Purchase And Sale Agreement - BUILDING MATERIALS HOLDING CORP - 4-2-2001 by BLGM-Agreements

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									PURCHASE AND SALE AGREEMENT among BMCW SOUTHCENTRAL, L.P. (Buyer) and FRONTIER WHOLESALE COMPANY (Seller) and SHAREHOLDERS dated as of April 15, 2000

PURCHASE AND SALE AGREEMENT This Agreement, dated as of April 15, 2000, is among Frontier Wholesale Company, Inc., a Texas corporation ("Seller"), the shareholders of Seller listed on Exhibit 1 attached hereto ("Shareholders"), and BMCW SouthCentral, L.P. ("Buyer"). IT IS AGREED among the parties as follows: 1 - DEFINITIONS For purposes of this Agreement, the capitalized terms identified in this Article shall have the meanings assigned to them as follows: "BUSINESS" means the Seller's business operations of Seller's Marvin Windows Planning Centers distribution and sale of windows to retail customers, dealers, and building contractors conducted from the Leased Locations to customers in Oklahoma, Texas, Arizona, Nevada, and northwest Louisiana; "CLOSING" means the exchange of closing documents and the payment of the Purchase Price to the Seller by Buyer which will occur on the CLOSING DATE; "CONTRACTS" means all contracts and agreements of any form or nature Seller entered into prior to Closing in the ordinary course of the Business, including, but not limited to, agreements for the sale or purchase of Inventory; "DUE DILIGENCE PERIOD" means the period of time commencing on the date of this Agreement, and expiring on April 28, 2000; "ENVIRONMENTAL LAWS" means federal or state laws or regulations relating to pollution, or the protection of human health or the environment, including, but not limited to, the Clean Air Act, the Federal Water Pollution Control Act (as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987), the Resource Conservation and Recovery Act of 1976 (as amended by the Hazardous and Solid Waste Amendments of 1984), the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986), the Hazardous Materials Transportation Act, the Toxic Substances Control Act, and the Federal Insecticide Fungicide & Rodenticide Act, all as in effect on the Closing Date or, with respect to the representations and warranties, in effect on the date hereof.

PURCHASE AND SALE AGREEMENT This Agreement, dated as of April 15, 2000, is among Frontier Wholesale Company, Inc., a Texas corporation ("Seller"), the shareholders of Seller listed on Exhibit 1 attached hereto ("Shareholders"), and BMCW SouthCentral, L.P. ("Buyer"). IT IS AGREED among the parties as follows: 1 - DEFINITIONS For purposes of this Agreement, the capitalized terms identified in this Article shall have the meanings assigned to them as follows: "BUSINESS" means the Seller's business operations of Seller's Marvin Windows Planning Centers distribution and sale of windows to retail customers, dealers, and building contractors conducted from the Leased Locations to customers in Oklahoma, Texas, Arizona, Nevada, and northwest Louisiana; "CLOSING" means the exchange of closing documents and the payment of the Purchase Price to the Seller by Buyer which will occur on the CLOSING DATE; "CONTRACTS" means all contracts and agreements of any form or nature Seller entered into prior to Closing in the ordinary course of the Business, including, but not limited to, agreements for the sale or purchase of Inventory; "DUE DILIGENCE PERIOD" means the period of time commencing on the date of this Agreement, and expiring on April 28, 2000; "ENVIRONMENTAL LAWS" means federal or state laws or regulations relating to pollution, or the protection of human health or the environment, including, but not limited to, the Clean Air Act, the Federal Water Pollution Control Act (as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987), the Resource Conservation and Recovery Act of 1976 (as amended by the Hazardous and Solid Waste Amendments of 1984), the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986), the Hazardous Materials Transportation Act, the Toxic Substances Control Act, and the Federal Insecticide Fungicide & Rodenticide Act, all as in effect on the Closing Date or, with respect to the representations and warranties, in effect on the date hereof. "EQUIPMENT" means all tools, equipment, office furniture, computers, and equipment and other pieces of tangible personal property, including forms, supplies, office equipment, and products owned by the Seller and used by it in the Business, including those items described on Exhibit 2 attached hereto; PURCHASE AND SALE AGREEMENT - 1

"EXCLUDED ASSETS" means all personal items of Seller which are listed on Exhibit 3 attached hereto; "FINANCIAL STATEMENTS" means the financial statements of the Business, together with all schedules and notes delivered to Buyer, which are dated as of December 31, 1999; "INVENTORY" means windows and accessories located at each of the Leased Locations for which a valid and enforceable customer order exists, but not including inventory which has been sold but not delivered. Inventory will also include spare parts, which shall be valued consistent with the past practices of Seller as shown on Seller's Financial Statements; "LEASED LOCATIONS" means all leases of real property incurred by the Business which are listed on Exhibit 4 attached hereto; "NONCOMPETE/NONSOLICITATION AGREEMENT" means the agreement by Seller, Shareholders, and

"EXCLUDED ASSETS" means all personal items of Seller which are listed on Exhibit 3 attached hereto; "FINANCIAL STATEMENTS" means the financial statements of the Business, together with all schedules and notes delivered to Buyer, which are dated as of December 31, 1999; "INVENTORY" means windows and accessories located at each of the Leased Locations for which a valid and enforceable customer order exists, but not including inventory which has been sold but not delivered. Inventory will also include spare parts, which shall be valued consistent with the past practices of Seller as shown on Seller's Financial Statements; "LEASED LOCATIONS" means all leases of real property incurred by the Business which are listed on Exhibit 4 attached hereto; "NONCOMPETE/NONSOLICITATION AGREEMENT" means the agreement by Seller, Shareholders, and David Faulkner to not compete with the Buyer in the Business or solicit employees of the Business for employment by another entity in the form attached hereto as Exhibit 5; "PURCHASE PRICE" means the total amount of funds to be paid by Buyer to Seller for the Purchased Assets to be calculated pursuant to Section 4.1 of this Agreement; "PURCHASED ASSETS" means the Equipment, Contracts, Inventory, Trade Accounts Receivable, Trademarks and Tradenames, and Leased Locations; "TERMINATION DATE" means the last business day immediately preceding the Closing Date; "TRADE ACCOUNTS RECEIVABLE" means the Seller's right to receive payment for goods sold, including those owed but not yet due as of Closing, to all customers and other third-party purchasers of goods and services from the Business in the ordinary course of the Business prior to Closing, including any inventory that is sold but not delivered and any and all past due accounts and notes receivable taken in collection of routine receivables, together with all mechanics' liens, materialmen's liens and other security interests securing such obligations and which are assignable as permitted by law; "TRADEMARKS AND TRADENAMES" means the name "Marvin Windows Planning Centers" and any derivations thereof; 2 - DUE DILIGENCE 2.1 DUE DILIGENCE. Buyer shall have the Due Diligence Period to perform such inspections, environmental assessments, and other tests and surveys of the Business or the Purchased Assets as Buyer, in Buyer's discretion, shall require for the purpose of determining the suitability of the Business or the Purchased Assets for Buyer's acquisition. 2.2 DUE DILIGENCE ACTIVITIES. Due Diligence shall include, but not be limited to: PURCHASE AND SALE AGREEMENT - 2

2.2.1 Review of the books and records of the Business including the financial records and customer records. 2.2.2 Review of the Business's employee compensation, benefits, and bonus plans. Review of the employment records of the Business, including I9 forms. 2.2.3 Review of records including health, workers' compensation, and other benefit records of employees of the Business and conduct interviews of key personnel of the Business. 2.2.4 Review and inspection of Contracts, Equipment, Inventory, and Trade Accounts Receivable of the Business.

2.2.1 Review of the books and records of the Business including the financial records and customer records. 2.2.2 Review of the Business's employee compensation, benefits, and bonus plans. Review of the employment records of the Business, including I9 forms. 2.2.3 Review of records including health, workers' compensation, and other benefit records of employees of the Business and conduct interviews of key personnel of the Business. 2.2.4 Review and inspection of Contracts, Equipment, Inventory, and Trade Accounts Receivable of the Business. 2.2.5 Review and inspection of each of the Leased Locations and contacting each of the landlords of the Leased Locations to obtain an estoppel certificate. 2.2.6 During the Due Diligence Period, and in order to assist Buyer with Buyer's inspections and investigations of the Purchased Assets, the Seller shall provide Buyer and Buyer's representatives with reasonable access to and copies of all existing studies, reports, and records, including financial, customer and employee records, relating to the Business and the Purchased Assets. Seller shall fully cooperate with Buyer and shall promptly provide Buyer with all relevant information currently available to Seller and requested by Buyer during the Due Diligence Period. 2.2.7 After execution of this Agreement and after Aubrey Faulkner advises Marvin Windows and Doors of this Agreement, Buyer may discuss and review the Business with Marvin Windows & Doors including any performance requirements by Marvin Windows & Doors. 2.3 CONFIDENTIALITY DURING DUE DILIGENCE. Buyer, Seller, and Shareholders acknowledge and agree that the parties desire to keep this transaction confidential until jointly announced or when required by law to be announced. 2.4 TERMINATION OF AGREEMENT. Upon execution of this Agreement, Buyer shall, as soon as practical, complete the above due diligence items. Upon completion of the due diligence items, Buyer shall notify Seller of any problems or objections in writing. Seller shall, within five (5) days after receipt of such notice, advise Buyer of the cure of such objections or Seller's intention not to cure the objection. Buyer may, at Buyer's sole discretion, either terminate this Agreement or accept Seller's proposed cure or waive such objection and proceed to Closing. 2.5 EXCLUSIVE DEALING. Seller and Shareholders agree that upon execution of this Agreement and until the Closing Date or termination of this Agreement, Seller and Shareholders will not seek to sell the Business to any other party nor will Seller or Shareholders accept any offers to acquire the Business from any other party. PURCHASE AND SALE AGREEMENT - 3

3 - PURCHASE AND SALE At Closing, the Seller and Shareholders agree to sell and convey to Buyer, and Buyer agrees to purchase and accept from Seller and Shareholders, the Purchased Assets for the Purchase Price on the covenants, terms and conditions contained herein. 4 - DETERMINATION OF PURCHASE PRICE The calculation of the Purchased Assets is summarized on Exhibit 6 attached hereto. The calculations will be updated on the Closing Date with the adjusted values of the Purchased Assets and attached to an amendment to this Agreement to be executed and delivered at Closing. The Purchase Price for the Purchased Assets shall be calculated as follows: 4.1 INVENTORY. The Inventory shall be valued as follows:

3 - PURCHASE AND SALE At Closing, the Seller and Shareholders agree to sell and convey to Buyer, and Buyer agrees to purchase and accept from Seller and Shareholders, the Purchased Assets for the Purchase Price on the covenants, terms and conditions contained herein. 4 - DETERMINATION OF PURCHASE PRICE The calculation of the Purchased Assets is summarized on Exhibit 6 attached hereto. The calculations will be updated on the Closing Date with the adjusted values of the Purchased Assets and attached to an amendment to this Agreement to be executed and delivered at Closing. The Purchase Price for the Purchased Assets shall be calculated as follows: 4.1 INVENTORY. The Inventory shall be valued as follows: 4.1.1 PHYSICAL INVENTORY. A physical inventory count and valuation shall be conducted by Buyer and Seller immediately preceding Closing. The value of the Inventory (except as otherwise provided herein) shall be the Seller's actual cost (the sum paid for the items net of any discounts [including cash discounts] or rebates taken or to be taken plus freight costs incurred to deliver the items to Seller's Business). The inventory that is sold but not delivered shall be marked by Seller and excluded from the physical inventory account. Spare parts and service inventory shall be valued consistent with Seller's prior practices as reflected on the Financial Statements. 4.1.2 DISPLAYS. The displays at the Leased Locations shall be valued on the following basis: the invoiced price of each display that is less than 3 years old less depreciation calculated on a straight-line basis over 3 years. 4.1.3 RESOLUTION OF INVENTORY VALUATION ISSUES. Any and all disputes regarding any aspect of the inventory count and valuation process shall be negotiated between the parties. In the event the parties cannot agree on the value of any item or items, then each shall submit such evidence of values it deems appropriate to a mutually agreed upon certified public accountant ("CPA"). The decision of the CPA shall be final and binding. 4.1.4 INVENTORY COSTS. The actual costs incurred for the services of the CPA pursuant to Section 4.1.3 shall be paid by the party whose original estimate of cost was furthest away from the final determined cost. Each party shall pay its own accounting and attorney fees. In conducting the inventory count, Buyer shall bear its own costs, including wages and overtime of its employees, lodging, meals, and transportation of its employees and any other expenses incurred by Buyer. In conducting the inventory count, Seller shall bear its own costs, including wages and overtime of its employees, lodging, meals, and transportation of its employees and any other expenses incurred by Seller. 4.2 EQUIPMENT. The Equipment will be valued at the net book value of the Equipment as of December 31, 1999 of $373,552 plus any increase in the book value as of the Closing Date of any items of Equipment acquired after December 31, 1999 and added to the Equipment list attached as Exhibit 2 and decreased by the value of any items removed from Exhibit 2 and PURCHASE AND SALE AGREEMENT - 4

depreciation incurred between December 31, 1999 and the Closing Date in accordance with Seller's normal accounting policies. 4.3 TRADE ACCOUNTS RECEIVABLE. All Trade Accounts Receivable that are no older than 90 days from date of invoice shall be valued at face value. All Trade Accounts Receivable that are older than ninety 90 days from date of invoice may, at the option of Buyer, be acquired by Buyer at face value or, if not acquired, shall be retained by Seller. 4.4 GOODWILL, NONCOMPETE/NONSOLICITATION AGREEMENT, AND INTANGIBLES. Buyer shall pay $3,000,000 as goodwill and for the noncompete/nonsolicitation agreements and the intangibles. Seller, David Faulkner and the Shareholders shall each execute and deliver a Noncompete/Nonsolicitation Agreement to

depreciation incurred between December 31, 1999 and the Closing Date in accordance with Seller's normal accounting policies. 4.3 TRADE ACCOUNTS RECEIVABLE. All Trade Accounts Receivable that are no older than 90 days from date of invoice shall be valued at face value. All Trade Accounts Receivable that are older than ninety 90 days from date of invoice may, at the option of Buyer, be acquired by Buyer at face value or, if not acquired, shall be retained by Seller. 4.4 GOODWILL, NONCOMPETE/NONSOLICITATION AGREEMENT, AND INTANGIBLES. Buyer shall pay $3,000,000 as goodwill and for the noncompete/nonsolicitation agreements and the intangibles. Seller, David Faulkner and the Shareholders shall each execute and deliver a Noncompete/Nonsolicitation Agreement to Buyer at Closing. An amount of $25,000 shall be assigned to the Noncompete/Nonsolicitation Agreements of Seller, Aubrey Faulkner, Beth Faulkner Thompson and Nan Faulkner Dealey and an amount of $5,000 shall be assigned to the Noncompete/Nonsolicitation Agreement of Lois Elizabeth Faulkner. 4.5 ALLOCATION OF VALUE. Buyer shall value the business for tax purposes as follows: Equipment at fair market value; Inventory at acquired value; Trade Accounts Receivable at acquired value; and the balance of Purchase Price to goodwill, the intangibles, and the assigned values of the noncompete/nonsolicitation agreements. 4.6 NONASSUMPTION OF THE SELLER'S OTHER LIABILITIES. All liabilities of Seller shall be retained by Seller and not assumed by Buyer, except as provided herein for customer claims. Seller shall retain liability for any orders for windows that have been invoiced by Seller and that are delivered following the Closing Date. In the event Buyer becomes liable for or has to pay any of the liabilities not assumed by Buyer, then such liabilities including any costs or expenses associated with such liabilities shall be deducted from the Reserve during the Post Closing Adjustment Period provided for in Article 5 or shall be paid to Buyer under Article 8. 5 - TERMS OF PAYMENT 5.1 PAYMENT DUE AT CLOSING. At Closing, Buyer shall pay to Seller an amount estimated equal to the Purchase Price for the Purchased Assets as determined in Article 4 ("Estimated Purchase Price"). Such payment shall consist of immediately available funds. 5.2 RESERVE. Seller agrees that Buyer shall withhold $100,000, (the "Reserve") from the Purchase Price for the Purchased Assets for a period of one hundred twenty (120) days following Closing ("Post Closing Adjustment Period") as a reserve to be applied to the post closing adjustments, including, but not limited to, satisfaction of: (i) any unpaid taxes payable by Seller which constitute a lien upon the Purchased Assets or which are imposed upon Buyer as a transferee of the Purchased Assets; (ii) uncollected Trade Accounts Receivable or discounts taken (including prompt payment discounts or any other discounts the customer is entitled to take) on Trade Accounts Receivable, (iii) any undisputed and unpaid creditors of Seller on contractual claims that are asserted against Buyer;(iv) customer claims for windows that do not conform to orders as evidenced by contract specifications or approved shop drawings for goods delivered to Seller or customer within 90 days prior to the Closing Date in which the Seller erred PURCHASE AND SALE AGREEMENT - 5

in placing the order; and (v) payment of any amounts owing by Seller to Buyer at the end of the Post Closing Adjustment Period. After deducting all amounts owed to Buyer by Seller from the Reserve, Buyer shall pay to Seller the net amount of the Reserve at the end of the Post Closing Adjustment Period. If Seller owes Buyer more than the amount of the Reserve, such additional amount shall be paid to Buyer in immediately available funds simultaneously with payment of the Reserve to Buyer. 5.3 POST CLOSING ADJUSTMENTS. During the Post Closing Adjustment Period, Buyer and Seller shall jointly prepare an analysis of adjustments to be made to the payment made at Closing, to reflect the actual Purchase Price. If Buyer and Seller do not agree on the amount of the adjusting payment required, then the dispute shall be resolved by the CPA.

