<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, 2003
                                       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: 333-58675-01

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

            Delaware                                   14-1805946
----------------------------------       ------------------------------------
(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. Not Applicable

         Indicate by checkmark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2) Yes__ No X_

         State the aggregate market value of common equity held by
non-affiliates as of June 30, 2003: Not applicable since the membership
interests in Key Components, LLC were owned by Key Components, Inc., a privately
held New York corporation, and all of the shares of common stock of Key
Components Finance Corp. were owned by Key Components, LLC.

         Documents Incorporated by Reference: None

         * Key Components Finance Corp. meets the conditions set forth in
General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this
form with the reduced disclosure format.

<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 files current,
quarterly and annual reports on Form 8-K, Form 10-Q and Form 10-K, respectively.
They can be accessed through the EDGAR database at www.sec.gov. Any debenture
holder can request a copy of filings in writing to the Company's principal
office.

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").
The product offerings of the MEC business 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 B.W. Elliott Manufacturing Co., LLC ("BWE"), Gits Manufacturing,
LLC ("Gits"), Hudson Lock, LLC ("Hudson") and ESP Lock Products, LLC ("ESP").
ESP was merged into Hudson on December 31, 2003. No one customer accounted for
more than ten percent of sales of the Company for any of the three years ended
December 31, 2003. For the years ended December 31, 2003, 2002 and 2001, three
customers, who are subsidiaries of one company, accounted for approximately 11%,
14% and 13% of sales, respectively, of the MEC business. (See Note 5 to the
Company's consolidated financial statements elsewhere in this Form 10-K for
information concerning the Company's business segments).

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 an additional
product line that was consolidated into BWE's operations. 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 in
November 2000 (see Note 2 to the consolidated financial statements contained
elsewhere in this Form 10-K). On March 3, 2003, the Company acquired the
mechanical components business of Arens Controls, LLC. The product line, which
manufactures mechanical push-pull control solutions, was fully integrated into
BWE's Binghamton, New York manufacturing facility in November 2003.

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 $197.3 million for fiscal year 2003.



                                        1
<PAGE>

The Company continues to seek to make selective acquisitions of light industrial
manufacturing companies (see Note 2 to the Company's consolidated financial
statements elsewhere in this Form 10-K).

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. Power conversion product net
sales were approximately 28% of the Company's consolidated net sales for the
year ended December 31, 2003. 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
coils 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 through direct sales to OEMs. Products sold through the
wholesale distribution network are generally smaller sized transformer models.
Due to the small size of the average order, the margins achieved are generally
higher than those achieved selling to OEMs. 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, which was estimated by the
National Electrical Manufacturers Association to be approximately $300 million
for 2003. 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,
that 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, and Sola/Heavy-Duty. Acme supplies
products that 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. 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 are designed into OEM applications has grown over the last five
years.

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 OEM boatbuilders, large retailers and wholesale 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. Net sales of the Company's SPEC products
accounted for approximately 24% of the Company's consolidated net sales for the
year ended December 31, 2003. 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.


                                       2
<PAGE>

Electric Utility Components


The Company's SPEC product line also has products targeted for industrial
applications. The market share of the Company's SPEC's products has grown
dramatically since these products were targeted to the industrial marketplace
approximately ten 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.


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 the Company has, over time, secured its relative position through superior
quality and service, and by creating high barriers to entry through
specialization, reputation, and investments in machinery and equipment. Net
sales of the Company's electric utility products were approximately 8% of the
Company's consolidated net sales for the year ended December 31, 2003.
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.


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. Net sales of flexible shaft products were approximately
13% of the Company's net sales for the year ended December 31, 2003. 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. In
2003, the Company expanded the product offerings of its flexible shaft product
line with the acquisition of the mechanical components business of Arens
Controls, LLC. The product line, which manufactures mechanical push-pull control
solutions, was fully integrated into BWE's Binghamton, New York manufacturing
facility in November 2003.


                                       3
<PAGE>
Turbocharger components

The Company is a primary outsource supplier of turbocharger components to the
domestic and international market for turbocharged diesel engines. The Company's
turbocharger components are essential components of diesel engine turbocharger
systems which, through the use of flow valve controls, increase engine power,
efficiency, and economy while reducing emissions. As the primary supplier of
turbocharger components and exhaust gas systems to major turbocharger and engine
OEMS, 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 Motor
Company. Net sales of the Company's turbocharger components products accounted
for approximately 18% of the Company's consolidated net sales for the year ended
December 31, 2003. 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. In addition, with operational expansion into
Thailand in 1999 and China in 2003, the product line has attracted new customers
as well as expanded business with existing customers.

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 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. Net sales of the Company's lock
products were approximately 9% of the Company's consolidated net sales for the
year ended December 31, 2003. 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 sells
its lock products primarily to leading furniture OEMs.

The lock product line's net sales declined significantly during the three years
ended December 31, 2003. Net sales of the lock product line were approximately
$17.2 million, $21.8 million and $32.6 million for the years ended December 31,
2003, 2002 and 2001, respectively. Management attributes such decline to the
downturn in the economy plus the impact of foreign competition, both of which
have led to the product line becoming a commodity over that period. In February
2004, after reviewing the lock product line's 2003 operating performance as well
as its long-term strategic plan, the Board of Directors of KCI and KCLLC decided
that it would re-evaluate the long-term strategy related to its lock product
line during the first quarter of fiscal 2004. The long-term revaluation will
entail in-depth review of the lock product line's strategic plan and the
underlying assumptions as to the future opportunities for this product line and
the execution risks of meeting the strategic plan's goals.

As the net sales eroded, the shift in manufacturing to Mexico has negatively
impacted customer service and quality. Further, the decline in net sales volume
has made it prohibitive to carry the dual overhead infrastructures of its
domestic and Mexico manufacturing facilities. As a result, management has
concluded to close the lock manufacturing facility in Mexico during fiscal 2004.
The assets of Mexico primarily relate to inventory and machinery and equipment
that would be moved back to the product line's Massachusetts location.


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.


                                       4
<PAGE>

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 is 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 enable
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.

Employees

As of December 31, 2003, the Company employed 1,566 persons on a full-time
basis. Of these employees, 691 were employed in the EC business, 867 were
employed in the MEC business and the Company's corporate office had 8 employees
as of December 31, 2003. One of the Company's subsidiaries has a collective
bargaining agreement, which covered 75 employees. Neither KCLLC 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.


                                       5
<PAGE>

Item 2.           Properties

At December 31, 2003 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                            Power conversion                Lumberton, NC              128,000        Owned
Acme                            Power conversion                Monterrey, Mexico           45,000       Leased
Acme                            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                45,000       Leased

Mechanical Engineered
Components:
BWE                             Flexible shaft products         Binghamton, NY             250,000        Owned
Gits                            Turbocharger components         Creston, Iowa               60,000        Owned
Gits                            Turbocharger components         Chonburi, Thailand          17,000       Leased
Gits                            Turbocharger components         Shanghai, China             28,000       Leased
Hudson (1)                      Lock products                   Hudson, MA                 218,000        Owned
Hudson (1)                      Lock products                   Monterrey, Mexico           38,000       Leased
</TABLE>

(1) Includes production from the Company's ESP facility, formerly in Leominster,
MA, the lease of which terminated in May 2003. All the production from the
Leominster facility was incorporated into the Lock product line's other
manufacturing facilities.


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 fourth
quarter of the fiscal year ended December 31, 2003.


                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities

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



                                       6
<PAGE>

Item 6. Selected Financial Data

The following selected financial data for the three years ended December 31,
2003 was derived from the consolidated financial statements of the Company
included elsewhere in this Form 10-K. The following selected financial data for
the two years ended December 31, 2000 was derived from the consolidated
financial statements of the Company not included 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.

<TABLE>
<CAPTION>

                                                             Year ended December 31,
                                          ----------------------------------------------------------------
                                          2003           2002          2001          2000          1999
                                          ----           ----          ----          ----          ----
<S>                                      <C>            <C>           <C>           <C>           <C>
Net Sales                                $197,290       $187,943      $193,817      $160,465      $144,400
Income from operations (a)                  9,066         17,455        26,862        31,368        22,346
(Loss) income before cumulative
    effect of change in accounting
    principle (c)                          (3,430)         1,526         4,731         2,672         4,843
Net (loss) income (a)(b) (c) (d)           (3,430)        (6,631)        4,731        (1,316)        4,815
Total assets as of the end of period      182,079        192,714       225,719       245,671       181,256
Long term debt (including current
    maturities) as of the end of
    period (e) (f)                        132,757        143,844       165,837       182,711       149,149
</TABLE>



    (a)       Upon the adoption of SFAS 142, the Company stopped recording
              goodwill amortization effective January 1, 2002. In June 2002, the
              Company completed the assessment of its reporting units and its
              initial assessment of impairment upon adoption. As a result, the
              Company identified one reporting unit in the MEC business with a
              book value of goodwill that exceeded its fair market value, which
              was estimated using a valuation methodology that triangulates the
              discounted cash flows, market multiples and transactional
              multiples of the reporting units. In accordance with SFAS 142, the
              Company, during the second quarter 2002, estimated the amount of
              the impairment and recorded a cumulative effect of change in
              accounting principle, as of January 1, 2002, of approximately $7.8
              million, net of taxes of approximately $3.4 million, to write down
              the goodwill associated with the Company's lock product line
              resulting from the market conditions of that product line. The
              Company, as prescribed by SFAS 142, finalized its impairment
              testing by comparing the implied fair value of the reporting
              unit's goodwill to its carrying value during the third quarter to
              determine the amount of the final impairment upon adoption of SFAS
              142. As a result, the Company reduced the tax impact of the charge
              by approximately $353,000 to reflect the proper deferred tax basis
              of the adjusted goodwill. No further impairment charges were taken
              against the Company's goodwill.

              In December 2003 and 2002, in accordance with SFAS 142, the
              Company performed its required annual fair value testing of its
              recorded goodwill for its reporting units using a valuation
              approach consistent with the one used upon adoption of SFAS 142.
              As a result of the analyses, the Company recorded charges of
              approximately $17.4 and $12.4 million for the years ended December
              31, 2003 and 2002, respectively, which is included in the
              Company's operating expenses related to its lock reporting unit.
              The lock reporting unit experienced a further decline of its fair
              value during those periods primarily due to deterioration in those
              years of its results of operations and projected future financial
              results. Through December 31, 2003, the Company's cumulative
              impairment of goodwill was approximately $40.9 million, all of
              which related to its lock product line. At December 31, 2003, the
              Company had written off all the goodwill related to its lock
              product line.

       (b)    Effective May 31, 1997, the predecessors of BWE, Hudson and ESP
              each elected to be treated as an S corporation, which caused the
              shareholders of their then parent company, KCI, to be personally
              liable for the taxes 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 companies ("LLC").
              Corporations that elect to be treated as S corporations and LLCs
              are not liable for the majority of taxes on their income, which
              are imposed instead on their shareholders or members. Accordingly,
              subsequent to May 31, 1997 through December 31, 1998, the
              provision for income taxes includes only those taxes applicable to
              certain states.

                                       7
<PAGE>

              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)

       (c)    Income before cumulative effect of change in accounting principle
              and net loss for the year ended December 31, 2000 reflects a
              charge related to early extinguishment of debt of approximately
              $2.1 million.

       (d)    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.

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

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

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 ("MEC") business. 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. Further, as the Company
leverages itself in order to acquire additional product lines, management uses
free cash flow (a non-GAAP financial measure defined by the Company as cash flow
from operations less cash flow used in investing activities) as a key indicator
of each product line. The EC business product offerings include power conversion
products, specialty electrical components and high-voltage utility switches. The
product offerings of the MEC business consist primarily of flexible shaft and
remote valve control components, turbo-charger actuators and medium security
lock products and accessories. 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 Company's 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. Additionally, in March 2003 the Company acquired the
mechanical components product line of Arens Controls, LLC, which was a
complimentary product for the Company's flexible shaft product line.

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 $197.3 million for fiscal year 2003.

The Company continues to seek to make selective acquisitions of light industrial
manufacturing companies (see Note 2 to the Company's consolidated financial
statements elsewhere in this Form 10-K).



                                       8
<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 results of operations of KCLLC's wholly owned subsidiaries from
their respective dates of acquisition (see Note 2 to the Company's 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,
                                          ----------------------------------------------------------------------------
                                                     2003                     2002                     2001
                                          ----------------------- -------------------------- -------------------------
                                                         % of                      % of                        % of
                                            Amount    Net Sales     Amount      Net Sales      Amount      Net Sales
                                          ----------- ----------- ------------ ------------- ------------ ------------
<S>                                        <C>           <C>       <C>            <C>         <C>            <C>
Net Sales                                  $197,290      100.0%    $187,943       100.0%      $193,817       100.0%

Cost of Goods Sold                          127,879       64.8      117,962        62.8        123,005        63.5
                                          ----------- ----------- ------------ ------------- ------------ ------------
Gross Profit                                 69,411       35.2       69,981        37.2         70,812        36.5
Selling, general and administrative
  expenses                                   41,457       21.0       38,689        20.6         40,802        21.1
Goodwill Impairment                          17,374        8.8       12,350         6.6              -         -
Amortization of goodwill                          -                       -         -            3,558         1.8
Cumulative adjustment for Aerospace               -                       -         -             (721)       (0.4)
Other operating expenses                      1,514        0.8        1,487         0.8            311         0.2
                                          ----------- ----------- ------------ ------------- ------------ ------------
Income from operations                        9,066        4.6       17,455         9.3         26,862        13.9

Interest expense                            (12,338)      (6.3)     (13,301)       (7.1)       (16,573)       (8.6)
                                          ----------- ----------- ------------ ------------- ------------ ------------
(Loss) income before provision for
  taxes and cumulative effect of change
  in accounting principle                    (3,272)      (1.7)       4,154         2.2         10,289         5.3
Provision for income taxes                      158        -          2,628         1.4          5,558         2.9
                                          ----------- ----------- ------------ ------------- ------------ ------------
(Loss) income before cumulative effect
  of change in accounting principle          (3,430)      (1.7)       1,526         0.8          4,731         2.4
Cumulative effect of change in
  accounting principle, net                       -        -         (8,157)       (4.3)             -         -
                                          ----------- ----------- ------------ ------------- ------------ ------------
Net (loss) income                           $(3,430)      (1.7)%  $  (6,631)       (3.5)%    $   4,731         2.4%
                                          =========== =========== ============ ============= ============ ============

</TABLE>




                                       9
<PAGE>

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

<TABLE>
<CAPTION>

Electrical Components Business                                       Fiscal Year Ended December 31,
                                            ---------------------------------------------------------------------------------
                                                        2003                      2002                       2001
                                            --------------------------- -------------------------- --------------------------
                                                             % of                          % of                    % of
                                              Amount      Net Sales       Amount         Net Sales     Amount     Net Sales
                                            ----------- --------------- ------------ ------------- -------------- -----------
<S>                                           <C>               <C>        <C>             <C>          <C>           <C>
Net Sales                                     $117,777          100.0%     $121,051        100.0%       $120,401      100.0%
Cost of Sales                                   72,056           61.2        75,779         62.6          77,683       64.5
                                            ----------- --------------- ------------ ------------- -------------- -----------
Gross Profit                                    45,721           38.8        45,272         37.4          42,718       35.5
Selling, general and administrative
expenses                                        26,436           22.4        26,549         21.9          25,858       21.5
Amortization of goodwill                             -              -             -            -           1,824        1.5
Cumulative adjustment for Aerospace                  -              -             -            -            (721)      (0.6)
                                            ----------- --------------- ------------ ------------- -------------- -----------
Income from operations                        $ 19,285           16.4%      $18,723         15.5%        $15,757       13.1%
                                            =========== =============== ============ ============= ============== ===========
</TABLE>



<TABLE>
<CAPTION>
Mechanical Engineered Components                                     Fiscal Year Ended December 31,
                                            ---------------------------------------------------------------------------------
                                                        2003                       2002                       2001
                                            --------------------------- --------------------------- -------------------------
                                                             % of                        % of                         % of
                                              Amount      Net Sales       Amount       Net Sales       Amount     Net Sales
                                            ----------- --------------- ------------ -------------- ------------- -----------
<S>                                            <C>             <C>          <C>            <C>           <C>         <C>
Net Sales                                      $79,513         100.0%       $66,892        100.0%        $73,416     100.0%
Cost of Sales                                   55,823          70.2         42,183         63.1          45,322      61.7
                                            ----------- --------------- ------------ -------------- ------------- -----------
Gross Profit                                    23,690          29.8         24,709         36.9          28,094      38.3
Selling, general and administrative
expenses                                        11,583          14.6          8,876         13.3           8,960      12.2
Goodwill Impairment                             17,374          21.9         12,350         18.5               -         -
Amortization of goodwill                             -             -              -            -           1,734       2.4
                                                 1,514           1.9
Other expenses                                                                1,487          2.2             311       0.4
                                            ----------- --------------- ------------ -------------- ------------- -----------
Income from operations                        $ (6,781)        (8.5%)       $ 1,996          3.0%        $17,089      23.3%
                                            =========== =============== ============ ============== ============= ===========
</TABLE>


Year ended December 31, 2003 compared to the year ended December 31, 2002


Net Sales: Net sales for the year ended December 31, 2003 ("Fiscal 2003")
increased by approximately $9.3 million, or 5.0%, from approximately $187.9
million for the year ended December 31, 2002 ("Fiscal 2003") to approximately
$197.3 million for Fiscal 2003. This increase was the result of the
approximately $3.3 million, or 2.7%, decrease in the net sales of the EC
business offset by the approximately $12.6 million, or 18.9%, increase in net
sales of the MEC business.

