<PAGE>   1
                       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, 1998
                                       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

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                                   KEVCO, INC.
             (Exact name of registrant as specified in its charter)

                TEXAS                                        75-2666013

    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)

              Kevco, Inc.
   1300 S. University Drive, Suite 200                            76107
           Fort Worth, Texas                                    (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (817) 332-2758

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


                                              Name of each exchange
     Title of Each Class                       on which registered
     -------------------                      --------------------- 

     Common Stock,                           The Nasdaq Stock Market
     par value of $.01 per share

     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.

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         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 $21,877,460 on March 25, 1999, based on the
closing price of the registrant's Common Stock on such date of $5.50 per share,
as reported on The Nasdaq Stock Market.

         As of March 25, 1999, 6,856,437 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 1999 are incorporated by reference into Part
III of this report.




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                                     PART I

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report, including but not limited to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. Similar statements herein that
describe the Company's business strategy, outlook, objectives, plans, intentions
or goals are also forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
there can be no assurance that such expectations will prove to have been
correct. All such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
forward-looking statements. These risks and uncertainties are beyond the ability
of the Company to control, and in many cases, the Company cannot predict all the
risks and uncertainties that could cause its actual results to differ materially
from those indicated by the forward looking statements. Important factors that
could cause actual results to differ materially from the Company's expectations
("cautionary statements") are disclosed in this report, including, but not
limited to, the information disclosed under "Factors That Could Affect Future
Performance." All forward-looking statements are expressly qualified by such
cautionary statements.

ITEM 1.  BUSINESS.

GENERAL

         Kevco, Inc. ("Kevco" or the "Company," and 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. Except as otherwise indicated,
information contained herein relating to Kevco is as of December 31, 1998.
Through its 27 distribution centers (as of March 17, 1999), the Company
distributes more than 75,000 different inventory items to approximately 530
manufactured housing and RV and other manufacturing facilities throughout the
United States. Kevco is one of only a few companies capable of providing
national distribution of building products to the manufactured housing and RV
industries. In addition, the Company also manufactures wood products, laminated
wallboard, thermoformed bathtubs and shower enclosures for the manufactured
housing industry. From 1994 to 1998, the Company's net sales increased from
$99.3 million to $897.5 million, a compound annual growth rate of approximately
73%. Since its founding in 1964, the Company's growth has been fueled by
internal growth and acquisitions. On November 6, 1996, the Company consummated
its initial public offering. During the second quarter of 1998, the Company's
subsidiary structure was reorganized.

         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. Kevco 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, Kevco 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, Kevco 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 cannot provide in a cost-effective manner. The Company
believes that the 


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specialized product knowledge and high level of service provided by Kevco
personnel result in strong relationships between Kevco and its suppliers and
customers.

         The Company distributes a full line of plumbing fixtures and supplies
as well as a variety of other building products, including 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. The Company also manufactures wood products including roof trusses and
lumber cut to customer specifications, laminated wallboard products, plastic
injection molded products and thermoformed bathtubs, shower enclosures and tub
wall surrounds. In 1998, approximately 13% of the Company's net sales were
derived from plumbing products, 9% from electrical products, 9% from hardware,
fasteners, tools and mill supplies, 18% from wood products, 5% from thermoformed
plastic products, 8% from laminated wallboards and 38% from other building
products. See note 13 to the consolidated financial statements for additional
segment data.

INDUSTRY

         For the year ended December 31, 1998, approximately 90% 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.

         Manufactured housing has historically served as one of the most
affordable alternatives for the home buyer. According to the U.S. Department of
Commerce, in 1997 the average cost per square foot was $25.78 for a
single-section manufactured home and $30.65 for a multi-section manufactured
home, as compared to an average cost of $61.47 per square foot for a site-built
home, each excluding land costs. In 1997, reported sales of new manufactured
homes totaled approximately $14.5 billion (at retail). Approximately 373,000
manufactured homes were reported as shipped in 1998 (which would represent
approximately 29.6% of all new single family homes sold in 1998).

         The Company believes steady employment growth, greater availability of
retail financing for the home buyer and enhanced quality of manufactured homes
have contributed to industry conditions. Although the manufactured housing
industry has experienced significant growth over the past five years, the
industry is cyclical and is affected by many of the same factors that influence
the housing industry generally, including inflation, interest rates,
availability of financing, regional economic and demographic conditions,
consumer confidence levels and retail inventory levels, as well as the
affordability and availability of alternative housing, such as apartments,
condominiums and conventional, site-built homes.

         The ten highest volume producers of manufactured homes in 1997
reportedly accounted for approximately 80% 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, 1998, approximately 7% 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 293,000 units in 1998. Historically,
demand for RVs has been influenced by a number of factors, including the
availability and terms of financing to dealers and retail purchasers, the
abundance of motor vehicle fuels and fuel prices, as well as general economic
conditions.



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BUSINESS STRATEGY

         Kevco's primary objective is to maintain and strengthen its position as
one of the largest national distributors 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 ten 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 SHELTER ACQUISITION BENEFITS. 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.
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. The Company intends to continue to reduce administrative and
facility redundancies such as through the integration and streamlining of the
Company's accounting systems, the consolidation of warehouses and the sale or
subletting of vacant facilities. The Company is also exploring methods of
reducing its debt leverage, created in part as a result of the Shelter
acquisition in order to enhance its competitiveness. Until such integration is
substantially complete, levels of debt reduced and profitability restored, the
Company does not anticipate effectuating additional acquisitions.

         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
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 90% 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.



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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 QS-9000 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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TOTAL QUALITY MANAGEMENT

         Kevco is committed to maintaining Total Quality Management throughout
its operations. The key elements of this operating philosophy are (i) to
increase customer satisfaction by seeking to meet or exceed all customer
requirements and ensuring that all associates are "customer focused," which the
Company believes results in Kevco becoming the supplier of choice, (ii) to
create the mindset and awareness within all of its associates that each is
responsible and accountable for the results of Kevco's operations and (iii) to
work with Kevco's suppliers and customers to create an environment where all are
working together to improve the value of the products supplied to the
manufactured home or RV consumer. The Company's executive office and profit
centers hold weekly Total Quality Management meetings attended by all employees.
The meetings focus on training and on reaffirming Kevco's mission, quality and
value statements in order to achieve the goal of being the distributor, customer
and employer of choice. An integral part of the entire quality process is
creating a culture where communication can flourish among all internal and
external parties, including associates, customers and suppliers.

PRODUCTS

         The Company believes it distributes one of the most comprehensive
product lines to the manufactured housing and RV industries. Prior to the
acquisition of Shelter, Kevco distributed approximately 10,000 SKUs and Shelter
distributed approximately 62,000 SKUs. Some of Kevco's and Shelter's SKUs
overlap, and the Company continues to rationalize and reduce total SKUs as
Shelter is integrated into the Company's operations. 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 moulding, vinyl siding, visqueen, gypsum
board, parquet wood flooring, insulation, roof shingles, patio doors,
fireplaces, kitchen cabinetry and water heaters.

         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.

         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.

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



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         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 industry.

         PLASTIC INJECTION MOLDED PRODUCTS. Kevco manufactures custom
thermoplastic injection molded products for the automotive, sporting goods,
medical and manufactured housing industries. Kevco also designs parts and builds
injection molds for its customers.

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 and 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 as well as a discretionary
element.

         Kevco maintains active customer relationships with approximately 530
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 15% and 12%, respectively of
Kevco's net sales in 1998. 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 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 27 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.



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         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 Shelter acquisition, 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 early 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 daily physical
counts of at least five items in each warehouse. A complete physical inventory
count is performed twice a year. For book and tax purposes, the Company records
purchased inventories under the FIFO 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 Income.

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 strained its
relationship with its suppliers. In the event 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, plastic
injection molded 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 manufactured home
producers. 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's wood products customers include producers of manufactured
homes as well as contract, "cut-to-order" customers outside of the manufactured
housing industry. Substantially all of Kevco's wood product sales are to
manufactured home producers. Kevco has roof truss manufacturing facilities in
Alabama (2), Arizona, Georgia, North Carolina, Tennessee and Texas.

         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 industry.
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 six manufacturing facilities located in Indiana, Georgia, North
Carolina, Tennessee and Texas (2).

         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.


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         The Company designs, builds and molds high tolerance functional
component parts. The process uses custom built molds and thermoplastic molding
machines to liquify, inject and form parts for its customers. This process can
accommodate small and large parts and hold tolerances up to .002 of an inch.
Kevco has 27 molding machines ranging in size from 35 ton to 700 ton of clamp
pressure.

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 1998 was negligible.
Kevco also has an informal, unwritten return policy under which, for one year
following sale, 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 covered defect is
discovered, the Company generally pays to replace the roof truss and the roof.
The Company has had one claim 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 many of those competitors have longer operating
histories and greater financial and 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, 1998, the Company employed 2,153 persons. The
Company is a party to (i) a collective bargaining agreement, which covers
certain employees at one of the Company's facilities in Elkhart, Indiana and
(ii) a collective bargaining agreement effective through March 31, 1999, which
covers certain employees at a plastics operation plant in Texas. The Company has
not experienced any work stoppages as a result of labor disputes and the Company
considers its employee relations to be good.



                                       11
<PAGE>   12

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.


                                   MANAGEMENT

         The following table sets forth certain information as of March 25,
1999, 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>
Jerry E. Kimmel ............     61     Chairman of the Board, President and Chief Executive Officer

Clyde A. Reed, Jr ..........     63     Executive Vice President and Chief Operating Officer

Ellis L. McKinley, Jr ......     47     Vice President, Chief Financial Officer, Treasurer and Director

Richard S. Tucker ..........     55     Secretary and Director

C. Lee Denham ..............     50     President, Kevco Manufacturing, L.P.

Gregory G. Kimmel ..........     30     Senior Vice President, Corporate Development and Director
</TABLE>

         Jerry E. Kimmel is a founder of the Company and has spent his entire
career in this industry. Mr. Kimmel has served as President of Kevco since 1978
and has served as Chairman of the Board and Chief Executive Officer of the
Company since 1993. In 1992, Mr. Kimmel was inducted into the MH/RV Hall of
Fame. Mr. Kimmel served as the Chairman of the Board of Governors of the
Manufactured Housing Institute ("MHI"), a leading manufactured housing trade
group, in 1983 and 1984, and has served in various other MHI board capacities.

         Clyde A. Reed, Jr. joined the Company in 1965 and has served as
Executive Vice President since 1986 and Chief Operating Officer since 1991. From
1978 to 1986, Mr. Reed served as Vice President of the Company. Mr. Reed served
as a director of the Company from November 1996 to January 1999.




                                       12
<PAGE>   13

         Ellis L. McKinley, Jr. joined the Company in 1995, has served as Vice
President and Chief Financial Officer since such time and has served as director
and Treasurer of the Company since November 1996. From 1994 to 1995, Mr.
McKinley was Vice President of Finance, Chief Financial Officer, Secretary and
Treasurer of Renters Choice, Inc. From 1976 until 1994, Mr. McKinley was
employed with Grant Thornton, a public accounting firm in Dallas, Texas, where
he served as an audit partner from 1987 through 1994. Mr. McKinley received his
B.B.A. in Accounting from the University of Texas in 1976.

         Richard S. Tucker has served as a director of the Company since 1976,
as an assistant secretary of the Company since 1988 and as the Secretary of the
Company since November 1996. Since 1995, Mr. Tucker has been a partner in the
law firm of Jackson Walker L.L.P., the Company's outside legal counsel. From
1984 to 1995, Mr. Tucker was a member of the law firm of Simon, Anisman, Doby, &
Wilson, a Professional Corporation, located in Fort Worth, Texas. Mr. Tucker
received his B.B.A. in Accounting from the University of Texas in 1966 and his
J.D. from Southern Methodist University School of Law in 1969.

         C. Lee Denham has served as President of Kevco Manufacturing, L.P.
since its formation in 1998 and of its predecessor, Kevco's former subsidiary
Sunbelt, since November 1996 and as Vice President of the Sunbelt division of
Kevco from 1995 to November 1996. Mr. Denham was division manager of Sunbelt
from 1991 to 1995. From 1981 to 1991, Mr. Denham was President of Sunbelt. From
1970 until founding Sunbelt in 1981, Mr. Denham was employed by Universal Forest
Products, Inc. Mr. Denham received his B.B.A. in Marketing from the University
of Georgia in 1970.

         Gregory G. Kimmel joined the Company in 1994 and has served as Vice
President since January 1996, as Vice President, Corporate Development since
August 1997, Senior Vice President, Corporate Development since January 1998 and
as a director of the Company since May 1997. Mr. Kimmel received his B.S. in
Education from McMurry University in 1994. Gregory G. Kimmel is the son of Jerry
E. Kimmel, the Chairman, President and Chief Executive Officer of the Company.


