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Ord. 1300 2006-09-25
ORDINANCE NO. 1300 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, FINDING THAT THE CITY HAS ESTABLISHED GUIDELINES AND CRITERIA FOR GRANTING TAX ABATEMENT PURSUANT TO RESOLUTION NO. R2006-121; DESIGNATING AND DESCRIBING A REINVESTMENT ZONE (TO BE KNOWN AS REINVESTMENT ZONE #14), IN ACCORDANCE WITH THE PROPERTY REDEVELOPMENT AND TAX ABATEMENT ACT; FINDING THAT THE IMPROVEMENTS SOUGHT ARE FEASIBLE AND PRACTICAL AND WOULD BE A BENEFIT TO THE LAND TO BE INCLUDED IN THE ZONE AND THE MUNICIPALITY AFTER THE EXPIRATION OF THE TAX ABATEMENT AGREEMENT; AUTHORIZING THE CITY MANAGER TO SIGN TAX ABATEMENT AGREEMENTS WHEN APPROVED BY THE CITY COUNCIL; HAVING A SAVINGS CLAUSE AND A SEVERABILITY CLAUSE; AND AN EFFECTIVE DATE. WHEREAS, Chapter 312 of the Texas Tax Code (the "Property Redevelopment and Tax Abatement Act") provides for the designation of a Reinvestment Zone or area; and WHEREAS, the City Council has, pursuant to Resolution No. R2006-121, established Guidelines and Criteria for Granting Tax Abatement; and WHEREAS, a certain area of the City of Pearland meets the criteria and guidelines heretofore established by the City Council required for designation as a Reinvestment Zone; and WHEREAS, the City Council, on September 1 1, 2006, held a public hearing on the designation of a Reinvestment Zone and finds that the improvements sought are feasible and practical and would be a benefit to the land to be included in the zone and to the municipality after the expiration of an agreement under the Property Redevelopment and Tax Abatement Act; now, therefore, ORDINANCE NO. 1300 BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That pursuant to the Property Redevelopment and Tax Abatement Act, the City Council of the City of Pearland, Texas, hereby designates as a Reinvestment Zone the area described in Exhibit "A" attached hereto and made a part hereof for all purposes, to be known as Reinvestment Zone #14. Section 2. That the area described in Exhibit "A" is reasonably likely, as a result of this designation, to contribute to the retention or expansion of primary employment, or to attract major investment into the zone that would be a benefit to the property and that would contribute to the economic development of the City, and that the improvements sought are feasible and practical and would be a benefit to the land to be included into the zone and to the municipality after the expiration of a Tax Abatement Agreement as authorized by the Property Redevelopment and Tax Abatement Act. Section 3. That the designation of the Reinvestment Zone herein expires five (5) years from the effective date of this ordinance and may be renewed by a subsequent ordinance of the City Council for a period not to exceed an additional five (5) years. That expiration of the original designation shall not affect an agreement entered into under the provisions of this ordinance. Section 4. That the City Council hereby authorizes agreements in writing with the owner of any taxable real estate located within the designated Reinvestment Zone, 2 ORDINANCE NO. 1300 Abatement Act and the conditions of the Guidelines and Criteria for Granting Tax Abatement heretofore adopted by the City Council. Section 5. That any agreement to be entered into under the provisions of this ordinance must be approved by the affirmative vote of a majority of the members of the City Council at a regularly scheduled meeting of the City Council. On approval by the City Council, the agreement may be executed by the City Manager. Section 6. Savings. All rights and remedies which have accrued in favor of the City under this Ordinance shall be and are preserved for the benefit of the City. Section 7. Severability. If any section, subsection, sentence, clause, phrase or portion of this Ordinance is for any reason held invalid, unconstitutional or otherwise unenforceable by any court of competent jurisdiction, such portion shall be deemed a separate, distinct, and independent provision and such holding shall not affect the validity of the remaining portions thereof. Section 8. Effective Date. This Ordinance shall become effective upon passage and approval of its second reading. PASSED and APPROVED ON FIRST READING this the 11th day of September, A.D., 2006. ,._____i__2) ,, TOM REID MAYOR 3 ORDINANCE NO. 1300 ATTEST: / ' 4 • NG + �4'FI iG e TY S' RETARY PASSED and APPROVED ON SECOND AND FINAL READING this the 25th day of September, A.D., 2006. ATTEST: NG Lgisl /V. ? Y SEI/ETARY APPROVED AS TO FORM: 01, DARRIN M. COKER CITY ATTORNEY TOM REID MAYOR 4 JIal 14-2006 10:53am From—GRUBB & ELLIS T13-626-2286 DESCRIPTION EXHIBIT Air Of 20.603 acres or 873,944 square feet of land, being out of Lots 55, 60, 66 and Two un-numbered lots in the W. Zychlinski Subdivision as recorded in Volume 29, Page 43 of the Brazoria County Deed Records and is further described in a Deed conveyed to Bedford Realty, LLC, recorded in County Clerk's File No. 2004028486, of the Official Public Records of Brazoria County, Texas, located in the H.T. & B.R.R. Co. Survey, Abstract No. 232, Brazoria County, Texas (said 20.603 acres being more particularly described by metes and bounds as follows, (bearings based on File No. 99 036982 of the Official Public Records of Brazoria County, Texas); BEGINNING at a 5/8 inch iron rod set at the point of intersection of the Northerly Right -Of -Way line of McHard Road (Variable width R.O.W_) with the Easterly Right -Of -Way line of Mykawa Road (100' wide R.O.W.); THENCE North 02°38'49" West, along the Easterly Right -Of -Way line of said Mykawa Road, a distance of 2791.70 feet to a 5/8 inch iron rod found for comer of the herein described tract of land, said point being in the Westerly line of a 100' wide Atchison Topeka and Santa Fe Railroad Right -Of -Way; THENCE South 16°23'22" East, along the Westerly line of said Railroad Right - Of -Way, a distance of 2673.36 feet, to a 5/8 inch iron rod set for corner of the herein described tract of land, said point being in the Northerly Right -Of -Way line of said McHard Road; THENCE South 73°30'10" West, along the Northerly Right -Of -Way