The approximately $3.3 million decline in net sales of the EC business for the
Fiscal 2003 as compared to Fiscal 2002 was driven by continuing soft economic
conditions, which have impacted the EC's power conversion product line. The
power conversion product line was down approximately $3.4 million, or 5.8% for
the Fiscal 2003 as compared to Fiscal 2002 as its construction, industrial and
aerospace end markets remain soft.

The approximately $12.6 million increase in net sales of the MEC business for
the Fiscal 2003 as compared to Fiscal 2002 was driven by increased sales of the
flexible shaft and the turbocharger product lines. Net sales of the flexible
shaft product line increased by approximately $7.0 million, or 36.6%, for the
Fiscal 2003 as compared to Fiscal 2002. This increase was driven by new product
introductions as well as the acquisition of the mechanical components business
of Arens Controls, LLC ("Arens Controls"). The Company completed this
acquisition on March 3, 2003 (See Liquidity and Capital Resources), which
increased net sales of the flexible shaft product line by approximately $5.3
million for the Fiscal 2003 as compared to Fiscal 2002. Net sales of the
turbocharger components product line increased by approximately $10.3 million,
or 39.3%, for the Fiscal 2003 as compared to Fiscal 2002. This increase was
driven primarily by a new product introduction. The net sales of the lock
product line declined by approximately $4.6 million, or 21.2% for Fiscal 2003 as
compared to Fiscal 2002, driven primarily by continued softness in their end
markets as well as foreign competition.


                                       10
<PAGE>

Gross Profit: Gross profit declined by approximately $570,000, or 0.8%, for
Fiscal 2003 as compared to Fiscal 2002, resulting from the sum of the
approximately $449,000, or 1.0%, increase in the gross profit of the EC business
and the approximately $1.0 million, or 4.1%, decline in gross profit of the MEC
business for the Fiscal 2003 as compared to Fiscal 2002.

The approximately $449,000, or 1.0%, increase in gross profit of the EC business
for the Fiscal 2003 as compared to Fiscal 2002 resulted primarily from the $1.0
million increase in gross profit from the specialty electrical product line plus
the approximately $290,000 gross profit increase of the utility product line,
offset by the approximately $1.1 decline in gross profit of the power conversion
product line in Fiscal 2003 as compared to Fiscal 2002. The Company's specialty
electrical product line's increase in gross profit was mostly due to volume
increases in Fiscal 2003 as compared to Fiscal 2002. The utility product line
experienced favorable gross margin mix as its parts business was a larger
percentage of its overall sales. The power conversion product line experienced a
decline in gross profit that was a combination of lower sales in Fiscal 2003 as
compared to Fiscal 2002 as well as lower high margin sales.

The approximately $1.0 million, or 4.1%, decline in gross profit of the MEC
business for Fiscal 2003 as compared to Fiscal 2002 was driven primarily by the
lost volume and margin of the Company's lock product line, partially offset by
gross profit increases of the flexible shaft and turbocharger components product
lines related to volume increases of those two product lines as compared to
2002. In addition, the gross profit of the flexible shaft product line did not
grow in line with its net sales growth as its results were negatively impacted
by a change in the product mix sold as compared to Fiscal 2002. Further, the
acquisition of the mechanical components product line of Arens Controls
negatively impacted the gross margin of the flexible shaft product line as the
Company was working under an interim operating agreement with the seller until
that product line had been fully integrated into the Company's Binghamton, New
York facility, which was completed in November 2003 (See Liquidity and Capital
Resources). While sales of the flexible shaft product line increased by
approximately $7.0 million, or 36.6%, for the Fiscal 2003 as compared to Fiscal
2002, gross profit only increased by approximately $628,000, or 6.7%. The
increase in gross profit for the Fiscal 2003 as compared to Fiscal 2002
resulting from the turbocharger components product line was approximately $2.8
million, or 31.1%. The lock product line experienced a decline in gross profit
of approximately $4.4 million, or 68.6%, resulting from lower revenues and
carrying a higher cost structure as it moves operations to Mexico.

The lock product line's net sales declined significantly during the three years
ended December 31, 2003. Net sales of the lock product line were approximately
$17.2 million, $21.8 million and $32.6 million for the years ended December 31,
2003, 2002 and 2001, respectively. As the net sales eroded, the shift in
manufacturing to Mexico has negatively impacted customer service and quality.
Further, the decline in net sales volume has made it prohibitive to carry the
dual overhead infrastructures of its domestic and Mexico manufacturing
facilities. As a result, management has concluded to close the lock
manufacturing facility in Mexico during fiscal 2004. The assets of Mexico
primarily relate to inventory and machinery and equipment that would be moved
back to the product line's Massachusetts location.

The gross profit, as a percentage of net sales ("GP percentage"), for the EC
business increased by approximately 1.4% for the Fiscal 2003 as compared to
Fiscal 2002. For the MEC business, the GP percentage declined by approximately
7.1% during the Fiscal 2003 as compared to Fiscal 2002. The change in GP
percentage for the EC business is the result of a change in product mix as
described above. The change in GP percentage for the MEC business is primarily
related to the impact of the acquisition of the mechanical components product
line of Arens Controls, as well as the margin decline of the lock product line,
as described above.

Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses increased approximately $2.8 million, or 7.2%,
for the Fiscal 2003 as compared to Fiscal 2002. As a percentage of net sales,
SG&A increased to 21.0% for the Fiscal 2003 from 20.6% of net sales for the
Fiscal 2002. SG&A of the EC business decreased by approximately $113,000, or
0.4%, for the Fiscal 2003 as compared to Fiscal 2002 and as a percentage of net
sales, increased approximately 0.5%. SG&A of the MEC business increased by
approximately $2.7 million, or 30.5%, for the Fiscal 2003 as compared to Fiscal
2002 and as a percentage of net sales, increased approximately 1.3%.


                                       11
<PAGE>

The increase in SG&A expenses for the Fiscal 2003 as compared to Fiscal 2002 is
primarily related to the increase in SG&A of the MEC business. The increase in
SG&A of the MEC business is primarily the result of the Company operating under
an interim operating agreement relating to the acquisition of the mechanical
components product line of Arens Controls, which was completed on March 3, 2003
(see Liquidity and Capital Resources). The Company was operating under the
interim operating agreement with the seller until November 2003. Furthermore
this product line expensed approximately $463,000 of moving and other costs
related to integrating the Arens Controls product line. In addition, higher
compensation costs drove the increase in SG&A of the turbocharger product line,
as a result of the growth in the operating performance of that product line
during the Fiscal 2003 as compared to Fiscal 2002. The lock product line had an
increase in SG&A resulting from the increased costs of operating its Mexico
production facility as compared to Fiscal 2002 as well as having severance costs
related to management changes made in 2003.

The decline in the SG&A of the EC business was driven by lower commission and
compensation expenses, somewhat offset by unfavorable freight and commission mix
related to the 2003 product sales. Higher insurance costs for the Fiscal 2003 as
compared to Fiscal 2002 also impacted the SG&A of both the MEC and EC business.
Lastly, during the Fiscal 2003, the Company paid approximately $325,000 of
professional fees related to an unsuccessful acquisition attempt.


Goodwill Impairment: In December 2003 and 2002, in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible
Assets", the Company performed its required annual fair value testing of its
recorded goodwill for its reporting units. The fair value assessment was
estimated using a valuation methodology that triangulates the discounted cash
flows, market multiples and transactional multiples of the reporting units. As a
result of the analyses, the Company recorded impairment charges of approximately
$17.4 and $12.4 million for Fiscal 2003 and Fiscal 2002, respectively, related
to its lock reporting unit. The lock reporting unit experienced a further
decline of its fair value during those periods, primarily due to a deterioration
of its results of operations and projected future financial results. In
addition, market multiples assigned to this product line also declined during
2002. Through December 31, 2003, the Company's cumulative impairment of goodwill
was approximately $40.9 million, all of which related to its lock product line.
At December 31, 2003 the Company had written off all the goodwill related to its
lock product line.

Other Expenses: Other expenses increased by approximately $27,000 for the Fiscal
2003 as compared to Fiscal 2002. The expenses for Fiscal 2003 and Fiscal 2002
were incurred primarily in moving manufacturing of the Company's lock products
to Mexico. In addition, certain start-up expenses were incurred in 2003 related
to establishing a production facility in China for the Company's turbocharger
product line. The lock product line's net sales declined significantly during
the three years ended December 31, 2003. As a result of this and other factors
described above, management has concluded to close the lock manufacturing
facility in Mexico during fiscal 2004. The assets of Mexico primarily relate to
inventory and machinery and equipment that would be moved back to the product
line's Massachusetts location.

Income from Operations: The decline in income from operations of approximately
$8.4 million, or 48.1%, for the Fiscal 2003 as compared to Fiscal 2002, resulted
from the decrease in gross profit of approximately $570,000 coupled with the
increases in SG&A expenses of approximately $2.8 million, goodwill impairment of
approximately $5.0 million and other expenses of approximately $27,000.

Interest Expense: Interest expense decreased by approximately $963,000, or 7.2%,
during the Fiscal 2003 as compared to Fiscal 2002. This decrease is primarily
due to lower levels of outstanding borrowings during the Fiscal 2003 as compared
to Fiscal 2002.

Provision for Income Taxes: The provision for income taxes decreased by
approximately $2.5 million, or 94.0%, for the Fiscal 2003 as compared to Fiscal
2002. The Company's effective tax rate on income before provision for income
taxes and cumulative effect of change in accounting principle for the Fiscal
2003 was approximately 4.8%. The effective rate on income before provision for
income taxes and cumulative effect of change in accounting principle for the
Fiscal 2002 was approximately 63.3%. The decline in the effective rate from the
Fiscal 2002 to Fiscal 2003 was primarily driven by the Company's foreign tax
credits.

(Loss) income before cumulative effect of change in accounting principle: (Loss)
income before cumulative effect in change in accounting principle increased by
approximately $5.0 million during the Fiscal 2003 from income of approximately
$1.5 million in Fiscal 2002 to a loss of approximately $3.4 million in Fiscal
2003. The increase in loss resulted from the decrease in income from operations
of approximately $8.4 million offset by the declines in interest expense and
provision for taxes of approximately $963,000 and $2.5 million, respectively,
due to the factors discussed above.

                                       12
<PAGE>

Cumulative effect of Change in Accounting Principle: In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations"
and SFAS No. 142, which were effective for fiscal years beginning after December
15, 2001. In June 2002, the Company completed the assessment of its reporting
units and its initial step one impairment test on January 1, 2002 financial
information. As a result, the Company identified one reporting unit in the MEC
business with a book value of goodwill that exceeded its fair market value,
which was estimated using valuation methodology involving discounted cash flows
and market and transactional multiples of the reporting units. In accordance
with SFAS 142, the Company estimated the amount of the impairment and recorded a
cumulative effect in change of accounting principle, as of January 1, 2002, of
approximately $7.8 million, net of taxes of approximately $3.4 million, to write
down the goodwill associated with the Company's lock product line resulting from
the current market conditions of that product line. The Company finalized its
impairment testing, as prescribed by SFAS 142, during the third quarter of 2002
to determine the amount of final impairment. As a result, the Company reduced
the tax impact of the charge by approximately $353,000 to reflect the proper
deferred tax basis of the adjusted goodwill.

Net loss: Net loss declined by approximately $3.2 million for the Fiscal 2003 as
compared to Fiscal 2002. (Loss) income before cumulative effect in change in
accounting principle increased by approximately $5.0 million as described above.
This was offset by the approximately $8.2 million increase in net income for the
Fiscal 2003 as compared to Fiscal 2002 resulting from the Company's cumulative
effect in change of accounting principle recorded during 2002.


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

Net Sales: Net sales Fiscal 2002 decreased by approximately $5.9 million, or
3.0%, from approximately $193.8 million for the year ended December 31, 2001
("Fiscal 2001") to $187.9 million for Fiscal 2002. This decrease was the result
of the approximately $650,000, or 0.5%, increase in the net sales of the EC
business offset by the approximately $6.5 million, or 8.9%, decrease in net
sales of the MEC business.

For the first five months of 2001, the results of operations of the aerospace
division of Acme ("Aerospace") were excluded from the consolidated results of
the Company due to its classification as being held for sale during that period.
Net sales of the EC business, pro forma to include the net sales of Aerospace
for the entire period in the results of operations for Fiscal 2001, declined by
approximately $4.3 million, or 3.5% for Fiscal 2002. The primary driver was the
decline in sales for the power conversion product line of the EC business. Net
sales of the power conversion business for Fiscal 2002, pro forma to include the
net sales of Aerospace for the entire period in the results of operations for
Fiscal 2001, declined by approximately $6.2 million or 9.7%. This decline was
the result of lower demand in the industrial and telecom markets for power
distribution products. The decline in the power conversion product sales were
slightly offset by growth in the Company's specialty electrical product sales,
which increased by approximately $3.8 million or 9.0%. However, weakness in the
utility marketplace resulted in the Company's utility product sales declining
approximately $1.9 million or 10.0%.

Net sales in the MEC business decreased by approximately $6.5 million from
approximately $73.4 million in Fiscal 2001 to approximately $66.9 million in
Fiscal 2002. This decrease is primarily related to the decline in sales of the
Company's lock product line, which has continued to experience softness in
demand across its major markets.

Gross Profit: Gross profit decreased by approximately $831,000, or 1.2%, from
approximately $70.8 million for Fiscal 2001 to approximately $70.0 million
Fiscal 2002, resulting from the $2.6 million, or 6.0%, increase in the gross
profit of the EC business less the decline in gross profit of the MEC business
for Fiscal 2002 of approximately $3.4 million, or 12.0%.

Gross profit of the EC business, pro forma to include the results of operations
of Aerospace for the entire period in the results of operations for Fiscal 2001,
increased by approximately $887,000 for Fiscal 2002 as compared to Fiscal 2001.
The gross profit gains resulted from productivity improvements experienced
during Fiscal 2002 as well as from a sales product mix that resulted in higher
margins.

