## Management’s Discussion and Analysis  of  Financial Condition and Results of Operations

### **Results of Operations**

Butler Manufacturing Company supplies products and services for  nonresidential construction markets. These markets are cyclical in nature. One  consequence of cyclicality is demand for the company’s products generally  increases and decreases at a rate greater than the movement of the general economy.  Most of the world’s economies entered into recession in 2001, and nonresidential  construction demand declined as expected. Butler Manufacturing Company’s  2001 financial results reflect the global recession.

**Chart: Sales By Segment (in millions)**

|                            | 2001 | 2000 | 1999 |
|---------------------------------|------|------|------|
|                                 |
| North American Building Systems | $440 | $530 | $546 |
| International Building systems  | $82  | $86  | $84  |
| Architectural Products          | $232 | $224 | $202 |
| Construction                    | $133 | $149 | $152 |
| Real Estate                     | $38  | $8   | $27  |

**Chart: Pretax Earnings By Segment (in millions)**

|                            | 2001   | 2000  | 1999  |
|---------------------------------|--------|-------|-------|
|                                 |
| North American Building Systems | $10.4  | $31.7 | $18.3 |
| International Building systems  | $(6.1) | $4.1  | $4.2  |
| Architectural Products          | $13.8  | $16.4 | $19.3 |
| Construction                    | $3.2   | $2.5  | $2.2  |
| Real Estate                     | $6.0   | $2.6  | $4.1  |

***2001 Compared to 2000***

The company’s sales were $897 million in 2001, down $63 million  or 6.6%, from the prior year. The majority of the decline occurred in the North  American Building Systems segment where sales were $440 million in 2001, a decline  of $90 million or 17%. Sales in the domestic nonresidential Butler® buildings  and Lester® buildings businesses were both lower than the prior year. Lower  sales in these businesses were the direct result of fewer opportunities in the  important commercial and manufacturing sectors. Construction buying decisions  were delayed or shelved, as the global economy entered a more severe decline  in the latter half of the year, accelerated by the terrorist attack of September  11. Weather conditions early in the year, especially in the northern half of  the U.S., slowed construction activity and contributed to the decline in annual  sales. However, the Liberty® metal buildings business, whose lower priced  product offering was introduced in the latter part of 2000, reported increased  revenues in 2001 as this business completed its first full year of operations.        The International Building Systems segment sales  were $82 million in 2001 compared with $86 million in 2000, a decline of 5.3%  from the prior year. Increases in revenues from the China metal buildings business  were not enough to offset the decline experienced in the European metal buildings  business.        Sales in the Architectural Products segment increased  3.3% in 2001 to $232 million compared with $224 million a year ago. The additional  capacity from the opening of a new extruding and finishing facility in Tennessee  contributed to the sales growth of this business. However, sales in the Architectural  Products segment slowed in the latter part of the year as the commercial construction  market demand declined.        The Construction Services segment reported sales  of $133 million in 2001 compared with $149 million, a decline of 11%. Lower  comparative sales during the first half of the year, and a shift in focus to  more material-erect projects, which produce less sales volume on a per project  basis, and a more selective pursuit of turnkey construction projects, contributed  to the decline. Construction Services experienced an increase in comparative  sales in the latter half of the year due to increased volume from relationship  accounts with multiple-location project opportunities, and a large governmental  project, which required repetitive standard structures on a fast-track implementation  schedule.        Real Estate segment sales in 2001 were $38 million,  an increase of $30 million over the prior year. The increase in sales was due  to a record backlog of completed projects available for sale at the beginning  of 2001 vs. 2000. Butler Real Estate’s revenue stream is more erratic than  that of the company’s manufacturing operations due to the project nature  of the business.        Gross profit in 2001 was $137 million, or 15.3%  of sales compared with $169 million, or 17.6% of sales in 2000. Gross profit  by segment is presented below.

|                                 |
|---------------------------------|
|                            | ***2001*** |   | *Change* |   | *Gross Profit as* |
|                            | ***Gross*** |   | *from* |   | *a % of sales* |
| *Dollars in millions*           | ***Profit*** |   | *2000* |   | ***2001*** |   | ***2000*** |
|                                 |
| North American Building Systems | **$** | **69** |   | $ | (30 | ) | **15.7** |   | 18.7 |
| International Building Systems  |   | **13** |   |   | (2 | ) | **15.9** |   | 17.0 |
| Architectural Products          |   | **40** |   |   | (1 | ) | **17.2** |   | 18.3 |
| Construction Services           |   | **13** |   |   | – |   | **9.4** |   | 8.2 |
| Real Estate                     |   | **2** |   |   | 1 |   | **6.0** |   | 15.6 |
|                                 |
| Total                           | **$** | **137** |   | $ | (32 | ) | **15.3** |   | 17.6 |
|                                 |

      Gross profit as a percent of sales  in the North American Building Systems segment was 15.7% in 2001 compared with  18.7% in 2000. Declining sales opportunities in the nonresidential construction  market caused by the economic downturn lowered this segment’s manufacturing  productivity and gross profit margins during the year. The U.S. metal buildings  business took one plant offline during the latter part of the year to better  balance its capacity with market demand. Competitive conditions throughout the  year reduced product selling prices, lowering gross profit margins as well.        International Building Systems segment gross  profit percentage was 15.9% in 2001 compared with 17% in 2000. The gross profit  percentage declined modestly in the China business and more severely in the  European business, primarily due to the impacts of competitive pricing generally  and recession in Europe specifically.        Gross profit as a percent of sales in the Architectural  Products segment was 17.2% in 2001 compared with 18.3% in the prior year. Start-up  costs associated with the new Tennessee plant, previously as out-sourced production  was transitioned in-house during the year,

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and the slowing commercial construction market in the latter half of the year  were the primary contributors to the decline.        The Construction Services segment’s gross  profit percentage increased to 9.4% in 2001 from 8.2% in the prior year. A shift  in focus to material-erect projects, a more selective pursuit of turnkey projects,  good project execution, and better margins on the multi-site program mentioned  previously were the primary causes for the improvement.        The Real Estate segment’s gross profit percentage  declined to 6% in 2001 from a historically high rate of 15.6% in the prior year.  Gross margins on project sales in 2001 reflected a more typical rate for the  merchant developer market niche in which Butler Real Estate operates.        The company’s sales, general, and administrative  expense was $115 million in 2001 compared with $124 million in 2000, a 7.4%  decrease from the prior year. The decrease was primarily accomplished in the  Building Systems and Construction Services segments, driven by volume decreases  as well as reductions from a number of continuous improvement, organizational  change, and cost control initiatives. Selling, general, and administrative expenses  increased in the International Building Systems and Architectural Products segments  due to expenditures to fund growth initiatives in both segments, including costs  associated with new plant capacity and an expanded sales presence in China.        During the fourth quarter the company recorded  pretax charges of $4.3 million for asset impairment and $3.9 million for restructuring,  related to the decision to sell certain assets and dispose of other assets related  to its European metal building operation. The after-tax impact of the charges  was $3.6 million, or $.58 per share. A letter of intent has been signed and  the sale is expected to close by the end of the first quarter of 2002. Excluding  these special charges, the operating loss for the company’s European operations  was $3.3 million during 2001. The European business is included in the International  Building Systems segment.        Operating income for 2001 was $14.3 million as  compared with $45.2 million in 2000.        Other income was $.9 million for the year compared  with expense of $1.6 million in the prior year. The primary reason for the favorable  increase was due to higher rental income in the company’s Real Estate segment.  Butler Real Estate entered 2001 with a record backlog of completed projects.  It generates rental income from tenants occupying completed real estate developments  while the facilities are being marketed for sale to third party investors.        Interest expense totaled $6.9 million in 2001  compared with $5.2 million the prior year. The increase was primarily due to  interest expense related to the new $50 million private placement notes issued  by the company to a group of insurance companies in June 2001.        Pretax earnings for 2001 were $16.4 million before,  and $8.3 million after asset impairment and restructuring charges associated  with the company’s European business. The company realized a $4.5 million  tax benefit associated with the pending sale of the European business.        The company’s effective tax rate was 2.4%  in 2001. This rate includes a $4.5 million benefit associated with the sale  of the European business. Excluding this benefit and the related special charges,  the effective rate would have been 28.7% as compared with 34.3% in the prior  year. A partial tax holiday for the company’s China subsidiary, favorable  settlements of tax audits, and the utilization of a capital loss carryforward  contributed to the lower effective rate in 2001.        The after-tax effect of the European special  charges decreased net earnings by $3.6 million or $.58 per share. Net earnings  were $8.1 million or $1.28 per share in 2001 compared with $25.2 million or  $3.86 per share in 2000. 