                  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.

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.


                                       13
<PAGE>   14


NASDAQ LISTING

         The Company's Common Stock is currently listed for trading on The
Nasdaq National Market System ("NASDAQ"). Under applicable NASDAQ listing
standards, the Company is required to have two independent directors. One of the
Company's independent directors, Martin C. Bowen, resigned effective as of
December 2, 1998, and the Company has not nominated a successor independent
director to stand for election at the Company's 1999 annual meeting of
shareholders. Further, since September 1, 1997, Richard Nevins, the Company's
other independent director, has acted as a consultant at times for the Company
and at times for Jerry E. Kimmel, the Company's Chairman of the Board, President
and Chief Executive Officer. As such, NASDAQ may not consider Mr. Nevins to be
an independent director for such purposes. The Company has had informal
discussions with NASDAQ regarding its independent director status; however,
NASDAQ has not formally notified the Company that its shares of Common Stock are
subject to delisting as a result of this noncompliance. Ordinarily, before
delisting, NASDAQ would provide notice and an opportunity to effectuate a plan
for compliance with listing requirements.

         If the Company is unable to comply with such listing requirement, the
shares of the Company's Common Stock could be delisted by NASDAQ, which could
result in a substantial reduction in the liquidity and price of the Company's
Common Stock.

RISKS RELATED TO THE INTEGRATION OF KEVCO AND SHELTER

         The integration of Shelter with the Company involves the integration of
two 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 nonuniform information systems and accounting systems acquired with
Shelter and the Company may continue to experience greater than expected
integration related costs. In addition, the process of integrating the
operations of Kevco and Shelter 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 Shelter or that the efficiencies and
benefits expected from such integration will ultimately be realized.

YEAR 2000

         The Company is in the process of addressing and attempting to ensure
its Year 2000 readiness. The Year 2000 problem concerns systems and equipment
designed and developed using two digits, rather than four, to specify the year,
which may result in the inability of information systems to properly recognize
date-sensitive information on and beyond January 1, 2000. Certain risks and
uncertainties relating specifically to the Company's Year 2000 efforts include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of various third parties with
respect to Year 2000 problems. While the Company believes its efforts will
provide reasonable assurance that material disruptions will not occur due to
internal failure and is attempting to assess and minimize potential disruption
due to third party failure, the potential for interruption still exists and may
materially adversely affect the Company's business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Year 2000."



                                       14
<PAGE>   15

SUBSTANTIAL LEVERAGE

         The Company has a substantial amount of indebtedness. As of December
31, 1998, the Company had approximately $210.6 million of consolidated
indebtedness and a percentage of debt to total capitalization of 83.1%. 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 covenants, and an event of default (not cured or waived)
under financial and operating covenants contained in the Company's or its
subsidiaries' 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. The Company believes
that it will need to access the capital markets in the future in order to
provide the funds necessary to repay a significant portion of its indebtedness.
There can be no assurance that any such refinancing will be possible or that any
additional financing can be obtained, particularly in view of the Company's
anticipated high levels of debt and the debt incurrence restrictions under its
existing debt agreements. If no such refinancing or additional financing were
available, the Company and/or its subsidiaries could default on their respective
debt obligations. In such case, virtually all other debt of the Company and its
subsidiaries could be immediately due and payable.

CYCLICAL NATURE AND SEASONALITY OF THE MANUFACTURED HOUSING AND RV MARKETS

         Over 90% of the Company's net sales for the year ended December 31,
1998, 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 past few years do not reflect the seasonality that historically
has been seen in the manufactured housing and RV industries.



                                       15
<PAGE>   16

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 been operating longer and have
substantially greater financial and other resources than the Company. A downturn
in the manufactured housing or RV industries could result in increased
competition adversely affecting the Company's results of operations 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 25,
1999, 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 12,000 square feet in Fort Worth, Texas and
the location that formed the executive offices of Shelter, of approximately
19,000 square feet, in Elkhart, Indiana. The Company also leases six and owns
four former distribution facilities, which were closed to achieve efficiencies
and eliminate redundancies following the acquisition of Shelter. Such vacant
facilities are in various stages of being sublet or sold. 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 ..................      44,000     Manufacturing
     Phil Campbell ...............      30,000     Manufacturing
     Spruce Pine* ................      54,000     Manufacturing
Arizona
     Phoenix .....................      94,000     Distribution
     Glendale* ...................      45,000     Manufacturing
California
     Riverside ...................      35,000     Distribution
     San Bernardino ..............      42,000     Distribution
     Woodland ....................      55,000     Distribution
</TABLE>


                                       16
<PAGE>   17


<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   
     Elkhart County ..............      29,000     Manufacturing   
     South Bend ..................      43,000     Manufacturing   
Kansas                                                        
     Newton* .....................      85,000     Distribution    
Michigan                                                      
     Edwardsburg* ................      70,000     Manufacturing   
     Edwardsburg .................       7,000     Manufacturing   
</TABLE>


                                       17
<PAGE>   18

<TABLE>
<CAPTION>
                                     APPROXIMATE
             LOCATION                SQUARE FEET     FUNCTION
<S>                                  <C>           <C>
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   
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.



                                       18
<PAGE>   19

ITEM 3.  LEGAL PROCEEDINGS.

LITIGATION

         The Company is, and may be in the future, party to litigation arising
in the course of its business. While the Company has no reason to believe that
any pending claims are material, there can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of such
claims or that any such claims will be covered by the Company's insurance. Any
material claim that is not covered by insurance may have an adverse effect on
the Company's business. Claims against the Company, regardless of their merit or
outcome, may also have an adverse effect on the Company's reputation and
business.

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

         The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.



                                       19
<PAGE>   20



                                     PART II

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

         The Company's Common Stock has been traded on The Nasdaq Stock Market
under the symbol "KVCO" since November 1, 1996. The following table sets forth
the high and low sales prices of the Company's Common Stock for each quarterly
period within the two most recent fiscal years.


<TABLE>
<CAPTION>
                                                       HIGH       LOW
                                                    =========  =========
<S>                                                 <C>        <C> 
 Fiscal year ended December 31, 1997
 1st Quarter ..................................     $   18.75  $   13.75
 2nd Quarter ..................................     $   15.50  $   12.25
 3rd Quarter ..................................     $   14.38  $   10.13
 4th Quarter ..................................     $   17.88  $   11.88

<CAPTION>
                                                       HIGH       LOW
                                                    =========  =========
 Fiscal year ended December 31, 1998
 1st Quarter ..................................     $   18.75  $   16.50
 2nd Quarter ..................................     $   26.00  $   19.08
 3rd Quarter ..................................     $   22.13  $   16.25
 4th Quarter ..................................     $   16.00  $    6.75
</TABLE>

         On March 25, 1999, the last reported sale price of the Common Stock on
The Nasdaq Stock Market was $5.50 and as of such date there were approximately
85 shareholders of record of the Common Stock. The Company's transfer agent is
ChaseMellon Shareholder Services, L.L.C.

         The Company has not paid any cash dividends on its Common Stock during
the past two fiscal years. 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 Company's indenture dated as
of December 1, 1997 related to the issuance of $105 million of 10 3/8% senior
subordinated notes due 2007 ("Indenture") and the Company's credit agreement
generally prohibit the payment of dividends by the Company on its Common Stock.
Additionally, the Indenture restricts the payment of dividends by restricted
subsidiaries to the Company.



                                       20
<PAGE>   21

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,
1998 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" and notes thereto.

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------------------------
                                                            1998        1997(1)       1996        1995(2)       1994
                                                          --------     --------     ---------    --------     --------
<S>                                                       <C>          <C>          <C>          <C>          <C>     
Net sales ...........................................     $897,450     $390,662     $264,210     $182,519     $ 99,279
Cost of sales .......................................      781,339      338,045      223,519      155,641       83,356
                                                          --------     --------     --------     --------     --------
     Gross profit ...................................      116,111       52,617       40,691       26,878       15,923
Commission income ...................................        7,397        5,914        5,497        2,610        1,066
                                                          --------     --------     --------     --------     --------
                                                           123,508       58,531       46,188       29,488       16,989
Selling, general and administrative expenses ........       99,943       42,922       29,723       20,889       11,941

                                                          --------     --------     --------     --------     --------
     Operating income ...............................       23,565       15,609       16,465        8,599        5,048
Other income ........................................        2,577          --           --           --           800
Interest expense, net ...............................       21,143        4,767        2,058        1,337          281
                                                          --------     --------     --------     --------     --------
     Income before income taxes .....................        4,999       10,842       14,407        7,262        5,567
Income taxes ........................................        3,132        4,554        1,695           45           51
                                                          --------     --------     --------     --------     --------
     Net income .....................................     $  1,867     $  6,288     $ 12,712     $  7,217     $  5,516
                                                          ========     ========     ========     ========     ========

Earnings per share - basic ..........................     $   0.27     $   0.92
                                                          ========     ========
Earnings per share - diluted ........................     $   0.27     $   0.90
                                                          ========     ========
Weighted average shares outstanding - basic .........        6,845        6,815
                                                          ========     ========
Weighted average shares outstanding - diluted .......        6,865        6,959
                                                          ========     ========

PRO FORMA INFORMATION (UNAUDITED)(3)
  Historical income before income taxes .............                               $ 14,407     $  7,262     $  5,567
  Income tax expense adjustments                                                       5,475        2,832        2,171
                                                                                    --------     --------     --------
  Pro forma net income ..............................                               $  8,932     $  4,430     $  3,396
                                                                                    ========     ========     ========
  Pro forma earnings per share - basic ..............                               $   1.64     $   1.01     $   0.77
                                                                                    ========     ========     ========
  Pro forma earnings per share - diluted ............                               $   1.61     $   0.90     $   0.69
                                                                                    ========     ========     ========
  Weighted average shares outstanding - basic .......                                  5,430        4,394        4,394
                                                                                    ========     ========     ========
  Weighted  average shares  outstanding - diluted ...                                  5,531        4,946        4,946
                                                                                    ========     ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                          ------------------------------------------------------------
                                                            1998         1997         1996         1995         1994
                                                          --------     --------     ---------    --------     --------
<S>                                                       <C>          <C>          <C>          <C>          <C>     
BALANCE SHEET DATA:
   Working capital ..................................     $ 73,134     $ 57,445     $  24,526    $ 19,744     $  5,078
   Total assets .....................................      331,835      308,194        55,739      55,669       18,067
   Total debt .......................................      210,579      194,220         9,831      31,263        6,385
   Stockholders' equity .............................       42,887       40,647        34,193       9,556        6,094
</TABLE>



                                       21
<PAGE>   22

(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. See "Management's
     Discussion and Analysis and Results of Operations - Acquisitions."

(3)  Prior to the initial public offering, 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.

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

GENERAL

         From 1994 through 1998, the Company experienced significant growth in
sales. This growth was the result of internal expansion, including the opening
of new distribution centers, as well as the acquisition of distribution and
manufacturing facilities from Service Supply. Through the acquisition of Service
Supply in June 1995, for approximately $17.7 million in cash, the Company
acquired five distribution and three manufacturing facilities, bringing the
number of its distribution and manufacturing facilities to 21 and three,
respectively at December 31, 1996. In 1997, Kevco continued its expansion
strategy through the acquisitions of Consolidated Forest Products, L.L.C.
("Consolidated Forest") and Bowen Supply, Inc. ("Bowen") in February 1997 for an
aggregate purchase price of $34.3 million, the acquisition of Shelter Components
Corporation ("Shelter") in December 1997 for a purchase price of $144.8 million,
the acquisition in December 1997 of inventory and certain distribution rights of
certain building products distributed by Shepherd Products Company for a cash
purchase price of $6.0 million with future payment obligations as disclosed
herein and the opening of one new distribution facility and one new
manufacturing facility. The expansion in 1997 increased the number of Kevco's
distribution facilities and manufacturing facilities to 47 and 17, respectively,
at December 31, 1997. During 1998, the Company has been integrating Shelter into
Kevco by, among other things, consolidating certain corporate functions,
consolidating overlapping distribution warehouses from 47 to 27 and integrating
multiple Shelter and Kevco computer systems. Also in 1998, the Company opened
two new wood products manufacturing facilities.

         The integration of the Shelter distribution operations (including
integration of information systems), while maintaining high levels of customer
service, has resulted in increased costs which has negatively impacted gross
margins and selling, general and administrative expenses. The length and cost of
the integration process has exceeded anticipated amounts in part because of
unanticipated difficulties relating to the merging of Shelter's information and
accounting systems with those of the Company. Although management believes these
costs will diminish as the integration process is completed, they have prevented
the Company from thus far realizing the savings and other synergies originally
anticipated. The Company has also encountered longer start-up periods than
planned for the two new wood products facilities that were opened earlier in the
year.