The approximately $3.4 million decline in gross profit for the MEC business for
Fiscal 2002 as compared to Fiscal 2001 is primarily due to the decline in sales
of the lock product line of the MEC business for Fiscal 2002.



                                       13
<PAGE>

The gross profit, as a percentage of net sales ("GP percentage"), for the EC
business increased by approximately 1.9% for Fiscal 2002. For the MEC business,
the GP percentage declined by approximately 1.3% for Fiscal 2002. The GP
percentage for the EC business, pro forma to include the results of operations
of Aerospace for the entire period in the results of operations for Fiscal 2001,
increased by approximately 2.0% from 35.7% for Fiscal 2001 to 37.7% for Fiscal
2002. The increase in GP percentage for the EC business is the result of product
mix and productivity gains. The Company's power conversion product line
benefited from high margin aftermarket aerospace produce sales and from
significant productivity gains as it consolidated distribution operations,
negotiated material cost savings and increased labor efficiency at its Mexico
manufacturing facility. The Company's SPEC product line's margins benefited from
an increase in sales volume during Fiscal 2002. The decline in GP percentage of
the MEC business is primarily related to margin compression resulting from fixed
overheads being absorbed by lower sales levels primarily related to the lock
product line.

Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses declined by approximately $2.1 million, or
5.2%, from Fiscal 2001 to Fiscal 2002. As a percentage of net sales, SG&A
decreased by 0.5% from Fiscal 2001 to Fiscal 2002.

SG&A of the EC business increased by approximately $691,000, or 2.7%, for Fiscal
2002 as compared to Fiscal 2001 and, as a percentage of net sales, increased
0.5% for Fiscal 2002. SG&A of the EC business, pro forma to include the results
of operations of Aerospace for the entire period in Fiscal 2001, declined by
approximately $771,000, or 2.8%, for Fiscal 2002 as compared to Fiscal 2001,
and, as a percentage of net sales, SG&A, pro forma to include the results of
operations of Aerospace for the entire period in the results of operations for
Fiscal 2001, increased 0.1% for Fiscal 2002.

SG&A of the MEC business, which declined by approximately $84,000, or 0.9%, for
Fiscal 2002 as compared to Fiscal 2001, increased as a percentage of sales by
1.1% from Fiscal 2001 to Fiscal 2002.

The decrease in SG&A expenses for Fiscal 2002 as compared to Fiscal 2001 is
primarily related to the expenses of the former corporate office of Acme, which
was closed in October 2001. That office added approximately $2.3 million to the
consolidated SG&A expenses of the Company during Fiscal 2001, including
approximately $425,000 of depreciation. Upon the close of the Acme corporate
office, all remaining related expenses of that office terminated.

The decrease in the SG&A of the EC business, pro forma to include the results of
operations of Aerospace for the entire period in Fiscal 2001, was primarily
related to the Company's cost reduction initiatives put in place during Fiscal
2001 in response to the downturn in the economy and lower commissions due to the
lower sales volumes and commission mix of the sales volume.


Goodwill Impairment: In December 2002, in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets",
the Company performed its required annual fair value testing of its recorded
goodwill for its reporting units. The fair value assessment was estimated using
a valuation methodology that triangulates the discounted cash flows, market
multiples and transactional multiples of the reporting units. As a result of the
analysis, the Company recorded a charge of approximately $12.4 million, related
to its lock reporting unit, which experienced a further decline of its fair
value since the January 1, 2002 assessment, due to a deterioration in the
current year of its results of operations compared to its operating plan and
projected future financial results as well as a decline in the market multiple
ascribed to the product line in its fair market valuation. Through December 31,
2002, the Company's cumulative impairment of goodwill was approximately $23.5
million, all of which related to its lock product line.

Amortization of Goodwill: Goodwill amortization decreased by approximately $3.6
million during Fiscal 2002 as compared to Fiscal 2001, due to the Company
ceasing the amortization of goodwill as of January 1, 2002 as required by SFAS
142 (See Cumulative Effect of Change in Accounting Principle).

Acme Aerospace Division Cumulative Adjustment: On September 1, 2001, the
Company, based on management's conclusion that Aerospace, which had previously
been held for sale, was more valuable than what current market conditions
dictated, 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 Acme purchase price 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, which had been
excluded from the results of operations of the Company and had been included in
goodwill.



                                       14
<PAGE>

Other Expenses: Other expenses increased by approximately $1.2 million for
Fiscal 2002 as compared to Fiscal 2001. For Fiscal 2002 and Fiscal 2001, the
other expenses include approximately $1.4 million of redundant facility and
start up expenses related to the Company's new lock production facility in
Mexico.

Income from Operations: Income from operations decreased by approximately $9.4
million, or 35.0%, from Fiscal 2001 to Fiscal 2002. This decrease resulted from
the decrease in gross profit of approximately $831,000 offset by the decreases
in SG&A expenses of approximately $2.1 million and goodwill amortization of
approximately $3.6 million. The decrease in operating expenses was reduced by
the $12.3 million charge taken for impairment of goodwill and by $721,000 of
cumulative income recorded during Fiscal 2001 related to the inclusion of
Aerospace in the Company's reporting and the increase in other operating
expenses of approximately $1.2 million discussed above.

Interest Expense: Interest expense declined by approximately $3.3 million, or
19.7%, during Fiscal 2002. This decrease is primarily due to lower levels of
outstanding borrowings during Fiscal 2002 as compared to Fiscal 2001, as well as
reduced rates of interest charged on the outstanding principal on the Company's
variable rate term loan during Fiscal 2002 as compared to Fiscal 2001.

Provision for Income Taxes: The provision for income taxes declined by
approximately $2.9 million, or 52.7%, for Fiscal 2002 as compared to Fiscal
2001. The decline is primarily related to the decline in pretax income. In
addition, the Company was able to take advantage of certain foreign tax credits,
which reduced the Company's tax liability. The Company's effective tax rate for
Fiscal 2002, however, increased to 63.3% on income before taxes from Fiscal 2001
when the Company's effective tax rate was 54.0%. The increase in the effective
tax rate is primarily related to the impairment charges taken against goodwill,
which are not deductible for tax purposes.

Income before cumulative effect of change in accounting principle: Income before
cumulative effect of change in accounting principle decreased by approximately
$3.2 million from approximately $4.7 million for Fiscal 2001 to approximately
$1.5 million for Fiscal 2002. The primary drivers of this decrease were the
approximately $9.2 million decrease in income from operations, the approximately
$3.3 million decrease in interest expense and the approximately $2.9 million
decrease in Company's provision for taxes due to the factors discussed above.

Cumulative effect of Change in Accounting Principle: In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations"
and SFAS No. 142, which were 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.

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 June 2002, the Company completed the assessment of its reporting units and
its initial step one impairment test on January 1, 2002 financial information.
As a result, the Company identified one reporting unit in the MEC business with
a book value of goodwill that exceeded its fair market value, which was
estimated using valuation methodology involving discounted cash flows and market
and transactional multiples of the reporting units. In accordance with SFAS 142,
the Company estimated the amount of the impairment and recorded a cumulative
effect of change in accounting principle, as of January 1, 2002, of
approximately $7.8 million, net of taxes of approximately $3.4 million, to write
down the goodwill associated with the Company's lock product line resulting from
the current market conditions of that product line. The Company finalized its
impairment testing, as prescribed by SFAS 142, during the third quarter to
determine the amount of final impairment. As a result, the Company reduced the
tax impact of the charge by approximately $353,000 to reflect the proper
deferred tax basis of the adjusted goodwill. No further impairment charges were
taken against the Company's goodwill.

Net (Loss) income: Net loss increased by approximately $11.4 million from net
income in Fiscal 2001 of approximately $4.7 million to a net loss in Fiscal 2002
of approximately $6.6 million. This increase resulted from the decline in Fiscal
2002 in income from continuing operations of approximately $3.2 million from
Fiscal 2001, primarily driven by the 2002 goodwill impairment charge of
approximately $12.4 million and the approximately $8.2 million charge taken to
reduce the Company's carrying value of its goodwill as of January 1, 2002.



                                       15
<PAGE>

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 $80.0 million of uncollateralized 10.5% senior notes due 2008 and
its outstanding credit facilities. The credit facility provides for a six-year
$40.0 million revolving credit facility, which as a result of the amendment
discussed below was reduced to $25.0 million until March 30, 2004, and a
six-year $100.0 million term loan facility. The obligations under the credit
agreement governing the credit facilities are guaranteed by the Company's
subsidiaries and KCI, are 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, 2003. 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 3.75% and require the payment of a commitment fee of ranging
from 0.375% to 0.5% on the unused portion of the facility as well as quarterly
commitment fees.

The credit facility also allows for up to $5.0 million of outstanding letters of
credit. At December 31, 2003, the Company had two letters of credit outstanding
for approximately $1.5 million. The letters of credit primarily relate to the
Company's workman's compensation insurance programs. Currently, the Company
believes that the $5.0 million allowance for letters of credit is sufficient for
its needs.

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.

In September 2002, the Company amended its credit agreement (the "Amendment") to
provide for revised financial covenant ratios from September 30, 2002 through
March 30, 2004 from the original covenant ratios stipulated in the credit
agreement. The Company anticipated that certain of the original covenants, which
became more stringent over the term of the agreement, would not be met due to
the general decline in the economy. In addition, the Amendment revised the
Company's applicable margin on borrowings, the maximum allowable capital
expenditures through March 29, 2004 and reduced the amount allowed for permitted
acquisitions (as defined in the credit agreement) from $15 million to $7.5
million through March 30, 2004. Concurrent with the Amendment, the Company
voluntarily reduced the availability under its revolving credit facility by $15
million from $40 million to $25 million until March 30, 2004.

As a result of the impact of the domestic economy on the Company's business
coupled with the performance of the lock product line and cash spent on an
unsuccessful acquisition attempt during 2003, the Company would not have been
able to achieve the required step down in the financial covenants that was to
occur as of September 2003 in accordance with the Amendment. Accordingly, the
Company entered into a second amendment to its credit agreement (the "Second
Amendment"). The financial covenants as modified by the Second Amendment apply
from September 30, 2003 through March 30, 2005, at which time the financial
covenants return to the financial covenants in effect before the Amendment. At
December 31, 2003, the Company was in compliance with the credit agreement, as
amended.

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. At December 31, 2003, the Company had prepaid its next
principal payment. Principal payments required for the next 12 months will be
approximately $12.1 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. The Company's outstanding commitments for capital
expenditures at December 31, 2003 were not material. The Company anticipates its
capital expenditures for the year ended December 31, 2004 to be approximately
$4.0 million. The expenditures are primarily needed to maintain its facilities,
expand its production capacity for new product introduction as well as fund the
Company's ongoing plan to expand foreign operations 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, which it believes to
be sufficient for any such purpose.



                                       16
<PAGE>

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 liquidation preferences of $107.0 million for its preferred stock plus any
dividends payable in arrears (at December 31, 2003 there were approximately $3.9
million in cumulative dividends in arrears, payable in kind), 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,
2003 approximately 1.3 million KCI common shares plus potentially 191,000 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 the
tax obligations of KCI in its tax provision.

Cash flows provided by operating activities were approximately $20.4 million,
$22.4 million, and $21.9 million for Fiscal 2003, 2002 and 2001, respectively.
The net decrease in cash flows of approximately $2.0 million for Fiscal 2003
resulted primarily from the decline in net income plus non-cash charges of
approximately $2.5 million offset by the net increase in cash provided by the
operating assets of the business. For the Fiscal 2003, net income plus non-cash
charges totaled approximately $15.2 million versus the Fiscal 2002 of
approximately $17.8 million. The main driver between the two periods is the
decline in income from operations of approximately $8.4 million. Adding back the
goodwill impairment charges of both periods, which are non-cash charges, the
cash decline in income from operations is approximately $3.4 million. The
Company's primary working capital accounts (accounts receivable, inventory and
accounts payable) used net cash of approximately $1.1 million as compared to
Fiscal 2002, when the working capital accounts provided net cash of
approximately $5.0 million. The change in the cash provided by the working
capital accounts is primarily the result of servicing the demand for new product
introduction in certain product lines. In addition, as a result of relocating
production to Mexico, inventory levels of the Company's lock product line
slightly increased. The Company's prepaid expenses provided cash of
approximately $4.4 million primarily related to the utilization of prior year
tax overpayments to reduce current year estimated tax payments. In addition, the
Company's workers compensation program is more cash advantageous in 2003 as most
of the premium is paid as claims are processed versus in the past where the
Company was under a guaranteed cost program with premiums all due up front.
Accrued expenses provided net cash of approximately $1.9 million for Fiscal 2003
as compared to approximately $801,000 used by accrued expenses during Fiscal
2002. In Fiscal 2003, the Company's LIBOR contracts underlying the Company's
outstanding term debt did not come up for renewal until January 2004, at which
time the Company paid the accrued interest related to the contracts. In Fiscal
2002 such contracts were terminating on a 30-day cycle and therefore were fully
paid at the end of Fiscal 2002.

The approximately $444,000 increase in cash provided by operating activities for
Fiscal 2002 from Fiscal 2001 resulted primarily from the increase in the cash
provided by net income plus non cash adjustments which year over year increased
approximately $1.3 million, offset by the year over year net use of cash from
the operating assets of the business. The working capital accounts (accounts
receivable, inventory and accounts payable) provided net cash to operations of
approximately $5.0 million in Fiscal 2002 as compared to approximately $7.8
million in Fiscal 2001. The net cash flow decline from the working capital
accounts is due to certain of the Company's product lines operations rebounding
in Fiscal 2002 and the Company increasing inventory safety stock levels to
maintain high customer satisfaction as it continues to move production to
Mexico. Accrued expenses used net cash in operations of approximately $801,000
in Fiscal 2002 as compared to approximately $5.0 million in Fiscal 2001, which
is the result of accrued expenses returning to normalized levels at the end of
Fiscal 2001. As a result, accrued expenses at December 31, 2002 were fairly
constant as compared to accrued expenses at December 31, 2001, however, accrued
expenses at December 31, 2001 were significantly lower than the accrued expenses
as of December 31, 2000 primarily due to the Company having paid, during 2001, a
substantial portion of the December 31, 2000 accrued expenses related to the
acquisition of Acme.


                                       17
<PAGE>

Cash flows used in investing activities were approximately $8.2 million, $2.4
million and $3.5 million for Fiscal 2003, 2002 and 2001, respectively. Capital
expenditures for the Fiscal 2003, 2002 and 2001 were approximately $3.6 million,
$2.7 million and $4.1 million, respectively. The increase in capital
expenditures for Fiscal 2003 was primarily related to new tooling and machinery
to service demand related to new product introduction, add facility capacity for
the product line acquisition of Arens Controls and expand foreign manufacturing
operations. Proceeds from assets held for sale was approximately $364,000 and
$666,000 for Fiscal 2002 and 2001, respectively, which was related to the sold
electronics division of Acme Electric Corporation.

On March 3, 2003, the Company acquired the mechanical components business of
Arens Controls for a purchase price of approximately $4.5 million and assumed
liabilities of approximately $642,000. The Company recorded the estimated excess
purchase price over net assets acquired of approximately $2.0 million as
goodwill. Other intangibles acquired in the transaction were not material. The
product line, which manufactures push-pull cable and related components, was
integrated into BWE's Binghamton, New York manufacturing facility. The Company
borrowed $2.0 million on its revolving credit facility to partially finance this
acquisition.

Cash flows from financing activities used net cash of approximately $11.2
million, $22.2 million and $17.2 million during Fiscal 2003, 2002 and 2001,
respectively. The net cash used in financing activities for Fiscal 2003, 2002
and 2001 was primarily driven by the Company's repayment of debt (net of
borrowings) under its existing credit facilities of approximately $11.1 million,
$22.0 million and $16.3 million in Fiscal 2003, 2002 and 2001, respectively. At
December 31, 2003, the Company was one payment ahead of schedule under its
current term debt facility.

