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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark one) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the fiscal year ended December 31, 2003OR[   ]
    

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition
period from
 to
.
 Commission File Number 001-12335 BUTLER MANUFACTURING COMPANY  Delaware
    
    44-0188420(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 1540 Genessee Street, (P.O. Box 419917, zip code 64141), Kansas City, Missouri 64102
(Address of principal executive offices) (816) 968-3000
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, no par value
    
    New York Stock ExchangePreferred share purchase rights
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No  . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 or the Act.) YesX No  . The aggregate market value of Registrants Common Stock held by non-affiliates
based on the closing price of $16.53 on June 30, 2003, the end of the second
fiscal quarter, was $103,197,311. The Registrant had 6,335,425 shares of no par value Common Stock issued and
outstanding as of February 23, 2004.    1




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BUTLER MANUFACTURING COMPANY FORM 10-K  For the Fiscal Year Ended December 31, 2003 2




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CONTENTS PagePART IItem 1.
    
    Business
    
    
    5Item 2.
    
    Properties
    
    
    10Item 3.
    
    Legal Proceedings
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    11PART IIItem 5.
    
    Market for
Registrants Common Equity
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7A.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    28Item 8.
    
    Financial Statements and Supplementary Data
    
    
    30Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    61Item 9A.
    
    Disclosure Controls and Procedures
    
    
    61PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    63Item 11.
    
    Executive Compensation
    
    
    66Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    72Item 13.
    
    Certain Relationships and Related Transactions
    
    
    74Item 14.
    
    Principal Accountant Fees and Services
    
    
    75PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    76Noteholder Amendment AgreementNoteholder Acknowledgement AgreementPayout Arrangements AgreementIndependent Auditor's Consent - KPMG LLPPower of AttorneySection 302 Certification of John J. HollandSection 302 Certification of Larry C. MillerSection 906 Certification of John J. HollandSection 906 Certification of Larry C. Miller
  3




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FORWARD LOOKING INFORMATION This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which may include statements
concerning projection of revenues, income or loss, capital expenditures,
capital structure, or other financial items, statements regarding the plans and
objectives of management for future operations, statements of future economic
performance, statements of future operations, statements of the assumptions
underlying or relating to any of the forgoing statements, and other statements
which are other than statements of historical fact. These statements appear in
a number of places in this report and include statements regarding the intent,
belief, or current expectations of the company and its management.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as may, will, expect, intend,
estimate, anticipate, plan, foresee, believe or continue or the
negatives of these terms or variations of them or similar terminology.
Although management believes the expectations reflected in these
forward-looking statements are reasonable, there can give no assurance that
these expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from managements expectations
include (i) general economic, industry, business and social conditions; (ii) an
inability to consummate a transaction as described more fully herein that
provides for repayment in full of the companys outstanding senior notes by
April 30, 2004 coupled with the inability to negotiate amendments to loan
covenants, or actions the companys lenders to accelerate the companys debt
due to its ongoing defaults, and the potential that any such circumstance would
force the company to file for protection under Chapter 11 of the U.S.
Bankruptcy Code; (iii) changes in the willingness of vendors or trade creditors
to deal with the company or in the credit or other commercial terms on which
they are willing to do so; (iv) changes in customer confidence in the company
and its products or loss of customer relationships; (v) the timing of, and
legal, regulatory and other conditions associated with, the completion of the
Merger; (vi) competitive pressures in the markets in which the company
competes; (vii) weak demand for the companys products; (viii) other
consolidations, restructurings, or other ownership changes in the construction
or steel industries; (ix) the loss of key employees; (x) the supply and price
of materials used by the company; (xi) the demand and price for the companys
products and services; and (xii) other trends affecting the companys financial
condition or results of operations including changes in manufacturing capacity
utilization and corporate cash flow in both domestic and international markets.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially as a result of these various factors 4




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PART I 
 Item 1. Business (a) General Description of Business General Butler Manufacturing Company (the company) was founded as a partnership in
1901, incorporated in Missouri in 1902, and later reincorporated in Delaware
in 1969. Its corporate headquarters are located in Kansas City, Missouri, and
the company operates manufacturing facilities, engineering offices, and
service centers throughout the continental United States and 15 foreign
countries. Principal international operations are conducted through Chinese
wholly owned subsidiaries, Butler (Shanghai) Inc., and Butler (Tianjin) Inc.,
and through Saudi Building Systems Ltd. and Vistawall International (UAE)
Ltd., minority owned joint ventures in Saudi Arabia and the United Arab
Emirates. In 2002 the company completed the sale of the assets of its
European metal buildings business to the Lindab AB Group. The company is primarily engaged in the marketing, design, and production of
building systems and components for nonresidential structures. Products and
services fall into five principal business segments: (1) North American
Building Systems, consisting primarily of custom designed and pre-engineered
steel and wood frame building systems for commercial, community, industrial,
governmental, and agricultural uses; (2) International Building Systems,
consisting primarily of custom designed and pre-engineered steel buildings for
commercial, community, industrial, and governmental use primarily in China;
(3) Architectural Products, consisting primarily of curtain wall and
storefront framing systems, standard and custom window systems, skylights, and
roof vents for low-rise, medium-rise, and high-rise nonresidential buildings;
(4) Construction Services, providing construction management services for
purchasers of large, complex, or multiple site building projects; and (5) Real
Estate, providing build-to-suit-to-lease development services for corporations
that prefer to lease rather than own their facilities. The companys products are sold, installed, and serviced through independent
dealers or contractors that serve the commercial, community, industrial,
governmental, and agricultural markets. Recent Development On February 15, 2004, the company entered into a merger agreement (Merger
Agreement) pursuant to which BSL Acquisition Corporation, a wholly owned
subsidiary of BlueScope Steel Limited (BlueScope), of Melbourne, Australia,
will merge with and into the company (the Merger), and the company will
become a wholly owned subsidiary of BlueScope. Pursuant to the Merger
Agreement, each outstanding share of company common stock will be exchanged for
the right to receive $22.50 in cash. The acquisition will be subject to a
number of conditions, including the company achieving defined levels of
financial performance for the first quarter of 2004, no acceleration of any
amounts owed by the company to its senior lenders, and no environmental
liability remediation costs in excess of $5 million, as well as shareholder
approval and approval by regulatory authorities in the United States. Butler
shareholders are expected to vote on the proposed acquisition in April 2004. Pending the satisfaction of the conditions mentioned above and others included
in the Merger Agreement, Butler and BlueScope expect the acquisition of Butler
to be complete by April 30, although there are no assurances the Merger will
close at that time or at any other time. In connection with the Merger
Agreement, BlueScope, the company, and its senior note holders have reached
mutually satisfactory agreements that provide the note holders assurance from
BlueScope that the senior notes will be immediately paid in full if BlueScope
closes the Merger. See the section on Managements Discussion and Analysis of
Financial Condition and Results of Operation  Liquidity in Part II, Item 7 of
this report. (b) and (d) Financial Information About Industry and Geographic Segments For information about operating segments, see the section on Business Segments
in the Notes to Consolidated Financial Statements under Part II, Item 8 of
this report. (c) Narrative Description of Business North American Building Systems 5




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The companys largest Segment, North American Building Systems, includes
principally the United States, Canadian, and Latin American pre-engineered
metal building systems businesses. Along with the companys industry-leading
Butler-brand building system, the Segment includes the entry-level priced
metal buildings product offering of Liberty Building Systems, Inc., as well as
the Lester Building System wood frame buildings business. The companys North American Building Systems Segment activities consist
primarily of the design, engineering, fabrication, and distribution of one to
five-story steel and one to two-story wood frame buildings for industrial,
commercial, community, governmental, and agricultural uses, such as
manufacturing facilities, warehouses, office buildings, schools, churches,
shopping centers, restaurants, convenience stores, livestock, and farm
buildings. Principal product components of the systems are structural members
and a variety of pre-engineered wall and roof components. These are
fabricated according to standard or customer specifications and shipped to
building sites for assembly by independent dealers. Building components are
manufactured for North American and export sales in plants located at
Galesburg and Charleston, Illinois; Laurinburg, North Carolina; Visalia,
California; Annville, Pennsylvania; San Marcos, Texas; Lester Prairie,
Minnesota; Selmer, Tennessee; Clear Brook and Staunton, Virginia; and
Monterrey, Mexico. In December 2003, the company announced the permanent
closure of the Birmingham, Alabama metal buildings plant, which prior to the
announcement was temporarily idled. The primary business of the companys North American Building Systems Segment
is the design, manufacture, and sale of the Butler brand of nonresidential
pre-engineered metal buildings. The company founded the pre-engineered metal
buildings industry in the middle of the twentieth century and has held the
leading position from inception. Butler Buildings are sold throughout the
United States through a network of over 1,300 independent Butler Builders.
These dealers provide construction services, and in many cases, design and
engineering capabilities. Nonresidential pre-engineered buildings compete with conventional forms of
building construction in the low-rise commercial, community, industrial,
agricultural, and governmental markets. Competition is primarily based upon
cost, time of construction, appearance, thermal efficiency, and other specific
customer requirements. The company also competes with numerous pre-engineered steel frame building
manufacturers doing business in the United States, Canada, and South America.
The company is a leading manufacturer of steel frame pre-engineered building
systems within the United States with its largest competitors being: American
Buildings Company, a subsidiary of MAGNATRAX Corporation, NCI Building
Systems, Inc., Robertson  Ceco Corporation, a subsidiary of Heico Companies
LLC, and V. P. Buildings Inc., a wholly owned subsidiary of Grupo IMSA, S.A.
de C.V. of Mexico. Competition among manufacturers of pre-engineered buildings
is based primarily upon price, service, product design and performance, and
marketing capabilities. The companys principal export markets are Central America, the Caribbean,
select other Latin American markets, and Canada. Shipments are sourced
primarily from Butlers U.S. plants, local manufacturing alliances, and
commencing in December 2003, the companys Monterrey, Mexico metal buildings
plant. Principal sales and engineering offices for these regions are located
in Mexico City, Mexico and Burlington, Ontario. Liberty Building Systems produces lower-cost metal buildings for commercial,
community, and industrial end uses in smaller communities, and primarily
competes with regional metal building manufacturers in the Southern and
Western regions of the United States. Liberty Buildings Systems products are
distributed directly to end-users as well as through open distribution
channels. In 2003, the company established a new manufacturing plant in Monterrey, Mexico
to produce frames and its long-bay structural system known as
Landmark 2000. The new leased facility enables the company to be more competitive in
both costs and service in Latin American markets. The 120,000 square foot
plant became operational in December of 2003 and primarily serves building
markets throughout Mexico and Latin America, but also markets in the U.S. as
well. The companys investment in equipment for the facility was approximately
$3 million and the operation employs approximately 50 associates. Also in 2003, the company leased space to manufacture the new R-Steel product
line, a one-piece insulated curtain wall panel system for commercial and
community applications. Production began during the third quarter of 2003 in
Staunton, Virginia. The product is distributed through the Butler Builder
dealer network. Lester Building Systems, the companys wood frame buildings business, sells its
products through independent dealers and a direct-sales operation. Lester
operates three plants in the United States serving the mid-west and middle
Atlantic markets. Lester competes with other regional wood building
manufacturers, such as Morton Buildings, Inc. and Cleary Buildings, Inc., as
well as several single plant manufacturers and lumberyards. 6




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On May 15, 2003, the company entered into a letter of intent to sell
substantially all of the assets of the Lester Building Systems business to a
management team headed by the current Lester Building Systems president. The
company recorded a $7 million pretax charge related to the proposed sale to
write down the assets to fair value. An additional $.8 million was recorded
for selling and legal costs related to negotiating the sale. The closing of
the transaction was scheduled to occur by November 21, 2003, however the
company did not receive the consent from its senior lenders to proceed with the
sale and the sale agreement terminated. Accordingly, at December 31, 2003, the
Lester assets were reclassified from assets held for sale to assets held and
used. Also, a credit to the asset impairment charge in the amount of $2.2
million was taken in the fourth quarter to adjust the Lester assets to fair
market value. In December 2003, the company announced the permanent closure of the
Birmingham, Alabama metal buildings plant, which prior to the announcement was
temporarily idled. The closing of this facility will result in cost savings
associated with the permanent removal of overhead costs due to excess capacity.
In conjunction with the closing, the company recorded $.7 in termination and
severance benefits. As of December 31, 2003, the fair market value of the
facility as determined by independent appraisal exceeded the net book value of
the facility, thereby eliminating the need for any asset impairment charge. Effective January 1, 2004, the company combined the Construction Segment with
the North American Building Systems Segment, forming the Buildings Group. The
combination is expected to provide cost savings and better alignment of
capabilities, enabling more thorough integration of the construction supply
chain and enhanced service to customers. In conjunction with the combination,
the company recorded $.2 million in termination and severance benefits in 2003
as well as an asset impairment charge of $2.4 million. Costs related to the
move as well as the effect of any contract termination costs on the existing
lease will be charged to operations when incurred in 2004. International Building Systems The International Building Systems Segment includes Butler Shanghai Inc., and
Butler Tianjin Inc., wholly owned Chinese metal building systems subsidiaries,
and Saudi Building Systems Ltd., a minority owned Saudi Arabian metal buildings
joint venture. Prior to its sale in July 2002, the Segment also included the
companys European metal buildings business. The majority of the activity and assets with this Segment are those of the
Chinese subsidiaries. These subsidiaries market, engineer, and manufacture
metal buildings systems for the Chinese market as well as for export to other
Asian countries. Products are typically distributed through direct selling to
end customers and through an established builder network. In January 2003,
the company opened its second manufacturing facility for this region in
Tianjin, China. The manufacturing plant, with a total capital cost of $11
million, produces secondary structural frames and wall panel systems. Also in
2003 the company introduced its Vistawall architectural product line to mainland China
establishing a sales, engineering, and fabrication presence. The Chinese
market is highly competitive and the company competes with both local and
multi-national metal building companies. As in other markets, the companys
products compete based on price, service, product design, and performance. The companys operations in China represent an increasing portion of the
companys business in terms of revenues, earnings, and assets. Accordingly,
changes in political or regulatory conditions, trade protection measures, or
currency exchange policies could adversely affect operating results in any
reporting period. The company is exposed to foreign currency exchange rate risks with respect to
its sales, profits, and assets and liabilities denominated in currencies other
than the U.S. dollar. Factors reducing such exposure in China include the
historical pegging of the Chinese currency to the U.S. currency. The companys
manufacturing facilities in China serve predominantly Chinese markets and its
activities are largely denominated in the Chinese currency. However, there
can be no assurance that the company will be fully protected against foreign
currency fluctuations. In July 2002, the company completed the sale of certain assets of its European
metal building systems subsidiaries, closed its European sales and engineering
offices, and disposed of the remaining assets of the European operation. The
relatively small scale of the European operation, the continued loss position
of the business, and a business recession in Europe contributed to this
decision. The company continues to be represented in Europe through licensee
arrangements. Saudi Building Systems, Ltd. manufactures pre-engineered steel frame buildings
for Middle Eastern markets at manufacturing facilities located in Jeddah,
Saudi Arabia. The company owns a 30% interest in this joint venture and
accounts for its activities using the equity method. 7




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Architectural Products The Architectural Products Segment includes the operations of the Vistawall
group which designs, manufactures, and sells aluminum extruded curtain wall
systems for mid and high-rise office markets, and sells entry doors, standard
and custom architectural window systems, translucent roof and wall systems,
custom and standard skylights, and other standard storefront products
primarily for low-rise retail and commercial markets. The Vistawall Groups
products are primarily distributed on a material supply basis to either
curtain wall erection subcontractors or general contractors, and through its
distribution warehouses to glazing contractors for storefront and entry door
applications. Manufacturing facilities are located in Midway, Tennessee and
Terrell, Texas. Fabrication facilities are located in Warwick, Rhode Island;
Newnan, Georgia; Modesto, California; and Wausau, Wisconsin. Distribution
warehouses are located in Tucker, Georgia; Hayward, Rancho Cucamonga, and
Sacramento, California; Denver, Colorado; Brooklyn Park, Minnesota; Cincinnati
and Cleveland, Ohio; Houston and Dallas, Texas; Tampa, Florida; Chicago,
Illinois; Jessup, Maryland; St. Louis, Missouri; and Seattle, Washington. In
2001 Vistawall added to its production capacity the extruding and finishing
facility located in Midway, Tennessee. During 2003, Vistawall added the
distribution warehouses in Sacramento, California and Brooklyn Park,
Minnesota. The Vistawall Group operates in highly competitive markets with other national
manufacturers which operate multiple plants and distribution facilities, and
with regional manufacturers. Competition is primarily based on price,
engineering capabilities, delivery, appearance, and other specific customer
requirements. The company has a 40% interest in Vistawall International Ltd, a joint venture
located within the United Arab Emirates which designs, manufactures, and sells
architectural aluminum products in Middle Eastern markets. In 2003, the
business activity of and investments of the joint venture were immaterial to
the operations of the company. Construction Services The companys Construction Services Segment consists of Butler Construction, a
wholly owned construction subsidiary also known as BUCON, Inc. BUCON provides
comprehensive design, planning, execution, and construction management services to major purchasers of
construction. Butler Heavy Structures is an operating unit of Butler
Construction serving markets requiring large, complex building designs using
fabricated mill steel in combination with Butlers pre-engineered secondary
structural and metal cladding systems. Revenues from the Construction
Services Segment are derived primarily from turnkey construction,
material-erect, and material only subcontracts. Butler Constructions
projects typically incorporate products from several company businesses,
predominantly the companys U.S. metal buildings businesses. The Construction
Services Segment is headquartered in Kansas City, Missouri. BUCON competes with numerous international, national, regional, and local
general contracting firms, and whenever possible, performs projects in
conjunction with independent Butler dealers. Competition is primarily based
upon price, design, speed of project execution, and product performance. As discussed previously in General Description of Business section under Part
I Item 1 (a), effective January 1, 2004, the company combined the Construction
Services Segment with the North American Buildings Systems Segment, forming
the Buildings Group. Real Estate The Real Estate Segment consists of Butler Real Estate, Inc., a wholly owned
subsidiary of the company, which provides value-added real estate development
and leasing services to major corporations in cooperation with Butler dealers.
Butler Real Estate, Inc. generally functions as a development and financing
source during the lead procurement and construction process, and as a seller
of the completed project. On the basis of commitments to lease obtained from
credit worthy tenants, Butler Real Estate, Inc. acquires building sites,
arranges with Butler dealers for construction of build-to-suit projects, and
sells the completed projects to permanent investors when the facilities are
occupied by lessees. Manufacturing and Materials The companys manufacturing facilities include most conventional metal
fabricating operations, such as punching, shearing, welding, extruding, and
forming of sheet and structural steel and aluminum. Other metal manufacturing
processes include painting and anodizing. Wood frame manufacturing operations
include sawing and truss fabrication. The principal materials used in the
manufacture of products include steel, aluminum, wood, and purchased parts. During 2003 steel prices moved erratically but were generally higher than those
of 2002. In 2002, the United States invoked tariffs on certain steel product
imports causing significant price increases in the latter half of that year.
Competitive pricing pressures have prevented the company from recapturing all
of the steel price differential in its selling prices. Early in 2004, the 8




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company experienced unprecedented increases in steel pricing as a result of
lower availability of raw materials, escalating energy costs and unusually high
demand in China. Consequently pricing contracts with the companys vendors
were being modified on a weekly basis, either through actual material costs
changes or surcharges. To minimize the erosion of margins, price increases on
incoming sales were being passed to customers to the extent possible through
the companys product sales pricing. Further increases are expected into the
second quarter of 2004, which may impact the level of both sales and
profitability. Aluminum costs were stable through October of 2003, but then experienced a 6%
increase through the end of the year. Further increases of up to 8% are
expected during the first quarter of 2004. Improved economic conditions
throughout the world and increased consumption in China were the most
recognized causes of the change in prices, while improvement in the U.S.
economy along with continued curtailments of U.S. aluminum production has
tightened local supply. For all of 2004, the company anticipates aluminum
costs will remain strong for the balance of 2004 with some escalation possible.
Vistawall continues to manage exposure to rising aluminum prices through
hedging contracts and forward purchase contracts, while implementing price
adjustments on its products. Business Cycles and Seasonal Demand Historically, the companys sales and net earnings have been affected by
cycles in the general economy, which influence nonresidential construction markets (see Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Overview in Part II, Item 7 of this report). In 2003, the domestic
construction markets recorded the fourth consecutive annual decline, as F.W.
Dodge reported a 3% decline in nonresidential construction orders, with the
commercial segment off 6% and the manufacturing segment up 8%, a positive
development albeit increasing from a very low base. Because the economy
appears to be showing signs of improvement, coupled with the aggressive cost
reductions and new products and capabilities developed during 2003, management
believes that the company is on a path toward profitability. The company also experiences seasonal demand, which increases and decreases
based upon how conducive the weather is for construction. Sales for the
first, second, third, and fourth quarters of 2003 were $170 million, $174
million, $221 million, and $231 million, respectively. For 2002, sales for
the first, second, third, and fourth quarters of 2002 were $183 million, $213
million, $239 million, and $193 million, respectively. The seasonal demand is
negatively influenced by severe weather including significant precipitation
and extremes in temperatures. Research and Development Costs Costs incurred in the creation and start-up of new products or changes of
existing products are charged to expense as incurred. The company expended $.6
million of research and development costs each year during 2003, 2002, and
2001. Backlog The companys backlog of orders believed to be firm was $318 million at
December 31, 2003, 20% higher than a year ago. The higher margin product
backlog was about 17% higher than the levels of the previous year, while the
construction backlog was 33% higher. Backlog by segment is presented below. Dollars in thousands
    2003

    2002North American Building Systems
    
    $
    130,272
    
    
    $
    111,538International Building Systems
    
    
    58,230
    
    
    
    35,936Architectural Products
    
    
    63,402
    
    
    
    64,037Construction Services
    
    
    80,659
    
    
    
    60,623Real Estate
    
    
    
    
    
    
    Intersegment Elimination
    
    
    (14,274
    )
    
    
    (8,052
    )$
    318,289
    
    
    $
    264,082
 Employees At December 31, 2003 the company employed 4,298 persons, 3,986 of whom 9




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were
non-union employees, and 312 of whom were hourly paid employees that were
members of two unions. Available
Information The
companys Internet website address is
http://www.butlermfg.com. The
company makes the following reports filed or furnished by it available, free of
charge, on its website under the heading Investor Relations:  
    
    Annual Report on Form 10-K;  
    
    Quarterly Reports on Form 10-Q;  
    
    Current reports on Form 8-K; and  
    
    Amendments to the foregoing reports. The foregoing reports are made available on the companys website as soon as
practicable after they are filed or furnished with the Securities and Exchange
Commission (SEC) at http://www.sec.gov. 
 Item 2. Properties The principal plants and physical properties of the company consist of the
manufacturing facilities described under Part I, Item 1 and its world
headquarters office in Kansas City, Missouri. Through a subsidiary, the
company also owns a land development venture with property located on
approximately 75 acres in San Marcos, Texas. The property is recorded as
Assets held for sale and described in the Notes to Consolidated Financial
Statements in Part II, Item 8 of this report. All other plants and offices
described under Part I, Item 1 are utilized by the company and are generally
suitable and adequate for the business activity conducted therein. The
companys manufacturing facilities, along with current outsourcing agreements
with various domestic and foreign fabricators, provide production capabilities
sufficient to meet current and foreseeable needs. Except for leased facilities listed below, all of the companys principal
plants and offices are owned:  (1)
    
    Leased space used for the companys world headquarters offices in Kansas
City, Missouri entered into in 2002 as a result of a sale and leaseback of
the facility (154,000 sq. ft. lease expires at the end of 2022).The sale leaseback transaction was effected through (i) the assignment
by the company to the purchaser of the companys rights (including an
option to purchase) under a lease for the headquarters facility (land
and building) from the Planned Industrial Expansion Authority of Kansas
City (PIEA), under which the company has received sales and property
tax abatement (ii) the assignment by the company of its interest as
owner of PIEA bonds issued by PIEA to finance the facility and (iii)
the lease of the facility by the purchaser to the company. The lease
is a triple net lease and has a term of 20 years, with five ten-year
renewal options. During the initial term, annual rentals range from
$1.4 to $3.6 million. If the purchaser wishes to sell the facility, the
company has a right of first refusal; however, with limited exceptions
in the case of major catastrophes, which are generally covered by
insurance, the company has no option to purchase the property. The
company has agreed to indemnify the purchaser/lessor from property
taxes assessed on the property and certain other liabilities under the
applicable provisions of the triple net lease and also remains liable
to PIEA for certain contingent payments in lieu of property tax
obligations if specified employee City earnings tax targets are not
met, as well as for certain environmental and other matters.(2)
    
    Leased space used for the Vistawall Division plant in Terrell, Texas
(145,000 sq. ft. and 121,000 sq. ft. with leases expiring in 2009 and
2006, respectively, both containing options to renew), and fabrication and
distribution facilities in Dallas and Houston, Texas; Jessup, Maryland;
St. Louis, Missouri; Brooklyn Park, Minnesota; Taylor, Michigan; Chicago,
Illinois; Cincinnati and Cleveland, Ohio; Tucker, Georgia; Tampa, Florida;
Auburn, Washington; Modesto, Hayward, Rancho Cucamonga, and Sacramento,
California; Warwick, Rhode Island; and Denver, Colorado (an aggregate of
443,000 sq. ft. leased with various expiration dates).(3)
    
    Leased space used for BUCON, Inc. in Kansas City, Missouri (74,000 sq.
ft. lease expiring in the year 2007). Effective January 1, 2004, the
company combined the Butler Construction business with the North American
Buildings business, forming the Buildings Group. The effect of any
contract termination costs on the existing lease will be charged to
operations when incurred in 2004.(4)
    
    Leased space used for Liberty Building Systems, Inc. in Selmer, Tennessee
(91,000 sq. ft. lease expiring in the year 2013 with two five year renewal
options). 10




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##### Table of Contents



(5)
    
    Leased space used for Butler de Mexico, S. De. R.L. De C.V. in Monterrey,
Mexico (124,000 sq. ft. expiring in the year 2013 with two five year renewal options).(6)
    
    Leased space used for R-Steel Building Systems in Staunton, Virginia
(76,000 sq. ft. lease expiring in the year 2008 with one five year renewal
option).(7)
    
    Leased land usage rights for International Building Systems in Shanghai,
China (794,000 sq. ft. and 122,000 sq. ft. expiring in the year 2045 and
2051, respectively) and in Tianjin, China (1,040,000 sq. ft. expiring in
the year 2052).(8)
    
    Various other smaller leased facilities for sales and engineering offices
throughout the world. 
 Item 3. Legal Proceedings The company is subject to various legal proceedings, claims, and environmental
actions which arise in the ordinary course of business operations. Although the
ultimate outcome of these matters is presently not determinable, management,
after consultation with legal counsel, believes the resolution of these matters
will not have a material adverse effect upon the companys financial position
or results of operations. On October 15, 2002, a McLeod County, Minnesota District Court jury awarded the
company $29.6 million for its Lester building business in its suit against
Louisiana-Pacific Corporation. The suit pertained to Louisiana-Pacifics
Inner-Seal siding product. The award compensates the company for damages and
other losses resulting from product purchased by the company and sold to its
dealers. However, on December 13, 2002 the United States District Court for
the District of Oregon enjoined the Minnesota trial court from entering
judgment against Louisiana-Pacific for $11.2 million of the total verdict. The
company has appealed the December 2002 Order by the federal court to the Ninth
Circuit U.S. Court of Appeals. On February 17, 2004, the State of Minnesota Court of Appeals affirmed the
October 2002 verdict of the McLeod County, Minnesota, District Court jury. This
decision of the Minnesota Court of Appeals relates solely to that portion of
the original verdict unaffected by the federal court injunction, and is subject
to appeal to the Supreme Court of the State of Minnesota, the acceptance of
which appeal is discretionary with the Supreme Court. The company is unable to estimate the impact the award may have on its
financial position or results of operations at this time. However, if the
entire award is paid, the company believes it will recognize approximately $14
million pretax income for damages and recovery of prior costs in the period in
which the award is paid. There are no other material legal or environmental proceedings pending as of
March 12, 2004, nor does the company have any known material environmental
contingencies as of this date. Proceedings, other than the Louisiana-Pacific
case, consist of matters normally incident to the business conducted by the
company and taken together are not believed to be material. 
 Item 4. Submissions of Matters to a Vote of Security Holders No matters have been submitted to a vote of stockholders since the last annual
meeting of stockholders on April 15, 2003. 11




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##### Table of Contents



PART II 
 Item 5. Market for Registrants Common Equity The companys common stock is traded on the New York Stock Exchange under the
symbol BBR. The table below presents the high and low sales prices as reported
by the exchange for each quarter in the last two years. Price Range of Common Stock 2003
    
    2002High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    20.57
    
    
    $
    15.86
    
    
    $
    27.97
    
    
    $
    24.27Second quarter
    
    $
    18.17
    
    
    $
    15.70
    
    
    $
    29.10
    
    
    $
    25.29Third quarter
    
    $
    17.20
    
    
    $
    14.61
    
    
    $
    27.63
    
    
    $
    20.40Fourth quarter
    
    $
    22.10
    
    
    $
    15.10
    
    
    $
    22.40
    
    
    $
    18.34Range for the year
    
    $
    22.10
    
    
    $
    14.61
    
    
    $
    29.10
    
    
    $
    18.34
 Year end closing price: Year
    
    Close2003
    
    $22.002002
    
    $19.352001
    
    $27.70
 On February 23, 2004, there were 1,981 stockholders of record of common stock. Under the companys note agreements, restricted payments, including dividends
and treasury stock purchases, may not in the aggregate exceed the sum of $10
million, plus 75% of consolidated net income or less 100% of any deficit for
each fiscal quarter subsequent to March 31, 2003, and may not be made if a
default or event of default exists under the note agreements. Due to the
losses and the uncertain course of the economy, the company discontinued the
quarterly cash dividend in the third quarter of 2003. Because it was in
default under the credit agreements and note agreements as of September 30,
2003, and December 31, 2003 and remains in default, the company is currently
prohibited from paying dividends under the terms of those agreements.
Further, the Merger Agreement between the company and BlueScope prohibits the
payment of dividends prior to the effective time of the Merger or the
termination of the Merger Agreement. Dividends Declared 2003
    
    2002First quarter
    
    $
    0.18
    
    
    $
    0.18Second quarter
    
    $
    0.04
    
    
    $
    0.18Third quarter
    
    $
    0.00
    
    
    $
    0.18Fourth quarter
    
    $
    0.00
    
    
    $
    0.18
 12




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##### Table of Contents



Item 6. Selected Financial Data Historical Review (2003 - 1999)Dollars and shares except per share
    
    Years Ended December 31,amounts, in thousands
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Income Statement DataNet sales
    
    $
    796,167
    
    
    $
    828,209
    
    
    $
    896,572
    
    
    $
    960,377
    
    
    $
    973,153Net earnings (loss)
    
    
    (32,108
    )
    
    
    (1,836
    )
    
    
    8,060
    
    
    
    25,215
    
    
    
