<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                        PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark one)

|x|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 2001

                                       OR
|_|      TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from ________ to ________

                        Commission File Number: 333-58675

                               KEY COMPONENTS, LLC
 -------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                        04-3425424
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

200 White Plains Road, Tarrytown, New York                   10591
------------------------------------------    --------------------------------
 (Address of Principal Executive Offices)                  (Zip Code)

                                 (914) 332-8088
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

        Securities registered pursuant to Section 12(g) of the Act: None

                        Commission File Number: 333-58675

                          KEY COMPONENTS FINANCE CORP.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                      14-180594
-------------------------------           ------------------------------------
(State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
Incorporation or Organization)

200 White Plains Road, Tarrytown, New York                 10591
------------------------------------------     --------------------------------
 (Address of Principal Executive Offices)               (Zip Code)

                                 (914) 332-8088
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

        Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark whether 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 (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No

         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 other
amendment to this Form 10-K. |_|

         At February 22, 2002, the membership interests in Key Components, LLC
were owned by Key Components, Inc., a privately-held New York corporation. All
of the shares of common stock of Key Components Finance Corp. were owned by Key
Components, LLC.

Documents Incorporated by Reference: None

<PAGE>


                                     PART I

Key Components LLC ("KCLLC"), a Delaware limited liability corporation, is the
parent holding company for its wholly owned subsidiaries, including Key
Components Finance Corp. ("Finance Corp."). KCLLC, together with such
subsidiaries, including Finance Corp., are collectively referred to herein as
the "Company." Key Components, Inc. ("KCI"), a New York corporation, is the sole
member of KCLLC. KCI has no other assets other than its interest in KCLLC and
has no operations. Accordingly, any transactions of KCI or obligations related
to KCI are reflected in the consolidated financials statements of the Company
and are reflected in the disclosures in this Form 10-K.

Item 1. Business

KCLLC, a Delaware limited liability corporation organized on May 15, 1998,
maintains its principal office at 200 White Plains Road, Tarrytown, New York
10591 and its telephone number is (914) 332-8088.

The Company is a leading manufacturer of custom engineered essential componentry
for application in a diverse array of end-use products. The Company targets
original equipment manufacturer ("OEM") markets where the Company believes its
value-added engineering and manufacturing capabilities, along with its timely
delivery, reliability and customer service, enable it to differentiate the
Company from its competitors and enhance profitability. The Company conducts its
operations through its two businesses, its electrical components ("EC") business
and its mechanical engineered components ("MEC") business. The EC business
product offerings include power conversion products, specialty electrical wiring
devices and connectors and high-voltage utility switches which are manufactured
by its subsidiaries Acme Electric Corporation ("Acme"), Marine Industries, LLC
("Marinco"), Atlantic Guest, Inc. ("Guest") and Turner Electric, LLC ("Turner").
MEC's product offerings consist primarily of flexible shaft and remote valve
control components, turbo-charger components and medium security lock products
and accessories, which are manufactured by its subsidiaries Hudson Lock, LLC
("Hudson"), ESP Lock Products, LLC ("ESP"), B.W. Elliott Manufacturing Co., LLC
("BWE") and Gits Manufacturing, LLC ("Gits"). No one customer accounted for more
than ten percent of sales of the Company for any of the three years ended
December 31, 2001. For the years ended December 31, 2001 and 2000, four
customers, who are subsidiaries of one company accounted for approximately 13%
and 12%, respectively, of the MEC business.

Acquisition History

The 1992 acquisition of BWE began the acquisition program of the Company to
acquire small to medium size manufacturers of essential niche components for use
in various OEM customer products. In 1993, the Company acquired the flexible
shaft division of Stow Manufacturing Company, Inc., as a consolidation
opportunity for BWE. During 1997 and 1998, the Company added to the MEC's
product offerings with the acquisitions of Hudson and ESP. During 1999, the
Company complemented its MEC product offerings and formed its EC business
through its acquisition of Valley Forge Corporation ("VFC"). The Company
expanded its EC business with the acquisition of Acme for approximately $47.3
million in November 2000 (see Note 2 to the consolidated financial statements
contained elsewhere in this Form 10-K).

The Company has historically acquired complementary or related manufacturing
businesses and sought to integrate them into existing operations. Following an
acquisition, management seeks to rationalize operations, reduce overhead costs,
develop additional cross-selling opportunities and establish new customer
relationships. As a result of its integration efforts and internal growth, the
Company's consolidated net sales have increased from approximately $9.1 million
in fiscal year 1992 to approximately $193.8 million for fiscal year 2001.

The Company continues to seek to make selective acquisitions of light industrial
manufacturing companies, but there are no agreements regarding any such
acquisitions existing as of the date hereof.



                                       1
<PAGE>

Electrical Components

The Company's EC business features three major product lines: (i) power
conversion products, (ii) specialty electrical components ("SPEC") and (iii)
electric utility components.

Power Conversion Products

The Company's acquisition of Acme enabled the Company's EC business to enter
into the production of power conversion products. Acme's primary products are
transformers that range in size from 1/4 KVA (1,000 volts x Amps) to 1,000 KVA.
A transformer is an electrical device designed to convert alternating current
from one voltage to another. A transformer has no moving parts and is a
completely static solid-state device, which insures a long and maintenance-free
life under normal operating conditions. It consists, in its simplest form, of
two or more wires or foils wound on a laminated steel core. The Company has
1,400 active transformer models, which are sold through two primary sales
channels, its wholesale distribution network and by direct sales to OEM's. Sales
through the wholesale distribution markets are generally of smaller sized
transformer models. Due to the small size of the average order through the
wholesale distribution network, the margins achieved are generally higher than
those achieved selling to OEM's. In the OEM sales channel, customers are offered
custom built products, which generally achieve lower margins as products are
price-reduced in anticipation of a higher volume of orders. The Company believes
the OEM sales channel will drive the transformer product line's revenue growth.
Transformer designs rarely change and most transformers have a long useful life.

Acme operates in a segment of the transformer market estimated by National
Electrical Manufacturers Association to be approximately $300 million for the
year 2001. This segment is defined as being comprised of dry type transformers
which are less than 600 volts and range from 1/4 to 1,000 KVA. The competition
in this segment is divided into two tiers: the large switch gear manufacturers
who sell transformers as part of a package of products, such as General
Electric, Electrical Distribution Products, a division of Schneider Electric
("Square D"), Hammond Manufacturing Inc., Eaton Corporation and Siemens, and
transformer specialists, such as Acme, Sola/Heavy-Duty, Jefferson Electric, Inc.
and Federal Pacific. Acme supplies products which comprise approximately 15% of
the total market, which is approximately one half that of General Electric and
Square D's market share but twice that of any other competitor.

In June 2001, the Company determined to retain the aerospace division of Acme as
part of the power conversion product line (see Note 2 to the consolidated
financial statements elsewhere in this Form 10-K). This expanded the power
conversion product line to include battery charger systems and the manufacturing
of fibrous nickel cadmium batteries for use in such battery systems, power
control systems, power supplies and converters used primarily in aerospace
applications. Major customers of this product line include governmental defense
manufacturers and OEM aerospace manufacturers. The aerospace aftermarket is an
increasing share of the product line's revenues as the quantity of batteries and
systems sold by the Company that were designed into OEM applications has grown
over the last five years.


                                       2
<PAGE>

Specialty Electrical

Within the SPEC market, the Company's core market niches are the recreational
and industrial markets, where the Company sells to both OEM customers and
after-market retail customers under brand names such as Marinco, Guest, AFI,
Nicro, Park Power, and various private labels. In the recreational marine
market, where the Company sells the entire range of its product offerings, the
Company specifically targets the blue water/leisure boating and inland
fishing/bass boat market segments and has a strong market presence. Customers
include OEMs and major after-market distributors. The Company's wiring devices
and components are designed to withstand hostile weather and corrosive
environments, while remaining easy to install in less than ideal conditions.
SPEC products include; (i) weather and corrosion resistant wiring devices, such
as ship-to-shore electrical connectors for marine and vehicle-to-outlet
connectors for recreational vehicle applications; (ii) onboard "potted" (i.e.,
completely insulated) battery chargers for outdoor applications including bass
boat and other marine applications; and (iii) various accessory products such as
plugs, receptacles, electrical switches, solar ventilation products, and boat
accessories such as horns, windshield wiper systems, lighting products, and teak
accessories. The SPEC product line enjoys a dominant market position in its core
market where the Company's brands are highly regarded by both OEM and
aftermarket customers. The Company's SPEC product line also has products
targeted for industrial applications. The SPEC's market share from sales of
these products has grown dramatically since these products were targeted to the
industrial marketplace approximately six years ago. The primary product
offerings include; (i) onboard "potted" battery chargers for industrial and
healthcare applications such as fork and "scissor" lifts, personal mobility
carts, and electric wheelchairs; and (ii) specialty wiring devices designed for
industrial applications where protection from water, chemicals, dust, or other
elements is required. Growth in this market has resulted from the development of
customized products for applications such as outdoor power generators, movie and
theatrical production, and semiconductor equipment manufacturing.

Electric Utility Components

The Company dominates the design and manufacture of high-voltage switchgear for
electric utilities in the power transmission segment of the electric utility
industry. While the Company competes in the distribution and substation segments
of the electric utility marketplace as well, it is in the transmission segment
that enabled the Company to secure its position over time through superior
quality and service, while creating high barriers to entry through
specialization, reputation, and investments in machinery and equipment.
Significant customers include large utilities. The EC business switchgear
products consist primarily of air break switches, load break interrupters, and
accessory equipment. Air break switches are used for sectionalizing and routing
power from one point to another. Load break interrupters allow the
sectionalizing and routing of power under full load conditions. Accessory
equipment enables the utility operator to program parameters and related
functions that will automatically sectionalize and switch power flow in the
event of a fault. Once switched, the faulted line can be repaired, re-energized,
and returned to service with minimal downtime or loss of service revenue.
Consistent with the Company's systems approach, electric utility components and
accessories are sold together in all-in-one packages.

Mechanical Engineered Components

The MEC business features three major product lines: (i) flexible shafts for the
transmission of rotary power, (ii) turbocharger components, including wastegate
actuators, and (iii) medium-security locks and locking systems.

Flexible Shafts

The Company is the leading domestic designer and manufacturer of flexible shaft
products and assemblies. Flexible shafting is constructed utilizing unique wire
winding technology. Flexible shaft assemblies are custom designed for the
transmission of rotary power at low torque levels (less than ten horsepower),
and can be incorporated into almost any machine, product, or device replacing
conventional power transmission components such as rigid shafts, gearboxes,
universal joints, and couplings. Flexible shafts are integrally designed into
the OEM's final product to offer benefits, such as lighter weight, fewer
component parts, less assembly time, and greater freedom in design, resulting in
a lower manufacturing cost for the OEM's final product. The flexible shaft
assemblies are critical components utilized in weed trimmers, concrete
vibrators, lawn tractors, aircraft engines and wings, plant processing
equipment, large vessels such as Navy ships, nuclear power plants, and many
other applications in a variety of industries. The potential applications for
flexible shafting are limited only by the Company's ability to develop new
solutions to integrate flexible shafts into new OEM designs or to displace
conventional power transmission products in existing applications.

Turbocharger components and actuation

The Company is a primary outsource supplier of actuation devices and related
componentry to the domestic market for turbocharged diesel engines. Wastegate
actuators are an essential component of a diesel engine turbocharger system,
which through the use of flow valve controls increases engine power, efficiency,
and economy while reducing emissions. As the primary supplier of wastegate
actuators to nearly every major OEM turbocharger manufacturer, the Company's
products can be found on a variety of truck, pick-up, and heavy-duty
diesel-operated platforms. End-use customers for the Company's products include
high-end truck and vehicle manufacturers such as Ford. The Company holds
multiple patents and is very active in the development of new products to expand
the Company's product line, including related emission control products.

                                       3
<PAGE>

Medium-Security Locks and Locking Systems

The Company competes in the medium-security segment for cylindrical lock
applications. Medium-security locks are used in applications that involve
non-life-threatening situations or when articles of low to moderate financial
value are being secured. The Company produces highly engineered, custom, and
specialty medium-security locks and locking systems to meet OEM customers'
specifications for use in office furniture, point of sale terminals, bank bags,
post office boxes, storage lockers, and other applications. The Company's lock
products are typically small and low-cost but are precision-engineered and
custom-designed critical components of a larger, more expensive end product. The
Company also produces locking systems, which provide a safety feature used to
prevent multiple drawers from being opened simultaneously in filing cabinets and
desks. The Company is a sole or primary source for locks to leading furniture
OEMs.

Sales and Marketing

The Company employs both salaried and commission-based sales personnel, as well
as independent sales representatives and distributors to facilitate the
marketing and sales of its products. The Company's sales and marketing teams
have adopted an integrated approach to product development, marketing and sales.
They seek to work closely with the Company's engineers to address customer
specific design requirements and the hurdles associated therewith, as well as
potential product profitability. In addition, the sales team is responsible for
keeping the Company's engineering, manufacturing and management personnel
advised of possible future trends and requirements of customers. The Company's
sales and marketing personnel also focus on bringing customers a level of
personal service the Company believes to be superior to its competitors.

Raw Materials and Suppliers

The primary raw materials used by the Company are copper, brass, zinc, stainless
steel, steel wire and rubber, all of which are commodity items, readily
available from a wide range of sources. The Company has enjoyed and continues to
enjoy good relations with its suppliers and has not suffered any significant
interruptions in the delivery of its required materials. Additionally, the
Company is not dependent on any single supplier. In the event a supply
arrangement is terminated, the Company would be forced to look elsewhere for its
raw materials. Management believes these can be obtained with minimal, if any,
business interruption. However, the prices for such materials can fluctuate, and
such fluctuations can be material. A significant increase in raw material prices
could adversely affect the results of operations of the Company.

Competition

While the Company faces competition in each of its business segments, management
believes that its products are able to achieve a significant share of their
related market niches due to a variety of factors. The Company's strategy
attempts to differentiate its products from its competitors by providing high
product quality, customer service, superior design capabilities and proprietary,
vertically integrated manufacturing processes. The Company's strategy of
providing custom engineered solutions and a high level of service to its
customer base has protected and strengthened its market share in the markets
that it serves. Although it is possible other competitors may seek to serve
these markets, the Company believes significant barriers to entry exist,
including the unwillingness of OEMs to expand their vendor relationships for the
same products purchased, the availability of customized processes which the
Company possesses and enables the Company to service its customers needs on an
efficient basis and the capital investment required to purchase the equipment
needed to manufacture products of similar quality.

Environmental and Safety Regulations

The Company's operations are subject to federal, state and local environmental
laws and regulations, which impose limitations on the discharge of pollutants
into the air and water and establish standards for treatment, storage and
disposal of solid and hazardous wastes. The Company believes that it is in
substantial compliance with applicable environmental laws and regulations. The
Company also maintains environmental insurance at certain of its locations.

                                       4
<PAGE>

Employees

As of December 31, 2001, the Company employed 1,558 persons on a full-time
basis. Of these employees, 769 were employed in the EC business, 652 were
employed in the MEC business, the Company's corporate office had 8 employees and
the division of Acme that was held for sale employed 129 persons as of December
31, 2001. Two of the Company's subsidiaries have collective bargaining
agreements, one of which covered 70 employees and the other which covered 71
employees. Neither the Company nor any of its subsidiaries has ever had a work
stoppage and each of KCLLC and its subsidiaries considers its relationship with
its employees to be satisfactory.


Item 2. Properties

At December 31, 2001 the Company's principal properties consisted of:

<TABLE>
<CAPTION>
                                 Manufacturing Use/ Corporate                            Square
           Facility                         office                    Location           Footage      Owned/Leased
------------------------------- ------------------------------- ---------------------- ------------ ------------------
<S>                             <C>                             <C>                    <C>          <C>
KCLLC                           Corporate office                Tarrytown, NY                3,000       Leased

Electrical Engineered
Components:
Acme (1)                        Power conversion                Lumberton, NC              128,000        Owned
Acme (1)                        Power conversion                Monterrey, Mexico           45,000       Leased
Acme (1)                        Power conversion                Tempe, AZ                   35,000       Leased
Marinco                         SPEC                            Napa, CA                    77,000       Leased
Guest                           SPEC                            Meriden, CT                 33,000        Owned
Turner                          Utility switchgear              Fairview Heights, IL        52,000        Owned
Turner                          Utility switchgear              Milstadt, IL                28,000       Leased

Mechanical Engineered
Components:
BWE                             Flexible shaft products         Binghamton, NY             250,000        Owned
Gits                            Turbocharger components         Creston, Iowa               60,400        Owned
Gits                            Turbocharger components         Chonburi, Thailand          17,200       Leased
Hudson                          Lock products                   Hudson, MA                 218,000        Owned
ESP                             Lock products                   Leominster, MA              55,000       Leased
</TABLE>

(1)  Does not include facilities for the business of Acme that was sold in
     February 2002 (See Note 2 of the consolidated financial statements
     elsewhere in this Form 10-K).

Item 3. Legal Proceedings

None.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the year ended
December 31, 2001.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

KCLLC's membership interests are not publicly traded (see Certain Relationships
and Related Transactions).

Item 6. Selected Financial Data

The following selected financial data has been derived from the consolidated
financial statements of the Company included elsewhere in this Form 10-K. The
financial data set forth includes the results of operations of its wholly owned
subsidiaries from their respective dates of acquisition. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operation" and the Company's consolidated
financial statements and notes thereto.

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                      ----------------------------------------------------------------------
                                          2001           2000          1999          1998          1997
                                          ----           ----          ----          ----          ----

<S>                                      <C>            <C>           <C>            <C>            <C>
Net Sales                                $193,817       $160,465      $144,400       $61,862        $27,318
Income from operations                     26,486         31,368        22,346        11,953          5,115
Income from continuing operations           4,731          3,899         4,843         4,619          1,250
Net income (loss) (a)(b)(c)                 4,731         (1,316)        4,815             3          1,250
Total assets                              225,719        245,671       181,256        93,144         79,757
Long term debt (including current
    maturities)(d)(e)                     165,837        182,711       149,149        81,278         66,856
</TABLE>


(a)      Effective May 31, 1997, BWE, Hudson and ESP each elected to be treated
         as a subchapter S corporation, which caused the shareholders of their
         then parent company, KCI, to be personally liable for the taxes due on
         the income of the Company. Through August 31, 1999, VFC was a C
         corporation and was responsible for paying taxes on its income.
         Effective August 31, 1999, VFC was merged into KCLLC and most of VFC's
         subsidiaries, as well as BWE, Hudson and ESP, were converted to limited
         liability company ("LLC") status. Corporations which elect subchapter S
         corporation or LLC status are no longer liable for the majority of
         taxes due on their income since the shareholders then become personally
         liable for most taxes on the income of the Company. Accordingly,
         subsequent to May 31, 1997 through December 31, 1998, the provision for
         income taxes includes only those taxes applicable to certain states.

         For the year ended December 31, 1999, the Company's provision for
         income taxes related primarily to VFC's consolidated taxable income (as
         a C corporation) and the taxable income of the subsidiaries not
         converted to LLC status. On May 22, 2000, KCI's S election terminated
         and KCI became responsible for taxes on the income of the Company (See
         Notes 1 and 9(a) to the consolidated financial statements).

(b)      Net (loss) income for the years ended December 31, 2000 and 1998
         reflects an extraordinary loss, net of tax, on early extinguishment of
         debt of approximately $1.2 million and $4.6 million, respectively.

(c)      Net (loss) income for the years ended December 31, 2000 and 1999
         reflects loss from discontinued operations, net of tax, of
         approximately $4.0 million and $28,000 respectively.

(d)      Does not include approximately $5.9 million related to accrued stock
         appreciation rights as of December 31, 1999.

(e)      Includes approximately $13.1 million of redeemable member's equity at
         December 31, 1999.



                                       6
<PAGE>


Item 7 Management's Discussion and Analysis of Financial Condition and Results
       of Operations

GENERAL

KCLLC is the parent holding company of the wholly owned subsidiaries of the
Company. KCI, the sole member of KCLLC, holds no other assets other than its
investment in KCLLC and has no operations. The Company has two operating
business segments, its electrical components ("EC") business and mechanical
engineered components business ("MEC"). Through its two businesses, the Company
is a leading manufacturer of custom-engineered essential componentry for
application in a diverse array of end-use products. The Company targets original
equipment manufacturer ("OEM") markets where the Company believes its
value-added engineering and manufacturing capabilities, along with its timely
delivery, reliability and customer service, enable it to differentiate the
Company from its competitors and enhance profitability. The Company's EC
business was formed through its acquisition of VFC in 1999. The Company expanded
the product offerings of its EC business with the power conversion product lines
it acquired through its acquisition of Acme in November 2000. (See Note 2 to the
consolidated financial statements contained elsewhere in this Form 10-K). The
Company's MEC business, which was comprised of its flexible shaft and lock
product lines prior to the VFC acquisition, was expanded with the addition of
the Company's turbocharger line, which it acquired in 1999 when the Company
completed its acquisition of VFC.

The Company has historically acquired complementary or related manufacturing
businesses and sought to integrate them into existing operations. Following an
acquisition, management seeks to rationalize operations, reduce overhead costs,
develop additional cross-selling opportunities and establish new customer
relationships. As a result of its integration efforts and internal growth, the
Company's consolidated net sales have increased from approximately $9.1 million
in fiscal year 1992 to approximately $193.8 million for fiscal year 2001.

The Company continues to seek to make selective acquisitions of light industrial
manufacturing companies, but there are no agreements regarding any such
acquisitions existing as of the date hereof.



                                       7
<PAGE>

Results of Operations

The following table sets forth, for the periods indicated, consolidated
statement of operations data for the Company expressed in dollar amounts (in
thousands) and as a percentage of net sales. The financial data set forth
includes the result of operations of its wholly owned subsidiaries from their
respective dates of acquisition (see Note 2 to the consolidated financial
statements elsewhere in this Form 10-K). The data set forth below should be read
in conjunction with the Company's consolidated financial statements and notes
thereto contained elsewhere in this Form 10-K.


Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
                                                          Fiscal Year Ended December 31,
                                ------------------------------------------------------------------------------------
                                             2001                       2000                       1999
                                ------------------------------------------------------------------------------------
                                                  % of                         % of                       % of
                                   Amount      Net Sales       Amount       Net Sales       Amount      Net Sales
--------------------------------------------------------------------------------------------------------------------

<S>                             <C>            <C>           <C>            <C>           <C>           <C>
Net Sales                        $193,817        100.0%      $160,465        100.0%       $144,400        100.0%

Cost of Goods Sold                122,975         63.4         93,847         58.5          85,079         58.9
                                ------------- ------------- ------------- -------------- ------------- -------------
Gross Profit                       70,842         36.6         66,618         41.5          59,321         41.1
Selling, general and
  administrative expenses          41,208         21.3         30,290         18.9          30,001         20.8
Amortization of goodwill            3,558          1.8          2,626          1.6           2,464          1.7
Cumulative adjustment for
  Aerospace                          (721)        (0.4)             -            -               -            -
Stock appreciation rights
  compensation and other
  nonrecurring expenses               311          0.2          2,334          1.5           4,510          3.1
                                ------------- ------------- ------------- -------------- ------------- -------------
Income from operations             26,486         13.7         31,368         19.5          22,346         15.5

Other income                          376          0.2            799          0.5             465          0.3
Recapitialization expenses              -            -         (7,937)        (4.9)              -            -
Interest expense                  (16,573)        (8.6)       (15,159)        (9.4)        (15,417)       (10.7)
                                ------------- ------------- ------------- -------------- ------------- -------------
Income before provision for        10,289          5.3          9,071          5.7           7,394          5.1
  taxes, discontinued
  operations and
  extraordinary item
Provision for income taxes          5,558          2.9          5,172          3.3           2,551          1.7
                                ------------- ------------- ------------- -------------- ------------- -------------
Income from continuing              4,731          2.4          3,899          2.4           4,843          3.4
  operations
Loss from discontinued
operations, net                         -            -         (3,988)        (2.5)            (28)        (0.1)
Extraordinary loss on early
  extinguishment of debt, net           -            -         (1,227)        (0.7)              -            -
                                ------------- ------------- ------------- -------------- ------------- -------------
Net income (loss)                  $4,731          2.4%       $(1,316)        (0.8)%        $4,815          3.3%
                                ============= ============= ============= ============== ============= =============

</TABLE>



                                       8
<PAGE>


A summary of the Company's segments is as follows:

<TABLE>
<CAPTION>
Electrical Components Business                                       Fiscal Year Ended December 31,
                                            ---------------------------------------------------------------------------------
                                                        2001                      2000                       1999
                                            --------------------------- -------------------------- --------------------------
                                                               % of                     % of                         % of
                                              Amount        Net Sales     Amount     Net Sales          Amount      Net Sales
                                            ----------- --------------- ------------ ------------- -------------- -----------
<S>                                           <C>             <C>         <C>            <C>           <C>          <C>
Net Sales                                     $120,401         100.0%      $71,656       100.0%        $62,543      100.0%
Cost of Sales                                   77,653          64.5        40,935        57.1          35,495       56.8
                                            ----------- --------------- ------------ ------------- -------------- -----------
Gross Margin                                    42,748          35.5        30,721        42.9          27,048       43.2
Selling, general and administrative
expenses                                        26,126          21.7        16,917        23.6          16,593       26.5
Amortization of goodwill                         1,824           1.5           895         1.2             777        1.2
Cumulative adjustment for Aerospace               (721)         (0.6)            -           -               -          -
Stock appreciation rights compensation
  and other nonrecurring expenses                    -             -             -           -           3,945        6.3
                                            ----------- --------------- ------------ ------------- -------------- -----------
Income from operations                         $15,519          12.9%      $12,909        18.0%         $5,733        9.2%
                                            =========== =============== ============ ============= ============== ===========
</TABLE>


<TABLE>
<CAPTION>
Mechanical Engineered Components                                     Fiscal Year Ended December 31,
                                            ---------------------------------------------------------------------------------
                                                        2001                       2000                       1999
                                            --------------------------- --------------------------- -------------------------
                                                             % of                        % of                        % of
                                              Amount      Net Sales       Amount       Net Sales       Amount      Net Sales
                                            ----------- --------------- ------------ -------------- ------------- -----------
<S>                                           <C>               <C>         <C>            <C>           <C>          <C>
Net Sales                                      $73,416          100.0%      $88,809         100.0%       $81,857      100.0%
Cost of Sales                                   45,322           61.7        52,912          59.6         49,584       60.6
                                            ----------- --------------- ------------ -------------- ------------- -----------
Gross Margin                                    28,094           38.3        35,897          40.4         32,273       39.4
Selling, general and administrative
expenses                                         8,961           12.2        10,074          11.3         10,635       13.0
Amortization of goodwill                         1,734            2.4         1,731           1.9          1,620        2.0

Non-recurring expenses                             311            0.4             6             -            266        0.3
                                            ----------- --------------- ------------ -------------- ------------- -----------
Income from operations                         $17,088           23.3%      $24,086          27.1%       $19,752       24.1%
                                            =========== =============== ============ ============== ============= ===========
</TABLE>


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

Net Sales: Net sales for the year ended December 31, 2001 ("Fiscal 2001")
increased by approximately $33.4 million, or 20.8% over net sales for the year
ended December 31, 2000 ("Fiscal 2000"). This increase was the result of the sum
of the $48.7 million, or 68.0%, increase in the net sales of the EC business
less the $15.4 million, or 17.3%, decrease in net sales of the MEC business.

The growth within the EC business was primarily due to the full year inclusion
of the results of operations of the transformer power conversion product line
for Fiscal 2001 as compared to the one-month inclusion of sales for December of
2000 in the results for Fiscal 2000. The transformer power conversion product
line contributed approximately $50.4 million in net sales for Fiscal 2001,
representing an increase of $45.1 million over Fiscal 2000. This product line
was acquired in November 2000 when the Company completed the acquisition of Acme
Electric Corporation ("Acme"). In addition, in June 2001, the Company decided to
retain rather than sell the aerospace product line ("Aerospace") of Acme.
Aerospace was merged into the power conversion product line of the Company. The
Company recorded a $721,000 cumulative adjustment (see Note 2 to the
consolidated financial statements elsewhere in this Form 10-K) representing the
net result of Aerospace's operations from date of acquisition to June 1, 2001.
Subsequent to June 1, 2001 the results of Aerospace's operations have been
included in the respective categories of operations. Included in net sales for
Fiscal 2001 is approximately $8.8 million of net sales from Aerospace for the
period June 1, 2001 to December 31, 2001.

                                       9
<PAGE>

Net sales in the MEC business decreased approximately $15.4 million to
approximately $73.4 million for Fiscal 2001. This decrease is primarily related
to the decline in sales of the Company's lock and turbocharger product lines,
which resulted from a downturn in the domestic economy and a reduction in
customer demand.

Gross Profit: Gross profit increased $4.2 million, or 6.3%, in Fiscal 2001 as a
result of an increase of approximately $12.0 million, or 39.1%, in the gross
profit of the EC business less the decline in gross profit of the MEC business
for Fiscal 2001 of approximately $7.8 million, or 21.7%.

The increase in the gross profit of the EC business is primarily related to the
inclusion of the results of operations of the transformer power conversion
product line for the full year in Fiscal 2001, as compared to Fiscal 2000, in
which only the results of operations of this product line for the month of
December 2000 were included due to the acquisition of this product line with
Acme at the end of November 2000. The transformer power conversion product line
contributed approximately $14.3 million in gross profit for Fiscal 2001,
representing an increase of approximately $12.7 million over Fiscal 2000. In
addition, the gross profit of the EC business for Fiscal 2001 increased
approximately $2.9 million as a result of the operations of Aerospace, which was
merged into the power conversion product line in June 2001 (see Note 2 to the
consolidated financial statements elsewhere in this Form 10-K). These increases
were slightly offset by a decline in gross profit of the specialty electrical
components product line, which was primarily driven by a decline in sales due to
the downturn in the domestic economy.

The approximately $7.8 million decline in gross profit of the MEC business for
Fiscal 2001 is primarily due to the decline in sales of the lock and
turbocharger product lines of MEC business for Fiscal 2001 that resulted from a
downturn in the domestic economy and a reduction in customer demand.

The gross profit, as a percentage of net sales ("GP percentage"), for the EC
business declined approximately 7.4% for Fiscal 2001. For the MEC business the
GP percentage declined approximately 2.1% during Fiscal 2001.

The decline in the GP percentage of the EC business was primarily the result of
the inclusion of the results of the transformer power conversion product line
for the full year in Fiscal 2001 as compared to Fiscal 2000, in which only the
results of December 2000 were included. The gross margin profile of the
transformer product line is lower than the margins experienced in the remainder
of the product lines of the EC business. The decrease in GP percentage of the
MEC business is primarily related to a change in product mix and margin
compression due to lower sales levels.

Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses increased approximately $10.9 million, or
36.0%, in Fiscal 2001. As a percentage of net sales, SG&A increased 2.4% from
Fiscal 2000. SG&A of the EC business increased approximately $9.2 million, or
54.4%, for Fiscal 2001 and, as a percentage of net sales, declined 1.9% during
Fiscal 2001. SG&A of the MEC business, which declined approximately $1.1 million
during Fiscal 2001, increased as a percentage of net sales by approximately
0.9%.

The increase in SG&A expenses for Fiscal 2001 is primarily related to the
acquisition of Acme, which resulted in the Company integrating the transformer
and aerospace product lines of Acme into the EC business. The results of the
transformer power conversion product line were included for the full year in
Fiscal 2001 as compared to Fiscal 2000 where the results of this product line
were only included for the month of December 2000. SG&A of the transformer power
conversion product line for Fiscal 2001 was approximately $9.4 million,
representing an increase of approximately $8.4 million over SG&A of the Company
and the EC business for Fiscal 2001. Aerospace, which was merged into the power
conversion product line in June 2001 (see Note 2 to the consolidated financial
statements elsewhere in this Form 10-K), added approximately $1.6 million to
SG&A for Fiscal 2001. In addition, the corporate office of Acme, which was
closed in October 2001, added approximately $2.3 million of SG&A expenses for
Fiscal 2001, including approximately $425,000 of depreciation. This is an
increase over Fiscal 2000 of approximately $2.0 million. Upon the close of the
Acme corporate office, all remaining related expenses of that office terminated.

The decline in SG&A of the EC business as a percentage of net sales and in SG&A
of the MEC business was primarily related to the Company's cost reduction
initiatives in response to the slowing economy. The increase in SG&A as a
percentage of net sales of the MEC business primarily resulted from the impact
of the sharper decline in the net sales of the MEC business as compared to the
cost reductions made by the Company in SG&A. The Company's MEC business has a
lower overhead structure than its EC business due to lower sales and marketing
expenses of the MEC's business, which limits the ability of the Company to
reduce the expenses of the MEC business beyond a certain level.

                                       10
<PAGE>

On a pro forma comparative basis, assuming that the effects of the Acme
acquisition were reflected in Fiscal 2000 results, exclusive of the impact of
the additional corporate office expenses of Acme, all the product lines, except
for the Company's utility product line, which has experienced sales growth over
Fiscal 2000, have experienced a reduction in operating expense levels for Fiscal
2001, primarily driven by the Company's cost reduction initiatives.

Amortization of Goodwill: Goodwill amortization increased by approximately
$932,000 during Fiscal 2001, primarily related to the full year inclusion of
amortization of goodwill acquired in the Acme acquisition.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years
beginning after December 15, 2001.

The provisions of SFAS 141 provide specific criteria for the initial recognition
and measurement of intangible assets apart from goodwill. SFAS 141 also requires
that upon adoption of SFAS 142 the Company reclassify the carrying amount of
certain intangible assets into or out of goodwill.

The provisions of SFAS 142 (i) prohibit the amortization of goodwill and
indefinite-lived intangible assets, (ii) require that goodwill and
indefinite-lived intangible assets be tested annually for impairment (and in
interim periods if certain events occur which would impact the carrying value of
such assets), and (iii) require that the Company's operations be formally
identified into reporting units for the purpose of assessing potential future
impairments of goodwill.

In the first quarter of 2002, the Company will apply the new rules on accounting
for goodwill and other intangible assets and will make determinations as to what
amounts of goodwill, intangible assets and long term debt should be allocated to
its reporting units. In addition, the Company will perform the first of the
required impairment tests of goodwill. The Company has not yet determined what
the effect, if any, that these tests will have on the earnings and financial
position of the Company.

Cumulative Adjustment for Aerospace: Based on the strength of the operating
performance of Aerospace, which management believes is sustainable, on June 1,
2001, the Company decided to retain Aerospace, which had been previously
classified as held for sale. On that date and in accordance with Emerging Issue
Task Force ("EITF") 90-6, "Accounting for Certain Events Not Addressed in Issue
No. 87-11 Relating to an Acquired Operating Unit to be Sold," the Company
reallocated the purchase price paid for Acme as if Aerospace had never been held
for sale and recorded a cumulative adjustment for the results of operations of
Aerospace from the date of acquisition through May 31, 2001 of $721,000. This
amount previously had been excluded from the results of operations of the
Company and had been included in goodwill.

Stock appreciation rights compensation and other nonrecurring expenses: For the
year ended December 31, 2001, the Company's nonrecurring charges primarily
related to administrative expenses incurred in connection with the establishment
of a production facility in Mexico for the Company's lock products. At December
31, 2001, the Company had not begun production at its new Mexico facility. For
December 31, 2000 the nonrecurring charges primarily related to approximately
$1.6 million recorded in connection with outstanding stock appreciation rights
("SARs"). The SARs were issued in conjunction with the VFC acquisition in lieu
of cash consideration for the purchase of equity held by operating management of
former VFC subsidiaries who continued with the Company. The Company was required
to report any change in the valuation of the SARs as a charge against earnings.
In connection with the Recapitalization (see Liquidity and Capital Resources),
all of the SARs were exercised and the holders of the SARs purchased KCI Common
Stock with a substantial portion of the after-tax proceeds of such exercise.

Income from Operations: The decline in income from operations of approximately
$4.9 million, or 15.6%, resulted from the increase in gross profit of
approximately $4.2 million offset by the increase in SG&A expenses of
approximately $10.9 million and the increase in goodwill amortization of
approximately $932,000. The increase in operating expenses were reduced by the
$721,000 cumulative income adjustment for Aerospace and the decrease in stock
appreciation compensation and other non-recurring expenses of approximately $2.0
million due to the factors discussed above.

                                       11
<PAGE>

Recapitalization expenses: In connection with the Recapitalization (see
Liquidity and Capital Resources) completed during Fiscal 2000, the Company
incurred approximately $7.9 million of transaction fees.

Interest Expense: Interest expense increased by approximately $1.4 million, or
9.3%, during Fiscal 2001. This increase is primarily due to higher levels of
outstanding borrowings during Fiscal 2001 as compared to Fiscal 2000, primarily
due to the additional borrowings used to finance the acquisition of Acme in
November 2000 (see Liquidity and Capital Resources below). The impact of the
higher debt levels, however, was partially offset by the reduced rates of
interest charged on the outstanding principal on the variable rate term loan and
revolving credit facility due to declining interest rates of Fiscal 2001.

Provision for Income Taxes: The provision for income taxes increased
approximately $386,000, or 7.5%, from approximately $5.2 million in Fiscal 2000.
The Company's effective tax rate for Fiscal 2001 was approximately 54.0% on
income before taxes, which resulted primarily from the Company's additional
foreign tax liabilities as well as non-deductible expenses relating primarily to
goodwill amortization and non-deductible professional fees in connection with
the Acme acquisition. The effective rate for Fiscal 2000 was 57.0% which
resulted primarily due to the change in tax status of the Company during 2000 to
a C corporation as well as non-deductibility of expenses relating primarily to
the Reorganization expenses and goodwill amortization.

Income from Continuing Operations: Income from continuing operations increased
by approximately $832,000, or 21.3%, during Fiscal 2001. The increase resulted
from the decrease in income from operations of approximately $4.9 million, a
decrease in other income of approximately $423,000, an increase in interest
expense of approximately $1.4 million and a decrease in the Recapitalization
expenses of approximately $7.9 million, due to the factors discussed above.

Loss from Discontinued Operations, net: In Fiscal 2000, the Company incurred a
loss from discontinued operations of approximately $4.0 million. In April 2000,
the Company consummated the sale of Heart Interface Corporation ("Heart") and
Cruising Equipment Company ("Cruising"). The Company received approximately $9.0
million in proceeds before any transaction related expenses. Of the $9.0 million
of proceeds, $600,000 was placed in escrow in accordance with the agreement. The
Company recorded a loss on disposal of Heart and Cruising of approximately $3.3
million. To the extent that cash is released from the escrow, which is to
terminate in April 2002, such funds will be recorded as a gain at that time. In
July 2001, the Company received notice of a claim against the escrow. The
Company has responded to the claim and is awaiting further response from the new
owners of Heart and Cruising. The Company believes that the escrow will cover
any potential settlement of the claim.

On December 29, 2000, the Company sold its interests in Mastervolt B.V. and
subsidiaries ("Mastervolt"), which had been acquired as part of VFC (see Note 2
to the consolidated financial statements elsewhere in this Form 10-K). The
Company received approximately $2.3 million in proceeds and recorded a loss on
disposal of approximately $525,000.

Extraordinary loss on early extinguishment of debt, net: In November 2000, the
Company closed on its new credit facility (see Liquidity and Capital Resources).
As a result, in Fiscal 2000, the Company wrote off the unamortized balance of
the deferred financing costs relating to the prior credit facility of
approximately $2.1 million. The expense is reflected, net of a tax benefit of
approximately $828,000, as an extraordinary item.

Net Income (Loss): Net income increased by approximately $6.0 million for Fiscal
2001. The increase in net income is the result of the sum of an increase in
income from continuing operations of approximately $832,000 and a decrease in
loss from discontinued operations of approximately $4.0 million and the
extraordinary charge of approximately $1.2 million, due to the factors discussed
above.

Year ended December 31, 2000 compared to the year ended December 31, 1999

Net Sales: Net sales increased by approximately $16.1 million, or 11.1%, for
Fiscal 2000 as compared to the year ended December 31, 1999 ("Fiscal 1999"),
resulting from the increase in net sales of the EC business of approximately
$9.1 million, or 14.6%, and an increase in net sales of the MEC business of
approximately $7.0 million, or 8.5%.

The growth in sales of the EC business, which the Company entered into as a
result of the VFC acquisition, was fueled by growth in the core markets of the
business as well as continued new product development, which enabled the Company
to expand its market share in the industrial markets that it serves. In
addition, the results of the EC business include the results of the transformer
power conversion product line for the month of December 2000, due to the
acquisition of Acme as well as the inclusion of the results of operations of the
remaining product lines of the EC business for the full year in 2000, whereas
Fiscal 1999 only reflects the results of operations from January 19, 1999, as a
result of the VFC acquisition.

                                       12
<PAGE>

The increase in net sales in the MEC business is related to growth in the
business' core markets.

Gross Profit: Gross profit increased approximately $7.3 million, representing a
12.3% increase for Fiscal 2000 as compared to Fiscal 1999, as a result of the
approximately $3.7 million, or 13.5%, increase in the gross profit of the EC
business and the approximately $3.6 million, or 11.2%, increase in gross profit
of the MEC business for Fiscal 2000.

The increase in the gross profit of the EC business is primarily related to the
inclusion of the results of operations of the EC business for the full year in
2000 versus 1999, which only reflects the results from January 19, 1999 as a
result of the VFC acquisition in January 1999.

The approximately $3.6 million increase in gross profit of the MEC business for
Fiscal 2000 is primarily due to growth in the business' core markets.

The GP percentage for the EC business declined approximately 0.3% for Fiscal
2000. For the MEC business the GP percentage increased approximately 1.0% during
Fiscal 2000. The changes in the GP percentages of the EC and MEC business for
Fiscal 2000 were primarily related to changes in product mix.

Selling, General and Administrative Expenses: SG&A expenses increased
approximately $289,000, or 1.0%, for Fiscal 2000 over Fiscal 1999. As a
percentage of net sales, SG&A declined 1.9%. SG&A of the EC business increased
approximately $324,000, or 2.0%, for Fiscal 2000 over Fiscal 1999 and as a
percentage of net sales, declined 2.9% during Fiscal 2000. SG&A of the MEC
business declined approximately $561,000 during Fiscal 2000, or as a percentage
of net sales, by approximately 1.7%.

The decline in SG&A for the EC and MEC businesses, as a percentage of net sales,
is primarily related to the business' ability to support top line growth on its
established infrastructure. In addition, the final rationalization of the VFC
acquisition resulted in lower corporate overhead and lower SG&A expenses for the
EC business as a result of the formulation of its specialty electrical
components product line through the integration of Marinco, Guest and certain
product lines of Glendinning Marine Products, Inc. ("Glendinning"). Glendinning
was sold in November 1999. The SG&A expenses, as a percentage of sales, of the
EC business are generally higher than those of the MEC business as a result of
the EC business maintaining higher levels of sales and marketing expenses due to
the businesses to which it targets its products.

Amortization of Goodwill: Goodwill amortization increased by approximately
$162,000 during Fiscal 2000, primarily related to the full year inclusion of
amortization of goodwill related to the VFC acquisition in that year. In
addition the Company recorded amortization expense in December 2000 related to
the goodwill acquired in connection with the acquisition of Acme.

Stock appreciation rights compensation and other nonrecurring expenses: For
Fiscal 2000 and 1999, the Company recorded charges of approximately $1.6 million
and $4.2 million, respectively, related to outstanding stock appreciation rights
("SARs"). The SARs were issued in conjunction with the VFC acquisition in lieu
of cash consideration for the purchase of equity held by operating management of
former VFC subsidiaries who continued with the Company. The Company was required
to report any change in the valuation of the SARs as a charge against earnings.
In connection with the Recapitalization (see Liquidity and Capital Resources),
all of the SARs were exercised and the holders of the SARs purchased KCI Common
Stock with a substantial portion of the after-tax proceeds of such exercise.