in placing the order; and (v) payment of any amounts owing by Seller to Buyer at the end of the Post Closing Adjustment Period. After deducting all amounts owed to Buyer by Seller from the Reserve, Buyer shall pay to Seller the net amount of the Reserve at the end of the Post Closing Adjustment Period. If Seller owes Buyer more than the amount of the Reserve, such additional amount shall be paid to Buyer in immediately available funds simultaneously with payment of the Reserve to Buyer. 5.3 POST CLOSING ADJUSTMENTS. During the Post Closing Adjustment Period, Buyer and Seller shall jointly prepare an analysis of adjustments to be made to the payment made at Closing, to reflect the actual Purchase Price. If Buyer and Seller do not agree on the amount of the adjusting payment required, then the dispute shall be resolved by the CPA. 5.4 CUSTOMER CLAIMS FOLLOWING CLOSING. If customers who purchased inventory from Seller prior to the Closing Date seek from Buyer customer service adjustments for the windows purchased from Seller that are not covered by the warranty from Marvin Windows & Doors, Buyer agrees to notify Seller of such claim and to resolve such claim, if requested by Seller, at a cost agreed to by Seller. All such resolved claims shall be charged against the Marvin Windows & Doors sales service reimbursement credit issued by Marvin Windows & Doors for the service rendered, and any claims in excess of such credit shall be paid by Seller to Buyer. 5.5 STORAGE AND DELIVERY COSTS. Buyer shall assume and perform Seller's contracts for windows sold to customers but not yet delivered as may be requested by Seller, provided that to the extent the price of windows so delivered exceeds $250,000, Seller shall pay to Buyer 5% of the amount by which the price of such windows exceed $250,000 for storage and handling expenses incurred by Buyer. 6 - INTENTIONALLY OMITTED 7 - REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS Seller and Shareholders hereby represent to Buyer as follows, and the representations contained in this Article or elsewhere in this Agreement shall be deemed remade as of Closing and shall survive Closing: 7.1 AUTHORIZATION. Seller and Shareholders have all requisite power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller and Shareholders, assuming the due authorization and execution of this Agreement by Buyer, is the valid, binding obligation of Seller and Shareholders enforceable against Seller and Shareholders in accordance with its terms, except that in the case of (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedies of specific performance and injunctive and other equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings thereafter may be brought. PURCHASE AND SALE AGREEMENT - 6

7.2 TAX MATTERS. Seller has timely filed all tax returns required to be filed by the date of this Agreement with respect to taxes imposed on the Business, and Seller has paid all taxes shown to be due on such returns. There are no liens for taxes upon the Purchased Assets, except liens for current taxes not yet due. Seller has withheld for its employees applicable taxes for all pertinent periods in compliance with the tax withholding provisions of all applicable laws. 7.3 COMPLIANCE WITH LAWS, LICENSES, AND PERMITS. Seller and Shareholders are not in violation of (i) any applicable order, judgment, injunction, award, or decree, or (ii) any ordinance, regulation, or other requirement of any governmental entity, in either case that is material to the Business. Seller and Shareholders have received all currently required permits. 7.4 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Seller has previously delivered to Buyer copies of the following financial statements of Seller of the period ending December 31, 1999. The Financial Statements present fairly the financial condition and results of operations of the Business as of the respective date and periods thereof and have been prepared in accordance with generally accepted accounting principles

7.2 TAX MATTERS. Seller has timely filed all tax returns required to be filed by the date of this Agreement with respect to taxes imposed on the Business, and Seller has paid all taxes shown to be due on such returns. There are no liens for taxes upon the Purchased Assets, except liens for current taxes not yet due. Seller has withheld for its employees applicable taxes for all pertinent periods in compliance with the tax withholding provisions of all applicable laws. 7.3 COMPLIANCE WITH LAWS, LICENSES, AND PERMITS. Seller and Shareholders are not in violation of (i) any applicable order, judgment, injunction, award, or decree, or (ii) any ordinance, regulation, or other requirement of any governmental entity, in either case that is material to the Business. Seller and Shareholders have received all currently required permits. 7.4 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Seller has previously delivered to Buyer copies of the following financial statements of Seller of the period ending December 31, 1999. The Financial Statements present fairly the financial condition and results of operations of the Business as of the respective date and periods thereof and have been prepared in accordance with generally accepted accounting principles consistently applied and are prepared in accordance with the methods used by Seller to prepare income taxes which are consistently applied. 7.5 LEGAL PROCEEDINGS. There are no outstanding lawsuits or assertion of claims against or involving the Business or the Purchased Assets. 7.6 CONTRACTS AND LEASES. The Contracts and leases for the Leased Locations are valid and in full force and effect. 7.7 TRADE ACCOUNTS RECEIVABLE. All Trade Accounts Receivables transferred to Buyer are recorded on the books of the Seller as of the Closing Date, represent bona fide transactions made in the ordinary course of the Business and, in the aggregate, are collectible in the ordinary course of the Business. 7.8 EQUIPMENT. The Equipment listed in Exhibit 1 is a complete and accurate list of the material Equipment utilized by the Business. 7.9 LABOR MATTERS. There are no material disputes, employee grievances, or other disciplinary actions pending or threatened involving any of the present or former employees of the Business. There is no labor strike, dispute, slowdown, or stoppage pending or threatened against or affecting the Business, and the Business has not experienced any work stoppage or labor difficulty within the past twelve (12) months. Seller has no agreement, arrangement, or commitment to create any additional plan or arrangement or to modify or amend any existing employee benefit plan of the Business. Seller has made available to Buyer true, correct, and complete copies of all written employee benefit plans, all contracts related thereto, and the most recently available annual report, summary plan descriptions, IRS Form 5500s (or 5500-Cs or 5500-Rs) and favorable determination letters for such employee benefit plans of the Business. Seller is in compliance in all material respects with the terms of its employee benefit plans and with all applicable laws and regulations relating thereto, including but not limited to ERISA and the Code. Seller has no PURCHASE AND SALE AGREEMENT - 7

unfunded or underfunded liabilities under any employee benefit plans. No employee benefit plan provides for post-retirement welfare benefits, except as required under Sections 601-609 of ERISA, or Section 4980B of the Code. Seller has complete employment records, as required by law, for each Employee, including fully executed I9 forms. 7.10 BROKERS AND FINDERS. Except for Seller and Shareholders obligations to Matrix Capital, neither Seller nor Shareholders have agreed to pay, or has taken any action that will result in any third party becoming obligated to pay or entitled to receive any investment banking, brokerage, finder's or similar fee or commission in

unfunded or underfunded liabilities under any employee benefit plans. No employee benefit plan provides for post-retirement welfare benefits, except as required under Sections 601-609 of ERISA, or Section 4980B of the Code. Seller has complete employment records, as required by law, for each Employee, including fully executed I9 forms. 7.10 BROKERS AND FINDERS. Except for Seller and Shareholders obligations to Matrix Capital, neither Seller nor Shareholders have agreed to pay, or has taken any action that will result in any third party becoming obligated to pay or entitled to receive any investment banking, brokerage, finder's or similar fee or commission in connection with this Agreement or the transactions contemplated hereby. Seller and Shareholders agree to indemnify and hold Buyer harmless from any claim for a fee or other compensation asserted against Buyer by Matrix Capital. 7.11 ENVIRONMENTAL LAWS. To the knowledge of Seller and Shareholders the Business is in compliance with all Environmental Laws. Seller and Shareholders have received no notice from any governmental entity alleging that Seller or the Business is not in compliance with Environmental Laws, and there are no circumstances that may prevent or interfere with material compliance in the future. Seller and Shareholders have made available to Buyer all material information that is in the possession of or reasonably available to Seller and Shareholders regarding environmental matters pertaining to the environmental conditions of the Business. 7.12 WINDOW WARRANTIES. There have been no special warranties of any kind beyond the warranties provided by Marvin Windows & Doors to customers of the Business, and there is no continuing obligation of any kind by Seller to its customers that extends beyond the Closing Date. 8 - REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller and Shareholders as follows and the warranties and representations contained in this Article or elsewhere in this Agreement shall be deemed remade as of Closing: 8.1 LEGAL STATUS. Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the state of Texas and prior to Closing, is qualified or licensed to do business in the states of Nevada, Oklahoma, and Arizona. 8.2 AUTHORITY. Buyer has full power and authority to execute and perform this Agreement. Upon execution hereof, this shall be a valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms. 9 - COLLECTION OF RECEIVABLES 9.1 GUARANTY OF COLLECTIBILITY. Seller guarantees to Buyer the collectibility of all of the Trade Accounts Receivable that Buyer acquires at Closing. During the Post Closing Adjustment Period, Buyer shall collect such Trade Accounts Receivable. Payments shall be applied first to PURCHASE AND SALE AGREEMENT - 8

the oldest Trade Account Receivables unless the customer specifically specifies otherwise. Buyer shall notify Seller of any requests by customers to pay invoices other than the oldest first. Buyer shall provide monthly aging reports of the Trade Accounts Receivable to Seller. If any of such Trade Accounts Receivable have not been collected by Buyer during the Post Closing Adjustment Period, Buyer shall assign those uncollected Trade Accounts Receivable to Seller and deduct the amount of such uncollected Trade Accounts Receivable from the Reserve under Article 5 hereof. In addition, any discounts taken by customers (including prompt payment discounts) shall be taken into account and the Purchase Price adjusted to reflect the actual collected value of the Trade Accounts Receivable. Any payments received on invoices not acquired by Buyer shall be transferred to Seller.

the oldest Trade Account Receivables unless the customer specifically specifies otherwise. Buyer shall notify Seller of any requests by customers to pay invoices other than the oldest first. Buyer shall provide monthly aging reports of the Trade Accounts Receivable to Seller. If any of such Trade Accounts Receivable have not been collected by Buyer during the Post Closing Adjustment Period, Buyer shall assign those uncollected Trade Accounts Receivable to Seller and deduct the amount of such uncollected Trade Accounts Receivable from the Reserve under Article 5 hereof. In addition, any discounts taken by customers (including prompt payment discounts) shall be taken into account and the Purchase Price adjusted to reflect the actual collected value of the Trade Accounts Receivable. Any payments received on invoices not acquired by Buyer shall be transferred to Seller. 10 - INTENTIONALLY OMITTED 11 - EMPLOYEES 11.1 DEFINITION. Seller agrees on execution of this Agreement to furnish to Buyer a list of all persons regularly employed on either a part-time or full-time basis by Seller in connection with the Business including their current wage and salary rates. The term "Employees" shall mean all persons included on such list, including employees on leave of absence, as well as those persons who become regularly employed by Seller between the date of the list and the Termination Date. 11.2 TERMINATION. On the Termination Date, Seller shall terminate all Employees employed by the Business. With respect to terminated Employees and any persons who terminated employment including notice of termination prior to Closing, Seller shall be solely responsible for payment, when and if due, of all salaries, wages, bonuses, vacation, COBRA benefits, and other obligations, if any, owed to Employees as of the Termination Date. 11.3 BUYER'S OFFER OF EMPLOYMENT. Buyer shall offer employment to the terminated Employees (except for David Faulkner whose continuing relationship with the Business shall be governed by a consulting and noncompetition/nonsolicitation agreement and Susan Rouse whose employment shall be governed by an employment agreement) at their current wage and salary rates of compensation including incentive pay programs for sales persons (exclusive of any management or discretionary bonus pay programs) as offered by Seller. All offers of employment shall be "at will." Buyer shall include the Employees who accept Buyer's offer in Buyer's employment benefit plans in accordance with the terms of such plans following the Termination Date, giving each such Employee credit for time of employment with Seller and excluding any waiting periods. 11.4 LABOR CONTRACTS. Seller is not a party to any organized labor contracts with respect to the Business nor does Seller have any liability to any organized labor pension plan involving the Business. 11.5 WORKERS' COMPENSATION. Seller assumes all responsibility for liability arising from workers' compensation claims by Employees, both medical and disability, which have been filed at or prior to the time of Closing or which arose out of incidents that occurred prior to Closing. PURCHASE AND SALE AGREEMENT - 9

Buyer shall be responsible for all claims for Employees which arise out of, or are based upon, incidents which occur subsequent to Closing. 11.6 NONASSUMPTION OF OBLIGATIONS OWED EMPLOYEES. Except as specified in this Article 11, Buyer assumes no responsibility whatsoever for obligations and/or benefits owed by Seller to its Employees, nor in any way adopts existing employment or benefit programs currently offered by Seller. 12 - NONCOMPETE/NONSOLICITATION AGREEMENT 12.1 NONCOMPETE/NONSOLICITATION. For a period of 5 years after Closing, Seller and Shareholders agree not to engage in the sale of windows to retail customers, dealers, and building contractors (except as employees or consultants to Buyer) in competition with Buyer within a two hundred fifty (250) mile radius of each

Buyer shall be responsible for all claims for Employees which arise out of, or are based upon, incidents which occur subsequent to Closing. 11.6 NONASSUMPTION OF OBLIGATIONS OWED EMPLOYEES. Except as specified in this Article 11, Buyer assumes no responsibility whatsoever for obligations and/or benefits owed by Seller to its Employees, nor in any way adopts existing employment or benefit programs currently offered by Seller. 12 - NONCOMPETE/NONSOLICITATION AGREEMENT 12.1 NONCOMPETE/NONSOLICITATION. For a period of 5 years after Closing, Seller and Shareholders agree not to engage in the sale of windows to retail customers, dealers, and building contractors (except as employees or consultants to Buyer) in competition with Buyer within a two hundred fifty (250) mile radius of each of the Leased Locations. A separate Noncompete/Nonsolicitation Agreement shall be executed at Closing by Seller and Shareholders substantially in the form attached hereto as Exhibit 7. 13 - INDEMNITIES 13.1 SELLER AND SHAREHOLDERS. Seller and Shareholders shall jointly and severally, indemnify, and hold Buyer harmless against losses, damages, taxes, penalties, costs and expenses (including accounting and legal fees) incurred by Buyer arising out of or involving (i) any liability, cost or expense that arises out of or involves the actions or operations of the Business or actions or nonactions by Seller's officers, directors, shareholders or employees with respect to the Business prior to the Closing Date; (ii) a breach of any of the representations made by Seller or Shareholders in this Agreement, (iii) the nonperformance of any covenant or agreement made in this Agreement by Seller or Shareholders, or (iv) any claims or actions arising out of the Business filed or made following the Closing Date but based on facts or occurrences prior to the Closing Date. 13.2 BUYER. Buyer agrees to hold harmless, indemnify and defend Seller and Shareholders (by counsel reasonably satisfactory to Seller and Shareholders) from and against any and all loss, claim, damage, liability or expense arising out of or occurring in connection with any breach by Buyer of any of its covenants, representations or warranties hereunder. Such indemnification shall include any claims pertaining to any services or products invoiced or sold (excluding any sold but not delivered items) after the Closing, including, without limitation, any products liability, personal injury or property damage claims pertaining to products shipped or sold after the Closing. PURCHASE AND SALE AGREEMENT - 10

14 - TAXES AND UTILITIES 14.1 TRANSFER TAXES. All sales taxes, fees, excise taxes, use taxes and other taxes or fees of any form or nature levied upon either party by any governmental entity by reason of the transfer of the Purchased Assets or recording of such transfers, but excluding any tax based on the income of either party real estate taxes owed by Seller or Shareholders, shall be shared equally between Buyer and the Seller. 14.2 UTILITIES, PERSONAL PROPERTY OR REAL ESTATE TAXES. All personal property taxes shall be prorated as of the Closing Date. All utilities owed by the Business and all real estate taxes owed by the Business shall be paid by Seller or Shareholders. 15 - CONDUCT OF OPERATIONS PRIOR TO CLOSING 15.1 CONDUCT OF OPERATIONS. From the date hereof until Closing, Seller shall conduct its operation of the Business in the ordinary course and consistent with its prior practices including the booking of inventory sold but not delivered. Seller agrees not to buy or sell any assets connected with the Business, with a sales price in excess of $5,000, other than Inventory, without the written consent of Buyer during the period from execution of this Agreement until Closing. 16 - CLOSING

14 - TAXES AND UTILITIES 14.1 TRANSFER TAXES. All sales taxes, fees, excise taxes, use taxes and other taxes or fees of any form or nature levied upon either party by any governmental entity by reason of the transfer of the Purchased Assets or recording of such transfers, but excluding any tax based on the income of either party real estate taxes owed by Seller or Shareholders, shall be shared equally between Buyer and the Seller. 14.2 UTILITIES, PERSONAL PROPERTY OR REAL ESTATE TAXES. All personal property taxes shall be prorated as of the Closing Date. All utilities owed by the Business and all real estate taxes owed by the Business shall be paid by Seller or Shareholders. 15 - CONDUCT OF OPERATIONS PRIOR TO CLOSING 15.1 CONDUCT OF OPERATIONS. From the date hereof until Closing, Seller shall conduct its operation of the Business in the ordinary course and consistent with its prior practices including the booking of inventory sold but not delivered. Seller agrees not to buy or sell any assets connected with the Business, with a sales price in excess of $5,000, other than Inventory, without the written consent of Buyer during the period from execution of this Agreement until Closing. 16 - CLOSING 16.1 CLOSING. Closing shall occur on May 1, 2000 in Dallas, Texas or at such other time or place as the parties may agree upon. 16.2 TIME IS OF THE ESSENCE. Time is of the essence for the Closing of this transaction. 17 - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE Buyer shall have no duty to close unless and until each and every one of the following conditions precedent have been fully and completely satisfied: 17.1 CONTINUED TRUTH OF WARRANTIES. All of the representations and warranties of Seller and Shareholders contained herein shall continue to be true and correct at Closing in all material respects; 17.2 PERFORMANCE OF OBLIGATIONS. Seller and Shareholders shall have substantially performed or tendered performance of each and every one of its obligations hereunder which by its terms is capable of performance before Closing; 17.3 DELIVERY OF CLOSING DOCUMENTS. Seller and Shareholders shall have tendered delivery to Buyer of all the documents required to be delivered to Buyer by Seller and Shareholders at Closing; PURCHASE AND SALE AGREEMENT - 11

17.4 LITIGATION. No lawsuit, administrative proceedings or other legal action shall have been filed which seeks to restrain or enjoin the acquisition of the Purchased Assets or the operation of such Purchased Assets in any material respect; 17.5 BOARD OR EXECUTIVE COMMITTEE APPROVAL. This Agreement shall be submitted to Buyer's Board of Directors or the Executive Committee of the Board, and the Board or Committee shall have approved this transaction; 17.6 MATERIAL ADVERSE CHANGE. There has been no material adverse change in the Purchased Assets, sales volume, sales staffing, or margins; 17.7 ESTOPPEL CERTIFICATES. Buyer shall have received from each lessor of the Leased Locations an estoppel certificate confirming that there are no defaults under the lease and agreeing to Buyer's assumption of the