    25,834As a percent of sales
    
    
    (4.0 %
    )
    
    
    (.2%
    )
    
    
    .9%
    
    
    
    2.6%
    
    
    
    2.7%As a percent of average
shareholders equity
    
    
    (24.6%
    )
    
    
    (1.2%
    )
    
    
    4.9%
    
    
    
    15.5%
    
    
    
    16.7%Per share of common stock:Basic earnings (loss)
    
    $
    (5.06
    )
    
    $
    (0.29
    )
    
    $
    1.28
    
    
    $
    3.87
    
    
    $
    3.66Diluted earnings (loss)
    
    
    (5.06
    )
    
    
    (0.29
    )
    
    
    1.28
    
    
    
    3.86
    
    
    
    3.63Cash dividends declared
    
    
    .22
    
    
    
    .72
    
    
    
    .70
    
    
    
    .66
    
    
    
    .62Cash dividends paid
    
    
    .40
    
    
    
    .72
    
    
    
    .69
    
    
    
    .65
    
    
    
    .61Financial Position At Year EndAssetsCurrent assets
    
    $
    260,169
    
    
    $
    281,202
    
    
    $
    275,067
    
    
    $
    291,770
    
    
    $
    270,988Net property, plant, and equipment
    
    
    113,767
    
    
    
    120,264
    
    
    
    143,270
    
    
    
    117,396
    
    
    
    94,051Total assets
    
    
    442,706
    
    
    
    455,834
    
    
    
    470,762
    
    
    
    447,998
    
    
    
    405,857Working capitalNet working capital
    
    $
    4,787
    
    
    $
    94,440
    
    
    $
    88,961
    
    
    $
    78,861
    
    
    $
    96,014Ratio of current assets to current liabilities
    
    
    1.0
    
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.4
    
    
    
    1.5Financial structureLong-term debt, less current maturities
    
    $
    22,692
    
    
    $
    96,066
    
    
    $
    98,244
    
    
    $
    53,298
    
    
    $
    57,021Total debt
    
    
    114,604
    
    
    
    102,339
    
    
    
    103,861
    
    
    
    58,861
    
    
    
    62,697Shareholders equity
    
    
    112,227
    
    
    
    149,171
    
    
    
    164,475
    
    
    
    165,716
    
    
    
    159,550Per common share, year end
    
    
    17.72
    
    
    
    23.64
    
    
    
    26.19
    
    
    
    26.49
    
    
    
    23.20Total debt as a percent of total capital
    
    
    50%
    
    
    
    41%
    
    
    
    39%
    
    
    
    26%
    
    
    
    28%General StatisticsDepreciation and amortization
    
    $
    19,282
    
    
    $
    18,914
    
    
    $
    18,104
    
    
    $
    15,594
    
    
    $
    19,972Capital expenditures  property, plant, and equipment
    
    $
    11,236
    
    
    $
    16,276
    
    
    $
    44,583
    
    
    $
    36,938
    
    
    $
    13,634Capital expenditures  software
    
    $
    2,451
    
    
    $
    7,637
    
    
    $
    5,355
    
    
    $
    1,930
    
    
    $
    6,660Basic shares outstanding, average
    
    
    6,345
    
    
    
    6,313
    
    
    
    6,282
    
    
    
    6,521
    
    
    
    7,064Diluted shares outstanding, average
    
    
    6,345
    
    
    
    6,313
    
    
    
    6,285
    
    
    
    6,531
    
    
    
    7,111Common shares outstanding, year end
    
    
    6,334
    
    
    
    6,311
    
    
    
    6,281
    
    
    
    6,256
    
    
    
    6,877Common shareholders, year end
    
    
    2,003
    
    
    
    2,022
    
    
    
    2,015
    
    
    
    2,066
    
    
    
    2,599Number of employees, year end
    
    
    4,298
    
    
    
    4,487
    
    
    
    4,719
    
    
    
    5,079
    
    
    
    4,912
  Including charges of $4.4 million after tax, or $.69 per share, for asset
impairment charges and $24.7 million, or $3.89 per share, for the deferred tax
asset valuation reserve in 2003.Including asset impairment and restructuring charges after tax of $3.6 million,
or $.58 per share, in 2001.Including special items, which increased net earnings by $2.3 million, or $.33
per share in 1999. 13




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW In 2003, the domestic nonresidential construction markets recorded their fourth
consecutive annual decline, as F.W. Dodge reported a 3% decline in orders, with
the commercial segment off 6% and the manufacturing segment up 8%, the latter a
positive development albeit increasing from a very low base. The general U.S.
economy continues to show signs of a recovery from recession; nevertheless, the
turnaround may be more gradual than past recoveries given increasing costs
early in 2004 for raw materials, energy, and employee benefit costs.
Increasing costs for steel and aluminum have been a particular concern. See the
Manufacturing and Materials section in Part I, Item I of this report. While the United States construction markets continued in decline in 2003,
Chinas economy continued to enjoy relatively large increases in gross domestic
product. The estimated economic growth in China approached 8% in 2003, and
demand for the companys products was strong. During the fourth quarter of
2003 and into early 2004, China experienced large commodity price increases
similar to those incurred in the United States. Butlers China operations were
impacted primarily by increases in steel costs. The company implemented price
increases on its products to blunt the impact of these rising raw materials
costs. During 2003, the company experienced a pretax loss of $22.2 million and a net
loss after taxes of $32.1 million. This followed a pretax loss of $6.9 million
and a net loss after taxes of $1.8 million in 2002. During the fourth quarter
of 2003, the company established a deferred tax asset valuation reserve of
$24.7 million, charging this amount to income tax expense. The need for the
valuation reserve stemmed from uncertainty as to whether the company will be
able to utilize these assets given continued losses and ongoing noncompliance
with the senior lenders debt covenants. The valuation allowance is reflected
in two places on the December 31, 2003 balance sheet, $14 million is netted
against the net current deferred tax assets and $11 million is netted against
net noncurrent deferred tax assets. The realization of net deferred tax assets
is dependent on generating $75 million of domestic taxable income in the
future. As discussed below and in the Liquidity section, the most significant and
immediate challenge facing the company is its ability to generate positive cash
flow during the prolonged economic downturn. The severe cyclical decline in the
nonresidential construction industry during the past three years has
outstripped the savings realized from cost reductions and capacity closures
that the company has implemented over this period. During 2003,
notwithstanding various cost cutting measures, the company had negative cash
flow from operating activities of $18 million. The net decrease in cash for the
year was $21.4 million. This liquidity challenge is heightened by an agreement
with the companys senior note holders to consummate a transaction, which would
generate enough funds to repay the note holders in full by April 30, 2004. The
principal balance owed on the notes at December 31, 2003 was $90 million. This
amount does not include any make-whole payment, a payment designed to
compensate the note holders for changes in market interest rates since the
original borrowing date, due to accelerated payment of the notes. Because of
the companys continuing default under the bank credit agreement the company
has no committed line of credit to provide liquidity. At September 30 and December 31, 2003 the company was not in compliance with
its financial covenants within the bank credit agreement and the senior notes
agreements. As a result, the company was required under accounting standards to
reclassify the related long-term portion of this debt, $81.5 million, as a
current liability on both the September 30, 2003 and December 31, 2003
consolidated balance sheets. As reported in the second and third quarter, the company has been in
discussions with the senior lenders to restructure its debt agreements. Also
as reported in the third quarter, the companys Board authorized management to
explore various strategic options available to the company, including
solicitation of private investment capital, asset sales, and the sale of the
company. In the fourth quarter the company reached agreement with its senior
note holders to defer the December 30, 2003 and March 20, 2004 principal
payments in the aggregate amount of $8.5 million on the companys long-term
senior notes. In exchange, the company has agreed to satisfy certain milestones
including consummation of a transaction that provides for repayment in full of
its outstanding senior notes, including make-whole amounts, by April 30, 2004. Notwithstanding the December agreement with its note holders, the senior
lenders have the right at any time to require payment of $90 million of debt
(as well as any make-whole amount due upon acceleration) as well as require
funding of
$23 million of stand-by letters of credit. If the senior lenders were to
exercise this right, the company would not have the ability to fund these
obligations immediately, and the senior lenders could pursue other remedies. 14




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##### Table of Contents



On February 15, 2004, the company entered into a Merger Agreement pursuant to
which the company will become a wholly owned subsidiary of BlueScope. In
connection with the Merger Agreement, BlueScope, the company and the senior
note holders have reached mutually acceptable agreements that provide the note
holders assurance from BlueScope that the senior notes will be immediately paid
in full if BlueScope closes the Merger. See the General Description of the
Business  Recent Development section in Part I, Item I and the Liquidity
section in Part II, Item 7 of this report. The Merger is subject to various
conditions, including the company achieving certain defined levels of financial
performance  see the Liquidity and Capital Resources section below and
Business  General Description of Business  Recent Development in Part I, Item
I, as well as shareholder and regulatory approvals. If the Merger is not completed, the company must recapitalize, restructure
debt, dispose of assets, procure additional equity, or effect a combination of
the foregoing actions, which may be with or without filing for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable
arrangement with its senior creditors and to continue operations with minimal
disruption and preserve the value of its assets. Management believes it will
be difficult to obtain a workable arrangement with the companys senior
creditors to continue operations as currently conducted if the Merger is not
completed on or before April 30, 2004. The accompanying financial statements have been prepared on a going concern
basis which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business and do not
reflect adjustments that might result if the company were not to continue as a
going concern. The auditors report on the companys financial statements as of
December 31, 2003 contains an explanatory paragraph which refers to the
companys net losses in 2003 and 2002 and its difficulties in meeting its loan
covenants and notes that these matters raise substantial doubt about the
companys ability to continue as a going concern. Initiatives to Reduce Costs and Increase Revenues Nonresidential construction markets are cyclical by nature. During the current
prolonged downturn the company has taken many actions to reduce costs and
increase revenues from underserved markets. Related to cost reductions, in the
face of continued declining demand, the companys domestic employment levels
are approximately 8% lower since the beginning of 2003. This is in addition to
employment reductions in 2001 and 2002. Along with expense reductions related
to volume initiated in most downturns, the company has implemented more
permanent cost cutting measures. The company implemented a change during the
third quarter of 2003 in its primary pension plan benefit, which helped to
offset most factors causing pension expense increases. The change is expected
to have a $5.7 million favorable impact annually. The company's pension expense
for 2003 was $13.0 million compared to $10.9 million in 2002. Also, the
company discontinued the subsidy for its retiree health care plan and ended
certain retiree group life insurance programs effective January 1, 2004. The
company reversed approximately $5.1 million of accrued liabilities related to
these retiree plans to pretax income during the fourth quarter of 2003. The
net expense for retiree medical and life benefits for 2003 was a credit of $2.1
million compared to $3.0 million of expense in 2002. The company expects these
actions to reduce retiree group insurance costs by approximately $2.8 million
annually beginning in 2004. The above mentioned cost reductions have been partially offset by: increased
costs for steel caused primarily by tariffs imposed by the U.S. Government in
April, 2002; higher business insurance costs driven in part by the September
11, 2001 terrorist attacks; and the costs under the companys credit
agreements. The company continued its efforts to increase revenues and earnings in
previously underserved markets. Within the North American Building Systems
Segment, sales of the companys Liberty Buildings product line, a first price
point building solution, continued to grow. The plant to produce the new
R-Steel panel product line, a one piece insulated curtain wall panel system for
commercial and community applications, began production in the third quarter of
2003. Construction of the companys frame fabrication plant in Mexico, which
is to serve Mexican and Latin American markets as well as for the U.S., was
completed in the fourth quarter of 2003 and commenced operations in December
2003. Within the Architectural Products Segment, two new distribution outlets
and the introduction of new product offerings, including hurricane/blast
resistant products, have provided incremental sales growth. Finally, the
start-up of the companys second plant in China for the International Building
Systems Segment has provided needed capacity to support the demand growth in
this region. RESULTS OF OPERATIONS Butler Manufacturing Company supplies products and services for nonresidential
construction markets. These markets are cyclical in nature and are subject to
changes in the general economy. In 2003, while most of the domestic economy 15




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##### Table of Contents



experienced growth, nonresidential construction activity posted its fourth year
of decline. The companys financial results reflected that trend. 2003 Compared to 2002 Net sales were $796 million in 2003, down from $828 million or a 4% decrease
from the prior year. Lower sales were caused by a continued decline in
nonresidential construction project opportunities and lower sales prices for
Butlers metal building products due to a very competitive domestic
construction market. The North American Building Systems, Architectural
Products, Construction Services and Real Estate segments reported lower sales
for 2003 than a year ago while International Building Systems reported higher
sales for the period than a year ago. This trend in North American
opportunities along with the $4.8 million restructuring charge and $.8 selling
expense for the anticipated sale of Lester Building Systems business, a $2.4
million asset impairment charge taken related to the combination of the North
American Building Systems Segment and the Construction Services Segment, $.9
million in severance and termination benefits related to the combination of
segments and the closure of a facility in Birmingham, Alabama, $3.4 million of
consulting and legal expense related to debt restructuring, and increased
interest expense due to negotiated higher interest rates on the companys
long-term borrowings were the primary factors for greater operating and pretax
losses compared with the prior year. Net sales and pretax earnings by segment
are presented below. For further information on segments, see the section on
Business Segments under the Notes to Consolidated Financial Statements in Part
II, Item 8 of this report. Net SalesDollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    374,802
    
    
    $
    393,969
    
    
    $
    440,049International Building Systems
    
    
    138,381
    
    
    
    107,842
    
    
    
    81,644Architectural Products
    
    
    217,429
    
    
    
    220,098
    
    
    
    231,509Construction Services
    
    
    80,692
    
    
    
    111,428
    
    
    
    132,930Real Estate
    
    
    4,845
    
    
    
    16,475
    
    
    
    37,555Intersegment Elimination
    
    
    (19,982
    )
    
    
    (21,603
    )
    
    
    (27,115
    )$
    796,167
    
    
    $
    828,209
    
    
    $
    896,572
 Pretax Earnings (Loss)Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    (19,762
    )
    
    $
    (7,562
    )
    
    $
    10,417International Building Systems
    
    
    11,265
    
    
    
    7,995
    
    
    
    (6,075
    )Architectural Products
    
    
    11,210
    
    
    
    8,891
    
    
    
    13,828Construction Services
    
    
    (3,422
    )
    
    
    1,952
    
    
    
    3,234Real Estate
    
    
    246
    
    
    
    3,341
    
    
    
    5,974Other
    
    
    (21,745
    )
    
    
    (21,475
    )
    
    
    (19,116
    )$
    (22,208
    )
    
    $
    (6,858
    )
    
    $
    8,262
 Sales in the North American Building Systems Segment were $375 million, a
decline from $394 million or a 5% decrease from the prior year. The decline in
sales occurred in the metal buildings business and reflected continued weak
demand in the manufacturing end-use market, which typically represents a
significant percentage of the companys revenues. The International Building Systems Segment sales were $138 million, up 28% from
the prior year. All the sales reported in 2003 in this Segment were from China,
while the prior years sales included $9.8 million from the European
business, which was sold in 2002. The higher sales volume in China was related
to the companys continued penetration of the market in China for
nonresidential construction, seasonal increases, and a post-SARS business
rebound. The Construction Services Segment sales were $81 million during 2003, compared
to $111 million during 2002. The entire decline in sales occurred in the first
half of 2003 primarily as the result of an uncertain domestic economy. At
December 31, 2003, the Segments backlog was up 33% from
December 31, 2002. As
noted previously, effective 16




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##### Table of Contents



January 1, 2004, the company combined the
Construction business with the North American Buildings business, forming the
Buildings Group. This combination is expected to improve the alignment,
capabilities, and talents of the two operations in order to better serve
customers. Sales in the Architectural Products Segment were $217 million for the year
compared with $220 million during the prior year. The 1% decline in sales was a
better performance when compared to the overall 6% drop in commercial
construction awards. Along with better than market performance, the Segment
also supported the start-up of architectural product operations in China and
the United Arab Emirates. The Real Estate Segment produced $5 million in sales during 2003 compared with
$16 million a year ago. The Real Estate Segments sales are based on individual
projects and it is not unusual for the Segment to report large fluctuations in
sales from year to year. Gross profit for Butler was $101 million or 12.7% of sales in 2003 compared
with $113 million or 13.6% of sales in 2002. Lower sales, competitive pressures
on selling prices, coupled with higher costs for raw materials, specifically
steel, contributed to lower gross profit margins in 2003. Continued cost
cutting in employee benefits helped to blunt the profit margin decline. Gross
profit by segment is presented below. 2003Gross
    
    Changefrom
    
    Gross Profit asa % of salesDollars in millions
    
    Profit
    
    2002
    
    2003
    
    2002North American Building Systems
    
    $
    37
    
    
    $
    (14
    )
    
    
    9.9
    %
    
    
    12.9
    %International Building Systems
    
    
    22
    
    
    
    5
    
    
    
    15.8
    
    
    
    15.5Architectural Products
    
    
    35
    
    
    
    2
    
    
    
    16.0
    
    
    
    15.2Construction Services
    
    
    6
    
    
    
    (5
    )
    
    
    7.9
    
    
    
    9.5Real Estate
    
    
    1
    
    
    
    0
    
    
    
    11.5
    
    
    
    7.7Total
    
    $
    101
    
    
    $
    (12
    )
    
    
    12.7
    %
    
    
    13.6
    %
 The North American Building Systems and Construction Services segments were the
most severely affected due to weak markets and a fiercely competitive pricing
environment, causing reduced standard margins and higher unabsorbed fixed
costs. The International Buildings Systems Segment gross profit increased $5
million, or 29%, over the prior year. This increase mirrored the 28% increase
noted in net sales for the division. The Architectural Products Segment
realized a slight increase in gross profit despite a decrease in net sales for
the year, due primarily to greater production efficiencies. Selling, general, and administrative expenses declined to $107 million compared
with $115 million a year ago due to lower employment levels and other cost
reduction efforts. These reduction efforts included the discontinuance of the
subsidy for the retiree health care plan as well as the termination of certain
retiree group life insurance programs discussed previously. Increased costs
included higher business insurance costs driven in part by the September 11,
2001 terrorist attacks; and additional consulting and legal costs related to
the companys debt restructuring. For the year, the company recorded a $4.8 million pretax charge for the
write-down of assets to net fair market value in conjunction with the proposed
sale of the Lester Buildings Systems business, which is included in the North
American Building Systems Segment. An additional $2.4 million charge was taken
during the fourth quarter of 2003 for the write-off of leasehold improvements
related to the pretax combination of the North American Buildings Systems and
the Construction Services Segments. The effect of these charges was reduced by
a restructuring reserve credit taken in 2003 totaling $.8 million which was a
result of reevaluation of the restructuring reserve necessary for the
disposition of
the European metal buildings business primarily due to one of the European
subsidiaries being allowed to go into receivership. The company recorded other expense of $.3 million during 2003 compared to $2.4
million of other income in the previous year. Lower rental income this year on
Real Estate Segment projects and higher interest income in the previous year
contributed to the difference in results. In addition, nonrecurring expenses
in 2003 including an $.8 million charge for selling and legal costs related to
negotiating the Lester sale and approximately $.9 million depreciation expense
within Butler Real Estate caused the unfavorable change. 17




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Interest expense was $9.1 million for the year, up from $7.5 million in the
prior year due to higher interest costs charged on the companys amended credit
and note agreements. The company reported a pretax loss for 2003 of $22.2 million compared to the
pretax loss of $6.9 million for 2002. The company recorded tax expense of $9.9
million for the period due to the establishment of a $24.7 million valuation
allowance for deferred tax assets that served to offset the tax benefit
recorded for the increase in pretax losses. The need for the valuation reserve
stemmed from uncertainty as to whether the company will be able to utilize
these assets given continued losses. Net loss for the year was $32.1 million,
or $5.06 per share, compared with a net loss of $1.8 million, or $.29 per
share, a year ago. 2002 Compared to 2001 Sales were $828 million in 2002, down $69 million or 7.6% from the prior year.
The majority of the decline occurred in the North American Building Systems
Segment, which had sales of $394 million, a decline of $46 million or 10.5%
from the prior year. Sales were lower in both the U.S. steel buildings and the
Lester buildings businesses compared with the prior year as demand in the
manufacturing and commercial construction sectors, important markets of this
Segment, declined further from the already lower demand levels of 2001. The International Building Systems Segment was the bright spot with sales of
$108 million reported in 2002 compared with $82 million during 2001. This
Segment consists primarily of the China buildings business, as the sale of the
companys European buildings business was completed in the third quarter of
2002. The increase in sales was due to growth in the China nonresidential
construction markets generally, and to superior execution by this business for
new and repeat relationship building buyers. The Architectural Products Segment began to experience softness in their
markets as sales retreated $12 million or 4.9% to $220 million in 2002. The
depressed conditions in the commercial construction sector contributed to their
sales decline for the year. The Construction Services Segment reported sales of $111 million in 2002, a
decline of $22 million compared with 2001. Construction opportunities for this
Segment declined during the year as a consequence of the generally lower demand
for nonresidential structures. The Real Estate Segments sales were $16 million in 2002, down $21 million or
56.1% compared with the prior year. Depressed commercial construction
opportunities and the depletion of project backlog affected this Segments
sales, which are project-based and generally more erratic than revenues of the
companys manufacturing operations. Gross profit was $113 million or 13.6% of sales in 2002 compared with $137
million or 15.3% of sales in 2001. Lower sales, competitive pressures on
selling prices, coupled with higher costs for raw materials, specifically
steel, as well as higher employee benefits costs, contributed to lower gross
profit margins in 2002. Gross profit by segment is presented below. 2002Gross
    
    Changefrom
    
    Gross Profit asa % of salesDollars in millions
    
    Profit
    
    2001
    
    2002
    
    2001North American Building Systems
    
    $
    51
    
    
    $
    (18
    )
    
    
    12.9
    %
    
    
    15.7
    %International Building Systems
    
    
    17
    
    
    
    4
    
    
    
    15.5
    
    
    
    15.9Architectural Products
    
    
    33
    
    
    
    (7
    )
    
    
    15.2
    
    
    
    17.2Construction Services
    
    
    11
    
    
    
    (2
    )
    
    
    9.5
    
    
    
    9.4Real Estate
    
    
    1
    
    
    
    (1
    )
    
    
    7.7
    
    
    
    6.0Total
    
    $
    113
    
    
    $
    (24
    )
    
    
    13.6
    %
    
    
    15.3
    %
 Gross profit in the North American Building Systems Segment was 12.9% in 2002
compared with 15.7% in 2001. Continued decline in sales opportunities, lower
selling prices due to intense competitive pricing conditions, and rising steel
prices during the year, along with increases in health care, insurance,
pension, and employee separation costs were 18




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major contributors to the decline
in gross profit for this segment. A plant in the U.S. metal buildings business
remained offline during 2002 to balance capacity with lower market demand. The
Lester Building Systems business also incurred employee separation costs as its
sales volume declined. International Building Systems Segments gross profit was 15.5% in 2002
comparable with gross profit of 15.9% in 2001. The company continued expanding
market presence in China with additional branch offices and the construction of
a second manufacturing plant to be ready in early 2003. Gross profit margins
were comparable to the previous year in spite of intense competition and raw
material cost increases. The Architectural Products Segments gross profit was 15.2% in 2002 compared
with 17.2% in 2001. Declining demand, especially in the commercial construction
markets served by this segment, increased price competition among industry
participants and lowered profit margins. The Construction Services Segments gross profit was 9.5% in 2002, comparable
with a year ago. Although sales volume declined with construction market
conditions, this Segment was successful in managing margins by continuing to
focus on material erect projects, and improving construction execution. The Real Estate Segments gross profit was 7.7% in 2002, up from 6.0% in 2001.
This businesss revenues are project-based causing gross margins to be less
comparable from period to period. Selling, general, and administrative expenses were $115 million in 2002,
comparable with the prior year, while expenses as a percent of sales were
higher. In general, higher costs in 2002 for health care, pension, separation
costs, and other costs were offset by lower average employment levels and other
cost cutting measures. The North American Building Systems Segments selling,
general, and administrative expenses also increased due to legal costs in the
Lester Building Systems business related to its lawsuit against the Louisiana
Pacific Corporation. The International Building Systems Segment incurred lower
costs primarily due to the sale of European metal buildings business during the
year. All other segments costs were comparable with the prior year. Restructuring credits associated with the sale of the European metal buildings
business were recorded during the year. Asset values received upon conclusion
of the European metal buildings sale were greater than originally estimated,
and more than offset additional severance and other benefit costs incurred,
allowing for a net restructuring recovery of $.6 million. Other income was $2.4 million in 2002 compared with $.9 million during 2001,
due partly to the absence of a number of non-recurring costs recorded in 2001
including the move of the companys Corporate and Buildings Divisions
headquarters operations and costs associated with the companys 100th
anniversary celebration. This balance includes the rental income earned on
Butler Real Estate projects being marketed for sale to third party investors. Interest expense of $7.5 million in 2002 was slightly higher than the $6.9
million in 2001 due primarily to a combination of higher effective interest
rates on slightly lower borrowing levels, and greater capitalized interest on
the companys headquarters project in 2001. The company reported a pretax loss of $6.9 million in 2002 compared with pretax
earnings of $8.3 million in 2001. The 2001 amount includes asset impairment and
restructuring charges of $4.3 million and $3.9 million, respectively, related
to the disposition of the European metal buildings business. The tax benefit of
$5.0 million recognized in 2002 was due to a higher effective domestic tax rate
on domestic losses, a lower effective tax rate due to a partial tax holiday on
earnings in China, and the utilization of a capital loss carry forward. The
companys effective tax rate was a benefit of 73.2% in 2002 and an expense of
2.4% in 2001. The 2001 tax rate was lower than the statutory rate primarily due
to a $4.5 million benefit associated with the impairment and restructuring
charges noted above. The company reported a net loss for 2002 of $1.8 million, or $.29 per share,
compared with net earnings in 2001 of $8.1 million, or $1.28 per share. LIQUIDITY AND CAPITAL RESOURCES Cash flow by activity for the last three years is summarized below. 19




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Dollars in millions
    
    2003
    
    2002
    
    2001Net earnings adjusted for non-cash items
    
    $
    18
    
    
    $
    16
    
    
    $
    34Working capital plus noncurrent activities
    
    
    (45
    )
    
    
    1
    
    
    
    11Real estate developments
    
    
    9
    
    
    
    11
    
    
    
    29Total
operating activities
    
    
    (18
    )
    
    
    28
    
    
    
    74Capital expenditures and other  net
    
    
    (14
    )
    
    
    (24
    )
    
    
    (46
    )Proceeds from asset sales
    
    
    
    
    
    
    26
    
    
    
    Total
investing activities
    
    
    (14
    )
    
    
    2
    
    
    
    (46
    )Borrowing activities  net
    
    
    13
    
    
    
    (3
    )
    
    
    12Dividends and treasury stock
    
    
    (2
    )
    
    
    (4
    )
    
    
    (4
    )Total financing activities
    
    
    11
    
    
    
    (7
    )
    
    
    8Cash flow
    
    $
    (21
    )
    
    $
    23
    
    
    $
    36
 Since December 2002, cash and cash equivalents decreased $21 million to $54
million due to declines in cash flows from operations and investing activities.
Included in the companys cash and cash equivalents is $2.6 million of
restricted cash at December 31, 2003, for the benefit of the companys senior
lenders, which is unavailable to the company until certain contractual terms
and conditions are met. Cash flow from operating activities for 2003 was an approximate $18 million
outflow. The net loss of $32.1 million and changes in working capital and
noncurrent items were only partially offset by $19.3 million in depreciation
and amortization, $7.2 million in asset impairment charges, and the
establishment of a $24.7 million deferred tax asset valuation allowance. Working capital changes plus noncurrent activities resulted in a $45 million
reported cash outflow. The working capital change accounted for $41 million
of the total while the change in noncurrent assets and liabilities accounted
for the additional $4 million. The change in working capital was primarily
the result of receivables increasing $27 million, primarily in the North
American Building System Segment, due to seasonal demand and timing delays in
billing caused by the implementation of a new computer system, and in the
International Building Systems Segment due to increased demand. Inventories
increased $4 million primarily due to the expansion of operations in the
International Building Systems Segment. Net current deferred tax assets
decreased $10 million, after the $13 million reclassification to the valuation
allowance. This decrease was primarily due to the reclassification from
current to noncurrent of the deferred tax asset related to the minimum pension
liability. The $20 million decrease recorded in other current assets and
liabilities includes a $17 million increase in customer liabilities, offset by
a reclass of the $32 million minimum pension liability to noncurrent
liabilities as the company determined it was unlikely this liability would be
extinguished during the next 12 months, and a decrease in income taxes payable
of $6 million due to the release of income taxes payable for settlement of tax
audits and tax cash payments made to foreign and state tax jurisdictions, and
other items netting to a $1 million source. Other noncurrent assets increased $32 million and other noncurrent liabilities
increased $28 million, resulting in a reported net use of cash of $4 million.
This change was primarily the result of: a $32 million reclassification of
minimum pension liability from current to long-term mentioned above; a $16
million increase in noncurrent deferred tax asset (after the $11 million
reclassification to the valuation allowance) primarily due to a separate
reclassification of the tax asset related to minimum pension liability from
current to noncurrent; a $16 million increase in investments and other assets,
which includes a real estate development of $9 million reclassed from real
estate developments in progress; and a $4 million decrease in noncurrent
deferred tax liabilities. A reported $9 million increase in cash due to a lower real estate developments
in progress balance at the end of 2003 was caused primarily by the
reclassification of a real estate project to noncurrent as its anticipated sale
date is expected to extend beyond one year. Approximately $14 million of cash outflow was used to fund capital expenditures
projects. Capital expenditures were primarily incurred within the North
American Building Systems Segment for equipment to manufacture frames in Mexico
and the R-Steel product line in the United States, as well as costs to complete
the enterprise resource planning 20




