<PAGE> 1
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
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 76107-5734
------------------------ ----------
(Address of principal (Zip Code)
executive offices)
(817) 885-0000
(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 X No
--- ---
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share 9,563,487 shares
--------------------------------------- ------------------------------------
(Class) (Outstanding as of October 30, 2000)
<PAGE> 2
KEVCO, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999................................................................... 3
Consolidated Statements of Operations for the three-month and nine-month
periods ended September 30, 2000 and 1999 (Unaudited)................................... 4
Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 2000 and 1999 (Unaudited)................................................. 5
Notes to Consolidated Financial Statements (Unaudited)..................................... 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 8
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk........................ 15
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K.................................................. 15
Signatures................................................................................. 16
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS.
KEVCO, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,923 $ 18,098
Trade accounts receivable, less allowance for doubtful
accounts of $481 and $711 in 2000 and 1999, respectively 35,192 35,864
Inventories 58,582 67,070
Other current assets 4,747 8,772
--------- ---------
Total current assets 109,444 129,804
Property and equipment, net 43,509 43,756
Goodwill and other intangible assets, net 110,708 113,127
Other assets 5,184 5,685
--------- ---------
Total assets $ 268,845 $ 292,372
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 23,298 $ 5,273
Trade accounts payable 40,588 43,926
Accrued interest 3,868 1,429
Other accrued liabilities 11,580 17,424
--------- ---------
Total current liabilities 79,334 68,052
Long-term debt, less current portion 178,635 199,553
Other long-term liabilities 4,302 2,054
--------- ---------
Total liabilities 262,271 269,659
Stockholders' equity:
Preferred stock, $.01 par value; 30,000 shares authorized; no
shares issued or outstanding -- --
Common stock, $.01 par value; 100,000 shares authorized; 9,563
shares issued and outstanding 96 96
Non-voting common stock, $.01 par value; 20,000 shares authorized;
no shares issued or outstanding -- --
Additional paid-in capital 49,270 49,270
Accumulated deficit (42,792) (26,653)
--------- ---------
Total stockholders' equity 6,574 22,713
--------- ---------
Total liabilities and stockholders' equity $ 268,845 $ 292,372
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
KEVCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 137,030 $ 208,682 $ 470,682 $ 663,244
Cost of sales 121,038 190,421 411,771 588,661
--------- --------- --------- ---------
Gross profit 15,992 18,261 58,911 74,583
Commission income 1,151 1,353 3,572 4,853
--------- --------- --------- ---------
Gross margin 17,143 19,614 62,483 79,436
Selling, general and administrative expenses 20,724 27,866 61,846 79,709
Impairment and other special charges -- 6,807 -- 6,807
--------- --------- --------- ---------
Operating income (loss) (3,581) (15,059) 637 (7,080)
Other income (expense) (3) 1,547 102 2,421
Debt transaction costs -- 6,272 -- 6,272
Interest expense 5,757 6,187 16,879 17,796
--------- --------- --------- ---------
Loss before income taxes (9,341) (25,971) (16,140) (28,727)
Income tax benefit -- -- -- (786)
--------- --------- --------- ---------
Net loss $ (9,341) $ (25,971) $ (16,140) $ (27,941)
========= ========= ========= =========
Loss per share - basic and diluted $ (0.98) $ (2.94) $ (1.69) $ (3.71)
========= ========= ========= =========
Weighted average shares outstanding - basic and diluted 9,563 8,828 9,563 7,523
========= ========= ========= =========
</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,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(16,140) $(27,941)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 5,983 6,343
Amortization of debt issue costs 847 1,754
Gain on sale of assets (57) (1,617)
Impairment and other special charges -- 6,807
Debt transaction costs -- 6,272
Changes in assets and liabilities:
Trade receivables (2,789) (11,491)
Inventories 8,488 15,899
Other current assets 4,025 491
Trade accounts payable (3,338) (6,255)
Accrued liabilities & other long term liabilities (1,156) 8,275
-------- --------
Net cash used in operating activities (4,137) (1,463)
Cash flows from investing activities:
Purchase of equipment (3,033) (6,920)
Proceeds from sale of assets 143 5,973
Insurance proceeds 3,461 2,538
Decrease in other assets (565) (693)
-------- --------
Net cash provided by investing activities 6 898
Cash flows from financing activities:
Payment on line of credit, net -- (20,400)
Proceeds from long-term debt -- 23,500
Payments on long-term debt (3,044) (5,539)
Loan origination costs -- (1,015)
Equity proceeds, net of transaction costs -- 9,126
Stock options exercised -- 59
-------- --------
Net cash provided/(used) by financing activities (3,044) 5,731
-------- --------
Net increase (decrease) in cash and cash equivalents (7,175) 5,166
Beginning cash and cash equivalents 18,098 799
-------- --------
Ending cash and cash equivalents $ 10,923 $ 5,965
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The Annual Report to Shareholders filed with the Securities and Exchange
Commission ("Commission") on March 30, 2000 ("Annual Report"), for Kevco, Inc.
includes a summary of significant accounting policies and should be read in
conjunction with this Form 10-Q. The accompanying consolidated financial
statements of Kevco, Inc. and its wholly owned subsidiaries ("Kevco" or the
"Company") have been prepared pursuant to the rules and regulations of the
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles ("GAAP") for
complete financial statements. All significant intercompany transactions and
accounts have been eliminated.
In the opinion of management, the consolidated financial statements contain
all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation of the balance sheet as of September 30, 2000,
the statements of operations for the three-month and nine-month periods ended
September 30, 2000 and 1999, and the statements of cash flows for the nine-month
periods ended September 30, 2000 and 1999. The results of operations for the
three and nine month periods ended September 30, 2000 are not necessarily
indicative of the results of operations that may be expected for the entire
fiscal year ending December 31, 2000. Certain amounts included in the
consolidated financial statements for the three-month and nine-month periods
ended September 30, 1999, and the twelve month period ended December 31, 1999,
have been reclassified to conform with the comparable September 30, 2000
presentation.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133),
which, as amended, is required to be adopted in years beginning after June 15,
2000. Management does not anticipate that the adoption of SFAS 133 will have a
material effect on the Company's financial position or results of operations.
2. INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------- -------
<S> <C> <C>
Raw materials $10,478 $19,312
Work in process 888 760
Finished goods 6,366 6,903
Goods held for resale 40,850 40,095
------- -------
$58,582 $67,070
======= =======
</TABLE>
3. CREDIT AGREEMENT AMENDMENT
In May 2000, the Company and its lenders entered into a second amendment to
the third amended and restated credit agreement, which restructured certain
conditions in regard to applicable covenants to make them less restrictive.
On November 20, 2000, the Company and its lenders entered into a third
amendment to the third amended and restated credit agreement. The new amendment
omits the existing financial covenants for the period of September 30, 2000
through October 1, 2001, and replaces them with covenants that are less
restrictive. The amendment also requires the Company by March 8, 2001, to pay
down $15 million of the amount that is outstanding under the term portion of the
credit agreement. This additional pay down of $15 million is included in the
current portion of long-term debt at the end of the third quarter 2000. Although
there can be no assurance that the Company will be able to do so, management
believes the Company can meet the $15 million pay down requirement.
6
<PAGE> 7
During the term of the third amendment, the aggregate amounts available
under the revolving credit facility will be reduced to the lesser of $5 million,
or a revolving credit borrowing base calculated upon certain net eligible
assets. Management believes that cash reserves, together with available funds
under the Company's revolving line of credit, are adequate for the next twelve
months. As of September 30, 2000, no amounts are outstanding under the revolving
credit facility.
As of September 30, 2000, $34.4 million was outstanding under the Term A
facility, which matures in December 2003, $38.3 million was outstanding under
the Term B facility, which matures in December 2004, and the Company was in
compliance with the amended covenants. The amended covenants will lapse
effective October 1, 2001, at which time the covenants existing under the second
amendment to the third amended and restated credit agreement will be reinstated.
If the Company fails to negotiate another amendment, then an event of default
will exist as of October 1, 2001. The Company plans to enter into negotiations
with its lenders toward a more extensive and longer term restructuring of the
credit agreement debt in the first quarter of 2001.
4. EARNINGS PER SHARE
Basic earnings per share excludes dilution, and diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue voting common stock were exercised and converted into voting
common stock. For the three-month and nine-month periods ended September 30,
2000 and September 30, 1999, options, warrants and convertible securities are
not included in the computation of diluted loss per share as the effects would
be antidilutive.
5. IMPAIRMENT AND OTHER SPECIAL CHARGES
During the third quarter of 1999, the Company's then new management team
implemented a number of cost improvement initiatives which included the decision
to dispose of the Plastic Solutions operation, an injection plastics
manufacturing division, which operations were no longer in alignment with the
Company's core business strategy. The Company recorded an impairment loss of
$3.8 million (including a write-off of approximately $3.3 million of goodwill)
to adjust the carrying amount of Plastic Solutions' assets to their estimated
sales value, net of related costs to sell and classified such assets as held for
sale on the balance sheet. The sale of Plastic Solutions occurred in December
1999.
Other special charges of approximately $3.0 million were recognized in the
third quarter of 1999 relating to accruals for severance costs of certain
executives and miscellaneous write-offs of other individually insignificant
non-core assets no longer being utilized.
6. INCOME TAXES
As the general slowdown in the manufactured housing industry continues and
in light of the Company's near term outlook for future earnings, the Company did
not recognize any income tax benefit in the first nine months of 2000. Beginning
in the last half of 1999 and continuing into 2000, the Company has provided a
valuation allowance for net deferred tax assets because the Company cannot be
assured that realization of any income tax benefit is more likely than not,
given the losses in 1999 and 2000.
7. SEGMENT REPORTING
The Company identifies reportable segments based upon management
responsibility within the United States. The Company has identified three
reportable segments: Distribution, Manufacturing and Wood Products.
The Distribution segment primarily distributes plumbing products, building
products, electrical components and hardware supplies to the manufactured
housing and recreational vehicle industries; the Manufacturing segment primarily
manufactures and distributes thermoformed products, laminated wallboard products
and plastic injection molded products (prior to the sale of Plastic Solutions,
Inc., in December 1999) to the manufactured housing and recreational vehicle
industries; and the Wood Products segment primarily manufactures roof trusses
and lumber cut to customer specifications for use in manufactured homes.
7
<PAGE> 8
Shepherd Products, previously included in the Manufacturing segment in
1999, has been classified with the Distribution segment effective January 1,
2000. All material transactions, including intercompany eliminations, related to
Shepherd Products have been restated for the periods ended September 30, 1999,
to conform with the September 30, 2000 segment presentation.
The Company measures segment performance based upon revenue and operating
income results. The information in the Corporate/Other category consists
primarily of corporate operating expenses and intercompany eliminations of
Manufacturing sales to Distribution, and is utilized to reconcile to the
Company's consolidated results. The decreases in Corporate/Other operating loss
of $11.9 million and $20.5 million for the three-month and nine-month periods
ended September 30, 2000, respectively, are primarily due to non-recurring
impairment and other special charges, as well as consulting and information
technology costs incurred in the three-month and nine-month periods ended
September 30, 1999. Information regarding operations by segment follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Net sales:
Distribution $ 93,689 $ 137,724 $ 316,229 $ 437,023
Manufacturing 24,364 32,708 80,288 100,511
Wood Products 19,056 38,471 74,399 126,329
Corporate/Other (79) (221) (234) (619)
--------- --------- --------- ---------
$ 137,030 $ 208,682 $ 470,682 $ 663,244
========= ========= ========= =========
Operating income:
Distribution $ 712 $ 913 $ 7,409 $ 16,209
Manufacturing 1,070 (398) 3,684 3,167
Wood Products (2,238) (506) (2,385) 2,144
Corporate/Other (3,125) (15,068) (8,071) (28,600)
--------- --------- --------- ---------
(3,581) (15,059) 637 (7,080)
Other income (expense) (3) 1,547 102 2,421
Debt transaction costs 6,272 6,272
Interest expense 5,757 6,187 16,879 17,796
--------- --------- --------- ---------
Loss before income taxes $ (9,341) $ (25,971) $ (16,140) $ (28,727)
========= ========= ========= =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion includes the operations of the Company for each of
the periods discussed. This discussion and analysis should be read in
conjunction with the Annual Report.
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 receivables 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.