17.4 LITIGATION. No lawsuit, administrative proceedings or other legal action shall have been filed which seeks to restrain or enjoin the acquisition of the Purchased Assets or the operation of such Purchased Assets in any material respect; 17.5 BOARD OR EXECUTIVE COMMITTEE APPROVAL. This Agreement shall be submitted to Buyer's Board of Directors or the Executive Committee of the Board, and the Board or Committee shall have approved this transaction; 17.6 MATERIAL ADVERSE CHANGE. There has been no material adverse change in the Purchased Assets, sales volume, sales staffing, or margins; 17.7 ESTOPPEL CERTIFICATES. Buyer shall have received from each lessor of the Leased Locations an estoppel certificate confirming that there are no defaults under the lease and agreeing to Buyer's assumption of the lease. 17.8 Consulting NONCOMPETE/NONSOLICITATION AGREEMENT. Buyer shall have negotiated and received a mutually agreeable consulting noncompetition/nonsolicitation agreement with David Faulkner. 17.9 DISTRIBUTION AGREEMENT. Buyer shall have entered into a mutually agreeable exclusive distribution agreement with Marvin Windows subject to completion of the transactions provided for in this Agreement. 17.10 TRADEMARKS AND TRADENAMES. Buyer shall have entered into with Seller and Marvin Windows a mutually agreeable license agreement for the Trademarks and Tradenames. 18 - CONDITIONS PRECEDENT TO SELLER'S AND SHAREHOLDERS' DUTY TO CLOSE Seller and Shareholders shall have no duty to close this transaction unless and until each and every one of the following conditions precedent have been fully and completely satisfied: 18.1 CONTINUED TRUTH OF WARRANTIES. All of the representations and warranties of Buyer contained herein shall continue to be true and correct at Closing in all material respects, and Buyer shall deliver a certificate to that effect; 18.2 PERFORMANCE OF OBLIGATIONS. Buyer shall have substantially performed or tendered substantial performance of each and every one of its obligations hereunder which by its terms is capable of performance before Closing; 18.3 DELIVERY OF CLOSING DOCUMENTS. Buyer shall have tendered delivery to Seller and Shareholders all the documents required to be delivered to Seller and Shareholders by Buyer at Closing pursuant to this Agreement; and PURCHASE AND SALE AGREEMENT - 12

18.4 LITIGATION. No lawsuit, administrative proceedings or other legal action shall be pending or threatened against Seller which seeks to restrain or enjoin Seller or Shareholders' sale or Buyer's acquisition of the Purchased Assets. 19 - ITEMS TO BE DELIVERED AT CLOSING BY SELLER AND SHAREHOLDERS At Closing, Seller and Shareholders shall, unless waived by Buyer, deliver the following items to Buyer: 19.1 BILL OF SALE. A duly executed warranty bill of sale conveying the Purchased Assets to Buyer; 19.2 ASSIGNMENT AND ASSUMPTION AGREEMENTS. Agreements duly executed by Seller under which Seller assigns and Buyer assumes and agrees to fully and faithfully perform the Contracts and leases for the Leased Vehicles, Leased Personal Property, and Leased Locations;

18.4 LITIGATION. No lawsuit, administrative proceedings or other legal action shall be pending or threatened against Seller which seeks to restrain or enjoin Seller or Shareholders' sale or Buyer's acquisition of the Purchased Assets. 19 - ITEMS TO BE DELIVERED AT CLOSING BY SELLER AND SHAREHOLDERS At Closing, Seller and Shareholders shall, unless waived by Buyer, deliver the following items to Buyer: 19.1 BILL OF SALE. A duly executed warranty bill of sale conveying the Purchased Assets to Buyer; 19.2 ASSIGNMENT AND ASSUMPTION AGREEMENTS. Agreements duly executed by Seller under which Seller assigns and Buyer assumes and agrees to fully and faithfully perform the Contracts and leases for the Leased Vehicles, Leased Personal Property, and Leased Locations; 19.3 TITLE CERTIFICATES. A certificate of title for each registered motor vehicle to be purchased hereunder which has been duly executed; 19.4 CERTIFIED RESOLUTION. A copy of the resolution of the Board of Directors of Seller authorizing the execution and performance of this Agreement respectively certified by the secretary of Seller; 19.5 REPRESENTATIONS AND WARRANTIES. A certificate signed by Seller and Shareholders to the effect that all of the representations and warranties of Seller and Shareholders contained herein are true and correct in all material respects as of Closing; 19.6 UCC TERMINATION STATEMENTS. All Uniform Commercial Code termination or release statements necessary to transfer the Purchased Assets free and clear of all security interests, liens or encumbrances; and 19.7 NONCOMPETE/NONSOLICITATION AGREEMENTs. Fully executed Noncompete/Nonsolicitation Agreements from Seller, each Shareholder, and David Faulkner as required by this Agreement, and 19.8 LICENSE AGREEMENT. A fully executed License Agreement for the Trademarks and Tradenames with such terms and conditions as are acceptable to Buyer. 20 - ITEMS TO BE DELIVERED AT CLOSING BY BUYER At Closing, Buyer shall, unless waived by Seller, deliver the following items to Seller: 20.1 REPRESENTATIONS AND WARRANTIES. A certificate signed by an officer of Buyer to the effect that all the representations and warranties of Buyer contained herein are true and correct in all material respects as of Closing; PURCHASE AND SALE AGREEMENT - 13

20.2 PURCHASE PRICE. That portion of the Purchase Price to be paid at Closing shall be paid in immediately available funds by wire transfer to such of Seller's and Shareholders' bank accounts as it may designate, and 21 - MISCELLANEOUS 21.1 FURTHER ASSURANCES. Each party shall, at any time after Closing, execute and deliver to the other party all such additional instruments of conveyance and assignments, certificates or similar documents as such other party may reasonably request. 21.2 NONSOLICITATION AGREEMENT. Buyer agrees that if the transactions provided for in this Agreement do not occur for some reason other than Seller's failure to perform the duties and requirements of this Agreement, then Buyer agrees that for a period of one year Buyer will not directly solicit for employment any

20.2 PURCHASE PRICE. That portion of the Purchase Price to be paid at Closing shall be paid in immediately available funds by wire transfer to such of Seller's and Shareholders' bank accounts as it may designate, and 21 - MISCELLANEOUS 21.1 FURTHER ASSURANCES. Each party shall, at any time after Closing, execute and deliver to the other party all such additional instruments of conveyance and assignments, certificates or similar documents as such other party may reasonably request. 21.2 NONSOLICITATION AGREEMENT. Buyer agrees that if the transactions provided for in this Agreement do not occur for some reason other than Seller's failure to perform the duties and requirements of this Agreement, then Buyer agrees that for a period of one year Buyer will not directly solicit for employment any person employed by Seller that was introduced to Buyer during the Due Diligence Period. This restriction on offers of employment shall not include an unsolicited contact with Buyer by an employee of Seller or a response by an employee of Seller to a general advertisement by Buyer. 21.3 NO OTHER AGREEMENTS. This Agreement constitutes the entire agreement between the parties with respect to its subject matter except for the agreements executed in connection with this agreement and the closing of the transaction provided for in this agreement. All prior and contemporaneous negotiations, proposals and agreements between the parties are included in this Agreement. Any changes to this Agreement must be agreed to in writing by both parties. 21.4 WAIVER. Either party may waive the performance of any obligation owed to it by the other party hereunder for the satisfaction of any condition precedent to the waiving party's duty to perform any of its covenants, including its obligations to close. Any such waiver shall be valid only if contained in writing signed by the party to be charged. 21.5 PUBLIC ANNOUNCEMENTS. No public announcements of this Agreement shall be made unless Buyer and Seller have mutually agreed on the timing, distribution, and contents of such announcements, except as may be required by applicable security laws. 21.5 NOTICES. Any notices required or allowed in this Agreement shall be effectively given if placed in a sealed envelope, postage prepaid, and deposited in the United States mail, registered or certified, addressed as follows:
To Seller and Shareholders: ---------------------------------------------------------------------------------------------------------------------------------Attn: --------------------------------------To Buyer: BMCW SouthCentral, L.P. 425 Airline Drive, Suite 200 Coppell, TX 750194608 Attn: William E. Smith, President

PURCHASE AND SALE AGREEMENT - 14

Building Materials Holding Corporation One Market Plaza Steuart Street Tower Suite 2650 San Francisco, California 94105-1475 Attn: Ellis C. Goebel, Senior V.P., Finance and Treasurer Copy To: Building Materials Holding Corporation 720 Park Blvd., Suite 200 Boise, Idaho 83712-7714

Building Materials Holding Corporation One Market Plaza Steuart Street Tower Suite 2650 San Francisco, California 94105-1475 Attn: Ellis C. Goebel, Senior V.P., Finance and Treasurer Copy To: Building Materials Holding Corporation 720 Park Blvd., Suite 200 Boise, Idaho 83712-7714 Attn: Paul S. Street, Senior Vice President, General Counsel and Secretary

21.6 THIRD-PARTY BENEFICIARY. Nothing contained herein shall create or give rise to any third-party beneficiary rights for any individual as a result of the terms and provisions of this Agreement. 21.7 CONFIDENTIAL INFORMATION. The parties agree that all information acquired from the other in connection with the negotiation, execution and consummation of this Agreement is confidential and shall not be disclosed to any other party (other than attorneys, accountants and agents of the party) without the written consent of the other. 21.8 ASSIGNMENT. The parties shall not assign this Agreement without the prior written consent of the other parties. Any attempt to assign this Agreement without prior written consent shall be void. 21.9 CHOICE OF LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the state of Texas. 21.10 PARAGRAPH HEADINGS. The Section and Article paragraph headings contained herein are for convenience only and shall have no substantive bearing on the interpretation of this Agreement. 21.11 RULES OF INTERPRETATION. The following rules of interpretation shall apply to this Agreement, the exhibits hereto and any certificates, reports or other documents or instruments made or delivered pursuant to or in connection with this Agreement, unless otherwise expressly provided herein or therein and unless the context hereof or thereof clearly requires otherwise: A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms, and if a term is said to have the meaning assigned to such term in another document or agreement and the meaning of such terms therein is amended, modified or supplemented, then the meaning of such term herein shall be deemed automatically amended, modified or supplemented in a like manner. PURCHASE AND SALE AGREEMENT - 15

References to the plural include the singular, the plural, and the part the whole. The words "include," "includes," and "including" are not limiting. A reference to any law includes any amendment or modification to such law which is in effect on the relevant date. A reference to any person or entity includes its successors, heirs and permitted assigns. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for purposes of this Agreement or any exhibit hereto or certificate, report or other document or instrument made or delivered pursuant to or in connection with this Agreement, such determination or computation shall be done in accordance with generally accepted accounting principles at the time in effect, to the extent applicable, except where such principles are

References to the plural include the singular, the plural, and the part the whole. The words "include," "includes," and "including" are not limiting. A reference to any law includes any amendment or modification to such law which is in effect on the relevant date. A reference to any person or entity includes its successors, heirs and permitted assigns. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for purposes of this Agreement or any exhibit hereto or certificate, report or other document or instrument made or delivered pursuant to or in connection with this Agreement, such determination or computation shall be done in accordance with generally accepted accounting principles at the time in effect, to the extent applicable, except where such principles are inconsistent with the express requirements hereof or of such exhibit, certificate, report, document or instrument. The words "hereof," "herein," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. All exhibits to this Agreement constitute material terms of this Agreement and are incorporated fully into the terms of this Agreement. 21.12 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be an original, but which shall together constitute but one agreement. The parties have executed this Agreement on the day and year first written above. SELLER: FRONTIER WHOLESALE COMPANY, INC.
By: /s/ A.H. FAULKNER -------------------------------------------Its PRESIDENT

SHAREHOLDERS:
/s/ AUBRY FAULKNER -------------------------------------------Aubrey Faulkner /s/ BETH FAULKNER THOMPSON -------------------------Beth Faulkner Thompson

PURCHASE AND SALE AGREEMENT - 16

/s/ NAN FAULKNER DEALEY -------------------------------------------Nan Faulkner Dealey

/s/ LOIS E. FAULKNER -------------------------------------------Lois Elizabeth Faulkner

/s/ NAN FAULKNER DEALEY -------------------------------------------Nan Faulkner Dealey

/s/ LOIS E. FAULKNER -------------------------------------------Lois Elizabeth Faulkner

BUYER: BMCW SOUTHCENTRAL, L.P. By: BMCW Corporation South Central Its: General Partner
By: /s/ ELLIS C. GOEBEL -------------------------------------------Ellis C. Goebel, Senior Vice President Finance and Treasurer

PURCHASE AND SALE AGREEMENT - 17

EXHIBIT 11.0 BUILDING MATERIALS HOLDING CORPORATION Computation of Earnings Per Share FOR THE YEAR ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 ----------COMPUTATION OF BASIC EARNINGS PER SHARE Net income available to common shareholders 1999 ---------1998 -----------

$19,712,000 ===========

$19,683,000 ===========

$15,149,000 ===========

Weighted average shares outstanding

12,753,663 ==========

12,667,372 ==========

12,509,351 ==========

Basic earnings per share

$1.55 =====

$1.55 =====

$1.21 =====

COMPUTATION OF DILUTED EARNINGS PER SHARE Net income available to common shareholders

$19,712,000 ===========

$19,683,000 ===========

$15,149,000 ===========

Weighted average shares outstanding

12,753,663

12,667,372

12,509,351

Net effect of dilutive stock options based on the treasury stock

EXHIBIT 11.0 BUILDING MATERIALS HOLDING CORPORATION Computation of Earnings Per Share FOR THE YEAR ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 ----------COMPUTATION OF BASIC EARNINGS PER SHARE Net income available to common shareholders 1999 ---------1998 -----------

$19,712,000 ===========

$19,683,000 ===========

$15,149,000 ===========

Weighted average shares outstanding

12,753,663 ==========

12,667,372 ==========

12,509,351 ==========

Basic earnings per share

$1.55 =====

$1.55 =====

$1.21 =====

COMPUTATION OF DILUTED EARNINGS PER SHARE Net income available to common shareholders

$19,712,000 ===========

$19,683,000 ===========

$15,149,000 ===========

Weighted average shares outstanding

12,753,663

12,667,372

12,509,351

Net effect of dilutive stock options based on the treasury stock method using average market price

68,694 --------12,822,357 ==========

125,160 --------12,792,532 ==========

137,489 --------12,646,840 ==========

Total shares outstanding

Diluted earnings per share

$1.54

$1.54

$1.20

=====

=====

=====

FINANCIAL REVIEW Building Materials Holding Corporation This financial review covers management's discussion and analysis of consolidated financial condition and operating results and should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Annual Report. RESULTS OF OPERATIONS The following table sets forth, for the years ended December 31, 2000, 1999 and 1998, the percentage relationship to net sales of certain costs, expenses and income items.

FINANCIAL REVIEW Building Materials Holding Corporation This financial review covers management's discussion and analysis of consolidated financial condition and operating results and should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Annual Report. RESULTS OF OPERATIONS The following table sets forth, for the years ended December 31, 2000, 1999 and 1998, the percentage relationship to net sales of certain costs, expenses and income items.
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Net sales ........................ 100.0% 100.0% 100.0% Gross profit ..................... 26.7 25.0 24.4 Selling, general and administrative expense ......... 22.7 20.7 20.5 Other income ..................... 0.2 0.2 0.1 Income from operations ........... 4.2 4.5 4.0 Equity in earnings of unconsolidated companies ....... 0.8 0.5 -Interest expense ................. 1.7 1.3 1.2 Income taxes ..................... 1.3 1.4 1.1 Extraordinary charge ............. -(0.3) -Net income ....................... 1.9 2.0 1.7 ================================================================================

2000 COMPARED WITH 1999 Net sales for 2000 were $1,014.0 million, a 0.7% increase over net sales of $1,007.1 million in 1999. Sales at facilities that operated for at least nine months of the year in both 1999 and 2000 decreased 1.2%. This samestore sales decrease is primarily due to deflation of commodity wood prices. Value-added products accounted for $410.1 million, or 40.4% of net sales in 2000, an increase from $348.6 million, or 34.6% of net sales in 1999. Gross profit increased to $270.4 million, or 26.7% of net sales in 2000 from $252.0 million, or 25.0% of net sales, in 1999, primarily as a result of a positive effect of the increased mix of higher-margin value-added products such as pre-hung doors, millwork, roof trusses and pre-assembled windows. In addition, gross margins of our commodity wood products have increased due to the impact of the deflationary environment resulting in lower material costs. Selling, general and administrative ("SG&A") expense increased to $229.9 million, or 22.7% of net sales, in 2000 from $208.8 million, or 20.7% of net sales, in 1999. This increase as a percentage of net sales was due primarily to the continued deflation in prices of commodity wood products and higher costs associated with expanding value-added sales. In addition, low unemployment and a tight labor market resulted in higher wage costs in our efforts to attract and retain high quality employees in 2000. In 2000, other income included a $2.2 million gain on the sale of real estate in Beaverton, Oregon, offset by a $1.8 million goodwill asset impairment charge resulting from the pending sale of a business unit in Grand Junction, Colorado. Other income in 1999 included a $1.4 million gain on sales of equipment and three business units located in Texas, offset by costs of $0.8 million related to a postponed private placement of subordinated debt. Equity in earnings of unconsolidated companies increased to $8.4 million, net of amortization of goodwill, compared to $5.0 million in 1999. This increase is attributed to the improved profitability of the companies in which we have invested and the inclusion of equity in earnings for all of 2000 compared to only eight months in 1999. Interest expense increased to $17.7 million, or 1.7% of net sales in 2000 from $13.2 million, or 1.3% of net sales in 1999. The increase was due primarily to increases in interest rates and average debt outstanding. Average debt

outstanding was $175.2 million in 2000 compared with $156.2 million in 1999. Average interest rates on variable rate debt were approximately 9.3% for 2000 compared with 7.6% for 1999. Increased average debt outstanding resulted primarily from additional financing needed during peak sales months during the year and from financing of acquisitions made in 1999 and 2000. The provision for income taxes decreased to $13.5 million in 2000 from $14.4 million in 1999. The decrease in the provision for income taxes resulted primarily from decreased income from operations in 2000 as compared with the prior year. In 2000, our tax rate increased to 40.7% from 38.5% in 1999. This was primarily due to the non-deductibility of the goodwill asset impairment charge for tax purposes. 1999 COMPARED WITH 1998 Net sales for 1999 were $1,007.1 million, a 14.8% increase over net sales of $877.3 million in 1998. Sales in 1999 were positively affected by favorable overall economic conditions including strong employment levels and consumer confidence. Acquisitions of building materials centers and value-added facilities that occurred in 1998 and 1999 contributed a 5.3% increase to net sales in 1999. Sales at facilities that operated for at least nine months of the year in both 1998 and 1999 increased 13.5%. This same-store sales increase is largely due to the shift in our focus toward value-added products that attract new customers and gives us the opportunity to increase our total sales per building permit. Value-added products accounted for $348.6 million, or 34.6% of net sales in 1999, an increase from $275.9 million, or 31.4% of net sales in 1998. Gross profit increased to $252.0 million, or 25.0% of net sales in 1999 from $214.2 million, or 24.4% of net sales, in 1998, primarily as a result of a positive effect of the increased mix of higher-margin, value-added products such as pre-hung doors, millwork, roof trusses and pre-assembled windows and higher commodity wood prices. SG&A increased to $208.8 million, or 20.7% of net sales, in 1999 from $180.1 million, or 20.5% of net sales, in 1998. This increase as a percentage of net sales was due primarily to higher costs associated with expanding value-added sales and costs associated with integrating new operating units acquired in the fourth quarter of 1998 and the full year of 1999. In addition, low unemployment and a tight labor market resulted in higher wage costs in 1999 in an effort to attract and retain high quality employees. Other income increased primarily from a gain of $1.4 million on sales of equipment and three facilities located in Texas. This was partially offset by costs of $0.8 million related to a postponed private placement of subordinated debt.