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computer system. Capital expenditures also
included the costs to complete construction of a second plant in China for the
International Building Systems Segment. Borrowing activities net of repayments provided $13 million of positive cash
flow. The majority of this borrowing was related to nonrecourse mortgage
loans on real estate developments. Cash was used for payment of dividends.
The company decreased its quarterly dividend in the second quarter to $.04 per
share from $.18 per share, and then suspended the dividend during the third
quarter, both actions due to the losses incurred to date and the uncertain
course of the economy. Dividends paid totaled $2.5 million and $4.5 million
in 2003 and 2002, respectively. During the second quarter of 2003 a $4 million cash dividend was declared and
paid to the U.S. parent company from the companys Chinese subsidiary to
increase domestic cash resources. During 2003, treasury stock purchases were
immaterial. Cash paid for interest on debt totaled $5.6 million year to date. The cash
paid for taxes totaled $2.8 million during 2003, while tax refunds totaled $8.4
million for the year. Total backlog at year-end was $318 million compared with $264 million a year
ago. Higher margin product backlog was approximately 17% higher, while
construction backlog increased 33% when compared to the same period a year
ago. In June 2001, the company entered into a three year $50 million bank credit
facility with a group of banks and issued $50 million of senior unsecured notes
in a private placement to institutional investors for the purpose of funding
certain capital expenditures and providing additional liquidity for operations.
Following a waiver by the banks of certain financial covenants in the third
quarter of 2002, the bank credit facility was amended in December 2002 to a $35
million facility with sub-limits of $30 million for letters of credit and $10
million for cash advances. At December 31, 2003, the company had approximately
$23.3 million of standby letters of credit issued under the bank credit
facility. Commitments under the credit facility expire on June 20, 2004, at
which time any outstanding advances are payable. For the twelve months ended December 31, 2003, there were no domestic
short-term borrowings under the credit facility. After giving effect to all
amendments, interest on advances under the credit facility is based on either
(a) the banks base rate, which is the higher of the Federal Funds rate plus .50%
or the prime rate, plus a margin ranging from 1.0% to 1.25%, or (b) LIBOR
plus a margin ranging from 1.75% to 2.5%. During the occurrence of a default,
interest on advances is the applicable rate plus 2%. Interest on base rate
advances is payable quarterly and is payable on LIBOR advances at the end of
periods ranging from one to six months. The credit facility provides for a
commitment fee on unused advances ranging from .20% to .30%. As noted below,
the company does not believe it will receive additional funds from or be able
to issue new letters of credit under its bank credit facility. Per the terms of the companys bank credit and note agreements and subject to
certain limitations, the company may borrow up to $35 million from other
lenders to fund the Real Estate Segments project development activities. At
December 31, 2003, $11.9 million had been borrowed to fund development
projects. During the construction period of the real estate development the
construction loans are interest only with rates ranging from prime plus .50% to
prime plus 1%. Upon completion of construction, these loans convert to a two
to four year term loan, with fixed or variable monthly payments of principal
and interest. The term loans bear interest ranging from a fixed rate of 6% to a
variable rate of prime plus 1% at the conversion date. The loans become due
upon sale of the real estate project. The Merger Agreement between BlueScope
and Butler limits future borrowings by the Real Estate Segment to projects
already in progress at February 15, 2004. At December 31, 2003 there were outstanding $90 million principal in senior
notes comprised as follows: $50 million principal amount of the companys 2001
senior notes due 2016, $35 million principal amount of its 1998 senior notes
due 2013, and $5 million principal amount of its 1994 senior notes due 2003.
Interest on the 2001 and 1994 senior notes is payable semiannually on June 30
and December 30 and interest on the 1998 senior notes is payable semiannually
on March 20 and September 20. As set forth in the Long Term Debt Note to the
Consolidated Financial Statements in Part
II, Item 8 of this report, due to the covenant noncompliance the note holders
have the right to declare all amounts due and payable at any time. During the first quarter of 2003, the company and its note holders amended the
senior notes to increase the interest rate for each series by 1.5%, of which
increase .25% is permanent, .5% is applicable until the companys bank credit
facility 21




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is on a pari passu basis with the note agreements, and .75% is
applicable until the later of the time that the bank credit facility is on a
pari passu basis with the note agreements and the fixed charge ratio as defined
in the notes exceeds 2.25 to 1 for two consecutive four trailing quarters. In
connection with this amendment, the company granted the note holders and
lenders under the credit facility a security interest in its domestic accounts
receivable, domestic inventory, domestic subsidiary stock, certain foreign
subsidiary stock and certain other personal property. Upon a payment default
under any of the note agreements, the interest rate of the related notes would
increase to the greater of such rate plus 2% or that rate which is 2% greater
than the Bank of Americas prime rate. Efforts in mid-2003 to replace the bank credit facility with an asset-based
facility were unsuccessful when none of the proposals considered provided
sufficient liquidity without adversely modifying the existing security
interests of the senior notes. Accordingly, since that time the company has
been in discussions with the senior lenders to restructure its debt agreements.
These discussions have not resulted in any arrangements that were satisfactory
to both the company and its lenders. Pending resolution of these discussions,
the company does not believe it will receive additional funds from or be able
to issue new letters of credit under its bank credit agreement. In the fourth
quarter, the companys banks notified the company that it would be required to
prefund its daily disbursements on an ongoing basis, which had the effect of
further reducing its liquidity. The severe cyclical decline in the nonresidential construction industry during
the past three years has outstripped the savings realized from cost reductions
and capacity closures that the company has implemented over this period. Both
the credit facility and the senior notes contain financial covenants and
operating covenants. As a result, although the company was current with all
payments under its debt agreements at September 30, 2003, it was not in
compliance with its financial covenants within the bank credit facility and
the senior note agreements related to the following matters: the minimum
domestic EBITDA level of $5 million, the fixed charge coverage ratio of 1.25
to 1, and the leverage ratio of 7.0 to 1. At December 31, 2003 the company
was not in compliance with its financial covenants within the bank credit
agreement and the senior notes agreements related to the following matters:
the minimum domestic EBITDA level of $15 million on a rolling four quarter
basis; the capitalization ratio of .45 to 1; the leverage ratio (based
generally upon the level of funded debt less cash and equivalents to EBITDA as
defined in the agreements, for the trailing four quarters) of 4.0 to 1; the
adjusted consolidated tangible net worth of $110 million plus 50% of
consolidated net income since December 31, 2002; the consolidated indebtedness
to consolidated total capitalization of 50%; and the fixed charge coverage
ratio of 1.25 to 1 (based generally upon the ratio of EBITDA plus rents over
the trailing four quarters to the amount of interest expense and rents during
such period). Despite repeated attempts, the company has been unable to
obtain any waivers or cures of the defaults. As a result, the company
classified the related long-term portion of this debt, $81.5 million, as a
current liability on the December 31, 2003 consolidated balance sheet. The
attached financial statements reflect this change. See the section on Debt,
Leases, Commitments, and Contingencies in the Notes to the Consolidated
Financial Statements in Part II, Item 8 of this report. Because the company was not in compliance with the financial covenants, the
senior lenders have the right to accelerate payment of $90 million of debt
recorded on the companys balance sheet, as well as require cash funding of the
stand-by letters of credit. In conjunction with any demand for repayment of
the principal outstanding under the senior notes, the company may also be
required to pay any make-whole amount due under the notes. The make-whole
amount would be approximately $18 million (assuming a closing date of the
Merger of April 30, 2004 and a reference interest rate for U.S. Treasuries as
in effect on February 9, 2004). The companys senior lenders have not
accelerated the companys payment obligations and have allowed the company to
remain in breach of these agreements, although they have the right to declare
such default and take such action at any time. If the senior lenders were to
exercise this right, the company would not have the ability to fund these
obligations immediately, and the senior lenders could pursue other remedies.
Pending resolution of these discussions, the company does not believe it will
receive additional funds from or be able to issue new letters of credit under
its bank credit agreement. Most of the letters of credit currently issued under the company's bank credit facility automatically renew on their expiration date unless the issuing bank gives the beneficiary notice of non-renewal at least 60 days prior to the expiration date. If the issuing bank gives notice of non-renewal, the beneficiary is entitled to draw the full amount of the letter of credit prior to the expiration date. If the beneficiary elects to draw on a non-renewed letter
of credit, the drawn amount is treated as a funded advance under the company's bank credit facility. As the company is in default under the bank credit facility, the banks are entitled to demand at any time immediate repayment of any funded advance and are also entitled
to require cash funding on all undrawn letters of credit. An $.8
million letter of credit expires April 1, 2004 and two
additional letters of credit totaling $1.3 million expires June 1, 2004, for which the issuing bank has given notice of non-renewal, and approximately $20.1 million of automatically renewable letters of credit have expiration dates in June 2004. As a result of the continued decline in domestic nonresidential construction
markets, the companys financial condition, and difficulties experienced in
obtaining a replacement to the credit agreement, in the third quarter of 2003
the
companys Board engaged a financial advisor to assist it in evaluating the
companys strategic options, including but not limited to private investment
capital, assets sales, and the sale of the company. In December 2003, the company and the senior lenders under the 1994, 1998, and
the 2001 senior notes amended the note agreements to provide for a principal
payment deferral due under certain notes in the aggregate amount of $8.5
million. The deferral of these payments was based upon the company agreeing to
meet certain milestones including the consummation of a transaction that would
repay the $90 million notes in full by April 30, 2004, including principal, 22




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interest, default interest, make-whole amounts, and fees. The purchaser in
the transaction was required to have financial qualifications acceptable to
the senior note holders and the related agreement was required to be
reasonably satisfactory to the note holders with respect to the treatment of
the notes at closing and the conditions of closing. The company also agreed
to deposit cash of $2.6 million on December 30, 2003 and $1.4 million on March
20, 2004 into a blocked collateral account for the benefit of its senior
lenders and to accrue the default rate of interest on the deferred December
and March principal and interest payments at a rate 2.00% above the respective
amended coupon rates described in the Debt, Leases, Commitments, and
Contingencies in the Notes to the Consolidated Financial Statements in Part
II, Item 8 of this report. On February 15, 2004, the company entered into a Merger Agreement pursuant to
which the company will become a wholly owned subsidiary of BlueScope. See the
section on Business  General Description of the Business  Recent Development
in Part I, Item I of this report. In connection with the Merger, the company,
BlueScope and the senior note holders have reached mutually acceptable
agreements that (i) provide the note holders assurance from BlueScope that the
senior notes will be immediately paid in full if BlueScope closes the Merger,
(ii) provide BlueScope and the company assurance that the Merger Agreement
satisfies the requirements of the note holders and (iii) agree on the proper
calculation of the make-whole amount, which agreed amount would be
approximately $18 million (assuming a closing on April 30, 2004 and a reference
interest rate for U.S. Treasuries as in effect on February 9, 2004). The
company estimates that a 25 basis points change in the reference rates would
cause the make-whole amount to increase or decrease, as applicable, by
approximately $1.5 million. The Merger is subject to certain conditions, including the company achieving
defined levels of financial performance for the first quarter of 2004, and
shareholder and regulatory approvals. There are two groups of financial
performance measures that must be met. The first group requires that, as
defined, and independent of each other, EBIT cannot be less than $(8.30)
million, net cash flow cannot be less than $(8.25) million, and backlog must be
at least $305 million. The second group requires that, as defined, at least
two of the following three measures must be met: EBIT cannot be less than
$(7.25) million, net cash flow cannot be less than $(7.10) million, and backlog
must be at least $317 million. If the Merger is not completed, the company must recapitalize, restructure
debt, dispose of assets, procure additional equity, or effect a combination of
the foregoing actions, which may be with or without filing for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable
arrangement with its senior creditors and to continue operations with minimal
disruption and preserve the value of its assets. Management believes it will
be difficult to obtain a workable arrangement with the companys senior
creditors to continue operations as currently conducted if the Merger is not
completed on or before April 30, 2004. The companys principal contractual obligations and other commercial
commitments are summarized below and disclosed in the Notes to the Consolidated
Financial Statements in Part II, Item 8 of this report. Contractual Obligations, Commercial Commitments Payments due by period (in thousands)Less than 1
    
    
    
    
    
    
    
    
    
    After 5Total
    
    year
    
    1-3 years
    
    4-5 years
    
    yearsContractual Cash Obligations:Long-term debt other than capital leases
    
    $
    109,413
    
    
    $
    90,800
    
    
    $
    12,094
    
    
    $
    269
    
    
    $
    6,250Capital lease obligations
    
    
    5,190
    
    
    
    1,112
    
    
    
    2,179
    
    
    
    1,304
    
    
    
    595Operating lease obligations
    
    
    64,453
    
    
    
    8,465
    
    
    
    13,330
    
    
    
    8,487
    
    
    
    34,171Pension obligations
    
    
    18,096
    
    
    
    18,096
    
    
    
    *
    
    
    
    *
    
    
    
    *Post retirement benefit obligations
    
    
    771
    
    
    
    70
    
    
    
    145
    
    
    
    151
    
    
    
    405Total contractual cash obligations
    
    $
    197,923
    
    
    $
    118,543
    
    
    $
    27,748
    
    
    $
    10,211
    
    
    $
    41,421Other Commercial Commitments:Standby letters of credit
    
    $
    23,273
    
    
    $
    23,273
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    23,273
    
    
    $
    23,273
    
    
    $
    
    
    
    $
    
    
    
    $
    
   *
    
    Pension obligation amounts are not available for years after 2004. 23




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##### Table of Contents



In addition to
amounts shown above, in conjunction with any demand for repayment of the
principal outstanding under the companys senior notes, the company would be
required to pay any make-whole amount due under the notes, as well as cash
collateralize the companys obligation to reimburse the banks for third party
draws against approximately $23 million of letters of credit. In the event the Merger Agreement is terminated by BlueScope because the
companys Board fails to recommend or reconfirm its recommendation of the
transaction to the companys stockholders or the companys Board withdraws,
adversely modifies, or amends its approval or recommendation of the
transaction, then the company will be obligated to pay BlueScope a termination
fee of $5.5 million and all expenses of BlueScope incurred in connection with
the transaction contemplated by the Merger Agreement, up to a maximum of $1.5
million. If the Merger Agreement is terminated because it is not approved by
stockholders or is not consummated by August 1, 2004 and prior to such
termination another acquisition proposal for the company is publicly made, then
the company will be obligated to pay BlueScopes expenses incurred in
connection with the Merger Agreement, up to a maximum of $1.5 million. If
following such termination, the company enters into a definitive agreement for
an acquisition transaction, as defined in the Merger Agreement, within twelve
months after the date of any such termination, it must also pay the $5.5
million termination fee. These contingent obligations are not reflected in the
foregoing table. The company has submitted an application to the Internal Revenue Service
requesting a funding waiver for the 2004 plan year contributions for all of its
pension plans. If such application is granted, the waived contributions for
the 2004 plan year in the amount of $21 million would then be due and payable
in quarterly installments with interest over the next five years commencing
April 2005. On December 31, 2003, the companys cash balance of $54.4 million included $2.6
million of restricted cash for the benefit of the companys senior lenders, and
$16.3 million of cash in its International Building Systems Segment, $14.1
million of which was not immediately available for repatriation to the parent
company. Approximately $8 million of the $14.1 million not immediately
available for repatriation is expected to be available for repatriation after
May 2004. However, the Merger Agreement prohibits the payment of dividends by
the companys Asian subsidiaries prior to April 30, 2004 or at any time
thereafter without BlueScopes consent, which BlueScope has agreed will not be
unreasonably withheld. Although there can be no assurance, management believes
that absent the companys obligation to repay the senior notes or for funding
letters of credit under the bank credit agreement, the companys cash and cash
flow from operations, as projected for the twelve months following the date of
the financial statements, will be sufficient to provide for normal operating
needs. However, actual results or events may differ from managements
expectations in this forward looking statement as a result of any one or more
of the factors cited under Forward Looking Statements preceding Item I of this
report, including the following factors: an inability to consummate a
transaction that provides for repayment in full of its outstanding senior notes
by April 30, 2004 coupled with the inability to negotiate amendments to loan
covenants, the requirement by the companys senior lenders to fund the
outstanding debt obligations, weak demand for the companys products, a loss of
customer relationships, elevated raw materials prices, or changes in payment
terms by the companys suppliers and vendors. Along with existing cash balances and cash flow from operations, other possible
sources of domestic liquidity include additional cash dividends from the
companys International Building Systems Segment; loan transactions utilizing
the companys approximately $30 million of unencumbered operating real estate
assets; loans or the early sale of approximately $14 million of project related
net assets of the companys Real Estate Segment; a funding waiver of the
companys 2004 pension plan contributions of approximately $21 million: and the
proceeds, if any, from the $29.6 million jury verdict awarded to the company
related to a lawsuit involving Louisiana-Pacific Corporation. There is no
assurance that the timing of availability of these additional possible sources
of liquidity would correspond with future liquidity requirements. NEW ACCOUNTING PRONOUNCEMENTS In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146 (SFAS 146), Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 is effective for all exit or disposal activities entered
into after December 31, 2002. SFAS 146 changes the accounting for costs
associated with exit or disposal activities. The statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred as opposed to on the date of an entitys
commitment to an exit plan. The company applied the provisions of SFAS 146 in
conjunction with the combination of the North American Buildings System Segment
and the Construction Services Segment effective January 1, 2004 as well as the
closure of the Birmingham, Alabama manufacturing facility in 2003. 24




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In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a liability to
be recognized at the time a company issues a guarantee for the fair value of
the obligations assumed under certain guarantee agreements. Additional
disclosures about guarantee agreements are also required in the interim and
annual financial statements. The disclosure requirements of FIN 45 were
effective for the year ended December 31, 2002. The liability recognition
requirements were effective January 1, 2003. Adoption of FIN 45 did not have a
material impact on the companys results of operations or financial position. In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 (SFAS 148), Accounting for Stock-Based
Compensation  Transition and
Disclosure. SFAS 148 amends SFAS 123 Accounting for Stock-Based Compensation
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS
148 also amends the disclosure requirements of SFAS 123 to require more
prominent disclosure in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS 148 is effective for fiscal years
ending after December 15, 2002. The adoption of SFAS 148 had no impact on the
companys results of operations, liquidity, or financial condition. The
company included the revised disclosure provisions of SFAS 148 in the Stock
Option Plans footnote included in the Notes to Consolidated Financial
Statements in Part II, Item 8 of this report. In December 2003, FASB issued FASB Interpretation No. 46R (FIN 46R),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46R supercedes FIN 46 issued in January 2003. The interpretation
provides guidance on the identification of variable interest entities (VIE) and
clarifies when a company is determined to be a primary beneficiary and
required to consolidate in its financial statements the assets, liabilities,
and activities of a variable interest entity. In addition, FIN 46R requires
that both the primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. For public entities
that are not small business issuers, FIN 46R is effective for the first
reporting period after December 31, 2003 for all variable interest entities
classified as special purpose entities. FIN 46R is applicable for all other
variable interest entities in the first interim or annual reporting period
beginning after March 15, 2004. The adoption of FIN 46 had no impact on the
companys financial reporting and disclosures. In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149 (SFAS 149), Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133. SFAS
149 is effective for contracts and hedging relationships entered into after
June 30, 2003. The adoption of SFAS 149 had no impact on the companys results
of operations, liquidity, or financial condition. In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. SFAS 150 requires certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity to be classified as liabilities.
Many of these instruments were previously classified as equity or temporary
equity and as such, SFAS 150 represents a significant change in practice in the
accounting for a number of mandatory redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. SFAS 150 is effective for all financial instruments created or
modified after May 31, 2003, and to other instruments for the first interim
period beginning after June 15, 2003. The adoption of SFAS 150 had no impact on
the companys results of operations, liquidity, or financial condition. In 2003, the FASB issued a revision to Statement of Financial Accounting
Standards No. 132 (SFAS 132), Employers Disclosures about Pensions and Other
Postretirement Benefits. The revised SFAS 132 retains the disclosures
required by the original SFAS 132 and requires additional disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
provisions of the original SFAS 132 remain in effect until the provisions of
the revised SFAS 132 are adopted. With certain limited exceptions, the
provisions of the revised SFAS 132 are effective for financial statements
issued after December 15, 2003. The company included the additional disclosure
provisions of the revised SFAS 132 in the Employee Benefit Plans footnote
included in the Notes to Consolidated Financial Statements in Part II, Item 8
of this report. 25




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In January 2004, the FASB issued FASB Staff Position No. 106-1 (FSP 106-1),
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. FSP 106-1 permits a sponsor
of a postretirement health care plan that provides a prescription drug benefit
to make a one-time election to defer accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. Regardless of
whether a sponsor elects the one-time deferral, FSP 106-1 requires certain
disclosures about the Act. FSP 106-1 is effective for financial statements of
fiscal years ending after December 7, 2003. The provisions of FSP 106-1 had no
impact on the companys results of operations, liquidity, financial condition,
or disclosures. MANAGEMENTS JUDGMENTS AND ESTIMATES In preparing the financial statements, a number of assumptions and estimates
are determined that, in the judgment of management, are proper in light of
existing general economic and company-specific circumstances. Examples of areas
in which judgments and estimates are required include recognition of sales
income, the collectibility of receivables, the value of inventory, the future
useful life of long-lived assets, such as plant, equipment, and internally
generated software, as well as the value of certain contingent liabilities,
including product warranties and claims arising in the ordinary course of
business. While the company has taken reasonable care in preparing these
estimates and making these judgments, actual results could and probably will
differ from the estimates. Management believes that any difference in the
actual results from the estimates will not have a material adverse effect upon
the companys financial position or results of operations. CRITICAL ACCOUNTING POLICIES Critical accounting policies are defined as those that are both most important
to the portrayal of a companys financial condition and results of operations,
and require managements most difficult, subjective or complex judgments. In
many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles with no need
for the application of managements judgment. In certain circumstances,
however, the preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires judgment to make certain
estimates and assumptions. These estimates affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The companys critical
accounting policies address such matters as its sales recognition for
construction and project contracts, inventory valuation, estimation of product
liability for third-party claims, estimation of insurance reserves, accounting
for impairment of long-lived assets, and pension and postretirement benefits. Sales Recognition Sales from manufacturing operations are recognized when goods are shipped free
on board (FOB) from their shipping point and when all obligations of the
company have been met. For those limited instances where goods are shipped on
company trucks, sales are recognized on a FOB destination point basis. Sales and gross profit recognition for construction and project contracts are
based upon the percentage of completion method. This method requires the
company to estimate total contract cost at completion for each in-process
construction project. Total contract revenue less total estimated costs
generates an estimated gross profit for each contract. Based upon estimated
total costs and estimated gross profit, the company recognizes construction
sales and gross profit over the life of the project using a percentage of
completion method. The percentage complete at each period end date is generally
determined using costs actually incurred as of that date compared to the
estimate of total contract cost at completion. Periodic re-evaluation of
estimated total costs at completion are made with the resulting cumulative
adjustments recognized in the current period financial statements. Provision is
made for estimated probable losses on projects when it is determined that a
loss will be incurred. Actual costs for completed projects can and typically
will vary from earlier estimates, with the final adjustment from estimate to
actual costs recognized during the period when the project is considered
completed. Sales and gross profit for the Real Estate Segment are recognized when real
estate development projects are sold to third party investors. Rental income,
classified as other income, is recognized on completed projects occupied by
leasing tenants while the project is being held for sale. 26




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Inventory Valuation The company has chosen the last-in, first-out (LIFO) accounting method for
valuing inventory in the majority of its manufacturing businesses. In periods
of rising prices and steady or increasing levels of inventory, the effect of
the LIFO method is to charge the current year cost of sales with inventory
purchases that reflect current year costs. This method results in a better
matching of current costs with current sales during an accounting period.
Generally it presents a more conservative valuation of the companys inventory,
and the gross profit and net earnings reported for the period. The LIFO
valuation is a year-end measurement process requiring estimates for the
determination of quarterly gross profit and quarter-end inventory valuation. At
December 31, 2003, the cumulative effect of choosing the LIFO method was a
reduction in inventory values of $9.4 million. During 2003, the company
reduced inventory levels, which had the effect of charging the current year
cost of sales with prior years costs. For 2003, the use of LIFO inventory
accounting increased gross margins by $.1 million. Third-Party
Claims The company is subject to third-party claims associated with its products and
services. The time period from when a claim is asserted to when it is resolved
either by dismissal, negotiation, settlement, or litigation can be several
years. While the company maintains product liability insurance, its
arrangements include significant self-retention of risk in the form of policy
deductibles. In addition, certain claims are not insured. Actual claim
settlement costs and litigation awards can and probably will vary from the
estimates made by the company. Management believes that any difference in the
actual results from the estimates on known claims will not have a material
adverse effect upon the companys financial position or results of operations. Insurance Accruals Generally, the company is self-insured for workers compensation for certain
subsidiaries and for all group medical insurance. Under these plans,
liabilities are recognized for claims incurred (including claims incurred but
not reported) and changes in the accruals. At the time a workers compensation
claim is filed, a liability is estimated to settle the claim. The liability for
workers compensation claims is determined based on managements estimates of
the nature and severity of the claims using analyses provided by third party
administrators. Since the liability is an estimate, the ultimate liability may
be more or less than reported. If previously established accruals are required
to be adjusted, such amounts are included in cost of sales and selling,
general, and administrative expenses in the period of adjustment. Group medical
accruals are estimated using historical claims experience. The company maintains excess liability insurance with insurance carriers to
minimize its risks related to catastrophic claims in excess of all self-insured
positions. Any material change in the aforementioned factors could have an
adverse impact on operating results. Long-Lived Assets The company accounts for the impairment of long-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
When events or circumstances indicate that a long-lived asset may not be
recoverable, the company tests for recoverability of the asset by comparing
estimates of undiscounted future cash flows to the carrying amount. If
undiscounted future cash flows are less than the asset-carrying amount, an
impairment charge is recorded and the assets carrying value is reduced to fair
value. Management, based on current operating conditions, estimates the future
cash flows; however, changes in estimates of such cash flows could impact the
results of the impairment test. During 2003, the company incurred an asset
impairment charge of $7.2 million. $4.8 million related to the write-down of
assets from the proposed sale of the Lester division, and $2.4 million related
to the write-off of leasehold improvements within the Construction Services
Segment Butler Construction as a result of combining this segment with the
North American Building Systems Segment. Income taxes The company records income taxes in accordance with SFAS 109, Accounting for
Income Taxes. SFAS 109 establishes financial accounting and reporting
standards for the effect of income taxes. The objectives of accounting for
income taxes are to recognize the amount of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entitys financial
statements or tax 27




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returns. The measurement of current and deferred tax assets is reduced by the
amount of any tax benefits that, based on available evidence, it is more likely
than not the assets value will not be realized. During 2003, the Company
established a valuation allowance of $24.7 million to reduce the amount of
deferred tax assets where management believed it was more likely than not the
assets value will not be realized. Judgment is required in assessing the
valuation allowance as well as the future tax consequences of events that have
been recognized in our financial statements or tax returns. Fluctuations in the
actual outcome of these future tax consequences could materially impact our
financial position or our results of operations. Pension and Postretirement Benefits The company records pension expense, assets, and liabilities in accordance with
SFAS 87 and based upon an independent actuarial valuation that is conducted
annually. The actuarial valuation requires various assumptions by the company
such as the rate of future increases in compensation, the rate of future asset
returns, and the rate of employee turnover. The measurement date is December
31 of each fiscal year. The company uses the asset-smoothing method for its
base pension plan to recognize over time the differences between the actual
asset returns and the returns assumed in the above noted actuarial valuation
for purposes of determining its annual pension expense. During the third
quarter of 2003 the company amended its base plan to reduce the rate of future
benefit accruals. The reduction in the projected benefit obligation due to this
amendment was recognized as a prior service credit that is being amortized over
the remaining working lives of the active participants as a credit component
included in pension expense. The company records postretirement benefit expense and liabilities in
accordance with SFAS 106 and based upon an independent actuarial valuation
that is conducted annually. The measurement date is December 31 of each fiscal
year. During the fourth quarter of 2003 the company terminated all
postretirement medical benefits and certain life insurance benefits. The
company accounted for this partial termination as a settlement of a portion of
its obligations under SFAS 88 that resulted in a reversal of a portion of the
accrued liability for these obligations. MANAGEMENT TRANSITION AND DIRECTOR RETIREMENTS Robert J. Reintjes, Sr., retired from the Board of Directors in 2002 after 8
years of service. Mark A. McCollum was elected to the board in January 2003
succeeding Mr. Reintjes. Mr. McCollum is Senior Vice President and Chief
Accounting Officer of Halliburton Company, a global energy services
company. SHARE REPURCHASE PROGRAM In April 2000, the Board of Directors authorized the repurchase of 750,000
shares of Butler common stock to be used for employee benefit plans and other
corporate purposes. Stock purchases may be made from time to time in the open
market and in private transactions at prevailing market prices. At December 31,
2003, 379,253 shares remained available for repurchase from the April 2000
Board authorization. 
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk The companys principal exposures to market risk are changes in commodity
prices, interest rates, currency exchange rates, and product pricing. To limit
exposure to select risks, the company enters into commodity and currency
hedging transactions, and forward purchasing arrangements. The company does not
use financial instruments for trading purposes. Commodity Price Exposure The primary commodities used in the companys operations are steel, aluminum,
and lumber. Steel is the companys largest purchased commodity. The company
enters into forward steel and wood purchase arrangements in its metal buildings
businesses for periods of less than one years duration to protect against
potential price increases. During 2003 steel prices moved erratically but were generally higher than those
of 2002. In 2002, the United States invoked tariffs on certain steel product
imports causing significant price increases in the latter half of that year.
Competitive pricing pressures have prevented the company from recapturing all
of the steel price differential in its selling prices. Early in 2004, the
company experienced unprecedented increases in steel pricing as a result of
lower availability of raw materials, escalating energy costs and unusually high
demand in China. Consequently pricing 28




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contracts with the companys vendors were being modified on a weekly basis,
either through actual material costs changes or surcharges. To minimize the
erosion of margins, price increases on incoming sales were being passed in the
companys product sales pricing to the customers. Further increases are
expected into the second quarter of 2004, which may impact the level of both
sales and profitability. The companys wood frame building business enters into forward purchase
arrangements for commercial grade lumber for periods of less than one years
duration. Lumber costs are generally more volatile than steel costs. To offset
increases in lumber costs, the company adjusts product prices accordingly. Aluminum hedge contracts of less than one years duration are purchased to
hedge the engineered products backlog of the Vistawall group against potential
losses caused by increases in aluminum costs. This product line is sensitive to
material cost movements due to the longer lead times from project quoting to
manufacture. Gains or losses recorded on hedge contracts are offset against the
actual aluminum costs charged to cost of sales when contracts are settled. The company hedges aluminum and Canadian foreign exchange exposures created by
its ongoing operations. At December 31, 2003, the fair value of open aluminum
contracts recorded in cumulative other comprehensive income was a gain of $.1
million, pretax. There were no open Canadian currency exchange contracts at
December 31, 2003; therefore there were no unrealized losses. At December 31,
2003, a percentage change in aluminum contracts would be immaterial to the
company. Interest Rates Ninety-five percent of the companys total debt carries a fixed rate of
interest, which limits the companys exposure to increases in market rates.
However, interest rate changes impact the fair market value of the companys
fixed rate debt. At December 31, 2003 and 2002, the fair value of the companys
long-term debt was materially in line with its carrying value. Principal
payments over the next five years on the fixed-rate debt are $108.4 million,
with a weighted-average interest rate of 8.55%. At the end of five years, then
outstanding fixed-rate debt of $.6 million will carry a weighted-average
interest rate of 6.5%. The companys short-term bank borrowings provide for
interest at variable rates. The company does not hedge its interest rate
exposure. Foreign Currency Fluctuation The majority of the companys business is conducted in U.S. dollars, limiting
the companys exposure to foreign currency fluctuations. The companys
foreign-based operations use the local currency as their functional currency.
The company has both transaction and translation foreign exchange exposure in
its foreign markets. Due to relative cost and limited availability, the
company does not hedge its foreign net asset exposure. At December 31, 2003, the companys net asset investment in foreign operations
was $42 million, primarily in China. The company hedges its short-term foreign
currency transaction exposures related to metal building sales in Canada.
Forward exchange contracts are purchased to cover a portion of the exposure.
Mark to market gains on the companys currency exchange contracts were recorded
in earnings and were immaterial. 29




