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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

(MARK ONE)
      [X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       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)

<TABLE>
<S>                                            <C>
                    TEXAS                                       75-2666013
       (State or other jurisdiction of
       incorporation or organization)                      (IRS Employer ID No.)
             UNIVERSITY CENTRE I
          1300 S. UNIVERSITY DRIVE
                  SUITE 200
              FORT WORTH, TEXAS                                 76107-5734
  (Address of principal executive offices)                      (Zip Code)
</TABLE>

                                 (817) 885-0000
              (Registrant's telephone number, including area code)

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

          Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
   Common Stock, par value $0.01 per share             Nasdaq Small Cap Stock Market
</TABLE>

     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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or informational statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     The aggregate market value of voting stock of the registrant held by
non-affiliates of the registrant was $6,188,894 on March 21, 2000, based on the
closing price of the registrant's Common Stock on such date of $2.00 per share,
as reported on The Nasdaq Stock Market.

     As of March 21, 2000, 9,563,487 shares of the registrant's Common Stock
were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement for the annual meeting of shareholders of
the registrant to be held during 2000 are incorporated by reference into Part
III of this report.

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ITEM 1. DESCRIPTION OF BUSINESS

     Kevco, Inc. ("Kevco" or the "Company," includes, unless the context
otherwise requires, its direct and indirect subsidiaries) believes it is the
largest wholesale distributor of building products to the manufactured housing
and recreational vehicle ("RV") industries. The Company also manufactures wood
products including roof trusses and lumber cut to customer specifications,
laminated wallboard products, thermoformed bathtubs, shower enclosures and tub
wall surrounds for the manufactured housing and RV industries.

     Through its 25 distribution centers (as of December 31, 1999), the Company
distributes more than 35,000 different inventory items to approximately 520
manufactured housing, RV and other manufacturing facilities throughout the
United States. The Company is one of only a few companies capable of providing
national distribution of building products to the manufactured housing and RV
industries. The Company distributes a full line of products used in the
production of manufactured homes, including plumbing fixtures and supplies,
insulation, roof shingles, patio doors, aluminum, vinyl and wood windows, wood
and vinyl siding, fireplaces, electrical components and hardware, fasteners,
power tools and mill supplies. In 1999, approximately 16% of the Company's net
sales were derived from plumbing products, 8% from electrical products, 21% from
hardware, fasteners, tools and mill supplies, 18% from wood products, 6% from
thermoformed plastic products, 9% from laminated wallboards and 22% from other
building products. See note 14 to the consolidated financial statements for the
years ended December 31, 1999, 1998, and 1997, for additional segment data.

     The Company believes that it provides a cost-effective form of distribution
that offers value to both the Company's suppliers and producers of manufactured
homes and RVs. The Company believes that it provides significant benefits to its
suppliers by placing large orders at regular intervals, thereby enabling its
suppliers to achieve efficient and cost-effective production planning and
economies of scale. In addition, the Company markets and sells its suppliers'
products directly to the manufactured housing and RV industries. As a result,
the Company believes it reduces its suppliers' inventory carrying, marketing and
distribution costs. The Company also believes that it provides significant
benefits to its customers as a result of its ability to respond on a same day
shipment basis to a majority of its customers' orders, thus reducing the amount
of inventory they must maintain. Furthermore, the Company assists its customers
in inventory management, product support, training and implementing cost saving
measures, all of which are services that the Company believes most building
products manufacturers and distributors cannot provide in a cost-effective
manner. The Company believes that the specialized product knowledge and high
level of service provided by its personnel result in strong relationships
between the Company and its suppliers and customers.

     The Company is organized into three separate segments; Manufacturing, Wood,
and Distribution. All three segments market to the manufactured housing and
recreational vehicle industry and are impacted by the same economic trends as
the business as a whole. The Manufacturing segment produces thermoformed
products, such as bathtubs and shower enclosures, and laminated wallboard
products. The Wood segment produces roof trusses and lumber cut to customer
specifications. The Distribution segment wholesales component parts and raw
materials used in the construction of manufactured housing and recreation
vehicles. For further information on the Company's segments see note 14 to the
consolidated financial statements.

INDUSTRY

     For the year ended December 31, 1999, approximately 86% of the Company's
net sales were to producers of manufactured homes. A manufactured home is a
complete single-family residence that is built in a factory and transported to a
site. Manufactured homes offer most of the amenities of, and are generally built
with the same materials as, site-built homes.

     The Company believes that the manufactured housing industry experienced a
slow-down in retail sales of over an estimated 10% in 1999 compared to the
levels of 1998. According to the U.S. Census Bureau, shipments of manufactured
homes to dealers were down 6.7% in 1999 versus 1998. The Company believes this
slow-down was caused by, among other things, lenders tightening their approval
requirements on marginal buyers, fewer lenders participating in the manufactured
housing market, and an oversupply of retail dealer inventory.
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     Manufactured housing has historically served as one of the most affordable
alternatives for the homebuyer. According to the Manufactured Housing Institute,
in 1998 the average cost per square foot was $26.81 for a single-section
manufactured home and $31.89 for a multi-section manufactured home, as compared
to an average cost of $62.29 per square foot for a site-built home, each
excluding land costs. In 1998, reported sales of new manufactured homes totaled
approximately $16.3 billion (at retail). The Manufactured Housing Institute also
reported manufactured home shipments of approximately 349,000 homes in 1999 and
373,000 homes in 1998 (which represents approximately 28% and 30% of all new
single family homes sold in 1999 and 1998, respectively).

     The ten highest volume producers of manufactured homes in 1998 reportedly
accounted for approximately 78% of total manufactured home shipments in that
year. Management believes that only a few distributors are capable of
distributing a broad line of building products to meet the needs of these
manufacturers on a national basis.

     For the year ended December 31, 1999, approximately 12% of the Company's
net sales were to producers of RVs. RVs are motorized and non-motorized vehicles
that provide comfortable, self-contained living facilities for short periods of
time, but are not generally designed for permanent living. RV shipments to
retailers reportedly totaled approximately 321,000 units in 1999. Historically,
demand for RVs has been influenced by a number of factors, including the
availability and terms of financing to dealers and retail purchasers, motor
fuels and fuel prices, as well as general economic conditions.

BUSINESS STRATEGY

     Kevco's primary objective is to maintain and strengthen its position as the
largest national distributor of building products to the manufactured housing
and RV industries. To achieve its objective, the Company has adopted a strategy
based on the following key elements:

     Provide Superior Customer Service. The Company believes its success is
primarily attributable to its emphasis on customer service and that providing a
high level of customer service leads to long-term relationships with customers.
The Company's operating philosophy is based on a commitment to Total Quality
Management, which emphasizes at every level an awareness of, and accountability
for, customer needs and effective communication both internally and externally.
Consistent with this commitment, the Company strives to achieve maximum
responsiveness to customer orders and to assist its customers in controlling
costs, improving their materials resource planning, and facilitating their
just-in-time inventory procurement needs. The Company's sales representatives,
who have an average of approximately seven years of experience with the Company,
play an important role in training customers in the proper installation of
products and assisting in their inventory management.

     Realize Acquisition Synergies. The Company believes that its continued
success will depend, in part, on its effectively integrating the Company's
operations with those it acquired through the acquisition of Shelter (December
1997, adding distribution facilities, plastic and laminating manufacturing
facilities as well as expanded customer base), Bowen (February 1997, adding
additional drapery and hardware products, industrial tapes and adhesives),
Service Supply (June 1995, adding national exposure, electrical products and
wood truss manufacturing facilities), among others. The Company has prioritized
the integration of its various distribution information systems into a single
hardware and software platform, which the Company believes will ultimately
result in better inventory management and lower distribution costs. This
integration should be complete by the end of the third quarter of 2000. The
Company is evaluating ways to continue to reduce administrative and facility
redundancies through the integration and streamlining of the Company's
accounting and information systems, the consolidation of warehouses and
administrative functions, and the sale or subletting of vacant facilities.

     Leverage National Distribution Network. Kevco intends to continue to use
its national distribution network as a platform for internal growth. The Company
believes that its national distribution network has allowed it to develop close
relationships with leading product manufacturers and to become the exclusive
supplier of certain product lines to the manufactured housing and RV industries.
In addition, the Company believes that its national presence provides it with a
competitive advantage due to its ability to service
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effectively the building products needs of its customers' manufacturing
facilities, several of which are located in remote, rural areas. This capability
has led to several national customer accounts. As one of the largest national
distributors of building products in the United States to the manufactured
housing and RV industries, the Company has substantial purchasing power and is
able to realize economies of scale.

     Increase Customer Penetration and Product Offerings. Kevco supplies over
95% of all manufactured housing plants in the United States with one or more
product lines. This established customer base provides the Company with an
opportunity to supply a greater portion of its customers' building products
needs as the customers seek to reduce the number of their suppliers. With its
existing national distribution infrastructure, the Company believes that
additional products from its existing product lines can be offered to customers
without significant additional overhead cost.

SUPPLIER/CUSTOMER RELATIONSHIPS

     Kevco acts with its suppliers and customers to provide value-added services
in the distribution of manufactured home and RV building products by managing
inventories, providing product support and training, introducing cost saving
measures and providing a marketing and distribution network with warehousing
capabilities. The Company believes that the specialized product knowledge and
high level of service provided by Kevco personnel results in strong ties between
Kevco and its customers and suppliers.

     Inventory Management. Kevco's customers generally attempt to minimize
inventories and to maximize the use of their facilities for the assembly of
manufactured homes and RVs. For this reason, Kevco actively manages customers'
inventories of products supplied by Kevco. Kevco sales representatives generally
visit customers' plants weekly to count inventories, review production
schedules, prepare purchase orders and schedule deliveries in order to achieve
the Company's goal of being a just-in-time supplier. In addition, because of
their detailed awareness of existing building codes for manufactured homes and
RVs, Kevco's sales representatives are able to assist customers in planning for,
and maintaining product inventories in accordance with, building code changes.

     Product Support and Training. At their weekly visits, sales representatives
also take the opportunity to resolve product problems and train customer
employees in the proper installation of products. Kevco has found that its
willingness and availability to solve product problems has resulted in its
customers first turning to Company representatives, rather than Kevco's
suppliers, when they have problems with or questions about products. This
benefits both Kevco's customers and suppliers in that Kevco provides customer
support that the supplier might otherwise have to provide in order to achieve
the same level of customer satisfaction, and Kevco's customers receive support
from individuals with expertise in serving the manufactured housing and RV
industries. Kevco has also found that its customers benefit from the training
given by sales representatives in the proper installation of products, since
Kevco's sales representatives generally have significant expertise in the
installation and service of the products they sell. Sales representatives also
take the opportunity during their weekly visits to promote other Kevco products,
thus educating customers as to additional products the customers can purchase
from Kevco and receive similar product support.

     Cost Saving Measures. The Company's sales force also works with the
Company's customers and suppliers in suggesting and implementing cost saving
measures. Kevco actively works to find ways for producers of manufactured homes
or RVs to reduce the number of stock-keeping units ("SKUs") they use in
production in order to further reduce their inventories. In its wood products
operations, Kevco builds steel forms to its customers' specifications to ensure
the dimensional tolerances of the roof trusses it manufactures, as strict
adherence to design specifications translates into reduced manufacturing costs
for Kevco's customers. Additionally, developing and following quality control
based policies and procedures has provided substantial savings on the products
produced by Kevco, and the engineering staff of Kevco is prepared to assist
customers with parts consolidation and redesign.

     Marketing/Distribution Network. Kevco believes that its suppliers also
benefit by utilizing Kevco's extensive marketing and distribution network. The
Company also believes that it is generally not cost effective for its suppliers
to provide the same level of service and delivery responsiveness as Kevco to
producers of manufactured homes and RVs.
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PRODUCTS

     The Company believes it distributes one of the most comprehensive product
lines in the industry to manufacturers of RVs and manufactured homes. Kevco
inventories and distributes approximately 35,000 stock keeping units (SKUs). The
following is a brief description of the products the Company distributes:

     Plumbing Products. Kevco distributes a wide variety of plumbing fixtures
and supplies including tubs, toilets, faucets, ABS pipe, connectors, fittings,
drain waste vent systems and potable water systems. Kevco supplies substantially
everything necessary to carry water into and out of a manufactured home or RV.

     Building Products. Kevco distributes a wide variety of building products,
including windows, wood molding, vinyl siding, visqueen, gypsum board, parquet
wood flooring, insulation, roof shingles, patio doors, fireplaces, kitchen
cabinetry and water heaters.

     Hardware, Fasteners, Power Tools and Mill Supplies. Kevco distributes
screws, bolts and nuts of various sizes and dimensions, lock sets, cabinet door
pulls, hinges, door slides and drapery hardware, stationary power tools, table
saws, hoists and related equipment used in the manufactured home and RV
manufacturing cycle, including complete plant set-ups, plastic film, tape, glue,
caulking, chemicals and abrasives.

     Electrical Components. Kevco distributes electrical components, including
wire, wiring devices, power generators, load-centers, circuit breakers, panels
and 110 and 12-volt lighting.

     Wood Products. Kevco manufactures roof trusses and lumber cut to customer
specifications for use in manufactured homes. Roof trusses are rectangular or
triangular structures that form the principal roof support for a manufactured
home. Kevco also distributes plywood and mill direct lumber.

     Thermoformed Products. Kevco manufactures and distributes bathtubs, shower
enclosures and tub wall surrounds for the manufactured housing and RV industry
using the thermoforming process.