                                       22
<PAGE>   23

         Management expects the consolidation of the operations of the companies
acquired in 1997 to result in substantial cost savings to the combined company
in the future. The Company intends to continue to seek to capitalize on the
significant common geographic presence of Kevco, Shelter and Bowen and shared
customer relationships to obtain market share and sales cost reductions. In
addition, the Company intends to continue to seek to obtain greater utilization
of its existing corporate administrative resources to reduce the combined
overhead expense. The Company also intends to continue to pursue opportunities
to achieve greater benefits over time through the combination of multiple
warehouse facilities into single, larger facilities in certain markets and the
achievement of economies of scale in purchasing materials and supplies as a
larger combined entity. There can be no assurance that the Company will be able
to successfully implement such cost savings measures, that the cost savings
discussed will be realized or that there will not be significant delays in
achieving such cost savings.

         The Company recognizes revenues from product sales at the time of
shipment (or the time of product receipt, in the case of direct shipments from
suppliers to customers). In some cases the Company sells on a commission basis.
Commissions are recognized when earned and represent amounts earned in selling,
warehousing and delivering products for certain manufacturers of building
products with which the Company has distribution agreements. Commission
arrangements do not require inventory investment or receivable financing, and
therefore are significantly less expensive to the Company than traditional
sales. To the extent the volume of items warehoused and shipped under commission
arrangements increases faster or slower than the volume of items related to
traditional sales, changes in net sales may not be representative of actual
shipment volume increases or decreases.

ACQUISITIONS

         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 June 27, 1997, prior to the acquisition of Shelter by
Kevco, Shelter acquired the net assets of Plastic Solutions, Inc., a
manufacturer of injection molded plastic parts.

         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.


                                       23
<PAGE>   24

         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. 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.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                    ---------------------------
                                                     1998       1997      1996
                                                    -----      -----      -----
<S>                                                 <C>        <C>        <C>   
Net sales .......................................   100.0%     100.0%     100.0%
Cost of sales ...................................    87.1       86.5       84.6
                                                    -----      -----      -----
     Gross profit ...............................    12.9       13.5       15.4
Commission income ...............................     0.9        1.5        2.1
                                                    -----      -----      -----
                                                     13.8       15.0       17.5
Selling, general and administrative expenses ....    11.1       11.0       11.3
                                                    -----      -----      -----
     Operating income ...........................     2.7        4.0        6.2
Other income ....................................     0.3         --         --
Interest expense ................................    (2.4)      (1.2)      (0.8)
                                                    -----      -----      -----
     Income before income taxes .................     0.6%       2.8%       5.4%
                                                    =====      =====      =====
</TABLE>

See note 13 to the consolidated financial statements for segment data.


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 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 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.


                                       24
<PAGE>   25

         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.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

         Net sales increased by $126.5 million, or 47.9%, to $390.7 million in
1997 from $264.2 million in 1996. The acquisitions of Shelter, Bowen and
Consolidated Forest (the "1997 Acquisitions") contributed approximately $140.0
million in sales in 1997. Net sales, without the effect of the 1997
Acquisitions, decreased from $264.2 million to $250.7 million, or 5.1%.
Management believes that such decrease is primarily attributable to the reported
manufactured housing shipment decline of 2.8% for 1997 compared to 1996
(approximately 353,400 homes reported shipped in 1997 compared to approximately
363,400 homes reported shipped in 1996) as well as a decline in lumber prices in
1997 compared to 1996.

         Gross profit increased by $11.9 million, or 29.2%, to $52.6 million in
1997 from $40.7 million in 1996 due primarily to the 1997 Acquisitions. Gross
profit, as a percent of net sales, decreased to 13.5% in 1997 from 15.4% in
1996. The decrease in gross profit, as a percent of net sales, was a result of
lower gross margins associated with the Consolidated Forest acquisition and
lower margin dollars earned from wood products as a whole due to declining
lumber prices throughout 1997 (such wood products represented approximately 20%
of net sales in 1997). To a lesser extent, gross margins from non-lumber related
business decreased primarily as a result of temporary price increases of a major
product line.

         Commission income increased by $0.4 million, or 7.2%, to $5.9 million
in 1997 from $5.5 million in 1996. The increase was primarily attributable to
Kevco's expansion in commission-based distribution arrangements in 1997.

         Selling, general and administrative expenses increased by $13.2
million, or 44.5%, to $42.9 million in 1997 from $29.7 million in 1996. The
increase was primarily due to increased sales volume related to the 1997
Acquisitions. Selling, general and administrative expenses, as a percent of net
sales, decreased to 11.0% for 1997 from 11.3% for 1996. The decrease reflected
Kevco's continued efforts in increasing efficiency.



                                       25
<PAGE>   26
  
         Net income decreased by $2.6 million, or 29.2%, to $6.3 million in 1997
from $8.9 million in 1996 on a pro forma basis giving effect to the Company's
conversion from an S corporation to a C corporation. The decrease in net income
was primarily attributable to (i) lower gross margins as discussed above, (ii)
increased interest expense in 1997 compared to 1996 principally due to
borrowings related to the 1997 Acquisitions and (iii) an increase in the
Company's effective tax rate to 42.0% in 1997 from 38.0% in 1996 resulting
primarily from the non-deductible goodwill recorded in connection with the 1997
Acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's growth has been financed through cash flow from
operations, borrowings under its bank credit facilities, proceeds from the
November 1996 initial public offering, proceeds from the issuance of $105
million of 10 3/8% senior subordinated notes due 2007 and the expansion of trade
credit. Net cash used by operating activities was approximately $9.1 million in
1998 and net cash provided by operating activities, $16.4 million and $12.2
million in 1997 and 1996, respectively. Kevco is obliged to make payments on
various capital 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. See Notes 2, 4 and 6 to
the consolidated financial statements.

         In connection with the acquisition of Shelter, the Company entered into
a second amended and restated credit agreement, which increased the aggregate
borrowings available under the amended credit agreement to $125.0 million
consisting of an $80.0 million term loan facility, requiring quarterly
installments, and a $45.0 million revolving credit facility. The revolving
credit facility and a portion of the term loan were (prior to the fourth amended
agreement described below) to mature in 2003 with the remaining term loan to
mature in 2004. See Note 6 to the consolidated financial statements.

         Borrowings under the term loan and revolving credit facility require
monthly, bi-monthly or quarterly interest payments (depending on whether
interest accrues based on prime rate or LIBOR) calculated as a blend of the
bank's prime rate and LIBOR based on pricing options selected by the Company
plus a margin determined by operating statistics of the Company. The term loan
and revolving credit facility are collateralized by substantially all of the
assets of the Company and its subsidiaries as well as the capital stock of such
subsidiaries. The related credit agreement contains certain restrictions and
conditions that include cash flow and various financial ratio requirements, and
limitations on incurrence of debt or liens, acquisitions of property and
equipment, distributions to stockholders and certain events constituting a
Change of Control (as defined in the credit agreement).

         In addition to the funds available under the amended credit agreement,
the Company issued $105 million of 10 3/8% senior subordinated notes due 2007
under the indenture dated as of December 1, 1997, as supplemented, (the
"Indenture") to complete the acquisition of the outstanding shares of Shelter.
The Indenture contains certain covenants that include, but are not limited to,
restrictions or limitations on the following: the incurrence of additional debt
or liens, the payment of dividends by the Company, the payment of dividends by
restricted subsidiaries to the Company, the sale of certain assets, the ability
to consolidate with or merge into another person, the entering into certain
transactions with affiliates and the engagement in certain lines of business.

         The Indenture and credit agreement generally prohibit the payment of
dividends by the Company on its common stock. 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.


                                       26
<PAGE>   27
     Primarily as a result of lower than anticipated net sales to customers and
higher than anticipated SG&A levels relating to the integration of Shelter
during 1998 (as well as the decrease in gross margins described above), the
Company did not generate sufficient cash flow from operations to fund its
working capital needs. As a result, the Company supplemented the funding of
operations through borrowings under its credit facility. At December 31, 1998,
the Company was in violation of its leverage ratio covenant and fixed charge
ratio covenant contained in Sections 7.10 and 7.11, respectively, of the
Company's second amended and restated credit agreement. 

     On December 23, 1998, the Company and Jerry E. Kimmel, the Company's
President, Chief Executive Officer, Chairman of the Board and principal
stockholder, entered into separate stock purchase agreements with Wingate
Partners, II, L.P. ("Wingate") pursuant to which Wingate agreed to purchase a
total of $40 million of common stock and warrants. Of that amount, $32 million
of common stock and a warrant would have been purchased from the Company and $8
million of common stock and a warrant would have been purchased from Mr. Kimmel.
The total purchase was to include both voting common shares and a new class of
non-voting common shares.

     The agreement between the Company and Wingate provided for the purchase of
4,413,793 newly issued shares of Kevco common stock from the Company at $7.25
per share and a warrant to purchase 882,759 additional newly issued shares of
common stock at $10.25 per share. The agreement between Mr. Kimmel and Wingate
provided for the purchase of 1,103,448 shares of Kevco common stock from Mr.
Kimmel, at $7.25 per share and a warrant to purchase 220,690 additional shares
of common stock from Mr. Kimmel at $10.25 per share. Following these
transactions, Wingate would have owned approximately 40% of the outstanding
shares of voting common stock, would own shares of a new class of non-voting
common stock and would own warrants to acquire additional shares of voting and
non-voting common stock.

     As a part of such transaction, Fred Hegi of Wingate would have become
Chairman of the Board, President and Chief Executive Officer of Kevco and Jerry
E. Kimmel would have assumed a new position of Vice Chairman of the Board and
would continue to own approximately 28% of Kevco's voting common stock. On
February 15, 1999, Wingate delivered a notice to the Company and Mr. Kimmel
stating that it was terminating such agreements. The Company is currently
discussing with Wingate the possibility of investing in the Company on other
terms. There can be no assurance that an agreement to invest can be reached on
terms acceptable to the Company and as a result, approximately $783,000 of fees
related to the Wingate transaction were included in SG&A in 1998.

     In February 1999, the Company entered into a third amendment and waiver to
its credit agreement, which provided for an incremental commitment of $5.0
million due March 31, 1999 and waived any event of default due to the Company's
violation of the leverage ratio covenant and the fixed charge coverage ratio
covenant of such credit agreement through March 31, 1999. In March 1999, the
Company requested and obtained an additional $5.0 million incremental commitment
and an extension of the maturity date on the aggregate $10 million incremental
commitment (the "Incremental Commitment") and waiver of any events of default to
April 15, 1999.

     In April 1999, the Company entered into a fourth amendment and waiver to
its credit agreement. This amendment contains revised financial covenants
effective for the quarter ended March 31, 1999 through June 30, 2000 and waived
certain events of default. Under this amendment, the Incremental Commitment
matures on June 30, 1999 and the revolving credit facility and term loan
facility mature on June 30, 2000. As of March 23, 1999, the Company had
approximately $31.0 million available under its credit facility and the
Incremental Commitment. The Company is also exploring strategic alternatives to
improve its liquidity, including equity or debt financing and selected
divestitures. Based on, among other things, its internal budgets and cash flow
projections, the Company believes it has sufficient cash to fund the Company's
planned obligations and debt service through 1999. No assurance can be made that
the Company would be able to access additional capital or that additional
capital would be available on terms acceptable to the Company.

YEAR 2000

         BACKGROUND. Many computer systems and equipment with embedded computer
chips in use today were designed and developed using two digits, rather than
four, to specify the year. As a result, such systems and equipment may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculation causing disruptions of operations.

         STATE OF READINESS. During 1998, the Company began its assessment of
Year 2000 issues and established a Year 2000 project plan with the Chief
Information Officer as the project leader and engaged third party consultants to
assist in the evaluation of systems and issues. The plan can be described in the
following phases:

         Phase I    --     identification and assessment of the Year 2000 issues
                           for the Company's various internal systems and
                           equipment;

         Phase II   --     remediation, including modification, upgrading and
                           replacement of hardware and software; and

         Phase III  --     testing to ensure Year 2000 compliance.



                                       27
<PAGE>   28



         The Company is applying all aspects of this plan, with the assistance
of third party consultants, to both its information technology ("IT") systems
and non-IT systems. The Company's computer equipment and software that is
considered an IT or business system includes systems used to manage customer
orders, inventory, manufacturing, accounting functions, and telecommunications.
Non-IT systems include manufacturing equipment, alarm systems, security devices,
HVAC units, fax machines, and other miscellaneous systems.