Income from Operations: Income from operations increased by approximately $9.0
million, or 40.4%, for Fiscal 2000. This increase results from the increase in
gross profit of approximately $7.3 million less the increase in SG&A expenses of
approximately $289,000 and the increase in goodwill amortization of
approximately $162,000 plus the decrease in stock appreciation rights
compensation and other non-recurring expenses of approximately $2.2 million due
to the factors discussed above.

Recapitalization expenses: In connection with the Recapitalization (see
Liquidity and Capital Resources), the Company incurred approximately $7.9
million of transaction fees.

Interest Expense: Interest expense decreased by approximately $258,000, or 1.7%,
during Fiscal 2000. This decrease is due to lower levels of outstanding
borrowings throughout most of 2000 versus Fiscal 1999, as a result of the
Company not having any borrowings outstanding under its revolving credit
facility during Fiscal 2000 as well as lower debt outstanding under the term
loan for most of Fiscal 2000. In September 2000, the Company entered into a new
credit agreement (see Liquidity and Capital Resources), which the Company closed
on, in November 2000, in order to finance a large portion of the acquisition of
Acme.

                                       13
<PAGE>

Provision for Income Taxes: The provision for income taxes increased by
approximately $2.6 million, or 102.7%, during Fiscal 2000. The Company's
effective tax rates for Fiscal 2000 and 1999 were approximately 57.0% and 34.5%,
respectively.

Through May 22, 2000, KCI, the majority member of KCLLC, was an S corporation
and shareholders of KCI were personally responsible for the income taxes on the
income of KCLLC that was allocated to KCI. Upon the consummation of the
Recapitalization (see Liquidity and Capital Resources), KCI automatically
converted to C corporation status. In addition, as part of the Recapitalization,
KCI acquired Keyhold, Inc. ("Keyhold"), which owned the minority interest in
KCLLC and was a C corporation for tax purposes. On December 31, 2000, Keyhold
merged into KCI. Beginning May 23, 2000, the Company's financial statements
reflect its tax provision as if it were a C corporation, the tax status of its
member. The tax provision for the year ended December 31, 2000 is primarily
related to the taxable income of the Company from May 23, 2000 through December
31, 2000. In addition, the Company's high effective tax rate for the year ended
December 31, 2000 is primarily a result of the loss allocated to the S
corporation period and the impact of the non-deductibility of amortization of
goodwill and certain intangible assets.

The tax provision for Fiscal 1999 is primarily related to the taxable income of
VFC and its former subsidiaries through August 31, 1999. Through August 31,
1999, VFC and its subsidiaries were C corporations for tax purposes.

Income from Continuing Operations: Income from continuing operations declined by
approximately $944,000, or 19.5%, for Fiscal 2000. The decrease is primarily the
result of the sum of increases in income from operations of approximately $9.0
million and other income of approximately $334,000 and a decrease in interest
expense of approximately $258,000 offset by an increase in the provision for
taxes of approximately $2.6 million and the Recapitalization expenses of
approximately $7.9 million, due to the factors discussed above.

Loss from Discontinued Operations, net: Loss from discontinued operations net
increased by approximately $4.0 million for Fiscal 2000. In April 2000, the
Company consummated the sale of Heart and Cruising, which were acquired as part
of VFC (see Note 2 to the consolidated financial statements elsewhere in this
Form 10-K). The Company received approximately $9.0 million in proceeds before
any transaction related expenses. Of the $9.0 million of proceeds, $600,000 was
placed in escrow in accordance with the agreement, which the Company has
recorded in its other assets. The Company recorded a loss on the disposal of
Heart and Cruising of approximately $3.3 million. To the extent that cash is
released from escrow, which terminates in April 2002, such funds will be
recorded as a gain at that time. In July 2001, the Company received notice of a
claim against the escrow. The Company has responded to the claim and is awaiting
further response from the new owners of Heart and Cruising. The Company believes
that the escrow will cover any potential settlement of the claim.

On December 29, 2000, the Company sold its interests in Mastervolt, which had
been acquired as part of VFC (see Note 2 to the consolidated financial
statements elsewhere in this Form 10-K). The Company received approximately $2.3
million in proceeds and recorded a loss on disposal of approximately $525,000
during Fiscal 2000.

Extraordinary loss on early extinguishment of debt, net: In November 2000, the
Company closed on its new credit facility (see Liquidity and Capital Resources).
As a result, the Company wrote off the unamortized balance of the deferred
financing costs relating to the prior credit facility of approximately $2.1
million. Such expense is reflected, net of a tax benefit of approximately
$828,000, as an extraordinary item.

Net (Loss) Income: Net loss increased by approximately $6.1 million, or 127.3%
for Fiscal 2000. The increase in loss is the result of the sum of a decrease in
income from continuing operations of approximately $944,000, which was primarily
driven by the Recapitalization expenses, an increase in loss from discontinued
operations of approximately $4.0 million and the extraordinary charge of
approximately $1.2 million, due to the factors discussed above.


Liquidity and Capital Resources

The Company has historically generated funds from its operations and its working
capital requirements generally have not materially fluctuated from quarter to
quarter. The Company's other main sources of liquidity have historically been
the Company's $80 million of unsecured 10.5% senior notes due 2008 and its
outstanding credit facilities. In November 2000, the Company closed on a new
credit facility, which replaced the Company's previous credit facility. The
Company used the proceeds from the new credit agreement to repay the previous
borrowing facility and finance the acquisition of Acme. The new credit facility
provides for a six-year $40 million revolving credit facility and a six-year
$100 million term loan facility. The new credit agreement, guaranteed by the
Company's subsidiaries and KCI, is collateralized by all of the capital stock of
the subsidiaries, receivables, inventories, equipment and certain intangible
property. There were no amounts outstanding under the revolving credit facility
at December 31, 2001. The term loan is payable in quarterly installments through
September 2006. Both the term loan and revolving credit facility bear interest
at fluctuating interest rates determined by reference to a base rate or the
London interbank offered rate ("LIBOR") plus an applicable margin which will
vary from 1.0% to 2.75% and require the payment of a commitment fee of 0.50% on
the unused portion of the facility as well as quarterly commitment fees.

                                       14
<PAGE>

The credit facility also allows for up to $5.0 million of outstanding letters of
credit. At December 31, 2001, the Company had one letter of credit outstanding
for approximately $443,000. The letter of credit primarily relates to a prior
year Acme self-insured liability related to outstanding workman's compensation
claims.

The new credit agreement contains certain covenants and restrictions which
require the maintenance of financial ratios and restrict or limit dividends and
other shareholder distributions, transactions with affiliates, capital
expenditures, rental obligations and the incurrence of indebtedness. At December
31, 2001, the Company was in compliance with the covenants of the credit
agreement.

The Company's remaining liquidity demands will be for capital expenditures,
general corporate purposes, and principal and interest payments on its
outstanding debt. The Company's senior notes require semiannual interest
payments on the outstanding principal. The term loan requires quarterly
principal payments. Principal payments required for the next 12 months will be
approximately $6.3 million. Under the revolving credit facility and term loan,
the Company has the option to lock in a specified interest rate by entering into
a contract, for different periods, which cannot exceed 180 days. As the
underlying contract comes up for renewal, the interest associated with the
contract becomes due. As of December 31, 2001, the Company had no outstanding
commitments for capital expenditures. The Company anticipates its capital
expenditures for the year ended December 2002 to be approximately $4.4 million.
The expenditures are primarily needed to maintain its facilities and expand its
production capacity for the Company's ongoing plan to expand operations in
Mexico and in order to take advantage of profitable market opportunities. To the
extent cash flow from operations is insufficient to cover the Company's capital
expenditures, debt service and other general requirements, the Company would
seek to utilize its borrowing availability under its existing revolving credit
facility.

In connection with the Company's desire to continue to grow through acquisition
and be a leading supplier of essential componentry, in May 2000, KCI and its
shareholders consummated a Recapitalization of KCI with affiliates of Kelso &
Company ("Kelso") pursuant to which, among other things:

o        KCI was recapitalized with Common Stock and Preferred Stock;

o        KCI shareholders exchanged approximately 862,000 shares of their Common
         Stock for Preferred Stock and KCI optionholders exercised options to
         purchase 20,533 shares of Common Stock, all of which were then
         exchanged for shares of Preferred Stock. All such Preferred Stock was
         immediately sold to Kelso for cash at approximately $117 per share;

o        SGC Partners II LLC ("SG"), which owned all of the stock of Keyhold,
         Inc. ("Keyhold"), which owned approximately 11.1% of the membership
         interests of KCLLC prior to the Recapitalization, exchanged all of its
         Keyhold stock for shares of Preferred Stock which were immediately sold
         to Kelso for cash at approximately $117 per share, terminating
         Keyhold's right to require KCLLC to repurchase Keyhold's outstanding
         investment in KCLLC at the then current market value thereof;

o        Holders of KCI SARs exercised their SARs and with a substantial portion
         of their after-tax proceeds from the exercise, purchased Common Stock;

                                       15
<PAGE>

o        Kelso purchased an aggregate of approximately 35,000 shares of
         Preferred Stock from KCI at approximately $117 per share.

At the closing of the Recapitalization, KCI, Kelso and certain shareholders of
KCI entered into a Shareholders Agreement and a Registration Rights Agreement
and KCI and Kelso entered into an Advisory Agreement.

Effective upon the consummation of the Recapitalization, Kelso owns all of the
Preferred Stock. The Preferred Stock is not entitled to vote for the election of
directors but is entitled to designate two members of KCI's seven member Board
of Directors. In addition, the Preferred Stock has certain approval rights and
is convertible into Common Stock at the holder's option (upon conversion the
Preferred Stock would constitute over 60% of the total outstanding common equity
of KCI on a fully diluted basis). The Preferred Stock has a liquidation
preference equal to its purchase price plus accrued dividends, bears a 1%
cumulative annual dividend payable in kind and is redeemable at the option of
the holder after June 2, 2009. All of the outstanding Common Stock and options
to purchase Common Stock of KCI continue to be held by parties that held such
securities prior to the Recapitalization and by the parties who purchased Common
Stock with the after-tax proceeds from the exercise of their SARs. The aggregate
purchase price of the Preferred Stock paid by Kelso was approximately $105.0
million of which approximately $4.1 million was paid to KCI. The Company paid
fees in connection with the Recapitalization of $7.9 million during Fiscal 2000.
All proceeds received by KCI from the Recapitalization were contributed to KCLLC
for additional membership interest.

KCI has no operations and is dependent on KCLLC for financial resources in the
form of capital distributions to meet its obligations. KCI obligations include
the $105.0 million of its preferred stock plus any dividends payable in arrears
(approximately $1.0 million in cumulative dividends in arrears, payable in kind,
at December 31, 2001), which are redeemable for cash at the option of the holder
after June 2, 2009, the requirement to purchase shares from its common
shareholders under certain circumstances and its tax obligations. Repurchases of
KCI Common Stock are made at fair market value as defined in KCI's shareholder
agreement. At December 31, 2001 approximately 1.3 million KCI common shares plus
potentially 182,000 shares covered by stock options were subject to repurchase
by KCI. The ability of KCLLC to make such capital distributions will be limited
by its available resources and is limited by restrictions of debt and other
agreements. KCLLC reflects in its tax provision the obligations of KCI.

Cash flows provided by operating activities were approximately $21.9 million,
$7.7 million, and $20.5 million for Fiscal 2001, 2000 and 1999, respectively.
The net increase of approximately $14.2 million for Fiscal 2001 resulted
primarily from the decrease in use of cash by the operating assets of the
business. During 2001 the Company, in response to the downturn in the economy,
initiated cost cutting programs and focused on the Company's working capital
accounts, specifically accounts receivable, inventory and accounts payable. In
addition, as business declined during Fiscal 2001 less cash was used in accounts
receivable and inventory. For Fiscal 2001, accounts receivable and inventory had
a net decline of approximately $11.8 million as compared to Fiscal 2000 when
accounts receivable and inventory resulted in a net increase of $6.6 million
over Fiscal 1999. Prepaid expenses and other current assets declined by
approximately $2.7 million, primarily driven by the Company's use of tax
overpayments in the prior year. Offsetting these increases in cash flows from
operations was a decrease in accounts payable and accrued expenses of
approximately $8.4 million, reflecting lower levels of spending due to the
current economic conditions.

The net decrease in cash provided by operating activities of approximately $12.8
million for Fiscal 2000 as compared to Fiscal 1999 resulted primarily from the
decrease in net income, primarily driven by the Recapitalization expenses during
Fiscal 2000 and increases of operating assets during Fiscal 2000. The net
increase in accounts receivable for Fiscal 2000 was primarily driven by the
growth of the Company as well as higher sales in November and December 2000 as
compared to the prior year. The increase in the inventory for Fiscal 2000 was
related primarily to the Company's growth over the Fiscal 1999, a build up of
inventory to counter the increased lead times resulting from an increased
overseas vendor base as well as expansion of its Thailand facility. The increase
in the prepaid expenses for Fiscal 2000 is primarily driven by prepaid income
taxes.

Cash flows from operations of discontinued operations generated approximately
$1.4 million for Fiscal 1999.

Cash flows used in investing activities were approximately $3.5 million, $38.7
million and $82.9 million for Fiscal 2001, 2000 and 1999, respectively. The
decrease in cash used in investing activities for Fiscal 2001 as compared to
Fiscal 2000 of approximately $35.2 million and approximately $44.2 million for
Fiscal 2000 as compared to Fiscal 1999, are primarily related to the size of the
acquisitions accomplished in Fiscal 2000 and Fiscal 1999. On November 21, 2000,
the Company acquired all of the outstanding shares of Acme for a purchase price
of approximately $47.3 million and assumed liabilities of approximately $28.8
million. On January 19, 1999, the Company acquired all of the outstanding shares
of VFC for a purchase price of approximately $84.0 million and assumed
liabilities of approximately $21.7 million (see Note 2 to the consolidated
financial statements elsewhere in this Form 10-K). The Company realized $10.7
million of proceeds from the sale of Heart, Cruising and Mastervolt (See Note 2
to the consolidated financial statements elsewhere in this Form 10-K) during
Fiscal 2000. During Fiscal 1999, the Company divested itself of Force 10 Marine,
Inc., Multiplex Technology Inc. and Glendinning, which it had acquired as part
of VFC, for a total of approximately $7.4 million. Capital expenditures for
Fiscal 2001, 2000 and 1999 were approximately $4.1 million, $3.1 million and
$2.7 million, respectively. The increase in capital expenditures over the three
year period is primarily due to the Company's growth through acquisitions.


                                       16
<PAGE>

Cash flows from financing activities used net cash of approximately $17.2
million during Fiscal 2001 and provided net cash of approximately $30.6 million
and $53.4 million for Fiscal 2000 and Fiscal 1999, respectively. The net cash
used in financing activities for Fiscal 2001 was primarily driven by the
Company's net repayment of approximately $16.2 million in debt under its
existing credit facilities. At December 31, 2001, the Company was two payments
ahead of schedule under its current term debt facility.

The net decrease in financing activities for Fiscal 2000 as compared to Fiscal
1999 of approximately $22.8 million was primarily due to the changes made in the
Company debt facilities. Proceeds received under the Company's existing credit
facility for Fiscal 2000 totaled $103.7 million. The Company used such proceeds
to repay its prior credit facility, finance the acquisition of Acme, which
included repaying approximately $10.4 million of debt assumed in the Acme
acquisition, and working capital purposes. For Fiscal 1999, the Company received
an aggregate of approximately $82.6 million from its prior term loan and credit
facility. The repayment of approximately $37.1 million of long-term debt and
other long-term obligations offset this, the most significant portions being the
repayment of approximately $8.9 million of VFC's long-term debt, which was made
in conjunction with the VFC acquisition and the subsequent repayments of all
amounts outstanding under the then existing revolving credit facility throughout
the course of 1999.

For Fiscal 2000 and 1999, the Company paid deferred financing costs of
approximately $3.8 million and $2.2 million, respectively, related to the
Company's existing and previous credit facilities.

During Fiscal 2000 and 1999 the Company was the recipient of approximately $7.1
million, and $12.3 million in capital contributions. The capital contributions
received during Fiscal 2000 were contributed by KCI in connection with
Recapitalization described above. Approximately $7.5 million was used to repay
the outstanding SARs, including, approximately $420,000 related to outstanding
vested SARs with certain members of operating management of Glendinning and the
inverter business, which were divested in fiscal years 1999 and 2000,
respectively. The remaining holders who are current members of operating
management purchased Common Stock as part of the Recapitalization with a
substantial portion of their after-tax proceeds from the exercise of their SARs.
Simultaneous with the closing of the VFC acquisition, the Company was the
recipient of approximately $3.3 million in capital from KCI. This capital was
raised by KCI through the sale of new stock in KCI.

In September 1999, SG and Keyhold purchased their interests in KCLLC and the
Company received net proceeds of approximately $9.0 million related to the
capital contribution by SG and Keyhold. The proceeds of the SG and Keyhold
contribution, divestitures of subsidiaries and cash from operations enabled the
Company to repay all amounts outstanding under the revolving credit facility in
1999. In addition, the Company prepaid its $1.5 million term loan installment,
due in January 2000, during December 1999.

During Fiscal 2001 and 2000, the Company paid member withdrawals of
approximately $906,000 and $1.4 million, respectively. KCI used approximately
$906,000 and $1.1 million of the funds received during Fiscal 2001 and 2000,
respectively, to repurchase outstanding shares of its common stock from former
shareholders. The remaining withdrawals in 2000 of approximately $300,000 as
well as approximately $2.3 million paid during Fiscal 1999 were for tax
distributions to the members.

In December 1999, the Company consummated the acquisition of the outstanding
minority interest in Guest, which was one of the subsidiaries acquired as part
of the VFC acquisition. The minority shareholders agreed to sell their 7% share
of Guest to the Company for a combination of cash and KCI stock. KCI received
additional membership interests as consideration for the stock distributed to
the minority shareholders.

                                       17
<PAGE>

Management believes that the Company's cash flow from operations, together with
its borrowing availability under its existing credit facilities, will be
adequate to meet its anticipated capital requirements for the foreseeable
future.

Significant Accounting Policies

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the consolidated financial statements, included
elsewhere in this Form 10-K, includes a summary of the significant accounting
policies and methods used in the preparation of the Company's consolidated
financial statements. The following is a brief discussion of the more
significant accounting policies and methods used by the Company.

      Revenue recognition: The Company recognizes revenue upon shipment of
      products to customers, when title passes and all risks and rewards of
      ownership have transferred. The Company considers revenue realized or
      realizable and earned when the product has been shipped, the sales price
      is fixed or determinable and collectibility is reasonably assured. The
      Company reduces revenue for estimated customer returns.

      Inventory: Inventories are stated at the lower of cost or market, on a
      first-in, first-out basis. The Company purchases materials for the
      manufacture of inventory for sale in its various markets. The decision to
      purchase a set quantity of a particular inventory item is influenced by
      several factors including current and projected cost, future estimated
      availability and existing and projected sales to produce certain items.
      The Company evaluates the net realizable value of its inventories and
      establishes allowances to reduce the carrying amount of these inventories
      as deemed necessary.

      Goodwill and other intangible assets: At December 31, 2001, the Company
      has recorded approximately $125.3 million in goodwill and other intangible
      assets related to acquisitions made in 2000 and prior years. The
      recoverability of these assets is subject to an impairment test based on
      the estimated fair value of the underlying businesses. These estimated
      fair values are based on estimates of the future cash flows of the
      businesses. Factors affecting these future cash flows include: the
      continued market acceptance of the products and services offered by the
      businesses; the development of new products and services by the businesses
      and the underlying cost of development; the future cost structure of the
      businesses; and future technological changes.


Management's Estimates

The Company's discussion and analysis of its financial condition and results of
operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to product returns, bad debts,
inventories, intangible assets, pensions and post retirement benefits, warranty
obligations and contingencies and litigation. The Company bases its estimates on
historical experience, the use of external resources and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

Significant estimates used by the Company that are subject to change include,
but are not limited to (i) the Company's allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments for their open accounts receivable with the Company. If the financial
condition of the Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances could be
required, (ii) allowances established against its inventory carrying value to
record its inventories at net realizable value. If actual market conditions are
less favorable than those projected by management, additional inventory
allowances may be required, (iii) the Company records as necessary, valuation
allowances against its deferred tax assets. Were the Company to determine that
it would not be able to realize its deferred tax assets in the future,
additional valuation allowances could be required, (iv) the Company evaluates
the carrying amounts of its long lived assets for recoverability. If the Company
were to determine that the value ascribed to any of its long-lived assets was
not recoverable an allowance could be required, (v) the Company records the
effects of its existing pension plans in its financial statements using various
assumptions and the use of independent actuaries. If any of the underlying
assumptions were to change, the carrying value of the pension assets and
obligations may require adjustment, and (vi) the Company's financial covenants,
as defined in its credit facilities, were based, in part, by estimates of future
results of the Company's operations. If actual results were not to meet those
expectations, the Company may not meet its financial covenants and may be
required to obtain waivers for those covenants.

                                       18
<PAGE>

Inflation

Inflation has not been material to the Company's operations for the periods
presented.

Backlog

The Company's backlog of orders as of December 31, 2001, was approximately $33.4
million. The Company includes in its backlog only accepted purchase orders.
However, backlog is not necessarily indicative of future sales. In addition,
purchase orders can generally be cancelled at any time without penalty.

New Accounting Pronouncements

On January 1, 2001, the Company adopted Financial Accounting Standard ("FAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement did not have a material impact on the Company's consolidated financial
statements.

In July 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning
after December 15, 2001.

The provisions of SFAS 141 provide specific criteria for the initial recognition
and measurement of intangible assets apart from goodwill. SFAS 141 also requires
that upon adoption of SFAS 142 the Company reclassify the carrying amount of
certain intangible assets into or out of goodwill.