line of said McHard Road, a distance of 64.18 feet to a 5/8 inch iron rod set for corner of the herein described tract of land; THENCE South 64°51'48" West, continuing along the Northerly Right -Of -Way line of said McHard Road, a distance of 366.98 feet to a 5/8 inch iron rod set for comer of the herein described tract of land, said point being the beginning of a curve to the right; THENCE continuing along the Northerly Right -Of -Way line of said McHard Road and along said curve to the right, having a central angle of 22°26'28", a radius of 515.00 feet, an arc length of 201.71 feet, a chord bearing of South 76°05'02" West, and a chord distance of 200.42 feet to a 5/8 inch iron rod set for point of tangency; PAGE 1 OF 2 aI'24-2006 10:53am From-GRUBB £ ELLIS 713-626-2286 T-430 P.004/004 F-665 DESCRIPTION (CONTINUED) THENCE South 87°16'16" West, continuing along the Northerly Right -Of -Way line of.said McHard Road, a distance of 37.40-feet to the PLACE OF BEGINNING of the herein described tract of land and containing within these calls 20.603 acres or 873,944 square feet of land. WITNESS -MY HAND AND SEAL THIS 28th DAY OF FEBRUARY, 2006. J. GARLYN RAINWATER Registered Professional Land Surveyor No. 4722 FOSTER -RAINWATER & ASSOCIATES SURVEYING P. 0. BOX•1339 PEARLAND, TEXAS 77588 PHONE:(281). 412-6586 FAX: (281) 412-9025 Job No. 99066-05 • PAGE2OF2 It is recommended that this application be filed at least 90 days prior to the beginning of construction of the installation of equipment. The filing of this document acknowledges familiarity and conformance with Guidelines and Criteria for Granting Tax Abatement in a Reinvestment Zone Created in the City of Pearland (attached). Please review Instructions attached before executing this application. This application will become part of the agreement and any knowingly false representations will be grounds for the City to void the agreement. Original copy of this request should be submitted to the Pearland Economic Development Corp. Executive Director, City of Pearland, 3519 Liberty Drive, Pearland, Texas 77581. Please attach exhibits and additional information. APPLICANT INFORMATION Application Date 7-1F`0(0 yy�� L7p L7 Company Name iSoM You t L M5 irbrGk i1 5'Number of Current Employees l d OD -7` Address tgc(5 Annual Sales 1,40o,00d, o00 Consecutive years in business 15- Corporation ( ) Partnership i-7? , Proprietorship ( ) Please submit financial statements for the prior two years. PROJECT INFORMATION Type of facility: Manufacturing ( ) (See Instructions) Regional Service ( ) Reg. Distribution Center Reg. Entertainment Center Other Basic Industry {) {) (X) Location address and description of area to be designated as reinvestment zone (attach map showing site and legal description): NO 44tyKifwA 1PoRA ovi N, P lAuh Zo. (003 AFci Description of eligible improvements (real equipment, buildings, parking lots, etc.): RA-(c. LD/94:4,V Dock /0,pckEs GArc,( property) to be constructed (This includes fixed / OFAck Bt.OG S Cum s O2' C Bu 1121/46.5 Description of ineligible property to be included in project. (This includes inventory and personal property.): Jfl`d&v-7 ,C+� �3,000,00) ; €Qc 41, Z,ov,000 ; Fo�'"�1I• 7rV00 1 t{c, , tRf7V, DO r Will this project require any permits by other federal, state or county agencies? If so, please list the name of the permit, the permitting agency and a description of why and what the permit is needed for: The proposed reinvestment zone is located in: City County School District College District Other Taxing Jurisdictions -1;theZi4N1) 117..JO/ 1h e--c2-dr)0 D D y Tax ID number 76 - Ob ©85Y5' Description of product(s) or service to be provided (proposed use): pG r �9(N6 /iiA-Z ri}t S /I LLaO(ti,6 Lt,a4)66, di/awe/et, iI :$ Description of operations, processes involved, general overview: / K�IPr_ f STbi4GE,_ & ..1) J5T J Ti cJ D F eteai Du c S 15/AfG tiCatell 7 ct C4 FGE T (o ?Xi/ ATTACH A STATEMENT explaining the general nature and extent of the project, describing existing site and improvements; describe all proposed improvements and provide list of improvements and equipment for which abatement is requested. Include a proposed time schedule for undertaking and completing the planned improvements as well as the company officials and agents who will oversee the construction. Describe other sites that are under consideration. NEW PLANT Q4 EXPANSION ( ) ECONOMIC INFORMATION A. Construction Estimates Commencement Date: Construction Man Years: Completion Date: Peak Construction Jobs 56- i 2oob Mkt_ z0o7 E. Permanent Employment Estimates (FTE's) MODERNIZATION ( ) IF MODERNIZATION: Estimated Economic Life of Existing Plant: Added Economic Life from Modernization: Years Years Current Employment Current Annual Payroll t%f3 A? average annual or hourly salary Zsvaa Number of jobs retained ( 33 ) created ( t5 ) at start/opening of this project Lig in year 20D 7 5 years into operation Le in year 7o IX - Local Transfer Total ink. , 20O7 tS 33 LfF 117,20 I5 33 ,*AL , 20 / Z. Est. Salaries f. SA/ Z.am C. Other Estimated Taxes Generated by Project 2% Sgces tar (1) Sales Taxes: 2007 : $ Za000,bao 400,0Jo 20053 : $ Zoi,oao,000 MI ooo 20011 :$ 74,00°4"a° 52,0,o00 201 i3 : $ 'o ooc,000 00,000 20 11 : $ 30,0,70,obo t;00vov 20 12 : $ ?o, coo, au (.0pp/oD t1 2013 : $ 30,000,aao Gmoo el 20(`f : $ 32,aot9,00c 6510/Doo 2015 :$ 3y,o ,00a 6fo,660 20 fU : $ 36,o0o,000 72400'3 (2) Other Taxes or fees (if known, impact fees, building fees, etc.): Air iaown( D. Estimated Appraised Value on Site: Land Building & Fixed Equipment Bus. Personal Property & Inventory I. Total of pre-existing value (Jan 1 preceding abatement) 700,000 0 0 II. Estimated value of NEW land added Estimated value of NEW improvements Estimated value of NEW fixed equipment Estimated value of NEW personal property and inventory added Total of NEW value added (Total columns in Sec. I1 above) 0 3, S oo, 0 0 0 S'aot000 _ 4 ,. So i' ,Pot') 0 1 D00/ 060 0 c4 S 0o, 0 b 0 III. Total value at end of Tax Abatement (Total Part' & II) 7c)Z ,oVo III 00O, 00o 46 500,ti00 TAX ABATEMENT REQUESTED % of eligible property for a term of / 0 years (Or) ( ) Requesting Staggered Tax Abatement Terms as follows: VARIANCE Is the applicant seeking a variance under Section 3(f) of the Guidelines? YES ( ) NO If "YES" attach required supplementary information. OTHER ABATEMENTS: Has company made application for abatement of this project by another taxing jurisdiction or nearby counties? If "YES" provide dates of application, hearing dates, if held or scheduled, name of jurisdictions and contacts, and letters of intent. COMPANY REPRESENTATIVE TO BE CONTACTED Name: lu�'n/6Q Title: GnrTreoet6e— Address: /4'46" IWA 574in /ics rod Au/ 11. .s~c Div; r77O ( 9 Telephone: 7/3 0760 YES() NO Authorized Company Official: By: Printed Name: Title: C. q Revised November 21, 2000 J4I 14-2006 10:53am From-GRUBB & ELLIS 713-626-2266 T-430 P.003/004 F-665 DESCRIPTION Of 20.603 acres or 873,944 square feet of land, being out of Lots 55, 60, 66 and Two un-numbered lots in the W. Zychlinski Subdivision as recorded in Volume 29, Page 43 of the Brazoria County Deed Records and is further described in a Deed conveyed to Bedford Realty, LLC, recorded in County Clerk's File No. 2004028486, of the Official Public Records of Brazoria County, Texas, located in the H.T. & B.R.R. Co. Survey, Abstract No. 232, Brazoria County, Texas (said 20.603 acres being more particularly described by metes and bounds as follows, (bearings based on File No. 99 036982 of the Official Public Records of Brazoria County, Texas); BEGINNING at a 5/8 inch iron rod set at the point of intersection of the Northerly Right -Of -Way line of McHard Road (Variable width R.O.W.) with the Easterly Right -Of -Way line of Mykawa Road (100' wide R.O.W.); THENCE North 02°38'49" West, along the Easterly Right -Of -Way line of said Mykawa Road, a distance of 2791.70 feet to a 5/8 inch iron rod found for comer of the herein described tract of land, said point being in the Westerly line of a 100' wide Atchison Topeka and Santa Fe Railroad Right -Of -Way; THENCE South 16°23'22" East, along the Westerly line of said Railroad Right - Of -Way, a distance of 2673.36 feet, to a 5/8 inch iron rod set for corner of the herein described tract of land, said point being in the Northerly Right -Of -Way line of said McHard Road; THENCE South 73°30'10" West, along the Northerly Right -Of -Way line of said McHard Road, a distance of 64.18 feet to a 5/8 inch iron rod set for corner of the herein described tract of land; THENCE South 64°51'48" West, continuing along the Northerly Right -Of -Way line of said McHard Road, a distance of 366.98 feet to a 5/8 inch iron rod set for comer of the herein described tract of land, said point being the beginning of a curve to the right; THENCE continuing along the Northerly Right -Of -Way line of said McHard Road and along said curve to the right, having a central angle of 22°26'28", a radius of 515.00 feet, an arc length of 201.71 feet, a chord bearing of South 76°05'02" West, and a chord distance of 200.42 feet to a 5/8 inch iron rod set for point of tangency; PAGE 1 OF 2 40 '24-2006 10:53am From-GRUBB i ELLIS 713-626-2288 T-430 P.004/004 F-665 DESCRIPTION (CONTINUED) THENCE South 87°18'16" West, continuing along the Northerly Right -Of -Way line of.said McHard Road, a distance of 37.40-feet to the PLACE OF BEGINNING of the herein described tract of land and containing within these calls 20.603 acres or 873,944 square feet of land. WITNESS -MY HAND AND SEAL THIS 28th DAY OF FEBRUARY, 2006. J. GARLYN RAINWATER Registered Professional Land Surveyor No. 4722 FOSTER -RAINWATER & ASSOCIATES SURVEYING P. O. BOX "1339 PEARLAND, TEXAS 77588 PHONE:(281) 412-6586 FAX: (281) 412-9025 . Job No. 99066-05 • PAGE 2 OF 2 Pearland Economic Development Corporation Assistance Application Form Applicant Information Company Name: Address: \ s'$.=\. 4- R'34�i Company Official: Title: tt0 ate"" Telephone: FAX: \?.'6‘1 Please submit third party reviewed financial statements or IRS tax filings for the prior two years. 1-Z—\ c•. tYt• dam- CSzr'2- 4'Ackt,t ksz Project Description -.4m Applicant MUST attach a statement fully explaining the project. Describe future site improvements, business operations, and economic impacts of the proposed project. If the company will be required to obtain any State or Federal permits, please detail which permits and why they are required. The company must ask for assistance from the PEDC. Description of Facility (Select those that apply) Corporation ( ) Partnership Proprietorship ( ) New Plant Expansion ( ) Modernization ( ) Manufacturing ( ) Sales ( ) Office/ Professional ( ) Other Industry ( ) Distribution Center Project Location (Attach site plan): rck>L ��'1-` • Total Capital Investment (Excluding Land Value): $ a . Aroa, Estimated Expenses of Bringing Utilities to Site: $ 1\51, Building Size (Sq. _ tkLtva " �ti O� vzs-t: Estimated Moving Expenses: $ y \ 4f`c Estimated Annual Sales Tax Contribution: $ `-9)kkE.2, 2 csr-s5 a _ Estimated Value of Fixed Equipment: S 2.55tD, d Sales Tax Sent to State of Texas (Last year): $ ' r, 'Ps-J Company Profile: Employment: Current Employment: 37 Employment in 5 years: S S Gross Annual Payroll: $ \\\1; ,,1 Annual Payroll in 5 years: $ 3 . B YrvAj,i.,e,-,,, Average Hourly Wage: $ \x... Avg. Wage in 5 years: $ 1 lab BUILDING MATERIALS, LTD. 1445 WEST SAM HOUSTON PKWY. NORTH (713) 967-6700 P.O. BOX 19649 HOUSTON, TEXAS 77224 May 10, 2006 Bison Building Materials, Ltd. provides the residential construction industry with a variety of products and services including lumber, millwork, and engineered/manufactured products. The contemplated project is the relocation and — expansion of our distribution center located in La Marque, TX. Bison opened the current facility in 1988. The 4.3 acre property contains one enclosed building with + 19,000 sq. ft. and a number of T-shed storage buildings. The remainder of the site is hard -surfaced There is no rail service to the facility. Surrounding property is occupied and not for sale. The La Marque facility has served Bison well for many years; however, we now find ourselves with a need to add product lines, equipment and inventory amounts if we are to service the increased business opportunity south and east of the city of Houston. We believe Pearland offers an opportunity to