<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 March 31, 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
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(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
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(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 April 26, 2000)
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KEVCO, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999............................................................ 3
Consolidated Statements of Operations for the three-month
periods ended March 31, 2000 and 1999 (Unaudited)................................... 4
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 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................. 12
ITEM 6 - Exhibits and Reports on Form 8-K........................................... 13
Signatures.......................................................................... 18
Exhibit Index....................................................................... 19
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS.
KEVCO, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 10,660 $ 18,098
Trade accounts receivable, less allowance for doubtful
accounts of $657 and $711 in 2000 and 1999, respectively 41,482 38,150
Inventories 65,475 67,070
Other current assets 6,266 6,486
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Total current assets 123,883 129,804
Property and equipment, net 43,957 43,756
Goodwill and other intangible assets, net 112,202 113,127
Other assets 5,526 5,685
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Total assets $ 285,568 $ 292,372
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,092 $ 5,273
Trade accounts payable 42,690 43,926
Accrued interest 3,985 1,429
Other accrued liabilities 13,222 17,424
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Total current liabilities 66,989 68,052
Long-term debt, less current portion 197,519 199,553
Other long-term liabilities 2,776 2,054
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Total liabilities 267,284 269,659
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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
Retained earnings (deficit) (31,082) (26,653)
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Total stockholders' equity 18,284 22,713
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Total liabilities and stockholders' equity $ 285,568 $ 292,372
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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KEVCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31,
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2000 1999
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<S> <C> <C>
Net sales $ 167,115 $ 222,785
Cost of sales 146,121 195,084
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Gross profit 20,994 27,701
Commission income 1,213 1,688
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Gross margin 22,207 29,389
Selling, general and administrative expenses 21,129 26,430
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Operating income 1,078 2,959
Interest expense 5,507 5,492
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Loss before income taxes (4,429) (2,533)
Income tax benefit -- (1,317)
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Net loss $ (4,429) $ (1,216)
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Loss per share - basic and diluted $ (0.46) $ (0.18)
=========== ===========
Weighted average shares outstanding - basic and diluted 9,563 6,856
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 31,
----------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,429) $ (1,216)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,964 2,195
Amortization of other debt issue costs 271 215
Gain on sale of assets (50) (14)
Changes in assets and liabilities:
Trade receivables (6,793) (14,200)
Inventories 1,595 7,579
Other current assets 220 (2,409)
Trade accounts payable (1,236) (7,434)
Accrued liabilities & other long term liabilities (924) 3,397
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Net cash used in operating activities (9,382) (11,887)
Cash flows from investing activities:
Purchase of equipment (1,293) (911)
Proceeds from sale of assets 102 97
Insurance proceeds 3,461 2,538
Increase (decrease) in other assets (61) 278
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Net cash provided by investing activities 2,209 2,002
Cash flows from financing activities:
Proceeds from line of credit, net -- 14,400
Payments of long-term debt (265) (3,004)
Payments for debt issue costs -- (324)
Exercise of stock options -- 20
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Net cash provided by (used in) financing activities (265) 11,092
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Net increase (decrease) in cash and cash equivalents (7,438) 1,207
Beginning cash and cash equivalents 18,098 799
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Ending cash and cash equivalents $ 10,660 $ 2,006
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</TABLE>
See accompanying notes to consolidated financial statements.
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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 statement of the balance sheet as of March 31, 2000, the
statements of operations for the three-month periods ended March 31, 2000 and
1999, and the statements of cash flows for the three-month periods ended March
31, 2000 and 1999. The results of operations for the three-months ended March
31, 2000 are not necessarily indicative of the results of operations for the
entire fiscal year ending December 31, 2000. Certain amounts included in the
March 31, 1999 cash flow statement were reclassified to conform with the March
31, 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>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
Raw materials $ 16,132 $ 19,312
Work in process 634 760
Finished goods 7,489 6,903
Goods held for resale 41,220 40,095
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$ 65,475 $ 67,070
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</TABLE>
3. 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. The reconciliation between basic and diluted weighted average
shares outstanding, follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
--------- ---------
(In Thousands)
<S> <C> <C>
Weighted average shares - basic 9,563 6,856
Plus shares applicable to stock
option plans -- --
--------- ---------
Weighted average shares - diluted 9,563 6,856
========= =========
</TABLE>
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For the three-month period ended March 31, 2000, options, warrants and
convertible securities are not included in the computation of diluted loss per
share as the effects would be antidilutive.