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Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and
Shareholders of Butler Manufacturing Company: We have audited the accompanying consolidated balance sheets of Butler
Manufacturing Company (a Delaware corporation) and subsidiaries as of December
31, 2003 and 2002, and the related consolidated statements of earnings and
retained earnings, comprehensive income, and cash flows for the years then
ended. In connection with our audits of the consolidated financial
statements, we have also audited the accompanying financial statement
schedules for the years ended December 31, 2003 and 2002. These financial
statements and financial statement schedules are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
The accompanying consolidated financial statements of the Company for the year
ended December 31, 2001 were audited by other auditors who have ceased
operations. Those auditors report, dated January 29, 2002, expressed an
unqualified opinion on those financial statements and included an explanatory
paragraph that described the changed in the Companys method of accounting for
the recognition of asset gains and losses considered in the determination of
net pension expense for its base retirement pension plan. We conducted our audits in accordance with auditing standards 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 financial statements referred to above present fairly, in
all material respects, the financial position of Butler Manufacturing Company
and subsidiaries as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Also in our opinion, the financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements and financial statement
schedules have been prepared assuming that the Company will continue as a
going concern. As discussed in notes to the financial statements, the Company
has incurred net losses in 2003 and 2002 and, at December 31, 2003, the
Company was not in compliance with certain covenants of its loan agreements.
These matters raise substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these matters are also
described in the notes. The consolidated financial statements and financial
statement schedules do not include any adjustments that might result from the
outcome of this uncertainty. KPMG LLP Kansas City, Missouri
February 15, 2004 30




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Butler Manufacturing Company: We have audited the accompanying consolidated balance sheets of Butler
Manufacturing Company (a Delaware corporation) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of earnings and
retained earnings, comprehensive income and cash flows for each of the three
years in the period ended December 31, 2001. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Butler
Manufacturing Company and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. As explained in the notes to the financial statements, effective January 1,
2001, the company changed its method of accounting for the recognition of asset
gains and losses considered in the determination of net pension expense for its
base retirement pension plan. Arthur Andersen LLP Kansas City, Missouri
January 29, 2002 This audit report of Arthur Andersen LLP, our former independent public
accountants, is a copy of the original report dated January 29, 2002 rendered
by Arthur Andersen LLP on our consolidated financial statements included in
our form 10-K filed on March 28, 2002, and has not been reissued by Arthur
Andersen LLP since that date. This report refers to financial statements not
physically included in this annual report. 31




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BUTLER MANUFACTURING COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
Dollars in thousands 2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    54,401
    
    
    $
    75,778Receivables:Trade
    
    
    106,743
    
    
    
    94,408Other
    
    
    17,411
    
    
    
    5,739124,154
    
    
    
    100,147Allowance for possible losses
    
    
    (4,740
    )
    
    
    (7,496
    )Net receivables
    
    
    119,414
    
    
    
    92,651Inventories
    
    
    63,884
    
    
    
    59,840Real estate developments in progress
    
    
    4,347
    
    
    
    13,203Net current deferred tax assets
    
    
    2,175
    
    
    
    25,238Income tax receivable
    
    
    
    
    
    
    6,132Other current assets
    
    
    15,948
    
    
    
    8,360Total current assets
    
    
    260,169
    
    
    
    281,202Investments and other assets
    
    
    65,086
    
    
    
    50,684Assets held for sale
    
    
    3,684
    
    
    
    3,684Property, plant and equipment, at costLand
    
    
    6,587
    
    
    
    6,212Buildings
    
    
    82,218
    
    
    
    81,088Machinery, tools and equipment
    
    
    164,121
    
    
    
    163,974Office furniture and fixtures
    
    
    30,716
    
    
    
    30,042Transportation equipment
    
    
    2,246
    
    
    
    2,430285,888
    
    
    
    283,746Less accumulated depreciation
    
    
    (172,121
    )
    
    
    (163,482
    )Net property, plant and equipment
    
    
    113,767
    
    
    
    120,264$
    442,706
    
    
    $
    455,834
 32




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Dollars in thousands 2003
    
    2002LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    117
    
    
    $
    Current maturities of long-term debt
    
    
    91,912
    
    
    
    6,273Accounts payable
    
    
    58,740
    
    
    
    58,578Dividends payable
    
    
    
    
    
    
    1,136Accrued taxes and other expenses
    
    
    83,167
    
    
    
    62,978Minimum pension liability
    
    
    
    
    
    
    30,699Accrued payroll and benefit expense
    
    
    14,447
    
    
    
    13,077Billings in excess of costs and estimated earnings
    
    
    2,237
    
    
    
    3,356Taxes on income
    
    
    4,762
    
    
    
    10,665Total current liabilities
    
    
    255,382
    
    
    
    186,762Net noncurrent deferred tax liabilities
    
    
    
    
    
    
    4,442Other noncurrent liabilities
    
    
    19,922
    
    
    
    19,393Minimum pension liability
    
    
    32,483
    
    
    
    Long-term debt, less current maturities
    
    
    22,692
    
    
    
    96,066Shareholders equity:Common stock, no par value, authorized 20,000,000
shares, issued 9,088,200 shares, at stated value,
outstanding 6,334,056 in 2003 and 6,310,502 in 2002
    
    
    12,623
    
    
    
    12,623Accumulated other comprehensive income (loss), net
    
    
    (20,388
    )
    
    
    (16,493
    )Retained earnings
    
    
    183,708
    
    
    
    217,307175,943
    
    
    
    213,437Less cost of common stock in treasury, 2,754,144
shares in 2003 and 2,777,698 shares in 2002
    
    
    (63,716
    )
    
    
    (64,266
    )Total shareholders equity
    
    
    112,227
    
    
    
    149,171$
    442,706
    
    
    $
    455,834
 See Accompanying Notes to Consolidated Financial Statements. 33




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BUTLER MANUFACTURING
COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGSAND RETAINED EARNINGS
Dollars in thousands except for shares and per share data Years Ended December 31,2003
    
    2002
    
    2001Net sales
    
    $
    796,167
    
    
    $
    828,209
    
    
    $
    896,572Cost of sales
    
    
    695,337
    
    
    
    715,203
    
    
    
    759,331Gross profit
    
    
    100,830
    
    
    
    113,006
    
    
    
    137,241Selling, general and administrative expenses
    
    
    107,214
    
    
    
    115,370
    
    
    
    114,846Asset impairment charge
    
    
    7,207
    
    
    
    
    
    
    
    4,285Restructuring charge (credit), net
    
    
    (840
    )
    
    
    (631
    )
    
    
    3,854Operating income (loss)
    
    
    (12,751
    )
    
    
    (1,733
    )
    
    
    14,256Other income (expense), net
    
    
    (322
    )
    
    
    2,404
    
    
    
    935Interest expense
    
    
    9,135
    
    
    
    7,529
    
    
    
    6,929Pretax earnings (loss)
    
    
    (22,208
    )
    
    
    (6,858
    )
    
    
    8,262Income tax expense (benefit)
    
    
    (14,801
    )
    
    
    (5,022
    )
    
    
    202Income tax expense (deferred tax asset valuation reserve)
    
    
    24,701
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (32,108
    )
    
    $
    (1,836
    )
    
    $
    8,060Retained earnings at beginning of year
    
    
    217,307
    
    
    
    223,594
    
    
    
    220,113185,199
    
    
    
    221,758
    
    
    
    228,173Dividends declared  common stock: $.22, $.72, $.70, respectively
    
    
    (1,392
    )
    
    
    (4,541
    )
    
    
    (4,400
    )Net change in retained earnings from treasury stock transactions
    
    
    (99
    )
    
    
    90
    
    
    
    (179
    )Retained earnings at end of year
    
    
    183,708
    
    
    
    217,307
    
    
    
    223,594Basic earnings (loss) per common share
    
    $
    (5.06
    )
    
    $
    (0.29
    )
    
    $
    1.28Diluted earnings (loss) per common share
    
    $
    (5.06
    )
    
    $
    (0.29
    )
    
    $
    1.28Basic weighted average number of shares
    
    
    6,345,474
    
    
    
    6,312,756
    
    
    
    6,281,831Diluted weighted average number of shares
    
    
    6,345,474
    
    
    
    6,312,756
    
    
    
    6,285,463
 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Dollars in thousands Years Ended December 31,2003
    
    2002
    
    2001Net earnings (loss) per Statements of Earnings
    
    $
    (32,108
    )
    
    $
    (1,836
    )
    
    $
    8,060Other comprehensive income (loss):Foreign currency translation adjustment and hedging
activity
    
    
    (163
    )
    
    
    388
    
    
    
    (437
    )Minimum pension liability, net of tax
    
    
    (3,795
    )
    
    
    (10,196
    )
    
    
    (6,626
    )Comprehensive income (loss)
    
    $
    (36,066
    )
    
    $
    (11,644
    )
    
    $
    997
 See Accompanying Notes to Consolidated Financial Statements. 34




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BUTLER MANUFACTURING COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands Years Ended December 31,2003
    
    2002
    
    2001Cash flows from operating activities:Net loss
    
    $
    (32,108
    )
    
    $
    (1,836
    )
    
    $
    8,060Adjustments to reconcile net earnings provided by
and (used in) operating activities:Depreciation and amortization
    
    
    19,282
    
    
    
    18,914
    
    
    
    18,104Asset impairment charges
    
    
    7,207
    
    
    
    
    
    
    
    4,285Restructuring charge (credit), net
    
    
    (840
    )
    
    
    (631
    )
    
    
    3,854Deferred tax asset valuation allowance
    
    
    24,701Equity earnings (loss) of joint ventures
    
    
    (12
    )
    
    
    104
    
    
    
    87Change in asset and liabilities:Receivables
    
    
    (26,528
    )
    
    
    14,779
    
    
    
    28,175Inventories
    
    
    (4,044
    )
    
    
    (804
    )
    
    
    2,928Real estate developments in progress
    
    
    8,856
    
    
    
    10,763
    
    
    
    28,657Net current deferred tax assets
    
    
    9,784
    
    
    
    (1,594
    )
    
    
    285Other current assets and liabilities
    
    
    (20,462
    )
    
    
    (14,347
    )
    
    
    (1,908
    )Other noncurrent operating assets and liabilities
    
    
    (3,854
    )
    
    
    2,706
    
    
    
    (14,807
    )Net cash provided by (used in) operating activities
    
    
    (18,018
    )
    
    
    28,054
    
    
    
    77,720Cash flows from investing activities:Capital expenditures
    
    
    (11,236
    )
    
    
    (16,276
    )
    
    
    (44,583
    )Capital expenditures  software
    
    
    (2,451
    )
    
    
    (7,637
    )
    
    
    (5,355
    )Proceeds from European assets sale
    
    
    
    
    
    
    2,345
    
    
    
    Proceeds from headquarters building sale
    
    
    
    
    
    
    24,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (13,687
    )
    
    
    2,432
    
    
    
    (49,938
    )Cash flows from financing activities:Payment of dividends
    
    
    (2,528
    )
    
    
    (4,536
    )
    
    
    (4,332
    )Proceeds from issuance of long-term debt
    
    
    13,796
    
    
    
    4,131
    
    
    
    50,701Repayment of long-term debt
    
    
    (1,206
    )
    
    
    (5,653
    )
    
    
    (5,755
    )Net change in short-term debt
    
    
    
    
    
    
    (2,100
    )
    
    
    (33,001
    )Issuance of treasury stock
    
    
    581
    
    
    
    710
    
    
    
    871Purchase of treasury stock
    
    
    (31
    )
    
    
    (25
    )
    
    
    (279
    )Net cash provided by (used in) by financing activities
    
    
    10,612
    
    
    
    (7,473
    )
    
    
    8,205Effect of exchange rate changes
    
    
    (284
    )
    
    
    196
    
    
    
    (273
    )Net increase (decrease) in cash and cash equivalents
    
    
    (21,377
    )
    
    
    23,209
    
    
    
    35,714Cash and cash equivalents at beginning of year
    
    
    75,778
    
    
    
    52,569
    
    
    
    16,855Cash and cash equivalents at December 31
    
    $
    54,401
    
    
    $
    75,778
    
    
    $
    52,569
 See Accompanying Notes to Consolidated Financial Statements. 35




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on a going concern
basis which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business and do not
reflect adjustments that might result if the company were not to continue as
currently conducted. The auditors report on the companys financial statements
as of December 31, 2003 contains an explanatory paragraph which refers to the
companys net losses in 2003 and 2002 and its difficulties in meeting its loan
covenants and notes that these matters raise substantial doubt about the
companys ability to continue as currently conducted. As reported in the third quarter of 2003, the company was not in compliance
with the financial covenants within its senior lending agreements. The
company reached an agreement with its senior note holders to defer the
December 30, 2003 and March 20, 2004 principal payments in the aggregate
amount of $8.5 million on the companys long-term senior notes. In exchange,
the company has agreed to satisfy certain milestones including consummation of
a transaction that provides for repayment in full of its outstanding senior
notes by April 30, 2004 and the make-whole payments. The lenders retained the
right to demand the outstanding obligations at any time. On February 15, 2004, the company entered into a Merger Agreement pursuant to
which BSL Acquisition Corporation, a wholly owned subsidiary of BlueScope Steel
Limited (BlueScope), of Melbourne, Australia, will merge with and into the
company, and the company will become a wholly owned subsidiary of BlueScope.
Pursuant to the Merger Agreement, each outstanding share of company common
stock will be exchanged for the right to receive $22.50 in cash. The
acquisition will be subject to a number of conditions, including the company
achieving defined levels of financial performance for the first quarter of
2004, no acceleration of any amounts owed by Butler to its senior lenders, and
no environmental liability remediation costs in excess of $5 million, as well
as shareholder approval and approval by regulatory authorities in the United
States. Butler shareholders are expected to vote on the proposed acquisition
in April 2004. Pending the satisfactory conclusions to the conditions mentioned above and
others included in the Merger Agreement, Butler and BlueScope expect the
acquisition of Butler to be complete by April 30, although there are no
assurances of this. In connection with the Merger, the company,
BlueScope and the senior note holders have reached mutually
acceptable agreements that (i) provide the note holders assurance
from BlueScope that the senior notes will be immediately paid in full
if BlueScope closes the Merger, (ii) provide BlueScope and the
company assurance that the Merger Agreement satisfies the
requirements of the note holders and (iii) agree on the proper
calculation of the make-whole amount, which agreed amount would be
approximately $18 million (assuming a closing on April 30, 2004 and
a reference interest rate for U.S. Treasuries as in effect on
February 9, 2004). The company estimates that a 25 basis points
change in the reference rates would cause the make-whole amount to
increase or decrease, as applicable, by approximately $1.5 million. If the Merger is not completed, the company must recapitalize, restructure
debt, dispose of assets, procure additional equity, or effect a combination of
the foregoing actions, which may be with or without filing for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable
arrangement with is senior creditors and to continue operations with minimal
disruption and preserve the value of its assets. Management believes it will
be difficult to obtain a workable arrangement with the companys senior
creditors to continue operations as currently conducted if the Merger is not
completed before April 30, 2004. Principles of Consolidation The consolidated financial statements include Butler Manufacturing Company and
all subsidiaries more than 50% owned. Investments in business entities in
which the company does not have control (generally 20% to 50% ownership) or is
not deemed to be the primary beneficiary are accounted for by the equity
method. All significant intercompany profits, account balances, and
transactions are eliminated in consolidation. Reclassifications Certain inconsequential reclassifications have been made to prior years
information to conform to the 2003 presentation. 36




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Use of Estimates Management of the company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles in the
United States. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents are defined as all demand deposits and highly liquid
investments with original maturities of 90 days or less. Included in the
companys cash and cash equivalents is $2.6 million of restricted cash at
December 31, 2003, for the benefit of the companys senior lenders, which is
unavailable to the company until certain contractual terms and conditions are
met. Sales Recognition Sales from manufacturing operations are recognized when goods are shipped free
on board (FOB) from their shipping point and when all obligations of the
company have been met. For those limited instances where goods are shipped on
company trucks, sales are recognized on a FOB destination point basis. Sales and gross profit recognition for construction and project contracts are
based upon the percentage of completion method. This method requires the
company to estimate total contract cost at completion for each in-process
construction project. Total contract revenue less total estimated costs
generates an estimated gross profit for each contract. Based upon estimated
total costs and estimated gross profit, the company recognizes construction
sales and gross profit over the life of the project using a percentage of
completion method. The percentage complete at each period end date is
determined using costs actually incurred as of that date compared to the
estimate of total contract cost at completion. Periodic re-evaluation of
estimated total costs at completion are made with the resulting cumulative
adjustments recognized in the current period financial statements. Provision is
made for estimated probable losses on projects when it is determined that a
loss will be incurred. Actual costs for completed projects can and typically
will vary from earlier estimates, with the final adjustment from estimate to
actual costs recognized during the period when the project is completed. Sales and gross profit for the Real Estate Segment are recognized when real
estate development projects are sold to third party investors. Rental income,
classified as other income, is recognized on completed projects occupied by
leasing tenants while the project is being held for sale. Inventory Valuation Inventories are valued at the lower of cost or market and include material,
labor, and manufacturing overhead. The last-in, first-out (LIFO) method of
determining cost is used for substantially all domestic inventories. The
first-in, first-out (FIFO) method of determining cost is used for inventories
in the International Buildings Systems Segment and Lester Buildings, a
component of North American Building Systems Segment. If the FIFO method had
been used for all locations, inventories would have been $9.4 million and $9.5
million higher than those reported at December 31, 2003 and 2002, respectively. The use of the LIFO method to calculate cost of sales increased net earnings by
$.1 million ($.01 per share) in 2003, decreased net earnings by $.6 million
($.10 per share) in 2002, and increased net earnings by $.9 million ($.14 per
share) in 2001. During 2003 and 2002, inventory levels decreased in certain of
the companys business units. Under the LIFO method, the decrease in inventory
levels had the effect of charging the 2003 cost of sales with prior years
costs of less than $.02 million, thereby increasing net earnings less than $.01
million or less than $.01 per share. The decrease in inventory levels had the
effect of charging the 2002 cost of sales with prior years costs of less than
$.03 million, thereby increasing net earnings less than $.02 million or less
than $.01 per share. These amounts are included in the net earnings and per
share amounts presented above. Inventories by Component Dollars in thousands
    
    2003
    
    2002Raw materials
    
    $
    28,943
    
    
    $
    23,108Work in process
    
    
    11,161
    
    
    
    9,959Finished goods
    
    
    33,143
    
    
    
    36,283FIFO inventory
    
    
    73,247
    
    
    
    69,350LIFO reserve
    
    
    (9,363
    )
    
    
    (9,510
    )Inventory
    
    $
    63,884
    
    
    $
    59,840
 37




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Third Party Claims The company is subject to third-party claims associated with its products and
services. The time period from when a claim is asserted to when it is resolved
either by dismissal, negotiation, settlement, or litigation can be several
years. While the company maintains product liability insurance, its
arrangements include significant self-retention of risk in the form of policy
deductibles. In addition, certain claims are not insured. Actual claim
settlement costs and litigation awards can and probably will vary from the
estimates made by the company. Management believes that any difference in the
actual results from the estimates on known claims will not have a material
adverse effect upon the companys financial position or results of operations Insurance Accruals Generally, the company is self-insured for workers compensation for certain
subsidiaries and for all group medical insurance. Under these plans,
liabilities are recognized for claims incurred (including claims incurred but
not reported) and changes in the accruals. At the time a workers compensation
claim is filed, a liability is estimated to settle the claim. The liability for
workers compensation claims is determined based on managements estimates of
the nature and severity of the claims using analyses provided by third party
administrators. Since the liability is an estimate, the ultimate liability may
be more or less than reported. If previously established accruals are required
to be adjusted, such amounts are included in cost of sales and selling,
general, and administrative expenses in the period of adjustment. Group medical
accruals are estimated using historical claims experience. The company maintains excess liability insurance with insurance carriers to
minimize its risks related to catastrophic claims in excess of all self-insured
positions. Any material change in the aforementioned factors could have an
adverse impact on operating results. Long-Lived Assets The company accounts for the impairment of long-lived assets in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
When events or circumstances indicate that a long-lived asset may not be
recoverable, the company tests for recoverability of the asset by comparing
estimates of undiscounted future cash flows to the carrying amount. If
undiscounted future cash flows are less than the asset carrying amount, an
impairment charge is recorded and the assets carrying value is reduced to fair
value. Management, based on current operating conditions, estimates the future
cash flows; however, changes in estimates of such cash flows could impact the
results of the impairment test. During 2001, the company incurred an asset
impairment charge of $4.3 million in connection with the disposition of the
European building business. On May 15, 2003, the company entered into a letter of intent to sell
substantially all of the assets of the Lester Building Systems business to a
management team headed by the current Lester Building Systems president. The
company recorded a $7 million pretax charge related to the proposed sale to
write down the assets to net sale value. An additional $.8 million was
recorded for selling and legal costs related to negotiating the sale. The
closing of the transaction was scheduled to occur by November 21, 2003, however
the company did not receive the consent from its senior lenders to proceed with
the sale and the sale agreement terminated. Accordingly, at December 31, 2003,
the Lester assets were reclassified from assets held for sale to assets held
and used in business. Also, a credit to the asset impairment charge in the
amount of $2.2 million was taken in the fourth quarter to adjust the Lester
assets to fair market value. Effective January 1, 2004, the company combined the Butler Construction
business with the North American Building Systems business, forming the
Buildings Group. In conjunction with the combination, the company recorded an
asset impairment charge of $2.4 million in 2003 related to the write-down of
Butler Construction leasehold improvements. 38




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Property, Plant, and Equipment Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets for financial reporting purposes and accelerated
methods for income tax purposes. Expenditures for maintenance and repairs are
charged to expense as incurred. Upon sale or retirement of assets, the cost and
the accumulated depreciation amounts are removed from the accounts. The
estimated useful lives of property are as follows: Land improvements
    
    
    15 to 20 yearsBuildings and improvements
    
    
    7 to 33 yearsMachinery and equipment
    
    
    3 to 15 yearsOffice furniture and fixtures
    
    
    3 to 15 years
 Capital expenditures for property, plant and equipment in 2003 were $11 million
compared to $16 million in 2002. Expenditures during 2003 included the
completion of a metal buildings plant in Monterrey, Mexico, the start up of the
R-Steel plant in Staunton, Virginia, and approximately $1 million to complete a
second metal buildings plant in Tianjin, China. In 2002, approximately $10
million was used in construction of the Tianjin plant. Other expenditures in
2002 included general factory capital costs. Interest has been capitalized in
connection with the development of new facilities and is amortized over the
estimated useful live of the related assets. Interest capitalized was $.1
million each for 2003 and 2002, and $.6 million in 2001. Research and Development Costs Costs incurred in the creation and start-up of new products or changes of
existing products are charged to expense as incurred. The company expended $.6
million of research and development costs each year during 2003, 2002, and
2001. Capitalized Software Capitalized software costs are recorded in Investments and other assets in
the consolidated balance sheets. At December 31, 2003 and 2002, capitalized
software costs, net of amortization, were $13.2 million and $18.0 million,
respectively. Lester had capitalized software costs of $3.1 million, which were
written off as an impairment charge during 2003. Costs capitalized in 2003 and
2002 include the implementation of a scalable enterprise system in the North
American Building Systems Segment. Costs are amortized on a straight-line basis
over periods not exceeding seven years once applications are implemented and
operational. Amortization of software cost was $4.3 million in 2003 and $4.2
million in 2002 and 2001, respectively. Goodwill and Other Intangible Assets In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 provides guidance on accounting and reporting
for goodwill and intangible assets. Goodwill and intangible assets acquired in
a purchase business combination which are determined to have an indefinite
useful life are no longer amortized over future periods, but are assessed at
least annually for impairment using a fair value based test. Intangible assets
with estimable useful lives continue to be amortized over their respective
useful lives. The company adopted the new standard on January 1, 2002. Prior to the 2001 asset impairment charge, referenced in the Restructuring
Charges footnote, $5.9 million of goodwill was recorded in the balance sheet,
with $5.5 million in the Architectural Products Segment and $.4 million in the
European operation of its International Building Systems Segment. European
goodwill was written off in 2001 with the announced disposition of that
business. Goodwill was amortized over 40 years prior to adoption of this
standard. At the end of 2003 and 2002, the company had $5.5 million of goodwill
recorded in the balance sheets. During the third quarter of 2003, the company performed the annual impairment
test for goodwill related to its Architectural Products Segment using
methodology required under SFAS No. 142, which requires the company to evaluate
impairment based on the fair value of assets held in the relevant reporting
unit. It was determined that the fair value of assets related to the
Architectural Products reporting unit exceeded its carrying value and no
impairment was recognized. Other intangible assets include unamortized cost associated with non-compete
agreements totaling $1.1 million and $1.3 million at December 31, 2003 and
2002, respectively. These costs are being amortized over the life of the
agreements. 39




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For 2003 and 2002, amortization was $.1 million, respectively, net
of tax each year. Estimated amortization expense for
each of the next five years is $.1 million, pretax. Derivative Instruments and Hedging Activities The company enters into aluminum contracts to hedge the cost of a portion of
the aluminum used in its Architectural Products Segment. These contracts
qualify for hedge accounting. Unrealized gains or losses on open contracts are
recorded in comprehensive income until the contract settles with a
corresponding adjustment to inventory (for losses) or deferred income (for
gains). Gains or losses on contracts are recognized in earnings as an
adjustment to cost of sales when the underlying inventory is sold. No gain or
loss was recorded for open contracts due to the highly effective nature of the
hedges in 2003 and 2002. The amounts recorded in cumulative other comprehensive
income related to these contracts was a gain of $.1 million for 2003 and a gain
of less than $.1 million for 2002. The 2002 amount was recognized in 2003
earnings, and the 2003 amount is expected to be recognized in 2004 earnings. The company enters into forward currency exchange contracts to hedge a portion
of its exposure associated with Canadian dollar denominated sales and net cash
flow for its Canadian operations within the North American Building Systems
Segment. The companys costs for this operation are primarily denominated in
U.S. dollars. While these hedge contracts would qualify for hedge accounting,
the company has chosen not to designate these derivatives as hedge contracts,
due to the immateriality of the unrealized gains or losses on such open
contracts, at its normal level of activity. Accordingly, the company records
the unrealized gain or loss from these derivatives in earnings as opposed to
other comprehensive income. For major customer projects or for non-Canadian
operations, where customer or vendor payments are denominated in a foreign
currency, the company may designate related forward currency exchange contracts
as cash flow hedges on a case-by-case basis. No such designation was made
during 2003 or 2002. Financial Instruments The fair value of long-term debt is determined by comparing interest rates for
debt with similar terms and maturities. At December 31, 2003 and 2002, the fair
value of the companys long-term debt was materially in line with its carrying
value. Other financial instruments, consisting of cash and cash equivalents,
net receivables, notes payable, and accounts payable are carried at cost, which
approximates fair value, as a result of the short-term nature of these
instruments. The company has no significant concentrations of credit risk. Accounting for Stock Options The company records stock compensation costs for employee and directors stock
options in accordance with Accounting Principal Board Opinion No. 25
Accounting for Stock Issued to Employees versus FASB No. 123 Accounting for
Stock-Based Compensation, which recommends the recording of compensation
costs for options under the fair value method at the date of grant. Under APB
25, no charges are recorded to earnings for stock options granted, since the
options exercise price equals their fair value at date of grant. In accordance
with APB 25, differences in amounts received when stock options are exercised,
and their carrying value in treasury stock, are recorded in retained earnings
at their exercise date. In January 2003, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends Statement No. 123
and provides for alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-base compensation. In addition
it requires more frequent and prominent financial statement disclosure of the
effect of stock-based compensation on the results of operation. Below is the
effect on the companys net earnings and earnings per share (EPS) if stock
options were accounted for under the fair value method. Dollars in millions
    
    2003
    
    2002
    
    2001Net earnings (loss) as reported
    
    $
    (32.1
    )
    
    $
    (1.8
    )
    
    $
    8.1After tax effect of SFAS No. 123
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Net earnings (loss) after SFAS No. 123
    
    $
    (32.2
    )
    
    $
    (2.0
    )
    
    $
    8.0
 EPS effect in dollars
    
    2003
    
    2002
    
    2001Diluted, EPS as reported
    
    $
    (5.06
    )
    
    $
    (0.29
    )
    
    $
    1.28EPS effect of SFAS No. 123
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.02
    )Diluted EPS after SFAS No. 123
    
    $
    (5.07
    )
    
    $
    (0.32
    )
    
    $
    1.26
 40




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##### Table of Contents



Earnings Per Share Basic earnings per share are based upon the weighted average common shares
outstanding during each year. Dilutive earnings per share are based upon the
weighted average common and common equivalent shares outstanding during each
year. Employee stock options and units allocated under the Director Deferred
Fee Plan are the companys only common stock equivalents; there are no other
potentially dilutive securities. Basic and Diluted Earnings Per Share (EPS) Computations 2003Dollars and shares in thousands,
    
    Net
    
    
    
    
    
    Per Shareexcept per share amounts
    
    Loss
    
    Shares
    
    AmountBasic EPS available to common shareholders
    
    $
    (32,108
    )
    
    
    6,345
    
    
    $
    (5.06
    )Assumed net conversion of stock options
    
    
    
    
    
    
    
    
    
    
    Diluted EPS available to common
shareholders plus assumed conversions
    
    $
    (32,108
    )
    
    
    6,345
    
    
    $
    (5.06
    )
 2002Dollars and shares in thousands,
    
    Net
    
    
    
    
    
    Per Shareexcept per share amounts
    
    Loss
    
    Shares
    
    AmountBasic EPS available to common shareholders
    
    $
    (1,836
    )
    
    
    6,313
    
    
    $
    (0.29
    )Assumed net conversion of stock options
    
    
    
    
    
    
    
    
    
    
    Diluted EPS available to common
shareholders plus assumed conversions
    
    $
    (1,836
    )
    
    
    6,313
    
    
    $
    (0.29
    )
 No dilutive calculations were performed due to a net loss for 2003 and 2002
resulting in the dilutive and basic weighted shares being equivalent. 2001Dollars and shares in thousands,
    
    Net
    
    
    
    
    
    Per Shareexcept per share amounts
    
    Earnings
    
    Shares
    
    AmountBasic EPS available to common shareholders
    
    $
    8,060
    
    
    
    6,282
    
    
    $
    1.28Assumed net conversion of stock options
    
    
    
    
    
    
    3Diluted EPS available to common
shareholders plus assumed conversions
    
    $
    8,060
    
    
    
    6,285
    
    
    $
    1.28
  The following exercisable options were excluded from the computations of shares
outstanding in one or more quarters in the determination of the annual diluted
EPS presented above. Exercisable options are not considered to be common
equivalent shares during periods when the options exercise price exceeded the
average market price of the companys common shares. Options Excluded from Diluted EPS Year(s) theYear excluded from
    
    Number of option
    
    Range of exercise prices for excluded
    
    excluded optionsEPS calculation
    
    shares excluded
    
    option shares
    
    expire2003
    
    
    446,625
    
    
    $
    17.50
    
    
    