8
<PAGE> 9
The Company's sales in both the third quarter and the first nine months of
2000 were adversely impacted by the continued downturn in the manufactured
housing industry that has resulted from, among other things, an industry-wide
build-up in retail inventories that occurred during 1999. This situation has
been aggravated in 2000 by the strategic decision of a few major lenders to exit
this line of business or to restrict their activity in financing purchases to
manufactured homes, especially for marginal borrowers. Combined with a higher
incidence of repossessions, the industry has faced higher relative interest
rates and very restrictive lending standards. As a result, consumer demand for
new units has declined more than industry forecasts, leaving the overall retail
inventory position relatively unchanged. The excess retail inventory situation
combined with the tighter lending availability and diminished retail sales
contributed to an estimated 28% and 25% decline in industry-wide production of
manufactured homes during the third quarter and first nine months of 2000,
respectively. Management expects this trend of lower manufacturing activity to
persist throughout 2001, thereby continuing to adversely impact sales trends of
the Company.
The Company continues to integrate Shelter Components Corporation (acquired
December 1997) into Kevco by, among other things, consolidating certain
corporate functions, consolidating overlapping distribution warehouses and
integrating multiple computer systems into one. A key initiative this year has
been a major upgrade in the information system used to operate and link our
distribution centers. This implementation was completed during the third quarter
of 2000. The remaining integration efforts are expected to be substantially
complete over the next 12 to 15 months. Management believes that by the end of
this time period, the consolidation and integration activities and related costs
will become a smaller component of the Company's total expenses.
CHARGES - THIRD QUARTER ENDED SEPTEMBER 30, 1999
During the third quarter of 1999, the Company incurred charges and certain
adjustments of $21.5 million, including $15.2 million of non-cash items,
primarily related to the then new management team's cost control initiatives and
ongoing review of the Company's business. The charges of $21.5 million consisted
principally of inventory reserve adjustments ($4.0 million), write-downs related
to the sale of non-core assets ($4.5 million, primarily goodwill), adjustments
to worker's compensation and health insurance reserves as costs had increased
over prior periods due to unfavorable claims experience ($2.5 million),
severance costs ($1.5 million), and charges related to a third quarter
securities issuance ($6.3 million, of which $5.3 million was a non-cash charge
related to the beneficial conversion feature of the Subordinated Notes issued in
the third quarter of 1999). These charges have been reflected in the
accompanying financial statements as follows: $5.6 million in cost of sales;
$2.8 million in selling, general, and administrative expenses; $6.8 million in
impairment and other special charges; and $6.3 million in debt transaction
costs.
RESULTS OF OPERATIONS
The following table sets forth certain Consolidated Statements of
Operations data as a percentage of the Company's net sales, for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.3 91.2 87.5 88.8
----- ----- ----- -----
Gross profit 11.7 8.8 12.5 11.2
Commission income 0.8 0.6 0.8 0.7
----- ----- ----- -----
Gross margin 12.5 9.4 13.3 11.9
Selling, general & administrative expenses 15.1 13.4 13.1 12.0
Impairment and other special charges -- 3.3 -- 1.0
----- ----- ----- -----
Operating income (2.6) (7.3) 0.2 (1.1)
Other income (expense) -- 0.7 -- 0.4
Interest expense, net 4.2 3.0 3.6 2.7
Debt transaction costs -- 3.0 -- 0.9
----- ----- ----- -----
Loss before income taxes (6.8)% (12.6)% (3.4)% (4.3)%
===== ===== ===== =====
</TABLE>
The Company is organized into three segments; Distribution, Manufacturing
and Wood Products. However, each segment serves the same market and is impacted
by the same economic trends as the business of the Company taken as a whole. See
note 7 to the consolidated financial statements for segment data.
9
<PAGE> 10
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales decreased by $71.7 million, or 34.4%, to $137.0 million for the
three months ended September 30, 2000 from $208.7 million for the comparable
1999 period. The net sales decrease was primarily caused by the general slowdown
in the manufactured housing industry brought on by, among other things, an
excessive amount of retail inventory and various conditions affecting credit
availability for the home buyer, resulting in diminished retail demand. For the
first two months of the third quarter, industry statistics indicate a 26%
decline in production over the same period in 1999, which, consequently, reduced
the demand for the Company's products. Management estimates that the full third
quarter decline in production will approximate 28%. This decline is
distinctly regionalized with the highest decreases occurring in the Southeast,
significantly affecting the Wood Products segment, with the North Central states
experiencing the smallest declines in production. Additionally, $15.0 million of
the Company's net sales decrease was the result of two major product lines
changing to a commission-based arrangement. Further, Plastic Solutions accounted
for $2.0 million of net sales in the three-month period ended September 30,
1999, with no sales in the comparable 2000 period due to the sale of this
operation in December 1999.
Gross margins decreased by $2.5 million, or 12.8%, during the third quarter
of 2000, to $17.1 million, from $19.6 million for the comparable 1999 period.
This decrease was due primarily to the reduced sales levels in 2000 versus the
same period in 1999. Gross margin as a percent of sales was 12.5%, an
improvement over 1999's third quarter level of 9.4%. The significant improvement
in gross margin as a percent of sales is primarily due to non-recurring third
quarter 1999 charges for inventory reserve adjustments and increases in worker's
compensation and health insurance costs that were expensed in that period. After
eliminating the effect of the non-recurring third quarter charges taken in 1999
of $5.6 million, the current quarter gross margin of 12.5% indicates an
improvement of 0.4 percentage points over the same quarter in 1999. This
improvement in gross margin as a percent of sales has been the result of current
year cost reduction initiatives and focused attention by the Company's Product
Management Department to isolate and correct low margin business.
Commission income decreased by $0.2 million, or 14.3%, to $1.2 million for
the three months ended September 30, 2000, from $1.4 million for the same period
in 1999. This decline is primarily the result of the same conditions that caused
the sales volume decrease, partially offset by the increase in commission income
resulting from two major product lines changing to a commission-based
arrangement in the current year.
Selling, general and administrative expenses decreased by $7.2 million, or
25.8%, to $20.7 million for the three months ended September 30, 2000, from
$27.9 million for the comparable 1999 period. The decrease is primarily due to
third quarter 1999 charges for increased worker's compensation and health
insurance costs, expenses incurred for upgrading information systems for the
distribution business and additional professional service fees, which did not
occur in the current quarter in the same magnitude. Additionally, certain other
consulting and information technology costs incurred in the third quarter of
1999 were non-recurring in the current year. Selling, general and administrative
expenses, as a percentage of net sales, increased to 15.1% for the three months
ended September 30, 2000, from 13.4% for the comparable 1999 period. This
percentage of net sales increase is primarily attributable to fixed costs in a
declining sales market.