4. 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 quarter 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 it cannot be assured
that realization is more likely than not, given the losses in 1999 and 2000.
5. 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.
Shepherd Products, previously included in the Manufacturing segment in
1999, has been classified with the Distribution segment effective Jan 1, 2000.
All material transactions, including intercompany eliminations, related to
Shepherd Products have been restated for the period ended March 31, 1999, to
conform with the March 31, 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 decrease in Corporate/Other operating
expense of $3.6 million is primarily due to non-recurring consulting and
information technology costs incurred in the three months ended March 31, 1999.
Amounts are presented for the three-month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
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(In Thousands)
<S> <C> <C>
Net sales:
Distribution $ 109,855 $ 146,323
Manufacturing 28,443 32,900
Wood Products 28,890 43,728
Corporate/Other (73) (166)
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$ 167,115 $ 222,785
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Operating income:
Distribution $ 3,109 $ 6,824
Manufacturing 1,150 1,755
Wood Products 346 1,472
Corporate/Other (3,527) (7,092)
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1,078 2,959
Interest expense 5,507 5,492
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Loss before income taxes $ (4,429) $ (2,533)
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</TABLE>
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6. SUBSEQUENT EVENT
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.
Management will monitor debt covenant compliance very closely and, if necessary,
pursue additional amendments to the credit agreement or pursue refinancing
alternatives. However, there can be no assurance that the Company will be able
to maintain compliance in the future, or that it would be able to further amend
or refinance its credit facilities, if required to do so.
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 whom 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.
The Company's sales in the first quarter of 2000 were adversely impacted by
the general slowdown in the manufactured housing industry that has resulted
from, among other things, an industry-wide build-up in retail inventories that
occurred during 1999. That situation has been aggravated thus far in 2000 by the
strategic decision of a few major lenders to exit this line of business or
restrict their activity in financing purchases of manufactured homes, especially
for marginal borrowers. The excess retail inventory situation combined with the
tighter lending availability contributed to an indicated 22% decline in
industry-wide production of manufactured homes during the first quarter of 2000.
Management expects this trend of lower manufacturing activity to persist over
the next several quarters.
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 from 47
facilities to 31 facilities and integrating multiple computer systems into one.
The integration efforts are expected to be substantially complete over the next
12 to 18 months. Higher than normal costs will continue to be incurred, reducing
operating income during the transition period.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Consolidated Statements of Operations data as a percentage of the Company's net
sales.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 87.4 87.6
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Gross profit 12.6 12.4
Commission income 0.7 0.8
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Gross margin 13.3 13.2
Selling, general & administrative expenses 12.6 11.9
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Operating income 0.7 1.3
Interest expense, net 3.3 2.4
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Loss before income taxes (2.6)% (1.1)%
========= =========
</TABLE>
The Company is organized into three segments; Distribution, Manufacturing and
Wood Products. However, they serve the same market and are impacted by the same
economic trends as the business taken as a whole. See note 5 to the consolidated
financial statements for segment data.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales decreased by $55.7 million, or 25.0% to $167.1 million for the
three months ended March 31, 2000 from $222.8 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. Management believes that manufactured housing
production fell below 1999 levels by approximately 22%, which, consequently,
reduced the demand for the Company's products. The decline is distinctly
regionalized with the highest decreases occurring in the Southeastern parts of
the country, which significantly effects the Wood Products segment, while the
North Central states have experienced the smallest declines in production.
Additionally, $7.5 million of the net sales decrease was the result of a major
product line changing to a commission-based arrangement. Plastic Solutions
accounted for $2.2 million of net sales in the three-month period ended March
31, 1999, with no sales in the comparable 2000 period due to the sale of this
operation in December 1999.
Gross margins decreased by $7.2 million, or 24.4%, during the first quarter
of 2000, to $22.2 million, from $29.4 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 slight
improvement over 1999's first quarter level of 13.2%.
Commission income decreased by $0.5 million, or 2.8%, to $1.2 million for
the three months ended March 31, 2000, from $1.7 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 a major product line changing to
a commission-based arrangement.
Selling, general and administrative expenses decreased by $5.3 million, or
20.1%, to $21.1 million for the three months ended March 31, 2000, from $26.4
million for the comparable 1999 period. The decrease was due primarily to
reduced activity associated with the decreased sales volume. The decline is also
related to non-recurring Shelter Components Corporation integration costs and
administrative expenses associated with an amendment of the Company's credit
agreement of $0.9 million in the first quarter of 1999. Selling, general and
administrative expenses, as a percentage of net sales, increased to 12.6% for
the three months ended March 31, 2000 from 11.9% for the comparable 1999 period.