meet the requirements for us to be successful in this endeavor. Our concept plans are for the construction of a rail served distribution facility to be located at the intersection of Mykawa Rd. and McHard Dr. The 20 acre site allows for substantial growth that is not feasible at our current location. Initially we plan to construct a facility on 16 acres that includes approximately 5.5 acres for a floodwater retention structure. The remaining acreage is to be retained for future use in the existing business or for additional related business ventures. Preliminary estimates for construction, based on concept plans, are approximately $3.5 Million + rail spur installation. This construction includes a hard -surfaced lumber/millwork facility with four metal buildings totaling approximately 80,000 square feet of space. There will be operational offices in a portion of one of the buildings with a retail sales counter and showroom to highlight available products. The business unit we are contemplating moving closed their fiscal year in April, 2006 with $25.3 Million in deliveries. This amount has been reported as sales from our Rosenberg, TX facility as the LM yard was treated as a distribution -only facility; not making on -site sales. The future facility will report as a local business, particularly since we will be making retail sales on -site. It is expect that the business will continue to grow with the expanded capabilities to in excess of $50 Million within three years, provided economic factors continue to be positive as expected. This facility will be similar in service capabilities to our Rosenberg unit that finished the year in excess of $70 Million, not including the deliveries made from LM We currently employ 37 persons at the LM facility. As our offerings and capability increase, we expect to add personnel to meet the needs. We anticipate requiring in excess of 50 people to conduct business within 3-5 years. Payroll and related personnel expenses are expected to exceed $3.8 Million at that time. it is not know at this time how many people will move with the business. Bison Building Materials, Ltd. is contemplating a project that far exceeds what current business requires. We are considering investing in the future of our business and also, the future of Pearland. We hereby request that the Pearland EDC aid us in moving towards that successful future by providing financial assistance to make this happen. Respectfully, Pat W. Bierschwale President Bison Building Materials, Ltd. R165689 Datasheet Page 1 of 2 R165689 Datasheet c Assessment History c Land Information E: Improvements Improvement Sketch t_ Location Map Brazoria c County Info 4_ Account Search c Owner Search c Address Search c Property ID Search Search c New County Assistance ;. FAQs E, Links c Forms Property Description Owner Address Property Situs Address Legal Description BEDFORD REALTY LLC %QUINTIN AND ASSOCIATES PO BOX 801707 DALLAS, TX 75380- 1707 MYKAWA RD CR 112 PEARLAND, TX 77581 A0232 H T & B R R, TRACT 55-60-66, ACRES 20.603, PEARLAND Taxing Entities 0 Exemptions 0 Deed GBC - Brazoria County RDB - Road & Bridge SPL - Pearland ISD CPL - City Pearland DR4 - Braz Co Drain #4 Book: 04 Page: 028486 Type: WD 03/18/04 Account Number Abstract/Subdivision Neighborhood 0232-0012-000 A0232 - H T & B R R SPL.7 - Spl Abst/Strata 7 Value Information Type Value Total Land HS/NHS $247,240 Total Productivity Market $0 Total Improvement HS/NHS $0 Total Market Value $247,240 * This value information is preliminary and not certified. These values should not be used in the estimation of taxes as they are subject to change. Prior year certified value information can be obtained by selecting the "Assessments" option. Main Area Building Attributes Cont Style 0 Foundation 0 Ext. Finish 0 Int. Finish Roof Style 0 Flooring 0 Heat/AC 0 Plumbing T,,+.... ii._....... 4_...,.,,r,..,.1„�,. ia,.�,,,.i.,.,,4 ,.,.,..or,.,,�,-..—non fl_n..,...,.,,,.,-.,Tr —D 1 4Qn '711n i'nn' R165689 Datasheet Page 2 of 2 Fireplace Builtins Rooms Bedrooms Tyler Technologies, Inc. The Software Group Division Copyright © 2006 Tyler Technologies, Inca The Software Group Division. All rights reserved. For technical problems with this Web site, please email the Webmaster. '7/'1A /')ACf BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 GAINERDONNELLY&DESROCHES BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets 2 Consolidated Statements of Income 4 Consolidated Statements of Changes in Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 8 G D &D GAINERDONNELLY&DESROCHES INDEPENDENT AUDIT.R'S REPORT To the Board of Directors and Stockholders Bison Building Materials, Inc. Houston, Texas We have audited the accompanying consolidated balance sheets of Bison Building Materials, Inc. and Subsidiaries (collectively, the "Company") as of April 30, 2005 and 2004, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended, These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with accounting principles generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bison Building Materials, Inc. and Subsidiaries as of April 30, 2005 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. July 11, 2005 613-yo\dtwLI44-t,--,L, LL? Gainer, Uonnaily & Desroches, LLP 5847 San Felipe, Suite 1100 Cer'dtied Public Accountants Houston, Texas 77057 ?Et 713.621.8090 Fc`: 713.621.6907 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 30, 2005 AND 2004 ASSETS CURRENT ASSETS: Cash and Cash Equivalents Accounts Receivable Inventories Prepaid Expenses and Other Refundable Income Taxes Deferred Income Taxes Total Current Assets PROPERTY, PLANT AND EQUIPMENT: Land Buildings and Improvements Machinery and Equipment Furniture and Fixtures Transportation Equipment Construction in Progress Less: Accumulated Depreciation Net Property, Plant and Equipment OTHER ASSETS: Accounts Receivable - Affiliate Note Receivable - Affiliate Deposits and Other Assets Investments: Closely Held Corporation Real Estate Goodwill Total Other Assets TOTAL ASSETS 2005 2004 $ 2,006,594 1,426,140 44,753,705 31,199,668 31,231,735 31,884,093 1,132,483 623,393 13,588 523,537 743,785 763,413 79,881,890 66,420,244 1,118,349 1,1 18,349 15,06 8,766 12,496,569 7,445,625 6,495,277 4,183,517 3,938,155 3,310,495 2,768,531 359,063 169,871 31,485,815 26,986,752 (I5,954,173) (14,303,767) 15,531,642 12,682,985 265,908 849,775 49,035 200,000 1,456,935 2,976,039 220,016 849,775 35,361 1,456,935 3,004,871 5,797,692 5,566,958 $ 101,211,224 $ 84,670,187 The accompanying notes are an integral part of these consolidated financial statements. 