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Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From _____To _____
Commission File Number: 000-21621
KEVCO, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2666013
----- ----------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
University Centre I
1300 S. University Drive
Suite 200
Fort Worth, Texas 76107
----------------- -----
(Address of principal (Zip Code)
executive offices)
(817-332-2758)
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
----- -----
Indicate the number of shares outstanding for each of the issuer's classes or
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 6,809,500 shares
- -------------------------------------- ----------------
(Class) (Outstanding on December 9, 1996)
<PAGE>
KEVCO, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 (unaudited)...................................... 3
Consolidated Statements of Income for the three-month and nine-month periods
ended September 30, 1996 and 1995 (unaudited).......................... 4
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1996 and 1995 (unaudited).......................... 5
Notes to Consolidated Financial Statements................................ 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 9
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K................................. 14
Signatures................................................................ 18
Exhibit index............................................................. 19
Exhibits.................................................................. 20
2
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Kevco, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, 1996 December 31,1995
------------------ ----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 239 $ 977
Trade accounts receivable, less allowance for
doubtful accounts of $178 and $160 in
1996 and 1995, respectively. 17,069 14,769
Inventories 22,976 18,383
Prepaid expenses and other 314 343
---------- ---------
Total current assets 40,598 34,472
Property and equipment, net 10,008 9,758
Intangible assets, net 9,678 10,162
Other assets 773 459
---------- ---------
Total assets $ 61,057 $ 54,851
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 16,630 $ 11,258
Accrued liabilities 4,308 3,231
Current portion of long-term debt 2,646 1,057
---------- ---------
Total current liabilities 23,584 15,546
Long-term debt, less current portion 22,782 30,206
Deferred compensation obligation 378 361
---------- ---------
Total liabilities 46,744 46,113
---------- ---------
Stockholders' equity:
Common stock, $.01 par value; 100,000 shares authorized;
4,395 shares issued in 1996 and 4,700 shares
(including 305 held in treasury) in 1995. 44 47
Additional paid-in capital 2,375 3,034
Loan to stockholder (3,437)
Retained earnings 11,894 9,842
Treasury stock, 305 shares at cost (748)
---------- ---------
Total stockholders' equity 14,313 8,738
---------- ---------
Total liabilities and stockholders' equity $ 61,057 $ 54,851
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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Kevco , Inc
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------- -------------
1996 1995 1996 1995
------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 69,449 $ 62,714 $ 205,048 $ 119,015
Cost of sales 58,866 54,276 174,114 101,926
-------- -------- --------- ---------
Gross profit 10,583 8,438 30,934 17,089
Commission income 1,400 1,008 4,100 1,521
-------- -------- --------- ---------
11,983 9,446 35,034 18,610
Selling, general and administrative expenses 7,618 6,620 22,590 13,530
-------- -------- --------- ---------
Operating income 4,365 2,826 12,444 5,080
Interest Income 86 141 272
Interest expense (567) (739) (1,767) (1,085)
-------- -------- --------- ---------
Income before income taxes 3,798 2,173 10,818 4,267
State income taxes 10 11 30 33
-------- -------- --------- ---------
Net income $ 3,788 $ 2,162 $ 10,788 $ 4,234
======== ======== ========= =========
Pro forma information (Note 4)
Historical income before income taxes $ 3,798 $ 2,173 $ 10,818 $ 4,267
Income tax expense adjustments 1,443 847 4,111 1,664
-------- -------- --------- ---------
Pro forma net income $ 2,355 $ 1,326 $ 6,707 $ 2,603
======== ======== ========= =========
Pro forma earnings per share $ 0.46 $ 0.27 $ 1.32 $ 0.53
======== ======== ========= =========
Weighted average shares outstanding 5098 4946 5098 4946
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Kevco, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,788 $ 4,234
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,318 697
Gain on sale of assets (4) (13)
Deferred compensation obligation 24 16
Changes in assets and liabilities, net effects from
purchases of Service Supply Systems, Inc. (415) 4,867
--------- ---------
Net cash provided by operating activities 11,711 9,801
Cash flows from investing activities:
Purchase of equipment (1,086) (422)
Proceeds from sale of assets 4 14
Increase in other assets (314) (65)
Purchase of Service Supply Systems, Inc., net of cash
acquired (17,449)
Loan origination fees (913)
--------- ---------
Net cash used by investing activities (1,396) (18,835)
Cash flows from financing activities:
Proceeds (payment) of line of credit, net (5,500) 1,969