For Fiscal 2002, the Company paid deferred financing costs of approximately
$229,000, related to the Company's existing credit facilities.

During Fiscal 2003 and 2001, the KCLLC paid member withdrawals to KCI of
approximately $100,000 and $906,000, respectively. KCI used the funds received
during Fiscal 2003 and 2001, respectively, to repurchase outstanding shares of
its common stock from former shareholders.

The lock product line's net sales declined significantly during the three years
ended December 31, 2003. Net sales of the lock product line were approximately
$17.2 million, $21.8 million and $32.6 million for the years ended December 31,
2003, 2002 and 2001, respectively. Management attributes such decline to the
downturn in the economy plus the impact of foreign competition, both of which
have led to the product line becoming a commodity over that period. In February
2004, after reviewing the lock product line's 2003 operating performance as well
as its long-term strategic plan, the Board of Directors of KCI and KCLLC decided
that it would re-evaluate the long-term strategy related to its lock product
line during the first quarter of fiscal 2004. The long-term revaluation will
entail in-depth review of the lock product line's strategic plan and the
underlying assumptions as to the future opportunities for this product line and
the execution risks of meeting the strategic plan's goals. The Company believes
that a sale of this product line would generate after-tax proceeds at least
equal to the current carrying value of the assets of this product line (see Note
14 to the consolidating financial statements elsewhere in this Form 10-K).

As the net sales eroded, the shift in manufacturing to Mexico has negatively
impacted customer service and quality. Further, the decline in net sales volume
has made it prohibitive to carry the dual overhead infrastructures of its
domestic and Mexico manufacturing facilities. As a result, management has
concluded to close the lock manufacturing facility in Mexico during fiscal 2004.
The assets of Mexico primarily relate to inventory and machinery and equipment
that would be moved back to the product line's Massachusetts location.

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 next twelve
months.


                                       18
<PAGE>

Commitments and Contingencies

The following is a schedule of the Company's contractual obligations outstanding
at December 31, 2003:

<TABLE>
<CAPTION>

                                                                  Payments due by period
                                      -------------------------------------------------------------------------------
                                                    Less than 1                                       More than 5
      Contractual Obligations            Total          year          1-3 years       3-5 years          years
------------------------------------- ------------ --------------- ---------------- --------------- -----------------
<S>                                      <C>              <C>              <C>             <C>                 <C>
Long-term debt obligations               $132,757         $12,196          $39,868         $80,693           $     -
Operating lease obligations                 9,210           1,768            2,908           1,936             2,598
Accrued lease costs                           469               -              212             257                 -
Other long-term liabilities                 1,335               -                -               -             1,335
Stand by letters of credit                  1,468               -                -               -             1,468
                                      ------------ --------------- ---------------- --------------- -----------------
                                         $145,239         $13,964          $42,988         $82,886           $ 5,401
                                      ============ =============== ================ =============== =================
</TABLE>


Critical Accounting Policies

Financial Reporting Release No. 60, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
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, 2003, the Company
      has recorded approximately $80.2 million in goodwill and other intangible
      assets related to acquisitions made in 2003 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 determined using a valuation methodology that triangulates
      the discounted cash flows, market multiples and transactional multiples of
      the reporting units. 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.

      Pension Plans: The Company's assets and liabilities recorded in connection
      with the Company's pension plans use estimates that include but are not
      limited to expected return on assets and life expectancy of participants.
      In preparation of the consolidated financial statements the Company
      reviews these estimates by reviewing current market conditions and
      internal information at its disposal.

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.

                                       19
<PAGE>

Significant estimates used by the Company that are subject to change include,
but are not limited to the following:

       (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's deferred tax assets primarily relate to deductible
              tax intangibles resulting from the Company's acquisition
              transactions and temporary differences in the basis of its working
              capital accounts due to non-deductible reserves. The Company
              records as necessary, valuation allowances against its deferred
              tax assets. To date the Company believes that it will realize the
              benefits from its deferred tax assets as it is expected to
              generate taxable income in the future. If the Company were to
              determine that it would not be able to realize its deferred tax
              assets in the future, 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. Inflation

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, 2003, was approximately $28.4
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

In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS 150 had no material impact on the consolidated
operations or financial condition of the Company.

                                       20
<PAGE>

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for contracts entered into or modified
after June 30, 2003, except as defined in the SFAS. The adoption of SFAS 149 had
no material impact on the consolidated operations or financial condition of the
Company.

In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation
of Variable Interest Entities." FIN 46 requires variable interest entities to be
consolidated by their primary beneficiaries. A primary beneficiary is the party
that absorbs a majority of the entity's expected losses or residual benefits.
FIN 46 applies immediately to variable interest entities created after January
31, 2003; for the first fiscal year or interim period beginning after June 15,
2003 for variable interest entities, which an enterprise holds a variable
interest that is acquired before February 1, 2003. The adoption of FIN 46 had no
material impact on the consolidated operations or financial condition of the
Company.

In November 2002, the FASB released FIN No. 45 "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a
guarantor in its financial statements about its obligations under certain
guarantees it has issued. FIN 45 also clarifies that a guarantor is required to
recognize, at the inception of a guarantee for guarantees issued or modified
after December 31, 2002, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company's adoption of the
interpretation and valuation of future guarantees had no material impact on the
Company's consolidated results of operations and financial position. See Note 6
regarding disclosures about the Company's warranty costs.

In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities". This statement sets forth various modifications to
existing accounting guidance which prescribes the conditions which must be met
in order for costs associated with contract terminations, facility
consolidations, employee relocations and terminations to be accrued and recorded
as liabilities in financial statements. This statement is effective for exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
did not have a material effect on the Company's consolidated results of
operations and financial position.

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.



                                       21
<PAGE>

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 $52.0 million outstanding under its term loan
and with any amounts outstanding under its $25 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 4.4% until April 2004, when the underlying
LIBOR contract is up for renewal. At December 31, 2003, the Company had no
amounts outstanding under its line of credit and was one payment ahead of
schedule on its term debt. A 1% change in the interest rate for the Company's
credit facilities in place at December 31, 2003 would have resulted in a change
in the Company's annual interest expense of approximately $603,000. 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.

As the Company has operations outside the United States of America, it is
subject to foreign currency exchange risk. To date those risks have not had a
material impact on the Company's results of operations or financial position.


Item 8. Financial Statements and Supplementary Data

The Company's consolidated financial statements for the three years ended
December 31, 2003, together with the report of PricewaterhouseCoopers LLP dated
February 27, 2004, are included elsewhere herein. See Item 15 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

Item 9A. Control Procedures

The management of KCLLC carried out an evaluation, with the participation of its
President and Chief Financial Officer, of the effectiveness of its disclosure
controls and procedures as of December 31, 2003. Based upon that evaluation,
KCLLC's President and Chief Financial Officer concluded that KCLLC's disclosure
controls and procedures were effective to ensure that information required to be
disclosed by KCLLC in reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the Securities and Exchange
Commission.

There has not been any change in KCLLC's internal control over financial
reporting in connection with the evaluation required by Rule 15d-15(d) under the
Exchange Act that occurred during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, KCLLC's
internal control over financial reporting.

The management of Key Components Finance Corp. ("Finance Corp.") carried out an
evaluation, with the participation of its President and Chief Financial Officer,
of the effectiveness of its disclosure controls and procedures as of December
31, 2003. Based upon that evaluation, Finance Corp.'s President and Chief
Financial Officer concluded that Finance Corp.'s disclosure controls and
procedures were effective to ensure that information required to be disclosed by
Finance Corp. in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.


There has not been any change in Finance Corp.'s internal control over financial
reporting in connection with the evaluation required by Rule 15d-15(d) under the
Exchange Act that occurred during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, Finance
Corp.'s internal control over financial reporting.



                                       22
<PAGE>


                                    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,
2003. 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.

<TABLE>
<CAPTION>

             Name           Age           Position
-----------------------    -----    ---------------------
<S>                         <C>    <C>
John S. Dyson               61      Co-Chairman of the Board of Directors of KCI, KCLLC and Finance
                                    Corp.
Clay B. Lifflander          41      Co-Chairman of the Board of Directors of KCI, KCLLC and Finance
                                    Corp.
Robert B. Kay               41      Director of KCI, KCLLC and Finance Corp.  President of KCLLC and
                                    Finance Corp.
Alan Rivera                 41      Director of KCI and KCLLC, Vice President and Secretary of KCI
                                    and KCLLC.
George M. Scherer           50      Director of KCI and KCLLC, Vice President of KCI and President
                                    of BWE.
Philip E. Berney            40      Director of KCI and KCLLC.
Tom R. Wall, IV             44      Director of KCI and KCLLC.
Albert W. Weggeman          40      Chief Operating Officer and Vice President of KCLLC.
Keith A. McGowan            41      Chief Financial Officer and Vice President of KCLLC.
J. Marty O'Donohue          53      President of Marinco.
Daryl A. Lilly              43      President of Gits.
</TABLE>


John S. Dyson has been Co-Chairman of the Board of Directors of the KCI, KCLLC
and Finance Corp. since December 2003 and Chairman of the Board of Directors of
such companies since their inception through December 2003. 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. In December 2003, Mr. Lifflander was elected Co-Chairman of the Board
of Directors of KCI, KCLLC and Finance Corp. Mr. Lifflander served as the
Company's Chief Executive Officer from November 1999 until his resignation on
December 30, 2003. 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.

                                       23
<PAGE>

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.

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. From 1986 to 1999, Mr. Berney worked
at Bear, Stearns & Co. Inc. where he was promoted to 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 Vice President of
Operations. During February 2003, Mr. Weggeman was promoted to Chief Operating
Officer. 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 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 KCI's Specialty Electrical Group since
December 1998. Mr. O'Donohue was President of Marinco from February 2001 until
November 1998. Prior to joining Marinco he held senior management positions with
GardenAmerica Corporation, Epyx and Crown Zellerbach Corporation.

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.


                                       24
<PAGE>

Code of Ethics

On March 10, 2004, the Board of Directors of the Company adopted a Code of
Ethics applicable to its President, Chief Financial Officer and Chief Operating
Officer. The Code of Ethics is filed as a an exhibit to this Form 10-K.

Audit Committee Financial Expert

Since the Company is not a listed issuer, it is under no requirement to have an
audit committee. The Board of Directors believes it can conduct all of the
functions of an audit committee without unduly burdening the duties and
responsibilities of the Board members.

The Board of Directors of the Company has determined that Philip E. Berney meets
the SEC definition of an "audit committee financial expert." Mr. Berney is not
"independent" as such term is used under the Securities Exchange Act of 1934.
The Board of Directors of the Company has further determined that each of the
other members of the Board of Directors has significant finance or accounting
experience as a result of their experience or background.


                                       25
<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, 2002.

<TABLE>
<CAPTION>
                                                                               Long Term
                                        Annual Compensation                   Compensation
                                                                                 Awards
                                                                                 Number
                                                                              Securities of
  Name and Principal                                         Other Annual    Underlying Options
       Position          Year      Salary       Bonus        Compensation          (2)
-----------------------  ----     --------    --------       ------------     -----------------
<S>                      <C>     <C>          <C>              <C>            <C>
Clay B. Lifflander
  (1) (2), Chief
  Executive Officer      2003    $       --   $        --      $     --               --
                         2002    $       --   $        --      $     --               --
                         2001    $       --   $        --      $     --               --


Robert B. Kay (4)
  President              2003    $  320,906   $        -- (5)  $     --               --

                         2002    $  304,999   $    75,000      $     --               --

                         2001    $  295,000   $        --      $     --               --


Alan L. Rivera (1),
  Secretary              2003    $       --   $        --      $     --               --

                         2002    $       --   $        --      $     --               --

                         2001    $       --   $        --      $     --               --


Albert W. Weggeman
  (4), Chief
  Operating Officer      2003    $  225,200   $        -- (5)  $     --               --


                         2002    $  216,749   $    45,000      $     --            2,500

                         2001    $  174,262   $    54,250      $     --            5,000

Keith A. McGowan,
  Chief Financial
    Officer              2003    $  186,854   $        -- (5)  $     --               --

                         2002    $  176,249   $    35,000      $     --            1,000

                         2001    $  170,000   $       --       $     --              192

George M. Scherer
    (4), President of
    BWE                  2003    $  254,000   $        -- (5)  $     --               --

                         2002    $  254,000   $    35,625      $     --               --

                         2001    $  225,000   $    26,144      $     --               --

</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."


                                       26
<PAGE>

(2)    Effective on December 30, 2003, Mr. Lifflander resigned as Chief
       Executive Officer of KCLLC and Key Components Finance Corp.

(3)    Long terms awards related to options granted to purchase KCI common
       stock.

(4)    The Company is a party to employment agreements with certain of its key
       employees.

(5)    The 2003 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 determined based on certain performance goals and are at
       the discretion of the Board of Directors of KCLLC.

             AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 2003 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, 2003.

<TABLE>
<CAPTION>

                           Number of Securities underlying Unexercised    Value of Unexercised In-the-Money Options
                                       Options at Year End                             at Year End (1)
                          ---------------------------------------------- ---------------------------------------------
          Name                 Exercisable           Unexercisable            Exercisable           Unexercisable
          ----            ---------------------- ----------------------- ---------------------- ----------------------
<S>                         <C>                     <C>                   <C>                    <C>
Clay B. Lifflander               10,000                  20,000                   $     -              $    -
Robert B.Kay                     30,000                  20,000                 1,300,000                   -
George M. Scherer                 1,333                   2,667                         -                   -
Alan L. Rivera                    2,500                   5,000                         -                   -
Albert W. Weggeman                1,944                   5,556                         -                   -
Keith A. McGowan                  5,178                   4,064                   116,000                   -
</TABLE>


(1)    Assumes management's estimate of fair market value of $100.00 per share
       of common stock at December 31, 2003.

The Company did not grant any securities to the named executive officers during
the year ended December 31, 2003.

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 $250,000 per annum with yearly increases based on the consumer
price index or merit increases, an annual incentive bonus, at the discretion of
the Board of Directors based upon Mr. Kay and the Company reaching 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. At December 31, 2003, Mr. Kay's annual base
compensation was $325,000. 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. The Company is currently
negotiating a new agreement with Mr. Kay.

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. As of December 31, 2003 Mr. Weggeman's annual base compensation was
$240,000. 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 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.

                                       27
<PAGE>

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, 2003, options to purchase an aggregate of approximately 52,000
shares were outstanding under the 1998 Plan at a weighted average exercise price
of approximately $41 per share, of which all were 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.

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, 2003, the Company had options for approximately 139,000 shares of
common stock at a weighted average exercise price of approximately $116 per
share outstanding under the Plan. Options for approximately 45,000 were vested
as of December 31, 2003. Options for 5,700 shares vest over the next three
years. The options for the approximately 88,000 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 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 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.



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.



                                       28
<PAGE>

The Company also has a 401(k) plan for the employees of Acme. There is no
Company match in the plans, although the Company has the right to make
discretionary contributions. All funds, which are participant contributions, are
vested to the employee.


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.

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.

At December 31, 2003, approximately 94% of the plans' assets are invested in
cash and cash equivalents and 6% are invested in equities. At December 31, 2002,
approximately 0.4% of the plans' assets were invested in cash and cash
equivalents, 54% were invested in equities and 45.6% were invested in fixed
income securities and annuities.



                                       29
<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 27, 2004 of (i) each person known to
own beneficially more than 5% of 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.

