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

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

Commission file number 1-3919

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

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

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

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

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

Name of each exchange
Title of each class on which registered

Common Stock, $1 par value None

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

None.

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

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

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

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

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

Documents incorporated by reference

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





PART I

ITEM 1. BUSINESS.

General

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

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

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

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

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

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

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

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

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

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

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

The Company is the successor to Keystone Steel & Wire Company, which was
founded in 1889. Contran Corporation ("Contran") and other entities controlled
by Mr. Harold C. Simmons beneficially own approximately 50% of the Company's
voting stock at December 31, 2002. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of certain children
and grandchildren of Mr. Simmons, of which Mr. Simmons is sole trustee. Keystone
may be deemed to be controlled by Contran and Mr. Simmons. In October 2002,
Contran purchased 54,956 shares of the 59,399 shares of the Company's Redeemable
Series A Preferred Stock. After March 15, 2003, each share of Series A Preferred
Stock is convertible, at the option of the holder, into 250 shares of the
Company's common stock (equivalent to a $4.00 per share exchange rate).

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

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

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

Manufacturing

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

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

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

Products, Markets and Distribution

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



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

Fabricated wire

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



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

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

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

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

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

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

Industry and Competition

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

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

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

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

Raw Materials and Energy

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

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

Trademarks

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

Employment

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

Customers

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

A listing of end-user markets by products follows:

Product Principal Markets Served

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

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

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

Backlog

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

Environmental Matters

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

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

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

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

Acquisition and Restructuring Activities

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

Website and Availability of Company Reports Filed with the SEC

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

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

ITEM 2. PROPERTIES.

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

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

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



Approximate
Size
Facility Name Location (Square Feet) Products Produced


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



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






ITEM 3. LEGAL PROCEEDINGS.

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

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

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







PART II

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

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



High Low

Year ended December 31, 2002


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

Year ended December 31, 2001

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



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






ITEM 6. SELECTED FINANCIAL DATA.

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



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

Statement of Operations Data:

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

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

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

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

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

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

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

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

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

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









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

Balance Sheet Data:

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


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

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







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

General

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

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

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

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

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

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

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

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






Results Of Operations

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



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

Production volume (tons):
Billets:

Produced ..................................... 675 686 723
Purchased .................................... 8 -- --
Wire rod ....................................... 678 651 687

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

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

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



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



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

Steel and wire products:

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







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



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


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

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

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



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

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

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

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

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

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

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

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

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

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

The principal reasons for the difference between the U.S. federal statutory
income tax rate and the Company's effective income tax rates are explained in
Note 6 to the Consolidated Financial Statements. At December 31, 2002, the
Company had recorded a deferred tax asset valuation allowance of $20.0 million
resulting in no net deferred tax assets. Keystone periodically reviews the
recoverability of its deferred tax assets to determine whether such assets meet
the "more-likely-than-not" recognition criteria. The Company will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews, Keystone could recognize a change in the recorded valuation allowance
related to its deferred tax assets in the future. As a result of the deferred
tax asset valuation allowance, other than the $21.6 million tax provision
recorded in connection with the Exchange Offer, the Company did not record a tax
benefit during 2002 associated with its remaining pre-tax loss.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related Party Transactions

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

Outlook for 2003

Rod imports continue to cause disruption in the marketplace and market
demand has weakened. However, management currently believes, despite the
continued high level of rod imports, shipment volumes in 2003 will increase
slightly and average overall per-ton selling prices will approximate those of
the fourth quarter of 2002. In addition, management currently believes these
volumes and per-ton selling prices combined with anticipated higher energy costs
and a $13.4 million increase in pension expense will result in Keystone
recording a loss before income taxes and cumulative effect of change in
accounting principle for calendar 2003 in excess of the comparable amount in
2002 (exclusive of the $54.7 million gain in 2002 on early extiguishment of
debt). However, despite anticipating recording an operating loss and a loss
before income taxes in 2003, Keystone currently believes it will show positive
cash flows from operating activities in 2003, in part because no contribution to
the Company's defined benefit pension plan is currently expected to be required.
In addition, the Company does not currently anticipate that recognizing a tax
benefit associated with its pre-tax losses during 2003 will be appropriate.

