SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

                  For the quarterly period September 30, 2003

                         Commission file number 1-3919


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


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

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


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

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

                           Yes   X                            No _____
                               -----

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

                           Yes  _____                         No   X
                                                                 -----

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








                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


                                                                      Page
                                                                     number

PART I.      FINANCIAL INFORMATION

  Item 1.    Financial Statements

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

                  Consolidated Statements of Operations - Three months
                   and nine months ended September 30, 2002 and 2003  5-6

                  Consolidated Statements of Cash Flows - Nine months
                   ended September 30, 2002 and 2003                   7

                  Consolidated Statement of Stockholders'
                   Deficit - Nine months ended September 30, 2003      8

                  Notes to Consolidated Financial Statements          9-24

  Item 2.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations               25-38

  Item 4.         Controls and Procedures                              39


PART II. OTHER INFORMATION

  Item 1.         Legal Proceedings                                    40

  Item 6.         Exhibits and Reports on Form 8-K                     40






                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)




                                                       December 31,    September 30,
                                 ASSETS                   2002             2003
                                                       -----------     -------------

Current assets:
                                                                  
  Notes and accounts receivable ..................       $ 22,578       $ 35,849
  Inventories ....................................         50,089         27,729
  Prepaid expenses and other .....................            893          3,093
                                                         --------       --------

     Total current assets ........................         73,560         66,671
                                                         --------       --------

Property, plant and equipment ....................        373,833        368,737
Less accumulated depreciation ....................        253,849        259,772
                                                         --------       --------

     Net property, plant and equipment ...........        119,984        108,965
                                                         --------       --------

Other assets:
  Restricted investments .........................          5,730          5,720
  Unrecognized net pension obligation ............         11,852         11,852
  Deferred financing costs .......................          2,319          1,785
  Goodwill .......................................            752            752
  Other ..........................................          1,298          1,208
                                                         --------       --------

     Total other assets ..........................         21,951         21,317
                                                         --------       --------

                                                         $215,495       $196,953
                                                         ========       ========









                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)




 LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                      December 31,   September 30,
                                                         2002            2003
                                                      ------------   -------------

Current liabilities:
  Notes payable and current maturities of
                                                                
    long-term debt ...............................     $  33,935      $  68,522
  Accounts payable ...............................        23,696         20,078
  Accounts payable to affiliates .................         1,448          2,505
  Accrued OPEB cost ..............................        11,372         11,385
  Accrued preferred stock dividends ..............         4,683          9,138
  Other accrued liabilities ......................        40,216         40,006
                                                       ---------      ---------

      Total current liabilities ..................       115,350        151,634
                                                       ---------      ---------

Noncurrent liabilities:
  Long-term debt .................................        63,306         32,240
  Accrued OPEB cost ..............................       102,717        108,085
  Accrued pension costs ..........................        48,571         53,744
  Other ..........................................        20,337         17,497
                                                       ---------      ---------

      Total noncurrent liabilities ...............       234,931        211,566
                                                       ---------      ---------

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

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

Stockholders' deficit:
  Common stock ...................................        10,798         10,798
  Additional paid-in capital .....................        48,388         43,933
  Accumulated other comprehensive loss -
   pension liabilities ...........................      (170,307)      (170,307)
  Accumulated deficit ............................       (25,767)       (52,771)
  Treasury stock, at cost ........................           (12)           (12)
                                                       ---------      ---------

      Total stockholders' deficit ................      (136,900)      (168,359)
                                                       ---------      ---------

                                                       $ 215,495      $ 196,953
                                                       =========      =========









                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)



                                       Three months ended       Nine months ended
                                          September 30,            September 30,
                                        2002        2003         2002        2003
                                        ----        ----         ----        ----

                                                               
  Net sales .......................   $ 83,844    $ 80,452    $ 273,290    $ 258,290
  Cost of goods sold ..............     79,510      83,712      249,412      256,287
                                      --------    --------    ---------    ---------
    Gross margin ..................      4,334      (3,260)      23,878        2,003
                                      --------    --------    ---------    ---------

  Selling expense .................      1,666       1,687        5,240        6,221
  General and administrative ......      5,708       5,418       16,231       13,253
  Defined benefit pension expense
  (credit)                                 297       1,774       (1,203)       5,174
                                      --------    --------    ---------    ---------
                                         7,671       8,879       20,268       24,648
                                      --------    --------    ---------    ---------

      Operating income (loss) .....     (3,337)    (12,139)       3,610      (22,645)
                                      --------    --------    ---------    ---------

General corporate income (expense):
  Corporate expense ...............       (645)         87       (2,849)      (2,254)
  Interest expense ................       (937)       (942)      (4,584)      (3,024)
  Interest income .................         22          18           63           38
  Gain on early extinguishment of
   debt ...........................       --          --         54,739         --
  Gain on sale of business units ..       --         1,073         --          1,073
  Other income (expense), net .....        (12)         34           25          107
                                      --------    --------    ---------    ---------
                                        (1,572)        270       47,394       (4,060)
                                      --------    --------    ---------    ---------

  Income (loss) before income taxes
   and cumulative effect of change
   in accounting principle ........     (4,909)    (11,869)      51,004      (26,705)

Provision for income taxes ........       --          --         21,622         --

Minority interest in after-tax
  earnings (losses) ...............       (108)        (33)         166          299
                                      --------    --------    ---------    ---------

Income (loss) before cumulative
 effect of change in accounting
 principle ........................     (4,801)    (11,836)      29,216      (27,004)

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

   Net income (loss) ..............     (4,801)    (11,836)      49,214      (27,004)

Dividends on preferred stock ......      1,485       1,485        3,198        4,455
                                      --------    --------    ---------    ---------

Net income (loss) available for
 common shares ....................   $ (6,286)   $(13,321)   $  46,016    $ (31,459)
                                      ========    ========    =========    =========







                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                      (In thousands, except per share data)



                                       Three months ended          Nine months ended
                                          September 30,               September 30,
                                       2002           2003         2002         2003
                                       ----           ----         ----         ----

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

  Income (loss) before cumulative
   effect of change in accounting
                                                                 
   principle ....................   $     (.63)   $    (1.32)   $     2.58   $    (3.12)

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

    Net income (loss) ...........   $     (.63)   $    (1.32)   $     4.57   $    (3.12)
                                    ==========    ==========    ==========   ==========

Basic shares outstanding ........       10,068        10,068        10,067       10,068
                                    ==========    ==========    ==========   ==========

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

  Income (loss) before cumulative
   effect of change in accounting
   principle ....................   $     (.63)   $    (1.32)   $     1.46   $    (3.12)

  Cumulative effect of change in
   accounting principle .........         --            --            1.00         --
                                    ----------    ----------    ----------   ----------

    Net income (loss) ...........   $     (.63)   $    (1.32)   $     2.46   $    (3.12)
                                    ==========    ==========    ==========   ==========

Diluted shares outstanding ......       10,068        10,068        19,967       10,068
                                    ==========    ==========    ==========   ==========










                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)



                                                             Nine months ended
                                                               September 30,
                                                              2002        2003
                                                              ----        ----

Cash flows from operating activities:
                                                                 
  Net income (loss) ....................................   $ 49,214    $(27,004)
  Depreciation and amortization ........................     13,105      12,490
  Amortization of deferred financing costs .............        498         557
  Deferred income taxes ................................     21,622        --
  Non-cash defined benefit pension expense (credit) ....     (1,203)      5,173
  Non-cash OPEB expense ................................      3,670       5,381
  Gain on early extinguishment of debt .................    (54,739)       --
  Cumulative effect of change in accounting principle ..    (19,998)       --
  Other, net ...........................................        250      (1,136)
  Change in assets and liabilities:
    Notes and accounts receivable ......................     (8,499)    (14,463)
    Inventories ........................................     (4,507)     16,373
    Accounts payable ...................................        166        (605)
    Other, net .........................................      5,468      (4,302)
                                                           --------    --------

      Net cash provided (used) by operating activities .      5,047      (7,536)
                                                           --------    --------

Cash flows from investing activities:
  Capital expenditures .................................     (4,803)     (2,352)
  Proceeds from sale of business units .................       --         3,344
  Collection of notes receivable .......................      1,127          75
  Other, net ...........................................        166        (650)
                                                           --------    --------

      Net cash provided (used) by investing activities .     (3,510)        417
                                                           --------    --------

Cash flows from financing activities:
  Revolving credit facilities, net .....................    (13,106)      9,102
  Other notes payable and long-term debt:
    Additions ..........................................     15,066         109
    Principal payments .................................     (1,025)     (2,069)
  Deferred financing costs paid ........................     (2,472)        (23)
                                                           --------    --------

      Net cash provided (used) by financing activities .     (1,537)      7,119
                                                           --------    --------

Net change in cash and cash equivalents ................       --          --

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

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

Supplemental disclosures:
  Cash paid for:
    Interest, net of amount capitalized ................   $  2,739    $  2,138
    Income taxes .......................................        108          52









                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

                      Nine months ended September 30, 2003
                                 (In thousands)




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

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

Net loss ...................      --         --           --       (27,004)    --       (27,004)

Preferred stock dividends ..      --       (4,455)        --          --       --        (4,455)
                               -------   --------    ---------    --------    ----    ---------

Balance - September 30, 2003   $10,798   $ 43,933    $(170,307)   $(52,771)   $(12)   $(168,359)
                               =======   ========    =========    ========    ====    =========













                     KEYSTONE CONSOLIDATED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and basis of presentation:

     The consolidated balance sheet of Keystone  Consolidated  Industries,  Inc.
("Keystone"  or the  "Company") at December 31, 2002 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated balance sheet at September 30, 2003 and the consolidated statements
of operations  and cash flows for the interim  periods ended  September 30, 2002
and 2003, and the consolidated statement of common stockholders' deficit for the
interim period ended September 30, 2003, have each been prepared by the Company,
without audit, in accordance with accounting  principles  generally  accepted in
the United  States of  America  ("GAAP").  In the  opinion  of  management,  all
adjustments,  consisting  only of  normal  recurring  adjustments  necessary  to
present fairly the consolidated  financial  position,  results of operations and
cash flows,  have been made.  However,  it should be understood  that accounting
measurements  at interim dates may be less precise than at year end. The results
of  operations  for the interim  periods are not  necessarily  indicative of the
operating results for a full year or of future operations.