<TABLE>
<CAPTION>
                                                                  Common Stock Beneficially Owned
                                                             ---------------------------------------------
     Beneficial Owner                Address                        Shares (1)                % (2)
----------------------------- ------------------------------ ---------------------------- ----------------
<S>                          <C>                             <C>                         <C>
John S. Dyson                 Key Components, LLC
                                200 White Plains Road                223,932 (3)               58.6%
                                Tarrytown, NY 10591

Clay B. Lifflander            Key Components, LLC
                                200 White Plains Road                183,447 (3)(4)            46.8%
                                Tarrytown, NY 10591

Robert B. Kay                 Key Components, LLC
                                200 White Plains Road                 30,000(5)                7.3%
                                Tarrytown, NY 10591

Alan L. Rivera                Key Components, LLC
                                200 White Plains Road                 17,262 (6)               4.5%
                                Tarrytown, NY 10591

George M. Scherer             Key Components, LLC
                                200 White Plains Road                 54,190 (7)               14.1%
                                Tarrytown, NY 10591

Philip E. Berney              Kelso & Co.                            918,065(8)                70.6%
                              320 Park Avenue
                              New York, NY 10022

Thomas R. Wall, IV            Kelso & Co.                            918,065(8)                70.6%
                              320 Park Avenue
                              New York, NY 10022

Kelso & Co.                   Kelso & Co.                            918,065(8)                70.6%
                              320 Park Avenue
                              New York, NY 10022

Albert W. Weggeman            Key Components, LLC                      2,222(9)                0.6%
                                200 White Plains Road
                                Tarrytown, NY 10591

Keith A. McGowan              Key Components, LLC
                                200 White Plains Road                  5,512(10)               1.4%
                                Tarrytown, NY 10591

All Officers and
  Directors (9 persons)         Key Components, LLC
                                200 White Plains Road              1,321,353 (11)              97.8%
                                Tarrytown, NY 10591
----------------------------- ------------------------------ ---------------------------- ----------------
</TABLE>


(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.

                                       30
<PAGE>

(2)    Share values and percentages of ownership are based on share ownership
       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 10,000 shares of KCI Common Stock.

(5)    Represents vested options to purchase 30,000 shares of KCI Common Stock.
       See "Executive Compensation."

(6)    Includes vested options to purchase 2,500 shares of KCI Common Stock. See
       "Executive Compensation."

(7)    Includes vested options to purchase 1,333 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 2,222 shares of KCI Common Stock.
       See "Executive Compensation"

(10)   Represents vested options to purchase 5,512 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.

The following table provides information as of December 31, 2003 about KCI's
common stock that may be acquired upon the exercise of options outstanding under
existing compensation plans.


                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                                                           Number of securities
                                                                                           remaining available
                                      Number of securities to be     Weighted-average      for future issuance
                                       issued upon exercise of      exercise price of     under equity compensation
                                         outstanding options,       outstanding options,  plan (excluding securities
     Plan category                       warrants and rights        warrants and rights   referenced in column (a))
-------------------------------        -------------------         -------------------    ---------------------------
<S>                                    <C>                         <C>                    <C>
Equity compensation plans
approved by security holders:
1998 Incentive Plan                            51,803                      $ 41                       None
KCI Stock Incentive Plan                      139,034                      $116                      65,845
Equity compensation plans
not approved by security holders                None                       None                       None
                                       -------------------         -------------------    ---------------------------
         Total                                190,837                      $ 96                      65,845
                                       -------------------         -------------------    ---------------------------

</TABLE>




                                       31
<PAGE>

Item 13. Certain Relationships and Related Transactions

ESP Lease

The Company rented its former 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 former shareholder of KCI. The lease
expired on May 31, 2003 in accordance with its terms. Rental payments for the
three years ended December 31, 2003 were approximately $91,000, $217,000, and
$213,000, 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 $176,000,
$167,000 and $159,000 in Fiscal 2003, 2002 and 2001, 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 KCI. The Company
recorded management fees related to Millbrook of $175,000, $175,000 and $920,000
for Fiscal 2003, 2002 and 2001, respectively. In 2000, as part of a
recapitalization of the Company, KCI and Kelso entered into an Advisory
Agreement. As part of the Advisory Agreement, KCI is required to pay a $325,000
annual management fee to Kelso. Also as part of the recapitalization, Millbrook
agreed with Kelso to a reduced management fee, commencing in Fiscal 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.


Item 14. Principal Accounting Fees and Services.

Fees billed to the Company from PricewaterhouseCoopers LLP, the Company's
principal accountant, was as follows:

<TABLE>
<CAPTION>
         Year ended December 31,                     2003                   2002
------------------------------------------- ----------------------------------------------
<S>                                                       <C>                    <C>
Services :                                                 (In thousands)
Audit Fees                                                $292,500               $259,100
Audit related fees (1)                                      10,624                 20,041
Tax Service fees (2)                                       218,968                139,025
Other fees (3)                                              87,502                 23,000
------------------------------------------- ----------------------- ----------------------
                                                          $609,594               $441,166
------------------------------------------- ----------------------- ----------------------
</TABLE>

       (1)    Primarily relates to services provided to perform statutory audits
              of foreign operations.
       (2)    Primarily relates to review of the Company's annual tax filing,
              consulting related to the Company's acquisition activities and
              consulting on tax matters related to foreign operations.
       (3)    Due diligence services related to target acquisitions.



                                       32
<PAGE>


                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                                                Form 10-K Page
                                                                --------------
(a)      Documents filed as part of the Form 10-K
         (1)  Financial Statements:
         Report of Independent Auditors                               37
         Consolidated Balance Sheets at
           December 31, 2003 and 2002                                 38
         Consolidated Statements of Income
           for the three years ended December 31, 2003                39
         Consolidated Statements of Stockholders' Equity
           for the three years ended December 31, 2003                40
         Consolidated Statements of Cash Flows for the
           three years ended December 31, 2003                        41
         Consolidated Statements of Comprehensive
           Income for the three years ended December 31, 2003         42
         Notes to Consolidated Financial Statements                  43-64

         (2)  Financial Statement Schedules:
         Valuation and Qualifying Accounts (Schedule II)              65

(b)      Reports on Form 8-K

         (1)  Form 8-K dated November 7, 2003 Press Release dated
              November 7, 2003, announcing financial results for
              the quarter ended September 30, 2003 (furnished
              pursuant to Item 12 of Form 8-K, under Item 9 of
              such Report).

(c)      Exhibits
         See list of exhibits on page                                 34

(d)      Financial Statement Schedules
         See (a)(2) above                                             65




                                       33
<PAGE>




                                  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)
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).
10.7*            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)
10.12            Lease of Real Property, dated June 1, 1993, between ESP and Massachusetts Colony            (2)
                 Corporation.
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.
10.24*           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.
</TABLE>


                                       34
<PAGE>

<TABLE>
<S>              <C>                                                                                      <C>
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.
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)
10.40            First Amendment to the Credit Agreement, dated June 28, 2002,                              (14)
                 among KCLLC, the Lenders (as defined) and Wachovia Bank,
                 National Association
10.41*           Key Components, Inc. Stock Incentive Plan                                                  (15)
                 Second Amendment to the Credit Agreement, dated October 31, 2003, among KCLLC, the         (16)
10.42            Lenders (as defined) and Wachovia Bank, National Association
14.1             Code of Ethics                                                                             (17)
20.1             Notice of Merger, dated November 21, 2000.                                                  (7)
21.1             List of the Company's Subsidiaries.                                                        (15)
25.1             Form T-1 Statement of Eligibility of Trustee.                                               (2)
31.1             Rule 13a-14(a)/15d-14(a) Certifications of KCLLC                                           (17)
31.2             Rule 13a-14(a)/15d-14(a) Certifications of Finance Corp.                                   (17)
32.1             Section 1350 Certifications of KCLLC and Finance Corp.                                     (17)
</TABLE>


       * Management agreement or compensatory plan.

(1)    Previously filed with the Company's Schedule 14D-1, filed on December 9,
       1998 (Commission File No.5-13949) and incorporated herein by reference.

(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
       and incorporated herein by reference.

                                       35
<PAGE>

(3)    Previously filed with the Company's Current Report on Form 8-K (File No.
       333-58675-01), filed February 3, 1999 and incorporated herein by
       reference.
(4)    Previously filed with the Company's Form 10-K for the year ended December
       31, 1998 and incorporated herein by reference.
(5)    Previously filed with the Company's Form 10-Q for the three months ended
       March 31, 1999 and incorporated herein by reference.
(6)    Previously filed with the Company's Form 10-K for the year ended December
       31, 1999 and incorporated herein by reference.
(7)    Previously filed with the Company's Form 8-K filed on December 6, 2000
       and incorporated herein by reference.
(8)    Previously filed with the Company's Form 8-K filed on April 19, 2000 and
       incorporated herein by reference. (9) Previously filed with the Company's
       Form 10-Q for the six months ended June 30, 2000 and incorporated herein
       by reference.
(10)   Previously filed with the Company's Form 10-Q for the nine months ended
       September 30, 2000 and incorporated herein by reference.
(11)   Previously filed with Schedule 14A of Acme, filed October 12, 2000
       (Commission File No. 001-08277) and incorporated herein by reference.
12)    Previously filed with the Company's Form 10-K for the year ended December
       31, 2000 and incorporated herein by reference.
(13)   Previously filed with the Company's Form 10-K for the year ended December
       31, 2001 and incorporated herein by reference.
(14)   Previously filed with the Company's Form 10-Q for the six months ended
       June 30, 2002 and incorporated herein by reference.
(15)   Previously filed with the Company's Form 10-K for the year ended December
       31, 2003 and incorporated herein by reference.
(16)   Previously filed with the Company's Form 10-Q for the nine months ended
       September 30, 2003 and incorporated herein by reference.
(17)   Filed herein.


                                       36
<PAGE>


                         Report of Independent Auditors

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 15(a)(1) present fairly, in all material respects, the
financial position of Key Components, LLC and its subsidiaries at December 31,
2003 and 2002, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2003, 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 15(a)(2) 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.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002.





/s/PricewaterhouseCoopers LLP
-----------------------------

PricewaterhouseCoopers LLP



Stamford, Connecticut
February 27, 2004




                                       37
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries


                                                     Consolidated Balance Sheets
                                                                  (in thousands)

<TABLE>
<CAPTION>
 December 31,                                                                  2003        2002
 ----------------------------------------------------------------------- ----------- -------------
<S>                                                                       <C>         <C>
 Assets
 Current:
    Cash                                                                  $   3,872   $   2,879
    Accounts receivable, net of allowance for doubtful accounts of
       $1,860 and $1,459 in 2003 and 2002, respectively                      26,171      21,447
    Inventories                                                              28,691      29,623
    Prepaid expenses and other current assets                                 2,215       2,800
    Prepaid income taxes                                                          -       3,400
    Deferred income taxes                                                     5,781       5,295
 ----------------------------------------------------------------------- ----------- -------------
         Total current assets                                                66,730      65,444
 Property, plant and equipment, net                                          24,167      23,883
 Goodwill, net                                                               80,165      95,554
 Deferred financing costs, net                                                3,370       4,364
 Prepaid pension cost                                                         2,684       3,021
 Deferred income taxes                                                        4,184           -
 Other assets                                                                   779         448
 ----------------------------------------------------------------------- ----------- -------------
                                                                           $182,079    $192,714
 ----------------------------------------------------------------------- ----------- -------------
 Liabilities and Member's Equity
 Current liabilities:
    Current portion of long-term debt                                      $ 12,196   $   7,225
    Accounts payable                                                         11,855       9,940
    Accrued compensation                                                      4,732       4,098
    Accrued expenses                                                          7,047       7,087
    Accrued income taxes                                                      1,467           -
    Accrued interest                                                          1,102         713
 ----------------------------------------------------------------------- ----------- -------------
         Total current liabilities                                           38,399      29,063

 Long-term debt                                                             120,561     136,619
 Accrued lease costs                                                            404         469
 Deferred income taxes                                                            -         579
 Other long-term liabilities                                                  1,335         940
 ----------------------------------------------------------------------- ----------- -------------
         Total liabilities                                                  160,699     167,670
 Commitments and contingencies (Notes 2 and 8)
 Member's equity                                                             21,380      25,044
 ----------------------------------------------------------------------- ----------- -------------
                                                                           $182,079    $192,714
 ----------------------------------------------------------------------- ----------- -------------
</TABLE>

                    See accompanying notes to consolidated financial statements.



                                       38
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries


                                           Consolidated Statements of Operations
                                                                  (in thousands)

<TABLE>
<CAPTION>
 Year ended December 31,                                           2003         2002         2001
 ----------------------------------------------------------- ----------- ------------- -----------
<S>                                                            <C>          <C>          <C>
 Net sales                                                     $197,290     $187,943     $193,817
 Cost of goods sold                                             127,879      117,962      123,005
 ----------------------------------------------------------- ----------- ------------- -----------
            Gross profit                                         69,411       69,981       70,812

 Selling, general and administrative expenses                    41,457       38,689       40,802
 Amortization of goodwill                                             -            -        3,558
 Cumulative adjustment for Aerospace                                  -            -         (721)
 Goodwill Impairment                                             17,374       12,350            -
 Other operating expenses                                         1,514        1,487          311
 ----------------------------------------------------------- ----------- ------------- -----------
            Income from operations                                9,066       17,455       26,862

 Interest expense                                               (12,338)     (13,301)     (16,573)
 ----------------------------------------------------------- ----------- ------------- -----------
     (Loss) income before provision for income taxes and
        cumulative effect of change in accounting principle      (3,272)       4,154       10,289
 Provision for income taxes                                         158        2,628        5,558
 ----------------------------------------------------------- ----------- ------------- -----------
 (Loss) income before cumulative effect of change in             (3,430)       1,526        4,731
 accounting principle
 Cumulative effect of change in accounting principle, net
    of income taxes of $3,013                                         -       (8,157)           -
 ----------------------------------------------------------- ----------- ------------- -----------
 Net (loss) income                                            $  (3,430) $    (6,631)   $   4,731
 ----------------------------------------------------------- ----------- ------------- -----------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       39
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries


                                      Consolidated Statements of Member's Equity
                                                                  (in thousands)

<TABLE>
<CAPTION>
 Year ended December 31,                         2003        2002       2001
 ------------------------------------------ ------------ ---------- -----------
<S>                                           <C>         <C>        <C>
 Member's equity, beginning of year           $25,044     $31,675    $27,850
 Capital distributions                           (100)          -       (906)
 Minimum pension liability, net of tax           (134)          -          -
 Net (loss) income                             (3,430)     (6,631)     4,731
 ------------------------------------------ ------------ ---------- -----------
 Member's equity, end of year                 $21,380     $25,044    $31,675
 ------------------------------------------ ------------ ---------- -----------
</TABLE>

                    See accompanying notes to consolidated financial statements.