Critical Accounting Policies and Estimates

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

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

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

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

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

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

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

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

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

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

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

Accounting Principles Newly Adopted in 2002

See Note 17 to the Consolidated Financial Statements.

Accounting Principles Not Yet Adopted

See Note 18 to the Consolidated Financial Statements.

Assumptions on Defined Benefit Pension Plans and OPEB Plans

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

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

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



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


7.25% 7.0% 6.5%


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

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

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

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

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

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

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

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

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

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

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

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

Liquidity And Capital Resources

At December 31, 2002, Keystone had negative working capital of $41.8
million, including $2.6 million of notes payable and current maturities of
long-term debt as well as outstanding borrowings under the Company's revolving
credit facilities of $31.3 million. The amount of available borrowings under
these revolving credit facilities is based on formula-determined amounts of
trade receivables and inventories, less the amount of outstanding letters of
credit. At December 31, 2002, unused credit available for borrowing under
Keystone's $45 million revolving credit facility (the "Keystone Revolver"),
which expires March 31, 2005, EWP's $7 million revolving credit facility (the
"EWP Revolver"), which expires June 30, 2004 and Garden Zone's $4 million
revolving credit facility ("the Garden Zone Revolver"), which expires May 15,
2003 were $14.5 million, $4.7 million and $1.4 million, respectively. The
Keystone Revolver requires daily cash receipts be used to reduce outstanding
borrowings, which results in the Company maintaining zero cash balances when
there are balances outstanding under this credit facility. Accordingly, any
outstanding balances under the Keystone Revolver are always classified as a
current liability regardless of the maturity date of the facility. Keystone
currently intends to renew or replace the Garden Zone Revolver upon its maturity
in May 2003.

In addition, a wholly-owned subsidiary of Contran has agreed to loan the
Company up to an aggregate of $6 million under the terms of a revolving credit
facility that matures on June 30, 2003. Through March 2003, the Company has not
borrowed any amounts under such facility.

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

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

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

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

The Company periodically reviews the recoverability of its deferred tax
assets to determine whether such assets meet the "more-likely-than-not"
recognition criteria. At December 31, 2002, the Company expects that its
long-term profitability should ultimately be sufficient to enable it to realize
full benefit of its future tax deductions, in part due to the long-term nature
of its net operating loss carryforwards, which expire in 2019 to 2022. Although,
considering all factors believed to be relevant, including the Company's recent
operating results, its expected future near-term productivity rates; cost of raw
materials, electricity, labor and employee benefits, environmental remediation,
and retiree medical coverage; interest rates; product mix; sales volumes and
selling prices and the fact that accrued OPEB expenses will become deductible
over an extended period of time and require the Company to generate significant
amounts of future taxable income, the Company believes its gross deferred tax
assets do not currently meet the "more-likely-than-not" realizability test. As
such, during the fourth quarter of 2001, the Company provided a deferred tax
asset valuation allowance of approximately $14.5 million. During 2002, Keystone
increased the valuation allowance by $5.5 million and at December 31, 2002, the
Company has recognized a deferred tax asset valuation allowance of $20.0
million, or all of the Company's deferred tax asset. Keystone will continue to
review the recoverability of its deferred tax assets, and based on such periodic
reviews, the Company could change the valuation allowance related to its
deferred tax assets in the future. The Company does not currently expect it will
be appropriate to recognize a tax benefit associated with its expected pre-tax
losses during 2003.