         The Company believes that it has identified and assessed the internal
business systems that are susceptible to system failures or processing errors as
a result of the Year 2000 issue. Those systems considered most critical to
continuing operations have received the highest priority. The Company has six
primary business systems that support operations. A majority of the remediation
efforts for these systems will consist of the Company performing an upgrade. Two
of these systems have been upgraded to Year 2000 compliant versions, thoroughly
tested using appropriate Year 2000 scenarios, and successfully placed into
production. The four remaining business systems are in the process of
remediation, and the scheduled date for completion of testing is August 1999.

         In addition to the remediation of the information systems, the Company
is currently addressing its non-IT systems. During 1998, an assessment of the
Company's manufacturing equipment was performed. The results of the assessment
revealed no date sensitive manufacturing equipment, thus decreasing the risk of
any Year 2000 related manufacturing problems. Currently, an assessment of other
miscellaneous non-IT equipment is being performed which is expected to be
completed, and, if necessary, remediated in July 1999.

         The following chart is for summary purposes only and is qualified in
its entirety by reference to the discussion above.

<TABLE>
<CAPTION>
================================================================================
           PROGRAM AREA                    STATE OF READINESS STATUS
================================================================================
<S>            <C>               <C>
INTERNAL IT    2 systems         Phase III Complete
               -----------------------------------------------------------------
               4 systems         Phase II and
                                 Phase III estimated to be completed August 1999
               -----------------------------------------------------------------
NON-IT         Manufacturing     Not Applicable -- Phase I revealed no date 
                                 sensitive equipment
               -----------------------------------------------------------------
               Other             Phase I and
                                 Phase II estimated to be completed July 1999
================================================================================
</TABLE>



                                       28
<PAGE>   29

         THIRD PARTIES. The Company is reviewing, and has initiated formal
communications with critical third parties that provide or purchase services or
goods that are essential to Kevco's operations. This is being done in order to
determine the extent to which the Company is vulnerable to any failure by such
third parties to remediate their respective Year 2000 problems, and to resolve
such problems to the extent practicable. In connection with this assessment, the
Company is reviewing all significant contractual and other obligations with
third parties to ensure compliance in the event of a Year 2000 problem. The
assessment of these business partners will be ongoing, but all significant third
party communications and the related risk assessments are expected to be
completed by July 1999. The uncertainty associated with third party readiness,
however, cannot be eliminated as the accuracy and availability of third party
representations is not within the Company's control. In the event that the
Company is unable to obtain satisfactory assurance that a critical third party
provider/customer has successfully and timely achieved Year 2000 compliance, and
the Company is unable to replace such a provider/customer with an alternative
provider/customer, the Company's operations could be materially adversely
impacted. Currently, there is no known contractual liability to any third party
if all or a portion of the Company's IT or non-IT systems are not Year 2000
compliant.

         COSTS. The Company currently estimates that its total Year 2000 project
cost will be approximately $0.6 million. Through December 31, 1998, the Company
has expended approximately $0.2 million. The Company has funded, and expects to
continue to fund, the expenditures related to its Year 2000 initiatives either
through cash generated from operations and current working capital, or if
required, its existing revolving credit facilities.

         RISKS. Based on the progress it has made in addressing its Year 2000
issues and its plan and timetable to complete its compliance program, the
Company does not currently foresee significant risks associated with its Year
2000 issues. However, management believes that it is not possible to determine
with complete certainty that all Year 2000 problems affecting the Company have
been identified or will be corrected. Likewise, because of its constant progress
in addressing the various Year 2000 issues, the Company has not yet determined
the most likely worst case scenario relating to Year 2000 problems.
Nevertheless, management expects that the Company could likely suffer the
following consequences: (1) a significant number of operational inconveniences
and inefficiencies for the Company and its customers that could divert
management's time and attention and financial and human resources from its
ordinary business activities; and (2) a lesser number of serious system and/or
operational failures that may require significant efforts by the Company to
prevent or alleviate material business disruptions.

         CONTINGENCY PLANNING. The Company has not yet completed a comprehensive
contingency plan with respect to the Year 2000 issue, but intends to have a plan
developed by August 1999. The contingency planning process is an ongoing one
which will require further modifications as the Company obtains additional
information regarding the Company's progress on the remediation phases of its IT
and non-IT systems, and on the status of third party Year 2000 readiness. The
Company's core business processes, as currently managed by the IT systems, can,
if necessary, operate for a limited time period on a manual, non-computerized
basis. If the Company is required to implement any of these contingency plans,
the implementation could have an adverse effect on the Company's financial
condition and results of operations.

ASSET MANAGEMENT

         The Company actively manages its assets and liabilities. For the year
ended December 31, 1998, days sales in average receivables was approximately 21
days, days sales in average inventory was approximately 44 days and days sales
in average payables was approximately 27 days.


                                       29
<PAGE>   30

                                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, 1998
      Net sales .......................    $ 212,051    $ 231,967    $ 234,625    $ 218,807
      Gross margin ....................       28,943       31,951       30,144       25,073
      Income before income taxes ......        3,861        5,691        1,044       (5,597)
      Net income ......................        2,128        3,187          513       (3,961)
      Earnings per share - basic ......         0.31         0.47         0.07        (0.58)
      Earnings per share - diluted ....         0.31         0.46         0.07        (0.58)

Year ended December 31, 1997 (1)
      Net sales .......................    $  71,461    $ 100,384    $  97,667    $ 121,150
      Gross margin ....................       10,123       13,871       12,825       15,798
      Income before income taxes ......        3,193        4,434        2,513          702
      Net income ......................        1,916        2,661        1,507          204
      Earnings per share - basic ......         0.28         0.39         0.22         0.03
      Earnings per share - diluted ....         0.27         0.39         0.22         0.03
</TABLE>


(1)  The Company acquired Shepherd Products Company on December 12, 1997,
     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."

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements and supplementary data required by this item
are included herein on pages F-1 through F-21.

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

         There were no changes in or disagreements with accountants on
accounting and financial disclosure during the years ended December 31, 1998 and
1997.


                                       30
<PAGE>   31



                                    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 1999 (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.



                                       31
<PAGE>   32



                                     PART IV

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

         (a) 1.     INDEX TO FINANCIAL STATEMENTS.

         The following Financial Statements are included herein:

         Report of Independent Accountants ................................ F-1

         Consolidated Balance Sheets of December 31, 1998 and 1997 ........ F-2

         Consolidated Statements of Income for the Years Ended
         December 31, 1998, 1997 and 1996 ................................. F-3

         Consolidated Statements of Stockholders' Equity
         for the Years Ended December 31, 1998, 1997 and 1996 ............. F-4

         Consolidated Statements of Cash Flows for the Years Ended
         December 31, 1998, 1997 and 1996 ................................. F-5

         Notes to Consolidated Statements ................................. F-7

         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 "Exhibits"
         at subsection (c) of this Item.

         (b)      REPORTS OF FORM 8-K:

         The Company filed a Current Report on Form 8-K dated December 23, 1998,
         announcing the entering of a stock purchase agreement with Wingate
         Partners II, L.P. ("Wingate") and the entering of a stock purchase
         agreement between Wingate and Jerry E. Kimmel.



                                       32
<PAGE>   33


EXHIBIT
NUMBER            DESCRIPTION OF EXHIBITS
-------           -----------------------

2.1      Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and
         Service Supply Systems, Inc., joined by a wholly-owned subsidiary of
         Kevco, Inc.(1)

2.2      Form of Plan and Agreement of Merger between Kevco Texas, Inc. and
         Kevco Delaware, Inc.(1)

2.3      Form of Bill of Sale and General Assignment from Kevco Delaware, Inc.,
         as Assignor, to Sunbelt Wood Components, Inc., as Assignee.(1)

2.4      Form of Assumption Agreement between Kevco Delaware, Inc. and Sunbelt
         Wood Components, Inc.(1)

2.5      Asset Purchase Agreement by and among Consolidated Forest Products,
         Inc., Consolidated Forest Products, L.L.C. and the members of
         Consolidated Forest Products, L.L.C.(2)

2.6      Stock Purchase Agreement by and among Kevco Delaware, Inc. and the
         shareholders of Bowen Supply, Inc.(2)

2.7      Agreement and Plan of Merger, dated as of October 21, 1997, between
         Kevco, Inc., SCC Acquisition Corp. and Shelter Components
         Corporation.(6)

2.8      Stock Purchase Agreement dated as of December 23, 1998 between Wingate
         Partners II, L.P. and the Company.(11)(8)

2.9      Stock Purchase Agreement dated as of December 23, 1998 among Wingate
         Partners II, L.P., Jerry E. Kimmel, and the Company.(11)(8)

2.10     Letter, dated February 15, 1999, to Kevco, Inc. from Wingate Partners
         II, L.P.(13)

2.11     Letter, dated February 15, 1999, to Jerry E. Kimmel from Wingate
         Partners II, L.P.(13)

3.1      Articles of Incorporation of Kevco, Inc., as amended.(1)

3.2      Bylaws of Kevco, Inc.(1)



                                       33
<PAGE>   34


4.1      Form of certificate evidencing ownership of the Common Stock of Kevco,
         Inc.(1)

10.1     Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995
         Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(1)*

10.2     1996 Stock Option Plan of Kevco, Inc., as amended, and Supplementary
         Letter.(1)*

10.3     Form of Amended and Restated Employment Agreement between Gerald E.
         Kimmel and Kevco, Inc., joined therein by Kevco Delaware, Inc. and
         Sunbelt Wood Components, Inc.(1)*

10.4     Employment Agreement between C. Lee Denham and Kevco, Inc. dated June
         30, 1995.(1)*

10.5     Lease between K & E Land & Leasing and Kevco, Inc. dated December 1,
         1977.(1)

10.6     Amendment No. 1 to Lease, by and between K & E Land & Leasing and
         Kevco, Inc. dated March    , 1982.(1)
                                 ---


                                       34
<PAGE>   35

10.7     Amendment No. 2 to Lease, by and between K & E Land & Leasing and
         Kevco, Inc. dated May 30, 1983.(1)

10.8     Amendment No. 3 to Lease, by and between K & E Land & Leasing and
         Kevco, Inc. dated February 1, 1993.(1)

10.9     Lease dated April 1, 1980 between City of Newton, Kansas and K & E Land
         & Leasing.(1)

10.10    Sublease and Lease Guarantee Agreement dated April 1, 1980 between K &
         E Land & Leasing and Kevco, Inc.(1)

10.11    Amendment No. 1 to Sublease and Lease Guaranty Agreement by and between
         K & E Land & Leasing and Kevco, Inc. dated May 30, 1983.(1)

10.12    Lease Agreement dated October 12, 1987 between 1741 Conant Partnership
         & Kevco Inc.(1)

10.13    Equipment Lease Agreement dated January 1, 1991 between K & E Land &
         Leasing and Kevco, Inc.(1)

10.14    Amendment No. 1 to Equipment Lease Agreement between K & E Land &
         Leasing and Kevco, Inc. dated February 12, 1993.(1)

10.15    Amendment No. 2 to Equipment Lease Agreement between K & E Land &
         Leasing and Kevco, Inc. dated October 26, 1993.(1)

10.16    Amendment No. 3 to Equipment Lease Agreement between K & E Land &
         Leasing and Kevco, Inc. dated May 23, 1994.(1)

10.17    Deferred Compensation Agreement between Kevco, Inc. and Clyde A. Reed,
         Jr. dated May 24, 1977.(1)*

10.18    Amendment No. 1 to Deferred Compensation Agreement dated May ,
         1980.(1)*

10.19    Amendment No. 2 to Deferred Compensation Agreement dated March 10,
         1992.(1)*

10.20    Amended and Restated Health and Accident Plan of Kevco, Inc.(1)*

10.21    Investment and Tax Advice Plan of Kevco, Inc.(1)*

10.22    Credit Agreement among Kevco, Inc., certain Lenders and NationsBank of
         Texas, N.A., as Administrative Lender dated June 30, 1995.(1)

10.23    First Amendment to Credit Agreement, dated as of September 1, 1995,
         among Kevco, Inc., the banks listed on the signature pages thereof, and
         NationsBank of Texas, N.A.(1)

10.24    Second Amendment to Credit Agreement, dated as of November 29, 1995,
         among Kevco, Inc., the banks listed on the signature pages thereof, and
         NationsBank of Texas, N.A.(1)

10.25    Revolving Credit Note of Kevco, Inc. to NationsBank of Texas, N.A.
         dated September 1, 1995 in the amount of $14,285,714.28.(1)



                                       35
<PAGE>   36

10.26    Term Loan Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
         September 1, 1995 in the amount of $10,714,285.72.(1)

10.27    Revolving Credit Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
         February 2, 1996 in the amount of $5,714,285.72.(1)

10.28    Term Loan Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated February
         2, 1996 in the amount of $4,285,714.28.(1)

10.29    PaineWebber Standardized 401(K) Profit-Sharing Adoption Agreement (No.
         005) (To be used with Basic Plan Document No. 03 Only) for Kevco, Inc.
         dated May 24, 1996 and PaineWebber Defined Contribution Plan.(1)