This percentage of net sales increase is primarily attributable to fixed costs
in a declining sales market.
Interest expense is comparable for the quarter ended March 31, 2000 to the
same period in 1999. The Company is paying slightly higher interest rates that
are partially offset by paying interest on a lower principal amount.
For the three months ended March 31, 2000, the Company reported a net loss
of $4.4 million compared to a net loss of $1.2 million in the comparable 1999
period. The increase in net loss is primarily attributed to the decline in sales
volume.
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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 quarter. 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 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 its
November 1996 initial public offering, proceeds from the Transaction (as defined
below), and proceeds from the issuance of $105.0 million of 10 3/8% senior
subordinated notes due 2007.
Net cash used by operating activities was $9.5 million and capital
expenditures were $1.3 million for the three months ended March 31, 2000. Net
cash used by operating activities was $11.9 million and capital expenditures
were $.9 million for the comparable period in 1999. 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 noncompete 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 that is 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 ("Common
Stock") for a purchase price of $5.00 per share;
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 anti-dilution 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 anti-dilution 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 anti-dilution 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
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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 for $36.9
million which matures in December 2003 and a Term B Facility for $38.6 million
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. At March 31, 2000, the Company had $38.7 million
available for borrowings under its revolving credit facility. Management
believes that cash reserves are adequate for the next twelve months.
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.
Management will monitor debt covenant compliance very closely and, if necessary,
pursue additional amendments to the credit agreement or pursue refinancing
alternatives. However, there can be no assurance that the Company will be able
to maintain compliance in the future, 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, from time to time, repurchase senior subordinated notes due in
2007.
For the quarter ended March 31, 2000, average days sales in receivables
were 24 days, average days inventory on hand were 42 days and average days of
payables were 30 days. For the quarter ended March 31, 1999, average days sales
in receivables were approximately 21 days, average days inventory on hand were
approximately 43 days and average days in payables were approximately 27 days.
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
by 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
"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
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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 include, but are not limited
to, the Company's substantial leverage and its effects on the Company's ability
to obtain additional capital as needed, the Company's ability to integrate its
operations and successfully implement new management information systems, the
Company's ability to operate its new manufacturing facilities, customer demand
for manufactured housing and recreational vehicles, the effect of economic
conditions including inflation and sensitivity to interest rates, the
availability of consumer loans for manufactured housing, 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 March 31, 2000, the
Company's exposure to these risk factors was not significant and had not
materially changed from December 31, 1999.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
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)
13
<PAGE> 14
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1.1 Amendment No. 2 to 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 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)
14
<PAGE> 15
EXHIBIT NO. DESCRIPTION
----------- -----------
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)
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)
15
<PAGE> 16
EXHIBIT NO. DESCRIPTION
----------- -----------
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)
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)
16
<PAGE> 17
EXHIBIT NO. DESCRIPTION
----------- -----------
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)
10.42 Second Amendment to Credit Agreement dated May, 2000, by and
among Kevco, Inc., Bank of America, N.A., formerly known as
NationsBank, N.A. and the lenders named therein.(15)
27.1 Financial Data Schedule.(15)
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) Filed herewith.
(b) REPORTS ON FORM 8-K
None.
17
<PAGE> 18
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: May 15, 2000
By: /s/ JOSEPH P. TOMCZAK
----------------------------
Joseph P. Tomczak
Executive Vice President and
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. 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)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1.1 Amendment No. 2 to 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 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)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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)
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)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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)
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)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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)
10.42 Second Amendment to Credit Agreement dated May, 2000, by and
among Kevco, Inc., Bank of America, N.A., formerly known as
NationsBank, N.A. and the lenders named therein.(15)
27.1 Financial Data Schedule.(15)
</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) Filed herewith.
23
<PAGE> 1
EXIHIBT 10.42
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of the 5th day of May, 2000, by and among the banks listed on the
signature pages hereof (the "Lenders"), KEVCO, INC., a Texas corporation (the
"Borrower"), and BANK OF AMERICA, N.A., formerly known as NationsBank, N.A., as
administrative agent for the Lenders (the "Administrative Agent"), to the extent
and in the manner provided for in the Credit Agreement (defined below and herein
so called).