     Certain information  normally included in financial  statements prepared in
accordance  with GAAP has been  condensed  or omitted,  and  certain  prior year
amounts have been reclassified to conform to the current year presentation.  The
accompanying  consolidated  financial  statements  should be read in conjunction
with the  consolidated  financial  statements  included in the Company's  Annual
Report on Form 10-K for the year ended December 31, 2002 (the "Annual Report").

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

     As  discussed  in Note 4, at  September  30,  2003,  the Company was not in
compliance with certain  financial  covenants  included in its primary revolving
credit facility.  In addition,  Keystone management expects to report a net loss
for the year ending  December 31, 2003,  and management  currently  believes its
available credit  facilities may not be sufficient to fund the anticipated needs
of the Company's operations and capital expenditures for the foreseeable future.
The Company's  inability to obtain adequate  additional  sources of liquidity or
achieve  sufficient  reduction  in its  operating  costs  could  have a material
adverse effect on the Company's ability to continue as a going-concern.

     Employee  stock  options.  As  disclosed  in the  Annual  Report,  Keystone
accounts for  stock-based  employee  compensation  in accordance with Accounting
Principles  Board  Opinion  ("APBO")  No.  25,  Accounting  for Stock  Issued to
Employees, and its various  interpretations.  Under APBO No. 25, no compensation
cost is generally recognized for fixed stock options in which the exercise price
is equal to or greater  than the market  price on the grant  date.  Compensation
cost related to stock options  recognized by the Company in accordance with APBO
No. 25 was nil during the interim periods ended September 30, 2002 and 2003.



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



                                             Three months ended            Nine months ended
                                                September 30,                September 30,
                                             ------------------            -----------------
                                             2002          2003            2002         2003
                                             ----          ----            ----         ----
                                                             (In thousands)

Net income (loss) available for
                                                                       
 common shares as reported ............   $   (6,286)  $  (13,321)   $   46,016    $  (31,459)
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 .........          (43)        --            (142)          (25)
                                          ----------   ----------    ----------    ----------

Pro forma net income (loss)
 available for common shares ..........   $   (6,329)  $  (13,321)   $   45,874    $  (31,484)
                                          ==========   ==========    ==========    ==========

Basic net income (loss)
 available for common shares per share:
 As reported ..........................   $     (.63)  $    (1.32)   $     4.57    $    (3.12)
 Pro forma ............................   $     (.63)  $    (1.32)   $     4.56    $    (3.12)

Diluted net income (loss)
 available for common shares per share:
 As reported ..........................   $     (.63)  $    (1.32)   $     2.46    $    (3.12)
 Pro forma ............................   $     (.63)  $    (1.32)   $     2.45    $    (3.12)


Note 2 - Business Segment Information:

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

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



     Prior to July 2003,  the Company  owned a 51%  interest in Garden  Zone,  a
distributor of wire, plastic and wood lawn and garden products to retailers.  In
July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone.

     In addition,  prior to July 2003,  Keystone also operated three  businesses
that did not constitute reportable business segments. These businesses sold wire
and  wire  products  for  agricultural,  industrial,  construction,  commercial,
original manufacturers and retail consumer markets. The results of operations of
these  businesses  are  aggregated and included under the "All Other" heading in
the following tables.  During July 2003, Keystone  transferred its operations at
one of these three  businesses to other Keystone  facilities,  and during August
2003 Keystone sold another of the  businesses.  As a result,  as of August 2003,
the "All Other" heading in the following tables only includes Sherman Wire.

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

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

Business Segment            Principal entities           Location

Keystone Steel & Wire       Keystone Steel & Wire        Peoria, Illinois

Engineered Wire Products    Engineered Wire Products     Upper Sandusky, Ohio

Garden Zone                 Garden Zone (1)              Charleston, South
                                                         Carolina

All other                   Sherman Wire                 Sherman, Texas
                            Sherman Wire
                            of Caldwell, Inc. (2)        Caldwell, Texas
                            Keystone Fasteners (3)       Springdale, Arkansas

(1)  51.0% subsidiary - interest sold in July 2003.
(2)  Transferred  operations  in July 2003 to Sherman Wire and Keystone  Steel &
     Wire.
(3)  Business sold in August 2003.


     The net  proceeds  from the sale of  Garden  Zone  and  Keystone  Fasteners
aggregated $3.3 million.  The gain on the sale of these  businesses,  as well as
the results of operations of each of Garden Zone and Keystone  Fasteners are not
significant,  individually  and in the aggregate.  Accordingly,  the Company has
elected not to present their results of  operations as  discontinued  operations
for all periods presented due to their immateriality.

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

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting  policies except that (i) defined benefit
pension  expense for each  segment is  recognized  and  measured on the basis of
estimated  current  service  cost of each  segment,  with the  remainder  of the
Company's net defined  benefit  pension  expense or credit not allocated to each
segment but still is reported as part of operating  profit or loss, (ii) segment
OPEB  expense is  recognized  and measured  based on the basis of the  estimated
expense of each segment with the remainder of the Company's  actual OPEB expense



not allocated to each segment but still is reported as part of operating  profit
or loss,  (iii)  elimination of intercompany  profit or loss on ending inventory
balances  is not  allocated  to each  segment  but still is  reported as part of
operating  profit  or loss,  (iv) LIFO  inventory  reserve  adjustments  are not
allocated to each segment but still are reported as part of operating  profit or
loss,  and (v)  amortization  of goodwill and negative  goodwill are included in
general  corporate  expenses  and are not  allocated  to any segment and are not
included in total reporting operating profit or loss. General corporate expenses
also includes OPEB and  environmental  expenses relative to facilities no longer
owned  by the  Company.  Intercompany  sales  between  reportable  segments  are
generally  recorded  at prices that  approximate  market  prices to  third-party
customers.

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



                                                                                                             GAAP
                                                                                                         Adjustments,
                                                                                                           Corporate
                                                                                                             Items
                                                                   Garden        All        Segment           and
                                         KSW           EWP          Zone        Other        Total       Eliminations       Total
                                         ---           ---         ------       -----       -------      ------------       -----
                                                                              (In thousands)

Three months ended September 30, 2002:

                                                                                                      
  Third party net sales                 $ 63,679      $10,692      $ 1,190      $ 8,283     $ 83,844        $   -          $ 83,844
  Intercompany sales                       9,420         -             157        2,161       11,738         (11,738)          -
                                        --------      -------      -------      -------     --------        --------       --------

                                        $ 73,099      $10,692      $ 1,347      $10,444     $ 95,582        $(11,738)      $ 83,844
                                        ========      =======      =======      =======     ========        ========       ========

Operating income (loss)                 $ (1,447)     $ 1,025      $  (200)     $(1,305)    $ (1,927)       $ (1,410)       $(3,337)
                                        ========      =======      =======      =======     ========        ========        =======

Three months ended September 30, 2003:

  Third party net sales                 $ 64,712      $11,559      $   352      $ 3,829     $ 80,452        $   -          $ 80,452
  Intercompany sales                       6,518         -              19        1,756        8,293          (8,293)          -
                                        --------      -------      -------      -------     --------        --------       --------

                                        $ 71,230      $11,559      $   371      $ 5,585     $ 88,745        $ (8,293)      $ 80,452
                                        ========      =======      =======      =======     ========        ========       ========

Operating income (loss)                 $ (7,671)     $ 1,136      $   (58)     $(1,380)    $ (7,973)       $ (4,166)      $(12,139)
                                        ========      =======      =======      =======     ========        ========       ========

Nine months ended September 30, 2002:

  Third party net sales                 $209,635      $25,914      $ 8,445      $29,296     $273,290        $   -          $273,290
  Intercompany sales                      27,618         -           1,036        7,450       36,104         (36,104)          -
                                        --------      -------      -------      -------     --------        --------       --------

                                        $237,253      $25,914      $ 9,481      $36,746     $309,394        $(36,104)      $273,290
                                        ========      =======      =======      =======     ========        ========       ========

Operating income (loss)                 $  3,246      $ 2,515      $   404      $(2,258)    $  3,907        $   (297)      $  3,610
                                        ========      =======      =======      =======     ========        ========       ========

Nine months ended September 30, 2003:

  Third party net sales                 $205,380      $26,853      $11,203       $14,854    $258,290        $   -          $258,290
  Intercompany sales                      23,953         -             879        10,296      35,128         (35,128)          -
                                        --------      -------      -------       -------    --------        --------       --------

                                        $229,333      $26,853      $12,082       $25,150    $293,418        $(35,128)      $258,290
                                        ========      =======      =======       =======    ========        ========       ========

Operating income (loss)                 $(16,370)     $ 2,293      $   700       $(3,240)   $(16,617)       $ (6,028)      $(22,645)
                                        ========      =======      =======       =======    ========        ========       ========