10.30    Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October 26,
         1993 in the amount of $5,000,000.(1)

10.31    Amendment No. 4 to Lease dated December 1, 1977 by and between K&E Land
         & Leasing and Kevco, Inc. dated October 26, 1993.(1)

10.32    Assignment and Acceptance dated February 2, 1996 between The Daiwa
         Bank, Limited and The Sumitomo Bank, Ltd., Chicago Branch.(1)

10.33    Form of Tax Indemnification and Distribution Agreement.(1)

10.34    Form of Promissory Note made by Kevco Texas, Inc. in the amount of
         $3,733,000 (the Prior S Corporation Earnings Note).(1)

10.35    Form of Promissory Note made by Kevco Texas, Inc. (the Future S
         Corporation Earnings Note).(1)

10.36    Form of Assignment of $5,000,000 Note made by Kevco, Inc. (n/k/a Kevco
         Delaware, Inc.).(1)

10.37    Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc. (re:
         1995 Stock Option Plan and 1996 Stock Option Plan).(1)

10.38    Amendment No. 1 dated September 21, 1988, to Lease Agreement by 1741
         Conant Partnership as lessor and Kevco, Inc. (n/k/a Kevco Delaware,
         Inc.).(1)

10.39    Letter Agreement dated June 22, 1982, between Kevco, Inc. (n/k/a Kevco
         Delaware, Inc.) and K&E Land & Leasing. (re: lease rentals).(1)

10.40    Letter Agreement dated October 1, 1996 by Kevco, Inc., K&E Land &
         Leasing, and 1741 Conant Partnership (re: lease rental).(1)

10.41    Form of Parent Pledge Agreement.(1)

10.42    Consent and Waiver, dated as of October 21, 1996, by and among
         NationsBank of Texas, N.A., The Sumitomo Bank, Ltd. and Kevco Texas,
         Inc.(1)

10.43    Amended and Restated Credit Agreement, dated as of February 27, 1997,
         by and among Kevco Delaware, Inc., certain lenders and NationsBank of
         Texas, N.A.(4)


                                       36
<PAGE>   37

10.44    Amendment No. 1 to Amended and Restated 1995 Stock Option Plan of
         Kevco, Inc. (10)

10.45    Senior Commitment Letter dated October 27, 1997 from NationsBank of
         Texas, N.A. and NationsBanc Montgomery Securities, Inc.(6)

10.46    First Amendment to Amended and Restated Credit Agreement dated as of
         November 25, 1997 between Kevco Delaware, Inc., certain lenders and
         NationsBank of Texas, N.A.(7)

10.47    Second Amended and Restated Credit Agreement dated December 1, 1997
         between Kevco, Inc., certain lenders and NationsBank of Texas,
         N.A.(7)(8)

10.48    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.(7)

10.49    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.(7)

10.50    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.(7)

10.51    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.(7)

10.52    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.(7)

10.53    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.(7)

10.54    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.(7)

10.55    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.(7)

10.56    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.(7)

10.57    Security Agreement dated December 1, 1997 between Kevco, Inc. and
         NationsBank of Texas, N.A. as Administrative Agent.(7)

10.58    Registration Rights Agreement dated December 1, 1997 by and among
         Kevco, Inc., as Issuer, the Subsidiaries of Kevco, Inc. identified
         therein as Subsidiary Guarantors and Donaldson, Lufkin & Jenrette
         Securities Corporation and NationsBanc Montgomery Securities, Inc., as
         Initial Purchasers.(9)

10.59    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.(9)



                                       37
<PAGE>   38
10.60    Supplemental Indenture between Shelter Components Corporation, a
         Subsidiary of Kevco, Inc., and United States Trust Company of New York,
         as Trustee.(9)

10.61    Supplemental Indenture dated as of December 1, 1997 between Shelter
         Distribution, L.P., a Subsidiary of Kevco, Inc., and United States
         Trust Company of New York, as Trustee.(9)

10.62    Supplemental Indenture dated as of December 1, 1997 between DCM, Inc.,
         a Subsidiary of Kevco, Inc., and United States Trust Company of New
         York, as Trustee.(9)

10.63    Supplemental Indenture dated as of December 1, 1997 between Duo-Form of
         Michigan, Inc., a Subsidiary of Kevco, Inc., and United States Trust
         Company of New York, as Trustee.(9)

10.64    Supplemental Indenture dated as of December 1, 1997 between Design
         Components, Inc., a Subsidiary of Kevco, Inc., and United States Trust
         Company of New York, as Trustee.(9)

10.65    Supplemental Indenture dated as of December 1, 1997 between Shelter
         Components of Indiana, Inc., a Subsidiary of Kevco, Inc., and United
         States Trust Company of New York, as Trustee.(9)

10.66    Supplemental Indenture dated as of December 1, 1997 between BPR
         Holdings, Inc., a Subsidiary of Kevco, Inc., and United States Trust
         Company of New York, as Trustee.(9)

10.67    First Amendment to Credit Agreement dated February 12, 1998 between
         Kevco, Inc., certain lenders and NationsBank of Texas, N.A.(10)

10.68    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.(12)

10.69    Second Amendment to Credit Agreement, dated as of October 27, 1998 (but
         effective as of September 30, 1998), entered into and among Kevco,
         Inc., a Texas corporation, the banks listed on the signature pages
         (collectively, the "Lenders"), and NationsBank, N.A. (successor by
         merger to NationsBank of Texas, N.A.), as the Administrative Agent.(13)

10.70    Waiver entered into as of the 30th day of December 1998, by and among
         the banks listed on the signature pages (the "Lenders"), Kevco, Inc., a
         Texas corporation (the "Borrower"), and NationsBank, N.A. (successor by
         merger to NationsBank of Texas, N.A.), as Administrative Agent for the
         Lenders to the extent and in the manner provided for in the Credit
         Agreement.(13)

10.71    Second Waiver entered into as of the 15th day of February, 1999, by and
         among the banks listed on the signature pages (the "Lenders"), Kevco,
         Inc.,a Texas corporation (the "Borrower"), and NationsBank, N.A.
         (successor by merger to NationsBank of Texas, N.A.), as Administrative
         Agent for the Lenders to the extent and in the manner provided for in
         the Credit Agreement. (13) 

10.72    Third Amendment and Waiver entered into as of the 25th day of February,
         1999, by and among the banks listed on the signature pages (the
         "Lenders"), Kevco, Inc., a Texas corporation, and NationsBank, N.A.
         (successor by merger to NationsBank of Texas, N.A.), as Administrative
         Agent for the Lenders to the extent and in the manner provided for in
         the Credit Agreement.(13)

10.73    Letter agreement waiver extension, dated March 22, 1999, between
         Kevco, Inc., NationsBank, N.A., as Administrative Agent and Lender, 
         and the other parties thereto.(13)

21.1     Subsidiaries.(13)

23.1     Consent of PricewaterhouseCoopers LLP.(13)

24.1     Power of Attorney.(contained on the signature page of this Annual
         Report on Form 10-K)



                                       38
<PAGE>   39

27.1     Financial Data Schedule.(13)

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

(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 registration statement
         on Form S-8 (No. 333-19959), and incorporated herein by reference.

(4)      Previously filed as an exhibit to the Company's Quarterly Report on
         Form 10-Q, for the quarter ended March 31, 1997 and incorporated herein
         by reference.

(5)      Previously filed as an exhibit to the Company's Quarterly Report on
         Form 10-Q, for the quarter ended June 30, 1997 and incorporated herein
         by reference.

(6)      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.

(7)      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.

(8)      Schedules and similar attachments to this exhibit have not been
         previously file 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 Securities and
         Exchange Commission upon request.

(9)      Previously filed as an exhibit to the Company's registration statement
         on Form S-4 (No. 333-43691), and incorporated herein by reference.

(10)     Previously filed as an exhibit to the Company's Annual Report on Form
         10-K, for the year ended December 31, 1998 and incorporated herein by
         reference.

(11)     Previously filed as an exhibit to the Company's Current Report on Form
         8-K dated December 23, 1998, and incorporated herein by reference.

(12)     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.

(13)     Filed herewith. 

*        Management contract or compensatory plan or arrangement.


                                       39
<PAGE>   40


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders and Board of Directors
Kevco, Inc.
Fort Worth, Texas

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Kevco, Inc. at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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.


/s/ PricewaterhouseCoopers LLP


Fort Worth, Texas
April 12, 1999



                                      F-1
<PAGE>   41


                                   KEVCO, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                        1998       1997
                                                                      --------    --------
<S>                                                                   <C>         <C>     
                       ASSETS
Current assets:
  Cash and cash equivalents ......................................    $    799    $    271
  Trade accounts receivable, less allowance for
        doubtful accounts of $740 and $641 in
        1998 and 1997, respectively ..............................      51,367      41,006
  Inventories, less reserve for obsolete inventory of $2,781
        and $2,692 in 1998 and 1997, respectively ................      95,999      83,540
  Assets held for sale ...........................................       1,065       3,032
  Other current assets ...........................................       8,458       4,981
                                                                      --------    --------
       Total current assets ......................................     157,688     132,830
Property and equipment, net ......................................      44,994      42,442
Intangible assets, net ...........................................     119,590     120,190
Deferred income taxes ............................................       2,778       4,339
Other assets .....................................................       6,785       8,393
                                                                      --------    --------
        Total assets .............................................    $331,835    $308,194
                                                                      ========    ========

          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt ..............................    $  7,209    $  2,932
  Trade accounts payable .........................................      61,569      47,007
  Accrued liabilities ............................................      15,533      24,496
  Other current liabilities ......................................         243         950
                                                                      --------    --------
       Total current liabilities .................................      84,554      75,385
Long-term debt, less current portion .............................     203,370     191,288
Deferred compensation obligation .................................       1,024         874
                                                                      --------    --------
       Total liabilities .........................................     288,948     267,547
                                                                      --------    --------

Commitments and contingencies (Note 9)

Stockholders' equity:
  Common stock, $.01  par value; 100,000 shares authorized;
        6,853 and 6,828 shares issued and outstanding in
        1998 and 1997, respectively ..............................          69          68
  Additional paid-in capital .....................................      33,392      33,020
  Retained earnings ..............................................       9,426       7,559
                                                                      --------    --------
       Total stockholders' equity ................................      42,887      40,647
                                                                      --------    --------
       Total liabilities and stockholders' equity ................    $331,835    $308,194
                                                                      ========    ========
</TABLE>

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


                                      F-2
<PAGE>   42

                                   KEVCO, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                        --------------------------------
                                                          1998        1997       1996
                                                        --------    --------    --------
<S>                                                      <C>         <C>         <C>    
Net sales ..........................................    $897,450    $390,662    $264,210
Cost of sales ......................................     781,339     338,045     223,519
                                                        --------    --------    --------
     Gross profit ..................................     116,111      52,617      40,691
Commission income ..................................       7,397       5,914       5,497
                                                        --------    --------    --------
                                                         123,508      58,531      46,188
Selling, general and administrative expenses .......      99,943      42,922      29,723
                                                        --------    --------    --------
     Operating income ..............................      23,565      15,609      16,465
Other income .......................................       2,577          --          --
Interest expense, net ..............................      21,143       4,767       2,058
                                                        --------    --------    --------
     Income before income taxes ....................       4,999      10,842      14,407
Income taxes .......................................       3,132       4,554       1,695
                                                        --------    --------    --------
     Net income ....................................    $  1,867    $  6,288    $ 12,712
                                                        ========    ========    ========

Earnings per share - basic .........................    $   0.27    $   0.92
                                                        ========    ========
Earnings per share - diluted .......................    $   0.27    $   0.90
                                                        ========    ========
Weighted average shares outstanding - basic ........       6,845       6,815
                                                        ========    ========
Weighted average shares outstanding - diluted ......       6,865       6,959
                                                        ========    ========

PRO FORMA INFORMATION (UNAUDITED)
  Historical income before income taxes ............                            $ 14,407
  Income tax expense adjustments ...................                               5,475
                                                                                --------
  Pro forma net income .............................                            $  8,932
                                                                                ========
  Pro forma earnings per share - basic .............                            $   1.64
                                                                                ========
  Pro forma earnings per share - diluted ...........                            $   1.61
                                                                                ========
  Weighted average shares outstanding - basic ......                               5,430
                                                                                ========
  Weighted average shares outstanding - diluted ....                               5,531
                                                                                ========
</TABLE>