The provisions of SFAS 142 (i) prohibit the amortization of goodwill and
indefinite-lived intangible assets, (ii) require that goodwill and
indefinite-lived intangible assets be tested annually for impairment (and in
interim periods if certain events occur which would impact the carrying value of
such assets), and (iii) require that the Company's operations be formally
identified into reporting units for the purpose of assessing potential future
impairments of goodwill. Goodwill amortization for the years ended December 31,
2001, 2000 and 1999 was approximately $3.6 million, $2.6 million and $2.5
million, respectively.

In the first quarter of 2002 the Company will apply the new rules on accounting
for goodwill and other intangible assets and will make determinations as to what
amounts of goodwill, intangible assets and long term debt should be allocated to
its reporting units. In addition, the Company will perform the first of the
required impairment tests of goodwill. The Company has not yet determined what
the effect, if any, that these tests will have on the earnings and financial
position of the Company.

In October 2001, FASB issued FAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." FAS 144 provides guidance on the accounting for
long-lived assets to be held and used and for assets to be disposed of through
sale or other means. FAS 144 also broadens the definition of what constitutes a
discontinued operation and how such results are to be measured and presented.
FAS 144 is effective for fiscal years beginning after December 15, 2001. The
Company does not expect the adoption of FAS 144 to have a material impact on the
earnings or financial position of the Company.


                                       19
<PAGE>

Other Matters

Forward-Looking Statements
This report contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties. Generally, forward-looking
statements include words or phrases such as "management anticipates," "the
Company believes," "the Company anticipates," and words and phrases of similar
impact, and include but are not limited to statements regarding future
operations and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The factors that could cause actual results to differ materially
from the forward-looking statements include the following: (i) industry
conditions and competition, (ii) operational risks and insurance, (iii)
environmental liabilities which may arise in the future and not covered by
insurance or indemnity, (iv) the impact of current and future laws and
government regulations, and (v) the risks described from time to time in the
Company's reports to the Securities and Exchange Commission.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's primary exposure to market risk is related to the variability in
interest rates associated with the $85.0 million outstanding under its term loan
and with any amounts outstanding under its $40-million revolving credit
facility. Under both the term loan and the revolving credit facility, the
Company has the option to lock in a certain interest rate based on either the
base rate, which is equivalent to prime, or LIBOR plus an applicable margin
specified in the agreement. Principally all of the borrowings under the term
loan are locked in at approximately 4.43% until March 15, 2002, when the
underlying LIBOR contract is up for renewal. At December 31, 2001 the Company
had no borrowings under its line of credit and was two payments ahead of
schedule on its term debt. A 1% change in the interest rate for the Company's
credit facilities in place in Fiscal 2001 would have resulted in a change in the
Company's interest expense of approximately $940,000. The senior notes bear a
fixed rate of interest and therefore are not subject to market risk. The Company
does not hold derivative financial instruments or believe that material imbedded
derivatives exist within its contracts.

Item 8. Financial Statements and Supplementary Data

The Company's consolidated financial statements for the three years ended
December 31, 2001, together with the report of PricewaterhouseCoopers LLP dated
February 15, 2002, are included elsewhere herein. See Item 14 for a list of the
consolidated financial statements and consolidated financial statement schedule.


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

                  None

                                    PART III

Item 10. Directors, Executive Officers and Key Employees of the Company

The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company as of December 31,
2001. All directors and officers of the Company hold office until the annual
meeting of stockholders next following their election, or until their successors
are elected and qualified.


                                       20
<PAGE>

<TABLE>
<CAPTION>
Name                       Age              Position
----                       ---              --------

<S>                        <C>              <C>
John S. Dyson              59               Chairman of the Board of Directors of KCI and KCLLC

Clay B. Lifflander         39               Director of KCI and KCLLC.  Chief Executive Officer of
                                            KCLLC.

Robert B. Kay              39               Director of KCI and KCLLC.  President of KCLLC.

Alan L. Rivera             39               Director of KCI and KCLLC, Vice President and Secretary of
                                            KCI and KCLLC

George M. Scherer          48               Director of KCI and KCLLC, Vice President of KCI and
                                            President of BWE

Philip E. Berney           38               Director of KCI and KCLLC

Tom R. Wall, IV            42               Director of KCI and KCLLC

Albert W. Weggeman         38               Senior Vice President of Operations

Keith A. McGowan           39               Chief Financial Officer and Vice President of KCLLC

J. Marty O'Donohue         51               President of Marinco

Daryl A. Lilly             41               President of Gits

Michael L. Colecchi        52               President of Hudson and ESP

A. Jack Hoppenjans         65               President of Turner
</TABLE>

John S. Dyson has been Chairman of the Board of Directors of the KCI, KCLLC and
Finance Corp. since their inception. Since 1996, Mr. Dyson has been Chairman of
the Board of Directors of Millbrook Capital Management ("Millbrook"), a
management company providing executive level services to the Company under the
Management Agreement. From 1996 to December 2001 he served as Chairman of the
Mayor of the City of New York's Council of Economic Advisors. From 1994 to 1996,
Mr. Dyson served as Deputy Mayor for Finance and Economic Development for the
City of New York. From 1982 to 1993 Mr. Dyson was the Chairman of Dyson-Sinclair
Associates, a management company and the predecessor of Millbrook. From 1976 to
1979, he served as Commissioner of the New York State Department of Commerce.
Mr. Dyson was Vice Chairman of Dyson-Kissner-Moran Corporation from 1970 to
1975, at which time he was appointed to the position of Commissioner of the New
York State Department of Agriculture.

Clay B. Lifflander has served as a director of KCI and KCLLC since their
inception. Mr. Lifflander was elected Chief Executive Officer in November 1999.
Before November 1999, Mr. Lifflander had been President of KCI since its
inception. Mr. Lifflander has been President of Millbrook since 1995, and from
1994 to 1995, Mr. Lifflander was President of the New York City Economic
Development Corporation. Previously, Mr. Lifflander was Managing Director in the
Mergers and Acquisitions Group at Smith Barney Inc., where he worked from 1984
to 1994.

Robert B. Kay was elected President of KCLLC in November 1999. Prior to his
election he had served as the Chief Financial Officer of KCLLC since February
1999. Mr. Kay became a director of KCI and KCLLC in March 1999. From August 1998
through December 1998, Mr. Kay was the Senior Vice-President and Chief Financial
Officer, as well as a director, of Tiffen Manufacturing Corp., a manufacturer
and distributor of photographic and imaging products. From January 1994 through
August 1998, Mr. Kay was a Senior Vice-President and Chief Financial Officer of
Oxford Resources Corp. (renamed NationsBank Auto Leasing, Inc.), a publicly
traded consumer finance company.

Alan L. Rivera has been the Vice President, Secretary and a Director of KCI,
KCLLC and Finance Corp. since their inception. Since September 1996, Millbrook
has employed Mr. Rivera, as Chief Financial Officer and General Counsel. From
1994 to 1996, Mr. Rivera served as Executive Vice President of Finance and
Administration and General Counsel of the New York City Economic Development
Corporation. From 1990 to 1994, Mr. Rivera was an associate with the New York
City law firm of Townley & Updike, specializing in corporate finance matters,
and from 1987 to 1990, Mr. Rivera was an associate with Mudge, Rose, Guthrie,
Alexander and Ferdon, specializing in public finance matters.

                                       21
<PAGE>

George M. Scherer has been the Vice President-Manufacturing and a Director of
KCI and KCLLC since their inception. Mr. Scherer has been with BWE since 1978
when he began as Engineering Manager. He has served as the President and a
Director of BWE since 1982. Prior to joining BWE, Mr. Scherer was a product
application engineer for Stow Manufacturing Company, Inc. in Binghamton, N.Y.
from 1975 to 1978. Prior to his position at Stow Manufacturing Company, Inc.,
Mr. Scherer was a plant engineer at GAF Corporation in Binghamton, N.Y. from
1973 to 1975.

Philip E. Berney has served as a director since May 2000, and is a board
designee of Kelso. Mr. Berney joined Kelso & Company, a private investment firm
in 1999, as one of its Managing Directors. Previously, Mr. Berney worked at
Bear, Stearns & Co. Inc. where he was a Senior Managing Director. He also serves
as a director of CDT Acquisition Corp. and Armkel, LLC.

Thomas R. Wall, IV has served as a director since May 2000, and is a board
designee of Kelso. Mr. Wall has held various positions of increasing
responsibility with Kelso & Company, a private investment firm, since 1983, and
currently serves as one of its Managing Directors. Mr. Wall also serves as a
director of AMF Bowling, Inc., Citation Corporation, Consolidated Vision Group,
Inc., Cygnus Publishing, Inc., IXL Enterprises Inc., Mitchell Supreme Fuel
Company, Mosler, Inc., Peebles Inc., and 21st Century Newspapers, Inc.

Mr. Albert W. Weggeman joined the Company in March 2001 as Senior Vice President
of Operations. From November 1997 to March 2001, Mr. Weggeman held positions in
General Electric Company ("GE") Industrial Systems division as Manager - Mergers
& Acquisitions, and most recently as President and General Manager of Midwest
Electric (a GE subsidiary). Prior to GE, Mr. Weggeman was the Director of
Marketing for Norton Coated Abrasives.

Keith A. McGowan was appointed the Chief Financial Officer of KCLLC in November
1999. Prior to this promotion, he had served as KCLLC's Principal Accounting
Officer since April 1999. From April 1998 to March 1999, Mr. McGowan was a
self-employed consultant. From July 1997 to April 1998, he served as the Vice
President of Finance of Digitec 2000, Inc., a distributor of prepaid phone
products. From November 1985 to June 1997, Mr. McGowan was employed by BDO
Seidman, LLP, an accounting and consulting firm, where he was promoted to
Partner in July 1995.

J. Marty O'Donohue has been President of Marinco since 1991. Mr. O'Donohue
managed his own marketing consulting firm, O'Donohue and Associates, from 1988
to 1991.

Michael L. Colecchi has been with Hudson since 1970, when he began as a tool and
die maker. He subsequently assumed various positions of responsibility in
Hudson's manufacturing department until 1980, when he was appointed Plant
Manager. In 1984, Mr. Colecchi was promoted to Vice President of Manufacturing.
In 1989, Mr. Colecchi was promoted to Vice President and General Manager. Mr.
Colecchi has served as President of Hudson since 1996.

Daryl Lilly has been the President of Gits since June of 2000. From February
1999 through June 2000, Mr. Lilly served as Executive Vice President, Vice
President of Product Development and Engineering Manager for Gits. From January
1997 to February 1999, Mr. Lilly was the Plant Engineering Manager for Reman,
Inc. In addition to his experience with the Company, Mr. Lilly has 15 years of
experience in various automotive component manufacturing industries.

A. Jack Hoppenjans has been President of Turner since 1982. He joined Turner in
1960 as a mechanical designer and has held various positions with the Turner
during his 40 year tenure.


                                       22
<PAGE>

Item 11. Executive Compensation

                           SUMMARY COMPENSATION TABLE

The summary table sets forth information with respect to the compensation of
each of the named executive officers and key employees for services provided in
all capacities to the Company for the three years in the period ended December
31, 2001.

<TABLE>
<CAPTION>
                                                                                                   Long Term
                                                                                                  Compensation
                                                         Annual Compensation                         Awards
                                        --------------------------------------------------    ---------------------
                                                                           Other Annual             Securities
   Name and Principal                                                      Compensation         Underlying Options
       Position                  Year      Salary ($)         Bonus            ($)                    (2)
------------------------------ -------- --------------- ---------------- -----------------    ---------------------
<S>                             <C>           <C>       <C>              <C>                  <C>
Clay B. Lifflander (1),
  Chief Executive Officer       2001          --              --                --                   --
                                2000          --              --                --                  30,000
                                1999          --              --                --                   --

Robert B. Kay (3),
  President                     2001         $295,000         $  --    (4)      --                   --
                                2000         $266,178         $138,000         $100,000             30,000
                                1999         $250,000         $125,000                              30,000

Alan L. Rivera (1),
  Secretary                     2001            --              --               --                   --
                                2000            --              --               --                  7,500
                                1999            --              --               --                   --
                                                                                                      --
Albert W. Weggeman (3), SVP
  of Operations                 2001        $ 174,262         $ --     (4)       --                  5,000
                                2000            --              --               --                   --
                                1999            --              --               --                   --

Keith A. McGowan,
  Chief Financial Officer       2001        $ 170,000         $ --     (4)       --                    192
                                2000        $ 143,584         $  48,000        $ 60,000              5,250
                                1999        $  90,000         $  40,000          --                  5,000

George M. Scherer (3),
    President of BWE            2001       $  225,000         $   --   (4)       --                   --
                                2000       $  225,000         $  23,144        $ 72,500              4,000
                                1999       $  225,000         $  23,000          --                   --
</TABLE>

(1)   The salaries of Clay B. Lifflander and Alan L. Rivera are paid by
      Millbrook Capital Management, Inc. ("Millbrook") pursuant to the terms of
      a Management Agreement. See "Certain Relationships and Related
      Transactions--Management Agreement."
(2)   Long terms awards related to options granted to purchase KCI common stock.
(3)   The Company is a party to employment agreements with certain of its key
      employees.
(4)   The 2001 bonuses for Robert B. Kay, Albert W. Weggeman, George M. Scherer
      and Keith McGowan have yet to be determined. The bonuses of these
      individuals are at the discretion of the Board of Directors of KCLLC.


                                       23
<PAGE>

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table summarizes the options that were granted to named executive
officers of the Company in the fiscal year ended December 31, 2001.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                                   Potential Realizable Value at
                                                                                   Assumed Annual Rates for Option
                               Individual Grants                                               Term (1)
------------------------------------------------------------------------------    -------------------------------
                    Number of       Percent of
                   Securities        Total
                    Underlying       Options
                     Options      /SARS Granted
                      /SARS       to Employees      Exercise     Expiration
      Name         Granted (#)   in Fiscal Year   Price ($/sh)      Date                5%             10%
------------------ ------------- --------------- --------------- ------------     --------------- --------------
<S>                <C>           <C>             <C>             <C>              <C>             <C>
Albert W. Weggeman     5,000           39.3%         $125.00      1/02/11            $444,000     $1,159,000

Keith A. McGowan         192            1.5%         $125.00      1/02/11             $16,000        $40,000
</TABLE>

(1)   Market value was determined by the Board of Directors to equal the
      exercise price at date of grant.

Amounts represent hypothetical gains that could be achieved for the options if
exercised at the end of the term of the options. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date and are not
intended to forecast possible future appreciation, if any, in the price of the
KCI common stock. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the exercise
of the options or the sale of the underlying shares. The actual gains, if any,
on the stock option exercises will depend on the future performance of the KCI
common stock, the holder's continued employment through applicable vesting
periods and the date on which the options are exercised. The potential
realizable value of the foregoing options is calculated by assuming that the
fair market value of the KCI common stock on the date of grant of such options
equaled the exercise price of such options.

             AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 2001 AND
                           YEAR END OPTION/SAR VALUES

The following table provides information related to the number and value of
options held by the named executive officers at December 31, 2001.

<TABLE>
<CAPTION>
                           Number of Securities underlying Unexercised    Value of Unexercised In-the-Money Options
                                     Options at Year End (1)                           at Year End (1)
                          ---------------------------------------------- ---------------------------------------------
          Name                 Exercisable           Unexercisable            Exercisable         Unexercisable
          ----                 -----------           -------------            -----------         -------------
<S>                      <C>                         <C>                    <C>                   <C>
Clay B. Lifflander                3,333                  26,667             $     -                $   -

Robert B. Kay                    15,714                  34,286             $1,207,115             $92,885

George M. Scherer                   444                   3,556             $     -                $   -

Alan L. Rivera                      833                   6,667             $     -                $   -

Albert W. Weggeman                  555                   4,445             $     -                $   -

Keith A. McGowan                  3,522                   4,720             $  115,833             $ 417
</TABLE>

(1)   Assumes management's estimate of fair market value of $100.00 per share of
      common stock at December 31, 2001.


                                       24
<PAGE>

Employment and Related Agreements

The employment agreement with Robert B. Kay, President of the Company, is dated
March 1, 1999, terminates March 1, 2004 and provides for, among other things, a
base salary of $295,000 per annum with yearly increases based on the consumer
price index, an annual incentive bonus in the event Mr. Kay and the Company
reach certain performance goals, a car allowance, and vacation and benefits
commensurate with the plans and programs generally offered by the Company to
employees of the same level and responsibility of Mr. Kay. The agreement also
provides that Mr. Kay will not compete with the Company for two years after
termination of his agreement and contains certain confidentiality provisions.

In March 2001, the Company signed an employment agreement with Albert W.
Weggeman, the Company's Senior Vice President of Operations, which terminates in
March 2006. The agreement provides for a base salary of $212,500 per annum and
entitles Mr. Weggeman to merit increases in his compensation after one year of
service. In addition, the agreement provides for incentive compensation based on
the performance of the Company and Mr. Weggeman. The agreement provides for
vacation and benefits commensurate with the plans and programs generally offered
by the Company to employees of the same level and responsibility of Mr.
Weggeman. The agreement also provides that Mr. Weggeman will not (i) compete
with Company for two years after termination of his agreement, and (ii) at any
time following the termination of the agreement directly or indirectly contact
or do business with any customers of the Company as defined in the agreement. In
connection with the execution of the agreement Mr. Weggeman received an option
to purchase 5,000 shares of the Company's common stock at $125 per share. The
option is exercisable for a period of ten years. One-third of the shares
underlying the option vest over a period of three years, beginning at December
31, 2001. The remaining shares vest upon certain events as defined in the option
agreement.

In December 2001, the Company signed a new employment agreement with George M.
Scherer, President of Elliott and board member of KCI and KCLLC, which
terminates in December 1, 2006. The agreement provides for a base salary of
$254,000 per annum, incentive compensation, as defined in the agreement and the
use of a company car. In addition, Mr. Scherer is entitled to vacation and other
benefits commensurate with the plans and programs generally offered by the
Company to employees of the same level and responsibility of Mr. Scherer. The
agreement also provides that Mr. Scherer will not (i) compete with Company for
three years after termination of his agreement, and (ii) for a period of three
years after the termination of the agreement directly or indirectly contact or
do business with any customers or former customers of the Company as defined in
the agreement.

1998 Long-Term Incentive Plan

KCI's 1998 Incentive Compensation Plan (the "1998 Plan") was adopted to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees, directors and
consultants of KCI, KCLLC and its subsidiaries and to promote the success of the
Company's business. Options granted under the 1998 Plan may be either incentive
stock options, as defined in Section 422A of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options. In addition, stock appreciation
rights, and restricted stock awards and other stock-based awards may be granted
under the 1998 Plan. No further grants will be made under the 1998 Plan. As of
December 31, 2001, options to purchase an aggregate of 51,972 shares were
outstanding under the 1998 Plan at a weighted average exercise price of $40 per
share, of which options to purchase 43,587 shares are currently exercisable.

The 1998 Plan is administered by the Board of Directors of KCI, which has the
power to determine the terms of any options or awards granted thereunder,
including the exercise price, the number of shares subject to the option or
award, and the exercisability thereof. Options and awards granted under the 1998
Plan are generally not transferable, and each option or award is exercisable
during the lifetime of the optionee only by such optionee. The exercise price of
all incentive stock options granted under the 1998 Plan must be at least equal
to the fair market value of the shares of Common Stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of stock of KCI, the exercise price of any stock
option granted must be equal to at least 110% of the fair market value on the
grant date and the maximum term of the option must not exceed five years. The
term of all other options or awards under the 1998 Plan may not exceed ten
years. The specific terms of each option grant or award are approved by KCI's
Board of Directors and are reflected in a written stock option or award
agreement.


                                       25
<PAGE>

Key Components Stock Incentive Plan

In May 2000, the Company adopted the Key Components, Inc. Stock Incentive Plan
(the "KCI Plan"). Approximately 205,000 shares of KCI's Common Stock have been
reserved for options issued under the KCI Plan. Options granted under the 1998
Plan may be either incentive stock options, as defined in Section 422A of the
Internal Revenue Code of 1986, as amended, or non-qualified stock options. At
December 31, 2001, the Company had options for approximately 130,000 shares of
common stock at a weighted average exercise price of approximately $118 per
share outstanding under the Plan. Options for approximately 45,000 shares vest
over the next three years. The options for the approximately 85,000 remaining
shares vest only after a change in control of the Company and if the Company's
Preferred Shareholders obtain a targeted return on their investment. The Company
would take a charge to earnings for the accretion in value upon the date that
the Company is reasonably assured that such criteria would be satisfied. At
December 31, 2001, options to purchase approximately 15,100 shares issued under
the KCI Plan were vested.

The KCI Plan is administered by a committee as determined by the Board of
Directors of KCI and in accordance with the Shareholders Agreement. Any options
granted under the KCI Plan must be assigned an exercise price equal to the
market value of KCI Common Stock on the date of the grant of the option. Options
and awards granted under the KCI Plan are generally not transferable, and each
option or award is exercisable during the lifetime of the optionee only by such
optionee. The term of the options under the KCI Plan may not exceed ten years.
The specific terms of each option grant or award are approved by KCI's Board of
Directors and are reflected in a written stock option or award agreement.

Stock Appreciation Rights

In connection with the VFC acquisition, KCI issued SARs to certain members of
operating subsidiary management. The SARs, which were fully vested, entitle the
holder to receive, in cash, the difference between the exercise price and market
value of KCI stock as of the date of exercise. The Company was required to
record as compensation expense any net accretion in the value of the SARs based
on current market value of KCI stock. For Fiscal 2000 and Fiscal 1999, the
Company included in continuing operations approximately $1.6 million and $4.2
million in compensation expense related to the SARs. All of the SARs were
exercised in connection with the Recapitalization, with the holders of the SARs
using a substantial portion of their after-tax proceeds to purchase shares of
KCI common stock.