Equity in earnings of unconsolidated companies increased to $5.0 million, net of amortization of goodwill, after completion of an investment of a 49% interest in Knipp Brothers Industries, LLC, a framing company, and KBI Distribution, LLC, a lumber yard, during 1999. Interest expense increased to $13.2 million, or 1.3% of net sales in 1999 from $10.2 million, or 1.2% of net sales in 1998. The increase was due primarily to increases in interest rates and average debt outstanding. Average debt outstanding was $156.2 million in 1999 compared with $121.9 million in 1998. Average interest rates on variable rate debt were approximately 7.6% for 1999 compared with 6.8% for 1998. Increased average debt outstanding resulted primarily from higher working capital requirements resulting from increased sales activity and from financing of acquisitions made in 1999. The provision for income taxes increased to $14.4 million in 1999 from $9.8 million in 1998. The increase in the provision for income taxes resulted primarily from increased income from operations in 1999 as compared with the prior year. In 1999, our tax rate decreased to 38.5% from 39.2% in 1998. This was primarily due to a decrease in our state income taxes. The Company entered into a new senior secured credit facility in 1999 and used the net proceeds to repay amounts borrowed under its prior senior credit facility, two outstanding series of senior notes and a promissory note issued in connection with an acquisition. Upon repayment of the senior notes, the Company paid a redemption premium and wrote off related deferred financing costs, the aggregate of which is reflected as an extraordinary charge that reduced 1999 earnings by $3.4 million, or $0.26 per diluted share, net of tax.

Equity in earnings of unconsolidated companies increased to $5.0 million, net of amortization of goodwill, after completion of an investment of a 49% interest in Knipp Brothers Industries, LLC, a framing company, and KBI Distribution, LLC, a lumber yard, during 1999. Interest expense increased to $13.2 million, or 1.3% of net sales in 1999 from $10.2 million, or 1.2% of net sales in 1998. The increase was due primarily to increases in interest rates and average debt outstanding. Average debt outstanding was $156.2 million in 1999 compared with $121.9 million in 1998. Average interest rates on variable rate debt were approximately 7.6% for 1999 compared with 6.8% for 1998. Increased average debt outstanding resulted primarily from higher working capital requirements resulting from increased sales activity and from financing of acquisitions made in 1999. The provision for income taxes increased to $14.4 million in 1999 from $9.8 million in 1998. The increase in the provision for income taxes resulted primarily from increased income from operations in 1999 as compared with the prior year. In 1999, our tax rate decreased to 38.5% from 39.2% in 1998. This was primarily due to a decrease in our state income taxes. The Company entered into a new senior secured credit facility in 1999 and used the net proceeds to repay amounts borrowed under its prior senior credit facility, two outstanding series of senior notes and a promissory note issued in connection with an acquisition. Upon repayment of the senior notes, the Company paid a redemption premium and wrote off related deferred financing costs, the aggregate of which is reflected as an extraordinary charge that reduced 1999 earnings by $3.4 million, or $0.26 per diluted share, net of tax. LIQUIDITY AND CAPITAL RESOURCES The Company's primary need for capital resources is to fund future growth and capital expenditures, as well as to finance its working capital needs, which have been increasing as the Company has grown in recent years. Capital resources have primarily consisted of cash flows from operations and incurrence of debt. OPERATIONS In 2000, operations provided $41.4 million in cash, compared with $14.6 million in 1999, an increase of $26.8 million. This increase is primarily a result of improved collections of receivables, improved inventory management, increased cash distributions from the Company's equity investments in unconsolidated companies and prepayment of 2000 income taxes in 1999, offset by increased interest payments in 2000. In 1999, operations provided $14.6 million in cash, compared with $44.8 million in 1998, a decrease of $30.2 million due primarily to changes in accounts receivable, inventory, prepaid expenses and accounts payable and accrued expenses. Actual net working capital was $142.1 million at the end of 2000, compared with $139.3 million at the end of 1999. The increase in working capital was primarily due to an increase in receivables and a decrease in payables. Actual net working capital was $139.3 million at the end of 1999, compared with $116.7 million at the end of 1998. The increase in working capital was primarily the result of higher sales activity over 1998 levels. Receivables, net, increased $18.0 million, or 19.6% compared to the prior year, however, $6.7 million of this increase was attributable to locations acquired in 1999. CAPITAL INVESTMENT AND ACQUISITIONS Capital expenditures, exclusive of acquisitions, were $35.5 million in 2000, $27.4 million in 1999 and $19.6 million in 1998. Capital expenditures were incurred to acquire additional property and expand and remodel existing building materials centers and value-added facilities. Proceeds from the dispositions of property, plant and equipment were $11.5 million in 2000, related primarily to the sale of the Beaverton, Colorado Springs and South Austin properties. In 2000, cash used for acquisitions totaled $5.9 million. During 2000, the Company completed the acquisition of a millwork facility that was consolidated into one of the Company's existing locations and the acquisition of four window distribution centers along with several sales offices. In 1999, cash used for acquisitions and equity investments totaled $41.9 million. During 1999, the Company completed four transactions, including nine value-added facilities and two equity-basis investments.

FINANCING Net cash used by financing activities was $13.6 million in 2000 compared to $44.5 million of cash provided in 1999. The Company was able to utilize its cash from operations to reduce debt levels in 2000. The Company's existing senior credit facility provided for borrowings up to $247.2 million, which includes $108.3 million provided for by the term loan, all of which was outstanding at December 31, 2000, and $138.9 million provided for by the revolving credit facility, $52.2 million of which was outstanding at December 31, 2000. Borrowings under the agreement bear interest at prime plus 0.50% to 1.50%, or Offshore1 Rate plus 2.00% to 3.00%. The agreement expires in 2004. The agreements related to these borrowings contain covenants providing for the maintenance of certain financial ratios and conditions including total funded debt to earnings before interest, taxes, amortization (EBITA) and limitations on capital expenditures, among certain other restrictions. The Company is currently in compliance with these covenants and conditions. The Company filed a shelf registration with the Securities and Exchange Commission to register 2,000,000 shares of common stock. These shares may be issued from time to time in connection with future business combinations, mergers and/or acquisitions. Based on the Company's ability to generate cash flow from operations, its borrowing capacity under the revolver and its access to equity markets, the Company believes it will have sufficient capital to meet its anticipated needs.

DISCLOSURES OF CERTAIN MARKET RISKS The Company experiences changes in interest expense when market interest rates change. Changes in the Company's debt could also increase these risks. The Company has managed its exposure to market interest rate changes through periodic refinancing of its variable rate debt with fixed rate term debt obligations. Based on debt outstanding at December 31, 2000, a 25 basis point increase in interest rates would result in approximately $413,000 of additional interest costs. Commodity wood products, including lumber and panel products, accounted for approximately 41% and 44% of net sales in 2000 and 1999, respectively. Prices of commodity wood products, which are subject to significant volatility, could directly affect the Company's net sales. As disclosed in the financial statements the Company does not utilize any derivative financial instruments. QUARTERLY RESULTS AND SEASONALITY The Company's first and fourth quarters historically are adversely affected by weather patterns in the Company's markets which result in decreases in levels of building and construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period as a consequence of the impact of various other factors, including general economic conditions, commodity wood prices, interest rates, building permit activity, single-family housing starts, employment levels, consumer confidence, and the availability of credit to professional contractors. The composition and level of working capital typically change during periods of increasing sales as the Company carries more inventories and receivables. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak building and construction season. These increases historically have resulted in negative operating cash flows during this peak season, which generally have been financed through the revolving credit agreement. Collection of receivables and reduction in inventory levels following the peak of the building and construction season have more than offset this negative cash flow in recent years. The Company believes it will continue to generate positive annual cash flows from operating activities. NEW ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and

DISCLOSURES OF CERTAIN MARKET RISKS The Company experiences changes in interest expense when market interest rates change. Changes in the Company's debt could also increase these risks. The Company has managed its exposure to market interest rate changes through periodic refinancing of its variable rate debt with fixed rate term debt obligations. Based on debt outstanding at December 31, 2000, a 25 basis point increase in interest rates would result in approximately $413,000 of additional interest costs. Commodity wood products, including lumber and panel products, accounted for approximately 41% and 44% of net sales in 2000 and 1999, respectively. Prices of commodity wood products, which are subject to significant volatility, could directly affect the Company's net sales. As disclosed in the financial statements the Company does not utilize any derivative financial instruments. QUARTERLY RESULTS AND SEASONALITY The Company's first and fourth quarters historically are adversely affected by weather patterns in the Company's markets which result in decreases in levels of building and construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period as a consequence of the impact of various other factors, including general economic conditions, commodity wood prices, interest rates, building permit activity, single-family housing starts, employment levels, consumer confidence, and the availability of credit to professional contractors. The composition and level of working capital typically change during periods of increasing sales as the Company carries more inventories and receivables. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak building and construction season. These increases historically have resulted in negative operating cash flows during this peak season, which generally have been financed through the revolving credit agreement. Collection of receivables and reduction in inventory levels following the peak of the building and construction season have more than offset this negative cash flow in recent years. The Company believes it will continue to generate positive annual cash flows from operating activities. NEW ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and reporting standards requiring derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at their fair value. The Company was required to adopt this Statement, as amended by SFAS No. 138, on January 1, 2001 and, based on the Company's present and historic use of derivative instruments, the adoption of this statement did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. In April 2000, the Financial Accounting Standards Board issued Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving Stock Compensation-an interpretation of APB Opinion No. 25." FIN 44 clarifies and modifies APB 25, "Accounting for Stock Issued to Employees". The provisions of FIN 44 became effective in 2000 and did not have a material effect on the Company's results of operations, financial position or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements". The SAB summarizes certain staff views in applying generally accepted accounting principles to revenue recognition in financial statements. The provisions of this bulletin became effective in 2000 and did not have a material effect on the Company's results of operations, financial position or cash flow. OUTLOOK The Company's financial performance could be negatively impacted by any adverse economic changes in the Company's geographic market areas. The building materials industry has seen cyclicality in the past. The Company's operations have been subject to fluctuations from period to period as a reflection of changes in general economic conditions, commodity wood product prices, building permit activity, interest rates, single-

family housing starts, employment levels, consumer confidence and the availability of credit to professional contractors and homeowners. These factors may have a more significant impact on the Company, which derives a significant percentage of its net sales from professional contractors, than on those building supply companies that target a broad range of retail customers. The Company expects that fluctuations from period to period will continue in the future. Additionally, the Company's results of operations throughout the year are impacted by the weather in the states in which the Company has operations. The Company's financial performance could be negatively impacted by poor weather, which historically has affected building activity levels in the Company's market areas in the first and fourth quarters. Commodity wood products, including lumber and panel products, currently account for approximately 41% of the Company's net sales. Prices of commodity wood products, which are subject to significant volatility, directly affect the Company's sales, and future declines in commodity wood prices could adversely impact the Company's results of operations. Certain statements in the Financial Review and elsewhere in the Annual Report to Shareholders may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors are discussed in detail above or in the Company's Form 10-K for the fiscal year ended December 31, 2000. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in the Annual Report on Form 10-K except as required by law.

CONSOLIDATED STATEMENTS OF INCOME Building Materials Holding Corporation
For the years ended December 31, --------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 --------------------------------------------------------------------------------------Net sales ........................................ $1,013,968 $1,007,108 $877,280 Cost of sales .................................... 743,523 755,137 663,122 --------------------------------------------------------------------------------------Gross profit ..................................... 270,445 251,971 214,158 Selling, general and administrative expense ...... 229,861 208,775 180,129 Other income (expense), net ...................... 1,952 2,466 1,094 --------------------------------------------------------------------------------------Income from operations ........................... 42,536 45,662 35,123 Equity in earnings of unconsolidated companies, net of amortization ............................ 8,421 4,978 -Interest expense ................................. 17,722 13,184 10,218 --------------------------------------------------------------------------------------Income before income taxes and extraordinary item. 33,235 37,456 24,905 Income taxes ..................................... 13,523 14,421 9,756 --------------------------------------------------------------------------------------Income before extraordinary item ................. 19,712 23,035 15,149 Extraordinary item, net of tax ................... -(3,352) ---------------------------------------------------------------------------------------Net income ....................................... $ 19,712 $ 19,683 $ 15,149 ======================================================================================= Income before extraordinary item per share: Basic .......................................... $ 1.55 $ 1.82 $ 1.21 Diluted ........................................ $ 1.54 $ 1.80 $ 1.20 Net income per share: Basic .......................................... $ 1.55 $ 1.55 $ 1.21 Diluted ........................................ $ 1.54 $ 1.54 $ 1.20

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME Building Materials Holding Corporation
For the years ended December 31, --------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 --------------------------------------------------------------------------------------Net sales ........................................ $1,013,968 $1,007,108 $877,280 Cost of sales .................................... 743,523 755,137 663,122 --------------------------------------------------------------------------------------Gross profit ..................................... 270,445 251,971 214,158 Selling, general and administrative expense ...... 229,861 208,775 180,129 Other income (expense), net ...................... 1,952 2,466 1,094 --------------------------------------------------------------------------------------Income from operations ........................... 42,536 45,662 35,123 Equity in earnings of unconsolidated companies, net of amortization ............................ 8,421 4,978 -Interest expense ................................. 17,722 13,184 10,218 --------------------------------------------------------------------------------------Income before income taxes and extraordinary item. 33,235 37,456 24,905 Income taxes ..................................... 13,523 14,421 9,756 --------------------------------------------------------------------------------------Income before extraordinary item ................. 19,712 23,035 15,149 Extraordinary item, net of tax ................... -(3,352) ---------------------------------------------------------------------------------------Net income ....................................... $ 19,712 $ 19,683 $ 15,149 ======================================================================================= Income before extraordinary item per share: Basic .......................................... $ 1.55 $ 1.82 $ 1.21 Diluted ........................................ $ 1.54 $ 1.80 $ 1.20 Net income per share: Basic .......................................... $ 1.55 $ 1.55 $ 1.21 Diluted ........................................ $ 1.54 $ 1.54 $ 1.20

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS Building Materials Holding Corporation
At December 31, ---------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 ---------------------------------------------------------------------------------------ASSETS Current assets Cash .......................................................... $ 4,570 $ 7,452 Receivables, net .............................................. 111,287 110,123 Inventories ................................................... 79,023 80,679 Deferred income tax benefit ................................... 4,375 2,781 Prepaid expenses .............................................. 3,934 7,652 ---------------------------------------------------------------------------------------Total current assets ........................................ 203,189 208,687 Property, plant and equipment, net .............................. 167,709 153,598 Equity investments in unconsolidated companies .................. 31,787 30,762 Goodwill, net ................................................... 46,679 47,477 Deferred loan costs ............................................. 3,981 4,873 Other long-term assets .......................................... 6,289 4,722 ---------------------------------------------------------------------------------------Total assets .................................................... $459,634 $450,119 ======================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt ............................. $ -$ 3,200 Accounts payable and accrued expenses ......................... 61,114 66,204 ---------------------------------------------------------------------------------------Total current liabilities ................................... 61,114 69,404