     Laminated Wallboard Products. Kevco manufactures and distributes laminated
wallboard products primarily for the manufactured housing and RV industries and,
to a lesser extent, manufactures laminated wall shelving systems for the retail
home improvement and retail fixture industries.

SALES AND MARKETING

     Kevco's marketing programs center on fostering strong customer
relationships and providing superior customer service. Kevco believes its
competitive advantage lies in its breadth of product offerings and the knowledge
and expertise of its sales representatives, as well as its just-in-time delivery
capabilities, regular calling program, dedication to Total Quality Management
and competitive pricing.

     The Company's national accounts are each supported by a senior account
executive. As a company, Kevco provides technical support through its marketing
group and service support through its local business units, each unit being
supported by a sales manager and an operational manager. Each customer within a
business unit's geographical reach is contacted weekly by the Company's local
sales team. Because of the specific nature of the wood products business, these
sales forces generally work independently. Each sales representative works
within an assigned sales territory associated with one of Kevco's distribution
centers or manufacturing facilities and is actively supported by a manager at
such distribution center or facility.

     Sales representatives, consisting of salespersons and sales managers, are
all Company employees. Non-management sales representatives are generally
compensated on a salary and incentive-based compensation arrangement. The
incentive portion of a salesperson's compensation is based on a percentage of
the profits of the sales region "profit center" in which that salesperson
operates. The incentive portion of the sales manager's compensation is
determined by a variety of factors, which include the profit center's sales and
returns.

     Kevco maintains active customer relationships with approximately 520
manufactured home production plants and RV production plants in 45 states. The
Company's two largest customers, Champion Enterprises, Inc. and Fleetwood
Enterprises, Inc., accounted for approximately 16% and 11%, respectively of
Kevco's net sales in 1999. Although the Company has ongoing supply relationships
with these customers, it does not have a formal supply contract with these
customers or most of its other customers. The Company's
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business could be adversely affected if these customers, or other major
customers, substantially reduced or discontinued purchases from the Company.
Further, the Company can give no assurance that its sales to such customers will
continue at historical levels. The Company believes that it has good
relationships with each of its manufactured home and RV customers.

DISTRIBUTION

     Kevco distributes products through 25 distribution centers strategically
located near its customers' manufacturing plants in order to provide prompt
delivery and responsive customer service. In most cases, the Company's desired
service area is within a 250-mile radius of each distribution center. The
Company generally uses a decentralized management structure that emphasizes
individual distribution center profit-and-loss responsibility. A distribution
center is typically comprised of warehouse and receiving space, secure outdoor
holding space and office space. Local sales efforts are coordinated and
supported at the distribution centers. The remaining distribution center
activities relate to receiving, storing and delivering products.

     Substantially all of Kevco's distribution centers are equipped with
real-time management information systems that allow the distribution centers to
control and monitor inventory levels, perform invoicing and order entry, and
establish delivery schedules and routes. Corporate management also uses the
Company's information systems to monitor sales, inventory and profitability by
distribution center. As a result of the recent acquisitions, the Company
maintains multiple management information systems, some of which co-exist in
individual warehouse distribution centers. The Company is currently in the
process of merging the multiple systems into one, with the process scheduled to
be complete in the third quarter of 2000. Although each system provides accurate
management and financial information, the multiple systems are less efficient
than one system in disseminating management information on a timely and accurate
basis.

     Inventories are kept on the perpetual method, with periodic physical counts
of items in each warehouse. A complete physical inventory count is performed
twice a year. For book and tax purposes, the Company records purchased
inventories using a weighted average cost method.

     In most cases, the Company warehouses products before distributing them to
customers. Kevco delivers the products it sells either by Company truck or
common carrier. Delivery is a key component of Kevco's dedication to customer
service and is a competitive requirement. In some instances, suppliers will
"drop ship" products directly to Kevco's customers, with Kevco retaining
responsibility for selling, billing and collection. Also, under certain
arrangements, the Company receives fees for warehousing, delivering, selling or
other services without taking title to the products. Kevco records such fees as
commission income in the Consolidated Statements of Operations.

PURCHASING AND SUPPLIERS

     Kevco obtains its products from more than 1,000 different manufacturers. As
a distributor, Kevco plays a valued role in linking product manufacturers with
customers and provides the level of customer service and just-in-time delivery
its customers require. Kevco's position in the marketplace has, from time to
time, enabled it to take advantage of volume discounts, product promotions and
other buying opportunities from suppliers, which allow the Company to market a
wide variety of products to its customers at attractive prices.

     The Company generally sells products from manufacturers on a non-exclusive
basis without geographical restrictions. In certain limited instances, a
supplier will grant Kevco the exclusive right to market its products in the
manufactured housing or RV industries. Management believes that its national
distribution capability will allow the Company to increase the number of
products it distributes on a national and/or exclusive basis.

     The Company generally negotiates the price and other purchase terms with
its vendors on a company-wide or regional basis. Payment, discount and volume
purchase programs are negotiated directly by the Company with its major
suppliers, with a significant portion of the Company's purchases made from
suppliers offering these programs. Distribution center managers are responsible
for inventory selection and ordering on terms negotiated centrally, so that the
Company remains responsive to local market demand. Distribution center managers
are also responsible for inventory management.

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     While the loss of a major supplier could have a material adverse effect on
the Company's business, the Company believes alternative suppliers for similar
products in each of its product lines are generally available. In addition, raw
material used by the Company for its manufactured products are generally
available from a number of sources and loss of any one source would not have a
material adverse effect on the Company. The Company believes its relations with
its suppliers are generally good, though the Company believes that its
substantial leverage and decline in profitability has, in some cases, strained
its supplier relationships. In the event that a group of the Company's suppliers
were to decline to sell product to the Company on credit at a time when the
Company did not have the necessary liquidity to make payment within normal
payment terms or otherwise make acceptable payment assurances, the Company's
business could be materially and adversely affected unless alternative suppliers
were then willing to sell such product to the Company on credit.

     The Company has established a Supplier Certification Program, in which the
Company identifies the performance level of a supplier to Kevco and benchmarks
such performance on a regular basis. Such benchmarking criteria include minimum
order fill rates and other factors.

MANUFACTURING

     Kevco manufactures wood products, laminated wallboard products, and
thermoformed bathtubs, shower enclosures and tub wall surrounds.

     The Company manufactures wood products for distribution principally to
producers of manufactured homes. Kevco's wood products include roof trusses and
lumber cut to customer specifications for structural support within the
manufactured home unit. Each of the Company's roof trusses is built to meet the
customer's specific requirements.

     Kevco utilizes automated saws to reduce the cutting time needed to process
raw wood, and fabricates steel forms based on customer specifications in order
to ensure the dimensional tolerances of its roof trusses. The quality and
structural strength of roof trusses are monitored closely by a HUD approved
third party. Wind zone construction standards require that roof trusses sold for
use in certain regions meet increased strength benchmarks. Roof trusses that
meet exacting specifications can reduce customer installation costs. The Company
believes that its ability to produce roof trusses of consistent quality that
adhere to customer specifications provides a competitive advantage.

     The Company manufactures laminated wallboard products primarily for the
manufactured housing and RV industries and, to a lesser extent, manufactures
laminated wall shelving systems for the retail home improvement and retail
fixture industries. Decorative paper or vinyl wall coverings are laminated onto
4' x 8' sheets of gypsum, MDF or lauan and are shipped directly to the customers
from one of Kevco's five manufacturing facilities that produce this type of
product, located in Indiana, Georgia, North Carolina, Tennessee and Texas.

     The Company manufactures bathtubs, shower enclosures and tub wall surrounds
for the manufactured housing and RV industry using the thermoforming process.
Thermoforming is the heating of plastic sheet to a softening temperature and
forcing the hot flexible material over a mold by the use of mechanical and
vacuum pressure. Allowed to cool, the plastic retains the shape and detail of
the mold.

WARRANTY AND RETURNS

     Kevco's customers generally rely on the warranties issued by the
manufacturer of the products sold by the Company. Kevco generally provides a one
year limited warranty on the products it sells, which warranty covers the
product and service calls. The Company's warranty on the product itself is
generally not utilized because the product manufacturer provides a more
comprehensive warranty. The Company's warranty expense in 1999 was approximately
$350 thousand. Kevco also has an informal, unwritten return policy under which
Kevco will generally accept the nonwarranty return of unused products, after
inspection by Kevco personnel, for a restocking charge.

     In the event a manufactured home experiences a failure of a roof truss
manufactured by the Company, the Company will inspect the home to determine
whether there is a covered defect in the roof truss. If a
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covered defect is discovered, the Company generally pays to replace the roof
truss and the roof. The Company has had two claims in the past three years. The
Company also maintains a limited warranty on its thermoformed products, which
generally ranges from one to five years, covers defects in materials and
workmanship by repair or replacement of the defective item and excludes labor
and consequential damages.

COMPETITION

     The building products wholesale distribution industry is highly
competitive. Numerous companies, both public and private, are in direct
competition with the Company and several of those competitors have greater
financial and/or other resources than the Company. The Company believes its
prices, wide array of products and ability to deliver on short notice are
competitive.

     The Company believes that its business strategy has permitted it to compete
effectively in its marketing areas. While price is an important competitive
factor in the Company's business, the Company believes that its sales are
principally dependent upon its service, technical expertise, reputation and
experience. The Company's principal competitive strengths include (i) quality
assurance, service and installation support, (ii) a wide array of products and
product availability due to the Company's ability to attract major product
manufacturers and (iii) the prompt and reliable delivery of products to
customers.

     Certain product manufacturers sell and distribute their products directly
to producers of manufactured homes and RVs. However, the Company believes that,
for most product manufacturers, providing the same level of service and offering
the same delivery responsiveness as Kevco is not cost-effective.

EMPLOYEES

     As of December 31, 1999, the Company employed 2,238 persons. The Company is
a party to a collective bargaining agreement, which covers certain employees at
one of the Company's facilities in Elkhart, Indiana. The Company has not
experienced any work stoppages as a result of labor disputes and the Company
considers its employee relations to be good.

REGULATION

     The Company's suppliers and customers are subject to a variety of federal,
state and local laws and regulations. The National Manufactured Housing
Construction and Safety Standards Act of 1974 and regulations promulgated
thereunder by HUD impose comprehensive national construction standards for
manufactured homes and preempt conflicting state and local regulations. HUD has
adopted regulations that divide the United States into three "Wind Zones" and
impose more stringent construction standards for homes to be sold in areas
designated as Wind Zones II or III. These regulations have resulted in higher
manufacturing and dealer costs. The Company cannot predict if additional
regulations will be adopted or the effect any such regulations would have on the
Company. To the extent regulations make manufactured housing less competitive
with other housing alternatives, the Company's operations could be negatively
impacted.

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                                   MANAGEMENT

     The following table sets forth certain information as of March 30, 2000,
concerning the Company's officers and certain key employees. Inclusion in this
list as an officer or key employee is not intended to act as an admission that
such individual is or will become subject to Section 16 under the Exchange Act.

<TABLE>
<CAPTION>
NAME                                   AGE                      POSITION
----                                   ---                      --------
<S>                                    <C>   <C>
Frederick B. Hegi, Jr. ..............  56    Chairman of the Board, President and Chief
                                             Executive Officer
Clyde A. Reed, Jr. ..................  64    Executive Vice President
James A. Johnson.....................  46    Executive Vice President, Secretary and
                                             Director
Joseph P. Tomczak....................  44    Executive Vice President and Chief Financial
                                             Officer
Dan Russell Hardin...................  41    President -- Distribution Group
C. Lee Denham........................  51    President, Sunbelt Wood Components
</TABLE>

     Frederick B. Hegi, Jr. has served as Chairman, President, and CEO since
July 26, 1999. He is a general partner of various Wingate entities, including
the indirect general partner of Wingate Partners II, L.P. (See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity & Capital Resources). Mr. Hegi also is the Chairman of
United Stationers, Inc., a wholesale distributor of paper products and office
supplies ("United Stationers"); Chairman of Loomis, Fargo & Co., an armored car
service company; Chairman of Tahoka First Bancorp, Inc., a bank holding company;
Chairman of Cedar Creek Bancshares, Inc., a bank holding company; a director of
Pro Parts Xpress, Inc., a wholesale distributor of automotive parts ("Pro Part
Xpress"); a director of Lone Star Technologies, Inc., a manufacturer of tubular
products; and a director of Texas Capital Bancshares, Inc., a bank holding
company. Mr. Hegi received his B.B.A. from Southern Methodist University, his
M.B.A. from Harvard Business School and his Ph.D. from the University of Texas.

     Clyde A. Reed, Jr. has served as Executive Vice President of the Company
since 1986. From 1991 to July 1999 Mr. Reed served as the Chief Operating
Officer of the Company. Mr. Reed also served as a director of the Company from
1996 until his resignation in January 1999.

     James A. Johnson has served as a director since July 26, 1999. Mr. Johnson
also currently serves on both the compensation committee and the executive
committee. He is a general partner of various Wingate entities, including the
indirect general partner of Wingate Partners II, L.P. Mr. Johnson joined Wingate
Partners, L.P. in 1990. Mr. Johnson currently serves as a director of Pro Parts
Xpress and of United Stationers. Mr. Johnson received his B.S. in industrial
engineering from Stanford University and his M.B.A. from the Stanford Graduate
School of Business.

     Joseph P. Tomczak joined Kevco on January 17, 2000 as Executive Vice
President and Chief Financial Officer. Before coming to Kevco, Mr. Tomczak was
Vice President and Corporate Controller at Outboard Marine Corporation and prior
to that held the same title at Alliant Foodservice, Inc., the second largest
foodservice distribution company in America. He received his Masters of
Management Degree from Northwestern University's Kellogg Graduate School of
Management and his B.A. in Accounting and Business Administration from Augustana
College. Mr. Tomczak is a C.P.A.