2 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 30, 2005 AND 2004 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of Credit Current Maturities of Long -Term Debt Current Maturities of Capital Lease Obligations Accounts Payable Accrued and Other Liabilities Total Current Liabilities LONG-TERM LIABILITIES: Long -Term Debt, Net of Current Maturities Capital Lease Obligations, Net of Current Maturities Deferred Income Taxes Total Long -Term Liabilities TOTAL LIABILITIES COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Class A Common Stock, $.01 Par Value, 150,000 Shares Authorized, 104,500 Shares Issued; 96,500 Shares Outstanding Class B Nonvoting Common Stock, $.01 Par Value, 450,000 Shares Authorized, 440,300 Shares Issued; 416,800 Shares Outstanding Retained Eamings Less: Treasury Stock, at Cost: Class A - 8,000 and 1,000 Shares at April 30, 2005 and 2004, respectively; Class B - 23,500 and 10,500 shares at April 30, 2005 and 2004, respectively TOTAL STOCKHOLDERS' EQUITY TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2005 2004 $ 42,600,001 $ 31,600,001 1,508,103 1,130,661 511,940 266,155 20,502,779 18,730,196 4,851,945 4,269,575 69,974,768 55,996,588 8,832,118 8,599,992 1,116,276 770,452 251,198 907,895 10,199,592 10,278,339 80,174,360 66,274,927 1,045 4,383 22,039,836 1,045 4,383 18,722,929 22,045,264 18,728,3 57 (1,008,400) (333,097) 21,036,864 18,395,260 $ 101,211,224 $ 84,670,187 The accompanying notes are an integral part of these consolidated financial statements. 3 SALES COST OF SALES GROSS MARGIN BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 2005 2004 $ 324,103,983 $ 257,933,458 249,900,111 194,045,204 74,203,872 63,888,254 OPERATING EXPENSES: Salaries and Employee Benefits 45,774,772 40,516,315 General and Administrative Expenses 19,190,036 16,061,336 Depreciation and Amortization 2,312,982 2,220,705 Total Operating Expenses 67,277,790 58,798,356 INCOME FROM OPERATIONS 6,926,082 5,089,898 OTHER INCOME (EXPENSE): Interest Expense (2,227,281) (1,559,088) Goodwill Impairment Loss (361,421) Loss on Sale of Leakey Ranch - (532,515) Other Income (Expense) 194,819 (253,342) Total Other Income (Expense) (2,032,462) (2,706,366) INCOME BEFORE PROVISION FOR INCOME TAXES 4,893,620 2,383,532 PROVISION FOR INCOME TAXES 1,576,713 770,073 INCOME BEFORE MINORITY INTEREST 3,316,907 1,613,459 MINORITY INTEREST (27,919) NET INCOME $ 3,316,907 $ 1,641,378 The accompanying notes are an integral part of these consolidated financial statements. 4 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 Common Stock Retained Treasury Class A Class B. Earnings Stock Total BALANCE, APRIL 30, 2003 $ 1,045 $ 4,383 $ 17,081,551 $ (333,097) $ 16,753,882 Net Income 1,641,378 1,641,378 BALANCE, APRIL 30, 2004 1,045 4,383 18,722,929 (333,097) 18,395,260 Net Income 3,316,907 3,316,907 Treasury Stock Purchase (675,303) (675,303) BALANCE, APRIL 30, 2005 $ 1,045 $ 4,383 $ 22,039,836 $ (1,008,400) $ 21,036,864 I The accompanying notes are an integral part of these consolidated financial statements. 5 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,316,907 $ 1,641,378 Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities: Depreciation and Amortization 2,312,982 2,220,705 Net Gains on Disposal of Assets (25,997) (69,269) Minority Interest in Loss of Subsidiary (27,919) Goodwill Impairment Loss 361,421 Loss on Sale of Leakey Ranch 532,515 Deferred Income Taxes (637,069) 220,032 Changes In: Accounts Receivable (13,367,994) (1,079,823) Inventories 512,518 (11,485,120) Accounts Payable and Accrued Expenses 7,968,414 5,465,317 Other Assets and Liabilities (5,672,168) 40,145 Total Adjustments Net Cash Used in Operating Activities (8,909,314) (3,821,996) (5,592,407) (2,180,618) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Property, Plant and Equipment (4,313,228) (2,502,475) Proceeds from Disposal of Property, Plant and Equipment 134,688 207,946 Proceeds upon Sale of Facility 360,000 Investment in Closely Held Corporation (200,000) - Net Cash Used in investing Activities $ (4,378,540) $ (1,934,529) The accompanying notes are an integral part of these consolidated financial statements. 6 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 CASH FLOWS FROM FINANCING ACTIVITIES: Net Advances on Line of Credit Proceeds from Issuance of Long -Term Debt Principal Payments on Long -Term Debt Principal Payments on Capital Lease Obligations Purchase of Treasury Stock Net Cash Provided by Financing Activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid for Interest Cash Paid for Income Taxes SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Property and Equipment Acquired via Debt Assumption Note Receivable Received on Sale of Leakey Ranch Interest Accounts Receivable Received on Sale of Division to Related Party 2005 2004 $ 11,000,000 $ 6,400,000 1,400,000 (790,432) (382,864) (675,303) (899,439) (250,962) 10,551,401 5,249,599 580,454 1,134,452 1,426,140 291,688 $ 2,006,594 $ 1,426,140 $ 2,050,642 $ 1,586,292 $ 1,700,000 $ 842,000 $ 974,473 $ 251,814 $ - $ 849,775 $ 186,043 $ The accompanying notes are an integral part of these consolidated financial statements. 7 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Activity Bison Building Materials, Inc. and Subsidiaries (collectively, the "Company") were founded to serve primarily as a supplier of building materials to contractors and home builders. The Company extends credit to its customers who consist primarily of various industrial corporations, individuals, commercial contractors and subcontractors in the single- family housing market. The Company currently has three divisions; the Millwork Division, the Lumber Division, and the Truss Manufacturing Division, The Millwork Division, located primarily in Houston, Texas, serves as a manufacturer and distributor of millwork products. The Millwork Division has an additional location in Denver, Colorado. The Lumber Division, w'ch has locations in Houston, Conroe, San Antonio and LaMarque, Texas, and Las Vegas, Nevada serves as a distributor of building materials and supplies. These divisions sell primarily to commercial contractors and homebuilders. The Truss Manufacturing Division, located in Houston and San Antonio, Texas, serves as a manufacturer of engineered wood trusses for various commercial contractors and homebuilders throughout central and southeast Texas. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Bison Building Materials, Ltd. (BBML), Bison Building GP, Inc., Milltech, Inc. (Milltech), All Pan, Ltd. (All Pan), Bison Building Materials Nevada, LLC (Nevada) and Gino Guido, Inc. (GGI) and its wholly owned subsidiary HLBM Company (HLBM). The 2004 consolidated financial statements also include the accounts of its jointly owned subsidiary Leakey Ranch, Ltd. (Leakey). All significant intercompany accounts and transactions have been eliminated in consolidation. Leakey was formed in July 2002 as a Texas lnnited partnership. The Company contributed land and improved property for a 62.74 percent interest in the partnership. The Company's ownership interest in Leakey was sold to a stockholder in April 2004. (See also Note 10.) Revenue Recognition The Company recognizes revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the Company's price to the buyer is fixed and determinable, and collection is reasonably assured. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks, and all highly liquid investments with a maturity of three months or less at the time of purchase. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts Receivable Accounts receivable represent amounts owed to the Company which are expected to be collected within the next twelve months. Management evaluates receivables on an ongoing basis by analyzing customer relationships and previous payment histories. An allowance for doubtful accounts is established for specific accounts the Company considers uncollectible. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. At April 30, 2005, no allowance for doubtful accounts was considered necessary. 8 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTINQ POLICIES — CONTINUED Inventories Inventories are stated at the lower of cost, determined on a weighted average basis, or market. Property, Plant and Equipment Property, plant and equipment, including betterments and renewals, are stated at cost, while maintenance and repairs are expensed currently. Upon retirement or other disposal of property, plant and equipment, the cost and related accumulated depreciation are removed from the respective accounts and any gains or losses are included in the results of operations. The Company depreciates its assets using the straight-line and accelerated methods over three to thirty years for buildings and improvements, two to fifteen years for machinery and equipment, two to seven years for furniture and fixtures, and five to seven years for transportation equipment. Depreciation and amortization expense charged to operations was $2,312,982 and $2,220,705 for the years ended April 30, 2005 and 2004, respectively. Investment in Closely Held Corporation The Company owns 10% of the conunon stock of T.D.G. The Designers Guild, a Nevada corporation. The Company accounts for this investment utilizing the cost method of accounting. Checks in Process of Clearing The Company includes checks in process of clearing in accounts payable on the accompanying consolidated balance sheets. At April 30, 2005 and 2004, checks in process of clearing totaled $6,695,368 and $6,195,831, respectively hnpairment of Long -Lived Assets Statement of Financial Accounting Standards (SFAS) No. 121 as amended by SFAS No. 144, "Accounting for the Impairment of Disposal of Long -Lived Assets" requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicated that the carrying amounts of any asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount the carrying amount exceeds the fair value of the assets. Based upon management's assessment of existing assets, no impairment loss needs to be recognized at April 30, 2005. Shipping and Handling Costs All costs incurred by the Company to receive a product from a vendor or ship a product to a customer are included as a component of cost of sales. Income Taxes Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. The Company files consolidated income tax returns with its subsidiaries. Estimates Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. 9 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CQNTRR D Financial Instruments The Company's financial instruments (primarily cash and cash equivalents, accounts receivable, borrowings, and payables) are carried in the accompanying consolidated balance sheets at amounts which reasonably approximate fair value. Self -Insurance The Company has elected to self -insure certain costs related to employee health and accident benefit programs. Costs resulting from non-insured losses are charged to income when incurred. The Company has purchased insurance that limits its exposure for individual claims and that limits its exposure to $140,000 per occurrence, with and aggregate Txposure limit of approximately $3,000,000. Advertising Advertising costs are charged to operations when the advertising first takes place. The Company uses no direct -response advertising. Advertising expense for the years ended April 30, 2005 and 2004 totaled $308,236 and $176,646, respectively. NOTE 2 - INVENTORIES Inventories at April 30, 2005 and 2004 consist of the following: 2005 2004 Raw Materials $ 912,471 $ 506,633 Work in Process 630,003 401,833 Finished Goods 29,689,261 28,433,270 In -Transit - 2,542,357 NOTE 3 - ACCRUEDAND QTHERLIABILITIES Accrued and other liabilities at April 30, 2005 and 2004 consist of the following: $ 31,231,735 $ 3L$84.093 2005 2004 Accrued Salaries, Employee Benefits and Withholdings $ 2,938,831 $ 2,879,575 Accrued Interest 182,776 6,137 Property Taxes Payable 6I0,311 433,271 Sales Taxes Payable 1,107,042 