CONSOLIDATED BALANCE SHEETS Building Materials Holding Corporation
At December 31, ---------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 ---------------------------------------------------------------------------------------ASSETS Current assets Cash .......................................................... $ 4,570 $ 7,452 Receivables, net .............................................. 111,287 110,123 Inventories ................................................... 79,023 80,679 Deferred income tax benefit ................................... 4,375 2,781 Prepaid expenses .............................................. 3,934 7,652 ---------------------------------------------------------------------------------------Total current assets ........................................ 203,189 208,687 Property, plant and equipment, net .............................. 167,709 153,598 Equity investments in unconsolidated companies .................. 31,787 30,762 Goodwill, net ................................................... 46,679 47,477 Deferred loan costs ............................................. 3,981 4,873 Other long-term assets .......................................... 6,289 4,722 ---------------------------------------------------------------------------------------Total assets .................................................... $459,634 $450,119 ======================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt ............................. $ -$ 3,200 Accounts payable and accrued expenses ......................... 61,114 66,204 ---------------------------------------------------------------------------------------Total current liabilities ................................... 61,114 69,404 Long-term debt, net of current portion .......................... 165,006 170,547 Deferred income taxes ........................................... 6,303 5,124 Other long-term liabilities ..................................... 6,656 4,934 ---------------------------------------------------------------------------------------Total liabilities ............................................... 239,079 250,009 ---------------------------------------------------------------------------------------Commitments and Contingencies Shareholders' equity Common stock, $.001 par value, 20,000,000 shares authorized; 12,839,607 and 12,679,686 shares outstanding, respectively 13 13 Additional paid-in capital .................................... 109,166 108,433 Retained earnings ............................................. 111,376 91,664 ---------------------------------------------------------------------------------------Total shareholders' equity .................................. 220,555 200,110 ---------------------------------------------------------------------------------------Total liabilities and shareholders' equity ...................... $459,634 $450,119 ========================================================================================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Building Materials Holding Corporation
Common Stock Additional ----------------Paid-In Retained (AMOUNTS IN THOUSANDS) Shares Amount Capital Earnings Total ---------------------------------------------------------------------------------------------Balance, December 31, 1997 ............ 12,331 $12 $104,107 $ 56,832 $160,951 Net income ............................ ---15,149 15,149 Stock issued for acquisitions ......... 299 -4,000 -4,000 Stock options exercised and other ..... 22 1 149 -150 ---------------------------------------------------------------------------------------------Balance, December 31, 1998 ............ 12,652 13 108,256 71,981 180,250 Net income ............................ ---19,683 19,683 Stock options exercised and other ..... 28 -177 -177 ----------------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Building Materials Holding Corporation
Common Stock Additional ----------------Paid-In Retained (AMOUNTS IN THOUSANDS) Shares Amount Capital Earnings Total ---------------------------------------------------------------------------------------------Balance, December 31, 1997 ............ 12,331 $12 $104,107 $ 56,832 $160,951 Net income ............................ ---15,149 15,149 Stock issued for acquisitions ......... 299 -4,000 -4,000 Stock options exercised and other ..... 22 1 149 -150 ---------------------------------------------------------------------------------------------Balance, December 31, 1998 ............ 12,652 13 108,256 71,981 180,250 Net income ............................ ---19,683 19,683 Stock options exercised and other ..... 28 -177 -177 ---------------------------------------------------------------------------------------------Balance, December 31, 1999 ............ 12,680 13 108,433 91,664 200,110 NET INCOME ............................ ---19,712 19,712 STOCK OPTIONS EXERCISED AND OTHER ..... 160 -733 -733 ---------------------------------------------------------------------------------------------BALANCE, DECEMBER 31, 2000 ............ 12,840 $13 $109,166 $111,376 $220,555 ==============================================================================================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF CASH FLOWS Building Materials Holding Corporation
For the years ended December 31, -------------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS) 2000 1999 1998 -------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................ $ 19,712 $ 19,683 $ 15,149 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ........................... 17,213 14,149 12,955 Deferred income taxes ................................... (415) (573) (137) Loss (gain) on sale of assets ........................... (2,611) (1,403) 91 Asset impairment charge ................................. 1,800 --Equity in earnings of unconsolidated companies, net of amortization ....................................... (8,421) (4,978) -Distributions received from unconsolidated companies .... 7,396 2,496 -Extraordinary item, write-off of deferred financing costs -663 -Changes in assets and liabilities, net of effects of acquisitions and location sales Receivables, net ........................................ 823 (12,418) 733 Inventories ............................................. 2,020 (2,419) 5,974 Prepaid expenses ........................................ 3,735 (5,287) 1,213 Accounts payable and accrued expenses ................... (1,465) 662 8,868 Other long-term liabilities ............................. 1,722 1,633 3 Other, net .............................................. (69) 2,409 (34) -------------------------------------------------------------------------------------------Net cash provided by operating activities ................. 41,440 14,617 44,815 -------------------------------------------------------------------------------------------CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ....................... (35,500) (27,380) (19,595) Acquisitions, net of cash acquired ........................ (5,905) (15,779) (24,330) Equity investment in unconsolidated companies ............. -(26,093) -Proceeds from dispositions of property and equipment ...... 11,526 4,152 909 Proceeds from sale of business units, net of cash sold .... -6,680 -Investments in preferred stock ............................ -(1,000) -Other, net ................................................ (818) (511) --------------------------------------------------------------------------------------------Net cash used in investing activities ..................... (30,697) (59,931) (43,016) --------------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS Building Materials Holding Corporation
For the years ended December 31, -------------------------------------------------------------------------------------------(AMOUNTS IN THOUSANDS) 2000 1999 1998 -------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................ $ 19,712 $ 19,683 $ 15,149 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ........................... 17,213 14,149 12,955 Deferred income taxes ................................... (415) (573) (137) Loss (gain) on sale of assets ........................... (2,611) (1,403) 91 Asset impairment charge ................................. 1,800 --Equity in earnings of unconsolidated companies, net of amortization ....................................... (8,421) (4,978) -Distributions received from unconsolidated companies .... 7,396 2,496 -Extraordinary item, write-off of deferred financing costs -663 -Changes in assets and liabilities, net of effects of acquisitions and location sales Receivables, net ........................................ 823 (12,418) 733 Inventories ............................................. 2,020 (2,419) 5,974 Prepaid expenses ........................................ 3,735 (5,287) 1,213 Accounts payable and accrued expenses ................... (1,465) 662 8,868 Other long-term liabilities ............................. 1,722 1,633 3 Other, net .............................................. (69) 2,409 (34) -------------------------------------------------------------------------------------------Net cash provided by operating activities ................. 41,440 14,617 44,815 -------------------------------------------------------------------------------------------CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ....................... (35,500) (27,380) (19,595) Acquisitions, net of cash acquired ........................ (5,905) (15,779) (24,330) Equity investment in unconsolidated companies ............. -(26,093) -Proceeds from dispositions of property and equipment ...... 11,526 4,152 909 Proceeds from sale of business units, net of cash sold .... -6,680 -Investments in preferred stock ............................ -(1,000) -Other, net ................................................ (818) (511) --------------------------------------------------------------------------------------------Net cash used in investing activities ..................... (30,697) (59,931) (43,016) -------------------------------------------------------------------------------------------CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under term note ................................. 11,100 100,000 -Net (payments) borrowings under revolving credit agreements (20,785) 27,792 7,705 Principal payments of unsecured senior notes .............. -(66,667) (9,457) Principal payments of other note payables ................. -(8,723) -Decrease in net checks in process ......................... (3,880) (3,112) -Deferred financing costs .................................. -(4,963) -Other, net ................................................ (60) 175 40 ------------------------------------------------------------------------------------------Net cash (used in) provided by financing activities ....... (13,625) 44,502 (1,712) ------------------------------------------------------------------------------------------Net change in cash ........................................ (2,882) (812) 87 Cash, beginning of period ................................. 7,452 8,264 8,177 ------------------------------------------------------------------------------------------Cash, end of period ....................................... $ 4,570 $ 7,452 $ 8,264 ========================================================================================== Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest, net of amounts capitalized ................... $ 16,858 $ 13,294 $ 10,389 Income taxes .......................................... $ 9,612 $ 21,314 6,068

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Building Materials Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Building Materials Holding Corporation 1. ORGANIZATIONAL STRUCTURE, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATIONAL STRUCTURE AND NATURE OF OPERATIONS Building Materials Holding Corporation ("BMHC") operates two wholly-owned subsidiaries-BMC West Corporation ("BMHC West") and BMC Framing, Inc. BMC West is a distributor and retailer of building materials in regions of the United States, selling primarily to professional contractors, as well as to projectoriented consumers (including professional repair and remodel contractors hired by them), with 137 facilities organized into 56 business units. BMC West provides value-added products, which include pre-hung doors, roof trusses and pre-assembled windows, and lumber pre-cut to meet customer specifications. BMC Framing, Inc., owns a 49% equity interest in Knipp Brothers Industries, LLC, ("KBI") a framing contractor in Arizona and Nevada, KBI Distribution, LLC ("Distribution"), a provider of building materials in Arizona, and KB Industries Limited Partnership, a framing contractor in California. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of BMHC and its wholly owned subsidiaries (the "Company"). The equity method of accounting is used for investments in which the Company has significant influence. All significant intercompany balances and transactions are eliminated in consolidation. RECLASSIFICATIONS Certain reclassifications have been made to amounts reported in prior periods, none of which affect the Company's financial position, results of operations, or cash flows. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The Company reviews the recoverability of all long-lived assets including goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The measurement of any impairment is based primarily on the ability to recover the cost of long-lived assets from expected future operating cash flows on an undiscounted basis. Except for that disclosed in note 3, in management's opinion, no such impairment existed at December 31, 2000 and 1999. CASH AND CASH EQUIVALENTS Cash represents amounts on deposit with high-credit-quality financial institutions and such balances may, at times, exceed FDIC limits. The Company considers all highly liquid investments that have a maturity of three months or less at the date of purchase to be cash equivalents. INVENTORIES Inventories consist principally of materials purchased for resale and are stated at the lower of average cost or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including software costs, are stated at cost and depreciated using the straight-line method. The estimated useful lives are ten to thirty years for buildings and improvements, seven to ten years for machinery and fixtures and three to ten years for handling and delivery equipment.

Major additions and improvements are capitalized, while maintenance and repairs that do not extend the useful life of the property are expensed as incurred. Gains and losses from dispositions of property, plant and equipment are included in the Company's consolidated statement of income in other income (expense) net. The Company capitalizes interest on borrowings during the active construction period on major capital projects. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful life of the asset. In 1999, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires companies to capitalize certain costs, including interest, of computer software developed or obtained for internal use, provided that those costs are not research and development, and other certain criteria are met. As a result, the Company capitalized $6,182,000 of internal use software development costs through December 31, 2000. DEFERRED LOAN COSTS Loan costs are capitalized upon the issuance of long-term debt and amortized over the life of the related debt using the effective interest rate method for the Company's term note and the straight-line method for the Company's revolving credit facility.

Interest expense includes amortization of deferred loan costs of $1,166,000, $341,000, and $410,000 in 2000, 1999, and 1998, respectively. GOODWILL Goodwill is amortized on a straight-line basis generally over 30 years. Accumulated amortization of goodwill was $6,842,000 and $5,460,000 at December 31, 2000 and 1999, respectively. OTHER ASSETS Other assets consist of cash surrender values on Company owned life insurance, a preferred stock investment accounted for at historical cost, non-compete agreements arising from acquisitions and trade rebates receivable from cooperative supplier organizations. The non-compete agreements are amortized over the life of the related agreements (two to five years). REVENUE RECOGNITION Revenues are recognized when title to the goods passes to the buyer, which is generally at the time of delivery. STOCK COMPENSATION The Company records compensation expense associated with awards of stock using the intrinsic method rather than the fair value method. ADVERTISING Advertising costs are expensed when incurred. During 2000, 1999 and 1998 advertising expense was $922,000, $1,964,000, and $1,953,000, respectively. SHIPPING AND HANDLING Shipping and handling costs are included in selling, general, and administrative expense. During 2000, 1999, and 1998, shipping and handling costs were $19,681,000, $17,443,000, and $15,457,000, respectively. NEW ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Statement

Interest expense includes amortization of deferred loan costs of $1,166,000, $341,000, and $410,000 in 2000, 1999, and 1998, respectively. GOODWILL Goodwill is amortized on a straight-line basis generally over 30 years. Accumulated amortization of goodwill was $6,842,000 and $5,460,000 at December 31, 2000 and 1999, respectively. OTHER ASSETS Other assets consist of cash surrender values on Company owned life insurance, a preferred stock investment accounted for at historical cost, non-compete agreements arising from acquisitions and trade rebates receivable from cooperative supplier organizations. The non-compete agreements are amortized over the life of the related agreements (two to five years). REVENUE RECOGNITION Revenues are recognized when title to the goods passes to the buyer, which is generally at the time of delivery. STOCK COMPENSATION The Company records compensation expense associated with awards of stock using the intrinsic method rather than the fair value method. ADVERTISING Advertising costs are expensed when incurred. During 2000, 1999 and 1998 advertising expense was $922,000, $1,964,000, and $1,953,000, respectively. SHIPPING AND HANDLING Shipping and handling costs are included in selling, general, and administrative expense. During 2000, 1999, and 1998, shipping and handling costs were $19,681,000, $17,443,000, and $15,457,000, respectively. NEW ACCOUNTING STANDARDS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and reporting standards requiring derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at their fair value. The Company was required to adopt this Statement, as amended by SFAS No. 138, January 1, 2001 and based on the Company's present and historic use of derivative instruments, the adoption of this Statement did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. In April 2000, the Financial Accounting Standards Board issued Interpretation No.44 (FIN 44), "Accounting for Certain Transactions Involving Stock Compensation-an interpretation of APB Opinion No. 25". FIN 44 clarifies and modifies APB 25, "Accounting for Stock Issued to Employees". The provisions of FIN 44 became effective in 2000 and did not have a material effect on the Company's results of operations, financial position or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements". The SAB summarizes certain staff views in applying generally accepted accounting principles to revenue recognition in financial statements. The provisions of this bulletin became effective in 2000 and did not have a material effect on the Company's results of operations, financial position or cash flows. 2. EXTRAORDINARY ITEM

During the fourth quarter of 1999, the Company repaid its unsecured senior subordinated notes prior to maturity. In connection with this early retirement, the Company wrote off $663,000 of related deferred loan costs and paid a make-whole premium of $4,788,000. These costs are included in the 1999 consolidated statement of income as an extraordinary item, net of a $2,099,000 tax benefit. 3. ASSET IMPAIRMENT CHARGE During the fourth quarter of 2000, as a part of its continuous evaluation of its portfolio of business units, the Company completed a strategic evaluation of a business unit located in Grand Junction, Colorado. As a result of this evaluation, the Company entered into a definitive purchase and sale agreement for the sale of the business unit. Consequently, the Company determined that the goodwill associated with this unit was impaired and recorded a charge of $1,800,000, which is included in other expense. Net sales and operating profit for the business unit were $7,185,000, and $411,000, respectively, in 2000. The sale of the business unit was completed on February 5, 2001. 4. ACQUISITIONS Businesses acquired are accounted for using the purchase method of accounting. Under this accounting method, the purchase price is allocated to the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Operating results of the acquired businesses are included in the consolidated statements of income from the date of acquisition. During 2000, the Company completed the acquisition of Alberta Sales, a millwork facility that was consolidated into the Company's existing Carson Valley location, and the acquisition of four warehouse distribution centers along with several sales offices doing business

as Marvin Windows Planning Centers from Frontier Wholesale Company. The total cash consideration given was $5,905,000. The following summarized unaudited pro forma results of operations assume the 2000 acquisitions occurred as of the beginning of 1999. The pro forma data has been prepared for comparative purposes only. It does not purport to be indicative of the results of operations that would have resulted had the acquisitions been consummated at the beginning of the years presented, or that may occur in the future. (In thousands, except per share data). (Unaudited)
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Net sales ....................................... $1,019,706 $1,024,108 Net income ...................................... 19,701 19,952 Net income per diluted common share.............. $ 1.54 $ 1.56

In 1999, the Company completed three acquisitions involving six value-added facilities located in Colorado, Montana, Nevada, and Texas. The aggregate purchase price was $19,319,000, consisting of $15,779,000 in cash and a note payable for $3,540,000, net of discount. The issuance of the note payable is considered a noncash transaction for purposes of the consolidated statement of cash flows. The following summarized unaudited pro forma results of operations assume the 1999 acquisitions occurred as of the beginning of 1998. The pro forma data has been prepared for comparative purposes only. It does not purport to be indicative of the results of operations that would have resulted had the acquisitions been consummated at the beginning of the years presented, or that may occur in the future. (In thousands, except share data.) (Unaudited)
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as Marvin Windows Planning Centers from Frontier Wholesale Company. The total cash consideration given was $5,905,000. The following summarized unaudited pro forma results of operations assume the 2000 acquisitions occurred as of the beginning of 1999. The pro forma data has been prepared for comparative purposes only. It does not purport to be indicative of the results of operations that would have resulted had the acquisitions been consummated at the beginning of the years presented, or that may occur in the future. (In thousands, except per share data). (Unaudited)
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Net sales ....................................... $1,019,706 $1,024,108 Net income ...................................... 19,701 19,952 Net income per diluted common share.............. $ 1.54 $ 1.56

In 1999, the Company completed three acquisitions involving six value-added facilities located in Colorado, Montana, Nevada, and Texas. The aggregate purchase price was $19,319,000, consisting of $15,779,000 in cash and a note payable for $3,540,000, net of discount. The issuance of the note payable is considered a noncash transaction for purposes of the consolidated statement of cash flows. The following summarized unaudited pro forma results of operations assume the 1999 acquisitions occurred as of the beginning of 1998. The pro forma data has been prepared for comparative purposes only. It does not purport to be indicative of the results of operations that would have resulted had the acquisitions been consummated at the beginning of the years presented, or that may occur in the future. (In thousands, except share data.) (Unaudited)
-------------------------------------------------------------------------------1999 1998 ------------------------------------------------------------------------------Net sales ....................................... $1,037,304 $908,886 Income before extraordinary item ................ 25,516 17,333 Net income ...................................... 22,164 17,333 Income before extraordinary item per diluted common share ...................... 1.99 1.37 Net income per diluted common share ............. 1.73 1.37

5. RECEIVABLES Receivables consisted of the following at December 31, (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Trade receivables $106,556 $106,965 Other 6,915 5,415 Allowance for returns, discounts and doubtful accounts (2,184) (2,257) --------------------------------------------------------------------------------

$111,287 $110,123

Because the customers are dispersed among the Company's various markets, its credit risk to any one customer or state economy is not significant. The Company performs ongoing credit evaluations of its customers and provides an allowance for doubtful accounts when events or circumstances indicate that collection is doubtful.