     Dan Russell Hardin has served as the President of the Company's
Distribution Group since July 1999. From 1998 to July 1999, Mr. Hardin served as
Executive Vice President of the Company. Mr. Hardin also served as the Company's
Vice President of Sales from 1995 to 1998. Prior to joining the Company, Mr.
Hardin served as the National Sales Manager of Service Supply Systems, a
distribution company. Mr. Hardin received his B.B.A. in business from the
University of Georgia.

     C. Lee Denham currently serves as President of the Sunbelt Wood Components
Group of the Company. Mr. Denham founded Sunbelt Wood Components, Inc., a
fabricated structural products company, in 1981 and served as its president
since that time. He joined the Company in 1995, when Kevco purchased Service
Supply Systems, Inc., the then-owner of Sunbelt Wood Components. Mr. Denham
received his B.B.A. in marketing from the University of Georgia.

                                        8
<PAGE>   10

                  FACTORS THAT COULD AFFECT FUTURE PERFORMANCE

     This report contains forward-looking statements that involve risks and
uncertainties. Actual results could differ from those discussed in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this report.

CYCLICAL NATURE AND SEASONALITY OF THE MANUFACTURED HOUSING AND RV MARKETS

     Over 95% of the Company's net sales for the year ended December 31, 1999,
were to producers of manufactured homes and RVs. The manufactured housing market
historically has been cyclical and is influenced by many of the same national
and regional economic and demographic factors that affect the broader housing
market, including consumer confidence, interest rates, availability and terms of
financing, regional population and employment trends, availability and cost of
alternative housing and general economic conditions, including recessions. The
RV market has also historically been cyclical and is also influenced by factors
such as interest rates, availability and terms of financing and general economic
conditions, as well as gasoline prices. The Company may be adversely affected by
these factors. The Company's operating results for the year reflect the
cyclicality that historically has been seen in the manufactured housing and RV
industries. A prolonged period of excess retail inventory levels, coupled with
tighter credit availability for potential homebuyers could adversely affect the
sales and earnings of the Company.

RISKS RELATED TO THE INTEGRATION OF KEVCO AND ITS ACQUIRED ENTITIES

     The integration of the acquired entities into the Company involves the
integration of companies that have previously operated independently. The
assimilation of the companies requires the integration and coordination of the
Company's product offering, management, systems, manufacturing and sales and
marketing efforts. The Company has already experienced greater than anticipated
expenses relating to the dissimilar information and accounting systems acquired
with those companies, and Kevco may continue to experience greater than expected
integration related costs. In addition, the process of integrating the
operations requires substantial attention from management and could cause the
interruption of, or a loss of momentum in, the business activities of the
Company, which could have an adverse effect on the Company's financial position,
results of operations and cash flows. Accordingly, no assurance can be given
that further difficulties will not be encountered in integrating the operations
of Kevco and the acquired entities or that the efficiencies and benefits
expected from such integration will ultimately be realized.

SALES BY SUPPLIERS

     The Company generally purchases its products from suppliers on open
account. In the event that a group of the Company's suppliers were to decline to
sell product to the Company on credit at a time when the Company did not have
the necessary liquidity to make payment within normal payment terms or otherwise
make acceptable payment assurances, the Company's business could be materially
and adversely affected unless alternative suppliers were then willing to sell
such product to the Company on credit. Further, a perceived strain between the
Company and its suppliers could ultimately strain the Company's relationship
with its customers, which could have a material adverse effect on the Company.

SUBSTANTIAL LEVERAGE

     The Company has a substantial amount of indebtedness. As of December 31,
1999, the Company had approximately $205 million of consolidated indebtedness
and a percentage of debt to total capitalization of 90%. The degree to which the
Company is leveraged could have important consequences to the Company including
the following: (i) funds available to the Company for its operations and general
corporate purposes or for capital expenditures have been and will continue to be
reduced as a result of the dedication of a substantial portion of the Company's
consolidated cash flow from operations to the payment of the principal and
interest on its indebtedness, (ii) the Company may be more highly leveraged than
certain of its competitors, which may place it at a competitive disadvantage,
(iii) the agreements governing the Company's and its subsidiaries' long-term
indebtedness and bank loans contain restrictive financial and operating

                                        9
<PAGE>   11

covenants, and an event of default (not cured or waived) under financial and
operating covenants contained in the Company's debt instruments could occur and
have a material adverse effect on the Company, (iv) certain of the borrowings
under debt agreements of the Company and its subsidiaries have floating rates of
interest, which causes the Company and its subsidiaries to be vulnerable to
increases in interest rates and (v) the Company's substantial degree of leverage
could make it more vulnerable to a downturn in general economic conditions and
raise concerns about the Company's liquidity with the Company's vendors and
customers.

     The ability of the Company and its subsidiaries to make principal and
interest payments under long-term indebtedness and bank loans will be dependent
upon their future performance, which is subject to financial, economic and other
factors affecting the Company and its subsidiaries, some of which are beyond
their control. There can be no assurance that the current level of operating
results of the Company and its subsidiaries will improve. Lack of improvement
could make covenant compliance difficult.

COMPETITION

     The wholesale distribution industry relating to producers of manufactured
homes and RVs is highly competitive, and the barriers to entry are relatively
low. Competition exists in terms of price, product quality and features,
service, warranty terms and distribution facility location. The manufactured
roof truss industry is also highly competitive. There are numerous companies,
both public and private, that are in direct competition with the Company, and
many of these competitors have substantially greater financial and other
resources than the Company. A prolonged downturn in the manufactured housing or
RV industries could result in increased competition adversely affecting the
Company's results of operations and/or financial condition. In addition, there
are certain product manufacturers that sell and distribute their products
directly to manufactured home and RV producers. There can be no assurance that
additional manufacturers of products distributed by the Company will not elect
to sell and distribute directly in the future. No assurance can be given that
the Company will be able to compete effectively in the future.

ITEM 2. PROPERTIES.

FACILITIES

     The following table sets forth certain information as of March 21, 2000,
with respect to the Company's distribution and manufacturing facilities, which
are leased unless otherwise indicated. The Company also leases its executive
offices of approximately 17,000 square feet in Fort Worth, Texas. The Company
also leases five former distribution facilities which were closed to achieve
efficiencies and eliminate redundancies. Such facilities have currently been
sublet. Substantially all of the Company's assets, including its owned
facilities and its leasehold interests, are encumbered by liens granted under
security agreements in favor of the Company's lenders under the Company's senior
credit facilities.

<TABLE>
<CAPTION>
                                                          APPROXIMATE
LOCATION                                                  SQUARE FEET      FUNCTION
--------                                                  -----------      --------
<S>                                                       <C>              <C>
Alabama
  Bear Creek*...........................................     90,000        Distribution
  Haleyville............................................     86,000        Distribution
  Haleyville*...........................................    146,000        Manufacturing
  Haleyville............................................     30,000        Manufacturing
  Haleyville............................................     20,000        Manufacturing
  Phil Campbell.........................................     20,000        Manufacturing
  Spruce Pine*..........................................     54,000        Manufacturing
Arizona
  Phoenix...............................................     94,000        Distribution
  Glendale*.............................................     45,000        Manufacturing
California
  Riverside.............................................     35,000        Distribution
  Woodland..............................................     55,000        Distribution
</TABLE>

                                       10
<PAGE>   12

<TABLE>
<CAPTION>
                                                          APPROXIMATE
LOCATION                                                  SQUARE FEET      FUNCTION
--------                                                  -----------      --------
<S>                                                       <C>              <C>
Colorado
  Fort Morgan...........................................     44,000        Distribution
Florida
  Ocala*................................................     50,000        Distribution
  Ocala.................................................     17,000        Distribution (satellite)
Georgia
  Adel..................................................     37,000        Manufacturing
  Ashburn*..............................................    100,000        Manufacturing
  Cordele*..............................................     60,000        Distribution
  Douglas*..............................................     72,000        Distribution
Idaho
  Caldwell..............................................     24,000        Distribution
  Caldwell..............................................     20,000        Distribution (satellite)
Indiana
  Elkhart...............................................     61,000        Distribution
  Elkhart...............................................     90,000        Distribution
  Elkhart...............................................     35,000        Distribution (satellite)
  Elkhart...............................................     57,000        Distribution
  Elkhart*..............................................     91,000        Distribution
  Elkhart...............................................     15,000        Distribution
  Elkhart*..............................................     65,000        Distribution
  Elkhart*..............................................     70,000        Distribution
  Elkhart...............................................      8,000        Distribution
  Elkhart*..............................................     74,000        Manufacturing
  Elkhart*..............................................     20,000        Manufacturing
Kansas
  Newton*...............................................     85,000        Distribution
Michigan
  Edwardsburg*..........................................     70,000        Manufacturing
Minnesota
  Redwood Falls.........................................     53,000        Distribution
Nebraska
  Aurora................................................     50,000        Distribution
New Mexico
  Albuquerque...........................................     15,000        Distribution
North Carolina
  New London*...........................................    165,000        Distribution
  New London*...........................................     30,000        Manufacturing
  Richfield*............................................     44,000        Manufacturing
Oregon
  Wilsonville...........................................     67,000        Distribution
Pennsylvania
  Lancaster.............................................    119,000        Distribution
Tennessee
  Baxter................................................     55,000        Manufacturing
  Cookeville............................................     30,000        Distribution (satellite)
  Cookeville............................................     35,000        Distribution
  Madisonville..........................................     38,000        Manufacturing
</TABLE>

                                       11
<PAGE>   13

<TABLE>
<CAPTION>
                                                          APPROXIMATE
LOCATION                                                  SQUARE FEET      FUNCTION
--------                                                  -----------      --------
<S>                                                       <C>              <C>
Texas
  Fort Worth............................................    110,000        Distribution
  Mansfield*............................................     25,000        Manufacturing
  Temple................................................     44,000        Manufacturing
  Waco..................................................    130,000        Distribution
  Waco..................................................    135,000        Manufacturing
  Waco..................................................     22,000        Manufacturing
  Waco..................................................     14,000        Manufacturing
  Waxahachie*...........................................    192,000        Manufacturing
</TABLE>

---------------

* Company owned facility.

ITEM 3. LEGAL PROCEEDINGS.

LITIGATION

     On February 18, 1998, H.L. Stud Corporation ("Stud") filed suit against
Shelter Components Corporation (the predecessor corporation of Kevco Components,
Inc., an indirect subsidiary of Kevco, Inc.) ("Shelter"), alleging that Shelter
breached an agreement to purchase Stud. The suit is styled H.L. Stud Corporation
v. Shelter Components Corporation, Case no. C2-98-299, United States District
Court for the Southern District of Ohio, Eastern Division. In its complaint,
Stud sought compensatory damages "in excess" of $4,500,000, plus punitive
damages, costs and attorney fees. Shelter answered the complaint, denying Stud's
allegations. Shelter also filed a counterclaim against Stud to recover
$1,352,000 that Shelter loaned Stud in 1997, plus accumulated interest.

     In February, 1999, in the context of a settlement proposal, Stud
represented to Shelter that its total compensatory damage claim could be
"greatly in excess of $49,868,000." In August, 1999, Stud advised the Court of
its intention to present at trial evidence of compensatory damages approaching
$55,000,000. In July, 1999, Shelter moved the Court for summary judgment in
Shelter's favor on the claims asserted against it in Stud's complaint. Shelter
also moved for summary judgment in its favor on the counterclaim. On December
13, 1999, the Court entered an Opinion and Order granting summary judgment in
favor of Shelter on the complaint and on the counterclaim. Stud filed a Motion
to Reconsider that decision, which was denied by the Court on March 1, 2000. The
Company currently anticipates that, upon the entry of judgment by the Court,
Stud will seek an appeal in the case to the Sixth Circuit Court of Appeals. The
Company will contest any appeal vigorously.

     The Company is involved in various other claims and legal actions arising
in the ordinary course of business. Management does not believe that the
ultimate disposition of these other matters will have a material adverse effect
on the Company's consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On November 22, 1999, the Company held its annual meeting of shareholders.
At the meeting, the Company's shareholders elected William L. Estes and Peter B.
McKee as directors of the Company, each to serve as such for a three-year term
ending in 2002. Each of Messrs. Estes and McKee received 7,826,497 votes cast
"for" their election with 526,000 votes being withheld. In addition to Messrs.
Estes and McKee, the current slate of directors of the Company consists of Jerry
E. Kimmel, Richard Nevins, and Messrs. Hegi and Johnson.

     The Company's shareholders also adopted an amendment to the Company's
articles of incorporation at the meeting authorizing (a) an increase in the
total number of authorized shares of capital stock from 100,000,000 to
150,000,000 and (b) an undesignated class of preferred stock, par value $0.01
per share, two series of preferred stock, and a class of non-voting common
stock, par value $0.01 per share. The amendment to the articles received
7,445,124 votes cast "for," 100,120 votes cast "against," and 6,250 abstentions.

                                       12
<PAGE>   14

     The final item of business at the meeting was the adoption of the Company's
1999 Stock Option Plan, which the Company's shareholders adopted by a vote of
6,923,024 votes cast "for," 635,785 votes cast "against," and 8,250 abstentions.

                                    PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

     The Company's common stock is traded on The NASDAQ Small Cap Stock Market
under the symbol "KVCO." At December 31, 1999, there were approximately 83
shareholders of record of the Company's common stock. The prices in the table
below represent the high and low sales price per share of the Company's common
stock for each fiscal quarter from January 1, 1998 through December 31, 1999.