                                       40
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries


                                           Consolidated Statements of Cash Flows
                                                                  (in thousands)
<TABLE>
<CAPTION>

 Year ended December 31,                                          2003           2002           2001
 ----------------------------------------------------------- ------------ --------------- -------------
<S>                                                            <C>         <C>             <C>
 Cash flows from operating activities:
    Net (loss) income                                          $(3,430)    $   (6,631)     $   4,731
    Adjustments to reconcile net (loss) income to net cash
       provided by operating activities:
         Cumulative effect of change in accounting
            principle                                                -          8,157              -
         Goodwill Impairment                                    17,374         12,350              -
         Provision for doubtful accounts                           591            483            570
         Depreciation and amortization                           4,704          5,012          9,056
         Amortization of deferred finance costs                    994            977            933
         Writedown of deferred finance costs                         -            145              -
         Deferred income taxes                                  (5,057)        (2,740)         1,207
          (Increase) decrease in
           (net of effects of acquisitions):
               Accounts receivable                              (4,401)         3,399          4,214
               Inventories                                       1,689            789          6,985
               Prepaid expenses and other assets                 4,395            420          2,662
          Increase (decrease) in
            (net of effects of acquisitions):
               Accounts payable                                  1,650            816         (3,419)
               Accrued expenses and other liabilities            1,856           (801)        (5,007)
 ----------------------------------------------------------- ------------ --------------- -------------
            Net cash provided by operating activities           20,365         22,376         21,932
 ----------------------------------------------------------- ------------ --------------- -------------
 Cash flows from investing activities:
    Business acquisition, net of cash acquired                  (4,548)             -              -
    Capital expenditures                                        (3,637)        (2,719)        (4,131)
    Cash provided by assets held for sale                            -            364            666
 ----------------------------------------------------------- ------------ --------------- -------------
            Net cash used in investing activities               (8,185)        (2,355)        (3,465)
 ----------------------------------------------------------- ------------ --------------- -------------
 Cash flows from financing activities:
    Payments of term debt, notes payable and other
       obligations                                             (13,087)       (21,993)       (19,056)
    Proceeds from issuance of debt                               2,000              -          2,800
    Deferred financing costs                                         -           (229)             -
    Capital withdrawals                                           (100)             -           (906)
 ----------------------------------------------------------- ------------ --------------- -------------
            Net cash used in financing activities              (11,187)       (22,222)       (17,162)
 ----------------------------------------------------------- ------------ --------------- -------------
 Net increase (decrease) in cash and cash equivalents              993         (2,201)         1,305
 Cash and cash equivalents, beginning of year                    2,879          5,080          3,775
 ----------------------------------------------------------- ------------ --------------- -------------
 Cash and cash equivalents, end of year                         $3,872      $   2,879      $   5,080
 ----------------------------------------------------------- ------------ --------------- -------------
</TABLE>

                    See accompanying notes to consolidated financial statements.




                                       41
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries


                                 Consolidated Statements of Comprehensive Income
                                                                  (in thousands)




<TABLE>
<CAPTION>
 Year ended December 31,                             2003          2002         2001
 ---------------------------------------------- ------------ -------------- -----------
<S>                                               <C>         <C>            <C>
 Net (loss) income                                $  (3,430)  $    (6,631)   $   4,731

 Minimum pension liability, net of tax                 (134)            -            -

 ---------------------------------------------- ------------ -------------- -----------
 Comprehensive (loss) income                      $  (3,564)      $(6,631)      $4,731
 ---------------------------------------------- ------------ -------------- -----------
</TABLE>

                    See accompanying notes to consolidated financial statements.




                                       42
<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, 2003 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 turbocharger components, 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, 2003, KCLLC was wholly-owned by Key
            Components, Inc. ("KCI"), a New York corporation. KCI holds no other
            assets other than its investment in KCLLC and has no operations.

            Use of Estimates

            The preparation of financial statements in conformity with
            accounting principles generally accepted 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, inventory obsolescence, fair value estimates in
            conjunction with the Company's fair value testing of its recorded
            goodwill, warranty costs accrued, the acquisition related accruals,
            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.



                                       43
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


            Property, Plant and Equipment

            Property, plant and equipment are stated at cost. Major renewals and
            betterments are capitalized, while maintenance and repairs that do
            not improve or extend the life of the asset are expensed in the
            period they occur. Depreciation is computed using the straight-line
            method over the estimated 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
           -----------------------------------   ----------------------------



            Intangibles

            Intangibles, which are included in other assets, 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 $34,000, $284,000 and $438,000 for 2003, 2002 and
            2001, respectively. Accumulated amortization at December 31, 2003
            and 2002 was approximately $3.9 million for both periods.

            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, 2003.


            Goodwill

            Goodwill represents the excess of the cost of acquired businesses
            over the fair market value of their net assets. Through December 31,
            2001 goodwill was being amortized on the straight-line method over
            thirty-five to forty years. Goodwill amortization for the year ended
            December 31, 2001 was approximately $3.6 million. Accumulated
            amortization at December 31, 2001 was approximately $10.3 million.

            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.


                                       44
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


            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.

            Upon the adoption of SFAS 142, the Company stopped recording
            goodwill amortization effective January 1, 2002. In June 2002, the
            Company completed the assessment of its reporting units and its
            initial assessment of impairment upon adoption. As a result, the
            Company identified one reporting unit in the mechanical engineered
            components ("MEC") business with a book value of goodwill that
            exceeded its fair market value, which was estimated using a
            valuation methodology that triangulates the discounted cash flows,
            market multiples and transactional multiples of the reporting units.
            In accordance with SFAS 142, the Company, during the second quarter
            2003, estimated the amount of the impairment and recorded a
            cumulative effect of change in accounting principle, as of January
            1, 2003, of approximately $7.8 million, net of taxes of
            approximately $3.4 million, to write down the goodwill associated
            with the Company's lock product line resulting from the market
            conditions of that product line. The Company, as prescribed by SFAS
            142, finalized its impairment testing by comparing the implied fair
            value of the reporting unit's goodwill to its carrying value during
            the third quarter to determine the amount of the final impairment
            upon adoption of SFAS 142. As a result, the Company reduced the tax
            impact of the charge by approximately $353,000 to reflect the proper
            deferred tax basis of the adjusted goodwill.

            In December 2003 and 2002, in accordance with SFAS 142, the Company
            performed its required annual fair value testing of its recorded
            goodwill for its reporting units using a valuation approach
            consistent with the one used upon adoption of SFAS 142. As a result
            of the analyses, the Company recorded charges of approximately $17.4
            and $12.4 million for the years ended December 31, 2003 and 2002,
            respectively, which is included in the Company's operating expenses,
            related to its lock reporting unit. Throughout 2003 and 2002 the
            lock product line experienced a continued decline of its fair value
            during those periods, primarily due to a deterioration of its
            results of operations and projected future financial results. In
            addition, market multiples assigned to this product line also
            declined during 2002. Through December 31, 2003, the Company's
            cumulative impairment of goodwill, all of which related to its lock
            product line, was approximately $40.9 million. At December 31, 2003,
            the Company had written off all the goodwill related to its lock
            product line.


            Changes to the Company's Goodwill for the two years ended December
            31, 2003 are as follows:


<TABLE>
<CAPTION>
  Year ended December 31,                                            2003           2002
  ------------------------------------------------------------  ----------  -------------
<S>                                                              <C>            <C>
  Goodwill, beginning of year                                    $ 95,554       $119,067
  Cumulative effect in change in accounting principle                   -       (11,163)
  Acquisitions                                                      1,985              -
  Charges                                                        (17,374)       (12,350)
  ------------------------------------------------------------  ----------  -------------
  Goodwill, end of year                                          $ 80,165        $95,554
  ------------------------------------------------------------  ----------  -------------
</TABLE>


           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 $994,000, $977,000 and $933,000 for the years ended
           December 31, 2003, 2002 and 2001, respectively. Accumulated
           amortization at December 31, 2003 and 2002 was approximately $4.1
           million and $3.1 million, respectively. In addition, during 2002
           the Company amended certain aspects of its borrowing agreement and
           expensed $145,000 of deferred financing costs.


                                       45
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


            Income Taxes

            The Company's member, KCI, is a C corporation for tax purposes. For
            the three years ended December 31, 2003 the Company's provision
            reflects the C corporation taxes that its member 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.

            Revenue Recognition

            The Company recognizes revenue principally upon shipment of products
            to customers, however no sooner than when title passes and all risk
            and rewards of ownership have been transferred. Reserves for
            estimated returns are established on the date of sale. Charges to
            customers for shipping are included in revenues while the Company
            includes the costs of shipping to its customers as part of its
            selling expenses.

            Warranty

            The Company records a liability for its expected claims under
            existing product warranty policies. The estimated accrual included
            in accrued expenses is based on the Company's historical warranty
            experience. For the years ended December 31, 2003 and 2002 the
            Company's warranty accrual changed as follows:

             Year ended December 31,                 2003          2002
             ---------------------------------- ----------  ------------
             Balance, beginning of year             $ 985         $ 821
             Additions                                331           200
             Addition of Arens                         65             -
             Charges                                  (9)          (36)
             ---------------------------------- ----------  ------------
             Balance, end of year                  $1,372         $ 985
             ---------------------------------- ----------  ------------



            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, heavy truck, 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, 2003.

                                       46
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


            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, 2003. The Company's Senior Notes (Note 6) are
            currently market listed at approximately 102% of the their face
            value, however the market for the notes is highly inactive.


            New Accounting Pronouncements

            In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
            Financial Instruments with Characteristics of Both Liabilities and
            Equity." This Statement establishes standards for how an issuer
            classifies and measures certain financial instruments with
            characteristics of both liabilities and equity. It requires that an
            issuer classify a financial instrument that is within its scope as a
            liability (or an asset in some circumstances). Many of those
            instruments were classified as equity. SFAS 150 is effective for
            financial instruments entered into or modified after May 31, 2003,
            and otherwise is effective at the beginning of the first interim
            period beginning after June 15, 2003. The adoption of SFAS 150 had
            no material impact on the consolidated operations or financial
            condition of the Company.

            In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
            133 on Derivative Instruments and Hedging Activities." This
            Statement amends and clarifies financial accounting and reporting
            for derivative instruments, including certain derivative instruments
            embedded in other contracts (collectively referred to as
            derivatives) and for hedging activities under FASB Statement No.
            133, "Accounting for Derivative Instruments and Hedging Activities."
            This Statement is effective for contracts entered into or modified
            after June 30, 2003, except as defined in the SFAS. The adoption of
            SFAS 149 had no material impact on the consolidated operations or
            financial condition of the Company.

            In January 2003, the FASB issued Interpretation ("FIN") No. 46,
            "Consolidation of Variable Interest Entities." FIN 46 requires
            variable interest entities to be consolidated by their primary
            beneficiaries. A primary beneficiary is the party that absorbs a
            majority of the entity's expected losses or residual benefits. FIN
            46 applies immediately to variable interest entities created after
            January 31, 2003; for the first fiscal year or interim period
            beginning after June 15, 2003 for variable interest entities,
            which an enterprise holds a variable interest that is acquired
            before February 1, 2003. The adoption of FIN 46 had no material
            impact on the consolidated operations or financial condition of
            the Company.

            In November 2002, the FASB released FIN No. 45 "Guarantor's
            Accounting and Disclosure Requirements for Guarantees, Including
            Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates
            on the disclosures to be made by a guarantor in its financial
            statements about its obligations under certain guarantees it has
            issued. FIN 45 also clarifies that a guarantor is required to
            recognize, at the inception of a guarantee for guarantees issued
            or modified after December 31, 2002, a liability for the fair
            value of the obligation undertaken in issuing the guarantee. The
            Company's adoption of the interpretation and valuation of future
            guarantees had no material impact on the Company's consolidated
            results of operations and financial position. See Note 1 regarding
            disclosures about the Company's warranty costs.

                                       47
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


            In July 2002, FASB issued SFAS No. 146, "Accounting for Costs
            Associated with Exit or Disposal Activities". This statement sets
            forth various modifications to existing accounting guidance which
            prescribes the conditions which must be met in order for costs
            associated with contract terminations, facility consolidations,
            employee relocations and terminations to be accrued and recorded as
            liabilities in financial statements. This statement is effective for
            exit or disposal activities initiated after December 31, 2002. The
            adoption of SFAS 146 did not have a material effect on the Company's
            consolidated results of operations and financial position.


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


   2.       Acquisitions and Dispositions
            (a)   Arens Controls, LLC

            On March 3, 2003, the Company acquired the mechanical components
            business of Arens Controls, LLC for a purchase price of
            approximately $4.5 million and assumed liabilities of approximately
            $642,000. The Company recorded the estimated excess purchase price
            over net assets acquired of approximately $2.0 million as goodwill.
            Other intangibles acquired in the transaction were not material. The
            product line, which manufactures mechanical push-pull control
            solutions, was fully integrated into the Company's Binghamton, New
            York manufacturing facility in November 2003. The Company borrowed
            $2.0 million on its revolving credit facility to partially finance
            this acquisition.

            (b)   Acme Electric Corporation

            On November 21, 2000, the Company acquired all of the outstanding
            shares of Acme Electric Corporation ("Acme") for a purchase price of
            approximately $47.3 million and assumed liabilities of approximately
            $28.8 million. At the time of the acquisition, the Company decided
            to sell the Acme Aerospace ("Aerospace") division and 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 was a contract electronics manufacturer for data
            storage, telecommunications and medical electronic applications.

            On June 1, 2001, based on the strength of the operating performance
            of Aerospace, the Company decided to retain 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
         -------------------------------------------------------- ---------


                                       48
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

          On February 15, 2002 the Company sold the Electronics division for
          $100,000 in cash and a 7% per annum, $300,000 note that was due on
          February 15, 2006. The agreement also provided for additional
          consideration to be paid to the Company if certain future operating
          targets were achieved. In March 2003, Electronics was sold to a new
          buyer and the Company collected the entire $300,000 note. The Company
          does not anticipate receiving any additional consideration.


   3.     Inventories

          Inventories consist of:


        December 31,                                2003          2002
        -------------------------------------- -------------- -----------
                                                      (in thousands)
        Raw materials                            $12,969       $14,342
        Work-in-process                            7,804         7,734
        Finished goods                             7,918         7,547
        -------------------------------------- -------------- -----------
           Total inventory                       $28,691       $29,623
        -------------------------------------- -------------- -----------

  4.       Property, Plant and Equipment

           Property, plant and equipment consists of the following:

        December 31,                                 2003           2002
        --------------------------------------- --------------- ------------
                                                       (in thousands)
        Land, building and improvements           $   9,901      $   9,323
        Equipment                                    36,450         32,888
        Office and computer equipment                 2,440          2,241
        Furniture and fixtures and
         leasehold improvements                       1,485          1,463
        Construction-in-progress                        672            229
        --------------------------------------- --------------- ------------
                                                     50,948         46,144
        Less:  Accumulated depreciation             (26,781)       (22,261)
        --------------------------------------- --------------- ------------
                   Total property,
                     plant and equipment           $ 24,167       $ 23,883
        --------------------------------------- --------------- ------------


         Depreciation expense amounted to approximately $4.7 million, $4.7
         million and $5.1 million for the years ended December 31, 2003, 2002,
         and 2001, respectively.

                                       49
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

  5.   Operating Segments
       The Company conducts its operations through its two businesses, the
       manufacture and sale of electrical components and mechanical engineered
       components. The electrical components business ("EC") product offerings
       include power conversion products, specialty electrical components and
       high-voltage utility switches. The mechanical engineered components
       business ("MEC") manufactures flexible shaft products, turbo charger
       actuators and related componentry and specialty locks and related
       accessories.

       The Company evaluates its operating segments' performance and allocates
       resources among them based on profit or loss from operations before
       interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is
       not based on accounting principles generally accepted in the United
       States of America, but is the performance measure used by Company
       management to analyze and monitor the Company and is commonly used by
       investors and financial analysts to compare and analyze companies.
       Corporate overhead expenses are not allocated to the segments. In
       computation of all the financial maintenance covenants under the
       Company's credit facility, the Company is allowed to adjust EBITDA for
       certain charges as defined in the agreement.



<TABLE>
<CAPTION>
       Segment information is as follows:
       --------------------------------------------- ------------------- --------------------- ----- ---------------- -----
       (In thousands)                                        EC                  MEC                      Total
       --------------------------------------------- ------------------- --------------------- ----- ---------------- -----
       Year ended December 31, 2003:
       <S>                                              <C>                    <C>             <C>        <C>         <C>
         Net sales from external customers              $117,777               $79,513                    $197,290
         Intersegment net sales                                -                    73                          73
         Segment profit - EBITDA                          21,769                (4,597)        (A)         (17,172)   (A)
         Segment assets                                  113,226                66,264                     179,490
         Goodwill, net                                    59,192                20,973                      80,165
         Depreciation and amortization                     2,184                 2,484                       4,668

         (A) Total EBITDA and EBITDA of the MEC
         business for the year ended December 31, 2003
         includes goodwill impairment of approximately
         $17.4 million.