Distributions paid (5,672) (4,311)
Payments of long-term debt (99) (5,369)
Capital contributions 86 152
Proceeds from long-term debt 15,000
Collections on loan to stockholder 375 563
Payment of non compete obligations (236) 661
Payment of deferred compensation obligaitons (7)
--------- ---------
Net cash (used) provided by financing activities (11,053) 8,665
--------- ---------
Net decrease in cash and cash equivalents (738) (369)
Beginning cash and cash equivalents 977 627
--------- ---------
Ending cash and cash equivalents $ 239 $ 258
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The form S-1 effective on November 1, 1996, for Kevco, Inc. includes a summary
of significant accounting policies and should be read in conjunction with this
Form 10-Q. Prior to the effective date of the initial public offering (see Note
2), Kevco, Inc. restructured and created an operating company subsidiary with a
subsidiary. As a result, the financial statements are referred to as
consolidated financial statements. The accompanying consolidated financial
statements of Kevco, Inc. and its wholly-owned subsidiary (the "Company") have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the balance sheets as of September 30, 1996
and December 31, 1995, the statements of income for the three and nine month
periods ended September 30, 1996 and 1995 and the statements of cash flows for
the nine month periods ended September 30, 1996 and 1995. The results of
operations for the three and nine month periods ended September 30, 1996 are not
necessarily indicative of the results of operations for the entire fiscal year
ending December 31, 1996.
On August 29, 1996, the Company effected a 0.47-for-1 reverse stock split of its
common stock. All share and per share amounts included in the accompanying
financial statements and footnotes have been restated to reflect the reverse
stock split.
Also, on August 29, 1996, the Company retired its treasury shares.
2. INITIAL PUBLIC OFFERING
In November 1996, the Company completed an initial public offering of 2,415,000
shares of the Company's common stock (including an over-allotment option of
315,000 shares exercised in December 1996) for $12.00 per share, netting
proceeds to the Company after underwriting discounts and estimated expenses of
approximately $26.0 million. Proceeds to the Company were used to repay all of
the outstanding balance of the Company's $20.0 million revolving credit facility
of $9.0 million and a permanent reduction of all of the outstanding balance the
Company's term loan of $13.9 million. Proceeds were also used to make an S
Corporation distribution of approximately $3.7 million representing previously
taxed but undistributed earnings to the prior S Corporation shareholders (see
Note 6 and 7).
6
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KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials $ 3,094 $ 2,314
Work-in process 435 303
Finished goods 1,205 828
Goods held for resale 18,242 14,938
------- -------
$22,976 $18,383
======= =======
</TABLE>
4. PRO FORMA INFORMATION
Pro forma net income represents the results of operations adjusted to reflect a
provision for income taxes on historical income before income taxes, which gives
effect to the change in the Company's income tax status to a C Corporation
concurrently with the consummation of the Company's initial public offering.
The difference between the pro forma income tax rates utilized and the federal
statutory rate of 34% relates primarily to state income taxes.
Pro forma earnings per share has been computed by dividing pro forma net income
by the weighted average number of shares of common stock outstanding during the
period.
In accordance with a regulation of the Securities and Exchange Commission, pro
forma earnings per share data have been presented to reflect the effect of the
assumed issuance of that number of shares of common stock that would generate
sufficient cash to pay an S Corporation distribution in an amount equal to
previously taxed but undistributed earnings at December 31, 1995 for the three
month and nine month periods ended September 30, 1995 and at September 30, 1996
for the three month and nine month periods ended September 30, 1996.
Historical net income per common share is not presented because it is not
indicative of the ongoing entity.
5. INCOME TAXES
Prior to November 6, 1996, the Company's stockholders had elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. As a result,
there has been no provision for federal income taxes in the historical financial
statements, as such taxes have been the responsibility of the individual
stockholders. Effective November 6, 1996, the Company converted to a C
Corporation and became subject to federal income taxes on an ongoing basis.
7
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. STOCKHOLDERS' EQUITY
In conjunction with its initial public offering, the Company terminated its S
Corporation status and distributed to its stockholders approximately $3.7
million, representing previously taxed but undistributed earnings at June 30,
1996 in the form of a promissory note. The Company also distributed a
promissory note to the S Corporation stockholders representing earnings from
July 1, 1996 through November 5, 1996 (the day immediately preceding the
consummation of the offering).