    
    
    
    $
    32.75
    
    
    2004 to 20132002
    
    
    367,427
    
    
    $
    23.00
    
    
    
    
    
    
    $
    38.50
    
    
    2002 to 20122001
    
    
    487,719
    
    
    $
    26.00
    
    
    
    
    
    
    $
    38.50
    
    
    2001 to 2006
 41




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##### Table of Contents



Foreign Currency Translation The value of the U.S. dollar fluctuates on foreign currency exchanges, which
creates exchange gains or losses on the companys international investments.
These investments, and the related equity earnings and losses, are translated
into U.S. dollars. The gains or losses that result from translation are shown
in the shareholders equity section of the consolidated balance sheets.
Cumulative foreign currency exchange translation gains were $.1 million at
December 31, 2003, and $.3 million at December 31, 2002. Comprehensive Income The components of comprehensive income include adjustments for minimum pension
liabilities, foreign currency translation items, and hedging activities. The
majority of the charges to comprehensive income relate to the companys minimum
pension liabilities. In 2003, $3.8 million was charged to other comprehensive
income to recognize changes in the companys minimum pension liabilities. In
2002, $10.2 million, net of tax, was charged to other comprehensive income to
recognize these changes in the companys minimum pension liabilities. The 2003
amount is no longer net of tax as a valuation reserve has been established to
offset a majority of the tax benefit. Construction and Project Contracts Costs and estimated earnings in excess of billings on construction and project
contracts, reflected in Inventories on the consolidated balance sheets, were
$3.8 million and $3.6 million at December 31, 2003 and 2002, respectively.
Billings in excess of costs are specifically identified on the consolidated
balance sheets and were $2.2 million and $3.4 million at December 31, 2003 and
2002, respectively. Total receivables due under construction and project contracts, included as
trade receivables, were $15.9 million and $18.8 million at December 31, 2003
and 2002, respectively. Included in the contract receivables were $4.8 million
and $6.1 million at December 31, 2003 and 2002, respectively, for amounts
billed but not collected pursuant to retainage provisions. These amounts are
generally due upon completion of the contracts, except for retention related to
certain foreign receivables, which are due within 6 to 24 months of project
completion. Construction contract receivables, including retentions, where the
collection is not anticipated within twelve months are classified under
Investments and other assets and totaled $3 million and $1.9 million at
December 31, 2003 and 2002, respectively. Included in these amounts is
retention older than one year of $1.7 million and $.6 million at December 31,
2003 and 2002, respectively. Restructuring Charges During the fourth quarter of 2001, the companys Board approved the disposition
of the assets of the companys European building business, which is included in
the International Building Systems Segment. As a result, the company recorded
an $8.1 million pretax charge in December 2001. The company recorded a $4.3
million pretax charge in 2001 for the write-down of certain assets at its
European business to estimated net realizable value based on estimated proceeds
from the sale. The asset impairment charge was utilized in 2003 and 2002 upon
disposition of these assets. In 2001, the company also recorded a $3.8 million
restructuring charge for employee separation costs, costs to close offices, and
other expenses related to the disposition of the business. During 2003 and 2002, the company utilized $.8 million and $1.9 million of the
restructuring reserve, respectively. An additional $1.4 million was accrued in
2002 for severance, termination, and legal costs associated with the
disposition of the European building business. In 2003, $.06 million was
accrued and utilized for foreign exchange loss during the year. During the
fourth quarter of 2003, the company reversed $.5 million of severance and
termination and $.2 million of legal, claims, and other costs. The balance of
the restructuring reserve totaled $.1 million at the end of 2003 for final shut
down costs. Recap of activity in the restructuring reserve during 2003 and
2002, is presented below. 42




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##### Table of Contents



Restructuring Charge Accrual Activity 2002
    
    
    
    
    
    
    
    
    
    200312/31/01
    
    
    
    
    
    
    
    
    
    
    
    
    
    12/31/02
    
    
    
    
    
    
    
    
    
    
    
    
    
    12/31/03Dollars in thousands
    
    Balance
    
    Accrual
    
    Recovery
    
    Utilized
    
    Balance
    
    Accrual
    
    Recovery
    
    Utilized
    
    BalanceSeverance and termination
costs
    
    $
    1,161
    
    
    $
    931
    
    
    $
    
    
    
    $
    (943
    )
    
    $
    1,149
    
    
    $
    
    
    
    $
    (494
    )
    
    $
    (655
    )
    
    $
    Foreign exchange loss
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    (106
    )
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    (63
    )
    
    
    Legal, claims, and other costs
    
    
    944
    
    
    
    330
    
    
    
    
    
    
    
    (898
    )
    
    
    376
    
    
    
    
    
    
    
    (174
    )
    
    
    (103
    )
    
    
    99$
    2,105
    
    
    $
    1,367
    
    
    $
    
    
    
    $
    (1,947
    )
    
    $
    1,525
    
    
    $
    63
    
    
    $
    (668
    )
    
    $
    (821
    )
    
    $
    99
 Along with the $.8 million of reserve utilized in 2003, mentioned above, the
European buildings business also recorded a restructuring credit in the fourth
quarter of 2003 totaling $.8 million. This was a result of better than
anticipated receivables collections of $.2 million, and $.6 million of expense
reversals as one of the European subsidiaries was allowed to go into
receivership. In 2002, an additional $2 million was recovered on the sale of certain European
assets of the business. The detail of restructuring charges (credits) reported
on the companys consolidated statements of earnings for 2003, 2002, and 2001,
is presented below. Restructuring Charges (Credits) Activity Dollars in thousands
    
    2003
    
    2002
    
    2001Restructuring charges (credits)
    
    $
    (605
    )
    
    $
    1,367
    
    
    $
    3,854Restructuring recoveries
    
    
    (235
    )
    
    
    (1,998
    )
    
    
    Restructuring charge (credit), net
    
    $
    (840
    )
    
    $
    (631
    )
    
    $
    3,854
 Assets Held for Sale BMC Real Estate, Inc., a wholly owned subsidiary, owns land for development,
which is reported as Assets held for sale in the consolidated balance sheets.
No land parcels were sold in 2003. Management believes, although the sale may
take several years, the ultimate book value of the asset will be realized. International Joint Venture Operations The company has a 30% interest in an international joint venture, Saudi
Building Systems. The joint venture is involved in the design, manufacture, and
marketing of pre-engineered metal buildings for nonresidential use in its
respective market. No cash investments were made in Saudi Building Systems
during 2003 or 2002. The companys net investment in Saudi Building Systems was
$2 million at December 31, 2003 and 2002, respectively. During 2001, the company acquired a 40% interest in Vistawall International
(UAE) Ltd. The joint venture is involved in the design, manufacture, and sale
of architectural aluminum products in the Middle Eastern markets. A cash
investment was made in Vistawall International (UAE) Ltd. of $.1 million in
2002. The companys net investment was $.1 million at December 31, 2003 and $.2
million at December 31, 2002. BUSINESS SEGMENTS The company groups its operations into five business segments: North American
Building Systems, International Building Systems, Architectural Products,
Construction Services, and Real Estate. The company announced the planned
combination of the North American Buildings Systems Segment and the
Construction Services Segment, thereby forming the Buildings Group Segment
effective January 1, 2004. The purpose of this change is to effect cost
savings, and better alignment of capabilities, enabling more thorough
integration of the construction supply chain and enhanced service to customers.
Segment figures for North American Building Systems and Construction Services
are reported 43




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##### Table of Contents



separately for 2003 as these segments were managed separately during this
period. The North American Building Systems Segment includes the building systems
businesses in Canada, the U.S., and Latin America. These business units supply
steel and wood frame pre-engineered building systems for a wide variety of
commercial, community, industrial, and agricultural applications. The International Building Systems Segment includes the companys building
systems businesses in Europe and China. These businesses supply pre-engineered
metal buildings for commercial, community, industrial and agricultural
applications primarily for the Chinese and European markets. The European metal
buildings business was sold in July 2002. The Architectural Products Segment includes the operations of the Vistawall
Group. The groups businesses design, manufacture, and market architectural
aluminum systems for nonresidential construction, including curtain wall,
storefront, window, and skylight systems. The Construction Services Segment sells and constructs large, complex metal
building systems, working primarily in conjunction with the Butler Builder
organization. Typical projects are large distribution centers and industrial
buildings. As mentioned above, this Segment was combined with the North
American Buildings Systems Segment as of January 1, 2004. The Real Estate Segment provides real estate build-to-suit-to-lease development
services in cooperation with Butler Builders. The accounting policies for the segments are the same as those described in the
summary of significant accounting policies. The companys reportable segments
are strategic business units that offer different products and services. They
are managed separately as each business requires different technology and
expertise. The Other classification in the following tables represents unallocated
corporate expenses and assets, including corporate offices, deferred taxes,
pension accounts, interest expense, and intersegment eliminations. Net Sales Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    374,802
    
    
    $
    393,969
    
    
    $
    440,049International Building Systems
    
    
    138,381
    
    
    
    107,842
    
    
    
    81,644Architectural Products
    
    
    217,429
    
    
    
    220,098
    
    
    
    231,509Construction Services
    
    
    80,692
    
    
    
    111,428
    
    
    
    132,930Real Estate
    
    
    4,845
    
    
    
    16,475
    
    
    
    37,555Intersegment Elimination
    
    
    (19,982
    )
    
    
    (21,603
    )
    
    
    (27,115
    )$
    796,167
    
    
    $
    828,209
    
    
    $
    896,572
 Net sales represent revenues from sales to affiliated and unaffiliated
customers before elimination of intersegment sales, which are included in
intersegment eliminations. Intersegment eliminations are primarily sales from
the North American Building Systems Segment to the Construction Services
Segment. Interest Expense Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    83
    
    
    $
    3
    
    
    $
    4International Building Systems
    
    
    46
    
    
    
    57
    
    
    
    122Architectural Products
    
    
    88
    
    
    
    92
    
    
    
    61Construction Services
    
    
    
    
    
    
    
    
    
    
    Real Estate
    
    
    126
    
    
    
    
    
    
    
    383Other
    
    
    8,792
    
    
    
    7,377
    
    
    
    6,359$
    9,135
    
    
    $
    7,529
    
    
    $
    6,929
 44




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##### Table of Contents



Pretax Earnings (Loss) Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    (19,762
    )
    
    $
    (7,562
    )
    
    $
    10,417International Building Systems
    
    
    11,265
    
    
    
    7,995
    
    
    
    (6,075
    )Architectural Products
    
    
    11,210
    
    
    
    8,891
    
    
    
    13,828Construction Services
    
    
    (3,422
    )
    
    
    1,952
    
    
    
    3,234Real Estate
    
    
    246
    
    
    
    3,341
    
    
    
    5,974Other
    
    
    (21,745
    )
    
    
    (21,475
    )
    
    
    (19,116
    )$
    (22,208
    )
    
    $
    (6,858
    )
    
    $
    8,262
 The 2001 pre-tax loss for the International Building Systems Segment include
impairment and restructuring charges of $7.7 million associated with the
Segments European operations. The remaining $.4 million of the impairment and
restructuring charges are contained in the Other segment. Assets Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    136,289
    
    
    $
    132,688
    
    
    $
    138,690International Building Systems
    
    
    106,681
    
    
    
    77,159
    
    
    
    67,064Architectural Products
    
    
    102,724
    
    
    
    104,474
    
    
    
    112,785Construction Services
    
    
    13,570
    
    
    
    17,807
    
    
    
    22,465Real Estate
    
    
    25,970
    
    
    
    30,379
    
    
    
    28,406Other
    
    
    57,472
    
    
    
    93,327
    
    
    
    101,352$
    442,706
    
    
    $
    455,834
    
    
    $
    470,762
 Assets represent both tangible and intangible assets used by each business
segment. Other represents corporate cash and cash equivalents, assets held for
sale, corporate fixed assets, including the companys headquarters facility (in
2001) and various other assets, which are not related to a specific business
segment. The companys headquarters facility was sold in the fourth quarter
2002 and leased back by the company under an operating lease. Capital Expenditures  Property, Plant, and Equipment Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    6,178
    
    
    $
    3,902
    
    
    $
    4,559International Building Systems
    
    
    3,399
    
    
    
    10,209
    
    
    
    6,228Architectural Products
    
    
    1,638
    
    
    
    2,044
    
    
    
    6,391Construction Services
    
    
    5
    
    
    
    25
    
    
    
    176Real Estate
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    16
    
    
    
    96
    
    
    
    27,229$
    11,236
    
    
    $
    16,276
    
    
    $
    44,583
 The International Building Systems Segment includes capital expenditures for
the second Butler pre-engineered metal buildings plant in China. During 2003,
the North American Building Systems segment includes capital expenditures for
the R-Steel panel manufacturing equipment and equipment for the metal building
plant in Monterrey, Mexico. Included in Other, for 2001, are the expenditures
for the companys new headquarters facility. 45




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##### Table of Contents



Depreciation and Amortization Dollars in thousands
    
    2003
    
    2002
    
    2001North American Building Systems
    
    $
    10,023
    
    
    $
    9,943
    
    
    $
    10,371International Building Systems
    
    
    2,312
    
    
    
    1,753
    
    
    
    2,161Architectural Products
    
    
    4,376
    
    
    
    4,569
    
    
    
    4,221Construction Services
    
    
    571
    
    
    
    665
    
    
    
    729Real Estate
    
    
    1,013
    
    
    
    
    
    
    
    8Other
    
    
    987
    
    
    
    1,984
    
    
    
    614$
    19,282
    
    
    $
    18,914
    
    
    $
    18,104
 Geographic Information by Country The following table presents net sales by country based on the location of
delivery of the product or service. The United States of America and the
Peoples Republic of China are the only countries where sales exceeded 10% of
the companys consolidated net sales. Net Sales Dollars in thousands
    
    2003
    
    2002
    
    2001United States of America
    
    $
    622,844
    
    
    $
    688,803
    
    
    $
    781,646Peoples Republic of China
    
    
    133,706
    
    
    
    96,364
    
    
    
    61,009All other countries
    
    
    39,617
    
    
    
    43,042
    
    
    
    53,917$
    796,167
    
    
    $
    828,209
    
    
    $
    896,572
 The following table presents all tangible long-lived assets by country based on
the location of the asset. The United States of America and the Peoples
Republic of China are the only countries in which long-lived assets exceeded
10% of the companys consolidated long-lived assets. Tangible Long-Lived Assets Dollars in thousands
    
    2003
    
    2002
    
    2001United States of America
    
    $
    117,119
    
    
    $
    114,060
    
    
    $
    141,034Peoples Republic of China
    
    
    29,337
    
    
    
    27,801
    
    
    
    19,121All other countries
    
    
    3,196
    
    
    
    119
    
    
    
    1,392$
    149,652
    
    
    $
    141,980
    
    
    $
    161,547
 DEBT, LEASES, COMMITMENTS, AND CONTINGENCIES Long Term Debt Dollar in thousands
    
    2003
    
    20022001 private placement notes
    
    $
    50,000
    
    
    $
    50,0001998 private placement notes
    
    
    35,000
    
    
    
    35,0001994 private placement notes
    
    
    5,000
    
    
    
    5,000Real estate development loans
    
    
    11,923
    
    
    
    Industrial revenue bonds
    
    
    6,250
    
    
    
    6,250Capital leases
    
    
    5,190
    
    
    
    4,389Other debt
    
    
    1,241
    
    
    
    1,700114,604
    
    
    
    102,339Less current maturities
    
    
    91,912
    
    
    
    6,273Long-term debt less current maturities
    
    $
    22,692
    
    
    $
    96,066
 46




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##### Table of Contents



At December 31, 2003, $50 million principal amount of the companys 2001
private placement senior notes was outstanding. After giving effect to
amendments in the first quarter of 2003, the notes carry a fixed interest rate
of 8.12%, plus an additional 1.25% on the unpaid balance per annum, payable
semiannually, on June 30 and December 30. As required by the deferral
agreement the company deposited on December 30, 2003 the interest of $2.3
million due and payable into a collateral account until April 30, 2004 for the
benefit of the companys senior lenders. This deferred obligation bears
interest at a rate of 11.37%. At December 31, 2003, $35 million principal amount of the companys 1998
private placement senior notes was outstanding. After giving effect to
amendments in the first and last quarter of 2003, the notes carry a fixed
interest rate of 6.82%, plus an additional 1.25% on the unpaid balance per
annum, payable semiannually, on March 20 and September 20. As described below,
the company requested and was granted a deferral of the principal of $3.5
million due and payable on March 20, 2004 until April 30, 2004. As required by
the deferral agreement the company will deposit the interest of $1.4 million
due on March 20, 2004 into a collateral account for the benefit of the
companys senior lenders. This deferred obligation bears interest at a rate of
10.07%. At December 31, 2003, $5 million principal amount of the companys 1994 private
placement senior notes was outstanding. After giving effect to amendments in
the first quarter and last quarter of 2003, the notes carry a fixed interest
rate of 8.27%, plus an additional 1.25%. As described below, the company
requested and was granted a deferral of the principal of $5 million due and
payable on December 30, 2003 until April 30, 2004. As required by the deferral
agreement the company deposited on December 30, 2003 the interest due and
payable of $.2 million into a collateral account for the benefit of the
companys senior lenders. This deferred obligation bears interest at a rate of
11.52%. In the fourth quarter of 2003, the company and its note holders amended the
2001, 1998, and 1994 notes. The note holders agreed to defer receipt of the
principal and interest due and payable on December 30, 2003 under the 1994
Note Agreement, principal and interest due and payable on March 20, 2004 under
the 1998 Note Agreement, and interest due and payable on December 30, 2003
under the 2001 Note Agreement. As required by the deferral agreement the
company deposited $2.6 million into a collateral account for the benefit of
the companys senior lenders. The amended agreement requires the satisfaction
of certain milestones including the consummation of a transaction on or prior
to April 30, 2004, which will result the companys repayment in full of the
Senior Notes. In addition, the 1998 Note Agreement and the 2001 Note
Agreement include make-whole provisions in the event these obligations are
paid prior to their stated maturities. Managements estimate of the
make-whole payment as of December 31, 2003, was approximately $18 million.
The amount is subject to change due to U.S. treasury interest rates and time.
The $18 million amount assumes a repayment on April 30, 2004, and U.S.
treasury rates as in effect during the week of February 9, 2004. The pertinent provisions as
provided in the applicable note agreements specifically describe the
make-whole amount and the calculation will be based on permanent
interest rates of 6.82% and 8.12% in the 1998 note and the 2001 note,
respectively. In the first quarter of 2003, the company and its note holders amended the
2001, 1998, and 1994 notes, which increased the interest rate for all three
notes by 1.5%. Of the increase, .25% is permanent, .5% is applicable until the
companys bank credit facility is on a pari passu basis with the notes and
..75% is applicable until the later of the time that the bank credit facility
is on a pari passu basis with the notes and the fixed charge ratio as defined
in the notes exceeds 2.25 to 1 for two consecutive trailing four quarter
periods. Related to the amendment, the company entered into a Security
Agreement with the note holders and the bank credit facility lenders whereby
the company granted these lenders a security interest in its domestic accounts
receivable, domestic inventory, domestic subsidiary stock, certain foreign
subsidiary stock and certain other personal property. These lenders also
entered into an intercreditor agreement. The amended note agreements contain certain operating covenants, including
restrictions on liens, additional indebtedness, and asset sales, and require
the company to maintain adjusted consolidated tangible net worth, defined as
$110 million plus the cumulative sum of 50% of consolidated net income for each
fiscal quarter ending after December 31, 2002. The company is required to
maintain a fixed charge coverage ratio of 1.25 to 1 for the fiscal quarter
ending December 31, 2003, with periodic increases through June 30, 2005 and 2.0
to 1 thereafter. Restricted payments, including dividends and treasury stock
purchases, may not in the aggregate exceed the sum of $10 million, plus 75% of
consolidated net income or less 100% of any deficit for each fiscal quarter
subsequent to March 31, 2003, and may not be made if a default or event of
default exists under the note agreements. Upon a payment default under any of the note agreements, each fixed interest
rate stated above would increase to the greater of such rate plus 2% or that
rate which is 2% greater than the Bank of Americas prime rate. 47




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The companys note agreements and credit agreement each have a most favored
nation provision that incorporates by reference the financial covenants
contained in the other agreements. Thus, failure to meet a financial covenant
in one agreement is also failure to meet the covenant under the others
agreements. Although the company was current with all payments under its debt agreements,
at September 30, 2003, it was not in compliance with its financial covenants
related to the minimum domestic EBITDA level of $5 million on a rolling four
quarter basis; the leverage ratio (based generally upon the level of funded
debt less cash and equivalents to EBITDA as defined in the agreements, for the
trailing four quarters) of 7.0 to 1; nor the fixed charge coverage ratio of
1.25 to 1 (based generally upon the ratio of EBITDA plus rents over the
trailing four quarters to the amount of interest expense and rents during such
period). At December 31, 2003 the company was not in compliance with its financial
covenants within the bank credit agreement and the senior notes agreements
related to the following matters: the minimum domestic EBITDA level of $15
million on a rolling four quarter basis; the capitalization ratio of .45 to 1;
the leverage ratio (based generally upon the level of funded debt less cash
and equivalents to EBITDA as defined in the agreements, for the trailing four
quarters) of 4.0 to 1; the adjusted consolidated tangible net worth of $110
million plus 50% of consolidated net income since December 31, 2002; the
consolidated indebtedness to consolidated total capitalization of 50%; and the
fixed charge coverage ratio of 1.25 to 1 (based generally upon the ratio of
EBITDA plus rents over the trailing four quarters to the amount of interest
expense and rents during such period). Because the company was not in compliance with the financial covenants, the
note holders and lenders under the bank credit agreement (senior lenders) have
the right to require payment of $90 million of debt recorded on the companys
balance sheet, as well as require funding of the stand-by letters of credit
aggregating approximately $23.3 million at December 31, 2003. Under the
credit agreement a cash payment by the banks to a letter of credit beneficiary
becomes an advance to the company under the bank credit agreement. Pursuant to
the covenant breach that occurred as of September 30, 2003 the banks have the
right to require the company to post cash with the banks as collateral equal
to the face value of the outstanding letters of credit. This cash collateral
would secure the companys obligation to reimburse the banks for third party
draws against the letters of credit and may be required to cause the letters
of credit to be renewed by the banks beyond the current expiration date. The
companys senior lenders have not accelerated the companys payment
obligations and have allowed the company to remain in breach of these
agreements although they retain the right to do at any time. If the senior
lenders were to exercise this right, the company does not believe it would
have the ability to fund these obligations immediately, and the senior lenders
could pursue other remedies. Due to the noncompliance, the company has
classified the related long-term portion of this debt, $90 million, as a
current liability on the December 31, 2003 consolidated balance sheet. In
addition to this amount, the company may be required to pay a make-whole
amount upon acceleration of the senior notes. In connection with the proposed
Merger, the company, BlueScope, and the note holders have agreed that the
make-whole amount would be approximately $18 million (assuming a closing of
the proposed Merger on April 30, 2004 and a reference interest rate for the
U.S. Treasuries as in effect on February 9, 2004). Under the provisions of the credit agreement, the company may incur up to $35
million in real estate development debt with lenders other than the senior
lenders. At December 31, 2003, $11.9 million was outstanding with certain
mortgage lenders. During the construction period of the real estate development
the construction loans are interest only with rates ranging from
prime plus .50% to prime plus 1%, upon completion these loans convert to a two to four
year term loan, with fixed or variable monthly payments of principal and
interest. The term loans bear interest ranging from a fixed rate of 6% to a
variable rate of prime plus 1% at the change date. The loans become due upon
sale of the real estate project. The Merger Agreement between BlueScope and
Butler further limits future borrowings by the Real Estate Segment to projects
already in progress at February 15, 2004. The industrial revenue bonds mature in 2015 and the companys payments on the
bonds are secured by a bank letter of credit provided by the company under the
companys bank credit agreement. The weighted-average interest rate on the bond
issue was 3.80% for 2003, 2.9% for 2002, and 3.9% for 2001. Cash payments for interest on long-term debt were $5.6 million, $7.4 million,
and $6.9 million in 2003, 2002, and 2001, respectively. Total principal payments due on all debt in each of the five years subsequent
to December 31, 2003 are as follows: 48




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2004
    
    $91.9 million2005
    
    $12.9 million2006
    
    $1.4 million2007
    
    $1.4 million2008
    
    $0.2 million2009 and thereafter
    
    $6.8 million
 Sale-Leaseback In the fourth quarter of 2002, the company entered into a sale-leaseback
transaction of its world headquarters building located in Kansas City,
Missouri. Under the arrangement, the real estate was sold to an independent
third-party for $24 million and leased back under a twenty year operating lease
arrangement. The company realized a gain on the sale of approximately $2
million, which is being deferred and amortized as a reduction to rent expense
over the term of the lease. In the fourth quarter of 2002, the company entered into a $3.9 million
sale-leaseback lease agreement for the furniture, fixtures, and equipment at
its world headquarters facility in Kansas City, Missouri. Under the capital
lease arrangement, the lease term is five years with monthly payments carrying
a fixed interest rate of 6.00%. Leases Leases include facility, transportation equipment, information technology
equipment and plant operating equipment. Rental expense under operating leases
was $10.9 million, $8.9 million, and $10.9 million in 2003, 2002, and 2001,
respectively. Minimum rental commitments under noncancelable operating leases
subsequent to December 31, 2003 are as follows: 2004
    
    $8.5 million2005
    
    $7.4 million2006
    
    $5.9 million2007
    
    $4.6 million2008
    
    $3.9 million2009 and thereafter
    
    $34.2 million
 It is expected that leases will be renewed or replaced in the ordinary course
of business. Commitments and Contingencies The company is subject to various legal proceedings, claims, and environmental
actions which arise in the ordinary course of business operations. Although the
ultimate outcome of these matters is presently not determinable, management,
after consultation with legal counsel, believes the resolution of these matters
will not have a material adverse effect upon the companys financial position
or results of operations. On October 15, 2002, a McLeod County, Minnesota District Court jury awarded the
company $29.6 million for its Lester building business in its suit against
Louisiana-Pacific Corporation. The suit pertained to Louisiana-Pacifics
Inner-Seal siding product. The award compensates the company for damages and
other losses resulting from product purchased by the company and sold to its
dealers; however, on December 13, 2002 the United States District Court for the
District of Oregon enjoined the Minnesota trial court from entering judgment
against Louisiana-Pacific for $11.2 million of the total verdict. The company
has appealed the December 2002 Order by the federal court to the Ninth Circuit
U.S. Court of Appeals. On February 17, 2004, the State of Minnesota Court of Appeals affirmed the
October 2002 verdict of the McLeod County, Minnesota, District Court jury. This
decision of the Minnesota Court of Appeals relates solely to that portion of
the original verdict unaffected by the federal court injunction, and is subject
to appeal to the Supreme Court of the State of Minnesota, the acceptance of
which appeal is discretionary with the Supreme Court. 49




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The company is unable to estimate the impact the award may have on its
financial position or results of operations at this time. However, if the
entire award is paid, the company believes it will recognize approximately $14
million pretax income for damages and recovery of prior costs in the period in
which the award is paid. Guarantees and Warranties In November 2002, the FASB issued FASB interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires liability to be
recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. Additional disclosures
or guarantee agreements are also required in the interim and annual financial
statements. The disclosure requirements of FIN 45 were effective for the years
ending after December 15, 2002. The liability recognition requirements were
effective January 1, 2003. The company generally accrues for warranty and claim costs as a percentage of
sales based on historical trends. Actual warranty and claim costs are deducted
from the accrual when incurred. For 2003, warranty and claim accruals at the
beginning of the year were $2.8 million, current year accruals and adjustments
exceeded current year payments by $.4 million, and the balance at the end of
the year was $3.2 million. Balance, January 1, 2003
    
    $
    2,810Payments made during the period
    
    
    (2,377
    )Increases to accrual during the period
    
    
    3,665Adjustments during the period
    
    
    (898
    )Balance, December 31, 2003
    
    $
    3,200
 Related Party Transaction During 2001, the company purchased real estate in Kansas City, Missouri upon
which the company constructed its world headquarters building. The company
purchased the site, constituting approximately 7.8 acres, from N.F. Bldg.
Corp., a unit of National Farms, Inc. for $2.7 million. The purchase price was
determined by independent appraisals of the site. C.L. William Haw, a director
of the company, was President and Chief Executive Officer of National Farms,
Inc. at the time of the purchase. TAXES ON EARNINGS The components of the provision for income taxes are shown below. 50




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Components of Income Taxes Dollars in thousands
    
    2003
    
    2002
    
    2001Current:Federal
    
    $
    (13,808
    )
    
    $
    (4,622
    )
    
    $
    (1,646
    )Foreign
    
    $
    (113
    )
    
    
    836
    
    
    
    720State and local
    
    
    26
    
    
    
    358
    
    
    
    842(13,895
    )
    
    
    (3,428
    )
    
    
    (84
    )Deferred:Federal
    
    
    616
    
    
    
    (237
    )
    
    
    479Foreign
    
    
    (1,575
    )
    
    
    (1,337
    )
    
    
    (234
    )State and local
    
    
    53
    
    
    
    (20
    )
    
    
    41(906
    )
    
    
    (1,594
    )
    
    
    286Valuation allowance
    
    
    24,701
    
    
    
    
    
    
    
    Income tax expense (benefit)
    
    $
    9,900
    
    
    $
    (5,022
    )
    
    $
    202
 Tax expense in 2003 includes a valuation allowance of $24.7 million to reflect
the reduction in the expected value of the companys deferred tax assets. Tax
expense in 2001 includes a tax benefit of $4.5 million related to the
disposition of the European business. The Chinese subsidiarys earnings were
taxed at a reduced percentage of the Chinese statutory rate in 2003, 2002, and
2001. Cash payments, net of refunds, for income taxes were net refunds of $5.6
million in 2003, $.1 million in 2002, and net payments of $3.6 million in 2001.
The foreign components of pretax earnings were net profits (losses) of $10.1
million, $8.8 million, and $(6.1) million in 2003, 2002, and 2001,
respectively. A reconciliation of the expected income tax expense at the statutory federal
income tax rate and the reported income tax expense is shown below. Reconciliation of Income Tax Expense Dollars in thousands
    
    2003
    
    2002
    
    2001Expected income tax expense (benefit)
on pretax earnings (loss) before asset
impairment and restructuring charge
    
    $
    (7,773
    )
    
    $
    (2,400
    )
    
    $
    5,615State and local income
tax, net of federal benefits
    
    
    17
    
    
    
    233
    
    
    
    554Nondeductible losses (nontaxable
profits) of foreign subsidiaries
    
    
    (403
    )
    
    
    (262
    )
    
    
    1,199Tax benefit from foreign sales corporation
    
    
    (205
    )
    
    
    (295
    )
    
    
    (307
    )China tax less than U.S. statutory rate
    
    
    (3,254
    )
    
    
    (2,193
    )
    
    
    (1,195
    )Settlement of audits
    
    
    (5,080
    )
    
    
    
    
    
    
    (577
    )Utilization of capital loss carryforward
    
    
    
    
    
    
    (487
    )
    