***2000 Compared to 1999***

The company’s sales decreased $13 million to $960 million  in 2000 compared with $973 million in 1999, a net decline of 1%. Three business  segments: Real Estate, Northern American Building Systems, and Construction  Services, posted lower sales. The Architectural Products and International Building  segments reported higher sales as presented in the graphs on page 14.        The Northern American Building Systems segment  reported higher sales. Domestic sales were up modestly; however, significantly  lower sales to its Latin American markets more than accounted for the 3% sales  decline for this segment during 2000. The International Building segment increased  $2 million to $86 million as European sales were up 14% and China sales matched  the prior year’s record level. Architectural Products sales increased $22  million, or 11%, due to increased demand for its products and its ability to  provide a high level of service to this market. Construction Services sales  declined $3 million in 2000 as we began to transition this business to pursue  more value-added work. Real Estate sales declined $20 million due to the timing  of its project sales.        Gross profit in 2000 was $169 million, or 17.6%  of sales compared to $172 million, or 17.7% of sales in 1999. Gross profit by  segment is presented below. 

|                                 |
|---------------------------------|
|                            | ***2000*** |   | *Change* |   | *Gross Profit as* |
|                            | ***Gross*** |   | *from* |   | *a % of sales* |
| *Dollars in millions*           | ***Profit*** |   | *1999* |   | ***2000*** |   | ***1999*** |
|                                 |
| North American Building Systems | **$** | **99** |   | $ | 1 |   | **18.7** |   | 18.1 |
| International Building Systems  |   | **15** |   |   | (1 | ) | **17.0** |   | 19.4 |
| Architectural Products          |   | **41** |   |   | (1 | ) | **18.3** |   | 20.9 |
| Construction Services           |   | **13** |   |   | – |   | **8.2** |   | 8.2 |
| Real Estate                     |   | **1** |   |   | (2 | ) | **15.6** |   | 12.8 |
|                                 |
| Total                           | **$** | **169** |   | $ | (3 | ) | **17.6** |   | 17.7 |
|                                 |

     Gross profit in the North American  Building Systems segment in 2000 improved as compared with the prior year. The  International Building Systems gross profit rate declined 2.4% to 17.0% as the  European business transitioned its manufacturing operations from Scotland to  Hungary, incurring extra costs for the year. Gross profit in the Architectural  Products segment declined in amount and percentage of sales. The business outgrew  its manufacturing capacity in 2000, and needed to substantially increase the  purchase of third-party extrusions and finishing at a cost premium. A new production  facility in Tennessee, to be completed in 2001, is expected to reduce manufacturing  costs and provide capacity for continued sales growth.        Gross profit in the Construction Services segment  for 2000 was comparable with the prior year, while the Real Estate segment gross  profit declined because of reduced project sales.        Selling, general, and administrative expenses  declined to $124 million, or 12.9% of sales, in 2000 compared with $134 million,  or 13.8% of sales, in 1999. The company reduced these costs by combining or  eliminating functions while improving its service to customers. Expansions of  our lean operating approach and continuous process improvements also helped  reduce these costs. In addition, the 1999 selling, general, and administrative  expenses included a $4.3 million write-down of a software project.        In 2000 the company recorded income of $.4 million  from a reversal of unutilized restructuring charges associated with the 1998

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## Management’s Discussion and Analysis  of  Financial Condition and Results of Operations

restructuring of the company’s Brazilian and European businesses.  In 1999 the company recorded charges, net of recoveries, of $1.1 million incident  to the restructuring of these businesses.        In 2000 the company recorded other expense of  $1.6 million compared with other income of $.2 million in 1999. Lower interest  income on short-term investments and losses on asset dispositions accounted  for the difference between the years.        Operating income increased 24% to $45.2 million  in 2000 compared with $36.5 million in 1999.        Interest expense declined to $5.2 million in  2000 compared with $5.6 million in 1999 due to a lower level of debt and a higher  level of interest capitalized as project cost for major facility additions during  2000. The company’s effective tax rate was 34.3% in 2000 and 17.1% in 1999.  The effective rate in 2000 benefited from an income tax holiday for the company’s  China subsidiary. The lower effective rate in 1999 was the result of the same  tax holiday plus a $5.8 million tax benefit realized from the sale of the company’s  Scottish subsidiary, Butler Building Systems Ltd.        Net earnings in 2000 were $25.2 million, or $3.86  per share, as compared to $25.8 million, or $3.63 per share. Net earnings in  1999 benefited from one-time items, which increased net earnings by $2.3 million,  or $.33 per share.

**Chart: Cash Increased $36 Million During 2001 (in millions)**

| **Sources**                                   |
|-----------------------------------------------|
| Net earnings adjusted for non-cash items      | $34 |
| Working Capital, net of noncurrent activities | $11 |
| Real Estate Developments                      | $29 |
| Net Borrowings Activities                     | $12 |
| **Uses**                                      |
| Capital Expenditures and Other                | $46 |
| Dividends and Treasury Stock                  | $4 |

### Liquidity and Capital Resources

Cash flow by activity for the last three years is summarized below.

| Dollars in millions                           | **2001**                   |    | 2000   |   | 1999   |   |
|-----------------------------------------------|----------------------------|---------|--------|--------|--------|--------|
|                                               |                       |
| Net Earnings adjusted for non-cash items      | **$**                      | **34**  |   | $      | 40     |   | $ | 47 |   |
| Working Capital, net of noncurrent activities |                       | **11**  |   |   | (12    | )      |   | 30 |   |
| Real Estate Developments                      |                       | **29**  |   |   | (34    | )      |   | – |   |
|                                               |                       |
|                                          | Total Operating Activities |    | **74** |   |   | (6     | ) |   | 77 |   |
|                                               |                       |
| Capital Expenditures and Other                |                       | **(46** | )      |   | (39    | )      |   | (15 | ) |
| Net Borrowings Activities                     |                       | **12**  |   |   | 28     |   |   | (4 | ) |
| Dividends and Treasury Stock                  |                       | **(4**  | )      |   | (19    | )      |   | (15 | ) |
|                                               |                       |
| Cash Flow                                     | **$**                      | **36**  |   | $      | (36    | )      | $ | 43 |   |
|                                               |                       |