During the third quarter of 1999, impairment and other special charges of
$6.8 million were incurred as part of cost improvement initiatives implemented
by the Company's then new management team. Such initiatives included the planned
disposition of the Plastic Solutions operation, an injection plastics
manufacturing division, severance costs of certain executives and write-offs of
other individually insignificant non-core assets. No such similar impairment or
special charges were taken during the current period.
Other income decreased by $1.5 million from $1.5 million in 1999. Other
income in the three-month period ended September 30, 1999 is comprised primarily
of a gain from the sale of the Company's corporate jet.
Debt transaction costs of $6.3 million were incurred in the quarter ended
September 30, 1999. The Company incurred a charge of $5.3 million for the
beneficial conversion feature related to the issuance of $23.5 million of
Subordinated Notes in the third quarter of 1999. The conversion feature in the
Subordinated Notes is considered to be a beneficial conversion feature to the
holder given that the quoted market price was $5.50 per share. As a result, the
Company allocated $5.3 million of the proceeds of the Subordinated Notes to
additional paid-in-capital as a discount to the Subordinated Notes. The Company
was required to amortize the Subordinated Notes' discount over the period for
which the Subordinated Notes first became convertible. As the Subordinated Notes
were immediately convertible upon issuance, the Company recognized the entire
discount as a non-cash charge to debt transaction costs in the quarter ended
September 30, 1999. The remaining $1.0 million of debt transaction costs were
associated with amendments to the Company's credit facilities.
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<PAGE> 11
Interest expense is $0.4 million less for the quarter ended September 30,
2000, then the same period in 1999. The Company is paying slightly higher
interest rates due to current market conditions. These increased interest rates
are partially offset by paying interest on a lower principal amount as a result
of working capital reductions that have decreased the need for bank line of
credit facility borrowings.
For the three months ended September 30, 2000, the Company reported a net
loss of $9.3 million compared to a net loss of $26.0 million in the comparable
1999 period. The loss incurred in the current period is primarily attributed to
the decline in sales volume. The loss incurred during the third quarter of 1999
is principally due to the impairment, special charges, debt transaction costs,
inventory reserve adjustments and increased workers' compensation and health
insurance costs expensed during that period. Additionally, the quarter ended
September 30, 1999 marked the beginning of the general slowdown in the
manufactured housing industry that has continued throughout the current year.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales decreased by $192.5 million, or 29.0%, to $470.7 million for the
nine months ended September 30, 2000 from $663.2 million for the comparable 1999
period. The net sales decrease was primarily caused by the general slowdown in
the manufactured housing industry brought on by, among other things, an
excessive amount of retail inventory and various conditions affecting credit
availability for the home buyer, resulting in diminished retail demand.
Management believes that manufactured housing production fell below 1999 levels
by approximately 25%, which, consequently, reduced the demand for the Company's
products. This decline is distinctly regionalized with the highest decreases
occurring in the Southeast, significantly affecting the Wood Products segment,
with the North Central states experiencing the smallest declines in production.
Additionally, $36.5 million of the net sales decrease was the result of two
major product lines changing to a commission-based arrangement. Further, Plastic
Solutions accounted for $6.3 million of net sales in the nine-month period ended
September 30, 1999, with no sales in the comparable 2000 period due to the sale
of this operation in December 1999.
Gross margins decreased by $16.9 million, or 21.3%, during the first nine
months of 2000, to $62.5 million, from $79.4 million for the comparable 1999
period. This decrease was due primarily to the reduced sales levels in 2000
versus the same period in 1999. Gross margin as a percent of sales was 13.3%, a
1.3% improvement over 1999's level of 12.0%. The significant improvement in
gross margin as a percent of sales is primarily due to non-recurring third
quarter 1999 charges for inventory reserve adjustments and increases in worker's
compensation and health insurance costs that were expensed in the third quarter
of 1999. After eliminating the effect of the non-recurring third quarter charges
taken in 1999 of $5.6 million, the 2000 year-to-date gross margin of 13.3%
indicates an improvement of 0.5 percentage points over the same period in 1999.
This improvement in gross margin as a percent to sales has been the result of
current year cost reduction initiatives and focused attention by the Company's
Product Management Department to isolate and correct low margin business.
Commission income decreased by $1.3 million, or 26.5%, to $3.6 million for
the nine months ended September 30, 2000, from $4.9 million for the same period
in 1999. This decline is primarily the result of the same conditions that caused
the sales volume decrease, partially offset by the increase in commission income
resulting from two major product lines changing to a commission-based
arrangement in the current year.
Selling, general and administrative expenses decreased by $17.9 million, or
22.5%, to $61.8 million for the nine months ended September 30, 2000, from $79.7
million for the comparable 1999 period. The decrease is primarily due to third
quarter 1999 charges for increased worker's compensation and health insurance
costs, expenses incurred for upgrading information systems for the distribution
business and additional professional service fees, which did not occur in the
current period to the same extent. Additionally, certain other consulting and
information technology costs incurred in the first three quarters of 1999 were
non-recurring in the current year. Selling, general and administrative expenses
have also decreased over the comparable 1999 period, due to reduced activity
associated with the lower sales volume, which has resulted in a 22% headcount
reduction from September 30, 1999 to September 30, 2000, and management efforts
to reduce costs and increase operating efficiency. Selling, general and
administrative expenses, as a percentage of net sales, increased to 13.1% for
the nine months ended September 30, 2000, from 12.0% for the comparable 1999
period. This percentage of net sales increase is primarily attributable to fixed
costs in a declining sales market.
During the third quarter of 1999, impairment and other special charges of
$6.8 million were incurred as part of cost improvement initiatives implemented
by the Company's then new management team. Such initiatives included the planned
disposition of the Plastic Solutions operation, an injection plastics
manufacturing division, severance costs of certain executives
11
<PAGE> 12
and write-offs of other individually insignificant non-core assets. No such
similar impairment or special charges have been taken during the current
year-to-date period.