BACKGROUND
(a) The Lenders, the Borrower, and the Administrative Agent
are parties to that certain Third Amended and Restated Credit Agreement
dated as of July 14, 1999 (as amended through the date hereof and as
may be further amended, extended, renewed, or restated from time to
time, the "Credit Agreement"; terms defined in the Credit Agreement and
not otherwise defined herein shall be used herein as defined in the
Credit Agreement).
(b) The Borrower, the Administrative Agent, and the Lenders
desire to amend the Credit Agreement to provide for certain changes to
(i) the Borrowing Base, (ii) certain financial covenants and (iii) the
pricing structure.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the parties
hereto covenant and agree as follows:
1. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
(a) Section 1.1 is amended by amending the introductory
language in the definition of "Applicable Base Rate Margin" as follows:
"Applicable Base Rate Margin" means the following per
annum percentages, applicable in the following situations,
provided that, such percentages shall be increased by 0.25%
commencing May 5, 2000, provided, further, that such increase
shall no longer be in effect after the first day of the
calendar month following the date the Borrower delivers its
financial statements for any fiscal quarter or fiscal year
ending on or after December 31, 2000 to the Administrative
Agent in accordance with Section 6.1 or Section 6.2
respectively, if such financial statements show compliance
with Sections 7.10, 7.11 and 7.12:
(b) Section 1.1 is amended by amending the introductory
language in the definition of "Applicable LIBOR Rate Margin" as
follows:
"Applicable LIBOR Rate Margin" means the following
per annum percentages, applicable in the following
situations, provided
<PAGE> 2
that, such percentages shall be increased by 0.25% commencing
May 5, 2000, provided, further, that such increase shall no
longer be in effect after the first day of the calendar month
following the date the Borrower delivers its financial
statements for any fiscal quarter or fiscal year ending after
December 31, 2000 to the Administrative Agent in accordance
with Section 6.1 or Section 6.2 respectively, if such
financial statements show compliance with Sections 7.10, 7.11
and 7.12:
(c) Section 1.1 is amended by entirely amending the definition
of "Borrowing Base" as follows:
"Borrowing Base" means for the Borrower and each of
its Subsidiaries which have executed a Subsidiary Security
Agreement, on a consolidated basis, the sum of (a) 80% of book
value of accounts receivable, minus, to the extent not
deducted in arriving at book value, the portion of any account
not paid within 90 days of when due, plus (b) 60% of book
value of inventory (including goods in transit backed by
Letters of Credit) net of reserves as determined by Borrower,
plus (c) at any time (i) prior to January 1, 2001, 55% of book
value of owned real property, equipment and other fixed
assets, net of depreciation, or (ii) on or after January 1,
2001, 50% of book value of owned real property, equipment and
other fixed assets, net of depreciation, plus (d) 100% of Cash
and Cash Equivalents (excluding amounts in the Restricted
Account). For purposes of this definition, "book value" means
the value of an asset as reflected in the Borrower's or the
appropriate Subsidiary's accounting books and records,
determined in accordance with GAAP.
(d) Section 7.10 is amended by entirely amending clause (b)
thereof as follows:
(b)(i) 8.75 to 1.00 at the end of the March 31,
2000, fiscal quarter, (ii) 10.25 to 1.00 at the end of the
June 30, 2000, fiscal quarter, (iii) 9.50 to 1.00 at the end
of the September 30, 2000, fiscal quarter, and (iv) 8.00 to
1.00 at the end of the December 31, 2000, fiscal quarter,
(e) Section 7.12 is entirely amended, as follows:
The Borrower shall not permit Net Worth to be less
than (a) at any time prior to the end of the fiscal quarter
of the Borrower ending December 31, 2000, the sum of (i)
$37,914,000, plus (ii) 50% of cumulative Net Income for the
period from and including April 1, 1999 (but excluding from
the calculation of such cumulative Net Income the effect, if
any, of any fiscal quarter (or portion of a fiscal quarter
not yet ended) for which Net Income was a negative number),
plus (iii) 50% of the Net Cash Proceeds from the Wingate
2
<PAGE> 3
Subordinated Debt and the Wingate Stock Acquisition and from
any other Equity Offering, (b) $51,000,000 as of the end of
the fiscal quarter of the Borrower ending December 31, 2000,
and (c) at any time after December 31, 2000, the sum of (i)
the greater of (A) $51,000,000 or (B) Net Worth as of the end
of the fiscal quarter of the Borrower ending December 31,
2000, plus (ii) 50% of cumulative Net Income for the period
from and including January 1, 2001 (but excluding from the
calculation of such cumulative Net Income the effect, if any,
of any fiscal quarter (or portion of a fiscal quarter not yet
ended) for which Net Income was a negative number), plus
(iii) 50% of the Net Cash Proceeds from any Equity Offering
after May 5, 2000.