      During 2001 the company increased  its cash and cash equivalents by $36 million. The main drivers of this increase  were $74 million generated from operations, and $12 million from net borrowing  activities. The main use of cash during 2001 was $45 million used for capital  investments, and $4 million for dividends.        The $74 million in operating cash flow was comprised  of several components. Net earnings of $8 million plus $26 million of non-cash  items charged to earnings, including depreciation and amortization expense,  and the European business asset impairment and restructuring charges provided  a total of $34 million. Decreases in working capital provided an additional  $30 million. Working capital decreased due to lower receivables and inventories  caused by both volume declines and improved management of both asset categories  in most segments. As a reduction to operating cash flow, other noncurrent operating  assets, net of liabilities, increased $19 million due to additions to capitalized  software costs, an increase in the long-term component of prepaid expense associated  with the company’s pension plans, and premiums paid on cash-surrender-value  insurance policies purchased to fund nonqualified plan benefits. Finally, proceeds  from the sales of real estate development projects, net of costs incurred for  new developments, provided additional operating cash of $29 million in 2001.        Funds used for investing purposes totaled $46  million in 2001, of which $45 million was used for capital projects compared  with $37 million in 2000, including $27 million for the new company and certain  division headquarters facility. Other significant property, plant, and equipment  investments included the completion of a second extrusion and finishing plant  for the Architectural Products business, and an office facility for the company’s  operations in China.        During 2001 the company entered into two credit  agreements to support short and long-term financing needs. In June, the company  replaced its then existing unsecured $40 million bank credit agreement with  a new unsecured $50 million bank credit facility. The new bank facility expires  in June 2004. The primary purpose of the bank line is to provide seasonal working  capital financing for the company’s domestic operations. It also supports  the company’s letter of credit needs. For the year, short-term domestic  bank borrowings averaged $20 million over 181 days compared with $13 million  over 291 days in 2000. The company also maintained a $3 million bank credit  line for its Hungarian metal buildings business, secured by the assets of the  business, and a $3 million credit facility for its China operations, secured  by certain assets of that business. At December 31, 2001, $44 million was available  for borrowings under the above noted facilities.        Also in June 2001, the company issued $50 million  in senior unsecured private placement notes to a group of insurance companies.  The notes carry an all-in fixed interest rate of 7.91%. Principal payments of  approximately $4.5 million begin in December 2006 and continue each year through  the notes’ final maturity in 2016. The note proceeds were used to pay down  short-term bank debt and to fund capital projects.         Based upon the current outlook for the company,  management believes the company’s anticipated operating cash flow, complemented  by the existing bank credit lines, is sufficient to meet foreseen liquidity  requirements.

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### 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.  Increases in the company’s steel costs are generally recaptured in the  price of the company’s products. During 2001 the company’s steel costs  remained relatively stable.        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 more sensitive to material cost movements because of its longer lead  times from project quoting to manufacture. Gains or losses on hedge contracts  are recorded as cost of sale adjustments when the underlying product sale is  recognized.        Effective January 1, 2001, the company adopted  the Statement of Financial Accounting Standards Statement (SFAS) No. 133 “Accounting  for Derivative Instruments and Hedging Activities”, as amended. At December  31, 2001, the fair value of open aluminum contracts recorded in its cumulative  other comprehensive income was $.2 million, pre tax. Unrealized gains on the  company’s Canadian currency exchange contracts were recorded in earnings  and were less than $.1 million pretax at December 31, 2001. At December 31,  2001, a 10% change in both aluminum or Canadian currency contracts was immaterial.

*Interest Rates:* Ninety-four 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 such debt. At December 31, 2001, holding all other  variables constant, including levels of indebtedness, a one percentage point  change in interest rates would result in approximately a $4 million change in  the fair market value of the company’s total debt. Principal payments over  the next five years on the fixed-rate debt are $23 million, with a weighted-average  interest rate of 7.4%. At the end of five years, then outstanding fixed-rate  debt of $81 million will carry a weighted-average interest rate of 7.4%. 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.        At December 31, 2001, the company’s net  asset investment in foreign operations was $27 million. Due to its relative  cost, limited availability, and the company’s long-term investment perspective,  the company does not hedge its foreign net asset exposure.        The company does hedge its short-term foreign  currency transaction exposure related to metal building sales activity in Canada.  Forward exchange contracts are purchased to cover a portion of the exposure.

**Chart: Capital Employed By Segment At Year End (in millions)**

|                            | 2001 | 2000 | 1999 |
|---------------------------------|------|------|------|
|                                 |
| North American Building Systems | $93  | $100 | $101 |
| International Building systems  | $27  | $29  | $18  |
| Architectural Products          | $92  | $84  | $59  |
| Construction                    | $(7) | $8   | $(1) |
| Real Estate                     | $28  | $52  | $21  |

### New Accounting Pronouncements

Effective January 1, 2001, the company implemented the Financial  Accounting Standards Board Statements (SFAS) No’s. 141 “Business Combinations”,  142 “Goodwill and Other Intangible Assets”, and 144 “Accounting  for Impairment or Disposal of Long-Lived Assets”. SFAS No. 141 covers accounting  for business combinations and eliminates the pooling of interest method of accounting  for business acquisitions. The statement requires that all acquisitions be accounted  for under the purchase method of accounting. The company has followed this accounting  method with prior acquisitions and plans to do so in the future. SFAS No. 142  eliminates future amortization of goodwill, recorded in business combinations,  and requires impairment of goodwill and intangible assets be assessed annually,  with valuation write-downs, if any, reflected in the financial statements.

### Pension Accounting Method Change and Pension  Funded Status

Effective January 1, 2001, the company changed its method of accounting  for recognizing pension plan asset gains and losses used in determination of  net pension expense for its base pension plan. The company changed from the  market-value method to a market-related-value method. The new method is widely  used and is preferable, because it more accurately matches expense to accounting  periods during which the benefits are earned, improving year-to-year comparability  of net period costs for this plan. The effect of this accounting change on 2001  net income was an increase of $.4 million or $.07 per share.

      The company’s defined benefit  pension plans all experienced negative investment results during 2001, for the  second consecutive year, as compared with the plans’ long-term asset return  assumption of 8.5%. The two-year asset return shortfall, from the 8.5% rate,  reduced pension plan funding by $23 million. In addition, the decline in long-term  interest rates during 2001 reduced the discount rate used to compute the present  value of the plans’ benefit obligations. The 50 basis point decrease in  the long-term benefit obligation discount rate increased the plans’ accumulated  benefit obligations by $3 million, at the December 31, 2001 measurement date.  The combined result of the above two events caused the accumulated benefit obligations  for certain pension plans of the company to exceed their respective plan assets  as of December 31, 2001.        As required by accounting standards, the company  recorded an other comprehensive income charge of $6.6 million, net of tax, with  a corresponding reduction in shareholders’ equity to recognize this funding  shortfall. In addition, the company reclassified its prepaid pension expense  of $9 million from a current asset to Investments and other assets. This reclassification  reflects the now long-term nature of this operating asset. The company’s  accrued pension liability for all pension plans as of December 31, 2001 was  $15 million.        A summary of the $6.6 million after-tax charge  to other comprehensive income is presented on page 18.