6. EQUITY INVESTMENT In May 1999, the Company completed the investment of a 49% interest in KBI, a framing company with operations in Phoenix and Tucson, Arizona, and Las Vegas, Nevada. The total cost was $28,293,000 consisting of $26,093,000 in cash and $2,200,000 from various assets of its Phoenix operation. The Company has the right to acquire the remaining 51% interest in KBI and the 51% owner has a corresponding right to require the Company to purchase its 51% ownership after five years. In December 1999, KBI contributed the net assets and liabilities of its lumberyard operation to Distribution in consideration for a 100% ownership interest, which was subsequently distributed to the members of KBI in proportion to their respective ownership interest in KBI. In 2000, BMC Framing Inc. participated in the formation of KB Industries Limited Partnership and acquired a 49% limited partnership interest. Summarized 2000 and 1999 combined financial information of the Company's equity-basis unconsolidated companies follows (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Income statement information: Net sales ................................... $ 161,420 $ 101,354 Income from operations ...................... $ 2,818 $ 1,298 Net income .................................. $ 3,434 $ 1,478 Less other members share of net income....... (1,751) (754) -------------------------------------------------------------------------------Company's share of net income ............... 1,683 724 Other income allocations, net of amortization of intangibles ........ 6,738 4,254 -------------------------------------------------------------------------------Equity in earnings of unconsolidated companies .................. $ 8,421 $ 4,978 ================================================================================ Financial position information: Current assets .............................. $ 36,404 $ 29,569 Noncurrent assets ........................... $ 5,750 $ 5,444 Total liabilities (current) ................. $ 10,347 $ 6,639 Members capital ............................. $ 31,807 $ 28,374 -------------------------------------------------------------------------------Less other members share of capital ......... (16,222) (14,471) Company's share of capital .................. 15,585 13,903 Goodwill .................................... 16,202 16,859 -------------------------------------------------------------------------------Equity investments in unconsolidated companies. $ 31,787 $ 30,762 ================================================================================

7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31, (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Land ................................................... $ 40,551 $ 39,337 Buildings and improvements ............................. 94,701 80,414 Machinery and fixtures ................................. 43,493 38,391 Handling and delivery equipment......................... 37,486 34,573 Construction in progress ............................... 9,242 11,097 -------------------------------------------------------------------------------225,473 203,812 Less accumulated depreciation .......................... (57,764) (50,214) -------------------------------------------------------------------------------$ 167,709 $ 153,598 ================================================================================

7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31, (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Land ................................................... $ 40,551 $ 39,337 Buildings and improvements ............................. 94,701 80,414 Machinery and fixtures ................................. 43,493 38,391 Handling and delivery equipment......................... 37,486 34,573 Construction in progress ............................... 9,242 11,097 -------------------------------------------------------------------------------225,473 203,812 Less accumulated depreciation .......................... (57,764) (50,214) -------------------------------------------------------------------------------$ 167,709 $ 153,598 ================================================================================

Interest of $777,000, $221,000, and $94,000 has been capitalized during 2000, 1999 and 1998, respectively. Depreciation expense was $13,576,000 $11,779,000, and $10,484,000 in 2000, 1999 and 1998, respectively. At December 31, 2000 the Company had $5,704,000 of land and buildings and improvements held for sale accounted for at the lower of cost or market. During 2000, the Company recorded net gains from the sale of assets of $2,611,000 consisting primarily of the gain on the sale of real estate in Beaverton, Oregon for approximately $2,250,000. During 1999, the Company recorded net gains from the sale of assets of $1,403,000 consisting primarily of a gain of $1,384,000 on the sale of three of its centers (located in Fredericksburg, Marble Falls and Shiner, Texas). 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at December 31, (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Trade accounts payable .................................. $29,396 $33,583 Net checks in process ................................... 8,308 12,188 Accrued compensation .................................... 12,782 10,966 Sales tax payable ....................................... 3,817 4,114 Other ................................................... 6,811 5,353 -------------------------------------------------------------------------------$61,114 $66,204 -------------------------------------------------------------------------------9. DEBT Debt consisted of the following at December 31, (in thousands): -------------------------------------------------------------------------------2000 -------------------------------------------------------------------------------Term note .......................................................... $108,323 Revolving credit facility .......................................... 52,200 Non-interest bearing term note, net of related discount of $1,183 ................................ 3,817 Other .............................................................. 666 -------------------------------------------------------------------------------$165,006 ================================================================================

During the fourth quarter of 1999, management entered into a new senior credit facility that included a revolving credit facility of $125,000,000 and a term note of $100,000,000. The financing was arranged through Bank of America, N.A., as administrative agent, and nine other banks. The facility was used to repay the Company's

8.10% and 9.18% unsecured senior notes and other debt and is available to fund future acquisitions. In June 2000, the Company executed the First Amendment to the senior credit facility that added an additional bank, Banque Nationale de Paris, and increased its credit availability by $25 million. Under the existing revolving credit facility, the Company has the ability to borrow up to $138,900,000 due 2004. Borrowings under the revolver bear interest at prime plus 0.50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. A fee of 0.375% to 0.50% per annum is charged on the unused portion. At December 31, 2000 the Company had $86,700,000 of remaining capacity under this revolver. The term note is due 2004 with annual commitment reductions through 2004, and bears interest at prime plus .50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. At December 31, 2000 there was $108,323,000 outstanding under this term note. The term loan and revolving credit facility are both collateralized by the following assets: all accounts, chattel paper, deposit accounts, documents, equipment, general intangibles, pledged collateral, inventory, books, letter of credit proceeds and deeds of trust on certain real property. The agreements related to the above borrowings contain covenants providing for the maintenance of certain financial ratios and conditions including total funded debt to capitalization; consolidated net worth; and coverage ratio which includes earnings before interest, taxes and amortization and limitations on capital expenditures, among certain other restrictions. At December 31, 2000, the Company was in compliance with these covenants and conditions. In connection with a 1999 acquisition, the Company issued a $5,000,000 non-interest bearing five-year term note to the previous owner as partial consideration for the purchase. The note has been recorded assuming a 15% effective interest rate resulting in a discount of $1,460,000 at December 31, 1999. Under the terms of the note, principal payments are due beginning 2004; however, accelerated payments may be due based on the operating results of the acquired facilities during each of the next five years. The Company has discounted its principal payments for this note based on estimates of the operating results of the acquired business. The scheduled principal payments of debt are $12,330,000 in 2001, $13,562,000 in 2002, $17,850,000 in 2003 and $121,264,000 in 2004. The $12,330,000 of principal payments due in 2001 are expected to be refinanced through the unused portion of the revolving credit facility. As a result, this amount has been classified as long-term. As of December 31, 2000, the Company had $2,800,000 in letters of credit to guarantee performance or payments to third parties. 10. PREFERRED STOCK BMHC has 2,000,000 shares of preferred stock authorized but not currently issued.

11. STOCK PURCHASE AND INCENTIVE PLANS SHAREHOLDERS' RIGHTS PLAN BMHC adopted a shareholder rights plan that expires in 2007. Under the plan, if a company acquires 15% or more of the Company's stock or makes a tender or other offer to do so without the approval of the Board of Directors, shareholders would have the right to purchase stock of BMHC or the acquiring company at a significant discount. The Board of Directors of BMHC has the right to redeem the rights for a nominal amount, to extend the period before shareholders may exercise the rights or to take other actions permitted by the plan. The rights trade with BMHC's stock but do not give shareholders any voting rights. The rights plan is intended to encourage any person seeking to acquire BMHC to negotiate with the Board of Directors. CASH EQUITY PLAN On April 1, 1999, BMHC adopted a Cash Equity Plan to provide incentives for key management employees. The awards vest after three years from the date of grant and expire after five years. Each unit under an award allows for an exchange for cash in the amount of the fair market value of BMHC's common stock at the date of

11. STOCK PURCHASE AND INCENTIVE PLANS SHAREHOLDERS' RIGHTS PLAN BMHC adopted a shareholder rights plan that expires in 2007. Under the plan, if a company acquires 15% or more of the Company's stock or makes a tender or other offer to do so without the approval of the Board of Directors, shareholders would have the right to purchase stock of BMHC or the acquiring company at a significant discount. The Board of Directors of BMHC has the right to redeem the rights for a nominal amount, to extend the period before shareholders may exercise the rights or to take other actions permitted by the plan. The rights trade with BMHC's stock but do not give shareholders any voting rights. The rights plan is intended to encourage any person seeking to acquire BMHC to negotiate with the Board of Directors. CASH EQUITY PLAN On April 1, 1999, BMHC adopted a Cash Equity Plan to provide incentives for key management employees. The awards vest after three years from the date of grant and expire after five years. Each unit under an award allows for an exchange for cash in the amount of the fair market value of BMHC's common stock at the date of exercise. The number of units available for grant including those units outstanding and unexercised, cannot exceed two- percent of BMHC's common shares outstanding at any given time. During 2000 and 1999, the Company awarded 100,435 and 73,190 units, respectively, and recognized compensation expense of $340,000 and $243,000 respectively. At December 31, 2000 161,705 units remained outstanding and unexercised. Accelerated vesting may occur if there is a change of control of the Company, as defined in the Cash Equity Plan. EMPLOYEE STOCK PURCHASE PLAN On October 1, 2000, BMHC adopted a non-compensatory Employee Stock Purchase Plan ("ESPP"). Under the ESPP, eligible employees may elect each year to have up to 10% of their annual qualified compensation withheld to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of the beginning of the purchase period or end of the purchase period market price of BMHC's common stock. The purchase period is one month, commencing on the effective date of the ESPP, and continues consecutively after the termination of the preceding purchase period. There were 200,000 shares of common stock authorized for purchase under the ESPP. As of December 31, 2000, there were 197,000 shares available for future purchase under the ESPP. STOCK AND STOCK OPTION PLANS The Company has five stock and stock option plans, the 1991 Senior Management and Field Management Plan, the 1992 Non-Qualified Stock Option Plan, the 1993 Employee Stock Option Plan, the 1993 Second Amended and Restated Non-Employee Stock Plan and the 2000 Stock Incentive Plan (the Stock Option Plans). As of December 31, 2000, there were 1,746,373 shares of common stock reserved for issuance under the plans. The 1991 Senior Management and Field Management Plan provided for the granting of options to purchase shares of BMHC's common stock at exercise prices below fair market value. At December 31, 2000, there were no options remaining for future grants under the 1991 plan. Such options expire ten years from the date of grant. Options vest over four years from the date of grant and expire at the end of ten years if unexercised. The 1992 Non-Qualified Stock Option Plan and the 1993 Employee Stock Option Plan provided for the granting of options, at the discretion of the Board of Directors, to purchase shares of BMHC's common stock. At December 31, 2000, there were no options remaining for future grants under the 1992 and 1993 plans. The exercise price is equal to the fair market value of BMHC's common stock on the date the options are granted. Options vest over five years from the date of grant and expire at the end of ten years if unexercised. On February 18, 2000, BMHC amended the 1993 Amended and Restated Non-Employee Stock Option Plan to the 1993 Second Amended and Restated Stock Plan. As a result, the Company now grants awards of the Company's common stock rather than stock option awards under this plan. This plan is available only to nonemployee directors, and awards vest immediately upon grant. During 2000, the Company granted 16,800 shares of stock under this plan and recognized compensation expense of $176,400. At December 31, 2000, 71,700 shares remain in the plan for future issuance. The options that remain outstanding from grants under the pre-

amended plan are exercisable after one year following the date of grant and expire at the end of ten years if unexercised. On February 18, 2000 BMHC adopted the 2000 Stock Incentive Plan, which provides for the granting of sales or bonuses of stock, restricted stock, stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, and dividend equivalents. The number of shares of common stock issued and issuable pursuant to all awards granted under this plan shall not exceed 600,000, with annual increases commencing in 2001 as defined in the plan. During 2000 there were 262,000 non-statutory options granted under the plan at a price equal to the fair market value of the Company's common stock on the date of grant. These grants vest at an annual rate of 25% commencing on December 31, 2000. On December 1, 2000, the Company granted an additional 50,000 and 20,000 non-statutory stock options under the plan, which vest at the end of three and two years, respectively, at an exercise price equal to 85% of the fair market value of the Company's common stock on the date of grant. At December 31, 2000 there were 268,000 shares remaining in the plan for future issuance. All options outstanding under the plan expire at the end of ten years if unexercised.

During 1997, as an additional incentive to attract a member of senior management, the Board of Directors authorized and issued an award of 50,000 options. The exercise price was equal to the fair market value of the Company's common stock on the date the options were granted. These options will vest in 2002, but vesting may be accelerated pursuant to the Company's common stock reaching certain fair market values. These options expire 10 years from the date of grant, or 2007, and are included in the tables below. A summary of the activity of the Stock Option Plans for the years ended December 31, 2000, 1999 and 1998, is presented in the table below:
--------------------------------------------------------------------------------------------------------2000 1999 --------------------------------------------------------------------------------------------------------WEIGHTED AVERAGE Weighted Average SHARES EXERCISE PRICE Shares Exercise Price Shares --------------------------------------------------------------------------------------------------------Balance at beginning of the year ..... 1,074,801 $11.46 920,995 $11.57 795,704 Options granted ...................... 490,500 9.40 215,750 10.42 173,470 Options exercised .................... (143,121) 9.47 (27,388) 3.40 (21,907 Options forfeited .................... (15,507) 14.10 (34,556) 13.95 (26,272 --------------------------------------------------------------------------------------------------------Balance at end of the year ........... 1,406,673 $11.73 1,074,801 $11.46 920,995 ========================================================================================================= Exercisable at end of the year ....... 765,526 $13.08 701,594 $11.33 606,187

During 1997, as an additional incentive to attract a member of senior management, the Board of Directors authorized and issued an award of 50,000 options. The exercise price was equal to the fair market value of the Company's common stock on the date the options were granted. These options will vest in 2002, but vesting may be accelerated pursuant to the Company's common stock reaching certain fair market values. These options expire 10 years from the date of grant, or 2007, and are included in the tables below. A summary of the activity of the Stock Option Plans for the years ended December 31, 2000, 1999 and 1998, is presented in the table below:
--------------------------------------------------------------------------------------------------------2000 1999 --------------------------------------------------------------------------------------------------------WEIGHTED AVERAGE Weighted Average SHARES EXERCISE PRICE Shares Exercise Price Shares --------------------------------------------------------------------------------------------------------Balance at beginning of the year ..... 1,074,801 $11.46 920,995 $11.57 795,704 Options granted ...................... 490,500 9.40 215,750 10.42 173,470 Options exercised .................... (143,121) 9.47 (27,388) 3.40 (21,907 Options forfeited .................... (15,507) 14.10 (34,556) 13.95 (26,272 --------------------------------------------------------------------------------------------------------Balance at end of the year ........... 1,406,673 $11.73 1,074,801 $11.46 920,995 ========================================================================================================= Exercisable at end of the year ....... 765,526 $13.08 701,594 $11.33 606,187 Weighted average fair value of options granted at fair value .............. $6.38 $6.56 $6.24 Weighted average fair value of options granted below fair value .. $5.43 ---

The following table summarizes information about stock options outstanding at December 31, 2000:
--------------------------------------------------------------------------------------------------------Options Outstanding Options Exercisable --------------------------------------------------------------------------------------------------------NUMBER Weighted Average NUMBER OUTSTANDING AT Remaining EXERCISABLE AT Range of DECEMBER 31, Contractual Weighted Average DECEMBER 31, Weighted Average Exercise Prices 2000 Life Years Exercise Price 2000 Exercise Price --------------------------------------------------------------------------------------------------------$ 1.21 to $ 6.85 ... 151,941 5.2 $ 6.04 81,941 $ 5.34 $ 8.67 to $17.00 ... 1,148,936 7.5 $11.47 577,789 $12.42 $19.50 to $29.75 ... 105,796 4.7 $22.70 105,796 $22.70 --------------------------------------------------------------------------------------------------------$ 1.21 to $29.75 ... 1,406,673 7.07 $11.73 765,526 $13.08 =========================================================================================================

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998: risk-free interest rates of 6.0%, 5.4%, and 5.5%, respectively; estimated lives of approximately 8 years, 6 years and 6 years, respectively; and expected stock price volatility of 52.8% 61.6%, and 42.7%, respectively. Had compensation cost for these plans been determined using the fair value method, the Company's 2000 net income would have been reduced on a pro forma basis by $859,000 and basic and diluted earnings per share would have been reduced on a pro forma basis by $0.07. The 1999 pro forma reductions would have been a reduction in net income of $617,000; and a reduction in basic and diluted earnings per share of $0.05. The 1998 pro forma reductions would have been a reduction in net income of $437,000; and a reduction in basic and diluted earnings per share of $0.03. 12. INCOME TAXES Income taxes for the years ended December 31, 2000, 1999 and 1998 consisted of the following (in thousands):
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Current income taxes

Current income taxes Federal .............................. $12,768 $13,912 $8,853 State ................................ 1,170 1,082 1,040 -------------------------------------------------------------------------------....................................... 13,938 14,994 9,893 -------------------------------------------------------------------------------Deferred income taxes Federal (383) (529) (126) State (32) (44) (11) -------------------------------------------------------------------------------(415) (573) (137) -------------------------------------------------------------------------------$13,523 $14,421 $9,756 ================================================================================

The tax benefit associated with non-statutory stock options exercised by employees under the Company's stock plans reduced taxes payable by approximately $344,000, $82,000, and $67,000 for 2000, 1999, and 1998, respectively. These benefits were credited to additional paid-in capital.