2. AMENDMENT FEE. The Borrower shall pay to the Administrative Agent,
for the pro rata account of each Lender, an amendment fee equal to the product
of (a) 0.10% multiplied by (b) the sum of such Lender's Revolving Credit
Commitment and the total outstanding principal amount of all Term Loan Advances
owed to such Lender as of the date of this Amendment. Such amendment fee shall
be earned and payable as of the date of this Amendment in immediately available
funds.
3. ACKNOWLEDGMENT OF THE BORROWER. The Borrower acknowledges and agrees
that the Lenders executing this Amendment have done so in their sole discretion
and without any obligation.
4. SUBSIDIARIES ACKNOWLEDGMENT. By signing below, each of the
Subsidiaries which has executed a Subsidiary Guaranty (a) consents and agrees
to the execution and delivery of this Amendment, (b) ratifies and confirms its
obligations under its Subsidiary Guaranty, (c) acknowledges and agrees that its
obligations under its Subsidiary Guaranty are not released, diminished,
impaired, reduced, or otherwise adversely affected by this Amendment, and (d)
acknowledges and agrees that it has no claims or offsets against, or defenses
or counterclaims to, its Subsidiary Guaranty.
5. RELEASE.
(a) The Borrower and each Subsidiary Guarantor hereby
unconditionally and irrevocably remises, acquits, and fully and forever
releases and discharges the Administrative Agent and the Lenders and
all respective affiliates and subsidiaries of the Administrative Agent
and the Lenders, their respective officers, servants, employees,
agents, attorneys, principals, directors and shareholders, and their
respective heirs, legal representatives, successors and assigns
(collectively, the "Released Lender Parties") from any and all claims,
demands, causes of action, obligations, remedies, suits, damages and
liabilities (collectively, the "Borrower Claims") of any nature
whatsoever, whether now known, suspected or claimed, whether arising
under common law, in equity or under statute, which the Borrower or any
Guarantor ever had or now has against the Released Lender Parties which
may have arisen at any time on or prior to the date of this Amendment
and which were in any manner related to any of the Loan Documents or
the enforcement or attempted enforcement by the Administrative Agent or
the Lenders of rights, remedies or recourses related thereto.
3
<PAGE> 4
(b) The Borrower and each Subsidiary Guarantor covenants and
agrees never to commence, voluntarily aid in any way, prosecute or
cause to be commenced or prosecuted against any of the Released Lender
Parties any action or other proceeding based upon any of the Borrower
Claims which may have arisen at any time on or prior to the date of
this Amendment and were in any manner related to any of the Loan
Documents.
(c) The agreements of the Borrower and each Guarantor set
forth in this Section 5 shall survive termination of this Amendment
and the other Loan Documents.
6. REPRESENTATIONS AND WARRANTIES TRUE, NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants to the
Lenders that, as of the date hereof:
(a) the representations and warranties contained in the
Credit Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date hereof as made on and as
of such date, except for any representations and warranties made as of
a specific date, which shall be true and correct in all material
respects as of such specific date; and
(b) after giving effect to this Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of
Default.
7. CONDITIONS OF EFFECTIVENESS. This Amendment shall not be effective
until each of the following conditions precedent shall have been satisfied:
(a) All reasonable out-of-pocket fees and expenses in
connection with the Loan Documents, including this Amendment,
including legal and other professional fees and expenses incurred on
or prior to the date of this Amendment by the Administrative Agent,
including, without limitation, the fees and expenses of Winstead
Sechrest & Minick P.C. and Arthur Andersen L.L.P., shall have been
paid; and
(b) The Administrative Agent shall have received such
documents, certificates and instruments as the Administrative Agent
shall reasonably require; and
(c) The Administrative Agent shall have received for the
account of the Lenders the Amendment Fee described in Section 2 of this
Amendment.
8. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this
Amendment, each reference in the Credit Agreement to "this Agreement,"
"hereunder," or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended by this Amendment.
9. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Amendment may be validly executed and delivered by facsimile or other electronic
transmission.
4
<PAGE> 5
10. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, the Administrative Agent, each Lender and their
respective successors and assigns.
11. HEADINGS. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
12. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to
all provisions of the Credit Agreement applicable to Loan Documents, all of
which are incorporated in this Amendment by reference the same as if set forth
in this Amendment verbatim.
13. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
the date first above written.
KEVCO, INC.
By: /s/ Joseph P. Tomczak
--------------------------------------
Joseph P. Tomczak
Executive Vice President and Chief
Financial Officer
BANK OF AMERICA, N.A., formerly known as
NationsBank, N.A., as Administrative
Agent and as a Lender
By: /s/ William E. Livingstone, IV
--------------------------------------
William E. Livingstone, IV
Managing Director
NATIONAL CITY BANK KENTUCKY
By: /s/ Jerrol Z. Miles
--------------------------------------
Jerrol Z. Miles
Senior Vice President
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ Robert S. Hays
--------------------------------------
Robert S. Hays
Senior Vice President
WELLS FARGO BANK, N.A.
By: /s/ Danny Oliver
--------------------------------------
Danny Oliver
Relationship Manager
<PAGE> 7
PILGRIM PRIME RATE TRUST
By: Pilgrim Investments, Inc., as its
Investment Manager
By: /s/ Michel Prince
--------------------------------------
Michel Prince, CFA
Vice President
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc., as
Collateral Manager
By: /s/ Jonathan David
--------------------------------------
Jonathan David
Vice President
ALLIANCE CAPITAL FUNDING, L.L.C.
By: Alliance Capital Management, L.P., as
Manager on behalf of ALLIANCE CAPITAL
FUNDING, L.L.C.
By: ALLIANCE CAPITAL MANAGEMENT
CORPORATION
General Partner of Alliance
Capital Management, L.P.
By: /s/ Katalin E. Kutasi
---------------------------------
Katalin E. Kutasi
Senior Vice President
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
<PAGE> 8
By: /s/ Andrew C. Liggio
--------------------------------------
Andrew C. Liggio
Authorized Signatory
Merrill Lynch Debt Global Investment
Series:
INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /s/ Andrew C. Liggio
--------------------------------------
Andrew C. Liggio
Authorized Signatory
BANK ONE, TEXAS, N.A.
By: /s/ Bradley C. Peters
--------------------------------------
Bradley C. Peters
Vice President
PAM CAPITAL FUNDING LP
By: Highland Capital Management, L.P., as
Collateral Manager
By: /s/ James Dondero
--------------------------------------
James Dondero, CFA, CPA
President
Highland Capital Management L.P.
ACKNOWLEDGED AND AGREED:
KEVCO MANAGEMENT, INC.
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
<PAGE> 9
KEVCO HOLDING, INC.
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
KEVCO GP, INC.
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
KEVCO COMPONENTS, INC.
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
DCM DELAWARE, INC.
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
KEVCO MANUFACTURING, L.P.
By: KEVCO GP, INC., its General Partner
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
KEVCO DISTRIBUTION, L.P.
By: KEVCO GP, INC., its General Partner
By: /s/ James Johnson
--------------------------------------
James Johnson
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF KEVCO, INC. FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,660
<SECURITIES> 0<F1>
<RECEIVABLES> 42,139<F2>
<ALLOWANCES> 657
<INVENTORY> 65,475
<CURRENT-ASSETS> 123,883
<PP&E> 58,071
<DEPRECIATION> 14,114
<TOTAL-ASSETS> 285,568
<CURRENT-LIABILITIES> 66,989
<BONDS> 197,519
0<F1>
0<F1>
<COMMON> 96
<OTHER-SE> 18,188
<TOTAL-LIABILITY-AND-EQUITY> 285,568
<SALES> 167,115
<TOTAL-REVENUES> 168,328
<CGS> 146,121
<TOTAL-COSTS> 146,121
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 5,507
<INCOME-PRETAX> (4,429)
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> (4,429)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (4,429)
<EPS-BASIC> (0.46)
<EPS-DILUTED> (0.46)
<FN>
<F1>Amounts inapplicable or not disclosed as a separate line on the Statement of
Financial Position or Results of Operations are reported as 0 herein.
<F2>Notes and accounts receivable-trade are reported net of allowances for doubtful
accounts in the Statement of Financial Position.
</FN>
</TABLE>