                                                                                                             GAAP
                                                                                                         Adjustments,
                                                                                                           Corporate
                                                                                                             Items
                                                                   Garden        All        Segment           and
                                         KSW           EWP          Zone        Other        Total       Eliminations       Total
                                         ---           ---         ------       -----       -------      ------------       -----
                                                                              (In thousands)

Year ended December 31, 2002:

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

Year ended December 31, 2001:

  Third party net sales                 $227,018      $32,409      $ 8,011      $ 41,232    $308,670        $   -          $308,670
  Intercompany sales                      32,124         -             472         8,363      40,959         (40,959)          -
                                        --------      -------      -------      --------    --------        --------       -----
                                        $259,142      $32,409      $ 8,483      $ 49,595    $349,629        $(40,959)      $308,670
                                        ========      =======      =======      ========    ========        ========       ========
  Depreciation and
   amortization                         $ 15,312      $ 1,043      $     -      $  1,815    $ 18,170        $ (1,178)      $ 16,992
  Operating profit (loss)                (12,779)       4,156          210        (2,603)    (11,016)          6,610         (4,406)
  Identifable segment assets             162,796       18,252        2,812        22,923     206,783         160,117        366,900
  Capital expenditures                     3,534          269            -            85       3,888               1          3,889

Year ended December 31, 2000:

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


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











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

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

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


Note 3 - Inventories:

     Inventories are stated at the lower of cost or market. At December 31, 2002
and  September  30, 2003,  the last-in,  first-out  ("LIFO")  method was used to
determine  the  cost  of  approximately  77%  and  67%  respectively,  of  total
inventories  and the  first-in,  first-out  or average cost methods were used to
determine the cost of other inventories.



                                                         December 31,  September 30,
                                                            2002           2003
                                                            ----           ----
                                                               (In thousands)

Steel and wire products:
                                                                   
  Raw materials ....................................       $ 8,825       $ 5,307
  Work in process ..................................        14,920         8,615
  Finished goods ...................................        21,178        13,427
  Supplies .........................................        14,710        13,632
                                                           -------       -------
                                                            59,633        40,981
  Less LIFO reserve ................................        13,352        13,252
                                                           -------       -------
                                                            46,281        27,729

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

                                                           $50,089       $27,729
                                                           =======       =======







Note 4 - Notes payable and long-term debt:



                                                     December 31,      September 30,
                                                        2002              2003
                                                        ----              ----
                                                            (In thousands)

Revolving credit facilities:
                                                                  
  Keystone .................................          $ 28,328          $ 35,050
  EWP ......................................             1,362             2,000
  Garden Zone ..............................             1,650              --
8% Notes ...................................            28,908            28,116
6% Notes ...................................            16,031            16,031
9 5/8% Notes ...............................             6,150             6,150
Keystone Term Loan .........................             4,167             3,229
County Term Loan ...........................            10,000            10,000
Other ......................................               645               186
                                                      --------          --------
                                                        97,241           100,762
  Less current maturities ..................            33,935            68,522
                                                      --------          --------

                                                      $ 63,306          $ 32,240
                                                      ========          ========


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

     As a result of Keystone's failure to comply with the financial covenants in
its primary revolving credit facility,  in October 2003 the lender increased the
interest rate on the Keystone  revolving  credit facility and Keystone Term Loan
by .5% per annum,  eliminated  the  Company's  LIBOR  interest  rate  option and
instituted a $5.5 million reserve against Keystone's borrowing base.

     In  connection  with its  ongoing  discussions  with the  lender,  Keystone
continues to evaluate possible restructuring alternatives to improve its overall
financial condition. In this regard, Keystone has retained financial advisors to
assist  the  Company  in  the  process  of  evaluating  possible   restructuring
alternatives.

     In addition,  a  wholly-owned  subsidiary of Contran has agreed to loan the
Company up to an aggregate of $6 million  under the terms of a revolving  credit
facility  that,  as  amended,  matures  November  30,  2003.  This  facility  is
collateralized  by the common stock of EWP owned by Keystone.  Through  November
14, 2003, the Company has not borrowed any amounts under such facility.




Note 5 - Income taxes:

     At September  30, 2003,  considering  all factors  believed to be relevant,
including the Company's recent operating results,  its expected future near-term
productivity  rates;  cost of raw  materials,  electricity,  labor and  employee
benefits,  environmental  remediation,  and retiree medical  coverage;  interest
rates;  product mix; sales volumes and selling prices; and the fact that accrued
OPEB expenses will become deductible over an extended period of time and require
the  Company to  generate  significant  amounts of future  taxable  income,  the
Company  believes  its  gross  deferred  tax  assets do not  currently  meet the
"more-likely-than-not"  realizability  test. As such, at December 31, 2002,  the
Company had provided a deferred tax asset valuation  allowance of  approximately
$89.0 million.  As a result of the deferred tax asset valuation  allowance,  the
Company  does not  anticipate  recognizing  a tax  benefit  associated  with its
expected pre-tax losses during 2003 will be appropriate. Accordingly, during the
first  nine  months  of 2003,  the  Company  increased  the  deferred  tax asset
valuation  allowance by approximately  $10.1 million.  Keystone will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews, Keystone could recognize a change in the valuation allowance related to
its deferred tax assets in the future.

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



                                                             Nine months ended
                                                               September 30,
                                                              2002        2003
                                                              ----        ----
                                                               (In thousands)

                                                                 
Expected tax provision (benefit), at statutory rate        $17,851     $(9,347)
U.S. state income taxes, net                                 2,315        (732)
Deferred tax asset valuation allowance                       1,429      10,056
Other, net                                                      27          23
                                                           -------     -------

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

Comprehensive provision (benefit) for income taxes:
  Currently refundable:
    U.S. federal                                           $   (28)    $   (20)
    U.S. state                                                  28          20
                                                           -------     -------
      Net currently refundable                                -           -

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

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

                                                           $21,622     $  -
                                                           =======     =======




Note 6 - Other accrued liabilities:



                                                     December 31,      September 30,
                                                        2002              2003
                                                        ----              ----
                                                            (In thousands)

Current:
                                                                  
  Employee benefits                                   $ 11,455          $ 11,624
  Self insurance                                        10,336            10,671
  Environmental                                          8,103             8,006
  Deferred vendor payments                               3,338             3,338
  Legal and professional                                 1,176               970
  Disposition of former facilities                         659               668
  Interest                                                 318               124
  Other                                                  4,831             4,605
                                                      --------          --------
                                                      $ 40,216          $ 40,006
                                                      ========          ========

Noncurrent:
  Deferred vendor payments                            $ 10,252          $  8,090
  Environmental                                          7,087             6,745
  Workers compensation payments                          2,309             1,963
  Interest                                                 298               601
  Other                                                    391                98
                                                      --------          --------
                                                      $ 20,337          $ 17,497
                                                      ========          ========






Note 7 - Environmental matters:

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

     On a  quarterly  basis,  Keystone  evaluates  the  potential  range  of its
liability  at sites where it has been named as a PRP or  defendant  by analyzing
and  estimating the range of reasonably  possible costs to Keystone.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,  managing,  studies,  certain  legal  fees,  clean-up,  removal  and
remediation.  Keystone believes it has provided adequate accruals ($14.8 million
at September 30, 2003) for these matters at 13 sites for which Keystone believes
its liability is probable and  reasonably  estimable,  but  Keystone's  ultimate
liability may be affected by a number of factors,  including  the  imposition of
more  stringent   standards  or  requirements   under   environmental   laws  or
regulations, new developments or changes in remedial alternatives and costs, the
allocation  of  such  costs  among  PRPs,  the  solvency  of  other  PRPs  or  a
determination  that  Keystone  is  potentially  responsible  for the  release of



hazardous  substances at other sites,  any of which could result in expenditures
in excess of amounts  currently  estimated  by Keystone to be required  for such
matters.  In addition,  with respect to other PRPs and the fact that the Company
may be jointly and severally  liable for the total  remediation  cost at certain
sites,  the  Company  could  ultimately  be liable for  amounts in excess of its
accruals due to,  among other  things,  reallocation  of costs among PRPs or the
insolvency of one or more PRPs. In addition,  the actual  timeframe for payments
by Keystone for these matters may be substantially in the future.

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

     The upper end of the range of  reasonably  possible  costs to Keystone  for
sites for which it is  possible to  estimate  costs (16 sites) is  approximately
$20.6 million. Keystone's estimates of such liabilities have not been discounted
to present value,  and other than certain  previously-reported  settlements with
respect to certain of Keystone's  former  insurance  carriers,  Keystone has not
recognized  any material  insurance  recoveries.  No assurance can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs will not be incurred  with  respect to the 8 sites as to which no estimate
of liability can presently be made because the respective  investigations are in
early stages.  The extent of CERCLA  liability  cannot be  determined  until the
Remedial  Investigation/Feasibility  Study  ("RI/FS") is complete,  the U.S. EPA
issues a Record of Decision  ("ROD")  and costs are  allocated  among PRPs.  The
extent of liability under  analogous  state cleanup  statutes and for common law
equivalents is subject to similar uncertainties.