KCLLC 401(k) Plan

Effective January 1, 2001, the Company merged the 401(k) plans covering
substantially all the employees of the Company, other than those of Acme into
one newly formed KCLLC 401(k) plan (the "KCLLC Plan"). The KCLLC plan covers all
the employees of the Company, other than those of Acme and those covered by the
Gits defined benefit plan. The KCLLC Plan provides for a match of 4% of
employee's compensation up to 2% maximum employer match. The Company has the
ability to make additional discretionary contributions. The benefits of the
KCLLC Plan vest over five years.

The Company also has two 401(k) plans, which the employees of Acme participate
in. There is no Company match in the plans. All funds, which are participant
contributions, are vested to the employee. One of the 401(k) plans was divested
as part of the divestiture of the Electronics division of Acme.



                                       26
<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

The Company is comprised of KCLLC, a Delaware corporation which is a parent
holding company for its wholly owned subsidiaries, including Key Components
Finance Corp. KCI holds the entire member interests in KCLLC. KCI has no
material assets other than its interest in KCLLC and has no operations. The
following table sets forth information concerning the beneficial ownership of
KCLLC membership interests, as of February 20, 2002 of (i) each person known to
own beneficially more than 5% of KCLLC membership interest and KCI's outstanding
Common Stock, (ii) by each director, executive officer and key employee of the
Company and/or any of its subsidiaries and (iii) all such directors, executive
officers, and key employees as a group. All shares are owned with sole voting
and investment power, unless otherwise indicated.

<TABLE>
<CAPTION>
           Beneficial Owner                        Address             Common Stock Beneficially Owned
                                                                               Shares (1)                % (2)
<S>                                    <C>                             <C>                              <C>
John S. Dyson                           Key Components, LLC
                                          200 White Plains Road                223,932 (3)               16.5%
                                          Tarrytown, NY 10591

Clay B. Lifflander                      Key Components, LLC
                                          200 White Plains Road                176,780(3)(4)             13.0%
                                          Tarrytown, NY 10591

Robert B. Kay                           Key Components, LLC
                                          200 White Plains Road                 21,904(5)                 1.6%
                                          Tarrytown, NY 10591

Alan L. Rivera                          Key Components, LLC
                                          200 White Plains Road                 15,595(6)                 1.1%
                                          Tarrytown, NY 10591

George M. Scherer                       Key Components, LLC
                                          200 White Plains Road                 53,301(7)                 3.9%
                                          Tarrytown, NY 10591

Philip Berney                           Kelso & Co.                            918,065(8)                67.5%
                                        320 Park Avenue
                                        New York, NY 10022

Thomas R. Wall, IV                      Kelso & Co.                            918,065(8)                67.5%
                                        320 Park Avenue
                                        New York, NY 10022

Kelso & Co.                             Kelso & Co.                            918,065(8)                67.5%
                                        320 Park Avenue
                                        New York, NY 10022

Albert W. Weggeman                      Key Components, LLC                        555(9)                 0.0%
                                          200 White Plains Road
                                          Tarrytown, NY 10591

Keith A. McGowan                        Key Components, LLC
                                          200 White Plains Road                  3,522(10)                0.3%
                                          Tarrytown, NY 10591

All Officers and Directors (8 persons)  Key Components, LLC
                                          200 White Plains Road              1,300,377(11)               95.6%
                                          Tarrytown, NY 10591
</TABLE>

                                       27
<PAGE>


(1)      Unless otherwise indicated, the Company believes that the beneficial
         owners of the securities have sole investment and voting power with
         respect to such securities, subject to community property laws where
         applicable. Shares represent fully diluted share ownership of KCI.

(2)      Percentages are based on effective membership percentages including
         dilutive effect of outstanding vested stock options exercisable within
         60 days.

(3)      Includes an aggregate of 113,279 shares of KCI Common Stock owned of
         record by the Charles H. Dyson Trust #1 F/B/O John Dyson U/A DTD
         8/2/68, Charles H. Dyson Trust #1 F/B/O John Dyson U/A DTD 4/6/76 and
         the Margaret M. Dyson Trust #1 F/B/O John Dyson U/A DTD 3/26/68 (the
         "Dyson Trusts"), of which Mr. Dyson is a beneficiary and trustee.

(4)      Includes 464 shares of KCI Common Stock owned of record by trusts for
         the benefit of Mr. Lifflander's minor children, or which Mr. Lifflander
         is a trustee and 113,279 shares of KCI Common Stock owned of record by
         the Dyson Trusts, of which Mr. Lifflander is a trustee. Also includes
         vested options to purchase 3,333 shares of KCI Common Stock.

(5)      Represents vested options to purchase 21,904 shares of KCI Common
         Stock. See "Executive Compensation."

(6)      Includes vested options to purchase 833 shares of KCI Common Stock. See
         "Executive Compensation."

(7)      Includes vested options to purchase 444 shares of KCI Common Stock. See
         "Executive Compensation."

(8)      Includes 918,065 shares of KCI Preferred Stock owned by Kelso and its
         affiliates, which are convertible at the option of the holder into
         918,065 shares of KCI Common Stock.

(9)      Represents vested options to purchase 555 shares of KCI Common Stock.
         See "Executive Compensation"

(10)     Represents vested options to purchase 3,522 shares of KCI Common Stock.
         See "Executive Compensation"

(11)     Includes 113,279 shares of KCI Common Stock owned of record by the
         Dyson Trusts and 464 shares of KCI common stock owned of record by
         trusts for the benefit of Mr. Lifflander's minor children, of which Mr.
         Lifflander is a trustee and 918,065 shares of KCI Preferred Stock owned
         by Kelso and its affiliates.

Item 13. Certain Relationships and Related Transactions

ESP Lease

The Company rents its Leominster; Massachusetts manufacturing facility under an
operating lease agreement entered into with a company that is co-owned by the
former President of ESP and a shareholder of KCI. The lease, which expires on
May 31, 2003, provides for annual rent increases based on the CPI. Rental
payments amounted to $213,000, $208,000 and $203,000 for the three years ended
December 31, 2001, 2000 and 1999, respectively.

BWE Lease

The Company rents one of its manufacturing facilities under an operating lease
agreement entered into with a company which is co-owned by George Scherer who is
a member of the Board of Directors of KCI and KCLLC, a shareholder of KCI and
the President of BWE. The terms of the lease, which expires December 31, 2008,
provide for annual rent increases of 5%. Rental payments amounted to $159,000,
$151,000 and $144,000 in 2001, 2000 and 1999, respectively.

Management Agreement

KCLLC pays management fees to Millbrook, a party related to John S. Dyson,
Chairman of the Boards of KCI and KCLLC and a shareholder of the KCI. The
Company recorded management fees related to Millbrook of $920,000, $920,000, and
$800,000 for Fiscal 2001, 2000 and 1999, respectively. Pursuant to the terms of
a Management Agreement, dated as of May 28, 1998, Millbrook provides the Company
with executive level services, for an annual base management fee equal to
$500,000 (the "Base Fee") payable in quarterly installments, plus an additional
fee of $420,000 per year (the "Additional Fee") for Fiscal 2001 and 2000, and
$300,000 for Fiscal 1999 and 1998, payable following completion of the Company's
audited financial statements for such year. No portion of the Base Fee or the
Additional Fee may be paid at the time that any Event of Default (as defined
therein) exists under the Company's Indenture, dated as of May 28, 1998 (the
"Indenture"). In addition, the Additional Fee may only be paid to the extent
that, after giving effect thereto, the Company's Consolidated Coverage Ratio (as
defined in the Indenture) exceeds 2.0:1, for the fiscal years ending on or prior
to December 31, 1999, and 2.25:1 for the fiscal years ending after December 31,
1999. For Fiscal 2000 the additional fee was increased by $20,000 as a result of
the pro forma growth over Fiscal 1999 and in accordance with the management
agreement. Any management fee, which are not permitted to be paid at the time
due will be deferred (without interest) and will be paid as soon as permitted.
Millbrook is also entitled reimbursement for it's out of pocket expenses. As
part of the Recapitalization, Millbrook agreed with Kelso to a reduced
management fee, commencing in 2002, of $175,000 plus amounts paid to Kelso.
Kelso agreed that amounts paid by Millbrook to Kelso out of management fees
received by Millbrook from KCI or KCLLC would offset KCI's obligation to Kelso
under the Advisory Agreement between Kelso and KCI.

                                       28
<PAGE>

During 2000, KCLLC paid Millbrook $825,000 and $400,000, respectively, for
investment advisory services in connection with the acquisition of Acme and the
sale of the inverter business. During 1999, KCLLC also paid Millbrook $500,000
and $350,000, respectively, for investment advisory services related to the sale
of the Keyhold membership interest and the sale of Multiplex.


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

<TABLE>
<CAPTION>
                                                                                                                Form 10-K Page
                                                                                                                --------------
<S>      <C>                                                                                                    <C>
(a)      Documents filed as part of the Form 10-K
         (1)  Financial Statements:
         Report of Independent Accountants                                                                            37
         Consolidated Balance Sheet at December 31, 2001 and 2000                                                     38
         Consolidated Statement of Income for the three years ended December 31, 2001                                 39
         Consolidated Statement of Stockholders' Equity for the three years ended December 31, 2001                   40
         Consolidated Statement of Cash Flows for the three years ended December 31, 2001                             41
         Notes to Consolidated Financial Statements                                                                  42-61

         (2)  Financial Statement Schedules:
         Valuation and Qualifying Accounts (Schedule II)                                                              62

(b)      Reports on Form 8-K- none
         -------------------

(c)      Exhibits
         See list of exhibits on page                                                                                 29

(d)      Financial Statement Schedules
         See (a)(2) above                                                                                             62
</TABLE>


                                  EXHIBIT INDEX
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
    Exhibit                                           Description                                         Reference
    -------      --------------------------------------------------------------------------------------   ---------
<S>              <C>                                                                                      <C>
2.1              Agreement and Plan of Merger.                                                               (1)
2.2              Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 28, 1998.         (1)

2.1              Agreement and Plan of Merger, dated as of May 26, 2000                                     (11)

2.2              Amendment No. 1 to the Agreement and Plan of Merger, dated as of September 18, 2000        (11)
</TABLE>


                                       29
<PAGE>

<TABLE>
<S>              <C>                                                                                      <C>
2.3              Amendment No. 2 to the Agreement and Plan of Merger, dated as of October 6, 2000           (11)
2.4              Letter of Transmittal relating to surrendered Shares.                                       (7)
3.1              Certificate of Formation of KCLLC.                                                          (2)
3.2              Limited Liability Company Agreement of KCLLC.                                               (2)
3.3              Certificate of Incorporation of Finance Corp.                                               (2)
3.4              By-Laws of Finance Corp.                                                                    (2)
3.5              Amended and Restated Limited Liability Company Operating Agreement of KCLLC, dated          (5)
                 as of September 1, 1999.
4.1              Indenture, dated as of May 28, 1998, by and among KCLLC, Finance Corp, BWE, Hudson,         (2)
                 ESP and United States Trust Company of New York, as trustee.
4.2              Form of 10 1/2% Senior Notes, Due 2008 (filed as part of Exhibit 4.1).                      (2)
4.3              Exchange and Registration Rights Agreement, dated May 20, 1998, among KCLLC, Finance        (2)
                 Corp, BWE, Hudson, ESP and Societe Generale Securities Corporation.
4.4              Supplemental Indenture, dated as of August 31, 1999, among KCLLC, Finance Corp, Gits        (5)
                 Manufacturing Co., LLC Marine Industries, LLC, Turner Electric, LLC, Hudson Lock,
                 LLC, BWE Manufacturing, LLC, ESP Lock, LLC and United States Trust Company.
4.5              Amendment to Indenture dated August 31, 1999, among KCI and certain of its                  (5)
                 subsidiaries and United States Trust Company.
10.1             Purchase Agreement among KCLLC, Finance Corp, BWE, Hudson, ESP and Societe Generale         (2)
                 Securities Corporation, dated May 20, 1998.
10.2             Form of 10 1/2% Senior Notes, issued by KC LLC and Finance Corp. to certain                 (2)
                 purchasers, and dated as of May 28, 1998 (filed as part of Exhibit 4.1).
10.3             Employment Agreement between BWE and George M. Scherer, dated as of January 16,             (2)
                 1996, as amended March 16, 1996.
10.4             Employment Agreement between KCI and Michael L. Colecchi, dated as of May 15, 1997,         (2)
                 as amended April 27, 1998.
10.5             Employment Agreement between ESP and August M. Boucher, dated as of December 10,            (2)
                 1997.
10.7             1998 Long-Term Incentive Plan of KCI.                                                       (2)
10.8             Management Agreement, dated May 28, 1998, with Millbrook Capital Management Inc.            (2)
10.9             Lease, dated January 1, 1989, between BWE and Empire Realty Company.                        (2)
10.10            Lease, dated December 1, 1992, between RAD Lock, Inc. and S&S Properties, Inc.              (2)
10.12            Lease Agreement, dated June 7, 1990, between BWE and Route 12A Associates, as               (2)
                 amended.
10.12            Lease of Real Property, dated June 1, 1993, between ESP and Massachusetts Colony            (2)
                 Corporation.
10.13            Commercial Lease and Deposit Receipt, dated August 27, 1998, between Hudson and Jim         (2)
                 Jelsema.
10.14            Credit and Guaranty Agreement, dated as of July 27, 1998, among the Issuers, BWE,           (2)
                 Hudson, ESP, Societe Generale, as agent and certain financial institutions named
                 therein.
10.15            Guarantor Security Agreement, dated as of July 27, 1998, among BWE, Hudson, Finance         (2)
                 Corp., ESP and Societe Generale.
10.16            Borrower Security Agreement, dated as of July 27, 1998, between KCLLC and Societe           (2)
                 Generale.
10.17            Pledge Agreement, dated as of July 27, 1998, between KCLLC and Societe Generale.            (2)
10.18            Form of Amended and Restated Credit and Guaranty Agreement, dated as of January 19,         (3)
                 1999, by and among Key Components, LLC, as Borrower, certain of
                 its subsidiaries, as Guarantors, certain financial
                 institutions, as Lenders and Societe Generale, as Agent for
                 Lenders.
10.19            Form of Valley Forge Pledge Agreement, dated as of January 19, 1999, by Valley Forge        (3)
                 Corporation and in favor of Societe Generale.
10.20            Form of Amended and Restated Pledge Agreement, dated as of January 19, 1999, made by        (3)
                 KCLLC in favor of Societe Generale.
</TABLE>

                                       30
<PAGE>

<TABLE>
<S>              <C>                                                                                      <C>
10.21            Form of Amended and Restated Borrower Security Agreement, dated as of January 19,           (3)
                 1999, made by KCLLC in favor of Societe Generale.
10.22            Form of Amended and Restated Guarantor Security Agreement, dated as of January 19,          (3)
                 1999, made by BW Elliott Manufacturing Co., Inc., Hudson Lock, Inc., ESP Lock
                 Products Inc., KCI Acquisition Corp., Valley Forge Corporation, Cruising Equipment
                 Company, Force 10 Marine Ltd., Gits Manufacturing Company, Inc., Glendinning Marine
                 Products, Inc., Atlantic Guest, Inc., Heart Interface Corporation, Marine Industries
                 Company, Multiplex Technology, Inc., Turner Electric Corporation, VFC Acquisition
                 Company, Inc., and Valley Forge International Corporation in favor of Societe
                 Generale.
10.23            Agreement and General Release between KCLLC and James D. Wilcox, dated March 9, 1999.       (4)
10.24            Form of Employment Agreement between the Company, Millbrook and Robert Kay, dated           (4)
                 March 1, 1999.
10.25            Share Purchase Agreement among KCI, KCLLC, SGCP and Keyhold dated August 12, 1999.          (5)
10.26            Registration Rights Agreement of KCLLC, dated as of September 1, 1999, among KCI,           (5)
                 KCLLC, SGCP and Keyhold.
10.27            Shareholders Agreement dated as of September 1, 1999, among KCLLC, KCI, SGCP,               (5)
                 Keyhold and certain other shareholders of KCI.
10.28            Amendment No. 2 to Amended and Restated Credit and Guaranty Agreement, dated August         (5)
                 31, 1999 among KCLLC and Certain of its Subsidiaries, Certain Lenders and Societe
                 Generale.
10.29            Joinder Agreement, dated as of August 31, 1999, by Certain Subsidiaries of KCLLC to         (5)
                 Societe Generale.
10.30            Stock Purchase Agreement dated February 24,2000 by and between Trace Holdings LLC           (6)
                 and KCLLC and KCLLC Holdings, Inc. with respect to all outstanding capital stock of
                 Heart and Cruising.
10.31            Amended  Stock  Purchase  Agreement  dated  February  24,2000  by and  between  Trace       (8)
                 Holdings  LLC and KCLLC and KCLLC  Holdings,  Inc.  with  respect to all  outstanding
                 capital stock of Heart and Cruising.
10.32            Recapitalization  agreement among KELSO Investment  Associates VI, L.P., KEP VI, LLC,       (9)
                 Key Components,  Inc., the shareholders of Key Components, Inc., and SGC Partners II,
                 LLC dated May 8, 2000.
10.33            Credit and Guaranty  Agreement,  dated as of September 29, 2000 among Key Components,      (10)
                 LLC, as Borrower, certain of its Subsidiaries and Equity Holders, as Guarantors, Certain
                 Financial Institutions and Other Persons, as Lenders, First Union National Bank, as
                 Administrative Agent for the Lenders, and Societe Generale, as Syndication Agent for
                 the Lenders.

10.34            Key  Components,  LLC  Pledge  Agreement,  dated  as of  November  21,  2000,  by Key       (7)
                 Components, LLC and in favor of First Union National Bank.

10.35            Key  Components,  Inc.  Pledge  Agreement,  dated as of  November  21,  2000,  by Key       (7)
                 Components, Inc. and in favor of First Union National Bank.

10.36            KCI Merger Corp.  Pledge  Agreement,  dated as of November  21,  2000,  by KCI Merger       (7)
                 Corp. and in favor of First Union National Bank.

10.37            Guarantor  Security  Agreement,  dated as of November 21, 2000, made by B.W.  Elliott       (7)
                 Manufacturing Co., LLC, Hudson Lock, LLC, ESP Lock Products,  LLC, Gits Manufacturing
                 Company,  LLC, Atlantic Guest, Inc., Guest Building,  LLC, Marine Industries Company,
                 LLC, Turner  Electric,  LLC, KCLLC  Holdings,  Inc. VFC  Acquisition  Company,  Inc.,
                 Keyhold,  Inc., Key Components,  Inc., KCI Merger Corp.,  Acme Electric  Corporation,
                 Acme-URDC,  Inc.,  Acme Electric  Mexico  Holdings,  I, Inc.,  Acme  Electric  Mexico
                 Holdings, II, Inc., and in favor of First Union National Bank.
</TABLE>


                                       31
<PAGE>

<TABLE>
<S>              <C>                                                                                      <C>

10.38            Employment Agreement between KCI and Albert W. Weggeman dated as of March 9, 2001          (13)


10.39            Employment Agreement between KCI and George M. Scherer dated as of December 1, 2001        (13)

20.1             Notice of Merger, dated November 21, 2000.                                                  (7)
21.1             List of the Company's Subsidiaries.                                                        (12)
25.1             Form T-1 Statement of Eligibility of Trustee.                                               (2)
</TABLE>

(1)      Previously filed with the Company's Schedule 14D-1, filed on December
         9,1998 (Commission File No.5-13949).
(2)      Previously filed with the Company's registration statement on Form S-4
         (File No. 333- 59675), which was declared effective on November 9,
         1998.
(3)      Previously filed with the Company's Current Report on Form 8-K (File
         No. 333-58675-01), filed February 3, 1999.
(4)      Previously filed with the Company's Form 10-K for the year ended
         December 31, 1998.
(5)      Previously filed with the Company's Form 10-Q for the three months
         ended December 31, 1999.
(6)      Previously filed with the Company's Form 10-K for the year ended
         December 31, 1999.
(7)      Previously filed with the Company's Form 8-K filed on December 6, 2000.
(8)      Previously filed with the Company's Form 8-K filed on April 19, 2000.
(9)      Previously filed with the Company's Form 10-Q for the three months
         ended June 30, 2000.
(10)     Previously filed with the Company's Form 10-Q for the three months
         ended September 30, 2000.
(11)     Previously filed with Schedule 14A of Acme, filed October 12,
         2000(Commission File No. 001-08277).
(12)     Previously filed with the Company's Form 10-K for the year ended
         December 31, 2000.
(13)     Filed herewith.


                                       32
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report to be signed on its behalf by the undersigned thereunto
duly authorized.



                                       KEY COMPONENTS, LLC

Dated: February 22, 2002               By:      /s/ Clay B. Lifflander
                                                ----------------------

                                                Clay B. Lifflander
                                                Chief Executive Officer


Dated: February 22, 2002               By:      /s/ Robert B. Kay
                                                -----------------

                                                Robert B. Kay
                                                President

Dated: February 22, 2002               By:      /s/ Keith A. McGowan
                                                --------------------

                                                Keith A. McGowan
                                                Chief Financial Officer


                                       33
<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Dated: February 22, 2002             By:      /s/ John S. Dyson
                                              -----------------

                                              John S. Dyson
                                              Director

Dated: February 22, 2002             By:      /s/ Clay B. Lifflander
                                              ----------------------

                                              Clay B. Lifflander
                                              Director

Dated: February 22, 2002             By:      /s/ Alan L. Rivera
                                              ------------------

                                              Alan L. Rivera
                                              Director

Dated: February 22, 2002             By:      /s/ Robert B. Kay
                                              -----------------

                                              Robert B. Kay
                                              Director

Dated: February 22, 2002             By:      /s/ George M. Scherer
                                              ---------------------

                                              George M. Scherer
                                              Director


Dated: February 22, 2002             By:      /s/ Philip E. Berney
                                              --------------------

                                              Philip E. Berney
                                              Director

Dated: February 22, 2002             By:      /s/ Thomas R. Wall, IV
                                              ----------------------

                                              Thomas R. Wall, IV
                                              Director



                                       34
<PAGE>


                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report to be signed on its behalf by the undersigned thereunto
duly authorized.


