance for doubtful accounts and
    notes receivable                                $ 2,858       $   197       $1,293      $1,762
                                                    =======       =======       ======      ======

  Deferred tax asset valuation allowance            $14,510       $ 5,536       $ -         20,046
                                                    =======       =======       ======      ======









                                                                     EXHIBIT 21

                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES


                         SUBSIDIARIES OF THE REGISTRANT






                                     Jurisdiction of               Percent of
                                      Incorporation             Voting Securities
    Name of Corporation              or Organization                 Held (1)

                                                               
Sherman Wire of Caldwell, Inc.            Nevada                     100.0%

FV Steel and Wire Company (3)             Wisconsin                  100.0%

Sherman Wire Company (2)                  Delaware                   100.0%
  J.L. Prescott Company                   New Jersey                 100.0%
  DeSoto Environmental
   Management, Inc.                       Delaware                   100.0%

Engineered Wire Products, Inc.            Ohio                       100.0%

Garden Zone LLC                           Delaware                    51.0%


(1)  Held by the Registrant or the indicated subsidiary of the Registrant.

(2)  Formerly DeSoto, Inc.

(3)  Formerly Fox Valley Steel and Wire Company.