7. CREDIT AGREEMENT
The Company's $20.0 million revolver and the remaining balance of its term debt
are collateralized by inventory, accounts receivable and property and equipment
and the common stock of the Company's subsidiaries ( see Note 1). The related
credit agreement contains certain restrictions and conditions that include cash
flow and various financial ratio requirements, and limitations on incurrence on
debt or liens, acquisitions of property and equipment, distributions to
shareholders and certain events constituting a Change of Control (as defined in
such agreement).
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion includes the operations of Kevco, Inc. for each of
the periods discussed. This discussion and analysis should be read in
conduction with the Company's Registration Statement on Form S-1, effective
November 1, 1996.
The Company recognizes revenues from product sales at the time of shipment
(or the time of product receipt, in the case of direct shipments from suppliers
to customers). In some cases the Company sells on a commission basis.
Commissions are recognized when earned and represent amounts earned in selling,
warehousing and delivering products for certain manufacturers of building
products with which the Company has distribution agreements. Commission
arrangements do not require inventory investments or receivable financing, and
therefore are significantly less expensive to the Company than traditional
sales. To the extent the volume of items warehoused and shipped under
commission arrangements increases faster or slower than the volume of items
related to traditional sales, changes in net sales may not be representative of
actual increases or decreases in shipment volume.
ACQUISITION OF SERVICE SUPPLY
In June 1995, the Company acquired Service Supply for a purchase price of
approximately $17.7 million. The entire purchase price was paid in cash. The
fair value of assets acquired was approximately $32.4 million and the amount of
liabilities assumed was approximately $14.7 million, resulting in goodwill of
$7.1 million.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Consolidated Statements of Income data as a percentage of Kevco's net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 84.8 86.5 84.9 85.6
----- ----- ----- -----
Gross profit 15.2 13.5 15.1 14.4
Commission income 2.0 1.6 2.0 1.3
----- ----- ----- -----
17.2 15.1 17.1 15.7
Selling, general and administrative expenses 10.9 10.6 11.0 11.4
----- ----- ----- -----
Operating income 6.3 4.5 6.1 4.3
Interest income - 0.1 0.1 0.2
Interest expense (0.8) (1.2) (0.9) (0.9)
----- ----- ----- -----
Income before income taxes 5.5 % 3.4 % 5.3 % 3.6 %
===== ===== ===== =====
</TABLE>
9
<PAGE>
Comparison of Three Months Ended September 30, 1996 and 1995
Net sales increased by $6.7 million, or 10.7%, to $69.4 million for the
three month period ended September 30, 1996 from $62.7 million for the
comparable 1995 period. The net sales increase primarily resulted from an
increase in the volume and variety of products sold. Management believes the
increase in the volume and variety of products sold was primarily the result of
improved customer demand. The increase in net sales compared favorably to the
8.6% increase in reported manufactured home shipments for the three months ended
September 30, 1996, compared to the comparable 1995 period (approximately 95,000
homes reported shipped for the three months ended September 30, 1996 compared to
approximately 87,300 homes reported shipped for the comparable 1995 period).
Sales to the manufactured housing industry represented approximately 90% of the
Company's net sales for the three months ended September 30, 1996.
Gross profit increased by $2.2 million, or 25.4%, to $10.6 million for the
three month period ended September 30, 1996 from $8.4 million for the comparable
1995 period. The increase in gross profit resulted primarily from the increase
in net sales and improvement in gross profit, as a percent of sales. Gross
profit, as a percent of net sales, increased to 15.2% for the three month period
ended September 30, 1996 from 13.5% for the comparable 1995 period. Management
believes that the increase in gross profit, as a percent of sales, is a direct
result of the Company's ability to take advantage of purchasing opportunities
following the acquisition of Service Supply.
Commission income increased by $0.4 million, or 38.9% to $1.4 million for
the three month period ended September 30, 1996 from $1.0 million for the
comparable 1995 period. The increase was primarily attributable to the Company
entering into commission-based distribution arrangements with two manufacturers
of component products.