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



                                      F-3
<PAGE>   43


                                   KEVCO, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                         Common Stock         Treasury Stock       Additional
                                     --------------------     -------------------    Paid-in     Loan to     Retained
                                      Shares      Amount      Shares      Amount     Capital    Stockholder  Earnings    Total
                                     --------    --------    --------    --------    --------    --------    --------   --------
<S>                                  <C>      <C>              <C>    <C>         <C>         <C>         <C>        <C>     
Balance at December 31, 1995 .....      4,700    $     47         306    $   (748)   $  3,034    $ (3,437)   $ 10,660   $  9,556
Net income .......................         --          --          --          --          --          --      12,712     12,712
Distribution to stockholders .....         --          --          --          --          --          --     (14,407)   (14,407)
Collections from stockholder .....         --          --          --          --          --         375          --        375
Distribution of loan to
      stockholders ...............         --          --          --          --          --       3,062      (3,062)        --
Contributed capital ..............         --          --          --          --          86          --          --         86
Retirement of treasury stock .....       (306)         (3)       (306)        748        (745)         --          --         --

Contribution of S corporation
      retained earnings with
      changes to C corporation
      status .....................         --          --          --          --       4,632          --      (4,632)        --
Issuance of stock ................      2,415          24          --          --      25,847          --          --     25,871
                                     --------    --------    --------    --------    --------    --------    --------   --------

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 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
                                     ========    ========    ========    ========    ========    ========    ========   ========
</TABLE>


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



                                      F-4
<PAGE>   44



                                   KEVCO, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                                    -----------------------------------
                                                                       1998        1997         1996
                                                                    ---------    ---------    ---------
<S>                                                                 <C>          <C>          <C>      
Cash flows from operating activities:
     Net income .................................................   $   1,867    $   6,288    $  12,712
     Adjustments to reconcile net income to net
        cash (used) provided by operating activities:
          Depreciation and amortization .........................       8,928        3,315        1,792
          Loss (gain) on sale of assets .........................           9           (9)         (10)
          Deferred compensation obligation ......................         150           60           22
          Deferred income taxes .................................       2,980          452          797
     Changes in assets and liabilities, net of effects from
          acquisitions
          Trade receivables, net ................................      (9,452)       8,998        5,311
          Inventories, net ......................................     (13,193)      (7,464)      (4,521)
          Other current assets ..................................      (3,445)      (2,881)         767
          Trade accounts payable ................................      14,562        9,635       (4,592)
          Accrued liabilities ...................................     (11,524)      (2,023)        (124)
                                                                    ---------    ---------    ---------
          Net cash (used) provided by operating activities ......     ( 9,118)      16,371       12,154
                                                                              
Cash flows from investing activities:
     Acquisitions of businesses, net of cash acquired ...........          --     (161,000)          --
     Purchase of equipment, proceeds of assets held for sale.....     (10,973)      (3,577)      (1,586)
     Insurance proceeds .........................................         500           --           --
     Proceeds from assets held for sale .........................       3,000           --           --
     Proceeds from sale of assets ...............................         759          832           21
     (Increase) decrease in other assets ........................        (236)          32           19
                                                                    ---------    ---------    ---------
          Net cash used by investing activities .................      (6,950)    (163,713)      (1,546)

Cash flows from financing activities:
     Net proceeds from initial public offering ..................          --           --       25,871
     Proceeds (payments) on line of credit, net .................       9,725        2,675       (6,500)
     Payments of long-term debt .................................      (3,366)      (1,062)     (14,932)
     Proceeds from long-term debt ...............................      10,000      175,000           --
     Payment of acquired debt ...................................          --      (24,592)          --
     Payment for loan origination fees ..........................         (44)      (6,637)          --
     Exercise of stock options ..................................         281          151           --
     Distributions paid .........................................          --           --      (14,407)
     Capital contributions ......................................          --           --           86
     Collections on loan to stockholder .........................          --           --          375
                                                                    ---------    ---------    ---------
          Net cash provided (used) by financing activities ......      16,596      145,535       (9,507)
                                                                    ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents ............         528       (1,807)       1,101
Beginning cash and cash equivalents .............................         271        2,078          977
                                                                    ---------    ---------    ---------
Ending cash and cash equivalents ................................   $     799    $     271    $   2,078
                                                                    =========    =========    =========
</TABLE>

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


                                      F-5
<PAGE>   45



                                   KEVCO, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                                     ------------------------------
                                                                       1998       1997       1996
                                                                     --------   --------   --------
<S>                                                                  <C>        <C>        <C>     
SUPPLEMENTAL DATA:
     Cash paid for interest (none capitalized) ...................   $ 19,920   $  2,727   $  2,162
     Cash paid for income taxes ..................................   $  3,786   $  6,262   $    456
NONCASH INVESTING AND FINANCING ACTIVITIES:
     Distribution of loan to stockholder .........................         --         --   $  3,062
     Noncompete obligations ......................................         --   $    492         --
     Assets destroyed in fire ....................................   $  1,409         --         --
     Changes in estimated fair value of assets acquired and 
      liabilities assumed ........................................   $  2,633         --         --
     Transfer of buildings to assets held for sale ...............   $  1,065         --         --
     Acquisitions:
          Fair value of assets acquired ..........................         --   $255,600         --
          Cash paid ..............................................         --    168,700         -- 
                                                                     --------   --------   --------
                Liabilities assumed ..............................         --   $ 86,900         --
                                                                     ========   ========   ========
</TABLE>

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



                                      F-6
<PAGE>   46

                                   KEVCO, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF OPERATIONS

         Kevco, Inc. manufactures and distributes products and materials
         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 (the "Company"). All
         significant intercompany transactions and accounts have been
         eliminated. 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 original maturities of three months or less. The carrying value of
         cash and cash equivalents approximates fair value as of December 31,
         1998 and 1997.

         INVENTORIES

         Inventories are stated at the lower of cost or market. Inventories
         purchased for resale and manufactured inventories are valued using the
         first-in, first-out (FIFO) method. The net carrying value of 
         inventories approximates fair value as of December 31, 1998 and 1997.

         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. The carrying value of
         property and equipment approximates fair value as of December 31, 1998
         and 1997.

         ASSETS HELD FOR SALE

         Assets held for sale consist of certain net assets to be sold as part
         of the acquisition of Shelter Components Corporation.


                                      F-7
<PAGE>   47

         INTANGIBLE ASSETS

         Intangible assets are comprised of noncompete agreements and goodwill.
         Noncompete agreements are amortized on a straight-line basis over the
         terms of the related agreements. The excess of acquisition cost of
         acquired businesses over the fair value of net assets acquired
         ("goodwill") is amortized, using the straight-line method, over 40
         years. The Company reviews goodwill to assess recoverability
         periodically. At each balance sheet date, management assesses whether
         there has been a permanent impairment in the value of goodwill by
         considering factors such as expected future operating income, current
         operating results, and other economic factors. Management believes no
         impairment has occurred.

         LOAN ORIGINATION COSTS

         Loan origination costs, included in other assets, associated with the
         acquisition of the Company's senior credit facility and senior
         subordinated notes have been capitalized and are being amortized over
         the term of the related debt.

         DEFERRED COMPENSATION OBLIGATION

         The Company has entered into deferred compensation agreements with
         certain employees, whereby payments will be made upon death or
         retirement for a ten year period and such liability has been recorded
         at the present value of the anticipated future payments.

         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.

         INCOME TAXES

         Income taxes are provided based on earnings reported for tax return
         purposes in addition to a provision for deferred income taxes in
         accordance with Financial Accounting Standards Board ("FASB") Statement
         of Financial Accounting Standards No. 109, "Accounting for Income
         Taxes." The provision for income taxes includes deferred taxes
         determined by the change in the deferred tax liability or asset which
         is computed based on the differences between the financial statement
         and income tax bases of assets and liabilities, all of which are
         measured by applying enacted tax laws and rates. Deferred tax expense
         is the result of changes in the deferred tax liability or asset,
         adjusted for the effect of any acquisitions.

         INTEREST RATE HEDGE

         The Company entered into an interest rate hedge agreement in
         conjunction with its primary credit facility to alter interest rate
         exposure on both the revolver and the term debt. Amounts expected to be
         paid or received on the interest rate hedge are recognized as
         adjustments to interest expense over the term of the agreement. Any
         gain or loss from the termination of this hedge agreement will be
         recognized at that time.


                                      F-8
<PAGE>   48

         CONCENTRATION OF CREDIT RISK

         The Company's sales are 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 two customers representing approximately 15% and 12%
         respectively in 1998 and 14% each in 1997.

         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 their cash in bank deposit accounts, which, at
         times, may exceed federally insured limits. The Company has not
         experienced any losses in such accounts and believes they are not
         exposed to any significant credit risk on cash and cash equivalents.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles 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.

         STOCK SPLIT

         On August 29, 1996, the Company effected a .47-for-1 reverse stock
         split of its common stock. All share and per share amounts included in
         the accompanying financial statements and notes have been restated to
         reflect the stock split.

         UNAUDITED PRO FORMA NET INCOME

         Pro forma net income represents the results of operations adjusted to
         reflect a provision for income tax on historical income before income
         taxes, which gives effect to the change in the Company's income tax
         status to a C corporation prior to the consummation of the Company's
         initial public offering. The difference between the pro forma income
         tax rates utilized and the federal statutory rate of 35% relates
         primarily to state income taxes (5%, less effect of federal tax
         benefit).

         EARNINGS PER SHARE

         Earnings per share is calculated for all periods shown in accordance
         with  FASB Statement of Financial Accounting Standards No. 128 Earnings
         per Share, which requires dual presentation of basic and diluted 
         earnings per share and a reconciliation between the two amounts. Basic
         earnings per share excludes dilution, and diluted earnings per share 
         reflects the potential dilution that could occur if securities or 
         other contracts to issue common stock were exercised and converted 
         into common stock. 



                                      F-9
<PAGE>   49

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

<TABLE>
<CAPTION>
                                            1998   1997    1996
                                           -----   -----   -----
                                               (in thousands)
<S>                                        <C>     <C>     <C>  
Weighted average shares - basic ........   6,845   6,815   5,430
Plus shares applicable to stock
  option plans .........................      20     144     101
                                           -----   -----   -----
Weighted average shares - diluted ......   6,865   6,959   5,531
                                           =====   =====   =====
</TABLE>


         Historical earnings per share for 1996 is not presented because it is
         not indicative of the ongoing entity. Pro forma earnings per share has
         been computed by dividing pro forma net income by the weighted average
         number of shares of common stock outstanding during the period. Pro
         forma earnings per share data has been presented to reflect the effect
         of the assumed issuance of that number of shares of common stock that
         would generate sufficient cash to pay an S corporation distribution in
         an amount equal to previously taxed but undistributed earnings at
         December 31, 1996.

         Software Development Costs

         Internal and external costs incurred for the development of computer
         applications, as well as for upgrades and enhancements that result in
         additional functionality of the applications, are capitalized. Internal
         and external training and maintenance costs are charged to expense as
         incurred. When an application is placed in service, the Company begins
         amortizing the related capitalized software costs using the
         straight-line method and an estimated useful life varying from three to
         five years. The costs of identifying, correcting, reprogramming and
         testing of computer systems for Year 2000 compliance are expensed as
         incurred.

         Start-Up Costs
         
         Start-up costs consist of salaries, personnel training cost and other
         expenses of opening new facilities and are expensed as incurred.

         Recent Accounting Pronouncements

         In February 1998, the FASB issued Statement of Financial Accounting
         Standards No. 132 "Employers' Disclosures about Pensions and Other
         Postretirement Benefits - an amendment of FASB Statements Number 87,
         88, and 106" ("FAS 132") that is effective for reporting periods
         beginning after December 15, 1997. The required disclosures have been
         made and adoption of FAS 132 had no effect on the Company's
         consolidated financial position or results of operations in 1998.

         In March 1998, the Accounting Standards Executive Committee of the
         American Institute of Certified Public Accountants ("AcSEC") issued
         Statement of Position 98-1 "Accounting for the Costs of Computer
         Software Developed or Obtained for Internal Use" ("SOP 98-1") that is
         effective for reporting periods beginning after December 15, 1998, but
         provides for earlier application if certain conditions are met. The
         Company has applied the provisions of SOP 98-1 in its financial
         statements for the year ended December 31, 1998 and its adoption had no
         material effect on the Company's consolidated financial position or
         results of operations.

         In April 1998, the AcSEC issued Statement of Position 98-5 "Reporting
         on the Costs of Start-Up Activities" ("SOP 98-5") that is effective for
         reporting periods beginning after December 15, 1998. The Company has
         applied the provisions of SOP 98-5 in its financial statements for the
         year ended December 31, 1998 and its adoption had no material effect on
         the Company's financial position or results of operations.


                                      F-10
<PAGE>   50
         In June 1998, the FASB issued Statement of Financial Accounting
         Standards No. 133 "Accounting for Derivative Instruments and Hedging
         Activities" ("FAS 133") that is effective for all fiscal quarters of
         fiscal years beginning after June 15, 1999. The Company will implement
         the provisions of FAS 133 as required. The future adoption of FAS 133
         is not expected to have a material effect on the Company's consolidated
         financial position or results of operations.