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

Management currently believes the cash flows from operations together with
funds available under the Company's credit facilities will be sufficient to fund
the anticipated needs of the Company's operations and capital improvements for
the year ending December 31, 2003. This belief is based upon management's
assessment of various financial and operational factors, including, but not
limited to, assumptions relating to product shipments, product mix and selling
prices, production schedules, productivity rates, raw materials, electricity,
labor, employee benefits and other fixed and variable costs, interest rates,
repayments of long-term debt, capital expenditures, and available borrowings
under the Company's credit facilities. However, there are many factors that
could cause actual future results to differ materially from management's current
assessment. While it is not possible to identify all factors, Keystone continues
to face many risks and uncertainties. Among the factors that could cause actual
future results to differ materially are the risks and uncertainties discussed in
this Annual Report and those described from time to time in the Company's other
filings with the SEC, including, but not limited to, future supply and demand
for the Company's products (including cyclicality thereof), customer inventory
levels, changes in raw material and other operating costs (such as ferrous scrap
and energy), general economic conditions, competitive products and substitute
products, customer and competitor strategies, the impact of pricing and
production decisions, the possibility of labor disruptions, environmental
matters (such as those requiring emission and discharge standards for existing
and new facilities), government regulations and possible changes therein, any
significant increases in the cost of providing medical coverage to active and
retired employees, the ultimate resolution of pending litigation, international
trade policies of the United States and certain foreign countries and any
possible future litigation and other risks and uncertainties as discussed in
this Annual Report. Should one or more of these risks materialize (or the
consequences of such a development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those forecasted or
expected and as a result, could have a material adverse effect on the future
liquidity, financial condition and results of operations of the Company.
Additionally, significant declines in the Company's end-user markets or market
share, the inability to maintain satisfactory billet and wire rod production
levels, or other unanticipated costs, if significant, could result in a need for
funds greater than the Company currently has available. There can be no
assurance the Company would be able to obtain an adequate amount of additional
financing. See Notes 13 and 15 to the Consolidated Financial Statements.

Summary of Debt and Other Contractual Commitments

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



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


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

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

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

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

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


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

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






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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




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

Fixed-rate debt -

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

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

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

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



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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

None.





PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

ITEM 11. EXECUTIVE COMPENSATION.

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

ITEM 14. CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures," as defined by regulations of the SEC,
means controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that the Company files or submits to the
SEC under the Securities Exchange Act of 1934, as amended (the "Act"), is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure information
required to be disclosed by the Company in the reports that it files or submits
to the SEC under the Act is accumulated and communicated to the Company's
management, including its principal executive officer and its principal
financial officer, as appropriate to allow timely decisions to be made regarding
required disclosure. Each of David L. Cheek, the Company's President and Chief
Executive Officer, and Bert E. Downing, Jr., the Company's Vice President, Chief
Financial Officer, Corporate Controller and Treasurer, have evaluated the
Company's disclosure controls and procedures as of a date within 90 days of the
filing date of this Form 10-K. Based upon their evaluation, these executive
officers have concluded that the Company's disclosure controls and procedures
are effective as of the date of such evaluation.

The Company also maintains a system of internal controls. The term
"internal controls," as defined by the American Institute of Certified Public
Accountants' Codification of Statement on Auditing Standards, AU Section 319,
means controls and other procedures designed to provide reasonable assurance
regarding the achievement of objectives in the reliability of the Company's
financial reporting, the effectiveness and efficiency of the Company's
operations and the Company's compliance with applicable laws and regulations.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their last evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.





PART IV

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

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

(a)(3) Exhibits

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

Exhibit No. Exhibit


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

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

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

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

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

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

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





Exhibit No. Exhibit


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

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

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

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

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

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

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

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

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






Exhibit No. Exhibit

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

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

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

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

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

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

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

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

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

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

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






Exhibit No. Exhibit

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

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

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

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

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

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

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

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

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

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

21 Subsidiaries of the Company.

23.1 Consent of PricewaterhouseCoopers LLP

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

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

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

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

*Management contract, compensatory plan or agreement.