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
Fiscal Year Ended December 31, 1998
1st Quarter.................................................  $19.00   $16.50
2nd Quarter.................................................  $26.00   $18.75
3rd Quarter.................................................  $22.13   $16.00
4th Quarter.................................................  $18.63   $16.13
Fiscal Year Ended December 31, 1999
1st Quarter.................................................  $10.50   $ 4.25
2nd Quarter.................................................  $ 9.00   $ 4.44
3rd Quarter.................................................  $ 9.00   $ 4.47
4th Quarter.................................................  $ 4.69   $ 1.63
</TABLE>

     No cash dividends have been paid during the last two fiscal years.
Furthermore, 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.

                                       13
<PAGE>   15

ITEM 6. SELECTED FINANCIAL DATA.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

     The selected consolidated financial data for the five years ended December
31, 1999 are derived from the Company's audited consolidated financial
statements. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", audited consolidated financial statements and notes
thereto.

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            1999       1998     1997(1)      1996     1995(2)
                                          --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Net sales...............................  $840,281   $897,450   $390,662   $264,210   $182,519
Cost of sales...........................   746,469    781,339    338,045    223,519    155,641
                                          --------   --------   --------   --------   --------
          Gross profit..................    93,812    116,111     52,617     40,691     26,878
Commission income.......................     6,057      7,397      5,914      5,497      2,610
                                          --------   --------   --------   --------   --------
                                            99,869    123,508     58,531     46,188     29,488
Selling, general and administrative
  expenses..............................   101,740     99,943     42,922     29,723     20,889
Impairment and other special
  charges(4)............................     6,807         --         --         --         --
                                          --------   --------   --------   --------   --------
          Operating income/(loss).......    (8,678)    23,565     15,609     16,465      8,599
Other income............................     2,727      2,577         --         --         --
Interest expense, net...................    22,814     21,143      4,767      2,058      1,337
Debt transaction costs(5)...............     6,272         --         --         --         --
                                          --------   --------   --------   --------   --------
          Income/(loss) before income
            taxes.......................   (35,037)     4,999     10,842     14,407      7,262
Income tax expense......................     1,042      3,132      4,554      1,695         45
                                          --------   --------   --------   --------   --------
          Net income/(loss).............  $(36,079)  $  1,867   $  6,288   $ 12,712   $  7,217
                                          ========   ========   ========   ========   ========
Earnings/(loss) per share -- basic......  $  (4.49)  $   0.27   $   0.92
                                          ========   ========   ========
Earnings/(loss) per share -- diluted....  $  (4.49)  $   0.27   $   0.90
                                          ========   ========   ========
Weighted average shares outstanding --
  basic.................................     8,036      6,845      6,815
                                          ========   ========   ========
Weighted average shares outstanding --
  diluted...............................     8,036      6,865      6,959
                                          ========   ========   ========
Pro Forma Information (Unaudited)(3)
  Historical income before income taxes.................................   $ 14,407   $  7,262
  Income tax expense adjustments........................................      5,475      2,832
                                                                           ========   ========
  Pro forma net income..................................................   $  8,932   $  4,430
                                                                           ========   ========
  Pro forma earnings per share -- basic.................................   $   1.64   $   1.01
                                                                           ========   ========
  Pro forma earnings per share -- diluted...............................   $   1.61   $   0.90
                                                                           ========   ========
  Weighted average shares outstanding -- basic..........................      5,430      4,394
                                                                           ========   ========
  Weighted average shares outstanding -- diluted........................      5,531      4,946
                                                                           ========   ========
</TABLE>

                                       14
<PAGE>   16

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                            --------------------------------------------------
                                              1999       1998       1997      1996      1995
                                            --------   --------   --------   -------   -------
<S>                                         <C>        <C>        <C>        <C>       <C>
Balance Sheet Data:
  Working capital.........................  $ 61,752   $ 73,134   $ 57,445   $24,526   $19,744
  Total assets............................   292,372    331,835    308,194    55,739    55,669
  Total debt..............................   204,826    210,579    194,220     9,831    31,263
  Stockholders' equity....................    22,713     42,887     40,647    34,193     9,556
</TABLE>

---------------

(1) The Company acquired Shelter Components Corporation on December 1, 1997,
    Bowen Supply, Inc. on February 28, 1997 and Consolidated Forest Products,
    L.L.C. on February 27, 1997. The acquisitions were accounted for as
    purchases and accordingly, the operating results of the acquired companies
    have been included in the operating results of the Company since their
    respective acquisition dates. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations -- Acquisitions."

(2) The Company acquired Service Supply Systems, Inc. ("Service Supply") on June
    30, 1995. The acquisition was accounted for as a purchase and accordingly,
    the operating results of Service Supply have been included in the operating
    results of the Company since June 30, 1995.

(3) Prior to its initial public offering in November 1996, the Company had
    elected to be treated as an S corporation under the Internal Revenue Code.
    As an S corporation, the Company was not subject to federal and certain
    state income taxes. The pro forma data give effect to the income taxes that
    would have been recorded had the Company been taxed as a C corporation.

(4) In 1999, the Company incurred $6.8 million of impairment and special charges
    consisting of $3.8 million related to the sale of the Plastic Solutions
    operation, severance costs of certain executives and write-offs of other
    assets no longer used in the business. (See note 8 to the consolidated
    financial statements for further discussion.)

(5) In 1999, the Company incurred $6.3 million in debt transaction costs related
    to the issuance of the Subordinated Notes. $5.3 million of the charge was
    due to the beneficial conversion feature of the Notes. (See note 6 to the
    consolidated financial statements.)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

     The Company's performance has been adversely affected by the general
slowdown in the manufactured housing industry that has resulted from, among
other things, a tightening of credit qualification requirements for low-end
buyers, a general lack of credit availability for the purchase of manufactured
housing, and excess retail inventory. Management expects that the excess retail
inventory will adversely affect the Company's performance for at least the next
12 months.

     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 acquired Shelter Components Corporation ("Shelter") in December
1997. Since that time, the Company has been integrating Shelter and its other
acquisitions into Kevco by, among other things, consolidating certain corporate
functions, consolidating overlapping distribution warehouses from 47 facilities
to 25 and integrating multiple computer systems into one. The integration
efforts are expected to be

                                       15
<PAGE>   17

substantially complete over the next 12 to 24 months. Additional costs will
continue to be incurred, primarily for systems conversion-related issues,
reducing operating income during the transition period.

ACQUISITIONS/DIVESTITURES

     In February 1997, the Company continued its expansion in the wood
manufacturing industry through the acquisition of substantially all of the
assets, and assumption of certain liabilities, of Consolidated Forest (a
manufacturer of wood products for the manufactured housing industry) and
consummated the acquisition of all of the outstanding stock of Bowen (a
wholesale distributor of building products to the manufactured housing and RV
industries). The Bowen acquisition expanded the Company's product lines by
adding new products in electronics, drapery and door hardware, industrial tape,
adhesives and caulks. The Consolidated Forest and Bowen acquisitions were
accounted for as purchases and, accordingly, the operating results of the
acquired companies have been included in the operating results of the Company
since their respective acquisition dates.

     Effective December 1, 1997, the Company acquired approximately 95.5% of the
common stock of Shelter through a tender offer for a purchase price of $17.50
per share of common stock of Shelter; the Company acquired the remaining
untendered shares through a subsequent merger for a like price. The Shelter
acquisition was accounted for as a purchase and, accordingly, the operating
results have been included in the operating results of the Company since
December 1, 1997.

     On December 12, 1997, the Company consummated the acquisition of the
inventory and certain distribution rights of certain building products
distributed by the manufactured housing and recreational vehicle division of
Shepherd Products Company.

     The acquisitions of Shelter, Bowen and Consolidated Forest contributed
approximately $140.0 million in net sales for the year ended December 31, 1997.
On a pro forma basis, giving effect to the acquisitions consummated in 1997
described above as if the acquisitions had occurred on January 1, 1997, net
sales were approximately $862.0 million.

     On December 24, 1999, the Company sold the assets of the Plastic Solutions
division, formerly known as Plastic Solutions, Inc. ("PSI"), a manufacturer of
injection molded plastic parts. 1999 net sales for PSI were $8.3 million.

     Through the acquisitions consummated in 1997, and primarily through the
Shelter acquisition, Kevco believes it became the largest wholesale distributor
of building products to the manufactured housing and recreational vehicle
industries. Despite the recent cyclical downturn in the manufactured housing
industry, the acquisitions continue to provide operating cash flows and
management continues to believe that no evidence has come to light to indicate
that the Company will not recover the carrying values of the assets or that the
goodwill life should be adjusted. Because of the acquisitions in 1997, the
Company's historical results of operations and period-to-period comparisons of
such results and certain financial data may not be meaningful or indicative of
future results. (See note 2 to the consolidated financial statements for
additional information relating to acquisitions.)

CHARGES -- THIRD QUARTER ENDED SEPTEMBER 30, 1999

     During the third quarter of 1999, the Company's new management team (in
connection with the KPI Trust investment, and including Fredrick Hegi, Chairman
and Chief Executive Officer; and James Johnson, Executive Vice President,
Secretary and Director, effective July, 1999 among others) implemented a number
of cost improvement initiatives and incurred charges and certain adjustments of
$21.5 million, including $15.2 million of non-cash items. These initiatives
included the decision to dispose of the Plastic Solutions operation, an
injection plastics manufacturing division included in the Manufacturing segment,
the operations of which were no longer in alignment with the Company's core
business strategy. On December 24, 1999, the Company sold Plastic Solutions for
approximately $1.5 million. Prior to the sale, the Company recognized an
impairment loss of $3.8 million (including a write-off of approximately $3.3
million of goodwill allocable to Plastic Solutions) to adjust the carrying
amount of Plastic Solutions' assets to their estimated fair value, net of

                                       16
<PAGE>   18

related costs to sell. The revenue, gross profit and operating loss recognized
by Plastic Solutions prior to the sale in 1999 was $8.3 million, $0.3 million,
and $(.4) million, respectively. The remainder of the charges consisted
principally of inventory reserve adjustments ($4.0 million), adjustments to
worker's compensation and health insurance reserves as costs have increased over
prior periods due to unfavorable claims experience ($2.5 million), costs related
to employment agreements for certain executives who will no longer be providing
services to the Company ($1.5 million), charges related to a terminated lease
and to the write-off of software and equipment no longer being utilized by the
Company ($1.5 million), and charges related to a third quarter securities
issuance ($6.3 million, of which $5.3 million is a non-cash charge related to
the beneficial conversion feature of the Subordinated Notes issued in the third
quarter). 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. See note 6 and 8 to
the consolidated financial statements for further discussion.

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, certain
Statements of Operations data as a percentage of Kevco's net sales.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1999     1998     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%   100.0%
Cost of sales...............................................   88.8     87.1     86.5
                                                              -----    -----    -----
Gross profit................................................   11.2     12.9     13.5
Commission income...........................................    0.7      0.9      1.5
                                                              -----    -----    -----
Total gross profit..........................................   11.9     13.8     15.0
Selling, general, and administrative expenses...............   12.1     11.1     11.0
Impairment and other special charges........................    0.8      0.0      0.0
                                                              -----    -----    -----
Operating income............................................   (1.0)     2.7      4.0
Other income................................................    0.3      0.3      0.0
Interest expense -- net.....................................   (2.7)    (2.4)    (1.2)
Debt transaction costs......................................   (0.8)     0.0      0.0
                                                              -----    -----    -----
Income/(loss) before income taxes...........................   (4.2)%    0.6%     2.8%
                                                              =====    =====    =====
</TABLE>

The Company is organized into three segments: Wood, Manufacturing, and
Distribution. However, they serve the same market and are impacted by the same
economic trends as the business taken as a whole. See note 14 to the
consolidated financial statements for additional segment data.

COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998

     Net sales decreased by $57.2 million, or 6.4% to $840.3 million in 1999
from $897.5 in 1998. The net sales decrease was 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. This decrease in retail demand caused
manufactured housing production to fall below 1998 levels by 6.7% which,
consequently, reduced the demand for the Company's products. Competitive pricing
pressure also contributed to the decrease in sales, as all suppliers were vying
for a share of the shrinking available market.

     Gross profit decreased by $22.3 million, or 19.2%, in 1999 to $93.8 million
from $116.1 million in 1998. Gross profit as a percent of sales was 11.2%, a
reduction of 1.7% from 1998's level of 12.9%. Causes for the decline included
competitive pricing pressure experienced across all of the Company's businesses
which the Company responded to with reduced prices and consequently lower
margins, as well as cost increases on several of the Company's key raw materials
which could not be totally passed on to its customers.

                                       17
<PAGE>   19

     Commission income decreased in 1999 by $1.3 million to $6.1 million, from a
1998 level of $7.4 million. The reduction was due to several factors. The
industry slowdown and the consequent reduction in sales volume was a major
contributor, as was the Company's decision to discontinue offering some vendor
product lines that were handled on a commission basis in 1998.

     Selling, general, and administrative expenses increased $1.8 million in
1999 to $101.7 million from $99.9 million in 1998. The 1999 spending amounted to
12.1% of sales, an increase of 1.0% over the 11.1% of sales recorded in 1998.
The increase was attributed to expenses associated with upgrading of computer
systems and increases in workers compensation and health insurance costs due to
unfavorable claims experience.

     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 new management team. Such initiatives included the planned
divestiture of PSI, an injection plastics manufacturing division, whose
operations were no longer in alignment with the Company's core business
strategy, severance costs of certain executives and write-offs of other
individually insignificant non-core assets. See note 8 to the consolidated
financial statements and "Charges -- Third Quarter ended September 30, 1999" for
further discussion.