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## Management’s Discussion and Analysis  of  Financial Condition and Results of Operations

*Recap of Minimum Pension Liability Recognized  at December 31, 2001*

|                                                                                              |   |
|----------------------------------------------------------------------------------------------|--------|
|                                                                                         | ERISA  |   | Nonqualified |   |   |   |
| Dollars in thousands                                                                         | Plans  |   | Plan |   | **Total** |   |
|                                                                                              |   |
| Accumulated Benefit Obligation (ABO)                                                         | $      | 41,361 |   | $ | 2,911 |   | **$** | **44,272** |   |
| Fair Market Value of plan assets                                                             |   | 36,404 |   |   | – |   |   | **36,404** |   |
|                                                                                              |   |
| ABO in excess of plan assets                                                                 |   | 4,957 |   |   | 2,911 |   |   | **7,868** |   |
| Prepaid Pension Expense – plan contributions not        yet recognized in earnings |   | 9,392 |   |   | – |   |   | **9,392** |   |
| Accrued Liability, previously        recognized in earnings                             |   | – |   |   | (2,335 | ) |   | **(2,335** | ) |
|                                                                                              |   |
| Minimum Pension Liability recognized                                                         |   | 14,349 |   |   | 576 |   |   | **14,925** |   |
| Intangible Asset recognized –        unamortized prior service cost                |   | 4,237 |   |   | – |   |   | **4,237** |   |
|                                                                                              |   |
| Pretax charge to other comprehensive income                                                  |   | 10,112 |   |   | 576 |   |   | **10,688** |   |
| Income Tax benefit                                                                           |   | 3,842 |   |   | 219 |   |   | **4,061** |   |
|                                                                                              |   |
| Reduction in shareholders’ equity                                                       | $      | 6,270 |   | $ | 357 |   | **$** | **6,627** |   |
|                                                                                              |   |

### Management 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 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

The company’s critical accounting polices include its sales  recognition for construction contracts, inventory valuation, and estimation  of product liability for third-party claims.        Sales and gross profit recognition for construction  contracts are based upon the percentage completion method. This method requires  the company to estimate total 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 cost and estimated  gross profit, the company recognizes construction sales and gross profit over  the life of the project on a percentage completion basis. 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 costs at completion. Periodic  re-evaluations of total cost at completion estimates are made with the resulting  cumulative adjustments recognized in the current period financial statements.  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.        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,  2001, the cumulative effect of choosing the LIFO method was a reduction in inventory  values of $8.5 million. During 2001, the company reduced inventory levels, which  had the effect of charging the current year cost of sales with prior years’  costs. For 2001, the effect of reducing inventory levels increased net earnings  by $.3 million, or $ .05 per share.        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 will not have a material adverse effect  upon the company’s financial position or results of operations.

### Management Transition and Director Retirements

At the end of 2001 Mr. Donald H. Pratt retired as Chairman of  the Board after 36 years of service. In November 2001, Mr. John J. Holland was  named Chairman of the Board and Chief Executive Office (CEO) of the company.  Mr. Holland joined the company in 1980 and has served for 22 years, most recently  as President and CEO. Also in November 2001, Mr. Ronald E. Rutledge was elected  President and Chief Operating Officer of the company; he also was elected as  a Director to the company’s Board of Directors. He most recently served  as the company’s Executive Vice President. Mr. Rutledge had previously  served as President of the Vistawall Group since its acquisition by the company  in 1984.        Robert J. Novello retired from the Board of Directors  in 2001. Mr. Novello, the retired, former Chairman of the Copeland Corporation,  had served as a Director for five years.

### Share Repurchase Agreement and Cash Dividends

In April 2001 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, 2001, 345,600 shares remained available from the April 2001  Board authorization.

Page 18

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### Outlook

At the close of 2001 most global economies were in recession.  Nonresidential construction activity typically lags the movement in the general  economy by several months, thus the near-term outlook for the construction industry  is soft. Butler’s continued development of relationship accounts with major  corporations, growth of dealer distribution networks, development of new products,  and further expansion of existing products and services into underserved end-use  markets are ongoing initiatives which may lessen the effect of the economic  slow down. The company continues to manage and reduce current costs, while reducing  future costs through Kaizen and Lean Sigma process improvements. In addition,  the company’s systems approach to building construction solutions continue  to capture a dominant share of the nonresidential construction market it serves.  Order backlog at year-end was $291 million, 3% lower than a year ago.

### 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 with respect to (i) the cost  and timing of the completion of new or expanded facilities, (ii) the company’s  competitive position, (iii) the supply and price of materials used by the company,  (iv) the demand and price for the company’s products and services, or (v)  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.

Note: Percentages presented within the MD&A  are based upon amounts to the nearest thousand.

The sales by segment chart (page 14) presents  segment sales before elimination of intersegment sales. The pretax (page 14)  and capital employed (page 17) by segment charts do not present the other category.

 

## 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.

/S/ ARTHUR ANDERSEN LLP

Kansas City, Missouri  January 29, 2002

Page 19

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## Consolidated Balance Sheets

#### Butler Manufacturing Company

|                                          |                                 |
|------------------------------------------|--------------------------------------|
|                                          | *At December 31,*                    |
| *Dollars in thousands*                   | **2001**                             |   | 2000 |   |
|                                          |                                 |
| **Assets**                               |
| Current assets:                          |
|                                     | Cash and cash equivalents            | **$** | **52,569** |   | $ | 16,855 |   |
|                                     | Receivables:                         |   |   |   |   |   |   |
|                                     |                                      | Trade |   | **112,459** |   |   | 137,563 |   |
|                                     |                                 | Other |   | **4,201** |   |   | 5,914 |   |
|                                          |                                 |
|                                     |                                 |   |   | **116,660** |   |   | 143,477 |   |
|                                     |                                 | Allowance for possible losses |   | **(7,138** | **)** |   | (5,130 | ) |
|                                          |                                 |
|                                     |                                 |   | Net receivables |   | **109,522** |   |   | 138,347 |   |
|                                     | Inventories                          |   | **57,435** |   |   | 61,504 |   |
|                                     | Real estate developments in progress |   | **23,966** |   |   | 52,623 |   |
|                                     | Net current deferred tax assets      |   | **16,636** |   |   | 10,586 |   |
|                                     | Other current assets                 |   | **14,939** |   |   | 11,855 |   |
|                                          |                                 |
|                                     |                                 |   | Total current assets |   | **275,067** |   |   | 291,770 |   |
|                                     |                                 |   |   |   |   |   |
| Investments and other assets             |                                 | **48,741** |   |   | 35,000 |   |
|                                     |                                 |   |   |   |   |   |
| Assets held for sale                     |                                 | **3,684** |   |   | 3,832 |   |
|                                     |                                 |   |   |   |   |   |   |
| Property, plant, and equipment, at cost: |                                 |   |   |   |   |   |
|                                     | Land                                 |   | **7,280** |   |   | 5,646 |   |
|                                     | Buildings                            |   | **93,515** |   |   | 72,009 |   |
|                                     | Machinery, tools, and equipment      |   | **160,726** |   |   | 156,129 |   |
|                                     | Office furniture and fixtures        |   | **38,498** |   |   | 38,792 |   |
|                                     | Transportation equipment             |   | **2,341** |   |   | 1,856 |   |
|                                          |                                 |
|                                     | Accumulated depreciation             |   | **302,360** |   |   | 274,432 |   |
|                                     |                                 |   | **(159,090** | **)** |   | (157,036 | ) |
|                                          |                                 |
|                                     |                                 |   | Net property, plant, and equipment |   | **143,270** |   |   | 117,396 |   |
|                                          |                                 |
|                                     |                                 | **$** | **470,762** |   | $ | 447,998 |   |
|                                          |                                 |

See Accompanying Notes to Consolidated Financial Statements.