930,791 Other Accrued Expenses 12,985 19,801 $ 4,851,945 $ 4,269,575 10 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - GOODWILL The changes in the carrying amount of goodwill for the years ended April 30, 2005 and 2004: 2005 2004 Balance, Beginning of Year $ 3,004,871 $ 3,366,292 Goodwill Written -off During the Year (361,421) Goodwill Related to Disposed Business Unit (28,832) Balance, End of Year $ 2,976.031 $ 3.004,871 Goodwill is assigned to specific reporting units and is reviewed for possible impairment at Least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit's carrying amount is greater than its fair value. During the year ended April 30, 2004, the Company determined the carrying amount of the San Antonio reporting unit exceeded its fair value, which was estimated based upon the present value of expected future cash flows. Accordingly, a goodwill impairment loss of $361,421 was recognized during 2004. No impainnent loss was deemed necessary for 2005. NOTE 5 - LINE OF CREDIT At April 30, 2005, the Company maintains a revolving line of credit agreement with a two banks which provides for borrowings up to a maximum of $45,000,000 for working capital financing with all accrued but unpaid interest and principal due August 2005. Borrowings under the revolving line of credit agreement are limited to the amount of certain accounts receivable and inventories of the Company. Under the terms of the agreement, interest is payable monthly at the banks' adjusted base rate or LIBOR plus 1.75% to 2.5% (based on a financial ratio). The loan is secured by substantially all of the Company's assets and guarantees of the Company and a stockholder. In connection with the line of credit, the Company is subject to certain restrictive covenants, including certain financial and operating ratios, limitations on purchases of fixed assets from other financial institutions, and various other covenants. The Company was in violation of one covenant at April 30, 2005. This violation has been waived as of April 30, 2005. At April 30, 2005 and 2004, the Company had outstanding balances related to their Iine of credit of $42,600,001 and $31,600,001, respectively. NOTE 6 - LONG-T,RM DEBT Following is a summary of long-term debt as of April 30, 2005 and 2004: 2005 2004 Notes payable to the estate of a former stockholder; payable on demand, interest payable at 10%; unsecured. $ 200,000 $ 200,000 Notes payable to a stockholder, payable on April 15, 2006, interest payable at 10%, unsecured and subordinated to the line of credit and certain long-tenn debt. Effective May 2002, notes payable to a financial institution were refmanced into one note for $6,600,000 payable in monthly principal installments of $144,000 for the first four months and $44,000 thereafter, plus interest at rates discussed in Note 5, with final payment of outstanding principal and accrued interest due in May 2007; collateralized and guaranteed as discussed in Note 5. 400,000 4,660,000 5,144,000 11 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 -,LONG-TERM DEPT - CONTINUED Notes payable to a financial institution; payable in monthly principal installments of $10,000, plus interest at rates discussed in Note 5, with final payment of outstanding principal and accrued interest due in May 2007; collateralized and guaranteed as discussed in Note 5. Notes payable to a financing company; payable in monthly instalhnents of $26,506, including interest at 7.27%, maturing May 1, 2016; secured by real estate. Notes payable to a financing company, payable in monthly installments of $10,389, including interest at 6.46%, maturing May 1, 2016, secured by real estate $ 1,540,000 $ 1,650,000 2,447,214 2,541,711 979,815 Notes payable to former stockholders; payable in monthly installments of $3,000, including interest at 5.21%, paid -off in 2005 36,000 Notes payable to a former stockholder; payable in monthly installments of $4,479, including interest at 5.75%, maturing July 22, 2007; unsecured Less: Current Maturities Long -Tenn Debt Maturities on long-tenn debt for the next five years and thereafter are as follows: For Year Ending April 30, 113,192 158,942 10,340,221 9,730,653 (1,508,103) (1,130,661) $ 8,832,118 $ 8,599 992 2006 $ 1,508,103 2007 927,884 2008 5,162,073 2009 262,653 2010 281,739 Thereafter 2,197 769 Total $ 10,340,221 NQTE 7 - CAPITAL LEASE OBLIGATIONS The Company is a lessee of certain equipment and vehicles under capital leases expiring in various years through February 2010. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lower of their related lease tenns or their estimate productive lives. Depreciation of the assets under capital leases is included in depreciation expense. 12 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL LEASE OBLIGATIONS - CONTINUED Following is a summary of the property held under capital leases: Machinery and Equipment Transportation Equipment Less: Accumulated Depreciation Future minimum lease payments under the capital leases are as follows: Year Ending April 30, 2005 2004 $ 1,323,112 $ 896,157 900,662 441,937 2,223,774 1,338,094 (931,628) (453,739) $ 1,292,146 $ 884.355 2006 $ 574,079 2007 574,079 2008 439,866 2009 122,220 2010 73,781 Total Minimum Lease Payments 1,784,025 Less: Amounts Representing Interest (155,809) Present Value of Net Minimum Lease Payments Less: Current Maturities 1,628,216 (511,940) Long -Term Capital Lease Obligations $ 1,116 76 NOTE 8 - OPERATING LEASES The Company has various equipment leases, including leases with a related party (Note 10), which expire on various dates through 2011. Rental expense totaled approximately $3,525,000 and $1,997,000 for the years ending April 30, 2005 and 2004, respectively. Future minimum lease payments (approximate) at April 30, 2005, were: Year Ending April 30, 2006 $ 2,966,397 2007 2,085,291 2008 1,794,217 2009 1,315,231 2010 857,106 Thereafter 94,580 Total $ 9112,822 13 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - INCOME TAXES Provision for income taxes includes these components: Current Tax Expense Deferred Tax Expense (Benefit) 2005 2004 $ 2,213,781 $ 550,041 (637,068) 220,032 $ 1,576,713 $ 770,073 