         Reclassifications

         Certain amounts in the consolidated financial statements for 1997 and
         1996 have been reclassified to conform to the 1998 presentation. These
         reclassifications have no effect on stockholders' equity or net income
         as previously reported.

2.       ACQUISITIONS

         During the year ended December 31, 1997, 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
         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 ($0.2 million at December 31, 1998) for
         severance and related costs associated primarily with the elimination
         of certain administrative and corporate positions was recorded in
         connection with the Shelter Acquisition.



                                      F-11
<PAGE>   51

3.       INVENTORIES

         Inventories are comprised of the following:

<TABLE>
<CAPTION>
                               December 31,
                             ------------------
                               1998     1997
                             -------   ------- 
                               (in thousands)
<S>                          <C>       <C>     
Raw materials ............   $23,535   $17,006 
Work-in process ..........     1,055     1,317 
Finished goods ...........     6,961     3,760 
Goods held for resale ....    64,448    61,457 
                             -------   ------- 
                             $95,999   $83,540 
                             =======   ======= 
</TABLE>
                    
4.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                                Estimated
                                          December 31,           useful
                                        1998        1997         lives
                                      ---------   --------    -------------
                                         (in thousands)
<S>                                   <C>         <C>         <C>
Land ..............................   $  2,614    $  2,631
Buildings .........................     22,296      23,736    31 to 40 years
Machinery and equipment ...........     15,776      13,711    5 to 15 years
Furniture and fixtures ............      5,161       3,285    3 to 10 years
Transportation equipment ..........      5,312       5,354    3 to 10 years
Leasehold improvements ............      1,169         682    7 to 15 years
Construction in process ...........      3,773          --
                                      --------    --------
                                        56,101      49,399
Less accumulated depreciation .....    (11,107)     (6,957)
                                      --------    --------
Property and equipment, net .......   $ 44,994    $ 42,442
                                      ========    ========
</TABLE>

Property and equipment under capital leases consists of buildings of
approximately $2,721,000 and $2,761,000 for the years ended December 31, 1998
and 1997, respectively and machinery and equipment of approximately $70,000 and
furniture and fixtures of approximately $570,000 for the years ended December
31, 1998 and 1997. Accumulated depreciation was approximately $2,381,000 and
$2,166,000 for the years ended December 31, 1998 and 1997, respectively.

5.       INTANGIBLE ASSETS

         Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                           December 31,
                                        1998         1997
                                      ---------    ---------
                                          (in thousands)
<S>                                   <C>          <C>      
Goodwill ..........................   $ 124,233    $ 121,151
Noncompete agreements .............       1,036        1,036
                                      ---------    ---------
                                        125,269      122,187
Less accumulated amortization .....      (5,679)      (1,997)
                                      ---------    ---------
     Intangible assets, net .......   $ 119,590    $ 120,190
                                      =========    =========
</TABLE>


                                      F-12
<PAGE>   52

6.       LONG-TERM DEBT

         Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                    ---------------------
                                                                                       1998        1997
                                                                                    ---------    ---------
<S>                                                                                 <C>          <C>      
10 3/8% senior subordinated notes due 2007;
         interest payable semi-annually ........................................    $ 105,000    $ 105,000
Term loan facility payable to banks, due 2000 
         payable in quarterly installments, with interest
         payable monthly at a bank's prime rate plus a margin
         determined by operating statistics of the Company (8.80% and
         8.42% at December 31, 1998 and 1997, respectively) ....................       79,600       70,000
Revolving credit facility payable to a bank, due 2000, interest
         payable monthly at the bank's prime rate plus a margin
         determined by operating  statistics of the Company (9.00% and
         8.50% at December 31, 1998 and 1997, respectively), $ 23,457
         net of outstanding letters of credit of $1,143, was available
         under the credit facility at December 31, 1998 ........................       20,400       10,675
Unsecured notes payable, payable in quarterly or annual
         installments, with interest from 7.0% to 10.0%, due from
         2000 to 2002 ..........................................................        3,617        6,095
Capital lease obligations, collateralized by equipment,
         maturing  through 2007, payable monthly with interest rates from
         7.66% to 26.8% ........................................................        1,521        1,792
Obligations payable under noncompete and consulting agreements,
         maturing  through 2002, payable monthly with interest rates from
         7.00% to 8.50% ........................................................          441          658
                                                                                    ---------    ---------
                                                                                      210,579      194,220
Less current portion ...........................................................       (7,209)      (2,932)
                                                                                    ---------    ---------
                                                                                    $ 203,370    $ 191,288
                                                                                    =========    =========
</TABLE>

         In December 1997, Kevco and its lenders entered into the second amended
         and restated credit agreement at closing of the Shelter Acquisition to
         allow for aggregate senior borrowings of up to $125 million comprised
         of a revolving credit facility of $45 million and a term loan facility
         of $80 million requiring quarterly installments. The revolving credit
         facility and $40 million of the term loan facility were (prior to the
         fourth amended agreement and waiver described below) to mature in 2003
         with the remaining term loan facility to mature in 2004. The term loan
         and revolving credit facility are collateralized by substantially all
         of the assets of the Company and its subsidiaries as well as the
         capital stock of such subsidiaries.

         In February 1999, the Company entered into a third amendment and
         waiver, which allowed for an incremental commitment of $5.0 million due
         March 31, 1999 and waived any event of default due to the Company's
         violation of certain financial covenants contained in the credit
         agreement through March 31, 1999. In March 1999, the Company requested
         and obtained an additional $5.0 million incremental commitment and an
         extension of the maturity date on the aggregate $10 million incremental
         commitment (the "Incremental Commitment") and waiver of any events of
         default to April 15, 1999.


                                      F-13
<PAGE>   53
         In April 1999, the Company entered into a fourth amendment and waiver
         to its credit agreement. This amendment contains revised financial
         covenants effective for the quarter ended March 31, 1999 through June
         30, 2000 and waived certain events of default. Under this amendment,
         the Incremental Commitment matures on June 30, 1999 and the revolving
         credit facility and term loan mature on June 30, 2000. No assurance can
         be made that the Company would be able to access additional capital or
         that additional capital would be available on terms acceptable to the
         Company.

         In addition to funds available under the credit agreement, the Company
         issued $105 million of 10 3/8% senior subordinated notes due 2007 (the
         "Notes") under the indenture dated as of December 1, 1997, as
         supplemented, (the "Indenture"), to complete the acquisition of
         Shelter. Interest is payable on June 1 and December 1 of each year
         commencing June 1, 1998. The 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% of the original aggregate principal amount of the 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 and liquidated damages, if any, thereon to the date of
         redemption.

         The credit agreement and Indenture contain certain restrictions and
         conditions that include cash flow and various financial ratio
         requirements, and limitations on incurrence of debt or liens,
         acquisitions of property and equipment, distributions to stockholders
         and certain events constituting a Change of Control (as defined in the
         agreements).

         The following are scheduled maturities of debt (in thousands):


<TABLE>
<CAPTION>
                         Year Ending
                         December 31,
                         -----------------------------
<S>                          <C>              <C>     
                             1999 ..........  $  7,209
                             2000 ..........    95,981
                             2001 ..........     1,125
                             2002 ..........       414
                             2003 ..........       157
                         Thereafter ........   105,693
                                              --------
                                              $210,579
                                              ========
</TABLE>

         In addition, 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 no gain or loss related to this interest
         rate hedge for the year ended December 31, 1998. The fair value of the
         interest rate hedge agreement is approximately $329,000 at December 31,
         1998.

         The fair value of long-term debt was $202.8 and $194.8 million as of
         December 31, 1998 and 1997, 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.


                                      F-14
<PAGE>   54



7.       INCOME TAXES

         Prior to November 6, 1996, the Company was treated for federal and
         state income tax purposes as an S corporation under Subchapter S of the
         Internal Revenue Code. As a result, the Company's earnings for such
         period were taxed at the stockholder level. Effective November 6, 1996,
         the Company terminated its S corporation status and restructured the
         organization to create a holding company with operating company
         subsidiaries. From November 6, 1996, the Company's earnings have been
         taxed as a C corporation and provisions for income taxes have been
         reflected in the consolidated financial statements. The Company
         recorded a nonrecurring net deferred tax provision of approximately
         $353,000 associated with the recognition of a related deferred tax
         liability due to the termination of the Company's S corporation status.

         The provision for income taxes for the years ended December 31, 1998,
         1997 and 1996 consists of the following (in thousands):


<TABLE>
<CAPTION>
                       1998     1997     1996
                      ------   ------   ------
Federal:
<S>                   <C>      <C>      <C>   
      Current .....   $  535   $3,489   $  559
      Deferred ....    1,895      512      692
State:
      Current .....      318      490      339
      Deferred ....      384       63      105
                      ------   ------   ------
                      $3,132   $4,554   $1,695
                      ======   ======   ======
</TABLE>

         Income taxes are provided for the tax effects of transactions reported
         in the financial statements and consist of taxes currently due plus
         deferred taxes related primarily to differences between the treatment
         of certain items for financial statement purposes and the treatment of
         those items for corporation tax purposes. The deferred tax assets and
         liabilities represent the future tax return consequences of those
         differences, which will either be taxable or deductible when the assets
         and liabilities are recovered or settled.



                                      F-15
<PAGE>   55

         Components of the Company's deferred tax assets and liabilities at
         December 31, 1998 and 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
           Deferred tax assets:                      1998        1997
                                                    -------    -------
<S>                                                 <C>        <C>    
    Accrued liabilities .........................   $ 1,393    $ 1,318
    Reserves and allowances .....................       500        985
    Inventory adjustments .......................     1,586        755
    Intangibles .................................     4,224      4,802
    Other .......................................        --        129
                                                    -------    -------
       Total gross deferred tax assets ..........     7,703      7,989
                                                    -------    -------

Deferred tax liabilities:
    Property and equipment ......................    (1,841)    (1,491)
    Other .......................................      (512)      (235)
                                                    -------    -------
       Total gross deferred tax liabilities .....    (2,353)    (1,726)
                                                    -------    -------
            Net deferred tax asset ..............   $ 5,350    $ 6,263
                                                    =======    =======

Current deferred tax asset ......................   $ 2,572    $ 1,924
Noncurrent deferred tax asset ...................     2,778      4,339
                                                    -------    -------
           Net deferred tax asset ...............   $ 5,350    $ 6,263
                                                    =======    =======
</TABLE>

         Management believes that the Company will generate sufficient future
         taxable income to realize the entire deferred tax asset and that the
         realization of the net deferred tax asset is more likely than not.

         The differences between the consolidated provision for income taxes and
         income taxes computed using income before income taxes and the U.S.
         federal income tax rate for the years ended December 31, 1998, 1997 and
         1996 are as follows:

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                             ------------------------
                                                               1998     1997    1996
                                                              -----     ----    ----
<S>                                                            <C>      <C>     <C>  
Amount computed using statutory rate .....................     34.0%    35.0%   35.0%
Increase (decrease) in taxes resulting from:
     State income taxes, net of federal tax benefit ......      9.3      3.3     1.6
     Deferred tax liability related to
        S corp termination ...............................       --       --     2.5
     Change in method of valuing inventory ...............       --       --     2.7
     S corp income not subject to federal tax ............       --       --   (30.1)
     Non-deductible expenses .............................     21.4      3.1      --
     Other, net ..........................................     (2.0)     0.6     0.1
                                                               ----     ----    ----
                                                               62.7%    42.0%   11.8%
                                                               ====     ====    ====
</TABLE>



                                      F-16
<PAGE>   56

8.       OTHER INCOME

         In August 1998, the Company sustained a fire at its Duo-Form plant in
         Edwardsburg, Michigan, which destroyed the facility and contents. The
         Company has filed a claim with its insurance carrier and as of December
         31, 1998, had received $500,000 in insurance proceeds. A gain from
         insurance proceeds of approximately $2,541,000 was recorded at December
         31, 1998 related to the insurance claim.

9.       COMMITMENTS AND CONTINGENCIES

         LEASES

         The Company leases various equipment and buildings under capital and
         noncancellable operating leases with an initial term in excess of one
         year. As of December 31, 1998, future minimum rental payments required
         under these capital and operating leases are summarized as follows (in
         thousands):
<TABLE>
<CAPTION>
                                                    Capital   Operating
                                                    leases     leases
                                                    -------    -------
<S>                                                 <C>        <C>    
1999 ............................................   $   485    $ 7,250
2000 ............................................       431      6,033
2001 ............................................       315      4,811
2002 ............................................       304      4,287
2003 ............................................       304      3,361
Thereafter ......................................       966      6,453
                                                    -------    -------
     Total ......................................   $ 2,805    $32,195
                                                    =======    =======
Less amount representing interest ...............    (1,284)
                                                    -------
     Present value of minimum lease payments ....   $ 1,521
                                                    =======
</TABLE>

         Rental expense for operating leases was approximately $11,776,000,
         $5,060,000 and $3,839,000 for the years ended December 31, 1998, 1997
         and 1996, respectively.