Page 20

----

 

|                                                    |                                                                                                                                                                         |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                    | *At December 31,*                                                                                                                                                            |
| *Dollars in thousands*                             | **2001**                                                                                                                                                                     |   | 2000 |   |
|                                                    |                                                                                                                                                                         |
| **Liabilities and Shareholders’      Equity** |
| Current liabilities:                               |
|                                               | Notes payable to banks                                                                                                                                                       | **$** | **2,100** |   | $ | 35,155 |   |
|                                               | Current maturities of long-term debt                                                                                                                                         |   | **5,617** |   |   | 5,563 |   |
|                                               | Accounts payable                                                                                                                                                             |   | **70,362** |   |   | 78,219 |   |
|                                               | Dividends payable                                                                                                                                                            |   | **1,131** |   |   | 1,064 |   |
|                                               | Accrued taxes and other expenses                                                                                                                                             |   | **79,624** |   |   | 54,440 |   |
|                                               | Accrued payroll and benefit expense                                                                                                                                          |   | **17,049** |   |   | 19,949 |   |
|                                               | Billings in excess of costs and estimated earnings                                                                                                                           |   | **1,564** |   |   | 3,045 |   |
|                                               | Taxes on income                                                                                                                                                              |   | **8,659** |   |   | 7,461 |   |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | Total current liabilities |   | **186,106** |   |   | 204,896 |   |
|                                                    |                                                                                                                                                                         |
| Net noncurrent deferred tax liabilities            |                                                                                                                                                                         | **3,683** |   |   | 1,409 |   |
|                                               |                                                                                                                                                                         |   |   |   |   |   |   |
| Other noncurrent liabilities                       |                                                                                                                                                                         | **18,254** |   |   | 22,679 |   |
|                                               |                                                                                                                                                                         |   |   |   |   |   |   |
| Long-term debt, less current maturities            |                                                                                                                                                                         | **98,244** |   |   | 53,298 |   |
|                                               |                                                                                                                                                                         |
| Shareholders’ equity:                         |                                                                                                                                                                         |   |   |   |   |   |
|                                               | Common stock, no par value, authorized 20,000,000 shares, issued 9,088,200        shares, at stated value, outstanding 6,280,783 shares in 2001 and 6,255,862        in 2000 |   | **12,623** |   |   | 12,623 |   |
|                                               | Foreign currency translation adjustment and hedging      activity                                                                                                            |   | **(165** | **)** |   | (1,477 | ) |
|                                               | Minimum pension liability, net of tax                                                                                                                                        |   | **(6,626** | **)** |   | – |   |
|                                               | Retained earnings                                                                                                                                                            |   | **223,594** |   |   | 220,113 |   |
|                                               | Cost of common stock in treasury, 2,807,417 shares      in 2001 and 2,832,338 shares in 2000                                                                                 |   | **(64,951** | **)** |   | (65,543 | ) |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | Total shareholders’ equity |   | **164,475** |   |   | 165,716 |   |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | **$** | **470,762** |   | $ | 447,998 |   |
|                                                    |                                                                                                                                                                         |

Page 21

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## Consolidated Statements of Earnings and  Retained Earnings

#### Butler Manufacturing Company

|                                                                       |                                         |
|-----------------------------------------------------------------------|----------------------------------------------|
|                                                                       | *Years Ended December 31,*                   |
| *Dollars in thousands, except per share amounts*                      |                                         | **2001** |   | 2000 |   | 1999 |   |
|                                                                       |                                         |
| Net sales                                                             | **$**                                        | **896,572** |   | $ | 960,377 |   | $ | 973,153 |   |
| Cost of sales                                                         |                                         | **759,331** |   |   | 791,654 |   |   | 801,144 |   |
|                                                                       |                                         |
|                                                                  | Gross profit                                 |   | **137,241** |   |   | 168,723 |   |   | 172,009 |   |
| Selling, general, and administrative expenses                         |                                         | **114,846** |   |   | 123,975 |   |   | 134,442 |   |
| Asset impairment charge                                               |                                         | **4,285** |   |   | – |   |   | – |   |
| Restructuring charge (credit)                                         |                                         | **3,854** |   |   | (441 | ) |   | 1,067 |   |
|                                                                       |                                         |
|                                                                  | Operating income                             |   | **14,256** |   |   | 45,189 |   |   | 36,500 |   |
| Other income (expense), net                                           |                                         | **935** |   |   | (1,637 | ) |   | 246 |   |
|                                                                       |                                         |
|                                                                  | Operating and other income (expense)         |   | **15,191** |   |   | 43,552 |   |   | 36,746 |   |
| Interest expense                                                      |                                         | **6,929** |   |   | 5,159 |   |   | 5,572 |   |
|                                                                       |                                         |
|                                                                  | Pretax earnings                              |   | **8,262** |   |   | 38,393 |   |   | 31,174 |   |
| Income tax expense                                                    |                                         | **202** |   |   | 13,178 |   |   | 5,340 |   |
|                                                                       |                                         |
|                                                                  | Net earnings                                 |   | **8,060** |   |   | 25,215 |   |   | 25,834 |   |
| Retained earnings at beginning of year                                |                                         | **220,113** |   |   | 199,229 |   |   | 178,536 |   |
|                                                                       |                                         |
|                                                                  |                                         | **228,173** |   |   | 224,444 |   |   | 204,370 |   |
| Dividends declared:                                                   |                                         |   |   |   |   |   |   |   |   |
|                                                                  | Common stock, $.70, $.66, and $.62 per share |   | **(4,400** | **)** |   | (4,241 | ) |   | (4,352 | ) |
| Net change in retained earnings from treasury stock      transactions |                                         | **(179** | **)** |   | (90 | ) |   | (789 | ) |
|                                                                       |                                         |
| Retained earnings at end of year                                      | **$**                                        | **223,594** |   | $ | 220,113 |   | $ | 199,229 |   |
|                                                                       |                                         |
| Basic earnings per share                                              | **$**                                        | **1.28** |   | $ | 3.87 |   | $ | 3.66 |   |
|                                                                       |                                         |
| Diluted earnings per share                                            | **$**                                        | **1.28** |   | $ | 3.86 |   | $ | 3.63 |   |
|                                                                       |                                         |

## Consolidated Statements of Comprehensive  Income

#### Butler Manufacturing Company

|                        |                               |
|------------------------|------------------------------------|
|                        | *Years Ended December 31,*         |
| *Dollars in thousands* |                               | **2001** |   | 2000 |   | 1999 |   |
|                        |                               |
| Net earnings:          | **$**                              | **8,060** |   | $ | 25,215 |   | $ | 25,834 |   |
|                   | Other comprehensive income (loss): |   |   |   |   |   |   |   |   |   |
|                   |                               | Foreign currency translation adjustment and hedging activity |   | **(437** | **)** |   | (375 | ) |   | (1,050 | ) |
|                   |                               | Minimum pension liability, net of tax |   | **(6,626** | **)** |   | – |   |   | – |   |
|                        |                               |
| Comprehensive income   | **$**                              | **997** |   | $ | 24,840 |   | $ | 24,784 |   |
|                        |                               |

 See Accompanying Notes to Consolidated Financial Statements.