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


     More  detailed  descriptions  of  certain  legal  proceedings  relating  to
environmental  matters  are set  forth  below.  A  summary  of  activity  in the
Company's  environmental  accruals for the nine month period ended September 30,
2003 is as follows:




                                                                  Nine months ended
                                                                 September 30, 2003
                                                                   (In thousands)

                                                                    
Balance at beginning of period ............................            $ 15,190
Payments ..................................................                (439)
                                                                       --------

Balance at end of period ..................................            $ 14,751
                                                                       ========



     The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan  provides  for the  in-place  treatment of seven  hazardous  waste  surface
impoundments  and two waste  piles to be  disposed  of as  special  wastes.  The
Company recorded an estimated  liability for remediation of the impoundments and
waste piles  based on a  six-phase  remediation  plan.  The Company  adjusts the



recorded  liability  for each Phase as actual  remediation  costs become  known.
During 1995,  the Company began  remediation  of Phases II and III and completed
these Phases,  as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant  remediation  efforts  relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney  General's office, the Company is
depositing  $75,000 per quarter  into a trust fund.  The Company  must  continue
these quarterly deposits and cannot withdraw funds from the trust fund until the
fund balance exceeds the sum of the estimated  remaining  remediation costs plus
$2 million.  At  December  31,  2002 and  September  30, 2003 the trust fund had
balances  of $5.1  million and $5.3  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 September 30, 2004.

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

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




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

"Superfund" sites

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

     In July 1991, the United States filed an action  against a former  division
of the Company and four other PRPs in the United States  District  Court for the
Northern  District of Illinois  (Civil  Action No.  91C4482)  seeking to recover
investigation  and  remediation  costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron,  Illinois.  In April 1992,  Keystone filed a third-party
complaint  in  this  civil  action   against  15  additional   parties   seeking
contribution  in the event the Company is held liable for any response  costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any  investigation  of the nature and extent of the  contamination.  In December
1996,  Keystone,  U.S. EPA and the Department of Justice  entered into the Fifth
Partial  Consent  Decree to settle  Keystone's  liability for EPA response costs
incurred at the site  through  April 1994 for a payment of  $690,000.  Under the
agreement  Keystone is  precluded  from  recovering  any portion of the $690,000
settlement payment from other parties to the lawsuit.  In January 1997, Keystone
paid the $690,000  settlement.  Keystone will remain  potentially liable for EPA
response  costs  incurred  after April 30,  1994,  and natural  resource  damage
claims, if any, that may be asserted in the future. Keystone recovered a portion
of the  $690,000  payment  from its  insurer.  In March 1997,  U.S. EPA issued a
Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of
contaminated  soils be performed at an  estimated  cost of $63,000,  that a soil
cover be placed over the site, an on-site  groundwater  pump and treat system be
installed  and  operated  for an  estimated  period of 15  years,  and that both
on-site and  off-site  groundwater  monitoring  be conducted  for an  indefinite



period. U.S. EPA's cost estimate for the recommended plan is $5.1 million.  U.S.
EPA's estimate of the highest cost alternatives evaluated but not recommended in
the PRAP is approximately  $6 million.  The Company filed public comments on May
1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received
a CERCLA special notice letter  notifying them for the first time of a September
1998 ROD and  requesting a commitment on or before May 19, 1999 to perform soils
work required by that ROD that was estimated to cost approximately  $300,000. In
addition,  the special  notice letter also  requested the PRPs to reimburse U.S.
EPA for costs incurred at the site since May 1994 in the amount of $1.1 million,
as  well as for all  future  costs  the  U.S.  EPA  will  incur  at the  site in
overseeing  the  implementation  of the  selected  soils  remedy  and any future
groundwater remedy.  Keystone refused to agree to the U.S. EPA's past and future
cost  demand.  In  August  1999,  U.S.  EPA  issued a  groundwater  PRAP with an
estimated  present  value cost of $3 million.  Keystone  filed  public  comments
opposing the PRAP in September  1999.  In October  2002,  Keystone and the other
remaining  PRPs entered into a second Consent Decree with the U.S. EPA, in order
to resolve their  liability for performance of the U.S. EPA's September 1998 ROD
for a soils remedy at the site,  for the  performance of the U.S. EPA's December
1999 ROD for remedial  action  regarding the  groundwater  component of Operable
Unit No. 4 at the site,  for payment of U.S. EPA's site costs incurred since May
1994 as well as future U.S. EPA oversight costs, and for the transfer of certain
funds  that may be made  available  to the PRPs as a result of a consent  decree
reached  between U.S.  EPA and another  site PRP.  Under the terms of the second
Consent  Decree,  and the PRP  Agreement  was  executed to  implement  the PRPs'
performance  under  that  decree,  Keystone  is  required  to pay  approximately
$700,000 (of which approximately $600,000 has already been paid into a PRP Group
trust  fund),  and would remain  liable for 18.57% of future U.S. EPA  oversight
costs as well as a similar  share of any  unanticipated  cost  increases  in the
soils remedial action work. (Under the agreements,  the City of Byron, Illinois,
would assume  responsibility for any cost overruns associated with the municipal
water supply components of the groundwater  contamination  remedy.) The U.S. EPA
served the PRP Group in February 2003 with its first  oversight cost claim under
the second Consent  Decree,  in the amount of $186,000 for the period from March
1, 2000 to November 25, 2002.  Keystone's  share of that claim is  approximately
$35,000.  The U.S. EPA has also requested changes to the groundwater  monitoring
program  at the site  that  may  require  future  increases  in the PRP  Group's
groundwater  monitoring  reserves.  In September  2002,  the IAG served a demand
letter on Keystone  and 3 other PRP's  seeking  recovery of  approximately  $1.3
million in state  cleanup  costs  incurred at the Byron  Salvage Yard site.  The
PRP's are currently negotiating with the IAG in an attempt to settle this claim.
The four PRP's named in the demand  letter are also  attempting to include other
site PRP's in the  negotiations.  It remains  possible  that these  negotiations
could fail and that  Keystone's  ultimate  liability  for the Byron Salvage Yard
site could  increase  in a  subsequent  settlement  agreement  or as a result of
litigation.

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




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

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

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

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

     In December 1991,  DeSoto and  approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken,  New Jersey  municipal  landfill.  The plaintiffs in the complaint



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

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

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

     Under the terms of a 1990  asset sale  agreement,  DeSoto  established  two
trust funds totaling $6 million to fund potential clean-up  liabilities relating
to the assets  sold.  Sherman has access to the trust funds for any  expenses or
liabilities it incurs  relative to  environmental  claims  relating to the sites
identified in the trust  agreements.  The trust funds are primarily  invested in
United States Treasury  securities and are classified as restricted  investments
on the balance  sheet.  In October 2000, one of the trust's term expired and the
$3.6 million trust balance was returned to Sherman.  As of December 31, 2002 and
September 30, 2003, the balance in the trust fund was approximately $385,000 and
$136,000 respectively.

Note 8 -  Other commitments and contingencies:

Current litigation

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

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



for the cost of any litigation  against Sherman.  The total amount of these lead
paint  litigation  related costs and claims could be significant.  However,  the
Company does not have a liability recorded with respect to these matters because
the liability that may result,  if any,  cannot be reasonably  estimated at this
time.


Note 9 - Earnings per share:

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



                                                                   Three months ended              Nine months ended
                                                                     September 30,                   September 30,
                                                                 2002            2003            2002            2003
                                                                 ----            ----            ----            ----
                                                                                     (In thousands)

Numerator:
  Net income (loss) before cumulative
   effect of change in accounting
                                                                                                
   principle                                                 $(4,801)        $(11,836)        $29,216       $(27,004)

  Less  Series A Preferred Stock
   dividends                                                  (1,485)          (1,485)         (3,198)        (4,455)
                                                             -------         --------         -------       --------
  Basic net income (loss) before
   cumulative effect of change in
   accounting principle                                       (6,286)         (13,321)         26,018        (31,459)
    Series A Preferred Stock dividends                          -                -              3,198           -
                                                             -------         --------         -------       ---------

  Diluted net income (loss) before
   cumulative effect of change in
   accounting principle                                      $(6,286)        $(13,321)        $29,216       $(31,459)
                                                             =======         ========         =======       ========

Denominator:
  Average common shares outstanding                           10,068           10,068          10,067         10,068
  Dilutive effect of Series A
   Preferred Stock                                              -                -              9,900           -
                                                             -------         --------         -------       ---------

  Diluted shares                                              10,068           10,068          19,967         10,068
                                                             =======         ========         =======       ========









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

OVERALL RESULTS OF OPERATIONS:

     Keystone  believes it is a leading  manufacturer  of steel  fabricated wire
products,  industrial  wire  and  wire  rod  for the  agricultural,  industrial,
construction,  original  equipment  manufacturer  and retail  consumer  markets.
Historically,  the Company has experienced  greater sales and profits during the
first  half of the  year due to the  seasonality  of  sales  in  principal  wire
products markets,  including the agricultural and construction markets. Keystone
is also  engaged in scrap  recycling  through  ARC and  through  July 2003,  was
engaged in the  distribution of wire,  plastic and wood lawn and garden products
to retailers through Garden Zone.

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

o    Future supply and demand for the Company's products (including  cyclicality
     thereof),
o    Customer inventory levels,
o    Changes in raw material and other  operating  costs (such as ferrous  scrap
     and energy)
o    General economic conditions,
o    Competitive products and substitute products,
o    Changes in customer and competitor strategies,
o    The impact of pricing and production decisions,
o    The possibility of labor disruptions,
o    Environmental  matters  (such as those  requiring  emission  and  discharge
     standards for existing and new facilities),
o    Government regulations and possible changes therein,
o    Significant  increases  in  the  cost  of  providing  medical  coverage  to
     employees and retirees,
o    The ability to successfully  obtain  reductions in the Company's  operating
     costs,
o    The ability of the Company to successfully renegotiate the terms of certain
     of its indebtedness,
o    The ultimate resolution of pending litigation,
o    International  trade  policies  of the United  States and  certain  foreign
     countries,



o    Any possible future litigation, and
o    Other risks and uncertainties as discussed in this Quarterly Report and the
     Annual Report, including, without limitation, the section referenced above.