     Net interest expense for the year was $22.8 million, an increase of $1.7
million over the $21.1 million recorded in 1998. The increase was due to higher
loan amortization costs associated with certain amendments to the Company's
credit agreement, as well as higher levels of borrowing through certain parts of
the year.

     Debt transaction costs of $6.3 million were incurred in the third 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 senior
subordinated convertible notes (the "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
of the Company's common stock at the date the Subordinated Notes were issued was
$6.75 per share, and the conversion 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
is required to amortize the Subordinated Notes' discount over the period for
which the Subordinated Notes first become 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 third quarter
ended September 30, 1999. The remaining $1.0 million of debt transaction costs
are costs associated with the amendments of the credit facilities.

     Other income increased by $0.1 million to $2.7 million in 1999 from $2.6
million in 1998. Other income in 1999 is comprised primarily of gains recognized
from the sale of the Company's airplane and the sale of a distribution facility.
Other income in 1998 is comprised primarily of a gain recognized from insurance
proceeds received for a fire which occurred at the Company's Duo-Form plant
which destroyed the facility and its contents.

     Tax expense of $1.0 million in 1999 was $2.1 million less than the $3.1
million expensed in 1998 due to losses in 1999. The Company recorded a valuation
allowance to eliminate its net deferred tax asset. Given the current economic
situation in the industry, management cannot be assured that realization was
"more likely than not." Income tax expense was affected by the valuation
allowance, non-deductible costs related to the beneficial conversion feature
arising from the Subordinated Notes agreement, and non-deductible goodwill
charges, partially offset by income tax benefits resulting from the carryback of
current year losses to prior taxable years. At December 31, 1999, the Company
had net operating loss carryforwards of approximately $9.0 million which will
reduce income taxes payable in the event taxable income is generated.

     Net loss of $36.1 million was $38.0 million less than the $1.9 million net
income experienced in 1998. The decline was due to the reduced sales volumes,
lower gross profit levels, and the special charges recorded in the third
quarter, as mentioned above.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

     Net sales increased by $506.8 million, or 129.7%, to $897.5 million in 1998
from $390.7 million in 1997 due primarily to the acquisition of Shelter in
December 1997. Management believes that net sales, without the
                                       18
<PAGE>   20

effect of the Shelter acquisition, increased approximately the same as the
manufactured housing shipment increase of 5.5% for 1998 compared to 1997
(approximately 373,000 homes reported shipped in 1998 compared to approximately
353,400 homes reported shipped in 1997).

     Gross profit increased by $63.5 million, or 120.7%, to $116.1 million in
1998 from $52.6 million in 1997 due primarily to the acquisition of Shelter in
December 1997. Gross profit, as a percent of net sales, decreased to 12.9% in
1998 from 13.5% in 1997. The decrease in gross profit, as a percent of sales,
was primarily a result of wood products margins which, affected by lower than
historical lumber sales prices, continued to be lower than historical levels, to
start-up costs related to the opening of two wood products manufacturing
facilities (such wood products represent approximately 19% of net sales) and to
increased costs as a result of the consolidation and integration of Shelter
distribution operations (including integration of information systems), as well
as an otherwise general decline in margins.

     Commission income increased by $1.5 million, or 25.4%, to $7.4 million in
1998 from $5.9 million in 1997. The increase was primarily attributable to the
acquisition of Shelter in December 1997.

     Selling, general and administrative expenses increased by $57.0 million, or
132.9%, to $99.9 million in 1998 from $42.9 million in 1997. The increase was
due primarily to the acquisition of Shelter in December 1997 and the related
integration. Although selling, general and administrative expenses, as a percent
of net sales, remained consistent with the prior year, in order to maintain high
levels of customer service in a period of considerable consolidation and
integration of Shelter distribution operations (including integration of
information systems), the Company has incurred costs significantly in excess of
anticipated amounts which have negatively impacted earnings and cash flow
relating to, among other things, contract labor, overtime and freight charges.
The Company has also encountered longer than anticipated start-up periods for
two new wood products facilities that were opened earlier in the year.

     Net income decreased by $4.4 million, or 70.3%, to $1.9 million in 1998
from $6.3 million in 1997. The decrease in net income was primarily attributable
to lower gross margins, as discussed above, increased interest expense and a
higher effective tax rate. Interest expense increased to $21.1 million in 1998
from $4.8 million in 1997 as a result of debt incurred in connection with the
acquisition of Shelter. Net income was favorably impacted by a $2.5 million gain
included in other income that was the result of an insurance settlement. The
effective tax rate increased to 62.7% in 1998 from 42.0% in 1997 as a result of
non-deductible goodwill resulting primarily from the acquisition of Shelter.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's growth has 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 provided by operating activities was $10.5 million and capital
expenditures were $8.3 million for the year ended December 31, 1999. Net cash
used by operating activities was approximately $9.1 million in 1998 and net cash
provided by operating activities was $16.4 million in 1997. 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 recent acquisitions, in varying amounts,
maturing through 2002.

     In July 1999, the Company completed a transaction ("Transaction"), pursuant
to which The Kevco Partners Investment Trust, a Delaware business trust that is
associated with Wingate Partners II, L.P. (the "KPI Trust"), acquired, for an
approximate purchase price of $37.0 million, the following securities:

     - 2,700,000 newly issued shares of the Company's common stock ("Common
       Stock") for a purchase price of $5.00 per share;

     - 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");

                                       19
<PAGE>   21

     - Tranche A Senior Subordinated Exchangeable Notes ("Tranche A Notes") in
       the principal amount of $17.0 million; and

     - 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. 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 Nonvoting
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.

     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. After giving effect to the
charter amendment, and 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 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
loan. 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. As of December 31, 1999, the
Company is in compliance with the covenants under its credit facilities.
Management will monitor debt covenant compliance very closely and, if necessary,
pursue amendments to the existing

                                       20
<PAGE>   22

credit agreements or pursue refinancing alternatives. However, there can be no
assurance that the Company will be able to maintain compliance with its
covenants in the future or that it would be able to 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. At December 31, 1999, the Company had $42.1 million available for
borrowings under its revolving credit facility.

     For the year ended December 31, 1999, average days sales in receivables
were 22 days, average days inventory on hand were 43 days and average days of
payables were 27 days. For the year ended December 31, 1998, average days sales
in receivables were approximately 21 days, average days inventory on hand were
approximately 44 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, the Company experienced no significant disruptions in any of its systems
and believes those systems have adapted well to the Year 2000 date change. The
Company expensed approximately $1.5 million in 1999 to remediate its systems.
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.

QUARTERLY RESULTS

     The following table represents certain unaudited financial information for
the quarters indicated restated for the reclassification of customer rebates
from cost of sales to sales in the first quarter of 1998.

<TABLE>
<CAPTION>
                                                      FIRST      SECOND     THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                     --------   --------   --------   --------
                                                       (IN THOUSAND, EXCEPT PER SHARE DATA)
<S>                                                  <C>        <C>        <C>        <C>
Year ended December 31, 1999
  Net sales........................................  $222,785   $231,777   $208,682   $177,037
  Gross margin.....................................    27,701     28,621     18,261     19,229
  Loss before income taxes(1)......................    (2,533)      (223)   (25,971)    (6,310)
  Net loss.........................................    (1,216)      (754)   (25,971)    (8,138)
  Earnings/(loss) per share -- basic...............     (0.18)     (0.11)     (2.94)     (0.85)
  Earnings/(loss) per share -- diluted.............     (0.18)     (0.11)     (2.94)     (0.85)
Year ended December 31, 1998
  Net sales........................................  $212,051   $231,967   $234,625   $218,807
  Gross margin.....................................    28,943     31,951     30,144     25,073
  Income/(loss) before income taxes................     3,861      5,691      1,044     (5,597)
  Net income/(loss)................................     2,128      3,187        513     (3,961)
  Earnings/(loss) per share -- basic...............      0.31       0.47       0.07      (0.58)
  Earnings/(loss) per share -- diluted.............      0.31       0.46       0.07      (0.58)
</TABLE>

---------------

(1) The loss for the third quarter of 1999 includes $6.8 million in impairment
    and other special charges (see note 8 to the consolidated financial
    statements) and $6.2 million in debt transaction costs (see note 6 to the
    consolidated financial statements).

                                       21
<PAGE>   23

ITEM 7A.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 Indenture and
capitalized lease obligations. In order to mitigate interest rate risk, the
Company has entered into an interest rate hedge agreement in the notional amount
of $30 million, whereby the Company will receive interest payments should LIBOR
increase above 7% and conversely, will make interest payments should LIBOR
decrease below 5.4%. At December 31, 1999, the Company's exposure to these risk
factors was not significant and had not materially changed from December 31,
1998.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                         INDEX TO FINANCIAL STATEMENTS

     The following Consolidated Financial Statements are included herein:

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................   23
Report of Independent Accountants...........................   24
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................   25
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997..........................   26
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 1999, 1998 and 1997..............   27
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997..........................   28
Notes to Consolidated Financial Statements..................   29
</TABLE>

                                       22
<PAGE>   24

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Kevco, Inc.

     We have audited the accompanying consolidated balance sheet of Kevco, Inc.
as of December 31, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kevco, Inc. at
December 31, 1999, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.

                                                  /s/ ERNST & YOUNG LLP

Fort Worth, Texas
February 25, 2000

                                       23
<PAGE>   25

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Kevco, Inc.:

     In our opinion, the consolidated balance sheet as of December 31, 1998 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1998 present
fairly, in all material respects, the financial position, results of operations
and cash flows of Kevco, Inc. at December 31, 1998 and for each of the two years
in the period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Kevco, Inc. for any period
subsequent to December 31, 1998.

                                             /s/ PRICEWATERHOUSECOOPERS LLP

Fort Worth, Texas
April 12, 1999

                                       24
<PAGE>   26

                                  KEVCO, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Current assets:
  Cash and cash equivalents.................................  $ 18,098   $    799
  Trade accounts receivable, less allowance for doubtful
     accounts of $711 and $740 in 1999 and 1998,
     respectively...........................................    38,150     51,367
  Inventories...............................................    67,070     95,999
  Assets held for sale......................................        --      1,065
  Other current assets......................................     6,486      8,458
                                                              --------   --------
          Total current assets..............................   129,804    157,688
  Property and equipment, net...............................    43,756     44,994
  Goodwill and other intangible assets, net.................   113,127    119,590
  Deferred income taxes.....................................        --      2,778
  Other assets..............................................     5,685      6,785
                                                              --------   --------
          Total assets......................................  $292,372   $331,835
                                                              ========   ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $  5,273   $  7,209
  Trade accounts payable....................................    43,926     61,569
  Accrued liabilities.......................................    18,853     15,776
                                                              --------   --------
          Total current liabilities.........................    68,052     84,554
Long-term debt, less current portion........................   199,553    203,370
Other long-term liabilities.................................     2,054      1,024
                                                              --------   --------
          Total liabilities.................................   269,659    288,948
Commitments and contingencies (Note 11)
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 and 6,853 shares issued or outstanding in 1999
     and 1998, respectively.................................        96         69
  Non-voting common stock, $.01 par value; 20,000 shares
     authorized; no shares issued or outstanding............        --         --
  Additional paid-in capital................................    49,270     33,392
  Retained earnings/(deficit)...............................   (26,653)     9,426
                                                              --------   --------
          Total stockholders' equity........................    22,713     42,887
                                                              --------   --------
          Total liabilities and stockholders' equity........  $292,372   $331,835
                                                              ========   ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       25
<PAGE>   27

                                  KEVCO, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $840,281   $897,450   $390,662
Cost of sales...............................................   746,469    781,339    338,045
                                                              --------   --------   --------
  Gross profit..............................................    93,812    116,111     52,617
Commission income...........................................     6,057      7,397      5,914
                                                              --------   --------   --------
                                                                99,869    123,508     58,531
Selling, general and administrative expenses................   101,740     99,943     42,922
Impairment and other special charges........................     6,807         --         --
                                                              --------   --------   --------
  Operating income..........................................    (8,678)    23,565     15,609
Other income................................................     2,727      2,577         --
Interest expense, net.......................................    22,814     21,143      4,767
Debt transaction costs......................................     6,272         --         --
                                                              --------   --------   --------
  Income/(loss) before income taxes.........................   (35,037)     4,999     10,842
Income tax expense..........................................     1,042      3,132      4,554
                                                              --------   --------   --------
  Net income/(loss).........................................  $(36,079)  $  1,867   $  6,288
                                                              ========   ========   ========
Earnings/(loss) per share -- basic..........................  $  (4.49)  $   0.27   $   0.92
                                                              ========   ========   ========
Earnings/(loss) per share -- diluted........................  $  (4.49)  $   0.27   $   0.90
                                                              ========   ========   ========
Weighted average shares outstanding -- basic................     8,036      6,845      6,815
                                                              ========   ========   ========
Weighted average shares outstanding -- diluted..............     8,036      6,865      6,959
                                                              ========   ========   ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       26
<PAGE>   28