Page 22

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## Consolidated Statements of Cash Flows

#### Butler Manufacturing Company

|                                                                                                 |                                                                                                                                                  |
|-------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                 | *Years Ended December 31,*                                                                                                                            |
| *Dollars in thousands*                                                                          |                                                                                                                                                  | **2001** |   | 2000 |   | 1999 |   |
|                                                                                                 |                                                                                                                                                  |
| **Cash flows from operating      activities:**                                                  |                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Net earnings                                                                                    | **$**                                                                                                                                                 | **8,060** |   | $ | 25,215 |   | $ | 25,834 |   |
| Adjustments to reconcile net earnings to      net cash provided (used) by operating activities: |                                                                                                                                                  |
|                                                                                            | Depreciation and amortization                                                                                                                         |   | **18,104** |   |   | 15,594 |   |   | 19,972 |   |
|                                                                                            | Asset impairment                                                                                                                                      |   | **4,285** |   |   | – |   |   | – |   |
|                                                                                            | Restructuring charge (credit)                                                                                                                         |   | **3,854** |   |   | (441 | ) |   | 1,067 |   |
|                                                                                            | Equity in loss (earnings) of joint ventures                                                                                                           |   | **87** |   |   | (349 | ) |   | (241 | ) |
|                                                                                            | Change in assets and liabilities, net of sale of      businesses and excluding effect of pension and hedging related other comprehensive      income: |   |   |   |   |   |   |   |   |   |
|                                                                                            |                                                                                                                                                  | Net receivables |   | **28,175** |   |   | (23,122 | ) |   | 15,034 |   |
|                                                                                            |                                                                                                                                                  | Inventories |   | **2,928** |   |   | (1,519 | ) |   | 10,405 |   |
|                                                                                            |                                                                                                                                                  | Real estate developments in progress |   | **28,657** |   |   | (33,898 | ) |   | 414 |   |
|                                                                                            |                                                                                                                                                  | Net current deferred tax assets |   | **285** |   |   | (1,581 | ) |   | (93 | ) |
|                                                                                            |                                                                                                                                                  | Other current assets and total current liabilities |   | **(1,908** | **)** |   | 9,707 |   |   | 10,387 |   |
|                                                                                            |                                                                                                                                                  | Other noncurrent operating assets and liabilities |   | **(18,836** | **)** |   | 4,241 |   |   | (5,786 | ) |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  |   | Net cash provided (used) by operating activities |   | **73,691** |   |   | (6,153 | ) |   | 76,993 |   |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  |   |   |   |   |   |   |   |   |
| **Cash flows from investing      activities:**                                                  |                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Capital expenditures                                                                            |                                                                                                                                                  | **(44,583** | **)** |   | (36,938 | ) |   | (13,634 | ) |
| Dividend received from joint venture                                                            |                                                                                                                                                  | **–** |   |   | 2,400 |   |   | – |   |
| Net increase in other nonoperating noncurrent assets                                            |                                                                                                                                                  | **(1,326** | **)** |   | (4,418 | ) |   | (641 | ) |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  |   | Net cash used by investing activities |   | **(45,909** | **)** |   | (38,956 | ) |   | (14,275 | ) |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| **Cash flows from financing      activities:**                                                  |                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Proceeds from issuance of long-term debt                                                        |                                                                                                                                                  | **50,701** |   |   | 1,650 |   |   | – |   |
| Repayment of long-term debt                                                                     |                                                                                                                                                  | **(5,755** | **)** |   | (5,373 | ) |   | (5,880 | ) |
| Net change in notes payable to banks                                                            |                                                                                                                                                  | **(33,001** | **)** |   | 31,731 |   |   | 1,528 |   |
| Dividends paid                                                                                  |                                                                                                                                                  | **(4,332** | **)** |   | (4,277 | ) |   | (4,344 | ) |
| Issuance of treasury stock                                                                      |                                                                                                                                                  | **871** |   |   | 778 |   |   | 2,812 |   |
| Purchase of treasury stock                                                                      |                                                                                                                                                  | **(279** | **)** |   | (15,121 | ) |   | (13,093 | ) |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  | Net cash provided (used) by financing activities |   | **8,205** |   |   | 9,388 |   |   | (18,977 | ) |
| Effect of exchange rate changes                                                                 |                                                                                                                                                  | **(273** | **)** |   | (375 | ) |   | (1,050 | ) |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  | Net change in cash and cash equivalents |   | **35,714** |   |   | (36,096 | ) |   | 42,691 |   |
| Cash and cash equivalents at beginning of year                                                  |                                                                                                                                                  | **16,855** |   |   | 52,951 |   |   | 10,260 |   |
|                                                                                                 |                                                                                                                                                  |
|                                                                                            |                                                                                                                                                  | Cash and cash equivalents at end of year | **$** | **52,569** |   | $ | 16,855 |   | $ | 52,951 |   |
|                                                                                                 |                                                                                                                                                  |

 See Accompanying Notes to Consolidated Financial Statements.

Page 23

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

### Significant Accounting Policies

***Principles of Consolidation***  The consolidated financial statements include Butler Manufacturing and all subsidiaries  more than 50% owned (herein stated as “the company”). Investments  in business entities in which the company does not have control (generally 20  to 50 percent ownership) are accounted for by the equity method. All significant  intercompany profits, account balances, and transactions are eliminated in consolidation.

***Reclassifications***  Certain reclassifications have been made to prior years information to conform  to the 2001 presentation.

***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.        The company is subject to third-party general  liability and workers compensation claims which arise in the ordinary course  of business. General liability and workers compensation claim costs include  an estimate of expected settlements, defense costs, and an allowance for claims  incurred but not yet reported that fall within the company’s deductible  arrangements with its insurers. Original claims estimates are based on the company’s  insurers’ and management’s evaluations of the nature and severity  of individual claims, however, ultimate claims settlement costs may vary from  original estimates. Estimates of future claim development costs, based on historical  claims development trends, are included in operating expense. The time period  from when a claim is asserted and ultimately resolved through dismissal or settlement  may be several years.

***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.        The company recognizes sales and gross profit  on construction contracts using the percentage of completion method based on  construction costs incurred and the total estimated costs of the construction  project. Construction project costs incurred is based on the delivery of goods  and completion of construction services as provided in the accordance with the  terms of the contract with the customer.        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.

***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.

***Inventories***  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. If the first-in, first-out  (FIFO) method had been used for all locations, inventories would have been $8.5  million and $9.9 million higher than those reported at December 31, 2001 and  2000, respectively.        The use of the LIFO method to calculate cost  of sales increased net earnings by $.9 million ($.14 per share) in 2001, decreased  net earnings by $.4 million ($.06 per share) in 2000, and increased net earnings  by $.5 million ($.08 per share) in 1999.        During 2001, inventory levels decreased in certain  of the company’s business units. Under the LIFO method this had the effect  of charging the 2001 cost of sales with prior years’ costs that were $.5  million lower than 2001 costs, thereby increasing net earnings by $.3 million  or $.05 per share. These amounts are included in the net earnings and per share  amounts presented above.

***Inventories by Component***

|                      |           |
|----------------------|----------------|
| Dollars in thousands | **2001**       |   | 2000 |   |
|                      |           |
| Raw materials        | **$**          | **20,132** |   | $ | 22,059 |   |
| Work in process      |           | **13,692** |   |   | 10,685 |   |
| Finished goods       |           | **32,100** |   |   | 38,686 |   |
|                      |           |
|                 | FIFO inventory |   | **65,924** |   |   | 71,430 |   |
| LIFO reserve         |           | **(8,489** | **)** |   | (9,926 | ) |
|                      |           |
|                 | Inventory      | **$** | **57,435** |   | $ | 61,504 |   |
|                      |           |

***Property, Plant, and Equipment***  Depreciation is calculated using the straight-line method over the estimated  useful lives of the assets. 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.        Interest has been capitalized in connection with  the development of new facilities and is amortized over the estimated useful  life of the related asset. Interest capitalized was $.6 million during the year  2001, $.3 million in 2000 and no interest was capitalized in 1999.

Page 24

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***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 $2.6 million,  $3.6 million and $2.9 million of research and development costs in 2001, 2000,  and 1999, respectively.