Other income decreased by $2.3 million, to $0.1 million in 2000, from $2.4
million in 1999. Other income in the nine-month period ended September 30, 1999
is comprised primarily of gains recognized from the sale of the Company's
corporate jet, a distribution facility and the Shelter Components corporate
facility.
Debt transaction costs of $6.3 million were incurred in the quarter ended
September 30, 1999. The Company incurred a charge of $5.3 million for the
beneficial conversion feature related to the issuance of $23.5 million of
Subordinated Notes in the third quarter of 1999. The conversion feature in the
Subordinated Notes is considered to be a beneficial conversion feature to the
holder given that the quoted market price was $5.50 per share. As a result, the
Company allocated $5.3 million of the proceeds of the Subordinated Notes to
additional paid-in-capital as a discount to the Subordinated Notes. The Company
was required to amortize the Subordinated Notes' discount over the period for
which the Subordinated Notes first became convertible. As the Subordinated Notes
were immediately convertible upon issuance, the Company recognized the entire
discount as a non-cash charge to debt transaction costs in the quarter ended
September 30, 1999. The remaining $1.0 million of debt transaction costs was
associated with amendments to the Company's credit facilities.
Interest expense for the current year-to-date period is $0.9 million less
than the comparable nine-month period ended September 30, 1999. The Company is
paying slightly higher interest rates due to current market conditions. These
increased interest rates are partially offset by paying interest on a lower
principal amount as a result of working capital reductions that have decreased
the need for bank line of credit facility borrowings.
For the nine months ended September 30, 2000, the Company reported a net
loss of $16.1 million compared to a net loss of $28.7 million in the comparable
1999 period. The loss incurred in the current year-to-date period is primarily
attributed to the decline in sales volume. The loss incurred during the
nine-month period ended September 30, 1999, is principally due to the
impairment, special charges, debt transaction costs, inventory reserve
adjustments and increased workers' compensation and health insurance costs
expensed during the third quarter of 1999. Additionally, the third quarter of
1999 marked the beginning of the general slowdown in the manufactured housing
industry that has continued throughout the current year.
As the general slowdown in the manufactured housing industry continues and
in light of the Company's near term outlook for future earnings, the Company did
not recognize any income tax benefit in the first three quarters of this year.
Beginning in the last half of 1999 and continuing into 2000, the Company has
provided a valuation allowance for net deferred tax assets because it cannot be
assured that realization of any income tax benefit is more likely than not,
given the losses in 1999 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's activities have been financed through cash flow from
operations, borrowings under its bank credit facilities, proceeds from the
Transaction (as defined below), and proceeds from the issuance in December 1997
of $105.0 million of 10 3/8% senior subordinated notes due 2007.
Net cash used in operating activities was $4.1 million and capital
expenditures were $3.0 million for the nine months ended September 30, 2000. Net
cash used in operating activities was $1.5 million and capital expenditures were
$6.9 million for the comparable period in 1999. The $2.6 million increase in
cash used in operating activities is primarily attributable to the net loss for
the current year-to-date period, partially offset by improved Company management
of working capital. The Company is obligated to make payments on various capital
and operating leases in varying amounts, maturing through 2007 as well as
payments under various non-compete and consulting agreements, related to past
acquisitions, in varying amounts, maturing through 2002.
In July 1999, the Company completed a transaction ("Transaction"), pursuant
to which The Kevco Partners Investment Trust (the "KPI Trust"), a Delaware
business trust associated with Wingate Partners II, L.P., acquired, for an
approximate purchase price of $37.0 million, the following securities:
o 2,700,000 newly issued shares of the Company's common stock for a purchase
price of $5.00 per share;
12
<PAGE> 13
o Three warrants ("Warrants") to purchase 675,000 shares, 772,727 shares, and
295,455 shares, respectively, of a new class of nonvoting common stock of
the Company ("Nonvoting Stock");
o Tranche A Senior Subordinated Exchangeable Notes ("Tranche A Notes") in the
principal amount of $17.0 million; and
o Tranche B Senior Subordinated Exchangeable Notes ("Tranche B Notes" and,
together with the Tranche A Notes, the "Notes") in the principal amount of
$6.5 million.
The Tranche A Notes are exchangeable at the holders' option for 3,090,909
shares of a newly-created series of preferred stock of the Company designated as
Series A Cumulative 10-3/8% Convertible Pay-in-Kind Voting Preferred Stock
("Voting Preferred Stock") or directly into 3,090,909 shares of common stock, in
each case at an initial exchange ratio of $5.50 per share. Shares of Voting
Preferred Stock, when and if issued in exchange for Tranche A Notes, will be
entitled to vote together with the common stock on an as converted basis. The
Voting Preferred Stock will be convertible on a share-for-share basis into
common stock, subject to certain standard antidilution provisions. The Tranche
B Notes are exchangeable at the holders' option for 1,181,818 shares of a second
newly-created series of preferred stock of the Company designated as Series B
10-3/8% Convertible Pay-in-Kind Non-Voting Preferred Stock ("Nonvoting Preferred
Stock" and with the Voting Preferred Stock, the "Preferred Stock") or directly
into 1,181,818 shares of Nonvoting Stock, in each case at an initial exchange
ratio of $5.50 per share. The Nonvoting Preferred Stock will have limited voting
rights in connection with certain extraordinary corporate events affecting the
holders of Nonvoting Stock. The Nonvoting Preferred Stock will itself be
convertible into an equal number of shares of Nonvoting Stock, subject to
certain standard antidilution provisions.
Interest on the Notes may be paid in cash or, at the option of the Company,
continue to accrue unpaid, in which case a note holder may elect to have all
accrued interest paid in the equivalent value of shares of Nonvoting Preferred
Stock. Dividends on the Nonvoting Preferred Stock and the Voting Preferred Stock
may, at the option of the Company, be paid in cash or in additional shares of
Nonvoting Preferred Stock. The Company can redeem the Notes and any Preferred
Stock issued in exchange for Notes beginning on July 26, 2002. The Warrants,
Notes, and Preferred Stock contain standard antidilution provisions.