                                  KEVCO, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                 COMMON STOCK     ADDITIONAL   RETAINED
                                                ---------------    PAID-IN     EARNINGS/
                                                SHARES   AMOUNT    CAPITAL     (DEFICIT)    TOTAL
                                                ------   ------   ----------   ---------   --------
<S>                                             <C>      <C>      <C>          <C>         <C>
Balance at December 31, 1996..................  6,809     $68      $32,854     $  1,271    $ 34,193
Net income....................................     --      --           --        6,288       6,288
Stock options exercised.......................     15      --          166           --         166
Issuance of common stock......................      4      --           --           --          --
                                                -----     ---      -------     --------    --------
Balance at December 31, 1997..................  6,828      68       33,020        7,559      40,647
Net income....................................     --      --           --        1,867       1,867
Stock options exercised.......................     25       1          372           --         373
                                                -----     ---      -------     --------    --------
Balance at December 31, 1998..................  6,853      69       33,392        9,426      42,887
Net loss......................................     --      --           --      (36,079)    (36,079)
Stock options exercised.......................     10      --           59           --          59
Issuance of common stock......................  2,700      27        9,099           --       9,126
Beneficial conversion feature related to the
  Subordinated Notes..........................     --      --        5,341           --       5,341
Issuance of warrants..........................     --      --        1,379           --       1,379
                                                -----     ---      -------     --------    --------
Balance at December 31, 1999..................  9,563     $96      $49,270     $(26,653)   $ 22,713
                                                =====     ===      =======     ========    ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       27
<PAGE>   29

                                  KEVCO, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                1999       1998       1997
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income/(loss).........................................  $(36,079)  $  1,867   $   6,288
  Adjustments to reconcile net income/(loss) to net cash
    provided/(used) by operating activities:
    Depreciation and amortization...........................     8,591      8,090       3,255
    Amortization of debt issue costs........................     1,536        838          60
    Loss (gain) on sale of assets...........................    (2,286)         9          (9)
    Deferred income taxes...................................     5,350      2,980         452
    Impairment and other special charges....................     6,807         --          --
    Debt transaction costs..................................     6,272         --          --
  Changes in assets and liabilities, net of effects from
    acquisitions and disposition
    Trade receivables.......................................     8,437     (9,452)      8,998
    Inventories.............................................    28,019    (13,193)     (7,464)
    Other current assets....................................      (600)    (3,445)     (2,881)
    Trade accounts payable..................................   (17,008)    14,562       9,635
    Accrued liabilities and other long-term liabilities.....     1,450    (11,374)     (1,963)
                                                              --------   --------   ---------
    Net cash provided/(used) by operating activities........    10,489     (9,118)     16,371
Cash flows from investing activities:
  Acquisitions of businesses, net of cash acquired..........        --         --    (161,000)
  Purchase of equipment.....................................    (8,320)   (10,973)     (3,577)
  Insurance proceeds........................................     3,148        500          --
  Proceeds from disposition of Plastic Solutions............     1,377         --          --
  Proceeds from assets held for sale........................     1,170      3,000          --
  Proceeds from sale of assets..............................     4,781        759         832
  Decrease/(increase) in other assets.......................      (706)      (236)         32
                                                              --------   --------   ---------
    Net cash provided/(used) by investing activities........     1,450     (6,950)   (163,713)
Cash flows from financing activities:
  Proceeds/(payments) on revolving credit facility, net.....   (20,400)     9,725       2,675
  Proceeds from long term debt..............................    23,500     (3,366)     (1,062)
  Payments of long term debt, including capital leases......    (5,910)    10,000     175,000
  Payments for debt issue costs.............................    (1,015)       (44)     (6,637)
  Payment of acquired debt..................................        --         --     (24,592)
  Proceeds from issuance of common stock, net...............     9,126         --          --
  Exercise of stock options.................................        59        281         151
                                                              --------   --------   ---------
    Net cash provided by financing activities...............     5,360     16,596     145,535
                                                              --------   --------   ---------
Net increase/(decrease) in cash and cash equivalents........    17,299        528      (1,807)
Beginning cash and cash equivalents.........................       799        271       2,078
                                                              --------   --------   ---------
Ending cash and cash equivalents............................  $ 18,098   $    799   $     271
                                                              ========   ========   =========
Supplemental disclosures of cash flow information:
  Cash paid for interest....................................  $ 20,357   $ 19,920   $   2,727
  Cash paid /(refunds received) for income taxes............  $ (3,131)  $  3,786   $   6,262
Noncash Investing and Financing Activities:
  Noncompete obligations....................................        --         --   $     492
  Assets destroyed in fire..................................             $  1,409          --
  Transfer of buildings and assets held for sale............        --      1,065          --
  Changes in estimated fair value of assets acquired and
    liabilities assumed.....................................             $  2,633
  Acquisitions:
    Fair value of assets acquired...........................        --         --   $ 255,600
    Cash paid...............................................        --         --     168,700
                                                              --------   --------   ---------
      Liabilities assumed...................................  $     --   $     --   $  86,900
                                                              ========   ========   =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       28
<PAGE>   30

                                  KEVCO, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Description of Operations

     Kevco, Inc. manufactures and distributes products and materials in the
United States primarily for use by the manufactured housing and recreational
vehicle industries.

  Basis of Presentation

     The accompanying consolidated financial statements include the accounts of
Kevco, Inc. and its wholly owned subsidiaries ("Company"). All significant
intercompany transactions and accounts have been eliminated in consolidation.
All of the Company's subsidiaries have guaranteed the 10 3/8% senior
subordinated notes (see Note 6) on a full, unconditional and joint and several
basis. As a result, separate financial statements of the subsidiaries are not
included.

  Cash and Cash Equivalents

     For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, deposits with banks and all highly liquid investments with an
original maturity of three months or less. The carrying value of cash and cash
equivalents approximates fair value as of December 31, 1999 and 1998.

  Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
principally using a weighted-average method.

  Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation.
Additions to and major improvements of property and equipment are capitalized.
Maintenance and repair costs are expensed as incurred. When assets are retired
or otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in the
operations for the period. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.

  Goodwill and Intangible Assets

     Goodwill and intangible assets are comprised of non-compete agreements and
the excess of acquisition cost of acquired businesses over the fair value of net
assets acquired ("goodwill"). Goodwill is amortized, using the straight-line
method, primarily over 40 years. Non-compete agreements are amortized on a
straight-line basis over the terms of the related agreements.

  Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

     The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may be impaired. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the assets.
Management assesses whether there has been an impairment of goodwill by
considering factors such as expected future operating income, current operating
results, and other economic factors.

     Assets held for sale are carried at the lower of cost or fair value less
cost to sell. At December 31, 1998, assets held for sale consisted of certain
net assets to be sold as part of the acquisition of Shelter Components
Corporation. During 1999, these assets were either sold or placed back into
operations.

                                       29
<PAGE>   31
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Debt Issue Costs

     Debt issue costs, included in other assets, associated with the Company's
senior credit facility, 10 3/8% senior subordinated notes and the Subordinated
Notes have been capitalized and are being amortized over the terms of the
related debt. Debt issue costs, net of accumulated amortization, are $5,389,000
and $6,134,000 at December 31, 1999 and 1998, respectively.

  Revenue Recognition

     Revenue from product sales is recognized at the time of shipment or the
time of receipt in the case of direct shipments from vendors to customers.
Commissions are recognized as earned.

  Advertising Costs

     Advertising costs are expensed as incurred. Advertising expense was
approximately $514,000, $797,000 and $358,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

  Concentration of Credit Risk

     The Company's sales are made primarily to the manufactured housing and
recreational vehicle industries across a wide geographical area and generally
require no advance payment from customers. The Company had sales to Champion
Enterprises, Inc. and Fleetwood Enterprises, Inc., representing approximately
16% and 11% of sales in 1999 and 15% and 12% of sales in 1998, respectively.
Sales to these two customers occurred throughout all three segments of the
Company.

     The Company estimates future credit losses based on continual evaluation of
customers' financial condition, historical loss experience and current economic
conditions. The estimated future credit losses are expensed through an allowance
for doubtful accounts and actual credit losses are charged to the allowance when
incurred.

     The Company maintains cash and cash equivalents with various financial
institutions, which at times, may exceed federally insured limits. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.

  Use of Estimates

     The preparation of financial statements in conformity with principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses in the reporting
periods. Actual results could differ from those estimates and assumptions.

  Stock-based Compensation

     The Company generally grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and accordingly, recognizes no compensation expense
for the stock option grants in which the exercise price is equal to the fair
value of the shares granted.

  Earnings/(Loss) Per Share

     Earnings/(loss) per share are calculated for all periods shown in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share;" which requires dual presentation of basic and diluted
                                       30
<PAGE>   32
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

earnings per share and reconciliation between the two amounts. Basic earnings
per share exclude dilution, and diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted to common stock.

     The reconciliation between basic and diluted weighted average shares
outstanding follows:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              -----   -----   -----
                                                                 (IN THOUSANDS)
<S>                                                           <C>     <C>     <C>
Weighted average shares -- basic............................  8,036   6,845   6,815
Plus shares applicable to stock option plans................     --      20     144
                                                              -----   -----   -----
Weighted average shares -- diluted..........................  8,036   6,865   6,959
                                                              =====   =====   =====
</TABLE>

     For the year ended December 31, 1999, options, warrants and convertible
securities are not included in the computation of diluted loss per share as the
effects would be antidilutive.

  Reclassifications

     Certain items in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.

  Pending Adoption of Accounting Standards

     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. ACQUISITIONS

     Kevco acquired Shelter Components Corporation on December 1, 1997 (the
"Shelter Acquisition"), the inventory and certain distribution rights from
Shepherd Products Company on December 12, 1997 (the "Shepherd Acquisition"),
Bowen Supply, Inc. on February 28, 1997 (the "Bowen Acquisition") and
Consolidated Forest Products, L.L.C. on February 27, 1997 (the "Consolidated
Forest Acquisition") for total purchase prices approximating $144.8 million,
$8.0 million, $20.2 million and $14.1 million, respectively. The acquisitions
were made utilizing borrowings under the Company's amended and restated credit
facility and, in the case of the Shelter Acquisition, net proceeds from the
issuance of $105.0 million of 10 3/8% senior subordinated notes due 2007. Each
of the acquisitions was accounted for as a purchase and the results of
operations of the acquired companies were included in the consolidated results
of operations of the Company from their respective acquisition dates. As a
result of the acquisitions, approximately $115.1 million of goodwill was
recorded by the Company, which reflects the adjustments necessary to allocate
the individual purchase prices to the fair value of assets acquired, liabilities
assumed and additional purchase liabilities recorded. Additional purchase
liabilities included approximately $1.8 million for severance and related costs
associated with the elimination of certain administrative and corporate
positions recorded in connection with the Shelter Acquisition.

                                       31
<PAGE>   33
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVENTORIES

     Inventories are comprised of the following:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Raw materials...............................................  $19,312   $23,535
Work-in process.............................................      760     1,055
Finished goods..............................................    6,903     6,961
Goods held for resale.......................................   40,095    64,448
                                                              -------   -------
                                                              $67,070   $95,999
                                                              =======   =======
</TABLE>

4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                     -------------------     ESTIMATED
                                                       1999       1998      USEFUL LIVES
                                                     --------   --------    ------------
                                                       (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>
Land...............................................  $  2,477   $  2,614
Buildings..........................................    26,892     22,296   31 to 40 years
Machinery and equipment............................    16,904     15,776    5 to 15 years
Furniture and fixtures.............................     6,732      5,161    3 to 10 years
Transportation equipment...........................     2,324      5,312    3 to 10 years
Leasehold improvements.............................     1,247      1,169    7 to 15 years
Construction in process............................       417      3,773
                                                     --------   --------
                                                       56,993     56,101
Less accumulated depreciation......................   (13,237)   (11,107)
                                                     --------   --------
Property and equipment, net........................  $ 43,756   $ 44,994
                                                     ========   ========
</TABLE>

     At December 31, 1999 and 1998, property and equipment under capital leases
consist of buildings of approximately $2,231,000 and $2,721,000, machinery and
equipment of approximately $86,000 and $70,000 and furniture and fixtures of
approximately $439,000 and $570,000, respectively. At December 31, 1999 and
1998, accumulated depreciation for assets under capital leases was approximately
$2,155,000 and $2,381,000, respectively. Total depreciation expense was
$4,856,000, $4,385,000 and $1,768,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

5. GOODWILL AND INTANGIBLE ASSETS

     Goodwill and intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Goodwill....................................................  $121,493   $124,233
Noncompete agreements.......................................     1,036      1,036
                                                              --------   --------
                                                               122,529    125,269
Less accumulated amortization...............................    (9,402)    (5,679)
                                                              --------   --------
Goodwill and intangible assets, net.........................  $113,127   $119,590
                                                              ========   ========
</TABLE>

                                       32
<PAGE>   34
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG TERM DEBT

     Long term debt consists of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
10 3/8% senior subordinated notes...........................  $105,000   $105,000
Term loan facilities........................................    75,522     79,600
Revolving credit facility...................................        --     20,400
Trust subordinated convertible notes........................    22,172         --
Other unsecured notes payable...............................       852      4,058
                                                              --------   --------
                                                               203,546    209,058
Capital lease obligations (see Note 11).....................     1,280      1,521
Less current portion........................................    (5,273)    (7,209)
                                                              --------   --------
                                                              $199,553   $203,370
                                                              ========   ========
</TABLE>

     In December 1997, the Company issued $105.0 million of 10 3/8% Senior Notes
due 2007 under the indenture dated as of December 1, 1997, as supplemented (the
"Indenture"), to complete the Shelter Acquisition. The Senior Notes are
redeemable, in whole or in part, at the option of the Company, at any time on or
after December 1, 2002, at the redemption prices set forth in the Indenture. In
addition, at any time on or before December 1, 2000, the Company may redeem up
to 35.0% of the original aggregate principal amount of the Senior Notes with the
net proceeds of a public equity offering at a redemption price equal to 110.375%
of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of redemption.