***Capitalized Software***  Capitalized software costs are recorded in “Investments and other assets”  in the consolidated balance sheets in accordance with the Accounting Standards  Executive Committee’s Statement of Position 98-1, “Accounting for  the Costs of Computer Software Developed or Obtained for Internal Use.”  At December 31, 2001 and 2000, capitalized software costs, net of amortization,  were $14.7 million and $13.8 million, respectively. Costs capitalized in 2001  includes the initial implementation of a scalable enterprise system in the U.S.  buildings business. Costs are amortized on a straight-line basis over periods  not exceeding 7 years once applications are implemented and operational. Amortization  of software cost was $4.4 million in 2001, $3.4 million in 2000, and $3 million  in 1999. During 2001 and 2000 unamortized costs of software applications were  reduced by $1.3 million and $4.9 million, respectively, and reflect the disposition  of certain software applications in the U.S. buildings business.

***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 will no longer be amortized over future  periods, but will be assessed at least annually for impairment using a fair  value based test. The company will adopt this new standard on January 1, 2002.        As of January 1, 2002 the company tested for  impairment the Architectural Products business segment using the income approach  and determined that its fair value exceeded its carrying value. On an on-going  basis, and absent any impairment indicators, the company will conduct similar  impairment tests and record any impairment loss.        Prior to the 2001 asset impairment charge, the  company had goodwill of $5.9 million, with $5.5 million in the Architectural  Products segment and $.4 million in the European operation of its International  Buildings Systems segment. European goodwill was written off in 2001 with the  disposition of the European business. At the end of year the company had goodwill  of $5.5 million. Goodwill was amortized over 40 years prior to adoption of this  standard. Goodwill amortization in 2001 was $1 million, net of tax. The effect  on net income of not amortizing these costs is anticipated to be $.1 million  ($.02 per share) for each of the next five years starting with 2002.        Other intangible assets include amortized cost  associated with non-compete agreements totaling $1.5 million at December 31,  2001, which are being amortized over the 15 year life of the agreements prior  to the adoption of this standard. For 2001 amortization was $.1 million, net  of tax.

***Derivative Instruments and Hedging Activities***  The Financial Accounting Standards Board issued SFAS No. 133 “Accounting  for Derivative Instruments and Hedging Activities”, as amended, effective  for fiscal years beginning January 1, 2001. These statements require derivative  instruments be recorded in the balance sheet at its fair value either as an  asset or liability. Changes in a derivative’s fair value are recognized  in current earnings or in other comprehensive income.        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 under SFAS No. 133. 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 related to ineffectiveness was recorded for open contracts  due to the highly effective nature of the hedges and the immaterially of the  ineffectiveness between the derivative and the underlying purchase transaction.  As of December 31, 2001, the amount recorded in cumulative other comprehensive  income related to these contracts, which is expected to be recognized in earnings  during 2002, is $.1 million, net of tax.        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 Northern  American Buildings 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 under SFAS No. 133, the company has not chosen  to designate these derivatives as hedge contracts, under SFAS No. 133, due the  immaterially 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 pre-designate  related forward currency exchange contracts as cash

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

flow hedges under SFAS No. 133 on a case-by-case basis. As of December 31,  2001, no such designation has been made.

***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, 2001 and 2000 the fair  value of the company’s long-term debt was not materially different than  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.

***Earnings Per Share***  Basic earnings per share is based upon the weighted average common shares outstanding  during each year. Dilutive earnings per share is based upon the weighted average  common and common equivalent shares outstanding during each year. Employee stock  options are the company’s only common stock equivalents; there are no other  potentially dilutive securities.

***Basic and Diluted Earnings Per Share (EPS) Computations***

|                                                                                  |
|----------------------------------------------------------------------------------|
|                                                                             | **2001** |
|                                                                             |  |
| Dollars in thousands,                                                            | Net |   |   |   | Per Share |
| except per share amounts                                                         | Earnings |   | Shares |   | Amount |
|                                                                                  |
| Basic EPS available to common shareholders                                       | **$** | **8,060** |   | **6,281** |   | **$** | **1.28** |
| Assumed conversion of stock options                                              |   |   |   | **4** |   |   |   |
|                                                                                  |
| Diluted EPS available to common shareholders       plus assumed conversions | **$** | **8,060** |   | **6,285** |   | **$** | **1.28** |
|                                                                                  |
|                                                                             |   |   |   |   |   |   |   |
|                                                                                  |
|                                                                             |   |   |   | 2000 |   |   |   |
|                                                                             |  |
| Dollars in thousands,                                                            | Net |   |   |   | Per Share |
| except per share amounts                                                         | Earnings |   | Shares |   | Amount |
|                                                                                  |
| Basic EPS available to common shareholders                                       | $ | 25,215 |   | 6,521 |   | $ | 3.87 |
| Assumed conversion of stock options                                              |   |   |   | 10 |   |   |   |
|                                                                                  |
| Diluted EPS available to common shareholders       plus assumed conversions | $ | 25,215 |   | 6,531 |   | $ | 3.86 |
|                                                                                  |
|                                                                             |   |   |   |   |   |   |   |
|                                                                             |   |   |   | 1999 |   |   |   |
|                                                                             |  |
| Dollars in thousands,                                                            | Net |   |   |   | Per Share |
| except per share amounts                                                         | Earnings |   | Shares |   | Amount |
|                                                                                  |
| Basic EPS available to common shareholders                                       | $ | 25,834 |   | 7,064 |   | $ | 3.66 |
| Assumed conversion of stock options                                              |   |   |   | 47 |   |   |   |
|                                                                                  |
| Diluted EPS available to common shareholders       plus assumed conversions | $ | 25,834 |   | 7,111 |   | $ | 3.63 |
|                                                                                  |

      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 quarters when the options’ exercise  price exceeded the average market price of the company’s common shares.

***Options Excluded from Diluted EPS***

|             |
|-------------|
| Year        |   |   |   |
| excluded    | Number of | Range of exercise | Year(s) the |
| from EPS    | option shares | prices for excluded | excluded options |
| calculation | excluded | option shares | expire |
|             |
| **2001**    | **487,719** | **$26.00 - $38.50** | **2001 to 2006** |
| 2000        | 513,500 | $26.00 - $38.75 | 2001 to 2006 |
| 1999        | 368,500 | $23.00 - $38.75 | 2001 to 2006 |

***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 at year end and average exchange rates, respectively. 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 less than $.1 million at December 31, 2001.  Cumulative foreign currency exchange translation losses were $1.5 million at  December 31, 2000.

***Comprehensive Income***  The components of comprehensive income are foreign currency translation adjustments,  hedging activities, and minimum pension liabilities. The tax effect on foreign  currency translations and hedging activities was deemed immaterial. Minimum  pension liability, net of taxes of $4.1 million, was $6.6 million.

***Construction Contracts***  Costs and estimated earnings in excess of billings on construction contracts  were $4.9 million and $4.3 million at December 31, 2001 and 2000, respectively,  and are reflected in the consolidated balance sheets under the caption “Inventories.”        Total receivables due under construction contracts,  which are included as trade receivables, were $21.7 million and $28.7 million  at December 31, 2001 and 2000, respectively. Included in the contract receivables  were $6.3 million and $5.1 million at December 31, 2001 and 2000, respectively,  for amounts billed but not collected pursuant to retainage provisions. These  amounts are generally due upon completion of the contracts. Contract receivables,  including retention, which the company expects to collect within the next twelve  months, are classified as Trade Receivables in the company’s

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balance sheet. Retention older than one year and included in Trade Receivables,  totaled $1.1 million and $.6 million at December 31, 2001 and 2000, respectively.  Contract receivables where the anticipated collection date is not within the  next twelve months are classified under Investments and other assets.