A reconciliation of the statutory Federal income tax rate to the rate as provided in the consolidated statements of income follows:
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Statutory rate ................................ 35.0% 35.0% 35.0% State income taxes ............................ 2.5 2.4 3.0 Asset impairment charge ....................... 2.4 --Other ......................................... .8 1.1 1.2 -------------------------------------------------------------------------------40.7% 38.5% 39.2% ================================================================================

Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the Company's year-end balance sheets were as follows (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Deferred tax assets Tax basis in excess of book basis of acquired assets ...................... $ 0 $ 30 Inventories, tax basis in excess of book basis .......................... 2,246 1,647 Reserves not yet deductible for tax.............. 3,342 2,663 Other ........................................... 1,877 1,548 -------------------------------------------------------------------------------Total deferred tax assets ....................... 7,465 5,888 Deferred tax liabilities Book basis in excess of tax basis of acquired assets ...................... 256 -Tax in excess of book depreciation .............. 6,997 7,040 Deferred costs deducted for taxes ............... 2,140 1,191 -------------------------------------------------------------------------------Total deferred tax liabilities .................. 9,393 8,231 -------------------------------------------------------------------------------$(1,928) $(2,343) ================================================================================ Classified as Deferred income tax benefit (current assets) ...................... $ 4,375 $ 2,781 Deferred income taxes

A reconciliation of the statutory Federal income tax rate to the rate as provided in the consolidated statements of income follows:
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Statutory rate ................................ 35.0% 35.0% 35.0% State income taxes ............................ 2.5 2.4 3.0 Asset impairment charge ....................... 2.4 --Other ......................................... .8 1.1 1.2 -------------------------------------------------------------------------------40.7% 38.5% 39.2% ================================================================================

Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the Company's year-end balance sheets were as follows (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------Deferred tax assets Tax basis in excess of book basis of acquired assets ...................... $ 0 $ 30 Inventories, tax basis in excess of book basis .......................... 2,246 1,647 Reserves not yet deductible for tax.............. 3,342 2,663 Other ........................................... 1,877 1,548 -------------------------------------------------------------------------------Total deferred tax assets ....................... 7,465 5,888 Deferred tax liabilities Book basis in excess of tax basis of acquired assets ...................... 256 -Tax in excess of book depreciation .............. 6,997 7,040 Deferred costs deducted for taxes ............... 2,140 1,191 -------------------------------------------------------------------------------Total deferred tax liabilities .................. 9,393 8,231 -------------------------------------------------------------------------------$(1,928) $(2,343) ================================================================================ Classified as Deferred income tax benefit (current assets) ...................... $ 4,375 $ 2,781 Deferred income taxes (long-term liabilities) ....................... (6,303) (5,124) -------------------------------------------------------------------------------$(1,928) $(2,343) ================================================================================

13. NET INCOME PER COMMON SHARE Net income per common share was determined as follows:
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Net income available to common shareholders ...................... $19,712 $19,683 $15,149 ================================================================================ Weighted average shares outstanding used to determine basic net income per common share ............................. 12,754 12,667 12,509 Net effect of dilutive

stock options(1) ......................... 69 125 138 -------------------------------------------------------------------------------Average shares used to determine diluted net income per common share ......................... 12,823 12,792 12,647 ================================================================================

(1)Stock options of 1,247,232, 644,371, and 493,187 were not included in the computation, because to do so would have been anti-dilutive for the years ended December 31, 2000, 1999 and 1998, respectively. 14. RETIREMENT PLANS BMHC has a savings and retirement plan for its salaried and certain of its hourly employees whereby the eligible employees may contribute a percentage of their earnings to a trust, i.e. a 401(k) plan. The Company also makes contributions to the trust based on a percentage of the contributions made by the participating employees and a percentage of net income for the period. The Company's contributions are charged against operations and were $3,050,000, $2,707,000 and $2,402,000 in 2000, 1999 and 1998, respectively. BMHC has a supplemental retirement plan for selected key management employees and directors. The contributions are based on the Company achieving certain operating earnings levels. Pursuant to this plan, the Company charged operations for $1,309,000 in 2000, $1,420,000 in 1999, and $1,065,000 in 1998. BMHC has purchased company-owned life insurance in order to have a funding mechanism for this plan. Retirement payments will be paid to the participants or their beneficiary over a 15-year period subsequent to retirement or death. BMHC does not provide any other postretirement benefits for its employees. 15. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases real property, vehicles and office equipment under operating leases. Rental expense was $7,028,000 in 2000, $6,813,000 in 1999, and $6,503,000 in 1998. Certain of the leases are non-cancellable and have minimum lease payment requirements of $6,278,000 in 2001, $4,796,000 in 2002, $3,940,000 in 2003, $3,018,000 in 2004, $1,875,000 in 2005 and $5,047,000 thereafter. LEGAL PROCEEDINGS The Company is involved in litigation and other legal matters arising in the normal course of business. In the opinion of management, the Company's recovery or liability, if any, under any of these matters will not have a material adverse effect on the Company's financial position, liquidity or results of operations. 16. FINANCIAL INSTRUMENTS The book values compared with the fair values of financial instruments at December 31, were as follows (in thousands):
-------------------------------------------------------------------------------2000 1999 -------------------------------------------------------------------------------BOOK FAIR Book Fair VALUE VALUE Value Value -------------------------------------------------------------------------------Long-term debt: Variable rate debt ...... $160,523 $160,523 $170,207 $170,207 Fixed rate debt .. 4,483 3,857 3,540 3,540 -------------------------------------------------------------------------------$165,006 $164,380 $173,747 $173,747 ================================================================================

The book values of cash and cash equivalents, accounts receivable, accounts payable and variable interest rate long-term debt approximated fair value due to either the short-term maturities or current variable interest rates of these instruments. The fair value of fixed rate debt has been estimated based upon the discounted cash flows using the Company's incremental rate of borrowing for similar debt. 17. BUSINESS SEGMENT AND PRODUCTS The Company's chief operating decision makers consist of senior managers who work together to allocate resources to and assess the performance of each of the Company's individual locations. Management believes its locations have similar operating and economic characteristics and has aggregated its operations into a single reporting segment, that being the supply and distribution of lumber and building materials to professional contractors and project oriented consumers. The Company's locations principally derive revenues from wood products (lumber, plywood and oriented strand board), value-added products and services (millwork, roof and floor trusses, pre-hung doors, windows, moldings and installation), building materials (roofing, siding, insulation and steel products), and other products (paint, hardware, tools, electrical and plumbing). Net sales by product for the years ended December 31, 2000, 1999 and 1998 were as follows (in thousands):
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Net sales Wood products .................... $ 417,949 $ 444,834 $381,221 Value-added ...................... 410,057 348,569 275,862 Building materials ............... 117,985 136,757 136,856 Other ............................ 67,977 76,948 83,341 -------------------------------------------------------------------------------Total revenues ..................... $1,013,968 $1,007,108 $877,280 ================================================================================

18. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED) Operating results by quarter for 2000 and 1999 are as follows (dollars in thousands, except per share data):
-------------------------------------------------------------------------------First Second Third Fourth -------------------------------------------------------------------------------2000 NET SALES ................ $233,467 $271,404 $270,536 $238,561 GROSS PROFIT ............. 60,001 70,082 73,380 66,982 INCOME FROM OPERATIONS ............. 9,661 13,579 13,304 5,992 NET INCOME ............... 4,467 7,033 6,807 1,405 NET INCOME PER DILUTED COMMON SHARE(1) ........ .35 .55 .53 .11 COMMON STOCK PRICES: HIGH ................... $ 10.938 $ 11.00 $ 10.438 $ 9.500 LOW .................... 8.875 7.75 8.500 7.563 1999 Net sales ................ Gross profit ............. Income from operations Extraordinary item ....... Net income ............... Income before extraordinary item per diluted common share ........... Net income per diluted common share(1) ........

$215,625 54,111 6,644 -2,521

$256,005 64,165 13,411 -7,039

$288,715 69,805 16,161 -8,964

$246,763 63,890 9,446 (3,352) 1,159

$ $

0.20 0.20

$ $

0.55 0.55

$ $

0.70 0.70

$ $

0.35 0.09

The book values of cash and cash equivalents, accounts receivable, accounts payable and variable interest rate long-term debt approximated fair value due to either the short-term maturities or current variable interest rates of these instruments. The fair value of fixed rate debt has been estimated based upon the discounted cash flows using the Company's incremental rate of borrowing for similar debt. 17. BUSINESS SEGMENT AND PRODUCTS The Company's chief operating decision makers consist of senior managers who work together to allocate resources to and assess the performance of each of the Company's individual locations. Management believes its locations have similar operating and economic characteristics and has aggregated its operations into a single reporting segment, that being the supply and distribution of lumber and building materials to professional contractors and project oriented consumers. The Company's locations principally derive revenues from wood products (lumber, plywood and oriented strand board), value-added products and services (millwork, roof and floor trusses, pre-hung doors, windows, moldings and installation), building materials (roofing, siding, insulation and steel products), and other products (paint, hardware, tools, electrical and plumbing). Net sales by product for the years ended December 31, 2000, 1999 and 1998 were as follows (in thousands):
-------------------------------------------------------------------------------2000 1999 1998 -------------------------------------------------------------------------------Net sales Wood products .................... $ 417,949 $ 444,834 $381,221 Value-added ...................... 410,057 348,569 275,862 Building materials ............... 117,985 136,757 136,856 Other ............................ 67,977 76,948 83,341 -------------------------------------------------------------------------------Total revenues ..................... $1,013,968 $1,007,108 $877,280 ================================================================================

18. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED) Operating results by quarter for 2000 and 1999 are as follows (dollars in thousands, except per share data):
-------------------------------------------------------------------------------First Second Third Fourth -------------------------------------------------------------------------------2000 NET SALES ................ $233,467 $271,404 $270,536 $238,561 GROSS PROFIT ............. 60,001 70,082 73,380 66,982 INCOME FROM OPERATIONS ............. 9,661 13,579 13,304 5,992 NET INCOME ............... 4,467 7,033 6,807 1,405 NET INCOME PER DILUTED COMMON SHARE(1) ........ .35 .55 .53 .11 COMMON STOCK PRICES: HIGH ................... $ 10.938 $ 11.00 $ 10.438 $ 9.500 LOW .................... 8.875 7.75 8.500 7.563 1999 Net sales ................ Gross profit ............. Income from operations Extraordinary item ....... Net income ............... Income before extraordinary item per diluted common share ........... Net income per diluted common share(1) ........ Common stock prices:

$215,625 54,111 6,644 -2,521

$256,005 64,165 13,411 -7,039

$288,715 69,805 16,161 -8,964

$246,763 63,890 9,446 (3,352) 1,159

$ $

0.20 0.20

$ $

0.55 0.55

$ $

0.70 0.70

$ $

0.35 0.09

High ................... Low ....................

$ 12.625 9.375

$ 12.750 9.750

$ 13.313 10.000

$ 11.750 7.500

During the fourth quarter of 2000, as a part of its continuous evaluation of its portfolio of business units, the Company completed a strategic evaluation of a business unit located in Grand Junction, Colorado. As a result of this evaluation, the Company entered into a definitive purchase and sale agreement for the sale of the business unit. Consequently, the Company determined that the goodwill associated with this unit was impaired and recorded a charge of $1,800,000, which is included in other expense. Net sales and operating profit for the business unit were $7,185,000, and $411,000, respectively, in 2000. The sale of the business unit was completed on February 5, 2001. (1)NET INCOME PER SHARE CALCULATIONS ARE BASED ON THE AVERAGE COMMON SHARES OUTSTANDING FOR EACH PERIOD PRESENTED. ACCORDINGLY, THE TOTAL OF THE PER SHARE FIGURES FOR THE QUARTERS MAY NOT EQUAL THE PER SHARE FIGURE REPORTED FOR THE YEAR.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders Building Materials Holding Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Building Materials Holding Corporation and its subsidiaries (the "Company") at December 31, 2000, and 1999 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. The financial statements of the Company for the year ended December 31, 1998 were audited by other independent accountants whose report dated January 25, 1999 expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP ----------------------------PRICEWATERHOUSECOOPERS LLP San Francisco, California February 27, 2001

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 3352478, 33-80952, 333-47122 and 333-44260), Form S-8-A (Nos. 33-52478 and 33-80952) and on Form S-4 (Nos. 333-36387 and 333-61221) of Building Materials Holding Corporation of our report dated February 27, 2001 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 27, 2001 relating to the financial statement schedules, which appears in this Form 10-K.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders Building Materials Holding Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Building Materials Holding Corporation and its subsidiaries (the "Company") at December 31, 2000, and 1999 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. The financial statements of the Company for the year ended December 31, 1998 were audited by other independent accountants whose report dated January 25, 1999 expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP ----------------------------PRICEWATERHOUSECOOPERS LLP San Francisco, California February 27, 2001

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 3352478, 33-80952, 333-47122 and 333-44260), Form S-8-A (Nos. 33-52478 and 33-80952) and on Form S-4 (Nos. 333-36387 and 333-61221) of Building Materials Holding Corporation of our report dated February 27, 2001 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 27, 2001 relating to the financial statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP

San Francisco, California

March 30, 2001

EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 25, 1999, included in Building Materials Holding Corporation's Form 10-K for the year ended December 31, 2000,

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 3352478, 33-80952, 333-47122 and 333-44260), Form S-8-A (Nos. 33-52478 and 33-80952) and on Form S-4 (Nos. 333-36387 and 333-61221) of Building Materials Holding Corporation of our report dated February 27, 2001 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 27, 2001 relating to the financial statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP

San Francisco, California

March 30, 2001

EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 25, 1999, included in Building Materials Holding Corporation's Form 10-K for the year ended December 31, 2000, into Building Materials Holding Corporation's previously filed Registration Statement File No. 33-52478 as amended by Post Effective Amendment No. 1 on Form S-8, Registration Statement File No. 33-80952 as amended by Post Effective Amendment No. 1 on Form S-8, Registration Statements File No. 333-47122 and 333-44260 on Form S-8, and Registration Statements File No. 333-36387 and 333-61221 on Form S-4.
/s/ ARTHUR ANDERSEN LLP Boise, Idaho March 30, 2001

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements December 31, 2000 and 1999

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
TABLE OF CONTENTS

EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 25, 1999, included in Building Materials Holding Corporation's Form 10-K for the year ended December 31, 2000, into Building Materials Holding Corporation's previously filed Registration Statement File No. 33-52478 as amended by Post Effective Amendment No. 1 on Form S-8, Registration Statement File No. 33-80952 as amended by Post Effective Amendment No. 1 on Form S-8, Registration Statements File No. 333-47122 and 333-44260 on Form S-8, and Registration Statements File No. 333-36387 and 333-61221 on Form S-4.
/s/ ARTHUR ANDERSEN LLP Boise, Idaho March 30, 2001

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements December 31, 2000 and 1999

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
TABLE OF CONTENTS PAGE INDEPENDENT ACCOUNTANTS' REPORT FINANCIAL STATEMENTS: Combined Balance Sheets Combined Statements of Income Combined Statements of Changes in Equity Combined Statements of Cash Flows Notes to Combined Financial Statements 1

2 3 4 5 - 6 7 - 14

F-1

[SECORE & NIEDZIALEK, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REPORT To the Members and Partners of Knipp Brothers Industries, LLC, KBI Distribution, LLC and KB Industries Limited Partnership We have audited the accompanying combined balance sheets of Knipp Brothers Industries, LLC, KBI

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements December 31, 2000 and 1999

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
TABLE OF CONTENTS PAGE INDEPENDENT ACCOUNTANTS' REPORT FINANCIAL STATEMENTS: Combined Balance Sheets Combined Statements of Income Combined Statements of Changes in Equity Combined Statements of Cash Flows Notes to Combined Financial Statements 1

2 3 4 5 - 6 7 - 14

F-1

[SECORE & NIEDZIALEK, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REPORT To the Members and Partners of Knipp Brothers Industries, LLC, KBI Distribution, LLC and KB Industries Limited Partnership We have audited the accompanying combined balance sheets of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership (the "Companies") as of December 31, 2000 and 1999 and the related combined statements of income, changes in equity, and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership as of December 31, 2000 and 1999, and the results of their operations, changes in equity and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999, in conformity with U.S. generally accepted accounting principles.

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
TABLE OF CONTENTS PAGE INDEPENDENT ACCOUNTANTS' REPORT FINANCIAL STATEMENTS: Combined Balance Sheets Combined Statements of Income Combined Statements of Changes in Equity Combined Statements of Cash Flows Notes to Combined Financial Statements 1

2 3 4 5 - 6 7 - 14

F-1

[SECORE & NIEDZIALEK, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REPORT To the Members and Partners of Knipp Brothers Industries, LLC, KBI Distribution, LLC and KB Industries Limited Partnership We have audited the accompanying combined balance sheets of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership (the "Companies") as of December 31, 2000 and 1999 and the related combined statements of income, changes in equity, and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership as of December 31, 2000 and 1999, and the results of their operations, changes in equity and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999, in conformity with U.S. generally accepted accounting principles. February 2, 2001 F-2

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP

[SECORE & NIEDZIALEK, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REPORT To the Members and Partners of Knipp Brothers Industries, LLC, KBI Distribution, LLC and KB Industries Limited Partnership We have audited the accompanying combined balance sheets of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership (the "Companies") as of December 31, 2000 and 1999 and the related combined statements of income, changes in equity, and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership as of December 31, 2000 and 1999, and the results of their operations, changes in equity and cash flows for the year ended December 31, 2000 and the period from May 1, 1999 (date operations commenced) through December 31, 1999, in conformity with U.S. generally accepted accounting principles. February 2, 2001 F-2

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Balance Sheets December 31, 2000 and 1999 ASSETS
2000 ----------Current assets: Cash and cash equivalents (Notes A and H) Trade receivables, net (Notes B, F and H) Inventories (Notes C and F) Costs in excess of billings on uncompleted contracts (Notes A and F) Prepaid expenses and other current assets $ 9,253,505 18,521,902 5,154,918 2,933,767 540,067 ----------36,404,159 (Note D) 5,493,095 257,103 ----------$42,154,357 =========== 1999 ----------$ 4,277,296 17,406,541 4,791,928 2,962,297 131,164 ----------29,569,226 5,234,724 208,634 ----------$35,012,584 ===========

Total current assets Property and equipment, net Deposits and other assets

Total assets

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Balance Sheets December 31, 2000 and 1999 ASSETS
2000 ----------Current assets: Cash and cash equivalents (Notes A and H) Trade receivables, net (Notes B, F and H) Inventories (Notes C and F) Costs in excess of billings on uncompleted contracts (Notes A and F) Prepaid expenses and other current assets $ 9,253,505 18,521,902 5,154,918 2,933,767 540,067 ----------36,404,159 (Note D) 5,493,095 257,103 ----------$42,154,357 =========== 1999 ----------$ 4,277,296 17,406,541 4,791,928 2,962,297 131,164 ----------29,569,226 5,234,724 208,634 ----------$35,012,584 ===========

Total current assets Property and equipment, net Deposits and other assets

Total assets

LIABILITIES AND EQUITY
Current liabilities: Accounts payable (Note G) Accrued expenses (Notes E and G)

$ 3,907,462 6,439,608 ----------10,347,070 31,807,287 ----------$42,154,357 ===========

$ 3,574,068 3,064,931 ----------6,638,999 28,373,585 ----------$35,012,584 ===========