Selling, general and administrative expenses increased by $1.0 million, or
15.1%, to $7.6 million for the three month period ended September 30, 1996 from
$6.6 million for the comparable 1995 period. The increase was primarily due to
increased sales volume and additional overhead costs in 1996 associated with the
acquisition of Service Supply that will not recur in 1997. Selling, general and
administrative expenses, as a percent of sales, increased to 10.9% for 1996 from
10.6% for the comparable 1995 period. The increase was primarily the result of
additional overhead costs in 1996 associated with the acquisition of Service
Supply that will not recur in 1997.
Net income increased by $1.6 million, or 75.2%, to $3.8 million for the
three months ended September 30, 1996 from $2.2 million for the comparable 1995
period. The increase in net income is primarily attributable to the increase
in net sales along with controlling operating expenses as a percent of sales.
Also the increase was attributable to a reduction in interest expense as a
result of the pay down of debt associated with the acquisition of Service
Supply.
Comparison of Nine Months Ended September 30, 1996 and 1995
Net sales increased by $86.0 million, or 72.3%, to $205.0 million for the
first nine months of 1996 from $119.0 million for the comparable 1995 period.
The increase in net sales resulted primarily from the acquisition of Service
Supply. However, net sales on a combined basis as if the acquisition of Service
Supply had occurred on January 1, 1995, also increased for the first nine months
of 1996 to $205.0 million from $178.3 million for the comparable 1995 period, an
increase of 15.0%. The increase in net sales on a combined basis primarily
resulted from an increase in the
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volume and variety of products sold. Management believes the increase in the
volume and variety of products sold was primarily the result of the
establishment of national plumbing products accounts with several customers,
sales of Kevco product lines to existing Service Supply customers (as well as
sales of Service Supply products to existing Kevco customers) and improved
customer demand. The increase in net sales compared favorably to the 9.2%
increase in reported manufactured home shipments for the first nine months of
1996 compared to the comparable 1995 period (approximately 277,000 homes
reported shipped for the first nine months of 1996 compared to approximately
253,000 homes reported shipped for the comparable 1995 period). Sales to the
manufactured housing industry represented approximately 89% of the Company's net
sales for the nine months ended September 30, 1996.
Gross profit increased by $13.8 million, or 81.0%, to $30.9 million for the
first nine months of 1996 from $17.1 million for the comparable 1995 period.
The increase in gross profit resulted primarily from the acquisition of Service
Supply. However, gross profit, on a combined basis as if the acquisition of
Service Supply had occurred on January 1, 1995, also increased for the first
nine months of 1996 to $30.9 million from $24.4 million for the comparable 1995
period, an increase of 26.6%. The increase in gross profit on a combined basis
resulted primarily from an overall increase in net sales. Actual gross profit,
as a percent of actual sales, increased to 15.1% for the first nine months of
1996 from 14.4% for the comparable 1995 period. Also, gross profit, as a
percent of sales, on a combined basis as if the acquisition of Service Supply
had occurred on January 1, 1995, increased to 15.3% for the first nine months of
1996 from 13.7% for the comparable 1995 period. Management believes that both
the increase in actual gross profit and the increase in gross profit on a
combined basis are a direct result of the Company's ability to take advantage of
purchasing opportunities following the acquisition of Service Supply.
Commission income increased by $2.6 million, or 169.6% to $4.1 million for
the nine months ended September 30, 1996, from $1.5 million for the comparable
period. Although a portion of the increase was attributable to the acquisition
of Service Supply, the most significant factor in the increase was that the
Company entered into commission-based distribution arrangements with two
manufacturers of component products.
Selling, general and administrative expenses increased by $9.1 million, or
67.0%, to $22.6 million for the first nine months of 1996, from $13.5 million
for the comparable 1995 period. The increase were primarily attributable to the
acquisition of Service Supply and, to a lesser extent, increased sales volume.
Selling, general and administrative expenses, as a percent of sales, decreased
to 11.0% for the first nine months of 1996, from 11.4% for the comparable 1995
period. This decrease was primarily a result of reducing redundant overhead and
warehousing costs associated with Service Supply and, management's ability to
increase sales without a proportionate increase in related operating expenses.
Net income increased by $6.6 million, or 154.8%, to $10.8 million for the
first nine months of 1996, from $4.2 million for the comparable 1995 period.
The increase was primarily due to the acquisition of Service Supply, along with
the reduction of operating expenses as a percent of sales. Also, the increase
was net of additional interest expense incurred for the first nine months of
1996 related to debt associated with the acquisition of Service Supply.