     The Company's credit facility, as amended during 1999, provides for a $45.0
million revolving credit facility maturing in December 2003 which can be used
for either working capital or letters of credit, the Term A facility for $36.9
million which matures in December 2003, and the Term B facility for $38.6
million which matures in December 2004. Borrowings under the credit facility
bear interest, which at December 31, 1999 ranged from 9.11% to 10.50%, at either
the prime rate or LIBOR rate plus a margin based upon certain compliance ratios
maintained by the Company. At December 31, 1999, approximately $1.8 million in
letters of credit were outstanding under the revolving credit facility and $42.1
million was available for borrowings thereunder. Both Term A and Term B
facilities require quarterly principal and interest payments. 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 and revolving credit facility are collateralized by
substantially all of the assets of the Company and its subsidiaries, including
capital stock or equity interests of such subsidiaries.

     In July 1999 in connection with an equity infusion by The Kevco Partners
Investment Trust (the Trust), the Company issued $23.5 million of senior
subordinated convertible notes (the "Subordinated Notes") maturing in July 2006
and bearing interest at 11.50%. In connection with the issuance of the
Subordinated Notes, the Company issued 1,068,000 detachable warrants valued at
approximately $1.4 million exercisable into shares of non-voting common stock at
an exercise price of $5.50 per share through July 2004. Excluding the beneficial
conversion feature discussed below, the effective interest rate of the
Subordinated Notes is 12.8%. The Subordinated Notes consist of two tranches,
Tranche A in the principal amount of $17.0 million (the "Tranche A Notes") and
Tranche B in the principal amount of $6.5 million (the "Tranche B Notes"). The
Tranche A Notes are convertible at the holders' option into 3,090,909 shares of
Series A 10 3/8% Cumulative Convertible Pay-in-Kind Voting Preferred Stock (the
"Series A Voting Preferred Stock) or directly into 3,090,909 shares of common
stock, in each case at an exchange ratio of $5.50 per share (subject to certain
anti-dilutive adjustments). The Tranche B Notes are convertible at the holders'
option into

                                       33
<PAGE>   35
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1,181,818 shares Series B 10 3/8% Convertible Pay-in-Kind Non-voting Preferred
Stock (the "Series B Non-voting Preferred Stock") or directly into 1,181,818
shares of non-voting common stock, in each case at an exchange ratio of $5.50
per share (subject to certain anti-dilutive adjustments). Interest on the
Subordinated Notes may be paid in cash or, at the Company's option, continue to
accrue unpaid in which case the holder of the Subordinated Notes may elect to
have all accrued interest paid in shares of Series B Non-voting Preferred Stock.
At December 31, 1999, accrued unpaid interest relating to the Subordinated Notes
approximated $1,187,000.

     The conversion feature in the Subordinated Notes is considered to be a
beneficial conversion feature to the holder given that the quoted market price
on the Company's common stock at the date the Subordinated Notes were issued was
in excess of the conversion price. 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 is required to amortize the
discount over the period for which the Subordinated Notes first become
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 during the third quarter of 1999. As a result, the
effective interest rate of the Subordinated Notes is approximately 19%.

     The Company has included costs incurred as part of the amendments to the
credit facilities during 1999 and the charge of $5.3 million related to the
beneficial conversion feature in debt transaction costs in the 1999 consolidated
statement of operations.

     The credit facility, Indenture and Subordinated Notes 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 credit
facility imposes limitations on amounts available for borrowings under the
revolving credit facility based on amounts of eligible accounts receivable,
inventory and fixed assets. As of December 31, 1999, the Company is in
compliance with the covenants under its credit facilities. However, there can be
no assurance that the Company will be able to maintain compliance in the future.

     Scheduled maturities of debt through 2004 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------                                              (IN THOUSANDS)
<S>                                                       <C>
2000....................................................     $ 5,073
2001....................................................       8,170
2002....................................................       8,809
2003....................................................      17,322
2004....................................................      37,006
</TABLE>

     In order to reduce interest rate risk on the credit facility, the Company
has entered into an interest rate hedge agreement in the notional amount of
$30.0 million, whereby the Company will receive interest payments should LIBOR
increase above 7.0% and, conversely, will make interest payments should LIBOR
decrease below 5.41%, the effect of which limits the Company's interest expense
within the range of 5.41% to 7.0% LIBOR on $30.0 million of debt. Management
intends to hold the interest rate hedge until maturity on January 2, 2001. The
Company has incurred $62,000 and $0 of additional interest expense related to
this interest rate hedge for the year ended December 31, 1999 and 1998,
respectively. The fair value of the interest rate hedge agreement is
approximately $17,000 and $329,000 at December 31, 1999 and 1998, respectively.

     The fair value of long-term debt, including capital leases, was $198.8
million and $202.8 million as of December 31, 1999 and 1998, respectively. The
fair value of the Company's long term debt was calculated by discounting future
cash flows using an estimated fair market value interest rate.

                                       34
<PAGE>   36
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY

     Equity Infusion -- In July 1999, the Company issued 2,700,000 shares of
voting common stock to the Trust for $5.00 per share which resulted in net
proceeds to the Company of $9.1 million after transaction costs. In conjunction
with the equity infusion and issuance of the Subordinated Notes, the Company
issued approximately 1,743,000 warrants (1,068,000 of which were detachable from
the Subordinated Notes) for purchase of non-voting common stock with exercise
prices of $5.50 per share which are exercisable through July 2004.

     Preferred Stock -- During 1999, the Company authorized 30.0 million shares
of cumulative preferred stock, $.01 par value. Of the 30.0 million shares
authorized, 3.5 million shares were designated as Series A 10 3/8% Convertible
Pay-in-Kind Voting Preferred Stock, and 9.5 million shares were designated as
Series B 10 3/8% Convertible Pay-in-Kind Non-voting Preferred Stock.

     The Series A Voting and Series B Non-voting Preferred Stock have a
liquidation preference of $5.50 per share (subject to certain anti-dilutive
adjustments), are convertible into an equal number of shares of common stock and
non-voting common stock, respectively (subject to certain anti-dilutive
adjustments), and are redeemable by the Company any time after July 26, 2002 or
in the event of a change in control, at a redemption price per share in cash
equal to 100% of the then effective liquidation preference per share plus
accrued and unpaid cash dividends thereon.

     Holders of Series A Voting Preferred Stock are entitled to vote with the
holders of common stock as a single class on all matters requiring shareholder
approval. Holders of Series B Non-voting Preferred Stock have limited voting
rights in connection with certain extraordinary corporate events affecting them.
As of December 31, 1999, no preferred stock has been issued.

     Non-voting Common Stock -- In 1999, the Company authorized 20.0 million
shares of non-voting common stock, $.01 par value. Holders of non-voting common
stock have rights substantially identical to those of common stock; however,
they only have limited voting rights in connection with certain extraordinary
corporate events affecting them. As of December 31, 1999, no non-voting common
stock has been issued.

     Stock-Based Compensation Plans -- The Company sponsors the Kevco, Inc. 1995
Stock Option Plan, the Kevco, Inc. 1996 Stock Option Plan and the Kevco, Inc.
1999 Stock Option Plan (the "Plans"), which are stock-based incentive
compensation plans. Under the plans, the Company is authorized to issue up to
2,202,735 shares of common stock pursuant to "Awards" granted in the form of
incentive stock options (intended to qualify under Section 422 of the Internal
Revenue Code) and non-qualified stock options. Awards may be granted to selected
employees and directors of the Company. The Company has only granted
non-qualified stock options under the Plans.

     The Plans provide that the exercise price of any stock option will be
determined by the board of directors on the date of grant. The stock options
granted under the 1996 plan vest over 10 years. Stock options granted under the
1999 plan vest over a maximum period of 8 years with accelerated vesting
available if certain performance measures are achieved. All options granted
prior to November 1996 vested in November 1996, at the time of the Company's
initial public offering. The stock options have been granted primarily at prices
equal to the market value of the shares at the date of grant and expire from 7
to 10 years after the date of grant. In accordance with APB 25, the Company has
not recognized any compensation cost for these stock options granted during
1999, 1998 and 1997.

                                       35
<PAGE>   37
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the Company's stock option activity and related information is
as follows:

<TABLE>
<CAPTION>
                                                  NONQUALIFIED STOCK OPTIONS
                             ---------------------------------------------------------------------
                                     1999                    1998                    1997
                             ---------------------   ---------------------   ---------------------
                             NUMBER OF    WEIGHTED   NUMBER OF    WEIGHTED   NUMBER OF    WEIGHTED
                             SHARES OF    AVERAGE    SHARES OF    AVERAGE    SHARES OF    AVERAGE
                             UNDERLYING   EXERCISE   UNDERLYING   EXERCISE   UNDERLYING   EXERCISE
                              OPTIONS      PRICE      OPTIONS      PRICE      OPTIONS      PRICE
                             ----------   --------   ----------   --------   ----------   --------
<S>                          <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at beginning of
  year.....................    394,402     $10.90     421,472      $10.76     415,196      $10.58
Granted....................  1,208,000       2.36      15,000       19.17      24,500       13.62
Exercised..................    (10,598)      5.64     (25,020)      11.18     (14,464)      10.49
Forfeited..................    (11,870)     11.60     (17,050)      14.30      (3,760)      11.17
Expired....................         --         --          --          --          --          --
                             ---------                -------                 -------
Outstanding at end of
  year.....................  1,579,934       4.33     394,402       10.90     421,472       10.76
                             =========                =======                 =======
Exercisable at end of
  year.....................    360,234      10.79     374,802       10.62     405,072       10.65
Weighted-average fair value
  of options granted during
  the year.................                  1.85                   13.29                    8.06
</TABLE>

     Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," (SFAS 123), requires the disclosure of pro forma net
income/(loss) and income/(loss) per share of common stock information computed
as if the Company had accounted for its stock options granted subsequent to
January 1, 1995 under the fair value method set forth in SFAS 123. The fair
value of stock options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: a risk free interest rate ranging from 4.65% to 6.52%, a dividend
of zero percent for all years, a volatility factor ranging from 48.0% to 72.0%
and an expected life ranging from 6.3 years to 9.5 years.

     The following table summarizes additional information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                              WEIGHTED    WEIGHTED                 WEIGHTED
                               AVERAGE    AVERAGE                  AVERAGE
RANGE OF          NUMBER      REMAINING   EXERCISE     NUMBER      EXERCISE
EXERCISE PRICE  OUTSTANDING     LIFE       PRICE     EXERCISABLE    PRICE
--------------  -----------   ---------   --------   -----------   --------
<S>             <C>           <C>         <C>        <C>           <C>
$2.31-$3.00      1,208,000       9.9       $ 2.36           --          --
$5.64               31,934       5.5         5.64       31,934      $ 5.64
$11.17             316,600       3          11.17      316,600       11.17
$13.50-$13.88       18,400       7          13.65       10,700       13.76
$24.50               5,000       8.3        24.50        1,000       24.50
                 ---------                             -------
                 1,579,934       8.5       $ 4.33      360,234      $10.79
                 =========                             =======
</TABLE>

     The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those described above, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable measure of
fair value for the Company's stock options.

                                       36
<PAGE>   38
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense on a straight-line basis over the option's
vesting period as adjusted for estimated forfeitures. Had the compensation cost
for the Company's stock-based compensation plans been determined consistent with
SFAS 123, the Company's pro forma net income/(loss) and earnings/(loss) per
share would have been as follows:

<TABLE>
<CAPTION>
                                                            1999         1998        1997
                                                         ----------    --------    --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE)
<S>                                                      <C>           <C>         <C>
Pro forma net income/(loss)............................   $(36,097)     $1,793      $6,237
Pro forma earnings/(loss) per common share:
  Basic................................................   $  (4.49)     $  .26      $  .92
  Diluted..............................................   $  (4.49)     $  .26      $  .90
</TABLE>

     Shares reserved for future issuances -- As of December 31, 1999, the
Company has approximately 7,515,911 shares reserved for future issuances under
the stock option plans, conversion of the Subordinated Notes and outstanding
warrants.

8. IMPAIRMENT AND SPECIAL CHARGES

     During the third quarter of 1999, the Company's new management team
implemented a number of cost improvement initiatives. These initiatives included
the decision to dispose of the Plastic Solutions operation, an injection
plastics manufacturing division included in the Manufacturing segment, the
operations of which were no longer in alignment with the Company's core business
strategy. On December 24, 1999, the Company sold the Plastic Solutions division
for approximately $1.5 million. Prior to the sale, the Company recognized an
impairment loss of $3.8 million (including a write-off of approximately $3.3
million of goodwill allocable to the Plastic Solutions division,) to adjust the
carrying amount of Plastic Solutions' assets to their estimated fair value, net
of related costs to sell. The revenue, gross profit and operating loss
recognized by Plastic Solutions prior to the sale in 1999 was $8.3 million, $0.3
million, and $(.4) million, respectively.

     Other special charges of approximately $3.0 million were recognized in the
third quarter of 1999 relating to accruals of approximately $1.5 million for
employment agreements for certain executives who will no longer be providing
services to the Company and $1.5 million in charges related to the write-off of
software and equipment no longer being utilized by the Company and costs
associated with a terminated lease.