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

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



                                                             Three months ended              Nine months ended
                                                               September 30,                   September 30,
                                                            2002            2003            2002            2003
                                                            ----            ----            ----            ----
                                                                            (Tons in thousands)

Production volume (tons):
                                                                                                   
 Billets                                                       202             172             586             510
 Wire rod                                                      182             158             556             490

Average per-ton ferrous scrap
 purchase cost                                                $102            $117            $ 93            $114

Sales volume(tons):
 Fabricated wire products                                       71              63             230             202
 Industrial wire                                                24              25              76              77
 Wire rod                                                       75              82             236             232
 Billets                                                        -                5              -               15
                                                              ----            ----            ----            ----

                                                               170             175             542             526
                                                              ====            ====            ====            ====
Per-ton selling prices:
  Fabricated wire products                                    $672            $657            $685            $677
  Industrial wire                                             $452            $453            $448            $445
  Wire rod                                                    $321            $317            $304            $312
  Billets                                                     $ -             $172            $ -             $196
  All steel and wire products                                 $486            $454            $486            $468


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



                                                             Three months ended              Nine months ended
                                                               September 30,                   September 30,
                                                            2002            2003            2002            2003
                                                            ----            ----            ----            ----
                                                                               (In millions)

Steel and wire products:
                                                                                               
  Fabricated wire products                                 $47.7            $41.3          $157.8          $136.5
  Industrial wire                                           10.7             11.5            34.1            34.2
  Wire rod                                                  23.9             26.1            71.9            72.3
  Billets                                                    -                 .9             -               3.1
  Other                                                       .4               .3             1.0             1.0
                                                           -----            -----          ------          ------
                                                            82.7             80.1           264.8           247.1

Lawn and garden products                                     1.1               .4             8.5            11.2
                                                           -----            -----          ------          ------

                                                           $83.8            $80.5          $273.3          $258.3
                                                           =====            =====          ======          ======





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



                                      Three months ended      Nine months ended
                                         September 30,          September 30,
                                       2002         2003       2002     2003
                                       ----         ----       ----     ----

                                                            
Net sales .........................    100.0 %     100.0 %     100.0 %   100.0 %
Cost of goods sold ................     94.8      (104.1)       91.3      99.2
                                      -------     -------     -------   -------
Gross margin ......................      5.2 %      (4.1)%       8.7 %      .8 %
                                      =======     =======     =======   =======

Selling expense ...................      2.0 %       2.1 %       1.9 %     2.4 %
General and administrative expense       6.8 %       6.7 %       5.9 %     5.1 %
Defined benefit pension expense
 (credit) .........................       .4 %       2.2 %       (.4)%     2.0 %
Corporate expense (income) ........       .8 %       (.1)%       1.0 %      .9 %
Gain on early extinguishment of
 debt .............................        - %         - %     (20.0)%       - %

Income (loss) before income taxes
 and cumulative effect of change in
 accounting principle .............     (5.9)%     (14.8)%      18.7 %   (10.3)%
Income tax provision ..............      --          --          7.9       --
Minority interest in after-tax
  earnings ........................     (.1)         (.1)         .1        .2
                                      -------     -------     -------   -------

Net income (loss) before cumulative
 effect of change in accounting
 principle ........................     (5.8)%     (14.7)%      10.7 %   (10.5)%
                                      =======     =======     =======   =======



     Net sales of $80.5  million  in the 2003  third  quarter  were down 4% from
$83.8  million  during  the same  period in 2002.  The  decline in sales was due
primarily to a $32 per-ton  decline in steel and wire product selling prices and
a $700,000  decline in Garden Zone's sales all partially offset by a 3% increase



in shipment volume of the Company's  steel and wire products.  Shipments of wire
rod  increased  9%  while  per-ton  selling  prices  of wire  rod  declined  1%.
Industrial  wire shipments  during the 2003 third quarter  increased 4% from the
2002 third quarter while per-ton  selling prices remained  relatively  constant.
Fabricated wire product shipments  declined 11% during the 2003 third quarter as
compared to the 2002 third quarter while per-ton  selling prices declined 2%. In
addition,  during the third quarter of 2003, Keystone sold 5,000 tons of billets
as  compared  to none sold  during the 2002  third  quarter.  The lower  per-ton
selling  price of the Company's  steel and wire  products  during the 2003 third
quarter adversely impacted total net sales by $5.4 million.  Management believes
the decline in shipment  volume of wire  products  during the 2003 third quarter
was due to  softening  demand due in part to high levels of  imported  steel and
wire  products.  Although  high  levels  of  imported  steel  and wire  products
continue, these import levels have been somewhat mitigated by former competitors
of the  Company  exiting  the  marketplace.  However,  despite  this  decline in
domestic production  capacity,  rod imports have filled the resulting production
shortfall and as such,  per-ton selling prices continue to be adversely impacted
by the  availability  of high levels of imported wire rod. The decline in Garden
Zone's  sales  during the third  quarter of 2003 as  compared  to the 2002 third
quarter was due to Keystone  selling its 51% interest in Garden Zone during July
of 2003.

     Net sales of $258.3  million in the first nine  months of 2003 were down 6%
from $273.3 million in the first nine months of 2002.  This decline in sales was
primarily due to a 3% decline in shipments of Keystone's steel and wire products
and an $18 per-ton  decline in selling  prices of the  Company's  steel and wire
products  partially  offset by a $2.7  million  increase in Garden  Zone's sales
during the first nine months of 2003.  Garden Zone's sales during the first nine
months of 2003 prior to Keystone's  sale of its interest in Garden Zone amounted
to $11.2 million as compared to $8.5 million during the first nine months of the
same  period in 2002.  Wire rod  shipments  during the first nine months of 2003
declined  2% over the first nine  months of 2002 while  per-ton  selling  prices
increased 3%.  Industrial  wire  shipments  during the first nine months of 2003
increased  1% over the first nine months of 2002 while  per-ton  selling  prices
declined 1%. Fabricated wire products  shipments during the first nine months of
2003  declined  12% as compared  to the first nine months of 2002 while  per-ton
selling prices declined 1%. Despite  increases in per-ton selling prices of wire
rod,  overall average  per-ton  selling prices  declined  between the first nine
months  of 2002  and 2003 due to  declines  in the  per-ton  selling  prices  of
industrial wire and fabricated wire products. Management believes the decline in
shipment volume during the first nine months of 2003 was due to large volumes of
imported  product  throughout the nine month period and softening  demand due in
part to  prolonged  winter  weather  throughout  most of the  United  States and
uncertainties  regarding military action in the Middle East during the first six
months of 2003.

     Billet production during the third quarter of 2003 decreased 30,000 tons or
15% to 172,000  tons from  202,000  tons during the third  quarter of 2002.  The
primary reason for the lower production levels during the 2003 third quarter was
intentional  production  curtailments as a result of weakening demand and excess
inventory levels.  Wire rod production during the third quarter of 2003 declined
to 158,000  tons as compared  to  production  of 182,000  tons in the 2002 third
quarter,  primarily as a result of the lower billet  production  during the 2003
third quarter.

     Billet  production  during the first nine months of 2003 declined by 76,000
tons to 510,000 tons from 586,000 tons during the first nine months of 2002. The
primary reason for the lower production  levels in the first nine months of 2003
was  intentional  production  curtailments  as a result of weakening  demand and
excess inventory levels.  Lower wire rod production during the first nine months
of 2003, as compared to the first nine months of 2002,  resulted in a decline of
66,000 tons of wire rod produced during the first nine months of 2003 to 490,000
tons from  556,000  tons during the first nine months of 2002.  The low wire rod
production  throughout  the first nine months of 2003 was due  primarily  to the
lower  billet  production   throughout  the  nine  month  period  and  unplanned
production  outages  during  the 2003  first  quarter  to effect  repairs to the
Company's rod mill.

     Gross  profit  during the 2003 third  quarter  declined to a negative  $3.3
million from a $4.3 million  profit in the 2002 third  quarter as the  Company's
gross  margin  declined  from 5.2% in the 2002 period to a negative  4.1% in the
2003 third quarter.  This decline in gross margin was due primarily to the lower
overall average per-ton steel and wire product selling prices and higher costs



for ferrous  scrap,  Keystone's  primary raw material.  The higher ferrous scrap
costs  during  the  2003  third  quarter  adversely  impacted  gross  profit  by
approximately $2.9 million.

     Gross profit  during the first nine months of 2003 declined to $2.0 million
from  $23.9  million  in the first nine  months of 2002 as the  Company's  gross
margin declined from 8.7% to .8%. This decline in gross margin was due primarily
to lower overall  average per-ton selling prices of the Company's steel and wire
products combined with  substantially  higher costs for ferrous scrap as well as
higher  costs for  natural  gas all  partially  offset by  increased  production
efficiencies in the Company's steel and wire mills. The higher costs for ferrous
scrap and natural gas adversely  impacted gross profit by $11.9 million and $3.3
million,  respectively.  In  addition,  during  the first  nine  months of 2002,
Keystone  received  $800,000 of insurance  proceeds from  business  interruption
policies related to incidents in prior years as compared to none received during
the first nine months of 2003.

     Selling   expense  of  $1.7  million  during  the  third  quarter  of  2003
approximated selling expenses during the 2002 third quarter.  Selling expense of
$6.2  million  during the first nine months of 2003 was  approximately  $981,000
higher than the same  period in 2002.  The  primary  reasons  for the  increased
selling  expenses during the 2003 periods were increased  advertising  costs and
employee related expenses.