11
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's growth has been financed through cash flow from
operations, borrowings under its bank credit facilities and the expansion of
trade credit. Net cash provided by operating activities was $11.7 million for
the nine months ended September 30, 1996, an increase of $1.9 million from $9.8
million for the comparable period in 1995. The Company's capital expenditures
were $1.1 million for the nine months ended September 30, 1996, as compared to
$0.4 million for the comparable 1995 period.
In connection with the Service Supply acquisition at June 30, 1995, the
Company arranged for a term loan and a revolving credit facility with a bank in
the aggregate of $35.0 million; the term loan comprising $15.0 million. The
purchase price of Service Supply was $17.7 million, of which $15.0 million was
paid with proceeds from such term loan and the remaining $2.7 million was paid
with a combination of cash on hand and proceeds from the revolving credit
facility. The fair value of assets acquired was $32.4 million and liabilities
assumed were $14.7 million. Of the $14.7 million of liabilities assumed, $8.1
million was paid with funds borrowed under the Company's revolving credit
facility. At September 30, 1996, the outstanding principal balance under the
term loan was $14.5 million and the outstanding principal balance under the
revolving credit facility was $9 million. In November 1996, the Company
completed an initial public offering of 2,415,000 shares of the Company's stock
(including an over-allotment option of 315,000 shares exercised in December
1996) for $12.00 per share, netting proceeds to the Company after underwriting
discounts and estimated expenses of approximately $26.0 million. A portion of
the net proceeds of the public offering was used to repay all of the outstanding
balance of the revolving credit facility and to permanently repay all of the
outstanding balance under the term loan. Borrowings under the term loan
required monthly, bi-monthly or quarterly interest payments (depending on
whether interest accrues based on the prime rate or LIBOR) and quarterly
principal payments of $0.6 million commencing on October 1, 1996 until maturity
at June 30, 2001. Interest was paid on the term loan at a blend of the bank's
prime rate and LIBOR based on pricing options selected by the Company plus a
margin based on operating statistics of the Company (6.81% at September 30,
1996). Borrowings under the revolving credit facility are due June 30, 1998
(subject to the option of the lenders to grant one or more twelve month
extensions at Kevco's request), and require monthly, bi-monthly or quarterly
interest payments currently based on a blend of the bank's prime rate and LIBOR
based on pricing options selected by the Company plus a margin determined by
operating statistics of Company (6.85% at September 30, 1996). The borrower
under the term loan was and revolving credit facility is one of the Company's
operating subsidiaries, and the obligations thereunder are guaranteed by the
Company. The term loan was and revolving credit facility is secured by
substantially all of the assets of the Company and its subsidiaries as well as
the capital stock of such subsidiaries. The related credit agreement contains
certain restrictions and conditions that include cash flow and various financial
ratio requirements, and limitations on incurrence on debt or liens, acquisitions
of property and equipment , distributions to shareholders an certain events
constituting a Change of Control (as defined in such agreement).
Since its election to be treated as an S corporation, the Company has made
distributions to its shareholders, including amounts equal to at least their
federal and state income tax liabilities attributable to the Company's earnings.
Distributions have generally been made on a quarterly basis as needed to satisfy
such tax liabilities. The Company has made or declared aggregate cash
distributions to its shareholders of approximately $5.7 million and $4.3 million
with respect to the nine months ended September 30, 1996 and 1995, respectively.
Concurrent with the
12
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consummation of the offering, the Company converted to a C Corporation and will
be subject to federal and certain state taxes after that date. The Company does
not anticipate paying cash dividends on its common stock in the foreseeable
future and intends to retain its earnings to support operations and finance
expansion.
Immediately prior to the consummation of the public offering, the Company
declared and made the S Corporation Distribution, consisting of the Prior S
Corporation Earnings Note in the principal amount of approximately $3.7 million
(which was paid in November 1996) and the Future S Corporation Earnings Note
(which represents earnings from July 1, 1996 to the consummation of the offering
to be paid on or before December 31, 1996).
ASSET MANAGEMENT
The Company actively manages its assets and liabilities through
compensating its corporate and facility managers for receivable collection,
inventory control and profits in relation to these and other net assets
employed.
For the nine months ended September 30, 1996, days sales in average
receivables was approximately 21 days, days sales in average inventory was
approximately 31 days and days sales in average payables was approximately 22
days.