                                        KEY COMPONENTS FINANCE CORP.

Dated: February 22, 2002                By:      /s/ Clay B. Lifflander
                                                 ----------------------

                                                 Clay B. Lifflander
                                                 Chief Executive Officer


Dated: February 22, 2002                By:      /s/ Robert B. Kay
                                                 -----------------

                                                 Robert B. Kay
                                                 President

Dated: February 22, 2002                By:      /s/ Keith A. McGowan
                                                 --------------------

                                                 Keith A. McGowan
                                                 Chief Financial Officer


                                       35
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Dated: February 22, 2002                 By:      /s/ John S. Dyson
                                                  -----------------

                                                  John S. Dyson
                                                  Director

Dated: February 22, 2002                 By:      /s/ Clay B. Lifflander
                                                  ----------------------

                                                  Clay B. Lifflander
                                                  Director

Dated: February 22, 2002                 By:      /s/ Alan L. Rivera
                                                  ------------------

                                                  Alan L. Rivera
                                                  Director

Dated: February 22, 2002                 By:      /s/ Robert B. Kay
                                                  -----------------

                                                  Robert B. Kay
                                                  Director

Dated: February 22, 2002                 By:      /s/ George M. Scherer
                                                  ---------------------

                                                  George M. Scherer
                                                  Director


Dated: February 22, 2002                 By:      /s/ Philip E. Berney
                                                  --------------------

                                                  Philip E. Berney
                                                  Director

Dated: February 22, 2002                 By:      /s/ Thomas R. Wall, IV
                                                  ----------------------

                                                  Thomas R. Wall, IV
                                                  Director



                                       36

<PAGE>

Report of Independent Accountants



To the Board of Directors and Member of
    Key Components, LLC:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of Key Components, LLC and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, 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 index appearing under Item 14(a)(2) on page 29 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 the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the 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.







/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP



Stamford, CT
February 15, 2002



                                       37
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Key Components, LLC
                                                                                                  and subsidiaries


                                                                                       Consolidated Balance Sheets
                                                                                                    (in thousands)
---------------------------------------------------------------------------------------------------------------------
<
 December 31,                                                                            2001                  2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
 Assets
 Current:
    Cash                                                                            $   5,080             $   3,775
    Accounts receivable, net of allowance for doubtful accounts of
       $1,004 and $808 in 2001 and 2000, respectively                                  25,461                29,129
    Inventories                                                                        30,412                35,337
    Prepaid expenses and other current assets                                           1,986                 2,158
    Prepaid income taxes                                                                1,316                 3,699
    Deferred income taxes                                                               4,025                 3,614
    Assets held for sale                                                                2,250                 9,842
---------------------------------------------------------------------------------------------------------------------
         Total current assets                                                          70,530                87,554
 Property, plant and equipment, net                                                    25,891                27,864
 Goodwill, net                                                                        119,067               118,455
 Deferred financing costs, net                                                          5,259                 6,675
 Intangibles, net                                                                         314                   752
 Prepaid pension cost                                                                   3,588                 3,311
 Other assets                                                                           1,070                 1,060
---------------------------------------------------------------------------------------------------------------------
                                                                                     $225,719             $ 245,671
---------------------------------------------------------------------------------------------------------------------
 Liabilities and Member's Equity
 Current liabilities:
    Current portion of long-term debt                                               $   6,305             $   8,195
    Accounts payable                                                                    8,876                11,552
    Accrued compensation                                                                2,814                 3,198
    Accrued expenses                                                                    7,572                 7,271
    Accrued acquisition costs                                                           1,414                 3,767
    Accrued interest                                                                      888                   904
---------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                     27,869                34,887

 Long-term debt                                                                       159,532               174,516
 Accrued lease costs                                                                      525                   553
 Deferred income taxes                                                                  5,056                 4,982
 Other long-term liabilities                                                            1,062                 2,883
---------------------------------------------------------------------------------------------------------------------
         Total liabilities                                                            194,044               217,821
 Commitments and contingencies
 Member's equity                                                                       31,675                27,850
---------------------------------------------------------------------------------------------------------------------
                                                                                    $ 225,719             $ 245,671
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                                               Key Components, LLC
                                                                                                  and subsidiaries


                                                                              Consolidated Statement of Operations
                                                                                                    (in thousands)
---------------------------------------------------------------------------------------------------------------------

 Year ended December 31,                                                  2001               2000                1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>                 <C>
 Net sales                                                           $ 193,817          $ 160,465           $ 144,400
 Cost of goods sold                                                    122,975             93,847              85,079
---------------------------------------------------------------------------------------------------------------------
            Gross profit                                                70,842             66,618              59,321

 Selling, general and administrative expenses                           41,208             30,290              30,001
 Amortization of goodwill                                                3,558              2,626               2,464
 Cumulative adjustment for Aerospace                                      (721)                 -                   -
 Stock appreciation rights compensation expense and other
    nonrecurring expenses                                                  311              2,334               4,510
---------------------------------------------------------------------------------------------------------------------
            Income from operations                                      26,486             31,368              22,346
 Other income (expense):
    Other income                                                           376                799                 465
    Recapitalization expenses                                                -             (7,937)                  -
    Interest expense                                                   (16,573)           (15,159)            (15,417)
---------------------------------------------------------------------------------------------------------------------
            Income before provision for income taxes,
               discontinued operations and extraordinary
               item                                                     10,289              9,071               7,394
 Provision for income taxes                                              5,558              5,172               2,551
---------------------------------------------------------------------------------------------------------------------
            Income from continuing operations                            4,731              3,899               4,843
---------------------------------------------------------------------------------------------------------------------
 Discontinued operations:
    Loss from operations of the inverter business, net                       -               (146)                (28)
    Loss on disposal of the inverter business, net                           -             (3,842)                  -
---------------------------------------------------------------------------------------------------------------------
 Loss from discontinued operations                                           -             (3,988)                (28)
---------------------------------------------------------------------------------------------------------------------
 Extraordinary loss on early extinguishment of debt (net
    of income tax benefit of $828)                                           -             (1,227)                  -
---------------------------------------------------------------------------------------------------------------------
 Net income (loss)                                                   $   4,731          $  (1,316)          $   4,815
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       39
<PAGE>


<TABLE>
<CAPTION>

                                                                                               Key Components, LLC
                                                                                                  and subsidiaries


                                                                        Consolidated Statements of Member's Equity
                                                                                                    (in thousands)
---------------------------------------------------------------------------------------------------------------------

 Year ended December 31,                                                2001               2000                1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>                 <C>
 Member's equity, beginning of year                                  $27,850            $ 9,411             $ 7,674
 Capital contributions                                                     -              7,111               3,336
 Capital distributions                                                  (906)            (1,420)             (2,317)
 Tax benefits of options exercised                                         -                698                   -
 Tax benefit of deduction related to capitalized
    investment costs                                                       -                221                   -
 Option exercise compensation charge                                       -                 45                   -
 Redeemable member's interest accretion to market value                    -             (3,087)             (4,097)
 Reclass of redeemable member's interest                                   -             16,187                   -
 Net income (loss)                                                     4,731             (1,316)              4,815
---------------------------------------------------------------------------------------------------------------------
 Member's equity, end of year                                        $31,675            $27,850             $ 9,411
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       40
<PAGE>


<TABLE>
<CAPTION>

                                                                                               Key Components, LLC
                                                                                                  and subsidiaries


                                                                             Consolidated Statements of Cash Flows
                                                                                                    (in thousands)
---------------------------------------------------------------------------------------------------------------------

 Year ended December 31,                                                2001               2000                1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <C>                <C>
 Cash flows from operating activities:
    Net income (loss)                                              $   4,731           $ (1,316)          $   4,815
    Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
         Loss of discontinued operations                                   -              3,988                  28
         Extraordinary loss on early extinguishment of debt                -              1,227                   -
         Provision for doubtful accounts                                 570                148                 164
         Depreciation and amortization                                 9,056              6,818               6,768
         Amortization of deferred finance costs                          933              1,016                 875
         Tax benefits from equity transactions                             -                919                   -
         Deferred income taxes                                         1,207              1,021                (128)
         Loss (gain) on disposal of assets                                 -                  1                  (8)
         Option compensation charge                                        -                 45                   -
         Stock appreciation rights                                         -              1,556               4,211
          (Increase) decrease in (net of effects of acquisitions):
               Accounts receivable                                     4,214             (1,935)               (630)
               Inventories                                             6,985             (4,708)                (91)
               Prepaid expenses and other assets                       2,662               (670)                 77
          Increase (decrease) in (net of effects of acquisitions):
               Accounts payable                                       (3,419)               722                 314
               Accrued expenses and other liabilities                 (5,007)            (1,025)              2,737
---------------------------------------------------------------------------------------------------------------------
            Net cash provided by continuing operations                21,932              7,807              19,132
            Net cash (used in) provided by discontinued
               operations                                                  -                (99)              1,350
---------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                 21,932              7,708              20,482
---------------------------------------------------------------------------------------------------------------------
 Cash flows from investing activities:
    Business acquisitions, net of cash acquired                            -            (46,319)            (87,319)
    Proceeds from business dispositions                                    -             10,721               7,406
    Capital expenditures                                              (4,131)            (3,089)             (2,680)
    Cash provided by assets held for sale                                666                  -                   -
---------------------------------------------------------------------------------------------------------------------
            Net cash used in continuing operations                    (3,465)           (38,687)            (82,593)
            Net cash used in discontinued operations                       -                  -                (258)
---------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                     (3,465)           (38,687)            (82,851)
---------------------------------------------------------------------------------------------------------------------
 Cash flows from financing activities:
    Payments of term debt, notes payable and other
       obligations                                                   (19,056)           (67,583)            (37,050)
    Proceeds from issuance of debt                                     2,800            103,700              82,638
    Deferred financing costs                                               -             (3,771)             (2,189)
    Repayment of outstanding stock appreciation rights                     -             (7,454)                  -
    Capital withdrawals                                                 (906)            (1,420)             (2,317)
    Capital contributions                                                  -              7,111              12,339
---------------------------------------------------------------------------------------------------------------------
            Net cash (used in) provided by financing
               activities                                            (17,162)            30,583              53,421
---------------------------------------------------------------------------------------------------------------------
 Net increase (decrease) in cash and cash equivalents                  1,305               (396)             (8,948)
 Cash and cash equivalents, beginning of year                          3,775              4,171              13,119
---------------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents, end of year                            $   5,080           $  3,775           $   4,171
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       41
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

   1.       Organization and Significant Accounting Policies

            Basis of Presentation and Nature of Operations

            The consolidated financial statements as of and for the three years
            ended December 31, 2001 include the financial statements of Key
            Components, LLC ("KCLLC"), a Delaware corporation and its
            wholly-owned subsidiaries (collectively the "Company") from their
            respective dates of acquisition. All significant intercompany
            transactions have been eliminated.

            The Company is in the business of the manufacture and sale of custom
            engineered essential componentry in a diverse array of end use
            markets. Through its two business segments, mechanical engineered
            components and electrical components, the Company targets its
            products to original equipment manufacturers. The Company's
            electrical components business, whose product offerings include
            power conversion products, specialty electrical components and
            high-voltage utility switches which are manufactured by its
            subsidiaries Acme Electric Corporation ("Acme"), Marine Industries,
            LLC ("Marinco"), Atlantic Guest, Inc. ("Guest") and Turner Electric,
            LLC ("Turner"). The Company's mechanical engineered components
            business, whose product offerings consist primarily of medium
            security lock products and accessories, flexible shaft and remote
            valve control components and turbo-charger actuators, are
            manufactured by Hudson Lock, LLC ("Hudson"), ESP Lock Products, LLC
            ("ESP"), B.W. Elliott Manufacturing, LLC ("BWE") and Gits
            Manufacturing, LLC ("Gits").

            KCLLC's assets are limited to the Company's corporate office and its
            investments in its subsidiaries. KCLLC's financial statements
            include the related expenses of operating the Company's corporate
            office. At December 31, 2001, KCLLC was wholly-owned by Key
            Components, Inc. ("KCI"), a New York corporation. KCI holds no other
            assets other than its investments in KCLLC and has no operations.

            From August 31, 1999 to December 31, 2000, Keyhold, Inc.
            ("Keyhold"), a Delaware corporation (Note 9(b)) held a minority
            membership in KCLLC. In connection with the Recapitalization (Note
            9(a)) Keyhold was acquired by KCI in May 2000. On December 31, 2000,
            Keyhold was merged into KCI. From its date of acquisition by KCI to
            December 31, 2000, all transactions of or obligations related to
            Keyhold are reflected in the consolidated financial statements of
            KCLLC.

            Use of Estimates

            The preparation of financial statements in conformity with generally
            accepted accounting principles in the United States of America
            requires management to make estimates and assumptions 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 amounts of revenues and expenses during
            the reporting period. Significant estimates used by the Company that
            are subject to change include, but are not limited to, provision for
            doubtful accounts, the Acme acquisition accruals (Note 2) and the
            estimated liabilities related to the pension plans of the Company
            (Note 10). Actual results could differ from the estimates used by
            the Company.

            Cash and Cash Equivalents

            For the purposes of the statement of cash flows, the Company
            considers all highly liquid debt instruments purchased with an
            original maturity of three months or less to be cash equivalents.

            Inventories

            Inventories are stated at the lower of cost or market, on a
            first-in, first-out basis.


                                       42
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            Property, Plant and Equipment

            Property, plant and equipment are stated at cost and depreciated
            using the straight-line method over useful lives of the assets as
            follows:


           --------------------------------------------------------------
           Buildings and improvements                      20 - 40 years
           Equipment                                        3 - 10 years
           Furniture and fixtures                           3 - 10 years
           Leasehold improvements            Shorter of term of lease or
                                                useful life of the asset
           --------------------------------------------------------------


            Income Taxes

            From May 31, 1997 to August 31, 1999, BWE, Hudson and ESP and its
            then parent company, KCI, were subchapter S corporations, resulting
            in the stockholders of KCI being personally liable for the taxes due
            on the income of those companies. Prior to August 31, 1999, Valley
            Forge Corporation ("VFC") (Note 2) and its subsidiaries were C
            corporations and were responsible for paying taxes on their income.
            Effective August 31, 1999, VFC was merged into KCLLC and most of
            VFC's subsidiaries, as well as BWE, Hudson and ESP, were converted
            to limited liability company ("LLC") status. These conversions were
            accomplished by merging each of the existing subsidiaries into a
            newly organized Delaware LLC. Upon conversion to LLC status of the
            subsidiaries, the two members of KCLLC at that time, KCI and
            Keyhold, became responsible for the taxes due on the income of the
            Company, apart from the subsidiaries that remained C corporations.
            As KCI remained an S corporation after the conversions, its
            stockholders remained personally liable for the taxes on income
            passed through to KCI from KCLLC. Prior to May 23, 2000, KCLLC
            distributed to its members the estimated amount of taxes owed on
            income of the Company. Upon the consummation of the Recapitalization
            (Note 9(a)), KCI automatically converted to a C corporation for tax
            purposes. At the same time, KCI acquired Keyhold, which was a C
            corporation for tax purposes. Beginning May 23, 2000, the Company
            reflects its tax provision as if it were a C corporation, the status
            of its member. Keyhold was merged into KCI effective December 31,
            2000.

            For the year ended December 31, 1999, the Company's provision for
            income taxes relates primarily to VFC's consolidated taxable income
            (as a C corporation) and the taxable income of one subsidiary not
            converted to LLC status. For the years ended December 31, 2001 and
            2000, the Company's provision primarily relates to the C corporation
            taxes that the Company is responsible for on the taxable income of
            the Company.

            Deferred income taxes have been recorded to reflect the tax
            consequences on future years of temporary differences between the
            tax bases of assets and liabilities and their financial reporting
            amounts at year-end. Valuation allowances are recorded when
            necessary to reduce deferred tax assets to the amounts expected to
            be realized.


                                       43
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
            Intangibles

            Intangibles at December 31, 2001 primarily consist of costs
            associated with a licensing agreement and covenants not to compete
            arising from business acquisitions. These assets are being amortized
            on a straight-line basis over the lives of the related agreements,
            which range from five to seven years. Amortization of intangibles
            charged to continuing operations amounted to approximately $438,000,
            $506,000 and $681,000 for 2001, 2000 and 1999, respectively.
            Accumulated amortization at December 31, 2001 and 2000 was
            approximately $3.6 million and $3.1 million, respectively.

            Long-lived Assets

            Whenever events or changes in circumstances indicate that the
            carrying amount of an asset may not be recoverable, the Company
            evaluates the basis of its long-lived assets based on expectations
            of undiscounted cash flows related to those assets. Based on its
            most recent analysis, the Company believes that no impairment of its
            long-lived assets exists at December 31, 2001.

            Goodwill

            Goodwill represents the excess of the cost of acquired businesses
            over the fair market value of their net tangible assets. Through
            December 31, 2001 (see "New Accounting Pronouncements" below)
            goodwill was being amortized on the straight-line method over
            thirty-five to forty years. Accumulated amortization at December 31,
            2001 and 2000 was approximately $10.3 million and $6.7 million,
            respectively.

            Deferred Financing Costs

            Debt issuance costs have been deferred and are being amortized on a
            straight-line basis over the lives of the financings. Amortization
            charged to continuing operations amounted to approximately $933,000,
            $1,016,000 and $875,000 for the years ended December 31, 2001, 2000
            and 1999, respectively. Accumulated amortization at December 31,
            2001 and 2000 was approximately $2.2 million and approximately $1.2
            million, respectively.

            Revenue Recognition

            The Company recognizes revenue upon shipment of products to
            customers, when title passes and all risk and rewards of ownership
            have been transferred.

            Concentration of Credit Risk

            Financial instruments which potentially expose the Company to
            concentrations of credit risk consist primarily of trade accounts
            receivable. The Company's customer base includes customers in a
            multitude of industries. Some of its larger customers are focused in
            the marine, turbocharger, aerospace, lawn and garden and office
            furniture industries. Due to the distribution of its customer base
            amongst a large array of end user markets, management does not
            believe that a significant concentration of credit risk exists at
            December 31, 2001.

            Fair Value of Financial Instruments

            For certain of the Company's financial instruments, including cash,
            accounts receivable, accounts payable and accrued expenses,
            management believes that the carrying amounts approximate fair value
            due to their short maturities. The estimated fair value of the
            Company's long-term debt is based on the current rates offered to
            the Company for debt of similar maturities and approximates carrying
            value at December 31, 2001. The Company's Senior Notes (Note 6) are
            currently market listed at approximately 93% of the their face
            value, however the market for the notes is highly inactive.

                                       44
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            New Accounting Pronouncements

            On January 1, 2001, the Company adopted Statement of Financial
            Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
            Instruments and Hedging Activities." This statement did not impact
            on the Company's consolidated financial statements.

            In July 2001, the Financial Accounting Standards Board ("FASB")
            issued SFAS No. 141, "Business Combinations" and SFAS No. 142,
            "Goodwill and Other Intangible Assets" effective for fiscal years
            beginning after December 15, 2001.

            The provisions of SFAS 141 provide specific criteria for the initial
            recognition and measurement of intangible assets apart from
            goodwill. SFAS 141 also requires that upon adoption of SFAS 142 the
            Company reclassify the carrying amount of certain intangible assets
            into or out of goodwill.

            The provisions of SFAS 142; (i) prohibit the amortization of
            goodwill and indefinite-lived intangible assets, (ii) require that
            goodwill and indefinite-lived intangible assets be tested annually
            for impairment (and in interim periods if certain events occur which
            would impact the carrying value of such assets), and (iii) require
            that the Company's operations be formally identified into reporting
            units for the purpose of assessing potential future impairments of
            goodwill.

            In the first quarter of 2002 the Company will apply the new rules on
            accounting for goodwill and other intangible assets and make the
            determinations as to what amounts of goodwill, intangible assets and
            long term debt should be allocated to its reporting units. In
            addition, the Company will perform the first of the required
            impairment tests of goodwill. The Company has not yet determined
            what the effect, if any, that these tests will have on the earnings
            and financial position of the Company. Goodwill amortization for the
            years ended December 31, 2001, 2000 and 1999 was approximately $3.6
            million, $2.6 million and $2.5 million, respectively.

            In October 2001, FASB issued FAS No. 144, "Accounting for the
            Impairment or Disposal of Long-Lived Assets." FAS 144 provides
            guidance on the accounting for long-lived assets to be held and used
            and for assets to be disposed of through sale or other means. FAS
            144 also broadens the definition of what constitutes a discontinued
            operation and how such results are to be measured and presented. FAS
            144 is effective for fiscal years beginning after December 15, 2001.
            The Company does not expect the adoption of FAS 144 to have a
            material impact on the earnings or financial position of the
            Company.

            Reclassifications

            Certain reclassifications were made to conform prior periods to the
            current year presentation.


   2.       Acquisitions and Dispositions

            During the three years ended December 31, 2001, the Company acquired
            the entities described below, which were accounted for by the
            purchase method of accounting, and the results of operations have
            been included in the consolidated financial statements since the
            date of acquisition.

                                       45
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            (a) Acme Electric Corporation

            On November 21, 2000, the Company acquired all of the outstanding
            shares of Acme for a purchase price of approximately $47.3 million
            and assumed liabilities of approximately $28.8 million. In
            conjunction with the acquisition, the Company repaid approximately
            $10.4 million of Acme's outstanding long-term debt out of the
            approximately $28.8 million of liabilities assumed as part of the
            acquisition. The Company recorded the excess purchase price over net
            assets acquired of approximately $33.1 million as goodwill.
            Approximately $3.5 million was recorded to goodwill in 2001 related
            to the changes resulting from retaining Aerospace, from actual
            results of Electronics and other changes. The Company ascribed a
            thirty-five year useful life to goodwill.