     General and administrative  expenses during the 2003 third quarter declined
from $5.7  million in the 2002 third  quarter to $5.4  million due  primarily to
lower  employee  related  and travel  costs.  Due to the  decline in general and
administrative  expenses  during  each of the first  three  quarters  of 2003 as
compared to each of the 2002 first three  quarters,  general and  administrative
expenses  for the first nine months of 2003  declined  $2.9  million  from $16.2
million in 2002 to $13.3 million in 2003.

     During the third quarter of 2003, Keystone recorded defined benefit pension
expense of $1.8 million as opposed to $297,000  recorded in the third quarter of
2002.  During the first nine months of 2003,  Keystone  recorded defined benefit
pension  expense of $5.2  million as opposed to a $1.2 million  credit  recorded
during the first nine months of 2002.  Keystone currently  anticipates the total
2003 pension  expense will  approximate  $6.9 million.  The  anticipated  higher
pension expense in 2003 is due primarily to a $50 million decline in plan assets
during 2002 and the resulting lower expected return on plan assets  component of
defined benefit pension plan expense. However, cash contributions by the Company
for defined benefit pension plans will not be required in 2003.

     General  corporate  expenses during the third quarter of 2003 declined from
$645,000 during the 2002 third quarter to an $87,000 credit.  The primary reason
for this  decline  was due  primarily  to lower  employee  related and legal and
professional  costs during the 2002 third quarter.  General  corporate  expenses
during  the  first  nine  months  of 2003 in the  amount  of $2.3  million  were
approximately  $600,000 lower than general  corporate  expenses during the first
nine  months  of 2002 due  primarily  to lower  employee  related  and legal and
professional costs.

     Interest  expense in the third  quarter of 2003  approximated  the interest
expense  during  the third  quarter  of 2002.  Average  borrowings  by  Keystone
approximated  $101.9  million in the third  quarter of 2003 as compared to $97.1
million  in the  third  quarter  of 2002.  During  the  third  quarter  of 2003,
Keystone's weighted-average interest rate was 2.6% per annum as compared to 2.9%
per annum in the third quarter of 2002.

     Interest  expense in the first nine months of 2003 was lower than the first
nine months of 2002 due  principally  to lower debt levels and  interest  rates.
Average  borrowings by Keystone  approximated  $104.9  million in the first nine
months of 2003 as compared  to $110.5  million in the first nine months of 2002.
During the first nine months of 2003, Keystone's  weighted-average interest rate
was 2.8% per annum as  compared  to 4.9% per annum in the first  nine  months of
2002.

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

     In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone
for  approximately  $1.1  million in cash.  In  addition,  Garden  Zone repaid a
$493,000  advance that had been made in a prior year,  and Keystone was released
from its guarantee of 51% of Garden Zone's revolving  credit facility.  Keystone
reported a pre-tax gain of  approximately  $786,000 in the third quarter of 2003
as a result of this transaction.


     In  August  2003,  Keystone  sold  substantially  all of the  assets of its
Keystone  Fasteners  business  for $2.2  million  in cash.  Keystone  reported a
pre-tax gain of approximately  $287,000 in the third quarter of 2003 as a result
of this transaction.

     The principal reasons for the difference between the U.S. federal statutory
income tax rate and the  Company's  effective  income tax rates are explained in
Note 5 to the  Consolidated  Financial  Statements.  At September 30, 2003,  the
Company had recorded a deferred tax asset  valuation  allowance of $99.1 million
resulting  in no net  deferred  tax assets.  Keystone  periodically  reviews the
recoverability  of its deferred tax assets to determine whether such assets meet
the  "more-likely-than-not"  recognition criteria.  The Company will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews,  Keystone could recognize a change in the recorded valuation  allowance
related to its  deferred  tax assets in the future.  As a result of the deferred
tax asset valuation allowance, the Company does not anticipate recognizing a tax
benefit  associated  with  its  expected  pre-tax  losses  during  2003  will be
appropriate.

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

     As a result of the items  discussed  above,  Keystone  recorded  a net loss
during the third  quarter of 2003 of $11.8  million as compared to a net loss of
$4.8 million in the third quarter of 2002,  and a net loss during the first nine
months of 2003 of $27.0  million  as  compared  to net  income in the first nine
months of 2002 of $49.2 million.

SEGMENT RESULTS OF OPERATIONS:

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

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

     Prior to July 2003,  the Company  owned a 51%  interest in Garden  Zone,  a
distributor of wire, plastic and wood lawn and garden products to retailers.  In
July 2003, Keystone sold its 51% ownership in Garden Zone.

     In addition,  prior to July 2003,  Keystone also operated three  businesses
that did not constitute reportable business segments. These businesses sell wire
and  wire  products  for  agricultural,  industrial,  construction,  commercial,
original manufacturers and retail consumer markets. The results of operations of
these  businesses  are  aggregated and included under the "All Other" heading in



the following tables.  During July 2003, Keystone  transferred its operations at
one of these three  businesses to other Keystone  facilities,  and during August
2003 Keystone sold another of the  businesses.  As a result,  as of August 2003,
the "All Other" heading in the following tables only includes Sherman Wire.

     The net  proceeds  from the sale of  Garden  Zone  and  Keystone  Fasteners
aggregated $3.3 million.  The gain on the sale of these  businesses,  as well as
the results of operations of each of Garden Zone and Keystone  Fasteners are not
significant,  individually  and in the aggregate.  Accordingly,  the Company has
elected not to present their results of  operations as  discontinued  operations
for all periods presented due to their immateriality.

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



                                               Principal
         Business Segment                      entities                    Location                   Products

                                                                                  
Keystone Steel & Wire               Keystone Steel & Wire            Peoria, IL            Billets, wire rod, industrial
                                                                                           wire and fabricated wire products

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

Garden Zone                         Garden Zone (1)                  Charleston, SC        Wire, wood and plastic lawn and
                                                                                           garden products

All Other                           Sherman Wire                     Sherman, TX           Industrial wire and fabricated
                                                                                           wire products
                                    Sherman Wire of Caldwell(2)      Caldwell, TX          Industrial wire and fabricated
                                                                                           wire products
                                    Keystone Fasteners(3)            Springdale, AR        Fabricated wire products


(1)  51.0% subsidiary - interest sold in July 2003.
(2)  Transferred  operations  in July 2003 to Sherman Wire and Keystone  Steel &
     Wire.
(3)  Business sold in August 2003.





                                        Three months ended        Nine months ended
                                          September 30,             September 30,
                                      ---------------------       -----------------
                                        2002         2003         2002          2003
                                        ----         ----         ----          ----
                                                         (In thousands)

Revenues:
                                                                
  Keystone Steel and Wire .........   $ 73,099    $  71,230    $ 237,253    $ 229,333
  Engineered Wire Products ........     10,692       11,559       25,914       26,853
  Garden Zone .....................      1,347          371        9,481       12,082
  All other .......................     10,444        5,585       36,746       25,150

  Elimination of intersegment
    revenues ......................    (11,738)      (8,293)     (36,104)     (35,128)
                                      --------    ---------    ---------    ---------

                                      $ 83,844    $  80,452    $ 273,290    $ 258,290
                                      ========    =========    =========    =========

Operating profit (loss):
  Keystone Steel and Wire .........   $ (1,447)   $  (7,671)   $   3,246    $ (16,370)
  Engineered Wire Products ........      1,025        1,136        2,515        2,293
  Garden Zone .....................       (200)         (58)         404          700
  All Other .......................     (1,305)      (1,380)      (2,258)      (3,240)
  GAAP adjustments and eliminations     (1,410)      (4,166)        (297)      (6,028)
                                      --------    ---------    ---------    ---------

                                      $ (3,337)   $ (12,139)   $   3,610    $ (22,645)
                                      ========    =========    =========    =========



Keystone Steel & Wire

     KSW's 2003 third quarter net sales of $71.2 million declined  approximately
$1.9  million,  or 3%,  from the same period  during 2002 due to lower  shipment
volumes and lower overall per-ton product selling prices.  During the 2003 third
quarter, KSW sold 2,000 less tons of product than the 2002 third quarter.  KSW's
per-ton product selling prices during the 2003 third quarter were  approximately
$6 per-ton  lower than the  per-ton  selling  prices of the 2002 third  quarter.
During the first nine months of 2003, KSW's net sales of $229.3 million declined
$7.9  million or 3%, from the first nine months of 2002 due  primarily  to lower
shipment  volumes  partially  offset by higher product  per-ton  selling prices.
During the first nine months of 2003,  KSW sold 23,000 less tons of product than
the first nine  months of 2002 at per-ton  selling  prices  that were $3 per-ton
higher  than the same  period in 2002.  During  both the  three  and nine  month
periods ended September 30, 2003, approximately 10% of KSW's net sales were made
to other Keystone entities. The majority of these sales were sales of wire rod.

     During the third  quarter of 2003,  KSW recorded a $7.7  million  operating
loss as compared to a $1.4 million operating loss recorded during the 2002 third
quarter due primarily to the lower selling  prices and higher  ferrous scrap and
natural gas costs during the 2003 third  quarter.  KSW recorded a $16.4  million
operating  loss during the first nine months of 2003 as compared to $3.2 million
of operating  income recorded during the first nine months of 2002 due primarily
to the lower  selling  prices and higher  ferrous  scrap and  natural  gas costs
during the 2003 second and third  quarters  all  partially  offset by  increased
production  efficiencies in KSW's steel and wire mills. In addition,  during the
first nine months of 2002,  KSW  received  $800,000 of insurance  proceeds  from
business  interruption  policies related to incidents in prior years as compared
to none received in the same period during 2003.