SIGNATURES

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

KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Registrant)



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

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


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


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


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


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







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

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

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

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

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

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

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

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

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

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

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

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

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

Date: April 11, 2003

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





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

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

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

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

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

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

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

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

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

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

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

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

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

Date: April 11, 2003

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





F-3


KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

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

Index of Consolidated Financial Statements and Financial Statement Schedule

Page
Financial Statements

Report of Independent Accountants F-2

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

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

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

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

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

Notes to Consolidated Financial Statements F-11

Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts S-1

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








REPORT OF INDEPENDENT ACCOUNTANTS

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


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

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




PricewaterhouseCoopers LLP

Dallas, Texas
April 9, 2003






KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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






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

Current assets:
Notes and accounts receivable, net of allowances

of $2,858 and $1,762 ......................... $ 29,411 $ 22,578
Inventories .................................... 40,912 50,089
Deferred income taxes .......................... 9,778 --
Prepaid expenses and other ..................... 3,211 893
-------- --------

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

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

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

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

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

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









KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

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


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



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

Current liabilities:
Notes payable and current maturities of

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

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

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

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

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

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

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

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

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




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






F-5

KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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





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

Revenues and other income:

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

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

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

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

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

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

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

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

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

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

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

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

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







KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

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



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

Basic earnings (loss) per share
available for common shares:
Income (loss) before cumulative effect

of change in accounting principle ... $ (2.10) $ (2.62) $ 1.36

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

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

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

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

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

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

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











KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

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





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


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

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

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









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

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






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



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

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

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

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

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

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

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

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

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

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

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









F-9

KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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




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

Cash flows from operating activities:

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

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

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

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

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

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










KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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




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

Cash and cash equivalents:
Net change from operations, investing

and financing activities ................. -- -- --

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

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


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

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



See Note 4.






KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of significant accounting policies

Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") is 50%
owned by Contran Corporation ("Contran") and other entities related to Mr.
Harold C. Simmons. Substantially all of Contran's outstanding voting stock is
held by trusts established for the benefit of certain children and grandchildren
of Mr. Simmons, of which Mr. Simmons is sole trustee. The Company may be deemed
to be controlled by Contran and Mr. Simmons. In October 2002, Contran purchased
54,956 shares of the 59,399 shares of the Company's Redeemable Series A
Preferred Stock. See Notes 4 and 5. After March 15, 2003, each share of Series A
Preferred Stock is convertible, at the option of the holder, into 250 shares of
the Company's common stock, (equivalent to a $4.00 per share exchange rate).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following table presents what the Company's consolidated net income
(loss), and related per share amounts, would have been in 2000, 2001 and 2002 if
Keystone would have elected to account for its stock-based employee compensation
related to stock options in accordance with the fair value-based recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all
awards granted subsequent to January 1, 1995.




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


Net income (loss) as reported ........ $ (21,066) $ (26,394) $ 38,420
Adjustments, net of applicable income
tax effects:
Stock-based employee compensation
expense under APBO No. 25 ......... -- -- --
Stock-based employee compensation
expense under SFAS No. 123 ........ (573) (498) (185)
---------- ---------- ----------

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

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

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



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

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

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

Note 2 - Joint ventures

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

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

Note 3 - Inventories



December 31,
2001 2002
---- ----
(In thousands)
Steel and wire products:

Raw materials ...................................... $ 9,818 $ 8,825
Work in process .................................... 9,912 14,920
Finished products .................................. 16,132 21,178
Supplies ........................................... 13,446 14,710
------- -------
49,308 59,633
Less LIFO reserve .................................. 10,768 13,352
------- -------
38,540 46,281

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

$40,912 $50,089


Note 4 - Notes payable and long-term debt



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

Revolving credit facilities:

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

$100,123 $63,306


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Garden Zone has a $4.0 million revolving credit facility (the "Garden Zone
Revolver") which matures May 15, 2003 and bears interest at the LIBOR rate plus
2.4%. During 2001 and 2002 the Garden Zone Revolver bore interest at the LIBOR
rate plus 2% (4.6% and 4.2% at December 31, 2001 and 2002, respectively). Garden
Zone's accounts receivable and inventories collateralize the Garden Zone
Revolver. At December 31, 2002, approximately $1.4 million was available for
additional borrowings under the Garden Zone Revolver. Keystone has guaranteed
51% of the outstanding borrowings under the Garden Zone revolver. The Company
currently intends to renew or replace the Garden Zone Revolver upon its maturity
in May 2003.