The KPI Trust currently owns 2,700,000 shares, or approximately 28.3%, of
the outstanding common stock. Assuming the exchange of the Tranche A Notes into
common stock, the KPI Trust would own an aggregate of 5,790,909 shares, or
approximately 45.8%, of the outstanding common stock. Assuming the exercise of
the Warrants into Nonvoting Stock and the exchange of the Tranche A Notes and
Tranche B Notes into common stock and Nonvoting Stock, respectively, the KPI
Trust would own 5,790,909 shares, or approximately 45.8%, of the outstanding
Common Stock and 2,925,000 shares of Nonvoting Stock, representing in the
aggregate approximately 55.9% of the Company's total common equity (excluding
shares potentially issuable as a result of interest accruing under the Notes or
as dividends on the Voting Preferred Stock and the Nonvoting Preferred Stock).
Concurrently with the closing of the Transaction, the Company and its
lenders entered into the third amended and restated credit agreement which
restructured the terms and conditions in regard to applicable rates, covenants
and maturity. The amended credit facility includes a $45.0 million revolving
credit facility, which matures in December 2003, a Term A Facility, which
matures in December 2003 and a Term B Facility, which matures in December 2004.
The Company may also be required to repay amounts earlier than scheduled as a
result of asset sales, excess cash flow from operations, issuance of new debt or
issuance of new equity. The term loans require quarterly payments, which
increase over the life of each respective term. The term loans and revolving
credit facility are collateralized by substantially all of the assets of the
Company and its subsidiaries, including the capital stock of such subsidiaries.
The Company's various debt agreements contain restrictions and conditions
that include cash flow and various financial ratio requirements and limitations
on the incurrence of additional debt or liens, payment of dividends,
acquisitions and dispositions of certain assets, the ability to consolidate or
merge with another entity, certain transactions with affiliates and the
engagement in certain lines of business. In addition, the third amended and
restated credit agreement imposes limitations on amounts available for
borrowings under the revolving credit facility based on amounts of eligible
accounts receivable, inventory and fixed assets.
In May 2000, the Company and its lenders entered into a second amendment to
the third amended and restated credit agreement, which restructured certain
conditions in regard to applicable covenants to make them less restrictive.
13
<PAGE> 14
On November 20, 2000, the Company and its lenders entered into a third
amendment to the third amended and restated credit agreement. The new amendment
omits the existing financial covenants for the period of September 30, 2000
through October 1, 2001 and replaces them with covenants that are less
restrictive. The amendment also requires the Company by March 8, 2001, to pay
down $15 million of the amount that is outstanding under the term portio of the
credit agreement. This additional pay down of $15 million is included in the
current portion of long-term debt at the end of the third quarter 2000. Although
there can be no assurance that the Company will be able to do so, management
believes the Company can meet the $15 million pay down requirement.
During the term of the third amendment, the aggregate amounts available
under the revolving credit facility will be reduced to the lesser of $5 million,
or a revolving credit borrowing base calculated upon certain net eligible
assets. Management believes that cash reserves, together with available funds
under the Company's time of credit, are adequate for the next twelve months.
As of September 30, 2000, $72.2 million was outstanding under the term
portion at the credit agreement, no borrowings were outstanding under the
revolving portion of the credit agreement and the Company was in compliance
with the amended covenants. The amended covenants will lapse effective October
1, 2001, at which time the covenants existing under the second amendment to the
third amended and restated credit agreement will be reinstated. If the Company
fails to negotiate another amendment, then an event of default will exist as of
October 1, 2001. The Company plans to enter into negotiations with its lenders
toward a more extensive and longer term restructuring of the credit agreement
debt in the first quarter of 2001.
Management will monitor debt covenant compliance very closely and, if
necessary, pursue additional amendments to the credit agreement other sources
of liquidity, such as refinancing alternatives or asset sales. However, there
can be no assurance that the Company will be able to maintain compliance in the
future with the amended covenants, or with the covenants that will be reinstated
on October 1, 2001, or that it would be able to further amend or refinance its
credit facilities, if required to do so.
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 repay indebtedness. The Board has authorized the Management of
the Company to repurchase in the open market, from time to time, senior
subordinated notes due in 2007.
For the nine-month period ended September 30, 2000, average days sales in
receivables was 24 days, average days inventory on hand was 43 days and average
days of payables were 29 days. For the nine-month period ended September 30,
1999, average days sales in receivables was approximately 25 days, average days
inventory on hand was approximately 43 days and average days in payables was
approximately 27 days. The decrease in average days sales in receivables of one
day and increase in average days of payables of two days, period over period, is
the result of the Company's improved management of working capital.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. The Company completed its efforts in this regard
during the fourth quarter of 1999. Due to the thoroughness in addressing
potential issues, to date, the Company has experienced no significant
disruptions in any of its systems and believes those systems have adapted well
to the Year 2000 date change. Company personnel are not aware of any material
problems resulting from Year 2000 issues, with respect to its products, internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year to ensure that any latent Year 2000
matters that may arise are addressed promptly.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements can be identified by the use of forward-looking terminology, such as
"alleres," "may," "intend," "will," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. Similar statements herein that describe the Company's business
strategy, outlook, objectives, plans, intentions or goals are also
forward-looking statements. Although the Company believes that the expectations
in such forward-looking statements are reasonable, there can be no assurance
that such expectations will prove to have been correct. All such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those in forward-looking statements.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict all the risks and uncertainties
that could cause its actual results to differ materially from those indicated by
the forward-looking statements. Important factors that could cause actual
results to differ materially from the Company's expectations
14
<PAGE> 15
include, but are not limited to, the ability of the Company to sell assets or
otherwise take action to meet its obligations to repay $15 million under its
credit agreement in March 2001, the ability of the Company to renegotiate a
long-term restructuring of its lending facilities with its senior lenders, the
Company's substantial leverage and its effects on the Company's ability to
obtain additional capital as needed, the adequacy of existing funds to meet
liquidity needs, the Company's ability to integrate its operations and realize
savings from the implementation of its new management information systems, the
ability of the manufactured housing industry to reduce inventory, customer
demand for manufactured housing and recreational vehicles, the effect of
economic conditions including increasing interest rates, the availability of
financing for manufactured housing customers, the impact of raw materials
prices, volatility within the manufactured housing industry, the Company's
ability to maintain profitability in the event of the loss of a significant
customer and other risks detailed from time to time in the reports filed by the
Company with the Commission, including the Company's Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to interest rate risk on its term loans and
revolving credit facility. Interest rates are fixed on the Senior Notes,
Subordinated Notes and Capitalized Lease Obligations. At September 30, 2000, the
Company's exposure to these risk factors was not significant and had not
materially changed from December 31, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
*10.43 Third Amendment to Credit Agreement dated November 20, 2000,
by and among Kevco, Inc., Bank of America, and the lenders
named therein.