A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is as follows: 2005 2004 Computed at the Statutory Rate (34%) $ 1,663,831 $ 810,401 Increase (Decrease) resulting from: Nondeductible Meals and Entertainment 80,649 34,865 State Income Taxes 2,563 5,808 Change in Deferred Tax Asset Valuation Allowance 60,931 44,104 Other (231,261) (125,102) Actual Tax Provision $ 1,576,713 $ 770,0 33 The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were: 2005 2004 Deferred Tax Assets: Accrued Compensated Absences $ 50,917 $ 47,230 Net Operating Loss Carry Forwards 429,933 377,897 Inventory Overhead Costs Capitalized for Tax Purposes 692,867 455,078 Loss on Sale ofLeakey Ranch Interest 181,055 181,055 Deferred Tax Liabilities: Basis of Property Net deferred tax asset before valuation allowance Valuation Allowance: Beginning Balance Increase during the Period Ending Balance Net Deferred Tax Asset (Liability) 1,354,772 1,061,260 (503,407) (907,895) $ 851,365 $ 153,365 (297,847) (253,743) (60,931) (44 104) $ (358,778) $ (297,847) $ 492,587 $ (144,482) 14 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - INCOME TAXES - CONTM J 1 The net deferred tax asset (liability) shown above is presented in the consolidated balance sheets as follows: 2005 2004 Deferred Tax Asset, Current $ 743,785 $ 763,413 Deferred Tax Liability, Long-term (251,198) (907,895) Net Deferred Tax Asset $ 492,587 $ (144.482) As of April 30, 2005, the Company has unused operating loss carryforwards of approximately $209,000 for federal income tax purposes that expire through 2013. The Company also has unused operating loss carryforwards of approximately $8,000,000 for state income tax purposes that expire through 2010. NOTE 10 - RELA_IED ARP Ty TRANSACUI:Q I The Company leases various equipment from an entity owned by the principal stockholders. The Company also pays for certain expenses and/or advances funds to other affiliates related through common ownership. Net activity with these affiliates totaled approximately $224,000 and $66,000 for the years ended April 30, 2005 and 2004, respectively. Significant related party transactions and balances as of April 30, 2005 and 2004 and for the years then ended, were as follows: Interest Paid on Notes to Former Stockholders Rent Expense on Operating Leases with Affiliate Note Payable — Former Stockholder's Estate Note Payable — Stockholder Accounts Receivable from Affiliates * Accounts Receivable from Related Party (Note 11) Accounts Receivable — Stockholder * Accounts Receivable — Leakey Ranch, Ltd. * 2005 2004 $ 29,000 477,000 200,000 400,000 619,000 266,000 $ 33,000 371,000 200,000 208,000 221,000 44,725 121,670 308,352 During the year ended April 30, 2004, the Company sold its limited partner interest in Leakey Ranch to a stockholder for $894,500. The Company recorded a loss of approxiinately $532,000 related to this sale. In conjunction with the purchase, the stockholder has a note receivable to the Company for $849,775 which accrues interest at 3.15%through maturity in April 2013. During the year ended April 30, 2005, the Company sold its Seidel division of All Pan to an affiliate. All assets of the division were sold at their net book value which totaled $186,043. The assets sold included inventory of $139,840, property and equipment of $17,371(net of accumulated depreciation), and goodwill of $28,832. At April 30, 2005, this affiliate owed the Company $473,000. This amount is included in Accounts Receivable from Affiliates above. * Included in accounts receivable on consolidated balance sheets. 15 BISON BUILDING MATERIALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - RELATED 'ARTY RECEIVABLE The Company has entered into a split -dollar arrangement with the trust of one of the Company's stockholders. Under the terms of the agreement, the Company pays the premium on a life insurance policy. The trust is the named beneficiary of the policy and the trust has made a collateral assignment of proceeds from the policy equal to the premiums paid by the Company. Upon the death of the insured, the Company is entitled to recover all premiums paid. At April 30, 2005 and 2004, respectively, premiums paid by the Company total approximately $266,000 and $221,000. NOTE 12- PROFIT SHARING PLAN The Company has a contributory 401 (k) profit sharing plan that covers substantially all employees. Contributions are made by the Company on a discretionary basis subject to approval by the Board of Directors. The Company recognized plan administrative and contribution costs of approximately $130,000 and $50,000 for the years ended April 30, 2005 and 2004, respectively. NOTE 13 - COMMITMENTS ,AND CONTINGENCIES The Company may, from time to time, be named in lawsuits in the ordinary course of business. The Company believes that it has adequately provided for any liabilities which may result from litigation. NOTE 14 - SELF-111 j2MMAN The Company has a self -funded major medical and accidental death and dismemberment program and has purchased excess loss insurance to mitigate potential major losses. The Plan is administered by an insurance company which determines the current funding requirements under the terms of the plan and the liability for claims and assessments that would be payable at any given point in time. Provisions for losses expected under these programs are recorded based upon estimates of the aggregate liability for claims incurred. The amount of actual losses incurred could differ materially from the estimates reflected in these consolidated financial statements. Historically, the Company has not incurred significant losses on medical claims, and management believes the Company's reserves at April 30, 2005, are sufficient to cover the Company's liabilities for claims incurred. The Company had accrued reserves of $199,000 and $168,000 as of April 30, 2005 and 2004, respectively. NOTE 15 - RECLASSIFICATION Certain amounts from 2004 have been reclassified to conform to the current year presentation. These reclassifications have no effect on previously reported net income. NOTE 16 - SUBSEQUENT EVENT The Company is planning to elect S Corporation status for Bison Building Materials, Inc. for federal income tax purposes. 16