       Year ended December 31, 2002:
         Net sales from external customers              $121,051               $66,892                    $187,943
         Intersegment net sales                                -                   113                         113
         Segment profit - EBITDA                          21,298                 4,401         (B)          25,699    (B)
         Segment assets                                  110,561                75,516                     186,077
         Goodwill, net                                    59,192                36,362                      95,554
         Depreciation and amortization                     2,575                 2,405                       4,980


         (B) Total EBITDA and EBITDA of the MEC
         business for the year ended December 31,
         2002 includes goodwill impairment of
         approximately $12.3 million.

       Year ended December 31, 2001:
         Net sales from external customers              $120,401              $ 73,416                    $193,817
         Intersegment net sales                                -                   135                         135
         Segment profit - EBITDA                          20,087                21,249                      41,336
         Segment assets                                   59,875                59,192                     119,067
         Goodwill, net                                   116,576               100,265                     216,841
         Depreciation and amortization                     3,916                 4,330                       8,246
       --------------------------------------------- ------------------- --------------------- ----- ---------------- -----
</TABLE>


                                       50
<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,                                        2003            2002          2001
       -------------------------------------------------------------- --------------- ------------- -------------------
       Profit or loss:
<S>                                                                   <C>             <C>           <C>
         Total profit from reportable segments - EBITDA               $17,172         $25,699       $ 41,336
         Reconciling items:
           Corporate administrative expenses                           (3,402)         (3,232)        (5,526)
           Depreciation and amortization                               (4,704)         (5,012)        (8,948)
           Interest expense                                           (12,338)        (13,301)       (16,573)
       -------------------------------------------------------------- --------------- ------------- -------------------
       Income from continuing operations before provision for
         income taxes                                                 $(3,272)        $ 4,154       $ 10,289
       -------------------------------------------------------------- --------------- ------------- -------------------
</TABLE>




<TABLE>
<CAPTION>
       December 31,                                                    2003                                 2002
       --------------------------------------------------------------- ------------------------ -----------------------
                                                                                       (in thousands)
<S>                                                                      <C>                      <C>
       Assets:
         Total assets for reportable segments                            $179,490                 $186,077
          Corporate assets                                                  2,589                    6,637
       --------------------------------------------------------------- ------------------------ -----------------------
       Total consolidated assets                                         $182,079                 $192,714
       --------------------------------------------------------------- ------------------------ -----------------------
</TABLE>

<TABLE>
<CAPTION>
       Year ended December 31,                                               2003            2002             2001
       ---------------------------------------------------------------- --------------- --------------- -----------------
<S>                                                                    <C>             <C>           <C>
         Geographical Sales Information:
         United States                                                        $173,225        $165,112       $173,710
         Canada                                                                  4,681           3,320          4,031
         China                                                                   4,363           5,011          3,841
         England                                                                 5,485           4,721          3,233
         Japan                                                                   1,351             959          1,034
         Mexico                                                                    512           1,319          2,287
         Netherlands                                                             2,122           2,091          1,019
         Other                                                                   5,551           5,410          4,662
       ---------------------------------------------------------------- --------------- --------------- -----------------
                                    Total                                     $197,290        $187,943       $193,817
       ---------------------------------------------------------------- --------------- --------------- -----------------
</TABLE>


  6.   Long-Term Debt

       Long-term debt consists of the following:

<TABLE>
<CAPTION>
       December 31,                                                                      2003                2002
       --------------------------------------------------------------------- ------------------- ---------------------------
                                                                                             (in thousands)
<S>                                                                                  <C>                  <C>
       Senior notes                                                                  $ 80,000             $80,000
       Term loan and revolving credit facility                                         51,986              63,046
       Mortgage                                                                           762                 782
       Other                                                                                9                  16
       --------------------------------------------------------------------- ------------------- ---------------------------
                                                                                      132,757             143,844
       Less:  Current portion                                                         (12,196)             (7,225)
       --------------------------------------------------------------------- ------------------- ---------------------------
                  Total long-term debt                                               $120,561            $136,619
       --------------------------------------------------------------------- ------------------- ---------------------------
</TABLE>

                                       51
<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, 2003 and
       2002, 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 non-collateralized basis, by the subsidiaries of the
       Company (the "Subsidiary Guarantors"). At December 31, 2003, KCLLC has de
       minimis 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.

       The Senior Notes became redeemable, at the Company's option, in whole or
       in part, at any time and from time to time, on June 1, 2003, and prior to
       maturity, upon not less than 30 nor more than 60 days prior notice to the
       holder, plus accrued and unpaid interest to the redemption date. The
       redemption price is set forth in the indenture and ranges from 105.25% at
       June 30, 2003 scaling down to 100.0% of the face value beginning in 2006.
       The holders of the Senior Notes can require the Company to repurchase the
       notes upon a change in control, as defined in the Indenture.

       The Indenture requires certain limitations of indebtedness and certain
       payments related to dividends and common stock, as defined.

       (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 4.0% and 1.1%, respectively, at
       December 31, 2003. The revolving credit facility also requires a
       commitment fee of 0.375% 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, 2003 the
       Company had two outstanding letters of credit for approximately
       $1,468,000, both relating to workers compensation insurance programs. 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.

                                       52
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

       In June 2002, the Company amended its credit agreement (the "Amendment")
       to provide for revised financial covenant ratios from September 30, 2002
       through December 2003 from the original covenant ratios stipulated in the
       credit agreement. The Company anticipated that certain of the original
       covenants, which became more stringent over the term of the agreement,
       would not be met due to the general decline in the economy. In addition,
       the Amendment revised the Company's applicable margin on borrowings, the
       maximum allowable capital expenditures through 2003 and reduced the
       amount allowed for permitted acquisitions (as defined in the credit
       agreement) from $15 million to $7.5 million through the end of 2003.
       Concurrent with the Amendment, the Company voluntarily reduced the
       availability under its revolving credit facility by $15 million from $40
       million to $25 million through the end of 2003. At December 31, 2002, the
       Company was in compliance with the covenants of the credit agreement set
       forth in the Amendment. As a result of the Company voluntarily reducing
       its borrowing capacity through the end of 2003, the Company wrote off
       $145,000 of the deferred finance costs related to amending the Company's
       credit facility.

       As a result of the impact of the domestic economy on the Company's
       business coupled with the performance of the lock product line and cash
       spent on an unsuccessful acquisition attempt during 2003, the Company
       would not have been able to achieve the required step down in the
       financial covenants that was to occur as of September 2003 in accordance
       with the Amendment. Accordingly, the Company entered into a second
       amendment to its credit agreement (the "Second Amendment"). The financial
       covenants as modified by the Second Amendment apply from September 30,
       2003 through March 30, 2005, at which time the financial covenants return
       to the financial covenants in effect before the Amendment. At December
       31, 2003, the Company was in compliance with the credit agreement, as
       amended.

       As of December 31, 2003, the Company had no borrowings outstanding under
       the revolving credit facility and had approximately $52.0 million
       outstanding under the term loan. Accrued interest payable at December 31,
       2003 and 2002 was approximately $397,000 and $8,000, 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.


       At December 31, 2003, aggregate principal payments required on all
       amounts due are as follows:


       Year ending December 31,                              Amount
       ----------------------------------------------- -----------------
                                                       (in thousands)
       2004                                                 $12,196
       2005                                                  19,931
       2006                                                  19,937
       2007                                                      27
       2008                                                  80,666

       ----------------------------------------------- -----------------
                                                           $132,757
       ----------------------------------------------- -----------------



                                       53
<PAGE>
                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements





  7.   Other Expenses

       Other expenses of approximately $1.5 million in 2003, $1.5 million in
       2002 and $311,000 in 2001, were the redundant facility costs, startup
       expenses and inefficiencies related to the Company's new lock production
       facility in Mexico. In 2001 the Company commenced its plan to move most
       of its lock production to Mexico over a three year period. In addition,
       the other expenses in 2003 include approximately $410,000 of
       pre-production costs of its new China manufacturing facility, which is
       expected to commence commercial production in the first quarter of 2004.


  8.   Federal and State Income Taxes

       Income tax expense (benefit) consists of the following:


<TABLE>
<CAPTION>
       Year ended December 31,                     2003          2002        2001
       -------------------------------------- ------------- ------------ -----------
                                         (in thousands)
<S>                                              <C>          <C>          <C>
       Current:
          Federal                                $3,306       $ 4,002      $3,087
          State                                     875           793         748
          Foreign                                   756           573         365
       -------------------------------------- ------------- ------------ -----------
                           Current                4,937         5,368       4,200
       -------------------------------------- ------------- ------------ -----------
       Deferred:
          Federal                                (3,618)       (2,341)        925
          State                                  (1,161)         (424)        333
          Foreign                                     -            25         100
       -------------------------------------- ------------- ------------ -----------
                           Deferred              (4,779)       (2,740)      1,358
       -------------------------------------- ------------- ------------ -----------
       Total provision for income taxes        $    158       $ 2,628      $5,558
       -------------------------------------- ------------- ------------ -----------

</TABLE>

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

<TABLE>
<CAPTION>
       Year ended December 31,                                       2003        2002       2001
       --------------------------------------------------------- ------------ ----------- ----------
<S>                                                                <C>           <C>        <C>
       Federal income tax rate                                     (34.0)%       34.0%      34.0%
       State income taxes, net of federal benefit                   (6.3)         7.7        7.1
       Nondeductible goodwill impairment charges and goodwill
         amortization                                               42.3         33.5        8.8
       Foreign income taxes, net of federal benefit                  2.5         (0.1)       3.3
       Reconciliation to prior years tax filings                     3.8        (11.6)       -
       Other permanent differences                                  (3.4)        (0.2)       1.6
       Other, net                                                   (0.1)         -         (0.8)
       --------------------------------------------------------- ------------ ----------- ----------
                                                                     4.8%        63.3%      54.0%
       --------------------------------------------------------- ------------ ----------- ----------
</TABLE>


                                       54
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


       Taxable income earned outside the United States of America was
       approximately $1.9 million, $1.7 million and $1.0 million for the three
       years ended December 31, 2003, 2002 and 2001, respectively and was
       primarily generated from operations in Thailand. During the fourth
       quarter of 2003, upon final completion and assessment of the Company's
       reconciliation of prior year tax filing, the Company recognized a benefit
       for the treatment of certain 2002 tax benefits, which were not estimable
       at December 31, 2002.

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

<TABLE>
<CAPTION>
       ---------------------------------------------------- -------------- --------------
       December 31,                                               2003           2002
       ---------------------------------------------------- -------------- --------------
                                                                   (in thousands)
<S>                                                           <C>            <C>
         Deferred tax assets:
           Allowance for doubtful accounts                    $    745       $    578
           Intangibles                                           7,294          2,812
           Inventory reserves/valuation                          2,977          2,590
           Warranty reserve                                        549            390
           Accrued severance and other acquisition costs            80            382
           Accrued compensation costs                              925            945
           Supplemental retirement plan                            872            815
           Accrued expenses                                        537            442
           Accrued lease costs                                     188            208
           Other                                                   319            237
       ---------------------------------------------------- -------------- --------------
           Total deferred tax assets                            14,486          9,399
       ---------------------------------------------------- -------------- --------------
         Deferred tax liabilities:
           Pension                                              (1,454)        (1,526)
           Excess depreciation                                  (3,067)        (3,157)
       ---------------------------------------------------- -------------- --------------
           Total deferred tax liabilities                       (4,521)        (4,683)
       ---------------------------------------------------- -------------- --------------
           Net deferred tax asset                             $  9,965       $  4,716
       ---------------------------------------------------- -------------- --------------
</TABLE>



  9.   Commitments and Contingencies

       (a)  Operating leases

       The Company rents several manufacturing and warehouse facilities under
       operating lease agreements, one of which is with a related party (Note
       12). Rent expense under all lease agreements amounted to approximately
       $1.8 million, $2.3 million and $2.1 million in 2003, 2002 and 2001,
       respectively.


                                       55
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

       At December 31, 2003 and 2002, approximately $469,000 and $525,000,
       respectively, was recorded as accrued lease costs related to leased
       facilities no longer in use by one of the Company's subsidiaries (Note
       12). The accrual represents the discounted future rental payments, net of
       estimated sublease income. At December 31, 2003 and 2002, approximately
       $65,000 and $56,000, respectively, were included in accrued expenses.

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



                                                      Minimum rental
       Year ended December 31,                           payments
       -------------------------------------------- --------------------
                                                      (in thousands)
       2004                                               $1,768
       2005                                                1,587
       2006                                                1,321
       2007                                                1,057
       2008                                                  879
       Thereafter                                          2,598
       -------------------------------------------- --------------------
             Total minimum lease payments                 $9,210
       -------------------------------------------- --------------------

       (b) KCI Obligations
       Effective upon the consummation of a recapitalization that the
       shareholders of KCI entered into in May of 2000, KCI issued Preferred and
       Common Stock. Kelso & Co, an investment group, became the owner of all of
       the outstanding Preferred Stock of KCI. 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 67% 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 a 1% dividend payable in kind and accrued dividends
       (approximately $3.9 million in cumulative dividends in arrears at
       December 31, 2003), and is redeemable for cash at the option of the
       holder after June 2, 2009.

       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 $111 million of its Preferred Stock
       (including dividends in arrears which was approximately $3.9 million at
       December 31, 2003), which is redeemable for cash at the option of the
       holder after June 2, 2009. In addition, KCI has 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, 2003 approximately 1.3 million KCI
       common shares plus potentially 191,000 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.

       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 12)
       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.


                                       56
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

       (c) Other

       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.

       The Company has employment agreements with certain members of management
       that expire through 2006.

  10.  Member's Equity

       (a) 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. All the options under the 1998 Plan, which account for the purchase
       of approximately 52,000 shares of common stock, were vested at
       December 31, 2003.

       Under the KCI Plan, options to purchase approximately 45,000 shares of
       common stock were vested at December 31, 2003. Options to purchase
       approximately 5,700 shares of common stock vest over the next three
       years. The remaining options issued under the KCI Plan to purchase
       approximately 88,000 shares of common stock 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.