*27.1 Financial Data Schedule.
* Filed herewith.
(b) REPORTS ON FORM 8-K
None.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEVCO, INC.
Date: November 20, 2000
By: /s/ JOSEPH P. TOMCZAK
----------------------------
Joseph P. Tomczak
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Asset Purchase Agreement dated January 31, 1997, by and among
Consolidated Forest Products, Inc., Consolidated Forest
Products, L.L.C., and the members of Consolidated Forest
Products, L.L.C.(2)
2.2 Stock Purchase Agreement dated February 1997, by and among Kevco
Delaware, Inc. and the shareholders of Bowen Supply, Inc.(2)
2.3 Agreement and Plan of Merger dated as of October 21, 1997,
between Kevco, Inc., SCC Acquisition Corp., and Shelter
Components Corporation.(3)
2.4 Securities Purchase Agreement dated as of July 14, 1999, between
Wingate Partners II, L.P. and Kevco, Inc.(10)
3.1 Second Amended and Restated Articles of Incorporation of Kevco,
Inc.(13)
3.2 Bylaws of Kevco, Inc.(1)
3.2.1 First Amendment to Bylaws of Kevco, Inc.(12)
4.1 Indenture dated December 1, 1997, among Kevco, Inc., SCC
Acquisition Corp., Kevco Delaware, Inc., Sunbelt Wood
Components, Inc., Consolidated Forest Products, Inc., Bowen
Supply, Inc. and Encore Industries, Inc., as Subsidiary
Guarantors and United States Trust Company of New York, as
Trustee.(6)
4.1.1 Supplemental Indenture dated December 1, 1997, between Shelter
Components Corporation and United States Trust Company of New
York, as Trustee.(6)
4.1.2 Supplemental Indenture dated as of December 1, 1997, between
Shelter Distribution, L.P. and United States Trust Company of
New York, as Trustee.(6)
4.1.3 Supplemental Indenture dated as of December 1, 1997, between
DCM, Inc. and United States Trust Company of New York, as
Trustee.(6)
4.1.4 Supplemental Indenture dated as of December 1, 1997, between
Duo-Form of Michigan, Inc. and United States Trust Company of
New York, as Trustee.(6)
4.1.5 Supplemental Indenture dated as of December 1, 1997, between
Design Components, Inc. and United States Trust Company of New
York, as Trustee.(6)
4.1.6 Supplemental Indenture dated as of December 1, 1997, between
Shelter Components of Indiana, Inc. and United States Trust
Company of New York, as Trustee.(6)
4.1.7 Supplemental Indenture dated as of December 1, 1997, between BPR
Holdings, Inc. and United States Trust Company of New York, as
Trustee.(6)
10.1 Amendment No. 1 to Amended and Restated 1995 Stock Option Plan
of Kevco, Inc.(7)
10.1.1 Amendment No. 2 to Amended and Restated 1995 Stock Option Plan
of Kevco, Inc. and Supplementary Letter.(1)
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
10.2 1996 Stock Option Plan of Kevco, Inc., as amended, and
Supplementary Letter.(1)
10.3 Kevco, Inc. 1999 Stock Option Plan.(13)
10.4 Lease dated December 1, 1977, by and between K & E Land &
Leasing and Kevco, Inc.(1)
10.4.1 Amendment No. 1 to Lease effective January 1, 1982, by and
between K & E Land & Leasing and Kevco, Inc.(1)
10.4.2 Amendment No. 2 to Lease dated May 30, 1983, by and between K &
E Land & Leasing and Kevco, Inc.(1)
10.4.3 Amendment No. 3 to Lease dated February 1, 1993, by and between
K & E Land & Leasing and Kevco, Inc.(1)
10.4.4 Amendment No. 4 to Lease dated October 26, 1979 by and between
K&E Land & Leasing and Kevco, Inc.(1)
10.5 Lease dated April 1, 1980, between City of Newton, Kansas and K
& E Land & Leasing.(1)
10.6 Sublease and Lease Guarantee Agreement dated April 1, 1980
between K & E Land & Leasing and Kevco, Inc.(1)
10.7 Amendment No. 1 to Sublease and Lease Guaranty Agreement dated
May 30, 1983, by and between K & E Land & Leasing and Kevco,
Inc.(1)
10.8 Lease Agreement dated October 12, 1987, between 1741 Conant
Partnership & Kevco Inc.(1)
10.9 Equipment Lease Agreement dated January 1, 1991, between K & E
Land & Leasing and Kevco, Inc.(1)
10.9.1 Amendment No. 1 to Equipment Lease Agreement dated February 12,
1993, between K & E Land & Leasing and Kevco, Inc.(1)
10.9.2 Amendment No. 2 to Equipment Lease Agreement dated October 26,
1993, between K & E Land & Leasing and Kevco, Inc.(1)
10.9.3 Amendment No. 3 to Equipment Lease Agreement dated May 23, 1994
between K & E Land & Leasing and Kevco, Inc.(1)
10.10 Deferred Compensation Agreement dated May 24, 1997, between
Kevco, Inc. and Clyde A. Reed, Jr.(1)
10.10.1 Amendment No. 1 to Deferred Compensation Agreement dated May
1980.(1)
10.10.2 Amendment No. 2 to Deferred Compensation Agreement dated March
10, 1992.(1)
10.11 Form of Tax Indemnification and Distribution Agreement.(1)
10.12 Form of Assignment of $5,000,000 Note made by Kevco, Inc.(1)
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
10.13 Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc.