    
    (651
    )Asset impairment and restructuring charge
    
    
    
    
    
    
    
    
    
    
    (4,500
    )U.S. tax expense on foreign dividends
    
    
    1,400
    
    
    
    
    
    
    
    Other
    
    
    497
    
    
    
    382
    
    
    
    64Valuation allowance
    
    
    24,701
    
    
    
    
    
    
    
    Income tax expense (benefit) reported
    
    $
    9,900
    
    
    $
    (5,022
    )
    
    $
    202
 Deferred income tax expense or benefit arises from differences between
financial reporting and tax reporting of assets and liabilities, which most
often result from the differences in timing of income and expense recognition.
Differences 51




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between financial reporting and tax bases also arise due to business
acquisition activity as tax laws can result in significant differences in
values assigned to assets and liabilities. Previously recorded deferred tax
assets and liabilities are adjusted for any changes in enacted tax rates.
Detail of deferred tax assets and liabilities is shown below. Due to the
companys recent losses coupled with the debt default and the companys
inability to refinance debt, the realization of net deferred tax assets is in
doubt. Forecasts of future income were not sufficient to support the deferred
tax assets recorded. Therefore, the company established a valuation allowance
in the amount of $24.7 million for the reduction in the carrying value of its
deferred tax assets. The valuation allowance is reflected in two places on the
December 31, 2003 balance sheet; $13.3 million is netted against the net
current deferred tax assets and $11.4 million is netted against net noncurrent
deferred tax assets. Net Current Deferred Tax Assets and Liabilities Dollars in thousands
    
    2003
    
    2002Current deferred tax assets (liabilities):Operating expenses
    
    $
    12,988
    
    
    $
    13,727Inventory
    
    
    1,248
    
    
    
    1,289Restructuring charge
    
    
    (342
    )
    
    
    (98
    )Minimum pension liability
    
    
    
    
    
    
    10,310Other
    
    
    1,560
    
    
    
    10Current deferred tax assets
    
    $
    15,454
    
    
    $
    25,238Valuation allowance  U.S. current
deferred tax assets
    
    
    (13,279
    )
    
    
    Net current deferred tax assets
    
    $
    2,175
    
    
    $
    25,238
 Net Noncurrent Deferred Tax Assets and Liabilities Dollars in thousands
    
    2003
    
    2002Noncurrent deferred tax assets (liabilities):Depreciation
    
    $
    (10,896
    )
    
    $
    (10,726
    )Operating expenses
    
    
    7,662
    
    
    
    4,367Minority investments
    
    
    452
    
    
    
    384Foreign net operating loss and capital
loss carryforward
    
    
    2,374
    
    
    
    2,045U.S. net operating loss carryforward
    
    
    7,645
    
    
    
    Asset impairment
    
    
    2,676
    
    
    
    2,676Minimum pension liability
    
    
    10,310
    
    
    
    Other
    
    
    (1,579
    )
    
    
    (1,143
    )Noncurrent deferred tax assets
(liabilities)
    
    
    18,644
    
    
    
    (2,397
    )Valuation allowance  U.S. noncurrent
deferred tax assets
    
    
    (11,422
    )
    
    
    Valuation allowance  foreign net
operating loss carryforwards
    
    
    (2,374
    )
    
    
    (2,045
    )Net noncurrent deferred tax assets (liabilities)
    
    $
    4,848
    
    
    $
    (4,442
    )
 The company and its U.S. subsidiaries file a consolidated federal income tax
return. 52




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EMPLOYEE BENEFIT PLANS Retirement Plans The company provides retirement benefits for substantially all employees,
either through a defined benefit plan, the defined contribution Individual
Retirement Asset Account Plan (IRAA), or a combination of both types of plans.
The majority of the companys salaried and nonunion hourly employees are
covered by both a defined benefit plan and the IRAA. These plans are integrated
in a floor-offset arrangement. The monthly benefit value of the IRAA lump sum
distributable to a participant upon their termination or retirement offsets a
portion, or all, of their defined benefit. The defined benefit, before the IRAA
offset, is based upon compensation and years of service. Bargaining unit
employees are covered by defined benefit retirement plans with benefits based
on years of service. The assets of the defined benefit plans are primarily equities, bonds, and
government securities. The IRAA assets include the companys common stock,
other equities, bonds, and government securities. The IRAA had assets of $42.5
million and $38.4 million, including 592,496 shares and 671,155 shares of
company stock with a market value of $13 million each at December 31, 2003 and
2002. The company expensed $.7 million for IRAA contributions in each of the
years 2003, 2002, and 2001. A reconciliation of benefit obligations and plan
assets, the funded status, and the amounts recognized in the companys balance
sheets for the defined benefit plans are presented below. While the IRAA asset
activity and balances are not expressly shown in the tables below, the effect
of the IRAA offset against the defined benefit has been recognized by a
reduction of the various benefit obligations presented. Reconciliations of Benefit Obligation and Plan Assets,Funded Status, and Amounts Recognized in theConsolidated Balance Sheets Dollars in thousands
    
    2003
    
    2002Reconciliation of projected benefit obligation at December 31,(Actuarial present value of final benefits including
future increases in compensation levels and future service,
prorated based upon actual service as of the measurement date.)Projected benefit obligation at January 1
    
    $
    153,351
    
    
    $
    131,544Service costbenefits earned during the year
    
    
    6,344
    
    
    
    5,630Interest accrued on projected benefit obligation
    
    
    8,779
    
    
    
    9,071Amendments to plans
    
    
    (38,769
    )
    
    
    Actuarial net loss during the year
    
    
    5,569
    
    
    
    10,915Benefits paid
    
    
    (4,938
    )
    
    
    (3,809
    )Curtailment
    
    
    (301
    )
    
    
    Projected benefit obligation
    
    $
    130,035
    
    
    $
    153,351Accumulated benefit obligations(For actual service and compensation through December 31,)Accumulated benefit obligation
    
    $
    127,687
    
    
    $
    102,616
 53




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Dollars in thousands
    
    2003
    
    2002Reconciliation of fair value of plan assets at December 31,Fair value of plan assets at January 1
    
    $
    76,730
    
    
    $
    82,053Actual return on plan assets
    
    
    16,574
    
    
    
    (8,547
    )Employer contributions
    
    
    5,608
    
    
    
    7,033Benefits paid
    
    
    (4,938
    )
    
    
    (3,809
    )Fair value of plan assets
    
    $
    93,974
    
    
    $
    76,730Funded status and net amount recognized at December 31,Funded
status  projected benefit obligation
greater than plan assets
    
    $
    (36,061
    )
    
    $
    (76,621
    )Unrecognized prior service costs
    
    
    (35,133
    )
    
    
    3,567Unrecognized net actuarial loss
    
    
    68,646
    
    
    
    77,868Net amount recognized (see detail below)
    
    $
    (2,548
    )
    
    $
    4,814Amounts recognized in the consolidated balance sheet at December 31Prepaid pension expense
    
    $
    1,598
    
    
    $
    5,898Accrued pension liability
    
    
    (35,311
    )
    
    
    (31,783
    )Intangible asset  prior service cost
    
    
    1,556
    
    
    
    3,567Cumulative other comprehensive income
    
    
    29,609
    
    
    
    27,132Net amount recognized
    
    $
    (2,548
    )
    
    $
    4,814
 While not reflected above the company also recorded a deferred tax asset of
$10.3 million in its balance sheets at December 31, 2003 and 2002 associated
with the cumulative other comprehensive income charge presented in the above
table. This asset was offset at December 31, 2003 by a valuation reserve of
$10.3 million as discussed in the Taxes on Earnings footnote. In June 2003, the companys Board approved and the company subsequently adopted
an amendment to its base pension plan. The amendment, effective in third quarter of 2003, revised the future benefit
accrual formula to be based upon an employees career average compensation
rather than the average of the highest five consecutive years of compensation.
The effect of this plan amendment is reflected in the tables that reconcile the
projected benefit obligation and that present the Components of Net Pension
Expense, and will be recognized over the working lives of the active
participants. Effective January 1, 2001, the company changed its method for the recognition
of asset gains and losses considered in the calculation of the annual net
pension expense for its base retirement pension plan. The company changed from
the market-value method of asset valuation to a market-related value method.
Under the previous accounting method, all gains and losses, subject to a 10%
corridor, were recognized and amortized in the determination of net periodic
pension cost. The new method recognizes and then amortizes annual asset gains
or losses over a five-year period in the determination of annual net periodic
pension cost. The new method is commonly used and is preferable to the old
method because it more accurately matches expense to accounting periods during
which benefits are earned. The impact of the change was to increase net income
by $.4 million and earnings per share by $.07 for the year ended December 31,
2001. The cumulative effect of this change as of January 1, 2001 was
immaterial. Effective April 1, 2001, the company also changed the period used to amortize
prior service costs associated with amendments to its pension plans.
Previously, the cost of these amendments was amortized over the average future
working-lifetime of those expected to receive the amended benefits. The new
amortization period more rapidly recognizes the cost of such plan amendments
over the years during which the covered employee accrues the amended benefits.
The effect of this change in accounting estimate was a decrease in net income
of $.5 million and a reduction in earnings per share by $.07 for the year ended
December 31, 2001. The components of net pension expense of the defined benefit plans, as
determined under SFAS 87, Employers Accounting for Pensions, are presented
below. 54




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Components of Net Pension Expense Dollars in thousands
    
    2003
    
    2002
    
    2001Service costs  benefits earned
during the year
    
    $
    6,344
    
    
    $
    5,630
    
    
    $
    4,994Interest cost on the projected
benefit obligation
    
    
    8,779
    
    
    
    9,071
    
    
    
    8,400Expected return on plan assets
    
    
    (6,984
    )
    
    
    (7,419
    )
    
    
    (7,412
    )Amortization of transition obligation
    
    
    
    
    
    
    2
    
    
    
    75Amortization of prior service cost
    
    
    (823
    )
    
    
    1,202
    
    
    
    1,208Amortization of net actuarial loss
    
    
    4,899
    
    
    
    2,441
    
    
    
    1,437Subtotal
    
    
    12,215
    
    
    
    10,927
    
    
    
    8,702Curtailment
    
    
    755
    
    
    
    
    
    
    
    Net pension expense
    
    $
    12,970
    
    
    $
    10,927
    
    
    $
    8,702
 Key assumptions used to determine net pension expense and benefit obligations: Discount rate of future benefit obligations
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.25
    %Long-term expected return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.50
    %Long-term rate of increase in compensation levels
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.50
    %
 Percentage of plan assetsTarget Allocation
    
    as of December 31,Plan Assets
    
    2004
    
    2003
    
    2002Equity securities
    
    55% to 65%
    
    
    60
    %
    
    
    59
    %Debt securities and cash
    
    45% to 35%
    
    
    40
    %
    
    
    41
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The long-term expected return on plan assets is based upon the forward-looking
targeted asset allocation for the plan assets, the historical returns of equity
and debt securities, the discount rate used to determine the plan obligations,
and the expected likelihood that future assets returns will equal or exceed the
assumed asset return. The investment policy and strategy for the pension plans is to invest the plan
assets in a well diversified portfolio of investments through the engagement of
third party investment management professionals with an objective of generating
a long-term rate of asset return which is consistent with the assumed rate of
return used to determine net pension expense. The expected employer contributions to the plans are $18.1 million for the year
ended December 31, 2004. This amount includes $2.4 million related to the
balance due for the 2003 plan year and $15.7 million combined estimated
quarterly contributions for the first three quarters of the 2004 plan year
which are due April 15, 2004, July 15, 2004, and October 15, 2004. The fourth
quarter payment is due January 15, 2005 and is not included in the above
amount. The estimated quarterly contributions required for the 2004 plan year
are subject to revision by the results of the annual actuarial valuation and
may also be revised by potential new legislation which govern the interest
rates used to determine pension funding requirements. In addition, the company
has submitted an application to the Internal Revenue Service that requests a
funding waiver for the 2004 plan year contributions for all of its pension
plans. If such application were granted, the waived contributions for the 2004
plan year in the amount of $21 million would then be due and payable in
quarterly installments with interest over the next five plan years starting in
April 2005. The expected future cash flows for the companys contributions to the pension
plans and benefit payments by the pension plans are presented below. 55




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2004
    
    $5.4 million2005
    
    $5.8 million2006
    
    $6.5 million2007
    
    $7.3 million2008
    
    $8.0 million2009 to 2013
    
    $52.9 million
 Other Benefit Plans The company sponsors the Butler Employees Savings Trust, a savings plan under
section 401(k) of the Internal Revenue Code. The vast majority of all
U.S.-based salaried and nonunion hourly employees are eligible to participate
in this plan. If certain defined company profitability levels are attained, the
company will match up to 50% of employees contributions, up to 6% of the
employees eligible compensation; with one-third of the company match in the
form of restricted company common stock. Restricted company stock and the
automatically reinvested dividends thereon held in the 401(k) may only be sold
upon the employees termination of employment or retirement from the company. A
company match was not made for 2003 and 2002, as the defined pretax earnings
level was not reached. In 2001, the company reached defined pretax earnings
levels and accordingly expensed $1.8 million as a matching contribution to the
plan. The company also sponsors 401(k) savings plans for its bargaining unit
employees. The company sponsors the Supplemental Benefit Plan (SBP), an unfunded and
nonqualified ERISA-excess retirement plan. The SBP restores retirement benefits
that are not allowed per the qualified plan by Internal Revenue Service (IRS)
limitations. The SBP applies the defined benefit formula from the qualified
retirement plan to that portion of an employees compensation that is in excess
of IRS limits, and therefore cannot be used in determining retirement benefits
payable by the companys qualified retirement plan. Split-dollar life insurance
arrangements between the company and certain employees offset certain
liabilities of the plan. No split-dollar premium payments were made in 2003.
Cash premium payments under the split-dollar arrangements were $.2 million and
$2 million in 2002 and 2001, respectively. In addition, the company expensed
$.6 million, $1.1 million, and $.4 million, in 2003, 2002, and 2001,
respectively, related to this plan. The company also recorded a pretax other
comprehensive income charge of $1.3 million in 2003, a credit of $ .6 million
in 2002 and a charge of $.6 million in 2001 for this plan. The plan liability
was $2.1 million and $1.6 million at December 31, 2003, and 2002, respectively.
Since the plan is unfunded, the future cash flows for this plan consist of
expected benefit payments by the company of $.1 million in 2004 and 2005, $.2
million each year in 2006 through 2008, and $1.3 million as a cumulative total
for the five-year period 2009 through 2013. The company offers an unfunded and nonqualified, deferred compensation plan to
certain key executives. In 2003, 2002, and 2001, the company expensed $.2
million, $.2 million, and $.5 million, respectively, which represented earnings
credited to participant accounts. The plan liability at December 31, 2003 and
2002 was $5.4 million and $6.7 million, respectively. During 2001, the company implemented a value-based Long Term Incentive Plan
(LTIP), which is designed to reward the companys executive officers by means
of cash performance awards and stock options as shareholder value increases.
The cash performance portion of the LTIP measures and rewards value-added
performance over three-year periods. The performance measurement is based on
total business return, a measure of the creation of economic value in the
companys business. No liability was accrued for the LTIP at December 31, 2003.
At December 31, 2002, the companys liability under this plan for cash awards
was $.3 million. Minimum Pension Liability Charge A summary of the $20.6 million cumulative after-tax non-cash charge to other
comprehensive income to recognize the minimum pension liability as of the
December 31, 2003 measurement date is presented below. 56




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Minimum Pension Liability Charge at December 31, 2003 Non-
    
    AllERISA
    
    qualified
    
    PensionDollars in thousands
    
    Plans
    
    Plan
    
    PlansAccumulated Benefit Obligation (ABO)
    
    $
    127,687
    
    
    $
    3,415
    
    
    $
    131,102Fair market value of plan assets
    
    
    93,974
    
    
    
    
    
    
    
    93,974ABO in excess of plan assets
    
    
    33,713
    
    
    
    3,415
    
    
    
    37,128Prepaid pension expense  plan contributions
not yet recognized in earnings
    
    
    1,598
    
    
    
    
    
    
    
    1,598Accrued liability, previously recognized in earnings
    
    
    (4,146
    )
    
    
    (2,097
    )
    
    
    (6,243
    )Minimum pension liability recognized
    
    
    31,165
    
    
    
    1,318
    
    
    
    32,483Intangible asset recognized  unamortized
prior service cost
    
    
    1,556
    
    
    
    
    
    
    
    1,556Cumulative charge to other comprehensive income
    
    
    29,609
    
    
    
    1,318
    
    
    
    30,927Cumulative deferred income tax benefit
    
    
    10,310
    
    
    
    
    
    
    
    10,310Cumulative after-tax charge at December 31, 2003
    
    $
    19,299
    
    
    $
    1,318
    
    
    $
    20,617
 Postretirement Benefits During the fourth quarter of 2003, the company exercised its rights to
terminate the company contribution to postretirement health care coverage and
to terminate certain postretirement life insurance benefits. The company also
terminated its plans to establish a company sponsored benefits savings trust
that was designed to prefund a portion of eligible retired employees and their
dependents postretirement medical expenses with optional employee annual
contributions and a matching retirement-triggered lump sum company
contribution. After giving effect to the above noted terminations, the company currently
offers access to group healthcare program for eligible retired employees and
their dependents with no contribution towards its cost by the company. In
addition the company provides certain life insurance benefits for eligible
retired employees and their dependents in accordance with the provisions of
certain collectively-bargained agreements. Employees may become eligible for
these plans if they reach retirement age while employed by the company and meet
a minimum years of service requirement. Retiree election to participate in the
unsubsidized group health care program is optional and requires a monthly
contribution by the retiree and their dependent, which contribution is
estimated to cover all of the costs of the group health care program. The
company reserves the right to change or terminate all employee benefits,
including postretirement benefits. The terminations of company contributions
to postretirement health care coverage and certain postretirement life
insurance benefits have been accounted for as Settlements pursuant to SFAS
No. 88 and a reduction of postretirement benefits. Accrual reversals of $5.4
million were recognized in the fourth quarter of 2003. During the fourth quarter of 2002, the company amended its postretirement
benefits program. Effective January 1, 2003, retired employees already enrolled
in the companys postretirement health care, or active employees with either at
least ten years of service who have also attained the age of 55, or employees
whose eligibility is governed by a collectively-bargained agreement, continue
to be eligible to elect postretirement health care coverage, and constitute the
grandfathered group. For those employees who were not in the this
grandfathered group, eligibility to elect postretirement coverage upon their
retirement requires the attainment of age 60 with at least 15 years of service, A reconciliation of postretirement benefit obligations, plan assets, funded
status, and accrued benefit liability is presented below. 57




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Reconciliation of Benefit Obligation, the Funded Status andAccrued Benefit Liability at December 31 Dollars in thousands
    
    2003
    
    2002Reconciliation of projected benefit obligation(actuarial present value of future benefits)Projected benefit obligation at January 1
    
    $
    23,459
    
    
    $
    17,369Service
costs  benefits earned during the year
    
    
    315
    
    
    
    282Interest cost on projected benefit obligation
    
    
    1,216
    
    
    
    1,594Plan amendments
    
    
    
    
    
    
    (8,110
    )Actuarial loss during the year
    
    
    (3,111
    )
    
    
    15,467Benefits paid
    
    
    (3,054
    )
    
    
    (4,325
    )Participant contributions
    
    
    1,772
    
    
    
    1,182Settlement
    
    
    (19,300
    )
    
    
    Projected benefit obligation
    
    $
    1,297
    
    
    $
    23,459Reconciliation of Plan AssetsFair value of plan assets as of January 1
    
    $
    
    
    
    $
    Benefits paid
    
    
    (3,054
    )
    
    
    (4,325
    )Employer contributions
    
    
    1,282
    
    
    
    3,143Participant contributions
    
    
    1,772
    
    
    
    1,182Fair value of plan assets as of December 31
    
    $
    
    
    
    $
    Funded status and accrued benefit liability at December 31,Projected benefit obligation, unfunded
    
    $
    1,297
    
    
    $
    23,459Unrecognized net transition obligation cost
    
    
    (364
    )
    
    
    (4,778
    )Unrecognized prior service costs
    
    
    
    
    
    
    7,453Unrecognized net actuarial loss
    
    
    (398
    )
    
    
    (21,919
    )Accrued benefit liability in balance sheet
    
    $
    535
    
    
    $
    4,215
 The discount rate assumption was 6.25% at December 31, 2003, 6.75% at December
31, 2002, and 7.25% at December 31, 2001. As all future changes in health care
costs are assumed to be passed through to the retiree, future health care cost
trends have no impact on the plan. The components of the annual net benefit cost are presented below. Components of Annual Net Benefit Costs Dollars in thousands
    
    2003
    
    2002
    
    2001Service
costs  benefits earned
during the year
    
    $
    315
    
    
    $
    282
    
    
    $
    517Interest cost on the projected
benefit obligation
    
    
    1,216
    
    
    
    1,594
    
    
    
    1,222Amortization of transition obligation
    
    
    478
    
    
    
    478
    
    
    
    478Amortization of prior service costs
    
    
    (657
    )
    
    
    (657
    )
    
    
    Amortization of net actuarial loss
    
    
    1,592
    
    
    
    1,336
    
    
    
    344Subtotal
    
    
    2,944
    
    
    
    3,033
    
    
    
    2,561Settlement
    
    
    (5,096
    )
    
    
    
    
    
    
    Net benefit costs (credit)
    
    $
    (2,152
    )
    
    $
    3,033
    
    
    $
    2,561
 The expected life insurance benefit contribution is $.07 million for the year
ended December 31, 2004. The future cash flows related to plan contributions
and benefit payments are presented below. 58




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##### Table of Contents



2004
    
    $.07 million2005
    
    $.07 million2006
    
    $.07 million2007
    
    $.08 million2008
    
    $.08 million2009 to 2013
    
    $.4 million
 STOCK OPTION PLANS The company records stock compensation in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
Under APB 25, no charges are made to earnings in accounting for stock options
granted because all options are granted with an exercise price equal to the
fair market value at the date of grant. If the amounts received when options
are exercised are different than the carrying value of treasury stock issued,
the difference is recorded in retained earnings. In 2002, the companys shareholders approved the Stock Incentive Plan for 2002
for key employees and the 2002 Stock Option Plan for Outside Directors. Stock
options are presently outstanding under the Stock Incentive Plans of 1996 and
1987, and the 2002 Stock Option Plan for Outside Directors. The 1996 Plan
covering 600,000 shares was approved in April 1996. The 1987 plan was
terminated upon the approval of the 1996 plan except for outstanding stock
options. The 2002 Stock Option Plan for Outside Directors was approved in April
2002. Stock Option Recap for All Plans at December 31, Number of shares
    
    2003
    
    2002
    
    2001Granted and exercisable
    
    
    348,500
    
    
    
    405,000
    
    
    
    509,500Authorized, unissued, and available
for future grant
    
    
    481,710
    
    
    
    481,710
    
    
    
    118,699
 The company granted nonqualified stock options in 2003 and 2002 to key
employees under the 1996 plan. There were no options granted in 2001. Options
were also granted in 2003 and 2002 to outside directors under the 2002 Stock
Option Plan for Outside Directors. Options are granted at a fixed exercise
price based on fair market value on the date of the grant and expire no more
than ten years from the date of grant. Options granted to employees in 2003 and
2002 vest from one to three years after the date of grant and expire from five
to ten years from the date of grant. Options under the Outside Directors Plan
vest on the 184th day after the grant date and are fully exercisable
thereafter. Below is a summary of stock option activity for each of the years
ended December 31. Summary of Stock Option Activity 2003
    
    2002
    
    2001Weighted - average
    
    
    
    
    
    Weighted - average
    
    
    
    
    
    Weighted - averageShares
    
    exercise price
    
    Shares
    
    exercise price
    
    Shares
    
    exercise priceOutstanding at beginning of year
    
    
    449,000
    
    
    $
    27.13
    
    
    
    509,500
    
    
    $
    29.11
    
    
    
    550,750
    
    
    $
    28.59Granted
    
    
    97,500
    
    
    $
    19.86
    
    
    
    68,000
    
    
    $
    27.12
    
    
    
    
    
    
    $
    Exercised
    
    
    (3,000
    )
    
    $
    17.50
    
    
    
    (11,500
    )
    
    $
    25.06
    
    
    
    (16,750
    )
    
    $
    9.26Forfeited
    
    
    (103,000
    )
    
    $
    30.83
    
    
    
    (117,000
    )
    
    $
    35.99
    
    
    
    (24,500
    )
    
    $
    30.81Outstanding at end of year
    
    
    440,500
    
    
    $
    24.70
    
    
    
    449,000
    
    
    $
    27.13
    
    
    
    509,500
    
    
    $
    29.11
 A summary of outstanding and exercisable options is shown below. 59




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##### Table of Contents



Stock Option Outstanding and Exercisable at December 31, 2003 Options Outstanding
    
    Options ExercisableNumber
    
    Remaining Life
    
    Weighted - average
    
    Number
    
    Weighted - averageRange of exercise price
    
    Outstanding
    
    in Years
    
    exercise price
    
    Exercisable
    
    exercise price$17.50 - $23.00
    
    
    130,500
    
    
    
    6.95
    
    
    $
    20.65
    
    
    
    38,500
    
    
    $
    22.55$26.00 - $26.00
    
    
    235,000
    
    
    
    0.05
    
    
    $
    26.00
    
    
    
    235,000
    
    
    $
    26.00$26.88 - $27.56
    
    
    66,000
    
    
    
    8.13
    
    
    $
    27.13
    
    
    
    66,000
    
    
    $
    27.13$32.75
    
    
    9,000
    
    
    
    2.04
    
    
    $
    32.75
    
    
    
    9,000
    
    
    $
    32.75Total or weighted average
    
    
    440,500
    
    
    
    3.37
    
    
    $
    24.70
    
    
    
    348,500
    
    
    $
    26.01
 Under the Stock Incentive Plan of 2002, 279,000 options were authorized for
issuance but none were granted during 2003 or 2002. The company granted
nonqualified stock options to key employees under the 1996 Plan for 93,500
shares in 2003 and 44,000 shares in 2002. Under the 2002 Plan for Outside
Directors, 40,000 shares were available for grant. The plan provides for a
single grant of 4,000 shares to each non-employee director eligible to
participate. During 2003 and 2002, 4,000 shares and 24,000 shares,
respectively, were granted under the 2002 Plan for Outside Directors. The company uses the Black Scholes option-pricing model to calculate the fair
value of stock options on their date of grant. The fair value per share of
stock options granted was $4 in 2003 and $5 in 2002. The company did not grant
stock options during 2001. The following assumptions were used: Assumption 2003
    
    2002
    
    2001Dividend yield
    
    
    4.2
    %
    
    
    3.7
    %
    
    
    N/ARisk-free interest rate
    
    
    2.8
    %
    
    
    3.8
    %
    
    
    N/AVolatility
    
    
    32
    %
    
    
    25
    %
    
    
    N/ALife of option
    
    10 years
    
    5-10 years
    
    
    N/A
 TREASURY STOCK ACTIVITY Dollars in thousands
    
    2003
    
    2002
    
    2001Balance, January 1
    
    $
    64,266
    
    
    $
    64,951
    
    
    $
    65,543Purchases
    
    
    31
    
    
    
    25
    
    
    
    279Issues
    
    
    (581
    )
    
    
    (710
    )
    
    
    (871
    )Balance, December 31
    
    $
    63,716
    
    
    $
    64,266
    
    
    $
    64,951
 As a result of options exercised and the issuance of treasury stock, the
company recognized a tax benefit of less than $.01 million in 2003, $.1 million
in 2002 and 2001, respectively, which was credited directly to retained
earnings. Number of shares
    
    2003
    
    2002
    
    2001Balance, January 1
    
    
    2,777,698
    
    
    
    2,807,417
    
    
    
    2,832,338Purchases
    
    
    1,561
    
    
    
    950
    
    
    
    12,730Issues
    
    
    (25,115
    )
    
    
    (30,669
    )
    
    
    (37,651
    )Balance, December 31
    
    
    2,754,144
    
    
    
    2,777,698
    
    
    
    2,807,417Average cost at December 31
    
    $
    23.13
    
    
    $
    23.14
    
    
    $
    23.14
 60




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QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Dollars in thousands, except share amounts Quarter Ended2003
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31
    
    AnnualNet sales
    
    $
    169,767
    
    
    $
    174,035
    
    
    $
    220,529
    
    
    $
    231,836
    
    
    $
    796,167Gross profit
    
    
    21,420
    
    
    
    20,984
    
    
    
    28,491
    
    
    
    29,935
    
    
    
    100,830Net earnings (loss)
    
    
    (3,915
    )
    
    
    (9,091
    )
    
    
    25
    
    
    
    (19,127
    )
    
    
    (32,108
    )Basic earnings (loss)
per share
    
    $
    (0.62
    )
    
    $
    (1.43
    )
    
    $
    
    
    
    $
    (3.01
    )
    
    $
    (5.06
    )Diluted earnings (loss)
per share
    
    $
    (0.62
    )
    
    $
    (1.43
    )
    
    $
    
    
    
    $
    (3.01
    )
    
    $
    (5.06
    )Dividends declared
per share
    
    $
    0.18
    
    
    $
    0.04
    
    
    $
    
    
    
    $
    
    
    
    $
    0.22
 During 2003, asset impairment charges after tax of $4.3 million, or $.67 per
share, were included in the second quarter net earnings, $.5 million, or $.07
per share, were included in the third quarter net earnings, while credits of
$.4 million, or $.05 per share were included in the fourth quarter net
earnings. The establishment of a valuation allowance set up against the
companys deferred tax assets of $24.7 million, or $3.89 per share was also
included in fourth quarter net earnings. During the fourth quarter, the
company made changes to the postretirement healthcare plans and life insurance
plans which resulted in credits in net earnings after tax of $3.2 million, or
$.51 per share. Quarter Ended2002
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31
    
    AnnualNet sales
    
    $
    182,852
    
    
    $
    213,421
    
    
    $
    238,501
    
    
    $
    193,435
    
    
    $
    828,209Gross profit
    
    
    22,119
    
    
    
    29,211
    
    
    
    32,269
    
    
    
    29,407
    
    
    
    113,006Net earnings (loss)
    
    
    (5,368
    )
    
    
    294
    
    
    
    1,692
    
    
    
    1,546
    
    
    
    (1,836
    )Basic earnings (loss)
per share
    
    $
    (0.85
    )
    
    $
    0.05
    
    
    $
    0.27
    
    
    $
    0.24
    
    
    $
    (0.29
    )Diluted earnings (loss)
per share
    
    $
    (0.85
    )
    
    $
    0.05
    
    
    $
    0.27
    
    
    $
    0.24
    
    
    $
    (0.29
    )Dividends declared
per share
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.18
    