Engineered Wire Products

     EWP's  sales of  $11.6  million  during  the  third  quarter  of 2003  were
approximately  8% higher  than sales  during the third  quarter of 2002 of $10.7
million  due  primarily  to higher  shipment  volume  as well as higher  per-ton
product  selling  prices.  EWP's  shipment  volume during the 2003 third quarter
increased 6% over the same quarter in 2002 and per-ton  product  selling  prices
increased 2%. EWP's sales of $26.9 million  during the first nine months of 2003
were  approximately 4% higher than sales during the first nine months of 2003 of
$25.9 million due primarily to a 2% increase in both shipment volume and per-ton
product selling prices.

     During the third  quarter of 2003,  EWP recorded  $1.1 million of operating
profit as compared to an operating  profit of $1.0 million  recorded in the 2002
third quarter.  This 11% increase in operating  profit was primarily a result of
increased  per-ton product selling prices partially offset by an increase in the
cost of wire rod, EWP's primary raw material. EWP purchases substantially all of
its wire rod requirements  from KSW.  Despite  increased sales by EWP during the
2003 first nine months as compared to the same periods in 2002, operating income
during the first nine months of 2003 declined by $222,000 to $2.3  million.  The
primary reason for the decline in EWP's operating income levels during the first
nine months of 2003 as compared to the first nine months of 2002 was an increase
in the cost of wire rod.

Garden Zone

     Keystone  sold its 51%  interest  in  Garden  Zone in July  2003.  As such,
Keystone only included in its results of operations  for the 2003 third quarter,
18 days of Garden Zone's operations during the 2003 third quarter as compared to
a full  quarter  included  during the 2002 third  quarter.  As a result,  Garden
Zone's net sales during the three months ended  September  30, 2003  declined to
$400,000 as compared to $1.3 million  during the third quarter of 2002.  Despite
only recording a partial quarter of sales during the 2003 third quarter,  Garden
Zone's net sales during the first nine months of 2003 increased to $12.1 million
as compared to $9.5  million  during the first nine months of 2002.  The primary
reason  for the  increased  sales  during  the  first  nine  months  of 2003 was
increased market  penetration by Garden Zone.  Garden Zone recorded an operating
loss of $58,000  during  the third  quarter  of 2003 as  compared  to a $200,000
operating loss during the 2002 third quarter and Garden Zone recorded  operating
income of $700,000  during the first nine months of 2003 as compared to $404,000
during the first nine months of 2002. The increased  operating profit during the
first nine  months of 2003 as  compared to the first nine months of 2002 was due
primarily to the increased sales levels during that same period.

All Other

     Keystone  transferred  its  operations  at one  of  these  three  locations
(Sherman  Wire of Caldwell,  Inc.) during July 2003 to Sherman Wire and Keystone
Steel & Wire and  sold a second  one of  these  locations  (Keystone  Fasteners)
during  August  2003.  Primarily  as a result of these  transactions,  net sales
during  the third  quarter of 2003 at these  three  locations  declined  by $4.9
million to  approximately  $5.6 million as compared to $10.4 million  during the
third  quarter  of 2002.  During  the first  nine  months of 2003,  these  three
locations  recorded  net sales of $25.7  million as  compared  to $36.7  million
during the first nine  months of 2002.  In  addition  to the 2003 third  quarter
disposition and termination of operations, the primary reason for the decline in
sales during the first nine months of 2003 was lower shipment  volumes and lower
per-ton product  selling prices.  During the third quarter of 2003 and the first



nine months of 2003,  shipment volume at these  locations  declined 46% and 28%,
respectively  from the same periods in 2002 due primarily to lower volume at the
Sherman  Wire of Caldwell  facility.  In addition,  shipment  volume at Keystone
Fasteners  during the 2003  periods  was also down  significantly  from the same
periods  during  2002  due  primarily  to  increased   competition  from  import
producers.  In prior  periods,  the Sherman Wire of Caldwell  facility  provided
substantially all of Keystone  Fastener's  industrial wire requirements.  During
2003, the Company began  transitioning the manufacturing of Keystone  Fastener's
industrial wire to other Keystone  facilities.  See Note 10 to the  Consolidated
Financial  Statements.  The per-ton  product  selling prices for these locations
during the 2003 third  quarter and the first nine months of 2003  declined by 2%
and 5%,  respectively  from the same  periods  during 2002.  Keystone  Fasteners
purchased  substantially all of its industrial wire requirements,  their primary
raw material, from either Sherman Wire or Sherman Wire of Caldwell, Inc.

     During  the third  quarter  of 2003,  these  three  locations  recorded  an
operating  loss of $1.4  million as compared to a $1.3  million  operating  loss
during the 2002 third  quarter and during the first nine  months of 2003,  these
three locations recorded an operating loss of $3.2 million as compared to a $2.3
million operating loss during the first nine months of 2002. The primary reasons
for the increased  operating  losses during the 2003 periods was the lower sales
volume and overall  per-ton product selling prices and higher cost for wire rod.
These locations  purchase  substantially all of their wire rod requirements from
KSW.

     GAAP adjustments and eliminations in the above table consisted primarily of
adjustments  to reflect  the  difference  between the  defined  benefit  pension
expense or credit and OPEB  expense  allocated  to the  segments  and the actual
expense or credit  included in the  determination  of operating  profit or loss.
GAAP adjustments and  eliminations  included a defined benefit pension credit of
$528,000  during the three months ended  September 30, 2002 and defined  benefit
pension  expense of $1.0 million  during the three months  ended  September  30,
2003.  GAAP  adjustments  and  eliminations  included a defined  benefit pension
credit of $3.7  million  during the nine  months  ended  September  30, 2002 and
defined  benefit  pension  expense of $2.9 million  during the nine months ended
September  30,  2003.  During  the three  month  and nine  month  periods  ended
September 30, 2002, GAAP adjustments and  eliminations  included OPEB expense of
$1.6 million and $3.8 million,  respectively.  GAAP adjustments and eliminations
during both the three and nine month periods ended September 30, 2003,  included
OPEB expense of $3.2 million.

Outlook for 2003

     Due to continued high levels of steel and wire product imports,  management
currently  believes  capacity  utilization and shipment  volumes in 2003 will be
less than 2002 levels and overall  average  per-ton  selling prices for the year
2003 will be less than those of 2002. In addition, management currently believes
these  volumes  and  overall   average  per-ton  selling  prices  combined  with
anticipated  continued higher energy costs,  higher scrap costs, an $8.4 million
increase in defined benefit pension expense and a $3.2 million  increase in OPEB
expense  will  result in  Keystone  recording  a loss  before  income  taxes and
cumulative effect of change in accounting  principle for calendar 2003 in excess
of the comparable amount in 2002 (exclusive of the $54.7 million gain in 2002 on
early  extinguishment  of debt). The Company does not currently  anticipate that
recognizing a tax benefit associated with its pre-tax losses during 2003 will be
appropriate.


LIQUIDITY AND CAPITAL RESOURCES:

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

     At  September  30, 2003  Keystone  had  negative  working  capital of $85.0
million,  including  $2.1  million of notes  payable and current  maturities  of
long-term  debt,  $29.3  million of long-term  debt  classified  as current as a
result of the Company's  failure to comply with certain  financial  covenants in
the Keystone  Revolver as well as  outstanding  borrowings  under the  Company's
revolving credit facilities of $37.1 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 September  30, 2003,  unused credit  available  for borrowing  under
Keystone's $45 million  revolving  credit  facility (the  "Keystone  Revolver"),
which  expires  in March 2005 and EWP's $7 million  revolving  credit  facility,
which  expires in June 2004,  (the "EWP  Revolver")  were $2.9  million and $5.0
million,  respectively.  The Keystone  Revolver  requires daily cash receipts be
used to reduce outstanding borrowings,  which results in the Company maintaining
zero cash  balances  when  there are  balances  outstanding  under  this  credit
facility. A wholly-owned subsidiary of Contran has agreed to loan Keystone up to
an aggregate of $6 million under the terms of a revolving  credit  facility that
matures on November 30,  2003.  Through  November 14, 2003,  the Company had not
borrowed any amounts under such facility.

     Relative changes in assets and liabilities generally result from the timing
of production,  sales and  purchases.  Such relative  changes can  significantly
impact the  comparability of cash flow from operations from period to period, as
the statement of operations impact of such items may occur in a different period
from when the underlying cash transaction occurs. For example, raw materials may
be purchased in one period,  but the payment for such raw materials may occur in
a subsequent  period.  Similarly,  inventory may be sold in one period,  but the
cash collection of the receivable may occur in a subsequent period.

     During  the first  nine  months  of 2003,  notes  and  accounts  receivable
increased by $14.5  million and  inventories  declined by $16.4  million.  These
changes in accounts  receivable and inventory balances from December 31, 2002 to
September  30, 2003 are  consistent  with trends in prior years.  The  Company's
business is highly seasonal due to Keystone's  principal wire products  markets,
including  the  agricultural  and  construction  markets.  As a  result  of this
seasonality,  the Company must typically build inventory levels during the first
and fourth  quarters of each year in order to serve its customers  thoughout the
peak selling  season that generally  lasts through May of each year.  During the
second and third quarters of each year,  these high inventory levels are reduced
as the  inventory is converted  to sales and there is a  corresponding  seasonal
increase in accounts  receivable  balances.  The  seasonal  decline in inventory
levels did not occur  during the 2002  period  due to  abnormally  low levels of
inventory at the end of 2001.  Liquidity  constraints during the last quarter of
2001  prevented the Company from  building its normal  inventory  levels.  These
liquidity constraints were resolved during the first and second quarter of 2002.