(re: 1995 Stock Option Plan and 1996 Stock Option Plan).(1)
10.14 Amendment No. 1 dated September 21, 1988, to Lease Agreement by
1741 Conant Partnership and Kevco, Inc.(1)
10.15 Letter Agreement dated June 22, 1982, between Kevco, Inc. and
K&E Land & Leasing.(1)
10.16 Letter Agreement dated October 1, 1996, by Kevco, Inc., K&E Land
& Leasing, and 1741 Conant Partnership.(1)
10.17 Form of Parent Pledge Agreement.(1)
10.18 Senior Commitment Letter dated October 27, 1997, from
NationsBank of Texas, N.A. and NationsBanc Montgomery
Securities, Inc.(3)
10.19 First Amendment to Amended and Restated Credit Agreement dated
as of November 25, 1997, between Kevco Delaware, Inc.,
NationsBank of Texas, N.A., and certain lenders named
therein.(4)
10.20 Second Amended and Restated Credit Agreement dated December 1,
1997, between Kevco, Inc., NationsBank of Texas, N.A., and
certain lenders named therein.(4)(5)
10.20.1 First Amendment to Credit Agreement dated February 12, 1998,
between Kevco, Inc., certain lenders and NationsBank of Texas,
N.A.(7)
10.20.2 Second Amendment to Credit Agreement, dated as of October 27,
1998, by and among Kevco, Inc., NationsBank, N.A., and the
lenders named therein.(9)
10.21 Revolving Credit Note dated December 1, 1997, between Kevco,
Inc. and NationsBank of Texas, N.A. in the original principal
amount of $11,666,666.66.(4)
10.22 Revolving Credit Note dated December 1, 1997, between Kevco,
Inc. and National City Bank of Kentucky in the original
principal amount of $8,166,666.67.(4)
10.23 Revolving Credit Note dated December 1, 1997, between Kevco,
Inc. and Guaranty Federal Bank, F.S.B. in the original principal
amount of $7,000,000.00.(4)
10.24 Revolving Credit Note dated December 1, 1997, between Kevco,
Inc. and The Sumitomo Bank, Limited in the original principal
amount of $8,166,666.67.(4)
10.25 Facility A Term Loan Note dated December 1, 1997, between Kevco,
Inc. and NationsBank of Texas, N.A. in the original principal
amount of $13,333,333.34.(4)
10.26 Facility A Term Loan Note dated December 1, 1997, between Kevco,
Inc. and National City Bank Kentucky in the original principal
amount of $9,333,333.33.(4)
10.27 Facility A Term Loan Note dated December 1, 1997, between Kevco,
Inc. and Guaranty Federal Bank, F.S.B. in the original principal
amount of $8,000,000.00.(4)
10.28 Facility A Term Loan Note dated December 1, 1997, between Kevco,
Inc. and The Sumitomo Bank, Limited in the original principal
amount of $9,333,333.33.(4)
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
10.29 Facility B Term Loan Note dated December 1, 1997, between Kevco,
Inc. and NationsBank of Texas, N.A. in the original principal
amount of $50,000,000.00.(4)
10.30 Security Agreement dated December 1, 1997, between Kevco, Inc.
and NationsBank of Texas, N.A. as Administrative Agent.(4)
10.31 Registered Global Note dated March 5, 1998, among Kevco, Inc.,
Kevco Delaware, Inc., Sunbelt Wood Components, Inc., Bowen
Supply, Inc., Encore Industries, Inc., Shelter Components
Corporation, BPR Holdings, Inc., Shelter Components of Indiana,
Inc., Design Components, Inc., Duo-Form of Michigan, Inc., DCM,
Inc. and Shelter Distribution, L.P., as Subsidiary Guarantors
and United States Trust Company of New York, as Trustee.(8)
10.32 Waiver dated December 30, 1998, by and among Kevco, Inc.,
NationsBank, N.A., and the lenders named therein.(9)
10.32.1 Second Waiver dated February 15, 1999, by and among Kevco, Inc.,
NationsBank, N.A., and the lenders named therein.(9)
10.32.2 Third Amendment and Waiver dated February 25, 1999, by and among
Kevco, Inc., NationsBank, N.A. and lenders named therein.(9)
10.32.3 Letter agreement waiver extension dated March 22, 1999, between
Kevco, Inc., NationsBank, N.A., and the lenders named
therein.(9)
10.32.4 Fourth Amendment and Waiver dated April 6, 1999, by and among
Kevco, Inc., NationsBank, N.A., and the lenders named
therein.(9)
10.33 Third Amended and Restated Credit Agreement.(11)
10.33.1 First Amendment to Credit Agreement dated October, 1999, by and
among Kevco, Inc., NationsBank, N.A., and the lenders named
therein.(14)
10.34 Tranche A Senior Subordinated Exchangeable Note dated July 26,
1999.(12)
10.35 Tranche B Senior Subordinated Exchangeable Note dated July 26,
1999.(12)
10.36 Warrant dated July 26, 1999, to purchase 675,000 shares of
Nonvoting Common Stock.(12)
10.37 Warrant, dated July 26, 1999, to purchase 772,727 shares of
Nonvoting Common Stock.(12)
10.38 Warrant dated July 26, 1999, to purchase 295,455 shares of
Nonvoting Common Stock.(12)
10.39 Consulting Agreement dated July 26, 1999, between Kevco, Inc.
and Mr. Gerald E. Kimmel.(12)
10.40 Financial Advisory Agreement dated July 26, 1999, among Kevco,
Inc. and Wingate Management Limited, L.L.C.(12)
10.41 Monitoring and Oversight Agreement dated July 26, 1999, among
Kevco, Inc. and Wingate Management Limited, L.L.C.(12)
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.42 Second Amendment to Credit Agreement dated May 5, 2000, by and
among Kevco, Inc., Bank of America, N.A., formerly known as
NationsBank, N.A. and the lenders named therein.(15)
10.43 Third Amendment to Credit Agreement dated November 20, 2000, by
and among Kevco, Inc., Bank of America, and the lenders named
therein.(16)
27.1 Financial Data Schedule.(16)
</TABLE>
ENDNOTES
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-11173) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 27, 1997, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1, filed October 28, 1997, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1/A, filed December 12, 1997, and incorporated herein by
reference.
(5) Schedules and similar attachments to this exhibit have not been previously
filed herewith, but the nature of their contents is described in the body
of this exhibit. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the SEC upon request.
(6) Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-43691), and incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
for the year ended December 31, 1997 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q, for the quarter ended March 31, 1998 and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 10-K,
as amended by Form 10-K/A, for the year ended December 31, 1998 and
incorporated herein by reference.
(10) Previously filed as a Current Report on Form 8-K dated July 14, 1999 and
incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(12) Previously filed as an exhibit to the Current Report on Form 8-K dated July
26, 1999 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Proxy Statement on Schedule
14A filed November 2, 1999.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000.
(16) Filed herewith.