    
    $
    0.72
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure As previously reported in the companys Form 8-K report filed on May 16,
2002, the Board of Directors of the company, upon the recommendation of the
Audit Committee, approved the dismissal of Arthur Andersen LLP as the
companys independent auditors and the appointment of KPMG LLP to serve as the
companys independent auditors for the year ending December 31, 2002. There
were no disagreements with either KPMG LLP or Arthur Andersen LLP. 
 Item 9A. Disclosure Controls and Procedures As of the end of the period covered by this Annual Report on Form 10-K,
management conducted an evaluation of the effectiveness of the design and
operation of the companys disclosure controls and procedures (Disclosure
Controls). The controls evaluation was done under the supervision and with
the participation of management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO). Based upon the controls evaluation, the CEO and CFO have concluded that,
subject to the limitations noted below, as of the end of the period covered by
this Annual Report on Form 10-K, the companys Disclosure Controls were
effective to provide reasonable assurance that material information relating to
Butler Manufacturing Company and its consolidated 61




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##### Table of Contents



subsidiaries is made known to
management, including the CEO and CFO, particularly during the period when the
companys periodic reports are being prepared. There was no change in internal controls over financial reporting that occurred
during the last fiscal year that has materially affected, or is reasonably
likely to materially affect, internal controls over financial reporting. Attached as Exhibits 31.1 and 31.2 to this Annual Report are certifications of
the CEO and the CFO, which are required in accord with Rule 13a-14 of the
Securities Exchange Act of 1934 (the Exchange Act). This Controls and
Procedures section includes the information concerning the controls evaluation
referred to in the certifications and it should be read in conjunction with the
certifications. Definition of Disclosure Controls Disclosure Controls are controls and procedures designed to ensure that
information required to be disclosed in the companys reports filed under the
Exchange Act is recorded, processed, summarized and reported timely.
Disclosure Controls are also designed to ensure that such information is
accumulated and communicated to management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure. The
companys Disclosure Controls include certain components of internal control
over financial reporting, which consists of control processes designed to
provide reasonable assurance regarding the reliability of the companys
financial reporting and the preparation of financial statements in accordance
with U.S. generally accepted accounting principles. Limitations on the Effectiveness of Controls Although the companys Disclosure Controls have been designed to provide
reasonable assurance of attaining their objectives and the companys CEO and
CFO have concluded that the Disclosure Controls are effective at the reasonable
assurance level, the companys management, including the CEO and CFO, does not
expect that the companys Disclosure Controls or internal control over
financial reporting will prevent all errors and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected. 62




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PART III 
 Item 10. Directors and Executive Officers of the Registrant The companys Board of Directors consists of members serving staggered
three-year terms. Persons elected as directors continue to hold office until
their terms expire or until their successors are elected and are qualified. The companys executive officers hold their offices at the pleasure of the
Board of Directors, subject, in the case of Messrs: Holland, Rutledge, Miller,
Huey and Ms. Bridger, to rights under their respective change of control
employment agreements. See the section on Executive Compensation  Change of
Control Employment Agreements in Item III, Part 11 of this report. There is no understanding or arrangement between any director or executive
officer and any other person pursuant to which such person was selected as a
director or executive officer, and there is no family relationship between a
director or executive officer and any other director or executive officer of
the company. The name and age of each director or executive officer, his or her term of
office as a director (if applicable), his or her current offices with the
company and the period he or she has served as a director or in such current
office as an executive officer is as follows. Term
    
    Has Served
    
    Positions & OfficesName
    
    Age
    
    of Office
    
    Since
    
    with the CompanyDirectorsK. Dane Brooksher
    
    
    65
    
    
    
    2004
    
    
    
    1999
    
    
    Chairman, Compensation & Benefits
Committee; Member, Audit CommitteeGary M. Christensen
    
    
    60
    
    
    
    2005
    
    
    
    1999
    
    
    Chairman, Audit Committee; Member,
Compensation & Benefits CommitteeSusan F. Davis
    
    
    50
    
    
    
    2004
    
    
    
    2000
    
    
    Member, Compensation & Benefits
Committee & Governance CommitteeC.L. William Haw
    
    
    65
    
    
    
    2005
    
    
    
    1983
    
    
    Member, Audit Committee &
Governance CommitteeJohn J. Holland
    
    
    53
    
    
    
    2005
    
    
    
    1999
    
    
    Chairman & Chief Executive OfficerMark A. McCollum
    
    
    45
    
    
    
    2006
    
    
    
    2003
    
    
    Member, Audit Committee &
Compensation & Benefits CommitteeRonald E. Rutledge
    
    
    62
    
    
    
    2004
    
    
    
    2001
    
    
    President & Chief Operating OfficerGary L. Tapella
    
    
    60
    
    
    
    2006
    
    
    
    1998
    
    
    Chairman, Governance Committee;
Member Compensation & Benefits
CommitteeWilliam D. Zollars
    
    
    56
    
    
    
    2006
    
    
    
    2000
    
    
    Member, Governance Committee &
Audit CommitteeExecutive OfficersJohn J. Holland
    
    
    53
    
    
    
    N/A
    
    
    
    2001
    
    
    Chairman & Chief Executive OfficerRonald E. Rutledge
    
    
    62
    
    
    
    N/A
    
    
    
    2001
    
    
    President & Chief Operating OfficerRobert M. Adams
    
    
    48
    
    
    
    N/A
    
    
    
    2003
    
    
    President, Butler Real EstateMoufid Alossi
    
    
    61
    
    
    
    N/A
    
    
    
    1997
    
    
    President, Butler (Shanghai), Inc.Barbara B. Bridger
    
    
    46
    
    
    
    N/A
    
    
    
    1999
    
    
    Vice-President  Human ResourcesThomas W. Harris
    
    
    51
    
    
    
    N/A
    
    
    
    2001
    
    
    President, Vistawall GroupJohn R. Hill
    
    
    46
    
    
    
    N/A
    
    
    
    2000
    
    
    President, Lester Building SystemsJohn W. Huey
    
    
    56
    
    
    
    N/A
    
    
    
    1999
    
    
    Vice-President  General CounselLee E. Lichlyter
    
    
    40
    
    
    
    N/A
    
    
    
    2000
    
    
    Vice-President  Chief Information
OfficerPaul F. Liljegren
    
    
    49
    
    
    
    N/A
    
    
    
    1998
    
    
    TreasurerLarry C. Miller
    
    
    47
    
    
    
    N/A
    
    
    
    1998
    
    
    Vice-President  FinanceNanka A. Schneider
    
    
    47
    
    
    
    N/A
    
    
    
    2003
    
    
    Controller and Director of Tax
 63




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##### Table of Contents



Business Experience of Directors and Executive Officers Directors K. Dane Brooksher has been Chairman, Trustee and Chief Executive Officer of
ProLogis since 1999. He joined ProLogis in 1993 as Co-Chairman, Trustee and
Chief Operating Officer. ProLogis is a U.S. based real estate investment trust
specializing in the acquisition, development, marketing, operation and
ownership of distribution facilities and services worldwide. From 1961 to
1993, he was with KPMG LLP (formerly KPMG Peat Marwick), last serving, prior to
retirement, as the Midwest Area Managing Partner and Chicago Office Managing
Partner. He also served on the KPMG LLP Board of Directors and Management
Committee. Mr. Brooksher also serves on the Board of Advisors of the J. L.
Kellogg Graduate School of Management at Northwestern University. Gary M. Christensen was President and Chief Executive Officer of Pella
Corporation from 1996 until his retirement in 2002. Pella Corporation
manufactures wood windows and doors. He joined Pella in 1990 as Senior Vice
President, Sales and Marketing and was named President and Chief Operating
Officer in 1994. From 1980 to 1990 he was a marketing executive for General
Electric and from 1971 to 1980 was with Trane Corporation. He is a retired
director of Pella Corporation and Brenton Banks Holding Company, a current
director of Hon Corporation and is an emeritus member of the Policy Advisory
Board, Harvard Joint Center for Housing Studies, and of the Iowa Business
Council. Susan F. Davis has been Corporate Vice President, Human Resources of Johnson
Controls, Inc. since 1994. Johnson Controls manufactures automobile batteries,
interior trim, seating products and automotive interior systems, and designs,
manufactures, installs and services automated control systems for
nonresidential buildings. She has been with Johnson Controls since 1983. Ms.
Davis is also a director of Quanex Corporation. C. L. William Haw is the owner of Haw Ranches, and previously served as the
President and Chief Executive Officer of National Farms, Inc., a diversified
agricultural production company, from 1974 until 2002. He is also an advisory
director of Commerce Bank of Kansas City, N.A. John J. Holland joined Butler in 1980, became Vice President-Controller in
1986, Vice President-Finance in 1990, Executive Vice President in 1998,
President and Chief Executive Officer in 1999 and was elected Chairman and
Chief Executive Officer in November 2001. Mr. Holland is a director of Cooper
Tire and Rubber Company and SCS Transportation, Inc. Mark A. McCollum joined the Halliburton Company in August 2003 as Senior Vice
President and Chief Accounting Officer. Halliburton is one of the worlds
largest oilfield services companies and a leading provider of engineering and
construction services. Previously he served as Chief Financial Officer of
Tenneco Automotive from 1999 until 2003. Mr. McCollum spent 14 years with the
international public accounting firm of Arthur Andersen LLP, serving as an
audit and business advisory partner of the companys worldwide partnership from
1991 to December 1994. Ronald E. Rutledge joined Butler in 1984 as President of the Vistawall
Architectural Products Group, was elected Executive Vice President in April
2001 and President in November 2001. He is a director of Labconco Corporation
and the Kansas City Council for the Boy Scouts of America, as well as a past
director of the Terrell, Texas Chamber of Commerce and the Terrell State Bank. Gary L Tapella has been President and Chief Executive Officer of Rheem
Manufacturing Company since 1991 and Chairman since 2002. He has been with
Rheem since 1968 serving in various domestic and international operations.
Rheem is a manufacturer of residential and commercial central air conditioners,
gas and electric furnaces and water heaters. He is Chairman Emeritus of the
Gas Appliance Manufacturers Association (GAMA), an Executive Committee member
and past Chairman of the Air Conditioning and Refrigeration Institute (ARI) and
past Chairman of ARIs International Committee. William D. Zollars has been Chairman, President and Chief Executive Officer of
Yellow Corporation, now known as Yellow Roadway Corporation, since November
1999. Previously, he was President of Yellow Transportation, Inc. from 1996
through November 1999. Yellow Roadway Corporation is a transportation services
company serving North America and, through alliances, Europe, the Asia/Pacific
region and South and Central America. From 1994 to 1996 he was Senior Vice
President of Ryder Integrated Logistics, a division of Ryder Systems, Inc., and
from 1969 to 1993 was 64




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##### Table of Contents



with Eastman Kodak. He is a director of ProLogis and
Rogers Group, Inc., and also serves as a director of the National
Association of Manufacturers, the Civic Council of Greater Kansas City, Heart
of America United Way and the University of Kansas Medical Center. Executive Officers John J. Holland (See Above) Ronald E. Rutledge (See Above) Barbara B. Bridger has been Vice President-Human Resources since 1999. She
joined Butler in 1980 and previously was Vice President-Human Resources for the
Buildings Division. John W. Huey has been Vice President, General Counsel, and Secretary since
1999. He joined Butler in 1978 and became Vice President-Administration in
1993 and Assistant General Counsel and Assistant Secretary in 1987. Lee E. Lichlyter has been Vice President-Chief Information Officer since 2000,
and previously was Vice President of Information Systems Building Division. Paul F. Liljegren has been Treasurer since 1998. He joined Butler in 1979 and
was previously Vice President and Controller of Lester Building Systems. Larry C. Miller has been Vice President-Finance since 1998. He joined Butler
in 1980 and was previously the companys Treasurer. Nanka A. Schneider has been Controller and Director of Tax since 2003. She
joined Butler in 1981 and previously served as Director of Tax. Division Executive Officers Robert M. Adams has been President, Butler Real Estate, Inc. since February
2003 and was previously Vice President of Butler Real Estate since September
2002. Prior to joining Butler, he was a member of the law firm of Lathrop &
Gage LC. Moufid (Mike) Alossi has been President, Butler (Shanghai) Inc., since 1997.
He joined Butler in 1968 and was previously President of Butler World Trade and
Vice President-International Sales and Marketing. Thomas W. Harris has been President, Vistawall Group since 2001. He joined
Butler in 1984. He previously was Vice President Sales and Marketing from 1997
to 2000, and Vice President Vistawall Central Region in 2001. John R. Hill has been President, Lester Building Systems since 2000. He joined
Butler in 1980. He was previously Senior Vice President of Sales of Lester
Building Systems. Certain Matters Relating to the Audit Committee The company has a separately designated standing audit committee established by
the Board of Directors for the purpose of overseeing the accounting and
financial reporting processes of the company and audits of its financial
statements. The members of the Audit Committee are K. Dane Brooksher, Gary M.
Christensen, C. L. William Haw, Mark A. McCollum and William D. Zollars. The
company announced on February 15, 2004 the execution of a definitive Merger
Agreement with BlueScope Steel whereby the company expects to be acquired by
BlueScope in a transaction, subject to satisfying certain conditions, including
regulatory and shareholder approval, in April 2004. As a consequence, the Board
of Directors has not identified a financial expert as defined in Section
401(h) of Regulation S-K. 65




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##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance Based solely on a review of beneficial ownership reports furnished to the
company, the company believes that during 2003 all of its executive officers,
directors and greater-than-10% beneficial owners complied with Section 16(a) of
the Securities Exchange Act of 1934. Code of Ethics The company, its employees, officers and directors have been guided for more
than 20 years by its Business Conduct Policy, a written policy document
which sets forth expected standards of conduct applicable to many legal and
ethical settings. The Business Conduct Policy document is widely distributed
to all employees, officers and directors, however it may not fully comport
with the requirements of recently enacted Sarbanes-Oxley legislation. Because
the company announced on February 15, 2004 execution of a definitive agreement
of Merger with BlueScope Steel Limited, an Australian company, whereby the
company anticipates that it will be acquired by BlueScope Steel in a
transaction to be closed, subject to satisfying certain conditions, including
regulatory and shareholder approval, in April 2004, the company anticipates
that it will not conduct further annual shareholder meetings. As a
consequence, the company has not adopted a specific code of ethics applicable
to its principal executive officer, principal accounting officer or
controller. 
 Item 11. Executive Compensation Summary Compensation Table The table below shows all plan and non-plan compensation awarded to, earned
by, or paid to the companys Chief Executive Officer and its four most highly
compensated executive officers, other than the CEO, for services rendered to
the company and its subsidiaries during the periods indicated. Long-Term
    
    All OtherAnnual Compensation
    
    Compensation Awards
    
    CompensationRestricted
    
    Stock
    
    LTIPName and principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    Options
    
    Payoutsposition
    
    Year
    
    Salary
    
    Bonus
    
    Other(5)
    
    ($) (2)
    
    (# Shares)
    
    ($) (3)
    
    ($) (4)John J. Holland
    
    
    2003
    
    
    $
    424,801
    
    
    
    0
    
    
    $
    5,454
    
    
    
    0
    
    
    
    25,000
    
    
    
    0
    
    
    $
    3,900Chairman & Chief
    
    
    2002
    
    
    $
    423,262
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    7,492Executive Officer
    
    
    2001
    
    
    $
    402,769
    
    
    
    0
    
    
    $
    1,972
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    331,624Ronald E. Rutledge
    
    
    2003
    
    
    $
    302,001
    
    
    
    0
    
    
    $
    4,475
    
    
    
    0
    
    
    
    20,000
    
    
    
    0
    
    
    $
    3,765President & Chief
    
    
    2002
    
    
    $
    299,924
    
    
    
    0
    
    
    $
    2,923
    
    
    
    0
    
    
    
    40,000
    
    
    
    0
    
    
    $
    7,264Operating Officer
    
    
    2001
    
    
    $
    267,615
    
    
    $
    20,000
    
    
    $
    90,396
    (1)
    
    $
    4,988
    
    
    
    0
    
    
    
    0
    
    
    $
    135,282Larry C. Miller
    
    
    2003
    
    
    $
    233,500
    
    
    
    0
    
    
    $
    2,565
    
    
    
    0
    
    
    
    2,000
    
    
    
    0
    
    
    $
    1,035Vice President -
    
    
    2002
    
    
    $
    232,847
    
    
    $
    15,000
    
    
    $
    1,479
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    2,728Finance
    
    
    2001
    
    
    $
    214,081
    
    
    $
    9,000
    
    
    $
    1,362
    
    
    $
    2,255
    
    
    
    0
    
    
    
    0
    
    
    $
    65,676John W. Huey
    
    
    2003
    
    
    $
    190,500
    
    
    
    0
    
    
    $
    1,269
    
    
    
    0
    
    
    
    2,000
    
    
    
    0
    
    
    $
    1,670Vice President
    
    
    2002
    
    
    $
    190,000
    
    
    
    0
    
    
    $
    811
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    3,184General Counsel
    
    
    2001
    
    
    $
    183,654
    
    
    $
    7,400
    
    
    $
    522
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    3,849& SecretaryBarbara B. Bridger
    
    
    2003
    
    
    $
    171,800
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,000
    
    
    
    0
    
    
    
    0Vice President -
    
    
    2002
    
    
    $
    171,277
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    1,612Human Resources
    
    
    2001
    
    
    $
    156,016
    
    
    $
    10,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    $
    1,890
 (1) Includes $87,706 reimbursement of Mr. Rutledges relocation expenses
incurred in moving from Texas to Kansas City. 66




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##### Table of Contents



(2) In 2001 restricted stock of the value indicated was awarded to Messrs.
Holland, Rutledge and Miller and Ms. Bridger, respectively, based upon the
election of each to receive a portion of his/her annual bonus in Butler common
stock as described under the Restricted Stock Bonus Program. The restricted
stock vests on the third anniversary of the date of the award. Dividends are
payable on the restricted stock. At December 31, 2003, Mr. Holland held 1128
shares of restricted stock with a value of $24,816, Mr. Rutledge held 564
shares of restricted stock with a value of $12,408, Mr. Miller held 640 shares
of restricted stock with a value of $14,080, and Ms. Bridger held 66 shares of
restricted stock with a value of $1,452. (3) No payments have been earned or made under the companys Long Term
Incentive Plan described below under the caption Long Term Incentive Plan. (4) To offset its obligations under the companys Supplemental Retirement
Benefit Plan for executives whose retirement benefits cannot be fully funded
through the companys Base Retirement Plan for Salaried Employees, in 1994 and
2000 the company entered into split dollar life insurance agreements with one
or more of Messrs. Holland, Miller and Rutledge in which the company agreed to
pay the premiums for policies of split dollar life insurance on the lives of
such executives. The policies are owned by the executives, subject to the
terms of the agreements under which, upon an individuals retirement, the
company may recover its premium payments if the remaining cash surrender value
of the policy provides specified coverage for the individuals Supplemental
Retirement Benefit Plan benefit. Because of uncertainty concerning certain
provisions of the Sarbanes-Oxley Act of 2002, the company during 2002 modified
the split dollar life insurance agreements of Messrs. Holland, Miller and
Rutledge so that the company is no longer obligated to make cash premium
payments on the policies. Instead, either policy cash values or dividends
declared on the policies are applied to pay policy premiums. This arrangement
may be modified when there is further guidance on the applicability of the
Sarbanes-Oxley Act to split dollar arrangements. This data reflects the
actual cash premiums paid by the company for such policies, but due to the
above-described modification of the split dollar life insurance agreements
during 2002, the company paid no cash premiums in 2002 or 2003 with respect to
policies on the lives of executive officers. This column also:
 Includes the companys contributions to the Individual Retirement Asset
Account (IRAA) for Messrs. Holland, Rutledge and Miller of $1,000 in 2002 and
2003, for Mr. Huey of $950 in 2002 and 2003, and for Ms. Bridger of $856 in
2002 and 2003.  Includes insurance premiums paid by the company in 2002 with respect to term
life insurance for Mr. Holland of $1,084 in 2002 and $1,638 in 2003, Mr.
Rutledge of $2,384 in 2002 and $554 in 2003, Mr. Huey of $725 in 2002 and $725
in 2003, and Mr. Miller of $18 in 2002 and $19 in 2003. (5) Includes above market interest credited on participants balances in the
deferred compensation plan, including Mr. Holland of $5,454 in 2003, Mr.
Rutledge of $ 2,923 in 2002 and $4,575 in 2003, Mr. Miller of $1,479 and
$2,565 in 2003, and Mr. Huey of $811 in 2002 and $1,269 in 2003. Option/SAR Grants in Last Fiscal Year The following table provides certain information concerning individual grants
of stock options made during the last completed fiscal year under the Stock
Incentive Plan of 1996 to named executive officers. Individual GrantsPercent OfTotalNumber Of
    
    Options/Securities
    
    SARs
    
    ExerciseUnderlying
    
    Granted To
    
    Of Base
    
    
    
    Grant DateOption/SARs
    
    Employees In
    
    Price
    
    Expiration
    
    PresentName
    
    Granted (#)
    
    Fiscal Year
    
    ($/Sh)
    
    Date
    
    Value(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (3)J.J. Holland
    
    
    25,000
    
    
    
    26.73
    %
    
    
    20.01
    
    
    
    1/21/2013
    
    
    $
    107,002R.E. Rutledge
    
    
    20,000
    
    
    
    21.39
    %
    
    
    20.01
    
    
    
    1/21/2013
    
    
    $
    85,602J.W. Huey
    
    
    2,000
    
    
    
    2.13
    %
    
    
    20.01
    
    
    
    1/21/2013
    
    
    $
    8,560L.C. Miller
    
    
    2,000
    
    
    
    2.13
    %
    
    
    20.01
    
    
    
    1/21/2013
    
    
    $
    8.560B.B. Bridger
    
    
    2,000
    
    
    
    2.13
    %
    
    
    20.01
    
    
    
    1/21/2013
    
    
    $
    8,560
 67




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##### Table of Contents



(1) The options ordinarily vest in equal installments of one-third each on a
date 12, 24 and 36 months following the date of grant. In connection with the
proposed Merger all options will become vested. (2) The exercise price per share is the fair market value of the common stock
on the date of grant, based on the closing price of the companys common stock
on the New York Stock Exchange on that date. (3) Grant Date Present Value was calculated by using the Black-Scholes stock
option pricing model. The model, as applied, uses the grant date of January
21, 2003 and the fair market value on that date of $20.01 per share, as set
forth in the table above. The model also assumes (a) a risk-free rate of
return of 2.8% (which was the yield of a U.S. Treasury Strip zero coupon bond
with a maturity that approximates the term of the option), (b) a constant
dividend yield of 4.5%, based on a quarterly cash dividend rate on company
common stock of $.18 per share for the first quarter of 2003 and a cash
dividend rate of $.04 per share for the second quarter of 2003, (c) a stock
price volatility of 32% (calculated using month-end closing prices of company
common stock on the New York Stock Exchange for the period beginning with
January 1, 1999 and ending as of the end of the month preceding the grant date,
and (d) an exercise date, on average, of 10 years after grant. The company did
not adjust the model for non-transferability, risk of forfeiture, or vesting
restrictions. The actual value (if any) that an executive officer receives
from a stock option will depend upon the amount by which the market price of
company common stock exceeds the exercise price of the option on the date of
exercise. There can be no assurance that the amount stated as Grant Date
Present Value will actually be realized. Aggregated Option Exercises and Fiscal Year-End Option Value Table The following table sets out the number of exercised and unexercised options
and the value of all such in-the-money options held by the named executive
officers at December 31, 2003. The company has no Stock Appreciation Rights
(SARs) outstanding. Shares
    
    2003 Stock
    
    Number of Unexercised
    
    Value of UnexercisedAcquiredOn
Exercise
    
    Option
ExercisesValue
    
    Optionsat
December 31, 2003
    
    In-The-Money
Optionsat December 31, 2003 (1)Name
    
    (#)
    
    Realized (1)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableJ. J. Holland
    
    
    0
    
    
    
    0
    
    
    
    80,000
    
    
    
    25,000
    
    
    $
    0
    
    
    $
    49,750R.E. Rutledge
    
    
    0
    
    
    
    0
    
    
    
    50,000
    
    
    
    20,000
    
    
    $
    0
    
    
    $
    39,800J. W. Huey
    
    
    0
    
    
    
    0
    
    
    
    15,000
    
    
    
    2,000
    
    
    $
    0
    
    
    $
    3,980L. C. Miller
    
    
    0
    
    
    
    0
    
    
    
    15,000
    
    
    
    2,000
    
    
    $
    0
    
    
    $
    3,980B. B. Bridger
    
    
    0
    
    
    
    0
    
    
    
    16,000
    
    
    
    2,000
    
    
    $
    0
    
    
    $
    3,980
 (1) Reflects the amount by which the fair market value of Butler stock exceeded
(in the case of exercised options) or exceeds (in the case of unexercised
options) the option price. At December 31, 2003, the companys stock price was
$22.00. Some of the officers of Butler hold stock options to purchase shares of common
stock of Butler. In connection with the proposed Merger, any unvested options
will immediately become vested, and all options will be cancelled. If the
proposed Merger is completed, each option holder will be paid for each option
an amount in cash equal to the product of (A) the difference between $22.50 and
the per share exercise price of such option, and (B) the number of shares of
Butler common stock covered by such option, less any applicable withholding
taxes. The aggregate amount of cash to be paid to management option holders in
connection with the Merger is expected to be approximately $162,000, including
$62,250 to Mr. Holland, $49,800 to Mr. Rutledge, $4,980 to Mr. Miller, $4,980
to Mr. Huey, and $4,980 to Ms. Bridger. 68




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Long Term Incentive Plan The Long Term Incentive Plan (LTIP) is designed to reward executive officers by
means of cash performance awards and stock options as shareholder value
increases. The stock option component of the LTIP provides for options with
terms of up to 10 years; any awards under this component of the plan are
reflected in the Option/SAR Grant Table. The cash performance portion of the
LTIP contemplates three-year performance cycles, with a new cycle commencing at
the beginning of each year, the first of which began on January 1, 2001. The
performance measure for cash awards is based on total business return, a
measure of the creation of economic value in the companys business. Generally, total business return is calculated by (i) dividing changes in net
operating profit after taxes by the weighted average cost of capital, (ii)
adding free cash flow for the three year period, and (iii) dividing the result
by beginning investment levels. The levels of total business return required
for threshold, target and maximum payments were 25%, 35% and 55%, respectively,
for 2003 and are the same levels for each of the performance periods ending in
2004, 2005 and 2006. The following table shows the cash amounts that might be
paid under the LTIP with respect to the three-year periods ended December 31,
2004, December 31, 2005 and December 31, 2006 to the chief executive officer
and the four most highly compensated officers at the threshold, target and
maximum levels. There were no amounts payable under the LTIP with respect to
the performance period ending December 31, 2003. Performance PeriodThree Years Ended
    
    Estimated Future PayoutsDecember 31,
    
    Threshold
    
    Target
    
    MaximumJohn J. Holland
    
    2004, 2005 and 2006
    
    $
    138,000
    
    
    $
    276,000
    
    
    $
    552,000Ronald E. Rutledge
    
    2004, 2005 and 2006
    
    $
    54,000
    
    
    $
    108,000
    
    
    $
    216,000Larry C. Miller
    
    2004, 2005 and 2006
    
    $
    15,500
    
    
    $
    31,000
    
    
    $
    62,000John W. Huey
    
    2004, 2005 and 2006
    
    $
    15,500
    
    
    $
    31,000
    
    
    $
    62,000Barbara B. Bridger
    
    2004, 2005 and 2006
    
    $
    15,500
    
    
    $
    31,000
    
    
    $
    62,000
 Pension Plan Table The following table shows estimated annual benefits payable upon retirement at
age 65 to salaried employees in the specified compensation and years of service
classifications under the companys Base Retirement Plan and Supplemental
Benefit Plan. Average compensation generally means income reported on Federal
Income Tax withholding statements each year, including salary, bonus, and other
annual compensation but excluding relocation expenses and contributions the
company makes to provide benefits under other employee benefit plans. For credited service prior to September 1, 2003, the average compensation was
the employees average compensation for the five consecutive calendar years in
which compensation was the highest during the participants entire completed
calendar years of continuous employment through the 2002 calendar year. For
credited service after September 1, 2003, the average compensation is the
employees average compensation for the calendar years subsequent to calendar
year 2002. Benefits are calculated on the assumption that the benefits will be
payable over the participants lifetime and that no survivor benefits (which
would reduce the benefit shown) are to be paid. The benefits shown in the
table are subject to a deduction for the monthly income value of IRAA benefits
and of the cash value or death benefits of split dollar life insurance, if any.
Average compensation and years of credited service for the individuals named
in the compensation table at December 31, 2003 were: Mr. Holland, $475,629 and
24 years; Mr. Huey, $210,158 and 26 years; Mr. Rutledge, $301,988 and 20 years;
Mr. Miller, $257,411 and 24 years; Ms. Bridger, $174,755 and 23 years. 69




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Estimated Annual Pension for Years of Credited Service AverageCompensation
    
    10
    
    20
    
    30
    
    40$150,000
    
    $
    22,500
    
    
    $
    44,900
    
    
    $
    67,200
    
    
    $
    90,500$200,000
    
    $
    30,800
    
    
    $
    61,400
    
    
    $
    92,000
    
    
    $
    123,500$250,000
    
    $
    39,100
    
    
    $
    78,000
    
    
    $
    116,800
    
    
    $
    156,400$300,000
    
    $
    47,400
    
    
    $
    94,500
    
    
    $
    141,600
    
    
    $
    189,400$350,000
    
    $
    55,800
    
    
    $
    111,100
    
    
    $
    166,400
    
    
    $
    222,400$400,000
    
    $
    64,100
    
    
    $
    127,700
    
    
    $
    191,200
    
    
    $
    255,400$450,000
    
    $
    72,400
    
    
    $
    144,200
    
    
    $
    216,100
    
    
    $
    288,300$500,000
    
    $
    80,700
    
    
    $
    160,800
    
    
    $
    240,900
    
    
    $
    321,300$550,000
    
    $
    89,000
    
    
    $
    177,300
    
    
    $
    265,700
    
    
    $
    354,300$600,000
    
    $
    97,300
    
    
    $
    193,900
    
    
    $
    290,500
    
    
    $
    387,300
 Supplemental Benefit Plan and Split Dollar Life Insurance Agreements The company sponsors the Supplemental Benefit Plan, an unfunded and
nonqualified ERISA-excess retirement plan. The SBP restores retirement benefits
that are not allowed per the qualified plan by Internal Revenue Service (IRS)
limitations. The SBP applies the defined benefit formula from the qualified
retirement plan to that portion of an employees compensation that is in excess
of IRS limits. To offset certain payment obligations under Butlers Supplemental Benefit Plan,
Butler has entered into individual split dollar life insurance agreements with
certain of its current and former officers under which Butler has funded the
participants insurance premiums and has secured its financial interest with
collateral assignments on the various life insurance policies. Butlers
aggregate lump sum obligation under the Supplement Benefit Plan upon a change
in control event is $6.1 million, which is partially offset in the amount of
$2.4 million by various individual split dollar life insurance arrangements
resulting in a remaining cash payment obligation of $3.7 million. All of
Butlers obligations to its current officers under the Supplemental Benefit
Plan are offset by individual split dollar life insurance agreements. Therefore
none of the above described cash payments are due Messrs. Holland, Rutledge,
Miller, Huey, or Ms. Bridger. Per the terms of the Merger Agreement, within 15 days following the Merger
transaction, all accrued benefits under the Supplement Retirement Plan become
vested and Butler will be obligated to pay to all actively employed, terminated
with vested benefits, and retired participants under such plan a lump sum
amount equal to the total of the actuarial equivalent of any accrued benefits
under the Supplemental Benefit Plan plus an additional amount to cover the
incremental income tax of the participant with respective to receipt of such
lump sum. Under the provisions of the Split Dollar Life Insurance Agreements, at or
immediately prior to the Shareholder Approval Date, Butlers interest in the
insurance policies will terminate, resulting in an economic benefit to the
participants. The amount of benefits resulting from vesting of the
Supplemental Benefit Plan and termination of the companys interest in the
split dollar policies to all participants with split dollar arrangements is $3
million, including $933,000 to Mr. Holland, $280,000 to Mr. Rutledge, and
$110,000 to Mr. Miller. Mr. Huey and Ms. Bridger are not covered under the
Supplemental Benefit Plan and therefore do not have split dollar life insurance
agreements. Deferred Compensation Plan The company has an executive deferred compensation plan that allows
approximately 65 executives to defer up to 25% of their annual salary and up to
100% of any incentive pay. At the participants election, amounts deferred are
credited with earnings tied to a Bond Yield Index or Stock Composite Index.
Participants must defer their compensation until a specified date, their
retirement, termination of employment, death or disability or a change in
control of the company (as defined) and may elect to take the balance of their
deferred cash account at the end of the deferral period in a lump sum or in
monthly payments. Messrs. Rutledge and Miller participated in this Plan in
2003. Per the terms of the proposed Merger Agreement, all the participants in the
plan will be eligible for a lump sum cash payment of the balance of the
participants deferred benefit account to be paid within 15 days of the Merger
date. The 70