            At the time of the acquisition, the Company decided to divest the
            Acme Aerospace ("Aerospace") division and sell the Acme Electronics
            ("Electronics") division. In accordance with Emerging Issues Task
            Force ("EITF") Bulletin 87-11, "Allocation of Purchase Price to
            Assets to be Sold," the Company recorded the anticipated net
            proceeds from the sale of these subsidiaries adjusted for the
            anticipated net cash inflows during the holding period (date of
            acquisition to date of sale) as assets held for sale. In addition,
            the net earnings from these subsidiaries during the holding period
            are excluded from the operations of the Company, in accordance with
            EITF 87-11. Such results and estimated sale proceeds plus the net
            cash inflows during the holding periods have been included in
            goodwill. Aerospace manufactures lightweight high power battery
            chargers and related power systems for aerospace applications.
            Electronics is a contract electronics manufacturer for data storage,
            telecommunications and medical electronic applications.

            Based on the strength of the operating performance of Aerospace,
            which management believes is sustainable, on June 1, 2001, the
            Company decided to retain rather than divest Aerospace. On that date
            and in accordance with EITF 90-6, "Accounting for Certain Events Not
            Addressed in Issue No. 87-11 Relating to an Acquired Operating Unit
            to be Sold," the Company reallocated the purchase price of Acme as
            if Aerospace had never been held for sale and recorded a cumulative
            adjustment for the results of operations of Aerospace from the date
            of acquisition through May 31, 2001 of $721,000 comprised of the
            following:

                                    (In thousands)
            --------------------------------------------------------------
            Net sales                                               $4,988
            Cost of goods sold (including depreciation of $75)       3,367
                                                                   -------
                     Gross profit                                    1,621

            Selling, general and administrative expenses
               (including depreciation of $33)                         900
            --------------------------------------------------------------
                     Income from operations                           $721
            --------------------------------------------------------------


            In December 2001, the Company executed an agreement to sell the
            Electronics division of Acme. The agreement, which closed on
            February 15, 2002, calls for the Company to receive $100,000 in cash
            and a 7% per annum $300,000 note receivable due on February 15,
            2006. In addition, contingent consideration of up to $2.1 million
            will be earned, if the Electronics division meets certain annual
            revenue targets over the next 48 months. Contingent consideration
            earned, if any, including interest at 7% per annum, will be paid on
            the fourth anniversary from the date such contingent consideration
            is earned and will be recorded against goodwill. At December 31,
            2001, the approximately $2.3 million recorded as assets held for
            sale consisted primarily of the tax deduction the Company will
            receive in 2002 from the tax loss generated from the sale.

            As part of the Company's plan of integrating the Acme acquisition,
            the Company accrued approximately $2.3 million of severance and
            related costs and $260,000 of lease exit costs related to exiting
            Acme's corporate office. At December 31, 2001, $1.2 million of
            payments had been made related to these accruals. The Acme corporate
            office was closed in October 2001. The accrued acquisition costs
            represents a significant estimate and is subject to change based on
            actual results.

                                       46
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            (b) Valley Forge Corporation

            On January 19, 1999, the Company acquired all of the outstanding
            shares of VFC for a purchase price of approximately $84.0 million
            (including the issuance of stock appreciation rights of
            approximately $1.4 million) and assumed liabilities of approximately
            $21.7 million. In conjunction with the acquisition, the Company
            repaid approximately $8.9 million of VFC's outstanding long-term
            debt out of the approximately $21.7 million of liabilities assumed
            as part of the acquisition. VFC manufactures electrical and
            mechanical engineered components sold to original equipment
            manufacturers ("OEM"), dealers, and distributors. The Company
            recorded the excess purchase price over net assets acquired of
            approximately $52.5 million as goodwill. The Company ascribed a
            thirty-five year useful life to goodwill.

            At the time of the acquisition, the Company decided to divest two
            VFC subsidiaries, Force 10 Marine Company ("Force 10") and Multiplex
            Technology, Inc. ("Multiplex"). In accordance with EITF 87-11, the
            Company recorded the anticipated net proceeds from the sale of these
            subsidiaries adjusted for the anticipated net cash outflows during
            the holding period (date of acquisition to date of sale) as assets
            held for sale. In addition, the net earnings from these subsidiaries
            during the holding period were excluded from the operations of the
            Company, in accordance with EITF 87-11. Such results and sale
            proceeds have been included in goodwill. The sale of Force 10 was
            completed on February 26, 1999 for proceeds before taxes of $1.7
            million in cash. Multiplex was sold on May 28, 1999 for proceeds
            before taxes of approximately $4.3 million. The tax liability for
            the sales of Force 10 and Multiplex was approximately $144,000.

            On November 30, 1999, the Company sold the stock of Glendinning
            Marine Products, Inc. ("Glendinning"), a former subsidiary of VFC,
            for approximately $3.0 million. The Company received approximately
            $2.1 million in cash and the new owners assumed the outstanding
            mortgage of the Glendinning facility.

            In November 1999, management of the Company decided to withdraw from
            the business of the manufacture and sale of power inverters and
            related instrumentation by selling its interests in Heart Interface
            Corporation ("Heart"), Cruising Equipment Company ("Cruising") and
            Mastervolt International B.V. ("Mastervolt"), all of which were
            acquired as part of the VFC acquisition. In accordance with
            Accounting Principles Board Opinion 30, "Reporting the Results of
            Operations - Reporting the Effects of Disposal of a Segment of a
            Business, and Extraordinary, Unusual and Infrequently Occurring
            Events and Transactions", the Company recorded the net assets of
            Heart, Cruising, and Mastervolt as net assets of discontinued
            operations and reported the results of operations as loss from
            discontinued operations. At December 31, 1999, the Company had made
            no accrual of costs of disposal related to the sale of their
            interests since it had been management's estimate that the Company
            would record gains from the sales at that time.

            In April 2000, the Company consummated the sale of Heart and
            Cruising. The Company received approximately $9.0 million in
            proceeds before any transaction related expenses. Of the $9.0
            million of proceeds, $600,000 was placed in escrow in accordance
            with the agreement. The Company recorded a loss on disposal of Heart
            and Cruising of approximately $3.3 million. To the extent that cash
            is released to the Company from escrow, such funds will be recorded
            as a gain at that time. In July 2001, the Company received notice of
            a claim against the escrow. At December 31, 2000, the Company had
            approximately $646,000 of restricted cash related to the escrow
            included in other assets. The Company has responded to the claim and
            is awaiting further response from the new owners of Heart and
            Cruising.

            On December 29, 2000, the Company sold its interests in Mastervolt
            to the minority shareholders of Mastervolt. The Company received
            approximately $2.3 million before related expenses and recorded a
            loss on disposal of approximately $525,000.


                                       47
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            The summary of the operations of the power inverter business for the
            years ended December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
            December 31,                                                                           2000       1999
            --------------------------------------------------------------------------------------------------------
                                                                                                     (in thousands)
            <S>                                                                                   <C>        <C>
            Net sales                                                                             $ 6,573    $23,956
                                                                                                  -------    -------


            Net loss from operations of the inverter business (net of income taxes
              (benefit) of ($111) and $149, respectively)                                         $  (146)   $   (28)
            Loss on disposal of the inverter business (net of income taxes of $0)                  (3,842)        --
                                                                                                  -------    -------
            Net loss of discontinued operations (net of income taxes (benefit) of ($111)
              and $149, respectively)                                                             $(3,988)   $   (28)
            --------------------------------------------------------------------------------------------------------
</TABLE>


            On an unaudited pro forma basis, assuming that the Acme acquisition,
            the Recapitalization transaction (Note 9(a)) and the termination of
            KCI's S election (Note 1) for tax purposes, and for the 1999
            presentation that the VFC acquisition (Note 2(b)), the sale of
            Glendinning and decision to dispose of the inverter business had
            occurred on January 1, 1999, the consolidated results of operations
            of the Company would have been as follows for the years ended
            December 31, 2000 and 1999:


<TABLE>
<CAPTION>
            Year ended December 31,                                                               2000          1999
            ------------------------------------------------------------------------------------------------------------
                                   (Unaudited)                                                       (In thousands)
            <S>                                                                                   <C>        <C>
            Pro forma net sales                                                                  $220,615       $205,987

            Pro forma income from continuing operations                                          $ 12,666       $  5,523

            Pro forma net income                                                                 $  7,451       $  5,533
            ------------------------------------------------------------------------------------------------------------
</TABLE>


            The unaudited pro forma financial information presented above is not
            necessarily indicative of the results that would have actually
            occurred had the companies been combined for the period presented.

   3.       Inventories

            Inventories consist of:

<TABLE>
<CAPTION>
            December 31,                                                                           2001           2000
            ------------------------------------------------------------------------------------------------------------
            <S>                                                                                   <C>        <C>
                                                                                                      (in thousands)
            Raw materials                                                                        $ 15,566       $ 17,070
            Work-in-process                                                                         6,808          7,857
            Finished goods                                                                          8,038         10,410
            ------------------------------------------------------------------------------------------------------------
               Total inventory                                                                   $ 30,412       $ 35,337
            ------------------------------------------------------------------------------------------------------------
</TABLE>


                                       48
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

   4.       Property, Plant and Equipment

            Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
            December 31,                                                                           2001           2000
            ------------------------------------------------------------------------------------------------------------
            <S>                                                                                   <C>        <C>
                                                                                                      (in thousands)
            Land, building and improvements                                                      $  9,080       $  8,227
            Equipment                                                                              32,888         31,290
            Furniture and fixtures and leasehold improvements                                       1,517          1,056
            Construction-in-progress                                                                  126            316
            ------------------------------------------------------------------------------------------------------------
                                                                                                   43,611         40,889
            Less:  Accumulated depreciation                                                       (17,720)       (13,025)
            ------------------------------------------------------------------------------------------------------------
                       Total property, plant and equipment                                       $ 25,891       $ 27,864
            ------------------------------------------------------------------------------------------------------------
</TABLE>
           Depreciation expense amounted to approximately $5.1 million, $3.8
           million and $3.6 million for the years ended December 31, 2001, 2000,
           and 1999, respectively.

   5.      Operating Segments

           The Company operates in two business segments, the mechanical
           engineered components business and the electrical components
           business. The electrical components business product offerings
           include power conversion products, specialty electrical components
           and high-voltage utility switches. The mechanical engineered
           components business manufactures flexible shaft products, turbo
           charger actuators and related componentry and specialty locks and
           related accessories.

           The Company evaluates performance and allocates resources based on
           profit or loss from operations before interest, taxes, depreciation
           and amortization ("EBITDA"). In its calculation of EBITDA certain
           charges that management determines as non-recurring are excluded.
           Segment information is as follows:
<TABLE>
<CAPTION>
                                                                                    Mechanical engineered
            (In thousands)                                 Electrical components          components           Total
            ------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                      <C>                <C>
            Year ended December 31, 2001:
              Net sales from external customers                   $ 120,401                $  73,416          $ 193,817
              Intersegment net sales                                     --                      135                135
              Segment profit - EBITDA                                20,275                   21,569             41,844
              Segment assets                                        116,576                  100,265            216,841
              Depreciation and amortization                           3,340                    4,159              7,499

            Year ended December 31, 2000:
              Net sales from external customers                   $  71,656                $  88,809          $ 160,465
              Intersegment net sales                                     --                      154                154
              Segment profit - EBITDA                                15,394                   28,816             44,210
              Segment assets                                        115,870                  108,883            224,753
              Depreciation and amortization                           2,241                    4,559              6,800

            Year ended December 31, 1999:
              Net sales from external customers                   $  62,543                $  81,857          $ 144,400
              Intersegment net sales                                    314                      327                641
              Segment profit - EBITDA                                12,528                   24,953             37,481
              Segment assets                                         71,534                   91,037            162,571
              Depreciation and amortization                           2,483                    4,260              6,743
            ------------------------------------------------------------------------------------------------------------
</TABLE>

                                       49
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                 Reconciliation of Selected Segment Information
                      to the Company's Consolidated Totals

<TABLE>
<CAPTION>
Year ended December 31,                                                                   2001             2000             1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>              <C>              <C>
Profit or loss:
  Total profit from reportable segments - EBITDA                                         $ 41,844         $ 44,210         $ 37,481
  Reconciling items:
    Corporate expenses                                                                     (4,267)          (1,704)          (2,592)
    Depreciation and amortization                                                          (8,955)          (6,818)          (6,768)
    Interest expense                                                                      (16,573)         (15,159)         (15,417)
    Management fee                                                                         (1,259)          (1,147)            (800)
    Other non recurring charges                                                              (501)         (10,311)          (4,510)
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes                      $ 10,289         $  9,071         $  7,394
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
December 31,                                                                                      2001                       2000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          (in thousands)
<S>                                                                                             <C>                        <C>
Assets:
Total assets for reportable segments                                                             $216,841                   $224,753
Assets held for sale                                                                                2,250                      9,842
Corporate assets                                                                                    6,628                     11,076
------------------------------------------------------------------------------------------------------------------------------------
Total consolidated assets                                                                        $225,719                   $245,671
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31,                                                          2001                  2000                  1999
------------------------------------------------------------------------------------------------------------------------------------
  Geographical Sales Information:                                                                   (in thousands)
<S>                                                                             <C>                   <C>                   <C>
  United States                                                                 $173,228              $144,756              $136,856
  Canada                                                                           4,107                 4,245                 1,848
  China                                                                            3,852                 1,617                   175
  England                                                                          2,819                 3,138                   510
  Mexico                                                                           2,259                 1,234                 1,172
  Netherlands                                                                      1,610                    --                    --
  Other                                                                            5,942                 5,475                 3,839
------------------------------------------------------------------------------------------------------------------------------------
                                  Total                                         $193,817              $160,465              $144,400
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   6.       Long-term debt consists of the following:

<TABLE>
<CAPTION>
December 31,                                                                                    2001                       2000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              (in thousands)
<S>                                                                                            <C>                        <C>
Senior notes                                                                                   $  80,000                  $  80,000
Term loan and revolving credit facility                                                           85,000                    101,825
Mortgage                                                                                             800                        817
Other                                                                                                 37                         69
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 165,837                    182,711
Less:  Current portion                                                                            (6,305)                    (8,195)
------------------------------------------------------------------------------------------------------------------------------------
           Total long-term debt                                                                $ 159,532                  $ 174,516
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       50
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            (a) Senior Notes

            On May 28, 1998, the Company issued $80,000,000 of 10.50% Senior
            Notes due June 1, 2008, with interest payable semi-annually. The net
            proceeds from the Senior Notes were used to repay debt, repurchase
            outstanding warrants and for general corporate purposes. At December
            31, 2001 and 2000, the Company has accrued interest on these notes
            in the amount of $700,000.

            The notes are fully and unconditionally guaranteed, jointly and
            severally, on a noncollateralized basis, by the subsidiaries of the
            Company (the "Subsidiary Guarantors"). At December 31, 2001, KCLLC
            has de minimus assets other than its investments in the Subsidiary
            Guarantors and cash and no operations other than those of the
            Company's corporate office. Accordingly, the consolidated financial
            statements present the combined assets and operations of the
            Subsidiary Guarantors.

            (b) Term Loan and Revolving Credit Facility

            On September 29, 2000 and in connection with the acquisition of
            Acme, the Company entered into its current credit facility. The
            credit facility provides for a six-year $40,000,000 revolving credit
            facility and a six-year $100,000,000 term loan facility. The credit
            agreement is guaranteed by KCI and the Company's subsidiaries, and
            is collateralized by all of the capital stock of the subsidiaries,
            receivables, inventories, equipment and certain intangible property.
            The Company closed on the credit agreement in November 2000. The
            term loan is payable in quarterly installments through September
            2006 and the Company may pay the quarterly installments in advance.
            Both the term loan and revolving credit facility bear interest at
            fluctuating interest rates determined by reference to a base rate or
            the London interbank offered rate ("LIBOR") plus an applicable
            margin which will vary from 1.00% to 2.75%. The Company has the
            option to lock in a rate based on the base or LIBOR rate. Rates
            determined by reference to the LIBOR rate can be set for 30, 90 or
            180 days. Base rate and LIBOR were 6.0% and 4.43%, respectively, at
            December 31, 2001. The revolving credit facility also requires a
            commitment fee of 0.50% on the unused portion of the facility as
            well as quarterly facility commitment fees. The facility also allows
            for up to $5.0 million of outstanding letters of credit. At December
            31, 2001 the Company had one outstanding letter of credit for
            approximately $443,000. In addition, the credit agreement contains
            certain covenants and restrictions, which require the maintenance of
            financial ratios, and restrict or limit dividends and other
            shareholder distributions, transactions with affiliates, capital
            expenditures, rental obligations and the incurrence of indebtedness.
            At December 31, 2001, the Company was in compliance with these
            covenants and restrictions. As of December 31, 2001, the Company had
            no borrowings outstanding under the revolving credit facility and
            had $85,000,000 outstanding under the term loan. Accrued interest
            payable at December 31, 2001 and 2000 was approximately $183,000 and
            $204,000, respectively.

            (c) Mortgage

            The Company has a mortgage collateralized by one of the Company's
            manufacturing facilities. The mortgage requires monthly payments of
            approximately $5,000 of principal and interest at approximately 7.7%
            per annum with the balance of the principal of approximately
            $657,000 due May 1, 2008.


                                       51
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            At December 31, 2001, aggregate principal payments required on all
amounts due are as follows:


          Year ending December 31,                           Amount
          ------------------------------------------------------------
                                                         (in thousands)
            2002                                            $  6,305
            2003                                              15,645
            2004                                              18,146
            2005                                              22,523
            2006                                              22,525
            Thereafter                                        80,693
          ------------------------------------------------------------
                                                            $165,837
          ------------------------------------------------------------


   7.       Federal and State Income Taxes

            Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
          Year ended December 31,                                            2001              2000              1999
          -------------------------------------------------------------------------------------------------------------
                                                                                         (in thousands)
          <S>                                                               <C>               <C>               <C>
            Current:
               Federal                                                      $ 3,087           $ 2,796           $ 2,261
               State                                                            748             1,356               418
               Foreign                                                          365                --                --
          -------------------------------------------------------------------------------------------------------------
                                Current                                       4,200             4,152             2,679
          -------------------------------------------------------------------------------------------------------------
            Deferred:
               Federal                                                          925               760              (115)
               State                                                            333               260               (13)
               Foreign                                                          100                --                --
          -------------------------------------------------------------------------------------------------------------
                                Deferred                                      1,358             1,020              (128)
          -------------------------------------------------------------------------------------------------------------
            Total provision for income taxes                                $ 5,558           $ 5,172           $ 2,551
          -------------------------------------------------------------------------------------------------------------
</TABLE>


            A reconciliation between income taxes computed at the statutory
            federal rate and income tax expense is as follows:

<TABLE>
<CAPTION>
            Year ended December 31,                                                      2001          2000         1999
            -------------------------------------------------------------------------------------------------------------
            <S>                                                                         <C>           <C>          <C>
            Federal income tax rate                                                      34.0%         34.0%        34.0%
            State income taxes, net of federal benefit                                    7.1           7.9          4.0
            Nondeductible goodwill                                                        8.8           3.9         --
            Recording of temporary differences from changes in tax
              status                                                                     --             2.0         --
            Loss (income) taxed directly to shareholders                                 --             3.1         (6.7)
            Foreign income taxes, net of federal benefit                                  3.3          --           --
            Other permanent differences                                                   1.6           5.1          2.9
            Other, net                                                                   (0.8)          1.0          0.3
            -------------------------------------------------------------------------------------------------------------
                                                                                         54.0%         57.0%        34.5%
            -------------------------------------------------------------------------------------------------------------
</TABLE>

                                       52
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            Taxable foreign income was approximately $1.0 million for the year
            ended December 31, 2001 and was primarily generated from operations
            in Thailand.

            The Company's net deferred assets and liabilities were as follows:

<TABLE>
<CAPTION>
            December 31,                                                                      2001               2000
            -------------------------------------------------------------------------------------------------------------
                                                                                                    (in thousands)
            <S>                                                                             <C>                <C>
            Deferred tax assets:
              Allowance for doubtful accounts                                                $   355            $   272
              Inventory                                                                        1,628              1,352
              Warranty reserve                                                                   290                166
              Accrued severance and other acquisition costs                                      526              1,024
              Accrued compensation costs                                                         842                510
              Supplemental retirement plan                                                       769                793
              Accrued expenses                                                                   709                334
              Accrued lease costs                                                                204                216
              Other                                                                              282                315
            -------------------------------------------------------------------------------------------------------------
              Total deferred tax assets                                                        5,605              4,982
            -------------------------------------------------------------------------------------------------------------
            Deferred tax liabilities:
              Intangibles                                                                     (2,274)            (1,171)
              Pension                                                                         (1,573)            (1,540)
              Excess depreciation                                                             (2,789)            (3,639)
            -------------------------------------------------------------------------------------------------------------
              Total deferred tax liabilities                                                  (6,636)            (6,350)
            -------------------------------------------------------------------------------------------------------------
              Net deferred tax liability                                                     $(1,031)           $(1,368)
            -------------------------------------------------------------------------------------------------------------
</TABLE>


            At December 31, 2001, the Company also had a $1,972,000 deferred tax
            asset with a 100% valuation allowance relating primarily to capital
            losses generated from the sales of the inverter business. The
            Company recorded a 100% allowance since the Company does not believe
            that it can derive a benefit from this asset at this time. The
            capital losses expire between 2004 and 2005.


   8.       Commitments and Contingencies

            The Company rents several manufacturing and warehouse facilities
            under operating lease agreements, two of which are with related
            parties (Note 11). Rent expense under all lease agreements amounted
            to approximately $2.1 million, $1.3 million and $1.1 million in
            2001, 2000 and 1999, respectively.


                                       53
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            At December 31, 2001 and 2000, approximately $576,000 and $585,000,
            respectively, was recorded as accrued lease costs related to leased
            facilities no longer in use by one of the Company's subsidiaries
            (Note 11). The accrual represents the discounted future rental
            payments, net of estimated sublease income. At December 31, 2001 and
            2000, approximately $51,000 and $32,000, respectively, were included
            in accrued expenses.