         EMPLOYMENT AGREEMENTS

         The Company has entered into an employment agreement with its majority
         stockholder for a five-year term renewable annually.

         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.

10.      RETIREMENT PLAN

         The Company has a defined contribution retirement plan which 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, 1998, 1997
         and 1996 were $0, $135,000 and $100,000, respectively. 



                                      F-17
<PAGE>   57

         Effective April 30, 1998, the Company terminated the Health Benefit
         Plan for Shelter Components Corporation and eligible employees were
         offered enrollment in Kevco Inc.'s health and welfare benefits 
         effective May 1, 1998. Any remaining benefits were paid by November 
         30, 1998.

         In July 1998, the Company announced its intent to merge the assets and
         liabilities of the Shelter Components Savings Incentive Plan with and
         into the Kevco, Inc. 401(k) Profit Sharing Plan on or about September
         1, 1998. The Shelter Components Savings Incentive Plan was terminated
         in October 1998.

11.      RELATED PARTY TRANSACTIONS

         The Company leases certain buildings and data processing equipment
         under capital leases from partnerships partially owned by the majority
         stockholder of the Company. 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 $576,000
         for the year ended 1998 and $672,000 for each of the years ended 1997
         and 1996. Debt related to the capital leases was approximately
         $1,299,000 and $1,398,000 at December 31, 1998 and 1997, respectively.

         The Company loaned its majority stockholder $5.0 million in 1993,
         payable in monthly principal installments of $62,500 plus interest at
         9.0% at December 31, 1995, due November 1997. The Company distributed
         the loan to stockholder to the Company's stockholders effective June
         30, 1996.

12.      STOCK-BASED COMPENSATION PLANS

         The Company sponsors the Kevco, Inc. 1995 Stock Option Plan and the
         Kevco, Inc. 1996 Stock Option Plan (the "Plans"), which are stock-based
         incentive compensation plans. The Company applies APB Opinion 25 and
         related standards in accounting for the Plans.

         Under the Plans, the Company is authorized to issue up to 702,735
         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 of 1986, as amended) and nonqualified stock
         options. Awards may be granted to selected employees and directors of
         the Company. During 1998, 1997 and 1996, the Company granted only
         nonqualified stock options under the Plans.

         NONQUALIFIED STOCK OPTIONS

         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 after November 1996 vest over 10 years. All options
         granted prior to November 1996 vested in November 1996, at the time of
         the initial public offering. The options have been granted at prices
         equal to the market value of the shares at the date of grant and expire
         not more than 7 and 10 years after the date of grant for the 1996 and
         1995 plans, respectively. In accordance with APB 25, the Company has
         not recognized any compensation cost for these stock options granted
         during 1998, 1997 and 1996.



                                      F-18
<PAGE>   58

         A summary of the status of the Company's stock options as of December
         31, 1998, 1997 and 1996, and the changes during the year ended on those
         dates is presented below:


<TABLE>
<CAPTION>
                                                                  NONQUALIFIED STOCK OPTIONS
                                         ----------------------------------------------------------------------------
                                                  1998                        1997                     1996
                                         ----------------------     ----------------------    -----------------------
                                         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       PRICES       OPTIONS       PRICES      OPTIONS        PRICES
                                          -------      --------      -------      --------      -------      --------
<S>                                       <C>          <C>           <C>          <C>           <C>          <C>
Outstanding at
beginning of year ..................      421,472      $  10.76      415,196      $  10.58       47,854      $   5.64
Granted ............................       15,000      $  19.17       24,500      $  13.62      393,450      $  11.17
Exercised ..........................      (25,020)     $  11.18      (14,464)     $  10.49           --           N/A
Forfeited ..........................      (17,050)     $  14.30       (3,760)     $  11.17      (26,108)     $  10.42
Expired ............................           --           N/A           --           N/A           --           N/A
Outstanding at end of year .........      394,402      $  10.90      421,472      $  10.76      415,196      $  10.58
Exercisable at end of year .........      374,802      $  10.62      405,072      $  10.65      415,196      $  10.58
Weighted-average fair value of
options granted during the year ....           --      $  13.29           --      $   8.06           --      $   1.84
</TABLE>


         The fair value of each stock option granted is estimated on the date of
         grant using the minimum value method of option pricing with the
         following weighted-average assumptions for grants in 1998, 1997 and
         1996, respectively: dividend yield of zero percent for all years;
         risk-free interest rates are different for each grant and range from
         4.65% to 6.19%; the expected lives of 6.3 and 9.5 years, respectively,
         for the options under the Plans; and expected volatility of
         approximately 56.0% and 48.0% for options granted in 1998 and 1997,
         respectively. In determining the "minimum value," FASB Statement of 
         Financial Standards No. 123, "Accounting for Stock-Based Compensation,"
         ("FAS 123") does not require the volatility of the Company's common 
         stock underlying the options to be calculated or considered for options
         granted in 1996 because the Company was not publicly-traded when the 
         options were granted.

         The following table summarizes information about stock options
         outstanding at December 31, 1998:

<TABLE>
<CAPTION>
            OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
----------------------------------------------   -----------------------  
 Range                    Weighted    Weighted                 Weighted
   Of                     Average     Average                  Average
Exercise    Number       Remaining    Exercise     Number      Exercise
 Prices    Outstanding     Life        Price     Exercisable     Price
--------   -----------   ---------    --------   -----------   --------
<S>        <C>           <C>          <C>        <C>           <C>  
$  5.64        42,532          6.0     $  5.64        42,532   $  5.64
$ 11.17       321,470          3.9     $ 11.17       321,470   $ 11.17
$ 13.50        25,400          8.0     $ 13.63        10,800   $ 13.77
   to
$ 13.88
$ 24.50         5,000          9.3     $ 24.50            --        --
             --------                              ---------   
              394,402          4.5     $ 10.90      374,802    $ 10.62
             ========                              =========  
</TABLE>


                                      F-19
<PAGE>   59

         NET INCOME AND EARNINGS PER SHARE

         Had the compensation cost for the Company's stock-based compensation
         plans been determined consistent with FAS 123, the Company's net income
         and earnings per share for 1998, 1997 and 1996 would approximate the
         pro forma amounts below (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                     1998       1997       1996
                                                    ------     ------     ------
<S>                                 <C>             <C>        <C>        <C>   
Net income .......................  As reported     $1,867     $6,288     $8,932
                                    Pro forma        1,793      6,237      8,491

Earnings per share - basic .......  As reported     $ 0.27     $ 0.92     $ 1.64
                                    Pro forma         0.26       0.92       1.56

Earnings per share - diluted .....  As reported     $ 0.27     $ 0.90     $ 1.61
                                    Pro forma         0.26       0.90       1.54
</TABLE>

         The effects of applying FAS 123 in this pro forma disclosure are not
         indicative of future amounts. FAS 123 does not apply to awards prior to
         1995, and the Company anticipates making awards in the future under its
         stock-based compensation plans.

13.      SEGMENT REPORTING

         In June 1997, the FASB issued Statement of Financial Standards
         No. 131, "Disclosures about Segments of an Enterprise and Related
         Information," which the Company has adopted in the current year.

         The Company identifies such segments based upon management
         responsibility within the United States. The Company operates in three
         business segments: Distribution, Manufacturing and Wood Products. The
         Distribution segment primarily distributes plumbing products, building
         products, electrical components and hardware supplies to the
         manufactured housing and recreational vehicle industries; the
         Manufacturing segment primarily manufactures and distributes
         thermoformed products, laminated wallboard products and plastic
         injection molded products primarily 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. As a result of the
         Company's acquisition strategy, which has impacted all three segments,
         year-to-year comparisons may not be indicative of future results.



                                      F-20
<PAGE>   60

         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. Amounts are
         presented in thousands for each respective year.

<TABLE>
<CAPTION>
                                                                                              Total
                          Distribution   Manufacturing   Wood Products  Corporate/Other      Company
                          ------------   -------------   -------------  ---------------      --------
<S>                         <C>             <C>             <C>             <C>              <C>     
1998
   Net Sales .......        $604,497        $140,930        $169,869        $(17,846)(a)     $897,450
   Operating
     Income ........        $ 28,449        $  9,177        $  5,388        $(19,449)(b)     $ 23,565

1997
   Net Sales .......        $248,396        $  7,518        $134,819        $    (71)(a)     $390,662
   Operating
     Income ........        $ 16,709        $    310        $  6,631        $ (8,041)(b)     $ 15,609

1996
   Net Sales .......        $205,812              --        $ 58,398              --         $264,210
   Operating
     Income ........        $ 16,119              --        $  6,743        $ (6,397)(b)     $ 16,465
</TABLE>

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

(b) Consists primarily of corporate operating expenses.

                                      F-21
<PAGE>   61



                                POWER OF ATTORNEY

         Each person whose signature appears below hereby constitutes and
appoints jointly and severally, Jerry E. Kimmel, Richard S. Tucker and Ellis L.
McKinley, Jr., and each one of them, his attorneys-in-fact, each 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.

                               S I G N A T U R E S

         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.


Date:    April 13, 1999             By: /s/ Jerry E. Kimmel 
                                      ------------------------------
                                      Jerry E. Kimmel,
                                      Chairman, President and Chief 
                                      Executive Officer

         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 APRIL 13, 1999.

<TABLE>
<CAPTION>
              SIGNATURE                               CAPACITY
              ---------                               --------
<S>                                      <C>
       /s/ Jerry E. Kimmel               Chairman of the Board, Chief Executive Offer,
-----------------------------------        President and Director (Principal Executive
           JERRY E. KIMMEL                 Officer)

     /s/ Ellis L. McKinley, Jr.          Vice President, Chief Financial Officer,
-----------------------------------        Treasurer and Director (Principal Financial
         ELLIS L. MCKINLEY, JR.            Officer and Principal Accounting Officer)

       /s/ Gregory G. Kimmel             Senior Vice President, Corporate Development
-----------------------------------        and Director
           GREGORY G. KIMMEL
  
       /s/ Richard S. Tucker             Secretary and Director
-----------------------------------
           RICHARD S. TUCKER

       /s/ Richard Nevins                Director
-----------------------------------
           RICHARD NEVINS
</TABLE>



                                     
<PAGE>   62
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT 
NUMBER   DESCRIPTION
-------  ------------
<S>      <C>
2.10     Letter, dated February 15, 1999, to Kevco, Inc. from Wingate Partners
         II, L.P.(13)

2.11     Letter, dated February 15, 1999, to Jerry E. Kimmel from Wingate
         Partners II, L.P.(13)

10.69    Second Amendment to Credit Agreement, dated as of October 27, 1998 (but
         effective as of September 30, 1998), entered into and among Kevco,
         Inc., a Texas corporation, the banks listed on the signature pages
         (collectively, the "Lenders"), and NationsBank, N.A. (successor by
         merger to NationsBank of Texas, N.A.), as the Administrative Agent.(13)

10.70    Waiver entered into as of the 30th day of December 1998, by and among
         the banks listed on the signature pages (the "Lenders"), Kevco, Inc., a
         Texas corporation (the "Borrower"), and NationsBank, N.A. (successor by
         merger to NationsBank of Texas, N.A.), as Administrative Agent for the
         Lenders to the extent and in the manner provided for in the Credit
         Agreement.(13)

10.71    Second Waiver entered into as of the 15th day of February, 1999, by and
         among the banks listed on the signature pages (the "Lenders"), Kevco,
         Inc.,a Texas corporation (the "Borrower"), and NationsBank, N.A.
         (successor by merger to NationsBank of Texas, N.A.), as Administrative
         Agent for the Lenders to the extent and in the manner provided for in
         the Credit Agreement. (13) 

10.72    Third Amendment and Waiver entered into as of the 25th day of February,
         1999, by and among the banks listed on the signature pages (the
         "Lenders"), Kevco, Inc., a Texas corporation, and NationsBank, N.A.
         (successor by merger to NationsBank of Texas, N.A.), as Administrative
         Agent for the Lenders to the extent and in the manner provided for in
         the Credit Agreement.(13)

10.73    Letter agreement waiver extension, dated March 22, 1999, between
         Kevco, Inc., NationsBank, N.A., as Administrative Agent and Lender, 
         and the other parties thereto.(13)

21.1     Subsidiaries

23.1     Consent of PricewaterhouseCoopers LLP.

27.1     Financial Data Schedule
</TABLE>