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amount of such lump sum cash payment for all participants as of December 31,
2003 is $5,316,837, including $114,410 to Mr. Holland, $288,285 to Mr.
Rutledge, $168,453 to Mr. Miller and $77,369 to Mr. Huey. Director Compensation Non-employee directors are paid a retainer of $20,000 per annum (all in Butler
common stock under the Director Stock Compensation Plan) and $1,500 for
attendance at each board and committee meeting and for attendance in connection
with special assignments. Attendance by means of conference telephone is
compensated at the rate of $1,000 per meeting. Each non-employee director
serving as a Committee Chair receives an additional chair fee of $2,000 per
year. Under the Director Deferred Fee Plan, non-employee directors may defer
all or a portion of fees earned, which deferrals are converted into units
equivalent to the value of company common stock. Such units are adjusted to
reflect dividends and, upon the directors termination, death or disability,
accumulated deferrals are distributed in the form of company common stock.
Travel allowances are provided where appropriate. Per the terms of the proposed Merger Agreement, the directors who have elected
to defer fees earned for serving as a director of Butler will receive a lump
sum cash distribution equal to the number of units in their respective account
multiplied by $22.50. As of December 31, 2003, the units available for
distribution totaled 20,311, including 6,581 units to K. Dane Brooksher, 3,458
units to Gary Christensen, 3,554 units to Susan F. Davis, 980 units to retired
director Robert J. Novello, 2,281 units to Gary L. Tapella, and 3,458 units to
William D. Zollars. Mark A. McCollum, a director of Butler, holds stock options to purchase shares
of common stock of Butler. In connection with the proposed Merger, any unvested
options will immediately become vested, and all options will be cancelled. If
the proposed Merger is completed, Mr. McCollum will be paid for his option an
amount in cash equal to the product of (A) the difference between $22.50 and
the per share exercise price of such option, and (B) the number of shares of
Butler common stock covered by such option, less any applicable withholding
taxes. The amount of cash paid to Mr. McCollum is expected to be $9,920. The company provides $50,000 of accidental death and term life insurance for
each non-employee director while the director serves as such and thereafter for
those who have served more than ten years. Directors who are employees of the
company receive no director compensation. Change of Control Employment Agreements The company had entered Change of Control Employment Agreements with Messrs.
Holland, Rutledge, Huey, Miller, and Ms. Bridger. Prior to their amendment
described below the agreements provided that (i) upon a change of control (as
defined in the agreements), the executive would be entitled to receive until
the third anniversary of the change in control a base salary, annual cash
bonuses and other fringe benefits at the highest levels provided to the
executive during certain periods immediately preceding the change in control;
(ii) upon a termination of the executive other than for cause, or upon the
executives resignation for good reason (as defined) or resignation during a
thirty (30) day period following the first anniversary of the change of
control, the executive would be entitled to receive a lump sum cash payment
consisting of (a) the executives base salary through the date of termination,
(b) a proportionate bonus based upon the executives annual bonus for the last
three fiscal years, (c) three times the sum of the base salary plus bonus the
executive is entitled to under the agreement, (d) other accrued obligations,
and (e) the difference between the actuarial equivalent of the retirement
benefit the executive would receive if he remained employed for the employment
period and the actuarial equivalent of the executives actual retirement
benefit; and (iii) for the remainder of the employment period, the executive
would be entitled to continued employee welfare benefits, including life and
family health insurance. If any payment to the executive, whether pursuant to
the Agreement or otherwise, would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, then the executive would be entitled
to receive an additional payment equal to the excise tax and other taxes with
respect thereto. The Agreements continued for a three-year term with provision
for automatic renewal. Benefits were to be provided subsequent to the
expiration of the Agreement if a change of control occurs during the initial or
any renewal term. In connection with the proposed Merger, BlueScope required that prior to the
signing of the Merger Agreement, Butler and the executives enter into new
agreements canceling their Change of Control Employment Agreements and
containing new non-competition and other restrictive covenants by the
executives. BlueScope further required that all
payments to be made to the executives in connection with such cancellations and
restrictive covenants be fully paid and 71




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discharged by Butler prior to the
closing of the Merger. In exchange for such cancellations and restrictive
covenants, Butler agreed to make the cash payments to the executives set forth
below prior to the closing of the Merger and to provide them with health and
welfare benefits for a period of three years following the closing of the
Merger. Under the new agreements, each executive will receive cancellation payments and
payment in consideration for the restrictive covenants in his or her agreement
in the following amounts: Restrictive CovenantsExecutive
    
    Cancellation Payment
    
    PaymentJohn J. Holland
    
    $
    431,878
    
    
    $
    1,200,000Ronald E. Rutledge
    
    
    525,302
    
    
    
    740,000John W. Huey
    
    
    429,948
    
    
    
    360,000Larry C. Miller
    
    
    439,965
    
    
    
    490,000Barbara B. Bridger
    
    
    346,623
    
    
    
    330,000
 In the event the merger
transaction is not consummated prior to August 1, 2004 the new agreements will be cancelled and the Change of Control Employment Agreements will be reinstated. Restricted Stock Bonus Program The company has a Restricted Stock Bonus Program that allows approximately 12
senior executives, including Messrs. Holland, Rutledge, Miller and Huey and Ms.
Bridger to elect to receive up to 50% of their annual bonus in the companys
common stock (Bonus Stock). If the eligible executive makes such an
election, the company will match the Bonus Stock at a 50% rate (Match Stock).
The Match Stock is restricted and not transferable for 3 years. If the
Executives employment is terminated prior to the end of 3 years (other than
due to retirement, disability, or a change of control of the company), or if
the Executive transfers his or her Bonus Stock during the 3-year period, the
Match Stock will be forfeited. The principal purpose of the Program is to
increase share ownership among senior executives and encourage close identity
of interests among them and shareholders. Some of the officers of Butler have been awarded bonuses in the form of
restricted stock of Butler. Per the terms of the proposed Merger Agreement,
any restrictions and provisions for forfeiture on this restricted stock will
automatically expire and lapse and all such restricted stock will immediately
be fully vested at the time the transaction closes. The amount of restricted
stock currently held by officers is approximately 11,817 shares, including
1,128 by Mr. Holland, 564 by Mr. Rutledge, 64 by Mr. Miller, and 66 by Ms.
Bridger. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding beneficial ownership of
Butler common stock by all present directors and the executive officers who are
listed in the Summary Compensation Table, and by all directors and executive
officers as a group as of January 31, 2004. Except as indicated, no director
or executive officer beneficially owns as much as one percent of all
outstanding Butler common stock. The table also sets forth the number of
shares beneficially owned and the percentage ownership of Butler common stock
by each other person believed by the company to own beneficially as much as
five percent of the total outstanding shares of Butler common stock, based on
shares outstanding as of December 31, 2003. Amount and Nature
    
    Percent ofof Beneficial
    
    Common StockStockholder
    
    Ownership +
    
    OwnedBarbara B. Bridger (a)
    
    
    3,238
    
    
    
    *K. Dane Brooksher (b)(g)
    
    
    6,166
    
    
    
    *Gary M. Christensen (b)(g)
    
    
    5,255
    
    
    
    *Susan F. Davis (b)(g)
    
    
    5,811
    
    
    
    *C. L. William Haw (g)
    
    
    27,696
    
    
    
    *John J. Holland (c)
    
    
    26,119
    
    
    
    *John W. Huey (d)
    
    
    6,295
    
    
    
    *Mark A. McCollum (g)
    
    
    5,156
    
    
    
    *Larry C. Miller (e)
    
    
    18,788
    
    
    
    *
 72




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Ronald E. Rutledge (f)
    
    
    67,261
    
    
    
    1.06
    %Gary L. Tapella (b)(g)
    
    
    7,439
    
    
    
    *William D. Zollars (b)(g)
    
    
    4,205
    
    
    
    *All Directors and Executive Officers as a Group of 20 (b)(h)
    
    
    260,569
    
    
    
    4.10
    %Trustee of Butler Manufacturing Company
Individual Retirement Asset Account (IRAA) (i)
    
    
    592,496
    
    
    
    9.40
    %Dimensional Fund Advisors, Inc. (j)
    
    
    366,440
    
    
    
    5.79
    %Wachovia Corporation (k)
    
    
    413,456
    
    
    
    6.53
    %Artisan Partners Limited Partnership (l)
    
    
    494,400
    
    
    
    7.80
    %Third Avenue Management LLC (m)
    
    
    375,800
    
    
    
    5.90
    %
   *
    
    Less than one percent of the outstanding shares of Butler common stock.+
    
    For purposes of the table, except as otherwise indicated, a person is
deemed to be a beneficial owner of shares of Butler common stock if the
person has or shares the power to vote or dispose of them, or if the
person has the right to acquire such power within 60 days through the
exercise of a stock option or otherwise (stock acquisition rights).Except as otherwise indicated, the address of each person listed in the table
is c/o Butler Manufacturing Company, 1540 Genessee, Kansas City, Missouri
64102.Unless otherwise indicated, each person has sole voting and investment power
over the shares listed under Amount and Nature of Beneficial Ownership above.
Percentage of ownership is calculated on the basis of 6,334,382 shares of
Butler common stock outstanding at January 31, 2004, plus the number of shares
subject to stock acquisition rights for those persons and groups holding such
rights. The stockholders disclaim beneficial ownership in the shares described
in the footnotes as being held by or held for the benefit of other persons. (a) Includes 1,667 shares subject to exercisable stock options, 1,292 shares in
Ms. Bridgers IRAA account and 83 shares in her Butler Employee Savings Trust
(BEST) 401(k) account. (b) Does not include phantom stock units allocated to the Directors Deferred
Benefit Account under the Director Deferred Fee Plan. At January 31, 2004, the
following directors had accumulated phantom stock unit balances as follows: Mr.
Brooksher  6,581 units; Mr. Christensen  3,690 units; Ms. Davis  3,554
units; Mr. Tapella  2,281 units; and Mr. Zollars  3,690 units. (c) Includes 8,334 shares subject to exercisable stock options, 3,471 shares in
Mr. Hollands IRAA account and 4,730 shares in his BEST 401(k) account. (d) Includes 667 shares subject to exercisable stock options, 2,879 shares in
Mr. Hueys IRAA account and 93 shares in his BEST 401(k) account. (e) Includes 667 shares subject to exercisable stock options, 1,626 shares in
Mr. Millers IRAA account and 170 shares in his BEST 401(k) account. (f) Includes 46,667 shares subject to exercisable stock options, 2,182 shares
in Mr. Rutledges IRAA account and 175 shares in his BEST 401(k) account. (g) Includes 4,000 shares subject to exercisable stock options. (h) Includes 81,171 shares subject to exercisable stock options, 18,262 shares
in officers IRAA accounts and 7,893 shares in officers BEST 401(k) accounts. 73




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(i) All of the shares are held for the benefit of Plan participants. Under the
Plan, UMB Bank, N.A., as trustee, passes on to participants voting and
permitted reinvestment decisions as to allocated shares. The Plans address is
1540 Genessee (P. O. Box 419917), Kansas City, Missouri, 64102. (j) Dimensional Fund Advisors (DMA) is an investment advisor to four
investment companies and investment manager to certain other commingled group
trusts and separate accounts, all of which it refers to as Funds. DMA reports
that it possesses sole voting and/or investment power with respect to 366,440
shares, all of which it reports are owned by the Funds. DMA disclaims
beneficial ownership of all of such shares. All information relating to DMA
(other than the percentage ownership) is as of December 31, 2003 and based on
its report on Schedule 13G filed on February 6, 2004. DMAs address is 1299
Ocean Avenue, 11th floor, Santa Monica, CA 90401. (k) Wachovia Corporation (Wachovia) is the parent holding company of Wachovia
Securities Inc., Evergreen Investment Management Company, and Wachovia Bank,
N.A. Wachovia reports that Wachovia Securities and Evergreen Investment
Management Company are investment advisors for mutual funds and/or other
clients, and that it possesses the sole power to dispose or direct the
disposition of 413,456 shares, 412,756 shares of which it possesses the sole
power to vote or direct the vote. Wachovias address is One Wachovia Center,
Charlotte, North Carolina 28288. All information relating to Wachovia (other
than the percentage ownership) is as of December 31, 2003 and based on its
report on Schedule 13G filed on February 10, 2004. (l) Artisan Partners is an investment adviser registered under section 203 of
the Investment Advisers Act of 1940; Artisan Corp. is the general partner of
Artisan Partners; Andrew A. Ziegler and Carlene Murphy Ziegler are the
principal stockholders of Artisan Corp. Artisan Partners reports that it has
shared power to vote or to direct the vote and shared power to dispose or to
direct the disposition of 494,400 shares. All information (other than the
percentage ownership) is as of December 31, 2003 and based on its report on
Schedule 13G filed on January 23, 2004. (m) Third Avenue Management LLC (Third Avenue) reports it is an Investment
Advisor registered under the Investment Advisors Act of 1940. Third Avenue
reports that it possesses solve voting power and sole power to dispose or
direct the disposition of 375,800 shares. Third Avenues address is 662 Third
Avenue, 32nd Floor, New York, NY 11017-6715. All information related to Third
Avenue (other than the percentage ownership) is as of December 31, 2003 and
based on its report on Schedule 13G filed January 20, 2004. Number of shares to be
    
    Weighted average of
    
    Number of shares remaining availableissued upon exercise of
    
    exercise price of
    
    for future issuance under equityoutstanding options,
    
    outstanding options,
    
    compensation plans (excluding shareswarrants, and rights
    
    warrants and rights
    
    reflected in column a (1))a
    
    b
    
    cEquity compensation plans
approved by shareholdeers
    
    
    440,500
    
    
    $
    24.70
    
    
    
    481,710Equity compensation plans not
approved by shareholdeers
    
    
    0
    
    
    $
    0.00
    
    
    
    0Total
    
    
    440,500
    
    
    $
    24.70
    
    
    
    481,710
 (1) Of these shares, as of December 31, 2003, an aggregate of 22,379 shares may
be issued as restricted stock bonus match shares under the Stock Incentive
Plan of 1996. 
 Item 13. Certain Relationships and Related Transactions None 74




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Item 14. Principal Accountant Fees and Services Set forth below are the aggregate fees billed the company by its principal
accountant, KPMG, LLP, for the years ended December 31, 2003 and 2002 for (i)
professional services rendered for the audit of the companys annual financial
statements and the reviews of the financial statements included in the
companys reports on Form 10-Q during such fiscal year (Audit Fees), (ii)
assurance and related services that are reasonably related to the performance
of the audit or review of the company financial statements but are not
included in Audit Fees (Audit Related-Fees), including employee benefit plan
audits and Sarbanes Oxley compliance work, (iii) professional services
rendered for tax compliance, tax advice or tax planning including expatriate
tax assistance (Tax Fees) and (iv) other products and services (Other
Fees). The Audit Committee has considered whether the provision of such services is
compatible with maintaining the independence of KPMG, LLP. The Audit Committee
has the sole right to engage and terminate the companys independent auditor,
to pre-approve the performance of audit services and permitted non-audit
services and to approve all audit and non-audit fees. The Audit Committee has
empowered its chairman to act on the committees behalf between meetings to
approve permitted non-audit services; the chairman must report any such
services to the Audit Committee at its next scheduled meeting. Fees Paid to KPMG as Principal Accountant Dollar in thousands
    
    2003
    
    2002Audit fees
    
    $
    339
    
    
    $
    238Audit related fees
    
    
    169
    
    
    
    45Tax fees
    
    
    44
    
    
    
    69Others fees
    
    
    
    
    
    
    Total
    
    $
    552
    
    
    $
    352
 Prior to May 16, 2002, the companys principal, independent accountant was
Arthur Andersen, LLP. Upon the Audit
Committees recommendation, the Board of Directors approved their dismissal;
see the note at Part II, Item 9 of this report. The company paid Arthur
Andersen, LLP a total of $181,000 for services rendered prior to their
dismissal, per the following categories, Audit Fees $56,000, Tax Fees $89,000
and Other Fees $36,000. None of the fees paid KPMG LLP in 2003 and 2002 were paid for services
approved by the Audit Committee pursuant to the deminimus provisions of
paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X. 75




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PART IV 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are included as part of this report: (1) Financial Statements:  
    
    Reports of Independent Public Accountants for the three-year period ended December 31, 2003.
    
    Consolidated Balance Sheets as of December 31, 2003 and 2002.
    
    Consolidated Statements of Earnings and Retained
Earnings for years Ended December 31, 2003, 2002, and 2001.
    
    Consolidated Statements of Comprehensive Income for
years ended December 31, 2003, 2002, and 2001.
    
    Consolidated Statements of Cash Flows for years ended December 31, 2003, 2002, and 2001.
    
    Notes to Consolidated Financial Statements. (2) Financial Statement Schedules:  
    
    Auditors Reports on Financial Statement and Schedule
II, Valuation and Qualifying Accounts.
    
    All other schedules are omitted because they are not
applicable or the information is contained in the consolidated
financial statements or notes thereto. (3) Exhibits: 2.1
    
    Agreement and Plan of Merger by and among BlueScope
Steel Limited, BSL Acquisition Corporation and Butler
Manufacturing Company, dated as of February 15, 2004,
(incorporated by reference to Exhibit 99.1 to the companys
report on Form 8-K dated February 17, 2004).3.1
    
    Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the companys form 10-Q for the
quarter ended, March 31, 1996).3.2
    
    Bylaws of Butler Manufacturing Company as amended
effective November 27, 2001 (incorporated by reference to Exhibit
3.2 of the companys 2001 Form 10-K).3.11
    
    Certificate of Designation of SERIES A, CLASS, 1
PREFERRED STOCK of BUTLER MANUFACTURING COMPANY (Pursuant to
Section 151 of the Delaware General Corporation Law), filed
September 23, 1999, pursuant to Rights Agreement appended as
Exhibit 4.3.4.1
    
    Note Agreement between the company and four Insurance
Companies dated as of June 1, 1994 (incorporated by reference to
Exhibit 4 of the companys Form 10-Q for the quarter ended June
30, 1994).4.1.1
    
    First Amendment to the June 1, 1994 Note Agreement
between the company and four Insurance Companies dated February
28, 2003 (incorporated by reference to Exhibit 4.1.1 of the
companys 2002 Form 10-K).4.2
    
    Note Agreement between the company and an Insurance
Company dated as of March 1, 1998 (incorporated by reference to
Exhibit 4 of the companys Form 10-Q for the quarter ended March
31, 1998).4.2.1
    
    First Amendment to the March 1, 1998 Note Agreement
between the company and Insurance Companies dated February 28,
2003 (incorporated by reference to Exhibit 4.2.1 of the companys
2002 Form 10-K).4.3.1
    
    Rights Agreement dated September 16, 1998, between
Butler Manufacturing Company and UMB Bank, N.A., which includes
the form of Rights as Exhibit C (incorporated by reference to
Exhibit 1.1 to the companys Form 8-A filed September 23, 1999).
 76




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4.3.2
    
    Amendment No. 1, dated February 15, 2004, to the Rights
Agreement, dated September 16, 1998, between Butler Manufacturing
Company and UMB Bank, N.A., as rights agent (incorporated by
referred to Exhibit 99.2 to the companys report on Form 8-K dated
February 17, 2004).4.4
    
    Note Agreement between the company and Insurance
Companies dated as of June 20, 2001 (incorporated by reference to
Exhibit 4.2 of the companys Form 10-Q for the quarter ended June
30, 2001).4.4.1
    
    First Amendment to the June 20, 2001 Note Agreement
between the company and Insurance Companies dated February 28,
2003 (incorporated by reference to Exhibit 4.4.1 of the companys
2002 Form 10-K).4.5
    
    Credit Agreement between the company and its banks dated
June 20, 2001 (incorporated by reference to Exhibit 4.1 of the
companys Form 10-Q for the quarter ended June 30, 2001).4.5.1
    
    Second Amendment to the credit agreement between the
company and its banks dated December 17, 2002 (incorporated by
reference to Exhibit 4.1.1 of the companys 8-K issued on
December 19, 2002)4.5.2
    
    Third Amendment to the credit agreement between the
company and its banks dated February 28, 2003 (incorporated by
reference to Exhibit 4.5.2 of the companys 2002 Form 10-K).4.6
    
    Security Agreement between the company and the banks and
note holders dated February 28, 2003 (incorporated by reference
to Exhibit 4.6 of the companys 2002 Form 10-K).4.7
    
    Intercreditor and Collateral Agency Agreement between
the company its banks and note holders dated February 28, 2003
(incorporated by reference to Exhibit 4.7 of the companys 2002
Form 10-K).4.8
    
    *Noteholder Amendment Agreement dated as of December 30,
2003, by and between Butler Manufacturing Company and the holders
of the 1994, 1998 and 2001 Note Agreements.4.9
    
    *Noteholder acknowledgement agreement between the
company and its note holders dated February 15, 2004.4.10
    
    *Payout Arrangements Agreement by and among BlueScope
Steel Limited, BSL Acquisition Corporation, the company, and the
companys note holders dated as of February 15, 2004.5.1
    
    Notice of a Minnesota District courts judgment awarded
the company on October 15, 2002, pertaining to its suit with
Louisiana-Pacific Corporate and its Innerseal siding product
(incorporated by reference to Exhibit 5 of the companys 8-K
issued on October 17, 2002).5.2
    
    Notice of a Minnesota District courts final judgment
awarded the company on January 27, 2003 pertaining to its suit
with Louisiana-Pacific Corporation and its Innerseal siding
product (incorporated by reference to Exhibit 5 of the companys
8-K issued on January 30, 2003).10.1
    
    +Butler Manufacturing Company Executive Deferred
Compensation Plan as amended (incorporated by reference to Exhibit
4 in the companys Registration statement on Form S-8 filed
December 20, 2000 (File No. 333-52338).10.2
    
    +Butler Manufacturing Company Stock Incentive Plan for
1987, as amended (incorporated by reference to Exhibit 10.1 to
the companys Form 10-K for the year ended December 31, 1990).10.3
    
    +Butler Manufacturing Company Stock Incentive Plan of
1979, as amended (incorporated by reference to Exhibit 10.2 to
the companys Form 10-K for the year ended December 31, 1990).10.4
    
    +Form of Change of Control Employment Agreements, as
amended, between the company and each of five executive officers
(incorporated by reference to Exhibit 10.3 to the companys Form
10-K for the year ended December 31, 1990).
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##### Table of Contents



10.5
    
    +Copy of Butler Manufacturing Company Supplemental
Benefit Plan as amended and restated (incorporated by reference
to Exhibit 10.5 to the companys Form 10-K for the year ended
December 31, 1994).10.6.1
    
    +Form of Butler Manufacturing Company Split Dollar Life
Insurance Agreement (Collateral Assignment Method; Bonus
Arrangement) entered into between the company and certain
executive officers (incorporated by reference to Exhibit 10.6 to
the companys Form 10-K for the year ended December 31, 1994).10.6.2
    
    +Form of Butler Manufacturing Company Split Dollar Life
Insurance Agreement (Collateral Assignment Method; Roll Out
Arrangement) entered into between the company and certain
executive officers (incorporated by reference to Exhibit 10.7 to
the companys Form 10-K for the year ended December 31, 1994).10.7
    
    +Butler Manufacturing Company Stock Incentive Plan of
1996 (incorporated by reference to Exhibit 4(a) to the companys
Registration Statement Number 333-02557 on S-8 filed April 17,
1996).10.9
    
    +Butler Manufacturing Company Director Stock
Compensation Program, as amended June 20, 2000 (incorporated by
reference to Exhibit 10.9 to the companys December 31, 2000 Form
10-K).10.10
    
    +Butler Manufacturing Company Restricted Stock
Compensation Program of 1996 (incorporated by reference Exhibit
10.10 to the companys December 31, 1997 Form 10-K).10.11
    
    +Form of Butler Manufacturing Company Split Dollar Life
Insurance Agreement (Collateral Assignment Agreement; Roll Out
Arrangement) entered into between the company and certain
executive officers for the year ended December 31, 2000
(incorporated by reference to Exhibit 10.11 to the companys
December 31, 2000 Form 10-K).10.12
    
    +Butler Manufacturing Company Director Deferred Fee
Plan Dated July 1, 2000 (incorporated by reference to Exhibit
10.12 to the companys December 31, 2000 Form 10-K).10.13
    
    
    +Summary of Butler Manufacturing Companys Long Term
Incentive Plan (incorporated by reference to Exhibit 13.1 to the
companys December 31, 2002 Form 10-K).18.0
    
    Accountants Preferability Letter dated August 9, 2001
and incorporated by reference to Exhibit 18 to the companys June
30, 2001 10-Q).21.1
    
    Set forth below is a list as of January 28, 2004 of
subsidiaries of the company and their respective jurisdictions of
incorporation. Subsidiaries not listed, when considered in the
aggregate as a single subsidiary, do not constitute a significant
subsidiary.
 Jurisdiction ofSubsidiary
    
    IncorporationButler Export, Inc.
    
    BarbadosBMC Real Estate, Inc.
    
    DelawareBUCON, Inc.
    
    DelawareButler Pacific, Inc.
    
    DelawareButler Real Estate, Inc.
    
    DelawareButler, S.A. de C.V.
    
    MexicoButler (Shanghai) Inc.
    
    ChinaButler (Tianjin) Inc.
    
    ChinaGlobal BMC (Mauritius) Holdings Ltd.
    
    MauritiusButler Holdings, Inc.
    
    DelawareComercial Butler Limitada
    
    ChileLesters of Minnesota, Inc.
    
    MinnesotaLester Buildings, Inc.
    
    DelawareLiberty Building Systems, Inc.
    
    DelawareModuline Windows, Inc.
    
    WisconsinButler Manufacturas, S. de R.L. de C.V.
    
    MexicoButler de Mexico, S. de R.L. de C.V.
    
    Mexico
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##### Table of Contents



23.1
    
    *Consent of KPMG LLP24.1
    
    *Power of Attorney to sign this Report by each director.31.1
    
    *Section 302 Certification of John J. Holland  Chairman and Chief Executive Officer.31.2
    
    *Section 302 Certification of
Larry C. Miller  Vice President  Finance and Chief Financial Officer.32.1
    
    **Section 906 Certification of John J. Holland  Chairman and Chief Executive Officer.32.2
    
    **Section 906 Certification of
Larry C. Miller  Vice President  Finance and Chief Financial Officer.*
    
    Filed herewith.**
    
    Furnished herewith.+
    
    Management contract or compensatory plan or arrangement.
 (b) The company has filed several reports on Form 8-K since the end of the
third quarter ended September 30, 2003.  
    
    Form 8-K dated November 3, 2003 referenced Third Quarter Results under Items 7 and 12.
    
    Form 8-K dated November 25, 2003 referenced Termination of Lester sale under Item 5.
    
    Form 8-K dated January 2, 2004 referenced Payment Deferral Agreement under Item 9.
    
    Form 8-K dated February 17, 2004 referenced Fourth Quarter Results under Items 7 and 12.
    
    Form 8-K dated February 17, 2004 referenced Plan of Merger with BlueScope Steel under Items 5 and 7.
    
    Form 8-K dated February 20, 2004 referenced Favorable
Court Ruling Received in Louisiana Pacific Case under Item 5. * * * * * * The calculation of the aggregate market value the companys Common Stock held
by non-affiliates shown on the front of the cover page assumes that directors
are affiliates. Such assumption does not reflect a belief by the company or
any director that any director is an affiliate of the company. 79




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##### Table of Contents



SCHEDULE II
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Thousands of Dollars) Balance at
    
    Charged
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    to
    
    
    
    
    
    Less:
    
    at endDescription
    
    of year
    
    earnings
    
    Other
    
    Deductions
    
    of yearAAllowance for Losses
on Accounts Receivable2003
    
    $
    7,496
    
    
    $
    1,226
    
    
    
    
    
    
    $
    (2,277
    )
    
    $
    1,705
    
    
    
    
    
    
    $
    4,7402002
    
    $
    7,138
    
    
    $
    3,286
    
    
    
    
    
    
    $
    (1,213
    )
    
    $
    1,715
    
    
    
    
    
    
    $
    7,4962001
    
    $
    5,130
    
    
    $
    3,768
    
    
    
    
    
    
    $
    (196
    )
    
    $
    1,564
    
    
    
    
    
    
    $
    7,138Restructuring Reserve2003
    
    $
    1,525
    
    
    $
    63
    
    
    
    
    
    
    $
    (668
    )
    
    $
    821
    C
    
    
    
    
    
    $
    992002
    
    $
    2,105
    
    
    $
    1,367
    B
    
    
    
    
    
    $
    
    
    
    $
    1,947
    C
    
    
    
    
    
    $
    1,5252001
    
    $
    
    
    
    $
    3,854
    B
    
    
    
    
    
    $
    
    
    
    $
    1,749
    C
    
    
    
    
    
    $
    2,105
 A
    
    Includes reclasses, transfers, and/or recoveries of reserve balances.
During 2003, the International Building Systems Segment recovered a large
receivable, and transferred reserves to a long term accounts receivable
reserve. There was a recovery of a large receivable in the Construction
Services segment in 2002.B
    
    Represents the Butler Europe accrual of
restructuring reserves for employee separation and termination costs, legal
costs, and other related costs to dispose of the business. An additional
amount was accrued in 2002 for Separation, termination, and legal costs
association with the dissolution of the European building business.C
    
    Represents the utilization of the Butler Europe restructuring reserve in 2001
and 2002.
 80