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

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

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

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


Note 5 -Series A preferred stock:

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

Note 6 - Income taxes

At December 31, 2002, the Company expects that its long-term profitability
should ultimately be sufficient to enable it to realize full benefit of its
future tax attributes in part due to the long-term nature of its net operating
loss carryforwards. However, considering all factors believed to be relevant,
including the Company's recent operating results, its expected future near-term
productivity rates; cost of raw materials, electricity, labor and employee
benefits, environmental remediation, and retiree medical coverage; interest
rates; product mix; sales volumes and selling prices; financial restructuring
efforts and the fact that accrued OPEB expenses will become deductible over an
extended period of time and require the Company to generate significant amounts
of future taxable income, the Company believes its gross deferred tax assets do
not currently meet the "more-likely-than-not" realizability test. As such,
during the fourth quarter of 2001, the Company provided a deferred tax asset
valuation allowance of approximately $14.5 million. The resulting net deferred
tax asset of approximately $21.6 million at December 31, 2001 approximated the
tax expense for financial reporting purposes which was recorded during the first
quarter of 2002 related to the cancellation of indebtedness income resulting
from the Exchange Offer. As a result of the deferred tax asset valuation
allowance, the Company did not recognize a tax benefit associated with its
pre-tax loss, exclusive of the gain recognized in connection with the Exchange
Offer, during 2002. In addition, during 2002, the Company increased the deferred
tax asset valuation allowance related to its net losses by approximately $5.5
million. Keystone will continue to review the recoverability of its deferred tax
assets, and based on such periodic reviews, Keystone could recognize a change in
the valuation allowance related to its deferred tax assets in the future.






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



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

Expected tax provision (benefit), at

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

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

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

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

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

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





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

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






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



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

Tax effect of temporary differences relating to:

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

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

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

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




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

Increase in valuation allowance:
Increase in certain deductible temporary
differences which the Company believes do
not meet the "more-likely-than-not"
recognition criteria:

Recognized in net income (loss) ............... $ -- $14,510 $ 5,536
Recognized in other comprehensive loss -
pension liabilities .......................... -- -- 66,420
------- ------- -------

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



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

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

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

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










Price per Amount payable
Options share upon exercise

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


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

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

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

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

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

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




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



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


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


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

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

Note 8 - Pensions and other post retirement benefits plans

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



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

Change in projected benefit obligations ("PBO"):

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

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

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

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

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

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

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

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



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



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


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







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



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


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

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

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


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

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

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

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

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

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

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

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



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

Increase (decrease):
Effect on total of service and interest
cost components for the year ended

December 31, 2002 ............................ $ 2,391 $ (1,979)

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


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

Note 9 - Other accrued liabilities



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

Current:

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

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

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


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

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

Note 10 - Related party transactions

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

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

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

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

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

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

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

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






Note 11 - Quarterly financial data (unaudited)



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

Year ended December 31, 2002:

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

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

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

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

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

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

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

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



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

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

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

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

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

See Notes 2, 6 and 8.

Note 12 - Operations

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

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




Business Segment Principal entities Location

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

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



(1) 51.0% subsidiary.

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

Keystone's operating segments are defined as components of consolidated
operations about which separate financial information is available that is
regularly evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing performance. The Company's chief operating
decision maker is Mr. David L. Cheek, President and Chief Executive Officer of
Keystone. Each operating segment is separately managed, and each operating
segment represents a strategic business unit offering different products.