Total current liabilities Equity

Total liabilities and equity

Commitments and contingencies (Note G) The accompanying notes are an integral part of these combined financial statements. F-3

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
2000 ----------------------PERCENT OF AMOUNT REVENUES 1999 ---------------------PERCENT OF AMOUNT REVENUES

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
2000 ----------------------PERCENT OF AMOUNT REVENUES ------------ ---------$161,419,927 100.0% 134,688,054 -----------26,731,873 83.4 ----16.6 1999 ---------------------PERCENT OF AMOUNT REVENUES ------------ ---------$101,354,319 100.0% 85,376,792 -----------15,977,527 84.2 ----15.8

Net sales (Notes A and H) Cost of sales (Notes A and G)

Gross profit Selling, general and administrative expenses (Note G)

23,913,734 -----------Income from operations Other income (expense), net 2,818,139 615,563 -----------$ 3,433,702 ============

14.8 ----1.8 0.3 ----2.1% =====

14,679,597 -----------1,297,930 179,914 -----------$ 1,477,844 ============

14.5 ----1.3 0.2 ----1.5% =====

Net income

The accompanying notes are an integral part of these combined financial statements. F-4

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
Initial contributions at inception of operations Additional contributions during the period Distributions Net income during the period $ 23,081,276 4,850,000 (1,035,535) 1,477,844 -----------28,373,585 1,000,000 (1,000,000) 3,433,702 -----------$ 31,807,287

Balance, December 31, 1999 Contributions Distributions Net income

Balance, December 31, 2000

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
Initial contributions at inception of operations Additional contributions during the period Distributions Net income during the period $ 23,081,276 4,850,000 (1,035,535) 1,477,844 -----------28,373,585 1,000,000 (1,000,000) 3,433,702 -----------$ 31,807,287 ============

Balance, December 31, 1999 Contributions Distributions Net income

Balance, December 31, 2000

The accompanying notes are an integral part of these combined financial statements. F-5

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
2000 ----------Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Reserve for doubtful accounts (Increase) decrease in assets: Trade receivables Inventories Costs in excess of billings on uncompleted contracts Prepaid expenses and other current assets Deposits and other Increase (decrease) in liabilities: Accounts payable Accrued expenses $ 3,433,702 1999 ----------$ 1,477,844

1,886,031 -(1,115,361) (362,990) 28,530 (408,903) (48,469) 333,394 3,374,677 -----------

1,199,572 100,000 (2,585,048) (1,538,767) 111,997 (45,378) 61,842 (1,383,678) 671,903 -----------

Net cash provided (used) by operating activities

7,120,611 -----------

(1,929,713) -----------

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
2000 ----------Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Reserve for doubtful accounts (Increase) decrease in assets: Trade receivables Inventories Costs in excess of billings on uncompleted contracts Prepaid expenses and other current assets Deposits and other Increase (decrease) in liabilities: Accounts payable Accrued expenses $ 3,433,702 1999 ----------$ 1,477,844

1,886,031 -(1,115,361) (362,990) 28,530 (408,903) (48,469) 333,394 3,374,677 -----------

1,199,572 100,000 (2,585,048) (1,538,767) 111,997 (45,378) 61,842 (1,383,678) 671,903 -----------

Net cash provided (used) by operating activities

7,120,611 -----------

(1,929,713) -----------

Cash flows from investing activities: Purchase of property and equipment

(2,144,402) ----------(2,144,402) -----------

(2,707,456) ----------(2,707,456) -----------

Net cash used by investing activities

Cash flows from financing activities: Cash contributed at inception of operations Distributions Additional capital contributions

-(1,000,000) 1,000,000 ---------------------4,976,209 4,277,296 ----------$ 9,253,505 ===========

5,100,000 (1,035,535) 4,850,000 ----------8,914,465 ----------4,277,296 -----------$ 4,277,296 ===========

Net cash provided by financing activities

Net increase in cash Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

The accompanying notes are an integral part of these combined financial statements. F-6

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Combined Financial Statements For the Year Ended December 31, 2000 and For the Period from May 1, 1999 (Date Operations Commenced) Through December 31, 1999
2000 ------Supplemental disclosure of non-cash investing activities: Contribution of non-cash assets and liabilities by members at inception of operations: Trade receivables Inventories Costs in excess of billings on completed contracts Prepaid expenses Property and equipment, net Deposits Accounts payable Accrued expenses Members' contribution Cash contributed by members at inception of operations 1999 ------------

$

---------

$(14,921,493) (3,253,161) (3,074,294) (85,786) (3,726,840) (270,476) 4,957,746 2,393,028 23,081,276 -----------$ 5,100,000 ============

------$ -=======

The accompanying notes are an integral part of these combined financial statements. F-7

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Combination Policy and Nature of Operations The accompanying combined balance sheet and combined statements of income, changes in equity, and cash flows include the accounts of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership (the "Companies"), which are under common control and management. Intercompany balances and transactions have been eliminated in combination. Knipp Brothers Industries, LLC, a Delaware LLC ("Industries") was formed in December 1998. Industries remained inactive until May 1, 1999 when Knipp Brothers, Inc., a framing contractor engaged in subcontracting for home builders in the metropolitan areas of Phoenix and Tucson, Arizona and Las Vegas, Nevada, contributed its business, including substantially all of its assets and liabilities, in exchange for an interest in Industries. Simultaneously, BMHC Framing, Inc. obtained a 49% interest in Industries by contributing its lumber business in Phoenix, Arizona, including lumber inventory and certain fixed assets to Industries, and purchasing a portion of Knipp Brothers, Inc.'s interest in Industries. KBI Distribution, LLC, a Delaware LLC, ("Distribution"), was formed in December 1999 and remained inactive until December 31, 1999, at which time, Industries contributed the net assets and liabilities of its lumberyard division to Distribution. Industries then distributed a 51% interest in Distribution to Knipp Brothers, Inc. and a 49% interest to BMHC Framing, Inc.

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Combination Policy and Nature of Operations The accompanying combined balance sheet and combined statements of income, changes in equity, and cash flows include the accounts of Knipp Brothers Industries, LLC, KBI Distribution, LLC, and KB Industries Limited Partnership (the "Companies"), which are under common control and management. Intercompany balances and transactions have been eliminated in combination. Knipp Brothers Industries, LLC, a Delaware LLC ("Industries") was formed in December 1998. Industries remained inactive until May 1, 1999 when Knipp Brothers, Inc., a framing contractor engaged in subcontracting for home builders in the metropolitan areas of Phoenix and Tucson, Arizona and Las Vegas, Nevada, contributed its business, including substantially all of its assets and liabilities, in exchange for an interest in Industries. Simultaneously, BMHC Framing, Inc. obtained a 49% interest in Industries by contributing its lumber business in Phoenix, Arizona, including lumber inventory and certain fixed assets to Industries, and purchasing a portion of Knipp Brothers, Inc.'s interest in Industries. KBI Distribution, LLC, a Delaware LLC, ("Distribution"), was formed in December 1999 and remained inactive until December 31, 1999, at which time, Industries contributed the net assets and liabilities of its lumberyard division to Distribution. Industries then distributed a 51% interest in Distribution to Knipp Brothers, Inc. and a 49% interest to BMHC Framing, Inc. KB Industries Limited Partnership, a California Limited Partnership ("LP") was formed in October 1999 and remained inactive until 2000. LP is a framing contractor engaged in subcontracting for homebuilders in Southern California. LP is owned 51% by affiliates of Knipp Brothers, Inc. and 49% by BMHC Framing, Inc. 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS For purposes of the statements of cash flows, the Companies consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. REVENUE AND COST RECOGNITION

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS For purposes of the statements of cash flows, the Companies consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. REVENUE AND COST RECOGNITION Industries and LP prepare their financial statements using the completed-contract method of recording income on construction contracts. The contracts generally involve framing of a number of residential units. Each phase of carpentry work (rough and trim) is considered complete when all costs except insignificant items have been incurred and the work has been accepted by the home builder. Substantially all work performed is billed at the completion of each phase of work. As a result of the nature of the contracts, financial position and results of operations approximate the results that would be reported if the percentage-of-completion method was used. Cost of sales includes direct material and labor costs, as well as indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Costs in excess of amounts billed are included in current assets as costs in excess of billings on uncompleted contracts. Sales of lumber packages by Distribution to third parties, and related costs are recognized at the time of sale. ADVERTISING COSTS Advertising costs totaling approximately $295,000 for the year ended December 31, 2000 and $165,000 for the period from May 1, 1999 through December 31, 1999 were charged to operations as incurred. F-9

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Companies have elected to be treated as partnerships for income tax purposes and as such, are not taxed. Under subchapter K of the Internal Revenue Code, each member or partner is taxed separately on their distributive share of the Companies' income whether or not the income is actually distributed. NOTE B - TRADE RECEIVABLES

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Companies have elected to be treated as partnerships for income tax purposes and as such, are not taxed. Under subchapter K of the Internal Revenue Code, each member or partner is taxed separately on their distributive share of the Companies' income whether or not the income is actually distributed. NOTE B - TRADE RECEIVABLES Trade receivables consist of the following at December 31:
2000 -----------$ 18,399,139 222,763 (100,000) -----------$ 18,521,902 ============ 1999 -----------$ 17,076,707 429,834 (100,000) -----------$ 17,406,541 ============

Completed residential construction contracts Other trade Less reserves

Total

The Companies file preliminary lien notices on residential construction contract receivables to protect their collateral in case of non-payment. NOTE C - INVENTORIES Inventories are recorded at the lower of cost or market on a first-in, first-out method, and consist of the following at December 31: 2000 1999
Lumber and supplies Finished trusses $ 5,115,274 39,644 -----------$ 4,653,027 138,901 ------------

Total

$ 5,154,918 ============

$ 4,791,928 ============

F-10

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE D - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following at December 31:

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE D - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following at December 31:
2000 -----------$ 1,081,987 270,975 7,466,631 3,693,626 249,325 445,941 -----------13,208,485 (7,715,390) -----------$ 5,493,095 ============ 1999 -----------$ 1,081,987 270,975 6,387,022 3,711,330 359,050 167,448 -----------11,977,812 (6,743,088) -----------$ 5,234,724 ============

Land Buildings Autos and trucks Construction equipment Office equipment Leasehold improvements

Total property and equipment Less accumulated depreciation

Net property and equipment

Depreciation is provided in amounts sufficient to relate the cost of property and equipment to operations using the declining balance and straight-line methods over their estimated useful lives of 5 to 39 years. Depreciation expense for the year ended December 31, 2000 and for the period from May 1, 1999 through December 31, 1999 was $1,886,031 and $1,199,572, respectively. NOTE E - ACCRUED EXPENSES Accrued expenses consist of the following at December 31:
2000 -----------$ 5,099,077 1,047,005 293,526 -----------$ 6,439,608 ============ 1999 -----------$ 1,859,084 691,002 514,845 -----------$ 3,064,931 ============

Payroll and related expenses Workers' compensation and medical insurance Other

Total

F-11

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE F - NOTE PAYABLE TO BANK The Companies have a $5,000,000 revolving line of credit agreement with Bank of America, N.A. with interest

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE F - NOTE PAYABLE TO BANK The Companies have a $5,000,000 revolving line of credit agreement with Bank of America, N.A. with interest at the bank's prime rate (9.5% at December 31, 2000). The line of credit matures June 30, 2001 and is secured by trade receivables, inventories and costs in excess of billings on uncompleted contracts. The agreement also contains, among other things, certain restrictions and requirements relating to the maintenance of various financial ratios. At December 31, 2000 and 1999, the line of credit was unused. NOTE G - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS RELATED PARTY PURCHASES The Companies purchased materials and supplies totaling approximately $709,000 and $1,087,000 for the year ended December 31, 2000 and the period ended December 31, 1999, respectively, from one of its members, of which, $0 and $185,941 is included in accounts payable at December 31, 2000 and 1999, respectively. MANAGEMENT AGREEMENTS WITH RELATED PARTIES The Companies have management agreements with members or affiliates of its members. Fees incurred by the Companies totaled $7,200,000 and $9,322,000, respectively during the year ended December 31, 2000 and the period from May 1, 1999 through December 31, 1999, of which $0 and $392,000 is included in accrued expenses at December 31, 2000 and 1999, respectively. LEGAL PROCEEDINGS The Companies are involved in litigation and other legal matters arising in the normal course of business. In the opinion of management, the Companies' recovery or liability, if any, under any of these matters will not have a material adverse effect on the Companies' financial position, liquidity, or results of operations. F-12

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE G - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) OPERATING LEASES In May 1999, the Companies entered into a 5-year lease agreement with a related party for office and production facilities in Las Vegas, Nevada. The lease agreement requires monthly payments of $26,411 plus real estate taxes and insurance, adjusted annually for increases in consumer price index. Total rent expense was approximately $317,000 and $211,000, respectively, for the year ended December 31, 2000 and the period ended December 31, 1999. The Companies entered into a five-year lease agreement in May 1999 with a related party for a lumberyard

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE G - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) OPERATING LEASES In May 1999, the Companies entered into a 5-year lease agreement with a related party for office and production facilities in Las Vegas, Nevada. The lease agreement requires monthly payments of $26,411 plus real estate taxes and insurance, adjusted annually for increases in consumer price index. Total rent expense was approximately $317,000 and $211,000, respectively, for the year ended December 31, 2000 and the period ended December 31, 1999. The Companies entered into a five-year lease agreement in May 1999 with a related party for a lumberyard facility in the Phoenix, Arizona metropolitan area. The lease is for a five-year period through May 2004, and provides for monthly payments of $12,781 plus real estate taxes and insurance, adjusted annually for increases in the consumer price index. Total rent expense was approximately $153,000 and $102,000, respectively, for the year ended December 31, 2000 and the period ended December 31, 1999. In addition, the Companies also lease office space in Tucson, Arizona and Corona, California, land in Las Vegas, Nevada, and certain vehicles and equipment. Total rent paid under these leases was approximately $2,372,000 and $1,279,000, respectively, for the year ended December 31, 2000 and for the period ended December 31, 1999. Approximate future minimum lease payments under operating leases having remaining terms in excess of one year as of December 31, 2000 are as follows:
YEARS ENDING DECEMBER 31, 2001 2002 2003 2004 2005 THIRD PARTY AMOUNTS $ 934,000 833,000 638,000 425,000 144,000 ----------RELATED PARTY AMOUNTS $ 470,000 470,000 470,000 157,000 ------------

TOTALS $ 1,404,000 1,303,000 1,108,000 582,000 144,000 ----------$ 4,541,000 ===========

Total

$ 2,974,000 ===========

$ 1,567,000 ===========

F-13

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE G - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) EMPLOYEE MEDICAL INSURANCE PROGRAM

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE G - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) EMPLOYEE MEDICAL INSURANCE PROGRAM The Companies have an employee medical benefit plan to self-insure claims up to $50,000 per year for each individual covered with an annual aggregate liability limit of approximately $3,350,000 and $2,700,000, respectively, for the year ended December 31, 2000 and for the period ended December 31, 1999. Individual claims above $50,000 and the annual aggregate liability limit are covered by a stop-loss insurance policy. The Companies and their covered employees contribute to the fund to pay the claims and stop-loss insurance premiums. At December 31, 2000, management believes that the Companies have made sufficient provisions to cover estimated claims, including claims incurred but not yet reported. Total expense under this program was approximately $2,035,000 and $1,024,000, respectively, for the year ended December 31, 2000 and the period ended December 31, 1999. WORKERS' COMPENSATION INSURANCE PROGRAMS The Companies are self-insured for workers' compensation claims in Nevada for the year ended December 31, 2000 and the period ended December 31, 1999, and for all other locations commencing in 2000. The Companies self-insure claims up to $250,000 per individual, and individual claims above $250,000 are covered by excess workers' compensation insurance policies. The Companies have obtained standby letters of credit totaling $719,000, as required by the programs. At December 31, 2000 and 1999, management believes that the Companies have made sufficient provision to cover estimated claims, including claims incurred but not yet reported. Expenses under these programs totaled approximately $1,528,000 and $252,000, respectively, for the year ended December 31, 2000 and the period ended December 31, 1999. CHANGE IN CONTROL BONUS PLAN The Companies have a bonus plan with certain employees, that provides these employees with a $15,000,000 cash bonus at such time as the majority member sells or redeems its interest in the Companies, or substantially all of the assets are sold to an unrelated party. F-14

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE H - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS CONCENTRATIONS OF CREDIT RISK Financial instruments that subject the Companies to credit risk consist principally of their trade receivables. A small number of home builders account for a substantial portion of trade receivables. The Companies secure their trade receivables with home builders by filing preliminary lien notices on the residential units under construction. The Companies occasionally maintain deposits in excess of federally insured limits. Statement of Financial

KNIPP BROTHERS INDUSTRIES, LLC KBI DISTRIBUTION, LLC AND KB INDUSTRIES LIMITED PARTNERSHIP Notes to Combined Financial Statements December 31, 2000 and 1999 (Continued) NOTE H - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS CONCENTRATIONS OF CREDIT RISK Financial instruments that subject the Companies to credit risk consist principally of their trade receivables. A small number of home builders account for a substantial portion of trade receivables. The Companies secure their trade receivables with home builders by filing preliminary lien notices on the residential units under construction. The Companies occasionally maintain deposits in excess of federally insured limits. Statement of Financial Accounting Standards No. 105 identifies these items as a concentration of credit risk requiring disclosure, regardless of the degree of risk. The risk is managed by maintaining all deposits in high quality financial institutions. MAJOR CUSTOMERS The Companies have net sales from two customers during the year ended December 31, 2000 and the period ended December 31, 1999, which accounted for approximately 44% and 47% of total net sales, respectively. At December 31, 2000 and 1999, trade receivables from these customers totaled approximately $6,190,000 and $7,191,000, respectively. NOTE I - RETIREMENT PLAN The Companies maintain a 401(k) salary reduction plan, which covers all employees. Voluntary employee participation in the plan is limited by U.S. Treasury Department regulations. The Companies, at their discretion, may also make contributions to the plan. Contributions to the 401(k) plan, totaled approximately $81,000 and $56,300, respectively, for the year ended December 31, 2000 and for the period from May 1, 1999 through December 31, 1999. F-15


								
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