9. INCOME TAXES

     The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

     The provision/(benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 consists of the following:

<TABLE>
<CAPTION>
                                                             1999      1998     1997
                                                            -------   ------   ------
                                                                 (IN THOUSANDS)
<S>                                                         <C>       <C>      <C>
Federal:
  Current.................................................  $(4,308)  $  535   $3,489
  Deferred................................................    4,922    1,895      512
State:
  Current.................................................       --      318      490
  Deferred................................................      428      384       63
                                                            -------   ------   ------
                                                            $ 1,042   $3,132   $4,554
                                                            =======   ======   ======
</TABLE>

                                       37
<PAGE>   39
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of deferred tax assets and liabilities consist of the
following:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Deferred tax assets:
  Accrued liabilities.......................................  $ 2,972   $ 1,393
  Reserves and allowances...................................      274       500
  Inventory adjustments.....................................    2,059     1,586
  Intangibles...............................................    3,730     4,224
  Net operating loss and tax credit carryforwards...........    3,741        --
                                                              -------   -------
          Total gross deferred tax assets...................   12,776     7,703
                                                              -------   -------
Deferred tax liabilities:
  Property and equipment....................................   (2,726)   (1,841)
  Other.....................................................     (130)     (512)
                                                              -------   -------
          Total gross deferred tax liabilities..............   (2,856)   (2,353)
  Valuation allowance.......................................   (9,920)       --
                                                              -------   -------
          Net deferred tax asset............................  $    --   $ 5,350
                                                              =======   =======
Net current deferred tax asset..............................  $ 5,305   $ 2,572
Net noncurrent deferred tax asset...........................    4,615     2,778
Valuation allowance.........................................   (9,920)       --
                                                              -------   -------
          Net deferred tax asset............................  $    --   $ 5,350
                                                              =======   =======
</TABLE>

     At December 31, 1999, 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.

     At December 31, 1999, the Company has net operating loss carryforwards of
approximately $9 million for income tax purposes which begin to expire in year
2019.

     The difference between income taxes at the statutory federal income tax
rate for the years ended December 31, 1999, 1998 and 1997, and income tax
reported in the consolidated statement of operations is as follows:

<TABLE>
<CAPTION>
                                                              1999     1998    1997
                                                              -----    ----    ----
<S>                                                           <C>      <C>     <C>
Statutory rate..............................................  (35.0)%  34.0%   35.0%
Increase (decrease) in taxes resulting from:
  State income taxes, net of federal tax benefit............   (3.5)    9.3     3.3
  Change in valuation allowance.............................   28.3      --      --
  Amortization write-off of non-deductible goodwill.........    6.0    18.2      --
  Interest expense/beneficial conversion feature related to
     Subordinated Notes.....................................    5.4      --      --
  Other, net................................................    1.8     1.2     3.7
                                                              -----    ----    ----
                                                                3.0%   62.7%   42.0%
                                                              =====    ====    ====
</TABLE>

10. GAIN FROM INSURANCE PROCEEDS

     In August 1998, the Company sustained a fire at its Duo-Form Plant in
Edwardsburg, Michigan, which destroyed the facility and its contents. A gain
from insurance proceeds of approximately $2,541,000 was recognized in 1998
related to the insurance claim. The gain has been reflected in other income for
1998.

                                       38
<PAGE>   40
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

  Leases

     The Company leases various equipment and buildings under capital and
noncancelable operating leases with an initial term in excess of one year. As of
December 31, 1999, future minimum rental payments required under these capital
and operating leases are summarized as follows:

<TABLE>
<CAPTION>
                                                              CAPITAL   OPERATING
                                                              LEASES     LEASES
                                                              -------   ---------
                                                                (IN THOUSANDS)
<S>                                                           <C>       <C>
2000........................................................  $   431    $ 7,787
2001........................................................      329      6,887
2002........................................................      321      5,978
2003........................................................      320      4,944
2004........................................................      304      3,711
Thereafter..................................................      661      7,433
                                                              -------    -------
          Total.............................................  $ 2,366    $36,740
                                                                         =======
Less amount representing interest...........................   (1,086)
                                                              -------
          Present value of minimum lease payments...........  $ 1,280
                                                              =======
</TABLE>

     Rental expense for operating leases was approximately $12,666,000,
$11,776,000 and $5,060,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

  Litigation

     There are claims and pending actions incident to the business operations of
the Company. Management does not expect resolution of these matters to have a
material adverse effect on the Company's financial position or future results of
operations or cash flows.

12. RETIREMENT PLAN

     The Company has a defined contribution retirement plan that covers
substantially all full-time employees and is qualified under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may voluntarily contribute
a percentage of their compensation to the plan and the Company may make
discretionary contributions. The Company's contributions to the plan for the
years ended December 31, 1999, 1998 and 1997 were $0, $0 and $135,000,
respectively.

13. RELATED PARTY TRANSACTIONS

     The Company leases certain buildings and data processing equipment under
capital leases from partnerships partially owned by Jerry E. Kimmel, a member of
the Board of Directors. Two of the leased warehouses were financed through
economic development and industrial revenue bonds; one series of which was
issued by Newton, Kansas in the original principal amount of $575,000, and with
respect to which, the Company is the sub-lessee of the premises and a
co-guarantor, and one series of which was issued by Elkhart, Indiana in the
original principal amount of $400,000, and with respect to which, the Company is
the lessee of the premises. Lease payments for the facilities and equipment were
approximately $672,000, $576,000 and $672,000 for the years ended December 31,
1999, 1998 and 1997, respectively. Debt related to the capital leases was
approximately $1,148,000 and $1,299,000 at December 31, 1999 and 1998,
respectively.

     Management fees of $217,000 were paid to the majority investor in the Trust
during 1999 for certain financial oversight and monitoring services rendered to
the Company.

                                       39
<PAGE>   41
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. 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, buildings
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.) 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.

     The Company measures segment performance based upon revenue and operating
income results. The information in the Corporate/Other category consists
primarily of intercompany eliminations of Manufacturing sales to Distribution
and corporate operating expenses, and is utilized to reconcile to the
consolidated results. Information regarding operations and assets by segment is
as follows:

<TABLE>
<CAPTION>
                                                         1999       1998     1997(E)
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Net Sales:
  Distribution.......................................  $551,749   $604,497   $248,396
  Manufacturing......................................   147,262    140,930      7,518
  Wood Products......................................   158,168    169,869    134,819
  Corporate/Other(a).................................   (16,898)   (17,846)       (71)
                                                       --------   --------   --------
                                                       $840,281   $897,450   $390,662
                                                       ========   ========   ========
Operating income:
  Distribution.......................................  $ 20,172   $ 28,449   $ 16,709
  Manufacturing......................................     4,503      9,177        310
  Wood Products......................................     2,245      5,388      6,631
  Corporate/Other(b).................................   (35,598)   (19,449)    (8,041)
                                                       --------   --------   --------
                                                         (8,678)    23,565     15,609
Interest expense/debt transaction costs..............    29,086     21,143      4,767
Other income.........................................     2,727      2,577         --
                                                       --------   --------   --------
Income (loss) before income taxes....................  $(35,037)  $  4,999   $ 10,842
                                                       ========   ========   ========
Depreciation and amortization:
  Distribution.......................................  $  1,195   $  1,302   $    676
  Manufacturing......................................     2,525      2,141        142
  Wood Products......................................     1,374      1,310        614
  Corporate/Other(c).................................     5,033      4,175      1,883
                                                       --------   --------   --------
                                                       $ 10,127   $  8,928   $  3,315
                                                       ========   ========   ========
Total assets:
  Distribution.......................................  $ 88,707   $123,047
  Manufacturing......................................    35,461     39,459
  Wood Products......................................    42,878     48,086
  Corporate/Other(d).................................   125,326    121,243
                                                       --------   --------
                                                       $292,372   $331,835
                                                       ========   ========
</TABLE>

                                       40
<PAGE>   42
                                  KEVCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

---------------

(a)  Consists primarily of intercompany eliminations of Manufacturing sales to
     Distribution.

(b)  Consists primarily of corporate operating expenses.

(c)  Consists primarily of amortization of goodwill.

(d)  Consists primarily of goodwill resulting from acquisitions and debt issue
     costs related to the Company's long-term debt.

(e)  Includes operations of acquired companies from dates of acquisitions (See
     Note 2).

15. VALUATION AND QUALIFYING ACCOUNTS

     The following table sets forth activity in the Company's allowance for
doubtful accounts (in thousands):

<TABLE>
<CAPTION>
                                                BEGINNING   CHARGES TO                END OF
                                                 OF YEAR    OPERATIONS   DEDUCTIONS    YEAR
                                                ---------   ----------   ----------   ------
<S>                                             <C>         <C>          <C>          <C>
Year Ended December 31, 1999..................    $740         $128        $(157)      $711
Year Ended December 31, 1998..................     641          197          (98)       740
Year Ended December 31, 1997..................     100          624          (83)       641
</TABLE>

                                       41
<PAGE>   43

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     PricewaterhouseCoopers LLP served as the Company's independent auditors for
the fiscal year ended December 31, 1998. Effective August 3, 1999, the Company
dismissed PricewaterhouseCoopers LLP and engaged Ernst & Young LLP as its
independent auditors.

     - There have been no adverse opinions, disclaimers of opinion, or
       qualifications or modifications as to uncertainty, audit scope, or
       accounting principles regarding the reports of PricewaterhouseCoopers LLP
       on the Company's financial statements for each of the fiscal years ended
       December 31, 1998 and 1997.

     - The Audit Committee of the Board of Directors approved the change of
       accountants and that action was ratified by the Board of Directors.

     - During the fiscal years ended December 31, 1998 and 1997 and the
       subsequent interim period to August 3, 1999, there were no disagreements
       with PricewaterhouseCoopers LLP on any matter of accounting principles or
       practices, financial statement disclosure, or auditing scope or
       procedure, which disagreements, if not resolved to the satisfaction of
       PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP
       to make reference to the subject matter of the disagreements in
       connection with its report.

                                       42
<PAGE>   44

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information concerning the directors of the Company is set forth in the
proxy statement to be delivered to shareholders in connection with the Company's
annual meeting of shareholders to be held in 2000 (the "Proxy Statement") under
the heading "Election of Directors," which information is incorporated herein by
reference. The name, age and position of each executive officer of the Company
is set forth under the heading "Executive Officers" in Item 1 of this report,
which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

     The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Management Compensation," which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Principal
Shareholders and Management Ownership," which information is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information concerning relationships and related transactions is set
forth in the Proxy Statement under the heading "Certain Transactions" or under
the heading "Compensation Committee Interlocks and Insider Participation," which
information is incorporated herein by reference.

                                       43
<PAGE>   45

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

  (a) 1. Index to Financial Statements.

     The following Consolidated Financial Statements are included herein:

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................   23
Report of Independent Accountants...........................   24
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................   25
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997..........................   26
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 1999, 1998 and 1997..............   27
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997..........................   28
Notes to Consolidated Financial Statements..................   29
</TABLE>

      2. Index to Financial Schedules.

     No schedules are included because of the absence of conditions under which
they are required or because information is disclosed in the financial
statements or notes thereto.

      3. Exhibits

     The exhibits filed as a part of this report are listed under "Exhibit
Index" at subsection (c) of this Item.

  (b) Reports of Form 8-K:

     None.

  (c) Exhibit Index:

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          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)
</TABLE>

                                       44
<PAGE>   46

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          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)
         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)
</TABLE>

                                       45
<PAGE>   47

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         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)
         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>

                                       46
<PAGE>   48

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         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)
         21.1            -- List of Subsidiaries.(15)
         23.1            -- Consent of Ernst & Young LLP(15)
         23.2            -- Consent of PricewaterhouseCoopers LLP(15)
         24.1            -- Power of Attorney(16)
         27.1            -- Financial Data Schedule.(15)
</TABLE>

                                       47
<PAGE>   49

---------------

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.

(16) Included on the Signature Page of this Annual Report.

                                       48
<PAGE>   50

                               POWER OF ATTORNEY

     Each person whose signature appears below hereby constitutes and appoints
Joseph P. Tomczak as his attorney-in-fact, with the power of substitution, for
him in any and all capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                            By:    /s/ JOSEPH P. TOMCZAK
                                              ----------------------------------
                                                      Joseph P. Tomczak
                                                 Executive Vice President and
                                                   Chief Financial Officer

Date: March 30, 2000

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on March 30, 2000.

<TABLE>
<CAPTION>
                      SIGNATURE                                           CAPACITY
                      ---------                                           --------
<C>                                                    <S>

             /s/ FREDERICK B. HEGI, JR.                Chairman of the Board, President and Chief
-----------------------------------------------------    Executive Officer and Director (Principal
               Frederick B. Hegi, Jr.                    Executive Officer)

                /s/ JOSEPH P. TOMCZAK                  Executive Vice President and Chief Financial
-----------------------------------------------------    Officer (Principal Financial Officer)
                  Joseph P. Tomczak

                /s/ JAMES A. JOHNSON                   Executive Vice President, Secretary and
-----------------------------------------------------    Director
                  James A. Johnson

                 /s/ JERRY E. KIMMEL                   Director
-----------------------------------------------------
                   Jerry E. Kimmel

                 /s/ RICHARD NEVINS                    Director
-----------------------------------------------------
                   Richard Nevins

                /s/ WILLIAM L. ESTES                   Director
-----------------------------------------------------
                  William L. Estes

                 /s/ PETER B. MCKEE                    Director
-----------------------------------------------------
                   Peter B. McKee
</TABLE>

                                       49
<PAGE>   51

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          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)
         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)
</TABLE>
<PAGE>   52

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         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)
         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)
</TABLE>
<PAGE>   53

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         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)
         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>
<PAGE>   54

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         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)
         21.1            -- List of Subsidiaries.(15)
         23.1            -- Consent of Ernst & Young LLP(15)
         23.2            -- Consent of PricewaterhouseCoopers LLP(15)
         24.1            -- Power of Attorney(16)
         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.

(16) Included on the Signature Page of this Annual Report.