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

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











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

Year ended December 31, 2002:


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

Year ended December 31, 2001:

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

Year ended December 31, 2000:

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












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


Operating loss ............................. $(15,415) $ (4,463) $ (5,616)
Equity in loss of unconsolidated affiliate . (281) -- --
General corporate items:
Interest income .......................... 599 253 66
General income (expenses), net ........... (1,993) (1,610) (3,575)
Gain on early extinguishment of debt ..... -- -- 54,739
Interest expense ........................... (15,346) (14,575) (5,569)
-------- -------- --------

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


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



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


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

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







Note 13 - Environmental matters

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

The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original closure
plan provides for the in-place treatment of seven hazardous waste surface
impoundments and two waste piles to be disposed of as special wastes. The
Company recorded an estimated liability for remediation of the impoundments and
waste piles based on a six-phase remediation plan. The Company adjusts the
recorded liability for each Phase as actual remediation costs become known.
During 1995, the Company began remediation of Phases II and III and completed
these Phases, as well as Phase IV during 1996. During 1998 and 1999 the Company
did not have any significant remediation efforts relative to Phases V and VI.
During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to
agreements with the IEPA and Illinois Attorney General's office, the Company is
depositing $75,000 per quarter into a trust fund. The Company must continue
these quarterly deposits and cannot withdraw funds from the trust fund until the
fund balance exceeds the sum of the estimated remaining remediation costs plus
$2 million. At December 31, 2001 and 2002 the trust fund had balances of $4.8
million and $5.1 million, respectively, which amounts are included in other
noncurrent assets because the Company does not expect to have access to any of
these funds until after 2003.

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

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

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

"Superfund" sites

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

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

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

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

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

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

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

In December 1991, DeSoto and approximately 600 other PRPs were named in a
complaint alleging DeSoto and the PRPs generated wastes that were disposed of at
a Pennsauken, New Jersey municipal landfill. The plaintiffs in the complaint
were ordered by the court to show in what manner the defendants were connected
to the site. The plaintiffs provided an alleged nexus indicating garbage and
construction materials from DeSoto's former Pennsauken facility were disposed of
at the site and such waste allegedly contained hazardous material to which
DeSoto objected. The claim was dismissed without prejudice in August 1993. In
1996, DeSoto received an amended complaint containing the same allegations. This
matter is in discovery stage at December 31, 2001. Sherman has denied any
liability with regard to this matter and expects to vigorously defend the
action.

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

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

Under the terms of a 1990 asset sale agreement, DeSoto established two
trust funds totaling $6 million to fund potential clean-up liabilities relating
to the assets sold. Sherman has access to the trust funds for any expenses or
liabilities it incurs relative to environmental claims relating to the sites
identified in the trust agreements. The trust funds are primarily invested in
United States Treasury securities and are classified as restricted investments
on the balance sheet. In October 2000, one of the trust's term expired and the
$3.6 million trust balance was returned to Sherman. As of December 31, 2001 and
2002, the balance in the trust fund was approximately $597,000 and $385,000
respectively.






Note 14 - Lease commitments

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

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



Lease commitment
(In thousands)


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


Note 15 - Other commitments and contingencies

Current litigation

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

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

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

Product supply agreement

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

Concentration of credit risk

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

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

Note 16 - Earnings per share:

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




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

Numerator:
Net income (loss) before cumulative
effect of change in accounting

principle ............................ $(21,066) $(26,394) $ 18,422

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

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

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

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


Note 17 - Accounting principles newly adopted in 2002:

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

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

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

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

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








Years ended December 31,
2000 2001 2002
---- ---- ----
(In thousands)
Income (loss) before cumulative effect
of change in accounting principle

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

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

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












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


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

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

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

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

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



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

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

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

Note 18 - Accounting principles not yet adopted

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

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





KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES

SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)




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

Year ended December 31, 2000:

Allowance for doubtful accounts and

Notes receivable $ 2,297 $ 200 $ 816 $1,681
======= ======= ====== ======

Year ended December 31, 2001:

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

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

Year ended December 31, 2002:

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

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









EXHIBIT 21

KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES


SUBSIDIARIES OF THE REGISTRANT






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


Sherman Wire of Caldwell, Inc. Nevada 100.0%

FV Steel and Wire Company (3) Wisconsin 100.0%

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

Engineered Wire Products, Inc. Ohio 100.0%

Garden Zone LLC Delaware 51.0%


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

(2) Formerly DeSoto, Inc.

(3) Formerly Fox Valley Steel and Wire Company.