INFLATION
Generally, inflation and changing prices have had a minimal impact on
Kevco's operating results, as increases in the sales prices of products have
closely followed increases in material costs.
13
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (3)
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and Service
Supply Systems, Inc., joined by a wholly-owned subsidiary of Kevco,
Inc.(1)
2.2 Form of Plan and Agreement of Merger (between Kevco, Texas, Inc. and Kevco
Delaware, Inc.)(1)
2.3 Form of Bill of Sale and General Assignment from Kevco Delaware, Inc., as
Assignor, to Sunbelt Wood Components, Inc. as Assignee.(1)
2.4 Form of Assumption Agreement between Kevco Delaware, Inc. and Sunbelt Wood
Components, Inc.(1)
3.1 Articles of Incorporation of Kevco, Inc., as amended.(1)
3.2 Bylaws of Kevco, Inc.(1)
4.1 Form of certificate evidencing ownership of the Common Stock of Kevco,
Inc.(1)
10.1 Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995 Stock
Option Plan of Kevco, Inc.) and Supplementary Letter.(1)
10.2 1996 Stock Option Plan of Kevco, Inc., as amended, and Supplementary
Letter.(1)
10.3 Form of Amended and Restated Employment Agreement (between Gerald E.
Kimmel and Kevco, Inc.), joined therein by Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
10.4 Employment Agreement between C. Lee Denham and Kevco, Inc. dated June 30,
1995.(1)
10.5 Lease between K & E Land & Leasing and Kevco, Inc. dated December 1,
1977.(1)
10.6 Amendment No. 1 to Lease, by and between K & E Land & Leasing and Kevco,
Inc. dated March , 1982.(1)
10.7 Amendment No. 2 to Lease, by and between K & E Land & Leasing and Kevco,
Inc. dated May 30, 1983.(1)
10.8 Amendment No. 3 to Lease, by and between K & E Land & Leasing and Kevco,
Inc. dated February 1, 1993.(1)
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.9 Lease dated April 1, 1980 between City of Newton, Kansas and K & E Land &
Leasing.(1)
10.10 Sublease and Lease Guarantee Agreement dated April 1, 1980 between K & E
Land & Leasing and Kevco, Inc.(1)
10.11 Amendment No. 1 to Sublease and Lease Guaranty Agreement by and between K
& E Land & Leasing and Kevco, Inc. dated May 30, 1983.(1)
10.12 Lease Agreement dated October 12, 1987 between 1741 Conant Partnership &
Kevco, Inc.(1)
10.13 Equipment Lease Agreement dated January 1, 1991 between K & E Land &
Leasing and Kevco, Inc.(1)
10.14 Amendment No. 1 to Equipment Lease Agreement between K & E Land & Leasing
and Kevco, Inc. dated February 12, 1993.(1)
10.15 Amendment No. 2 to Equipment Lease Agreement between K & E Land & Leasing
and Kevco, Inc. dated October 26, 1993.(1)
10.16 Amendment No. 3 to Equipment Lease Agreement between K & E Land & Leasing
and Kevco, Inc. dated May 23, 1994.(1)
10.17 Deferred Compensation Agreement between Kevco, Inc. and Clyde A. Reed, Jr.
dated May 24, 1977.(1)
10.18 Amendment No. 1 to Deferred Compensation Agreement dated May ,
1980.(1)
10.19 Amendment No. 2 to Deferred Compensation Agreement dated March 10,
1992.(1)
10.20 Amended and Restated Health and Accident Pan of Kevco, Inc.(1)
10.21 Investment and Tax Advice Plan of Kevco, Inc.(1)
10.22 Credit Agreement among Kevco Inc., certain Lenders and NationsBank of
Texas, N.A., as Administrative Lender dated June 30, 1995.(1)
10.23 First Amendment to Credit Agreement, dated as of September 1, 1995, among
Kevco, Inc., the banks listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.24 Second Amendment to Credit Agreement dated as of November 29, 1995, among
Kevco, Inc., the banks listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.25 Revolving Credit Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
September 1, 1995, in the amount of $14,285,714.28.(1)
15
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.26 Term Loan Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
September 1, 1995 in amount of $10,714,285.72.(1)
10.27 Revolving Credit Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
February 2, 1996 in the amount of $5,714,285.72.(1)
10.28 Term Loan Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated February 2,
1996 in the amount of $4,285,714.28.(1)
10.29 Paine Webber Standardized 401(K) Profit-Sharing Adoption Agreement (No.
005) (To be used with Basic Plan Document No. 03 Only) for Kevco, Inc.