     Keystone's cash flows from  operations  declined from a net $5.0 million of
cash  provided  in the first nine  months of 2002 to a net $7.5  million of cash
used in the first nine months of 2003.  The $12.5  million net  reduction is due
primarily to (i) the $26.3  million  decline in operating  income  (loss) during
such  periods  (ii) a higher  amount of net cash  provided  from  changes in the
Company' inventories, receivables, payables and accruals of $14.1 million in the
first nine months of 2003.  Relative changes in accounts receivable are affected
by, among other things,  the timing of sales and the collection of the resulting
receivable.  Relative  changes in  inventories,  accounts  payable  and  accrued
liabilities  are  affected by,  among other  things,  the timing of raw material
purchases and the payment for such purchases and the relative difference between
production volume and sales volume.

     Keystone's  total  debt  balances  during  the  first  nine  months of 2003
increased by $7.1 million.  The Company's  operations used $7.5 million of cash,
capital  expenditures  amounted to $2.4  million  and  Keystone  made  principal
payments of $2.1 million on long-term  debt. In addition,  the company  received
$3.3 million in total  proceeds from the sale of its interest in Garden Zone and
the sale of  substantially  all the assets of its Keystone  Fasteners  business.
These uses of cash resulted in an increase of $9.1 million in  borrowings  under
the Company's revolving credit facilities.

     During the first nine months of 2003, Keystone made capital expenditures of
$2.4  million as  compared  to $4.8  million  in the first nine  months of 2002.
Capital  expenditures  for  calendar  year 2003 are  currently  estimated  to be
approximately  $3.0 million and are related  primarily to upgrades of production
equipment.  Keystone  currently  anticipates these capital  expenditures will be
funded using cash flows from  operations  together with  borrowing  availability
under the Company's credit facilities.

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

     The Company  periodically  reviews the  recoverability  of its deferred tax
assets  to  determine  whether  such  assets  meet  the   "more-likely-than-not"
recognition  criteria.  At September  30, 2003,  after  considering  all factors
believed to be relevant,  including the Company's recent operating results,  its
expected  future   near-term   productivity   rates;   cost  of  raw  materials,
electricity, labor and employee benefits, environmental remediation, and retiree
medical coverage;  interest rates; product mix; sales volumes and selling prices
and the fact that accrued OPEB expenses will become  deductible over an extended
period of time and require the Company to generate significant amounts of future
taxable  income,  the Company  believes  the gross  deferred  tax assets may not
currently  meet the  "more-likely-than-not"  realizability  test.  As  such,  at
September 30, 2003 the Company has a deferred tax asset  valuation  allowance of
approximately   $12.6   million.   The  Company  will  continue  to  review  the
recoverability  of its deferred tax assets,  and based on such periodic reviews,
the Company  could change the  valuation  allowance  related to its deferred tax
assets  in the  future.  The  Company  does  not  currently  expect  it  will be
appropriate  to recognize a tax benefit  associated  with its  expected  pre-tax
losses during 2003.

     Keystone  incurs  significant  ongoing  costs for plant and  equipment  and
substantial employee medical benefits for both current and retired employees. As
such,  Keystone is vulnerable to business  downturns and increases in costs, and
accordingly,  routinely  compares its liquidity  requirements  and capital needs
against  its  estimated  future  operating  cash  flows.  In addition to planned
reductions in fixed costs and  announced  increases in certain  product  selling
prices,  Keystone is taking  additional  action towards improving its liquidity.
These actions include, but are not limited to, reducing inventory levels through
more  efficient  production  schedules,   modifying  coverages  and  participant
contribution levels of medical plans for both employees and retirees, attempting
to restructure certain  indebtedness,  restructuring the terms of its collective
bargaining  agreement with the labor union at its Peoria  facility to reduce the
Company's operating costs and reducing capital expenditures. With respect to the
Company's  attempt  to  restructure  the  terms  of  its  collective  bargaining

agreement,  the Company has initiated  discussions  in an attempt to renegotiate
the existing terms of the collective bargaining agreement that currently expires
in 2006. The Company is seeking,  among other things,  to achieve  modifications
that will  result in a  reduction  of its annual  operating  costs at the Peoria
facility.  Discussions  with union  representatives  are ongoing and no specific
terms or agreement has been reached to date.  Keystone has also sold, and may in
the future consider,  the sale of certain divisions or subsidiaries that are not
necessary to achieve the Company's long-term business objectives. However, there
can be no  assurance  Keystone  will be  successful  in any of  these  or  other
efforts, or that if successful,  they will provide sufficient  liquidity for the
Company's operations during the next year.

     At  September  30,  2003,  Keystone  was  not in  compliance  with  certain
financial  covenants included in the Keystone  Revolver.  Under the terms of the
Keystone Revolver, failure to comply with these covenants is considered an event
of default and gives the lender the right to accelerate the maturity of both the
Keystone  Revolver  and  the  Keystone  Term  Loan.  The  Company  is  currently
negotiating  with the Keystone  Revolver and Keystone Term Loan lender to obtain
waivers of such  financial  covenants or  otherwise  amend the  respective  loan
agreements  to cure the  defaults.  As a result of these events of default,  the
lender has placed a $5.5 million  reserve on the Company's  available  borrowing
base.  There can be no assurance  Keystone will be successful in obtaining  such
waivers or amendments,  and if Keystone is  unsuccessful,  there is no assurance
the Company would have the liquidity or other financial resources  sufficient to
repay the Keystone  Revolver and the Keystone Term Loan if such  indebtedness is
accelerated. The indenture governing Keystone's 8% Notes provides the holders of
such Notes with the right to  accelerate  the maturity of the Notes in the event
of a default by Keystone resulting in acceleration of the maturity of any of the
Company's other secured debt.

     The prolonged  downturn in the steel industry and the $5.5 million  reserve
placed on the  Company's  available  borrowing  base by the lender on Keystone's
primary  revolving  credit  facility  continue to  adversely  effect  Keystone's
liquidity and capital resources.  In response,  the Company has been required to
defer capital expenditures, defer maintenance expenditures and delay payments to
vendors and other creditors to the extent possible.  Despite these measures, the
Company's  availability under its primary revolving credit facility is extremely
limited and a significant portion of the Company's accounts payable are past due
compared to stated terms. Keystone continues to evaluate possible  restructuring
alternatives to improve its overall financial condition.  In this regard, and as
a result of ongoing  negotiations  with its  lenders,  the Company has  retained
financial  advisors to assist the Company in the process of evaluating  possible
restructuring alternatives.

     Management  currently  believes funds available under the Company's  credit
facilities may not 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.  There are many factors that could cause  actual  future  results to
differ materially from management's current assessment,  as discussed above, and
actual results could differ  materially from those  forecasted or expected which
could materially adversely effect the future liquidity,  financial condition and
results of operations of the Company. Additionally,  significant declines in the
Company's   end-user   markets  or  market  share,  the  inability  to  maintain
satisfactory  billet  and wire rod  production  levels,  or other  unanticipated
costs, if significant, could result in a need for funds greater than the Company
currently has available.  The Company's  inability to obtain adequate additional
sources of liquidity, or its inability to successfully  restructure the terms of
its collective bargaining agreement to allow the Company to reduce its operating
costs, could have a material adverse effect on Keystone's ability to continue as
a  going-concern.  There can be no assurance the Company would be able to obtain
an  adequate  amount  of  additional  liquidity.  See  Notes  13  and  15 to the
Consolidated Financial Statements in the Annual Report.






ITEM 4.  CONTROLS AND PROCEDURES

     The Company maintains a system of disclosure  controls and procedures.  The
term  "disclosure  controls and  procedures,"  as defined by  regulations of the
Securities and Exchange Commission ("SEC"),  means controls and other procedures
that are  designed to ensure that  information  required to be  disclosed in the
reports  that the  Company  files or  submits  to the SEC under  the  Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by the
Company  in the  reports  that it files or  submits  to the SEC under the Act is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive  officer and its principal  financial  officer,  or persons
performing  similar  functions,  as appropriate to allow timely  decisions to be
made  regarding  required  disclosure.  Each of David L.  Cheek,  the  Company's
President and Chief Executive Officer,  and Bert E. Downing,  Jr., the Company's
Vice President,  Chief Financial  Officer,  Corporate  Controller and Treasurer,
have evaluated the Company's  disclosure controls and procedures as of September
30, 2003. Based upon their evaluation,  these executive  officers have concluded
that the Company's  disclosure  controls and  procedures are effective as of the
date of such evaluation.

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

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

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







PART II.  OTHER INFORMATION

ITEM 1. Legal Proceedings

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


ITEM 6. Exhibits and Reports on Form 8-K

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

     4.1  Fifth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated  as of  August  31,  2003,  by and  between  Registrant  and EWP
          Financial LLC.

     4.2  Sixth  Amendment  to Amended and  Restated  EWP Bridge Loan  Agreement
          dated as of September  30,  2003,  by and between  Registrant  and EWP
          Financial LLC.

     4.3  Seventh  Amendment to Amended and  Restated EWP Bridge Loan  Agreement
          dated as of  October  31,  2003,  by and  between  Registrant  and EWP
          Financial LLC.

     31.1 Certification.

     31.2 Certification.

     32.1 Certification.

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

     August 14, 2003 - Reported Item 5.





                               S I G N A T U R E S



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


                                     Keystone Consolidated Industries, Inc.
                                                  (Registrant)



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