            The following is a schedule of the future minimum lease payments
            under operating leases which expire through 2010.

          Year ended December 31,                     Minimum rental payments
          -------------------------------------------------------------------
                                                          (in thousands)
          2002                                               $2,206
          2003                                                1,981
          2004                                                1,537
          2005                                                1,022
          2006                                                  873
          Thereafter                                          2,072
          -------------------------------------------------------------------
                            Total minimum lease payments     $9,691
          -------------------------------------------------------------------

             Consistent with other entities its size, the Company is party to
             legal actions and claims, none of which individually or in the
             aggregate, in the opinion of management, are expected to have a
             material adverse effect on the Company's results of operations or
             financial position.


   9.       Members Equity

            (a) Recapitalization

            In May 2000, KCI and its shareholders consummated a Recapitalization
            (the "Recapitalization") with affiliates of Kelso & Company
            ("Kelso") pursuant to which, among other things:

                  o        KCI was recapitalized with Common Stock and Preferred
                           Stock;

                  o        KCI shareholders exchanged approximately 862,000
                           shares of their Common Stock for Preferred Stock and
                           KCI option holders exercised options to purchase
                           20,533 shares of Common Stock, all of which were then
                           exchanged for shares of Preferred Stock. All such
                           Preferred Stock was immediately sold to Kelso for
                           cash at approximately $117 per share;

                  o        SGC Partners II LLC ("SG"), which owned all of the
                           stock of Keyhold, which owned approximately 11.1% of
                           the membership interests of KCLLC prior to the
                           Recapitalization, exchanged all of its Keyhold stock
                           for shares of Preferred Stock which were immediately
                           sold to Kelso for cash at approximately $117 per
                           share, terminating Keyhold's right to require KCLLC
                           to repurchase Keyhold's outstanding investment in
                           KCLLC at the then current market value thereof;

                  o        Holders of KCI stock appreciation rights ("SARs")
                           exercised their SARs and, with a substantial portion
                           of their after-tax proceeds from the exercise,
                           purchased Common Stock from KCI;

            Kelso purchased an aggregate of approximately 35,000 shares of
            Preferred Stock from KCI at approximately $117 per share.

                                       54
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            At the closing of the Recapitalization, KCI, Kelso and certain
            shareholders of KCI entered into a Shareholders Agreement and a
            Registration Rights Agreement and KCI and Kelso entered into an
            Advisory Agreement. As part of Advisory Agreement, KCI is required
            to pay a $325,000 annual management fee to Kelso. Kelso agreed that
            amounts paid by Millbrook Capital Management ("Millbrook") (Note 11)
            to Kelso out of management fees received by Millbrook from KCI or
            KCLLC would offset KCI's obligation to Kelso under the Advisory
            Agreement between Kelso and KCI.

            Effective upon the consummation of the Recapitalization, KCI has 1.1
            million and 10.0 million, respectively, of authorized shares of
            Preferred and Common Stock. Kelso became the owner of all of the
            outstanding shares of Preferred Stock. The Preferred Stock is not
            entitled to vote for the election of directors but is entitled to
            designate two members of KCI's seven member Board of Directors. In
            addition, the Preferred Stock has certain approval rights and is
            convertible into Common Stock at the holder's option (upon
            conversion, the Preferred Stock would constitute approximately 62.0%
            of the total outstanding Common Stock of KCI, on a fully diluted
            basis).

            The Preferred Stock has a liquidation preference equal to its
            purchase price plus accrued dividends (approximately $1.0 million in
            cumulative dividends in arrears at December 31, 2001), bears a 1%
            dividend payable in kind and is redeemable for cash at the option of
            the holder after June 2, 2009. All of the outstanding Common Stock
            and options to purchase Common Stock of KCI continue to be held by
            parties that held such securities prior to the Recapitalization and
            the parties who purchased Common Stock with the after-tax proceeds
            from the exercise of their SARs, which are primarily top management
            and employees of the Company. The aggregate purchase price of the
            Preferred Stock paid by Kelso was approximately $105,000,000 of
            which approximately $4,100,000 was paid to KCI. The Company paid
            approximately $7,900,000 of expenses in connection with the
            transaction.

            As a result of the Recapitalization, KCI, through its direct
            majority interest in KCLLC, held directly and indirectly all of the
            membership interests in KCLLC. As a result of the merger of Keyhold
            into KCI (See Note 1), KCI now holds all of the membership interests
            in KCLLC. In addition all proceeds received by KCI from the
            Recapitalization were contributed to KCLLC for additional membership
            interest.


            (b) Keyhold Membership Interest

            On August 12, 1999, KCLLC entered into agreements (the "SG
            Agreements") with Keyhold and SG, to sell up to $20,000,000 of
            membership equity interests in KCLLC. On September 1, 1999, SG
            (through Keyhold) made a capital contribution to KCLLC of
            $10,000,000, before expenses of approximately $997,000. Keyhold
            received approximately an 11% membership equity interest in KCLLC.
            In connection with the Recapitalization (Note 9 (a)), SG was paid
            approximately $16,187,000 for their interest in Keyhold and Keyhold
            became a wholly owned subsidiary of KCI. On December 31, 2000,
            Keyhold was merged into KCI. Keyhold's investment had been
            classified as redeemable member's equity and has been adjusted to
            estimated fair value, through the date of sale of Keyhold to KCI.
            The accretion in value had been recorded as a reduction in member's
            equity.


            (c) Stock Incentive Plans of KCI

            In 1998, KCI adopted a Long-Term Incentive Plan (the "1998 Plan") to
            attract, retain and provide additional incentive to employees. In
            2000, the Company adopted the Key Components, Inc. Stock Incentive
            Plan (the "KCI Plan"). Awards under either plan may take the form of
            incentive stock options of KCI or non-qualified stock options of
            KCI. Upon the adoption of the KCI Plan, no further grants will be
            made under the 1998 Plan. Options for approximately 15,000 shares of
            common stock were vested at December 31, 2001. Options to purchase
            approximately 29,000 shares vest over the next three years. The
            options for the approximately 86,000 remaining shares vest only
            after a change in control of the Company and if KCI's preferred
            shareholders obtain a targeted return on their investment. The
            vesting event would allow the holder to be compensated for the net
            accretive value of the underlying shares. The Company would take a
            charge to earnings for the accretion in value upon the date that the
            Company is reasonably assured that such criteria would be satisfied.
            The holders of vested options under the KCI Plan can, under certain
            circumstances, require KCI to repurchase the shares acquired by
            exercise of the vested options at fair market value, as defined in
            the Shareholders Agreement.


                                       55
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


Information regarding outstanding stock options is as follows:

<TABLE>
<CAPTION>
                                                                      1998 Incentive Plan             KCI Stock Incentive Plan
                                                                ------------------------------------------------------------------
                                                                                Weighted Average                  Weighted Average
                                                                 Shares          Exercise Price       Shares       Exercise Price
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>                 <C>               <C>
Options outstanding at January 1, 1999                            23,000           $     29                 --           $     --

Options granted                                                   55,120                 39                 --                 --

Options exercised                                                     --                 --                 --                 --

Options canceled                                                  (8,000)                35                 --                 --
----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
 December 31, 1999
                                                                  70,120                 36                 --                 --

Options granted                                                    5,196                 95            118,985                117

Options exercised                                                (20,533)               (33)                --                 --

Options canceled                                                  (1,758)               (80)                --                 --
----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
 December 31, 2000                                                53,025                 42            118,985           $    117

Options granted
                                                                      --                 --             12,711                125
Options exercised                                                     --                 --                 --                 --

Options canceled                                                  (1,053)               (95)            (1,500)              (122)
----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
 December 31, 2001                                                51,972           $     40            130,196           $    118
----------------------------------------------------------------------------------------------------------------------------------


Exercise prices per share                                             --            $25-$95                 --           $117-$125
----------------------------------------------------------------------------------------------------------------------------------
Shares available for options                                          --                 --             74,683                 --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       56
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

     A summary of stock options at December 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                                                                     -------------------------------
                                                                                                           Options Exercisable
                                                                                                     -------------------------------
                                                                Weighted Average                             Weighted Average
-----------------------------------------------------------------------------------------------      -------------------------------
   Range of                                                                                                                 Exercise
Exercise Prices                                   Shares              Life            Price              Shares               Price
-----------------------------------------------------------------------------------------------      -------------------------------
<S>                                              <C>                  <C>           <C>                  <C>                <C>
$25-$35                                           44,578               5.6           $    33              37,434             $    28
$75-$95                                            7,394               7.9           $    85               6,153             $    83
$117-$125                                        130,196               8.7           $   118              15,097             $   117
------------------------------------------------------------------------------------------------------------------------------------
                                                 182,168                                                  58,684
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


     The Company applies APB Opinion 25 and related Interpretations in
     accounting for its plan. Accordingly, as the exercise price of options was
     at or above the market value estimated by management at date of grant, no
     compensation cost has been recognized.

     Pro forma information regarding net income is required by SFAS No. 123,
     "Accounting for Stock-Based Compensation", and has been determined as if
     the Company had accounted for its employee stock options under the minimum
     value method with the following assumptions:


<TABLE>
<CAPTION>
Year ended December 31,                                                            2001                  2000                1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                   <C>                   <C>
Weighted average risk-free interest rate                                           5.2%                  5.5%                 5.0%
Dividend yield                                                                     None                  None                 None
Weighted average expected life                                                   7.3 years             7.6 years             8 years
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


       Had compensation cost for the stock options been determined based on the
       fair values at the grant dates, the Company's net income would have been
       reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
Year ended December 31,                                                                      2001             2000            1999
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        (in thousands)
<S>                                                                                         <C>             <C>              <C>
Net income (loss)
   As reported                                                                              $ 4,731         $(1,316)         $ 4,815
   Pro forma                                                                                $ 4,367         $(1,427)         $ 4,432
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                     57
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            (d) Accrued Compensation Rights

            In connection with the VFC acquisition, KCI issued SARs to certain
            members of operating subsidiary management. The Company is required
            to record as compensation expense any change in the value of the
            SARs based on current market value of KCI stock. For the years ended
            December 31, 2000 and 1999, the Company included in continuing
            operations approximately $1.6 million and $4.2 million,
            respectively, in compensation expense related to the SARs. The SARs
            were exercised in connection with the Recapitalization (Note 9(a)).

            (e) KCI Obligations

            As KCI has no operations, it is dependent on KCLLC for financial
            resources in the form of capital distributions to meet its
            obligations. KCI obligations include the $105 million of its
            preferred stock (including any dividends in arrears which was
            approximately $1.0 million at December 31, 2001) (Note 9(a)), which
            is redeemable for cash at the option of the holder after June 2,
            2009 and the requirement to purchase shares from its common
            shareholders under certain circumstances. Such repurchases are to be
            made at fair market value as defined in KCI's shareholder agreement.
            At December 31, 2001 approximately 1.3 million KCI common shares
            plus potentially 182,000 shares covered by stock options were
            subject to repurchase by KCI. The ability of KCLLC to make such
            capital distributions will be limited by its available resources and
            is limited by restrictions of debt and other agreements.

            (f) Capital withdrawals

            During the year ended December 31, 2001, KCLLC paid a capital
            withdrawal to KCI of approximately $906,000. The proceeds were used
            by KCI to redeem shares of common stock from a stockholder who is no
            longer employed by the Company. The capital distributions during the
            years ended December 31, 2000 and 1999 were primarily used to make
            tax distributions to the members of KCLLC.


 10.        Retirement Plans

            (a) 401(k) Plans

            At December 31, 2001, the Company had three 401(k) plans in effect.
            The Company's employees at domestic locations, other than those of
            Acme, are covered under the Key Components LLC Plan, which the
            Company matches 50% of the employees contributions up to 4% of each
            covered employee's annual compensation. The employees of Acme are
            covered by two 401(k) plans. Employer contributions to the Acme
            plans are discretionary. Employer contributions in the aggregate
            were approximately $414,000, $404,000 and $496,000 for the years
            ended December 31, 2001, 2000 and 1999, respectively.

            (b) Profit Sharing Plan

            The Company sponsors a profit sharing plan for all non-union
            employees at two subsidiaries acquired as part of the VFC
            acquisition. Under this plan, contributions are discretionary and
            limited to a percentage of eligible employees' compensation. There
            was no profit sharing expense for this plan for 2001, 2000 and 1999.
            At December 31, 2001 the Company was in process of terminating the
            plan. The Plan is fully funded and no liabilities are anticipated to
            be generated from the termination.


                                       58
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

            (c) Pension Plans

            The Company has a non-contributory defined benefit pension plan
            covering substantially all the employees of Acme (the "Acme Pension
            Plan"). The formula covering the employees of Acme provides pension
            benefits based upon the employee's individual yearly compensation.
            The Acme Pension Plan assets are managed and invested by a financial
            institution. It is the Company's intention during 2002 to initiate
            the termination of the Acme Pension Plan. At such time that the Plan
            is terminated, the Company's intention is to allow the employees of
            Acme to begin to participate in a 401(k) plan with a match equal to
            that in the Key Components, LLC 401(k) plan. At December 31, 2001
            and 2000, the Company had recorded against the prepaid pension asset
            approximately $2.3 million of anticipated excise tax liabilities and
            the estimated future employer 401(k) contribution liability related
            to the participant accounts of former Acme Pension Plan participants
            who participate in the Key Components, LLC 401(k) plan that will be
            paid using part of the Acme Pension Plan over funding. In addition,
            Gits has a noncontributory defined benefit pension plan (the "Gits
            Plan") covering its union employees retiring after August 1, 1993.
            Pension benefits are based on a multiple of a fixed amount per month
            and years of service, as defined in the union agreement. Benefits of
            the Gits Plan generally vest over a seven-year period. The assets of
            the Gits Plan are managed and invested by an insurance company.

            It is the Company's funding policy for the Gits Plan and the Acme
            Pension Plan to fund at least an amount necessary to satisfy the
            minimum requirements of the Employee Retirement Income Security Act
            of 1974. The amount to be funded is subject to annual review by
            management and its consulting actuary. In recent years, funding
            contributions have been restricted due to application of Internal
            Revenue Code full-funding limitations.

            At December 31, 2001, approximately 0.3% of the plans' assets are
            invested in cash and cash equivalents, 62.1% are invested in
            equities and 37.6% is invested in fixed income securities and
            annuities.

            Summarized information of the Plans, which are reflected from the
            dates of acquisition (January 1999 for the Gits Plan and November
            2000 for the Acme plans) to December 31, 2001 are shown below (in
            thousands):

<TABLE>
<CAPTION>
         Pension Obligation
         Year ended December 31,                                             2001              2000              1999
         --------------------------------------------------------------------------------------------------------------
         <S>                                                               <C>               <C>               <C>
            (In thousands)
            Benefit obligation at beginning of year                        $ 17,867          $  1,033          $     --
            Benefit obligations acquired                                         --            16,692             1,366
            Service cost                                                        513                95                43
            Interest cost                                                     1,055               148                60
            Actuarial gain                                                      (29)              (35)             (382)
            Benefits paid                                                      (820)             (128)              (54)
            Other                                                                --                62                --
         --------------------------------------------------------------------------------------------------------------
            Benefit obligation at end of year                              $ 18,586          $ 17,867          $  1,033
         --------------------------------------------------------------------------------------------------------------
</TABLE>


                                       59
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
            Plan Assets
         --------------------------------------------------------------------------------------------------------------
            Year ended December 31,                                              2001           2000            1999
         --------------------------------------------------------------------------------------------------------------
            (In thousands)
            <S>                                                               <C>            <C>             <C>
            Fair value of plan assets at beginning of year                     $ 23,583       $  1,343        $     --
            Plan assets acquired                                                     --         22,253           1,366
            Actual return on plan assets                                           (733)           119              31
            Benefits paid                                                          (820)          (128)            (54)
            Other                                                                   (34)            (4)             --
         --------------------------------------------------------------------------------------------------------------
            Fair value of plan assets at end of year                           $ 21,996       $ 23,583        $  1,343
         --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
            Reconciliation of Funded Status
            Year ended December 31,
                                                                                   2001           2000            1999
         --------------------------------------------------------------------------------------------------------------
            (In thousands)
           <S>                                                                <C>            <C>             <C>
            Over funded status                                                 $  3,410       $  5,716        $    310
            Unrecognized net actuarial loss (gain)                                2,447           (136)           (310)
         --------------------------------------------------------------------------------------------------------------
            Prepaid benefit                                                       5,857          5,580              --
            Recorded liability for future 401(k) contributions and
              excise taxes                                                       (2,269)        (2,269)             --
         --------------------------------------------------------------------------------------------------------------
            Net Prepaid asset                                                  $  3,588       $  3,311        $     --
         --------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
             Components of Net Periodic Benefit
             Year ended December 31,
                                                                                 2001           2000            1999
         --------------------------------------------------------------------------------------------------------------
             (In thousands)
            <S>                                                                <C>            <C>             <C>
             Service cost                                                      $    547       $     99        $     43
             Interest cost                                                        1,055            149              60
             Expected return on plan assets                                      (1,785)          (269)           (116)
             Other                                                                    7             (7)             --
         --------------------------------------------------------------------------------------------------------------
             Net period benefit                                                $   (176)      $    (28)       $    (13)
         --------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
             Assumption and Method Disclosures
             Year ended December 31,
                                                                                   2001           2000            1999
         ------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>            <C>
             Discount rate                                                     6.00 to 6.50%  6.00 to 6.75%       6.50%
             Expected long-term rate of return on assets                       7.5% to 8.50%      8.50%           8.50%
             Amortization method                                               Straight-line  Straight-line   Straight-line
         ------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       60
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

           (d) Other retirement liabilities

           At December 31, 2001 and 2000, the Company had approximately $1.1
           million and $2.9 million recorded as other long-term liabilities
           related to obligations under Acme's non-qualified Supplemental
           Executive Retirement Plan ("SERP") and a non-qualified
           post-retirement benefits plan for certain former officers of Acme.
           The SERP provides benefits based upon an executive's compensation in
           the last year of service and is reduced by benefits received from the
           salaried pension plan. The nonqualified benefits plan provides post
           retirement health care. Six participants of this plan are retired and
           receiving payments under the SERP. Due to certain provisions under
           the SERP, the Company was required to fund approximately $1.1 million
           to a trust account on behalf of certain of the SERP's participants.
           In addition, as a result of the final resolution with Acme's former
           CEO, the Company reduced the liability it had inherited as part of
           the Acme acquisition. The assets in the trust remain a part of the
           books and records of the Company and are subject to the Company's
           creditors.


 11.       Related Party Transactions

           The Company rents one of its manufacturing facilities under an
           operating lease agreement entered into with a company that is
           co-owned by the President of BWE who also is a shareholder of KCI.
           The terms of the lease, which expires December 31, 2008, provide for
           annual rent increases of 5%. Rental payments amounted to $159,000,
           $151,000 and $144,000 in 2001, 2000 and 1999, respectively.

           The Company rents its Leominster, Massachusetts manufacturing
           facility under an operating lease agreement entered into with a
           company that is co-owned by the former President of ESP who also is a
           shareholder of KCI. The lease, which expires on May 31, 2003,
           provides for annual rent increase based on the CPI. Rental payments
           amounted to $213,000, $208,000 and $203,000 for the three years ended
           December 31, 2001, 2000 and 1999, respectively.

           The Company pays management fees to Millbrook, a party related to a
           shareholder of the Company. These management fees amounted to
           $920,000, $920,000 and $800,000 for the years ended December 31,
           2001, 2000, and 1999, respectively. As part of the Recapitalization,
           Millbrook agreed with Kelso to a reduced management fee, commencing
           in 2002, of $175,000 plus amounts paid to Kelso (Note 9(a)). Kelso
           agreed that amounts paid by Millbrook to Kelso out of management fees
           received by Millbrook from KCI or KCLLC would offset KCI's obligation
           to Kelso under the Advisory Agreement between Kelso and KCI.

           During 2000, the Company paid Millbrook $400,000 and $825,000 for
           investment advisory services related to the sale of the inverter
           business and the acquisition of Acme, respectively. During 1999,
           Millbrook received $500,000 and $350,000, respectively, for
           investment advisory services related to the sale of the Keyhold
           membership interest and the sale of Multiplex. Such costs are either
           recorded as part of the respective transactions or are included in
           deferral financing costs.


 12.       Statement of Cash Flows

<TABLE>
<CAPTION>
          December 31,                                                     2001             2000                 1999
         ----------------------------------------------------------------------------------------------------------------
          Supplemental disclosures of cash flow information:                           (In thousands)
             Cash paid during the year:
          <S>                                                           <C>               <C>                 <C>
                Interest                                                 $  15,608         $ 14,898            $  13,633
                Income taxes                                             $   3,050         $  4,116            $   3,085
         ----------------------------------------------------------------------------------------------------------------
</TABLE>


                                       61
<PAGE>


                               Key Components, LLC
                                and subsidiaries


                        Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                        Column A          Column B          Column C       Column D       Column E
------------------------------------------------------------------------------------------------------------------------------------
                                                        Balance at        Additions                                       Balance at
                                                       beginning of    Charged to costs  Charged to other                   end of
                      Description                        period          and expenses      accounts (2)   Deductions (1)    period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>              <C>            <C>            <C>
 Allowance for doubtful accounts deducted
    from accounts receivable in the balance sheet:
       Year ended December 31:
         2001                                             $  808             $570             $  105         $(479)         $1,004
         2000                                                510              148                235           (85)            808
         1999                                                175              164                202           (31)            510

 Allowance for excess and obsolete inventory deducted
    from inventory in the balance sheet
       Year ended December 31:
         2001                                             $3,159             $846             $  150         $(378)         $3,777
         2000                                              2,902              439                451          (633)          3,159
         1999                                                411              955              1,571           (35)          2,902
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


--------------
(1)      Deductions primarily represent write-offs charged against the
         allowances listed.
(2)      Represents allowance account balances of companies acquired at the date
         of acquisitions.


                                       62