dated May 24, 1996 and Paine Webber Defined Contribution Plan.(1)
10.30 Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October 26, 1993
in the amount of $5,000,000.(1)
10.31 Amendment No. 4 to Lease dated December 1, 1977 by and between K & E
Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.32 Assignment and Acceptance dated February 2, 1996 between The Daiwa Bank,
Limited and The Sumitomo Bank, Ltd., Chicago, Branch.(1)
10.33 Form of Tax Indemnification and Distribution Agreement.(1)
10.34 Form of Promissory Note made by Kevco Texas, Inc. in the amount of
$3,733,000 (the Prior S Corporation Earnings Note).(1)
10.35 Form of Promissory Note made by Kevco Texas, Inc. (the Future S
Corporation Earnings Note).(1)
10.36 Form of Assignment of $5,000,000 Note made by Kevco, Inc. (n/k/a Kevco
Texas, Inc.).(2)
10.37 Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc. (re; 1995
Stock Option Plan and 1996 Stock Option Plan).(1)
10.38 Amendment No. 1 dated September 21, 1988, to Lease Agreement by 1741
Conant Partnership as lessor an Kevco, Inc.(n/k/a Kevco Texas, Inc.).(1)
10.39 Letter Agreement dated June 22, 1982, between Kevco, Inc.(n/k/a Kevco
Texas, Inc.) and K & E Land & Leasing. (re; lease rentals).(1)
10.40 Letter Agreement dated October 1,1996 by Kevco, Inc., K & E Land &
Leasing, and 1741 Conant Partnership (re; lease rental).(1)
10.41 Form of Parent Pledge Agreement.(1)
16
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.42 Consent and Waiver, dated as October 21, 1996, by and among NationsBank of
Texas, N.A., The Sumitomo Bank, Ltd. and Kevco Texas, Inc.(1)
11.1 Computation of Earnings Per Common Share.(2)
27.1 Financial Data Schedule.(2)
(1) Previously filed as an exhibit to the Company's Registration Statement of
Form S-1
(No. 333-11173) and incorporated herein by reference.
(2) Filed herewith.
(3) No reports on Form 8-K were filed by the Company during the period covered
by this report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Commission Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KEVCO, INC.
Date: December 11, 1996
By:_____________________________________
Jerry E. Kimmel
Chairman of the Board, President
and Chief Executive Officer
Date: December 11, 1996
By:_____________________________________
Ellis L. McKinley, Jr.
Vice President, Chief Financial
Officer, Treasurer and Director
(Principal Financial Officer)
18
<PAGE>
KEVCO, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11.1 Computation of earnings per common share.
27.1 Financial Data Schedule.
19
<PAGE>
EXHIBIT 11.1
KEVCO, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Primary earnings
Proforma net income $ 6,707 $ 2,603
Shares
Weighted average number of common shares outstanding 4,395 4,395
Conversion of options issued and outstanding 49 49
Other shares 654(1) 502(1)
------- -------
Weighted average number of common shares outstanding as adjusted 5,098 4,946
======= =======
Primary earnings per common share $ 1.32 $ 0.53
======= =======
</TABLE>
Earnings per share is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding. Common
share equivalents are computed using the treasury stock method. Under the
treasury stock method, market price is used to determine the number of common
share equivalents.
(1) Amount reflects the assumed issuance of Common Stock at the initial public
offering price per share, less underwriting discount, to generate sufficient
cash to fund the distribution of undistributed earnings previously taxed at
the stockholder level. (See footnote 4)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF KEVCO, INC. FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 17,247<F1>
<ALLOWANCES> 178
<INVENTORY> 22,976
<CURRENT-ASSETS> 40,598
<PP&E> 14,804
<DEPRECIATION> 4,910
<TOTAL-ASSETS> 61,057
<CURRENT-LIABILITIES> 23,584
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 14,269
<TOTAL-LIABILITY-AND-EQUITY> 61,057
<SALES> 205,048
<TOTAL-REVENUES> 209,148
<CGS> 174,114
<TOTAL-COSTS> 22,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 1,626
<INCOME-PRETAX> 10,818
<INCOME-TAX> 30
<INCOME-CONTINUING> 10,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,788
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Statement of Financial Position.
</FN>
</TABLE>