                                       57
<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, 2001                   53,025               $42                     118,985                     $117
Options granted                         -                 -                      12,711                      125
Options canceled                  (1,053)               (95)                     (1,500)                    (122)
------------------------------- --------------- ------------------------ -------------------------- -----------------------
Options outstanding at
 December 31, 2001                  51,972               40                     130,196                       118
Options granted                         -                 -                      11,350                       100
Options canceled                    (169)               (95)                     (1,750)                     (117)
------------------------------- --------------- ------------------------ -------------------------- -----------------------
Options outstanding at
 December 31, 2002                 51,803                41                     139,796                       117
Options granted                         -                 -                       1,338                       100
Options canceled                        -                 -                      (2,100)                     (112)
------------------------------- --------------- ------------------------ -------------------------- -----------------------
Options outstanding at
 December 31, 2003                 51,803              $ 41                      139,034                      $116
------------------------------- --------------- ------------------------ -------------------------- -----------------------
Exercise prices per share             -             $25-$95                            -                  $100-$125
------------------------------- -------------- ------------------------- -------------------------- -----------------------
Shares available for options          -                   -                       65,845                          -
------------------------------- -------------- ------------------------- -------------------------- -----------------------
</TABLE>




A summary of stock options at December 31, 2003 is as follows:

<TABLE>
<CAPTION>
                                                                                       ---------------------------------
                                                                                              Options Exercisable
                                                                                       ---------------------------------
                                                       Weighted Average                          Weighted Average
     -------------------------- ---------------------  --------------- --------------  ----------------- ---------------
             Range of                                                                                        Exercise
          Exercise Prices              Shares            Life (yrs)        Price            Shares            Price
     -------------------------- ---------------------  --------------- --------------  ----------------- ---------------
<S>                                    <C>                 <C>            <C>             <C>                <C>
     $25-$35                                  44,578              3.3            $33             44,578             $33
     $75-$95                                   7,225              5.9            $85              7,225             $85
     $117-$125                               139,034              6.8           $116             45,073            $117
     -------------------------- ---------------------  --------------- --------------  ----------------- ---------------
                                             190,837                                             96,876
     -------------------------- ---------------------  --------------- --------------  ----------------- ---------------

</TABLE>


                                       58
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements

       The Company accounts for the outstanding options under the two plans
       using the intrinsic method as provided under APB Opinion 25 and related
       Interpretations. Accordingly, as the exercise price of options was at or
       above the market value estimated by management, based on an independent
       appraisal, 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", as amended by SFAS No. 148,
       "Accounting for Stock-Based Compensation-Transition and Disclosures" and
       has been determined as if the Company had accounted for its employee
       stock options under the fair value method with the following assumptions:



<TABLE>
<CAPTION>
       Year ended December 31,                                     2003                   2002              2001
       ----------------------------------------------- ---------------------- ----------------- ------------------
<S>                                                    <C>                    <C>               <C>
       Weighted average risk-free interest rate                      4.9%                   4.9%              5.2%
       Dividend yield                                                None                   None              None
       Weighted average expected life                           5.8 years              6.0 years         7.3 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,                          2003             2002            2001
       -------------------------------------------- -------------- --------------- ----------------------
                                                                         (in thousands)
<S>                                                     <C>            <C>             <C>
       Net (loss) income
          As reported                                   $(3,430)       $(6,631)        $ 4,731
          Option Expense, net of income taxes              (398)          (453)           (364)
       -------------------------------------------- -------------- --------------- ----------------------
          Pro forma                                     $(3,828)       $(7,084)         $4,367
       -------------------------------------------- -------------- --------------- ----------------------
</TABLE>

       (e) Capital withdrawals

       During the year ended December 31, 2003 and 2001, KCLLC paid capital
       withdrawals to KCI of $100,000 and approximately $906,000. The proceeds
       were used by KCI to redeem shares of common stock from stockholders.


 11.   Retirement Plans

       (a) 401(k) Plans

       At December 31, 2003, the Company had two 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 a separate
       401(k) plan. Employer contributions to the Acme plans are discretionary.
       Employer contributions in the aggregate were approximately $355,000,
       $358,000 and $414,000 for the years ended December 31, 2003, 2002 and
       2001, respectively.


                                       59
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


       (b) Profit Sharing Plan

       The Company sponsors a profit sharing plan for all non-union employees at
       two subsidiaries acquired in 1999. 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 the
       year ended December 31, 2003, 2002 and 2001. In December 2002 the plan
       was terminated and distributions of approximately $3.3 million were
       completed to the former participants.

       (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. Upon
       acquiring Acme, management had decided to terminate the Acme Pension
       Plan. At December 31, 2002, the Company had recorded against the prepaid
       pension asset approximately $1.8 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 January
       2003, management decided to retain the pension plan indefinitely. As a
       result the termination liabilities were recorded against the unrecognized
       net actuarial loss on the books of the Company.

       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. No funding has been required during the three years ended
       December 31, 2003.

       At December 31, 2003, approximately 94% of the plans' assets are invested
       in cash and cash equivalents and 6% are invested in equities. At December
       31, 2002, approximately 0.4% of the plans' assets were invested in cash
       and cash equivalents, 54% were invested in equities and 45.6% were
       invested in fixed income securities and annuities.

       Summarized information of the Plans is as follows:


<TABLE>
<CAPTION>
       Pension Obligation
       Year ended December 31,                           2003       2002        2001
       ------------------------------------------- ---------- ----------- ----------
       (In thousands)
<S>                                                   <C>        <C>         <C>
       Benefit obligation at beginning of year        $18,513    $18,586     $17,867
       Service cost                                       391        519         513
       Interest cost                                    1,138      1,104       1,055
       Actuarial gain (loss)                              778        504         (29)
       Benefits paid                                   (2,136)    (2,200)       (820)
       ------------------------------------------- ---------- ----------- ----------
       Benefit obligation at end of year              $18,684    $18,513     $18,586
       ------------------------------------------- ---------- ----------- ----------
</TABLE>


                                       60
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

       Plan Assets
       ------------------------------------------------------------------------------------------
       Year ended December 31,                                    2003       2002       2001
       ------------------------------------------------------ ------------ ----------- ----------
       (In thousands)
<S>                                                            <C>            <C>        <C>
       Fair value of plan assets at beginning of year          $18,527        $21,996    $23,583
       Actual return on plan assets                              1,603         (1,226)      (733)
       Benefits paid                                            (2,136)        (2,200)      (820)
       Other                                                       (51)           (43)       (34)
       ------------------------------------------------------ ------------ ----------- ----------
       Fair value of plan assets at end of year                $17,943        $18,527    $21,996
       ------------------------------------------------------ ------------ ----------- ----------

</TABLE>

<TABLE>
<CAPTION>
       Amounts recognized in the balance sheet
       Year ended December 31,
                                                                   2003            2002          2001
       -----------------------------------------------------  ---------------  -------------- ------------
       (In thousands)
<S>                                                           <C>                 <C>          <C>
       Funded status                                              ($741)            $    14      $3,410
       Unrecognized net actuarial loss (gain)                     3,363               5,020       2,365
       Recorded liability for future 401(k)
         contributions and excise taxes                              -               (2,080)     (2,269)
       Unrecognized prior service cost (benefit)                     64                  73          82
       -----------------------------------------------------  ---------------  -------------- ------------
       Net amount recognized                                     $2,686              $3,027      $3,588
       -----------------------------------------------------  ---------------  -------------- ------------
</TABLE>

<TABLE>
<CAPTION>
       Amounts recognized in the balance sheet consist of
       Year ended December 31,
                                                                   2003            2002         2001
       ----------------------------------------------------- --------------- --------------- ------------
       (In thousands)
<S>                                                          <C>             <C>             <C>
       Prepaid benefit cost                                     $2,684              $3,027      $3,588
       Accrued benefit cost                                       (284)                  -           -
       Intangible assets                                            64                   -           -
       Accumulated other comprehensive income (gross)              222                   -           -
       ----------------------------------------------------- --------------- --------------- ------------
       Net amount recognized                                    $2,686              $3,027      $3,588
       ----------------------------------------------------- --------------- --------------- ------------
</TABLE>



       Information for pension plans with an accumulated benefit obligation in
       excess of plan assets Year ended December 31,
<TABLE>
<CAPTION>

                                                                  2003             2002         2001
       ----------------------------------------------------- --------------- --------------- ------------
       (In thousands)
<S>                                                          <C>             <C>             <C>
       Projected benefit obligation                             $1,397              $1,183      $1,149
       Accumulated benefit obligation                            1,397               1,183       1,149
       Fair value of plan assets                                 1,113               1,041       1,154

</TABLE>


                                       61
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

       Components of Net Periodic Cost (Benefit)
       Year ended December 31,                                           2003                  2002                2001
       ------------------------------------------------------- --------------------- ------------------- ------------------
       (In thousands)
<S>                                                                    <C>               <C>                  <C>
       Service cost                                                      $443            $    562             $   547
       Interest cost                                                    1,138               1,104               1,055
       Expected return on plan assets                                  (1,323)             (1,636)             (1,785)
       Other                                                               83                 531                   7
       ------------------------------------------------------- --------------------- ------------------- ------------------
       Net periodic cost (benefit)                                       $341           $     561             $  (176)
       ------------------------------------------------------- --------------------- ------------------- ------------------
</TABLE>



<TABLE>
<CAPTION>

        Weighted average assumptions used to
        determine benefit obligations
        Year ended December 31,                                                 2003                2002               2001
        ------------------------------------------------------- --------------------- ------------------- ------------------
<S>                                                                             <C>                 <C>                <C>
        Discount rate                                                           6.0%                6.5%               6.0%
        Rate of compensation increase                                           3.0%                3.0%               0.0%
        ------------------------------------------------------- --------------------- ------------------- ------------------



       Weighted average assumptions used to determine
       net periodic pension expense
       Year ended December 31,                                                  2003                2002               2001
       -------------------------------------------------------- --------------------- ------------------- ------------------

       Discount rate                                                            6.5%                6.5%               6.0%
       Expected long-term rate of return on assets                        7.5%- 8.0%           7.5%-8.0%       7.5% to 8.5%
       Rate of compensation increase                                            3.0%                0.0%               0.0%
       -------------------------------------------------------- --------------------- ------------------- ------------------
</TABLE>


       Additional Information

       The accumulated benefit obligation of all defined benefit plans was
       approximately $18.0 million, $17.9 million and $18.6 million at
       December 31, 2003, 2002 and 2001, respectively.

       In December 2002 and into the first quarter of 2003, the Acme Pension
       Plan paid out the current benefit obligations of the participants in the
       Acme Pension Plan that were formerly employed at Acme Electronics
       division within one year of the time of the sale.



       (d) Other retirement liabilities

       At December 31, 2003 and 2002, the Company had approximately $1,051,000
       and $940,000 recorded, respectively, 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. The assets in the trust remain a part
       of the books and records of the Company and are subject to the Company's
       creditors. The Company's liability is net of the trust account value.


                                       62
<PAGE>

                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements



 12.   Related Party Transactions

       The Company rented its former 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 former shareholder of
       KCI. The lease expired on May 31, 2003 in accordance with its terms.
       Rental payments for the three years ended December 31, 2003 were
       approximately $91,000, $217,000, and $213,000, respectively.

       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 $176,000, $167,000 and $159,000 for
       the three years ended December 31, 2003, 2002 and 2001, respectively.

       The Company pays management fees to Millbrook, a party related to certain
       shareholders of the Company. These management fees amounted to $175,000,
       $175,000 and $920,000 for the years ended December 31, 2003, 2002 and
       2001, respectively. These are recorded as part of the Company's corporate
       expenses. 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.




 13.   Statement of Cash Flows

<TABLE>
<CAPTION>
       December 31,                                                          2003             2002                 2001
       ---------------------------------------------------------- ---------------- -------------------- ---------------------
<S>                                                                       <C>              <C>                 <C>
       Supplemental disclosures of cash flow information:                        (In thousands)
          Cash paid during the year:
             Interest                                                     $10,864          $12,724             $ 15,608
             Income taxes                                                 $   227          $ 5,305             $  3,050
       ---------------------------------------------------------- ---------------- -------------------- ---------------------
</TABLE>



                                       63
<PAGE>


                                                             Key Components, LLC
                                                                and subsidiaries

                                      Notes to Consolidated Financial Statements


 14.   Subsequent Event

       The Company's lock product line's net sales declined significantly during
       the three years ended December 31, 2003. Net sales of the lock product
       line were approximately $17.2 million, $21.8 million and $32.6 million
       for the years ended December 31, 2003, 2002 and 2001, respectively.
       Management attributes such decline to the downturn in the economy plus
       the impact of foreign competition, both of which have led to the product
       line becoming a commodity over that period. In February 2004, after
       reviewing the lock product line's 2003 operating performance as well as
       its long-term strategic plan, the Board of Directors of KCI and KCLLC
       decided that it would re-evaluate the long-term strategy related to its
       lock product line during the first quarter of fiscal 2004. The long-term
       revaluation will entail in-depth review of the lock product line's
       strategic plan and the underlying assumptions as to the future
       opportunities for this product line and the execution risks of meeting
       the strategic plan's goals. The Company believes that a sale of this
       product line would generate after-tax proceeds at least equal to the
       current carrying value of the assets of this product line.

       As the net sales eroded, the shift in manufacturing to Mexico has
       negatively impacted customer service and quality. Further, the decline in
       net sales volume has made it prohibitive to carry the dual overhead
       infrastructures of its domestic and Mexico manufacturing facilities. As a
       result, management has concluded to close the lock manufacturing facility
       in Mexico during fiscal 2004. The assets of Mexico primarily relate to
       inventory and machinery and equipment that would be moved back to the
       product line's Massachusetts location.







                                       64
<PAGE>



                                                             Key Components, LLC
                                                                and subsidiaries


                                               Valuation and Qualifying Accounts

<TABLE>
<CAPTION>

                                                Column A     Column B     Column C      Column D        Column E
 --------------------------------------------- ------------ ------------ ------------- --------------  -------------
                                                              Additions
                                               Balance at    Charged to   Charged to                    Balance
                                               beginning of   costs and     other                        at end of
                      Description               period        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:
         2003                                    $1,459           $718       $    -         $(317)         $1,860
         2002                                     1,004            483            -           (28)          1,459
         2001                                       808            570          105          (479)          1,004

 Allowance for excess and obsolete
    inventory deducted from
    inventory in the balance sheet
       Year ended December 31:
         2003                                    $5,154         $1,675         $562         $(354)         $7,037
         2002                                     3,977          1,684          125          (632)          5,154
         2001                                     3,159          1,046          150          (378)          3,977

</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.





                                       65
<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: March 10, 2004                  By:  /s/ Robert B. Kay
                                            -----------------

                                           Robert B. Kay
                                           President
                                           (Principal Executive Officer)

Dated: March 10, 2004                  By:  /s/ Keith A. McGowan
                                            --------------------

                                            Keith A. McGowan
                                            Chief Financial Officer
                                            (Principal Financial Officer and
                                            Principal Accounting Officer)



<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: March 10, 2004                          By:  /s/ John S. Dyson
                                                    -----------------
                                                        John S. Dyson
                                                        Director

Dated: March 10, 2004                          By:  /s/ Clay B. Lifflander
                                                    ----------------------
                                                        Clay B. Lifflander
                                                        Director

Dated: March 10, 2004                          By:  /s/ Alan L. Rivera
                                                    ------------------
                                                        Alan L. Rivera
                                                        Director

Dated: March 10, 2004                          By:  /s/ Robert B. Kay
                                                    -----------------
                                                        Robert B. Kay
                                                        Director

Dated: March 10, 2004                          By:  /s/ George M. Scherer
                                                    ---------------------
                                                        George M. Scherer
                                                        Director


Dated: March 10, 2004                          By:  /s/ Philip E. Berney
                                                    --------------------
                                                        Philip E. Berney
                                                        Director

Dated: March 10, 2004                          By:  /s/ Thomas R. Wall, IV
                                                    ----------------------
                                                        Thomas R. Wall, IV
                                                        Director


<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: March 10, 2004                  By:  /s/ Robert B. Kay
                                            -----------------

                                                Robert B. Kay
                                                President
                                                (Principal Executive Officer)

Dated: March 10, 2004                  By:  /s/ Keith A. McGowan
                                            --------------------

                                                Keith A. McGowan
                                                Chief Financial Officer
                                                (Principal Financial Officer and
                                                Principal Accounting Officer)



<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: March 10, 2004                      By:  /s/ John S. Dyson
                                                -----------------
                                                John S. Dyson
                                                Director

Dated: March 10, 2004                      By:  /s/ Clay B. Lifflander
                                                ----------------------
                                                Clay B. Lifflander
                                                Director

Dated: March 10, 2004                      By:  /s/ Alan L. Rivera
                                                ------------------
                                                Alan L. Rivera
                                                Director

Dated: March 10, 2004                      By:  /s/ Robert B. Kay
                                                -----------------
                                                Robert B. Kay
                                                Director

Dated: March 10, 2004                      By:  /s/ George M. Scherer
                                                ---------------------
                                                George M. Scherer
                                                Director


Dated: March 10, 2004                      By:  /s/ Philip E. Berney
                                                --------------------
                                                Philip E. Berney
                                                Director

Dated: March 10, 2004                      By:  /s/ Thomas R. Wall, IV
                                                ----------------------
                                                Thomas R. Wall, IV
                                                Director