***Restructuring and Asset Impairment Charges***  During the fourth quarter of 2001, the company’s board of directors approved  the disposition of the assets of the company’s European building business  part of the international building systems segment. The company has entered  into a letter of intent to sell certain assets of the business. As a result,  the company recorded a $8.1 million pretax charge in December of 2001. $4.3  million of the pretax charge is for the write-down of certain assets at its  European business to estimated net realizable value based on estimated proceeds  from the sale in accordance with SFAS No. 121, “Accounting for the Impairment  of Long-lived Assets to be Disposed of”. The remaining $3.9 million is  a restructuring charge for employee separation costs, related to those employees  notified of a termination prior to December 31, 2001, costs to close offices,  and other expenses related to the disposition of the business.        In 1999, the company recorded a $1.5 million  restructuring charge for currency translation losses on remaining Brazilian  net asset which were written down in 1998 as part of a restructuring of the  Brazilian metal buildings business. Of the $.9 million in restructuring reserve  at the end of 1999, $.3 million was utilized and the remaining $.6 million was  taken to income as a recovery in 2000. Final activities related to restructuring  were completed during 2000, resulting in a $.4 million reversal of the remaining  accrual. In 2001 additional restructuring reserves totaling $3.9 million were  established and $1.7 million was utilized. Recap of activity in the restructuring  reserve during 2001 and 2000, is presented below.

***Restructuring Charge Accrual Activity***

|                                 |
|---------------------------------|
|                            |   |   |   | 2000 |   | 2001 |
|                            |   |   |  |
|                            | 12/31/99 |   |   |   |   |   |   |   | 12/31/00 |   |   |   |   |   |   |   | 12/31/01 |
| Dollars in thousands            | Balance |   | Accrual |   | Recovery |   | Utilized |   | Balance |   | Accrual |   | Recovery |   | Utilized |   | Balance |
|                                 |
| Severance and termination costs | $ | 256 |   | $ | – |   | $ | – |   | $ | (256 | ) | $ | – |   | $ | 1,161 |   | $ | – |   | $ | – |   | $ | 1,161 |
| Foreign Exchange Loss           |   | – |   |   | – |   |   | – |   |   | – |   |   | – |   |   | 1,749 |   |   | – |   |   | (1,749 | ) |   | – |
| Legal, claims, and other costs  |   | 629 |   |   | – |   |   | (620 | ) |   | (9 | ) |   | – |   |   | 944 |   |   | – |   |   | – |   |   | 944 |
|                                 |
|                            | $ | 885 |   | $ | – |   | $ | (620 | ) | $ | (265 | ) | $ | – |   | $ | 3,854 |   | $ | – |   | $ | (1,749 | ) | $ | 2,105 |
|                                 |

     The detail of restructuring  charges (credits) reported on the company’s statements of earnings for  2001, 2000, and 1999 is presented below.

***Restructuring and Asset Impairment Charges (Credits) Activity***

|                                            |     |
|--------------------------------------------|----------|
| Dollars in thousands                       | **2001** |   | 2000 |   | 1999 |   |
|                                            |     |
| European business                          | **$**    | **3,854** |   | $ | – |   | $ | – |   |
| Recoveries                                 |     | **–** |   |   | (620 | ) |   | (295 | ) |
| Redundant–worthless assets activity   |     | **–** |   |   | 179 |   |   | (152 | ) |
| Foreign currency devaluation – Brazil |     | **–** |   |   | – |   |   | 1,514 |   |
|                                            |     |
| Restructuring Charge (Credit)              | **$**    | **3,854** |   | $ | (441 | ) | $ | 1,067 |   |
|                                            |     |
| Asset Impairment Charge                    | **$**    | **4,285** |   | $ | – |   | $ | – |   |
|                                            |     |

***Assets Held for Sale***  BMC Real Estate, Inc., a wholly-owned subsidiary, owns land for development  which is included in “Assets held for sale” in the consolidated balance  sheets. During 2001 and 2000, one land parcel was sold each year. The gain on  each sale was less than $.1 million.

***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.        During 2000, the company received a $2.4 million  cash dividend from Saudi Building Systems, which represented a partial return  of equity earnings. The company’s investment was $2 million at December  31, 2001 and $2 million at December 31, 2000.        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. The company’s investment was $.3 million at December 31, 2001.

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

### 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 North American Buildings Systems segment  includes the building system businesses in Canada, the U.S., and Latin America.  The International Building Systems segment includes foreign building systems  businesses in Europe and Asia and the company’s international joint venture  operations in the Middle East. These business units supply steel and wood frame  pre-engineered building systems for a wide variety of commercial, community,  industrial, and agricultural applications.         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 in conjunction with the Butler  Builder organization. Typical projects are large distribution centers and industrial  buildings.        The Real Estate segment provides real estate  build-to-suit-to-lease development services in cooperation with Butler dealers.        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 because 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            | **2001** |   | 2000 |   | 1999 |   |
|                                 |     |
| North American Building Systems | **$**    | **440,049** |   | $ | 530,235 |   | $ | 546,398 |   |
| International Building Systems  |     | **81,644** |   |   | 86,235 |   |   | 83,513 |   |
| Architectural Products          |     | **231,509** |   |   | 224,130 |   |   | 202,332 |   |
| Construction Services           |     | **132,930** |   |   | 149,273 |   |   | 151,937 |   |
| Real Estate                     |     | **37,555** |   |   | 7,682 |   |   | 27,309 |   |
| Intersegment eliminations       |     | **(27,115** | **)** |   | (37,178 | ) |   | (38,336 | ) |
|                                 |     |
|                            | **$**    | **896,572** |   | $ | 960,377 |   | $ | 973,153 |   |
|                                 |     |

      Net sales represent revenues from sales to affiliated  and unaffiliated customers before elimination of intersegment sales which is  included in Intersegment eliminations. Intersegment eliminations are primarily  sales from the North American Building Systems to Construction Services.

***Interest Expense***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2001** |   | 2000 |   | 1999 |   |
|                                 |     |
| North American Building Systems | **$**    | **4** |   | $ | 27 |   | $ | 284 |   |
| International Building Systems  |     | **122** |   |   | 206 |   |   | 433 |   |
| Architectural Products          |     | **61** |   |   | – |   |   | – |   |
| Construction Services           |     | **–** |   |   | – |   |   | – |   |
| Real Estate                     |     | **383** |   |   | 351 |   |   | 92 |   |
| Other                           |     | **6,359** |   |   | 4,575 |   |   | 4,763 |   |
|                                 |     |
|                            | **$**    | **6,929** |   | $ | 5,159 |   | $ | 5,572 |   |
|                                 |     |

***Pretax Earnings (Loss)***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2001** |   | 2000 |   | 1999 |   |
|                                 |     |
| North American Building Systems | **$**    | **10,417** |   | $ | 31,673 |   | $ | 18,306 |   |
| International Building Systems  |     | **(6,075** | **)** |   | 4,127 |   |   | 4,170 |   |
| Architectural Products          |     | **13,828** |   |   | 16,381 |   |   | 19,263 |   |
| Construction Services           |     | **3,234** |   |   | 2,505 |   |   | 2,248 |   |
| Real Estate                     |     | **5,974** |   |   | 2,644 |   |   | 4,094 |   |
| Other                           |     | **(19,116** | **)** |   | (18,937 | ) |   | (16,907 | ) |
|                                 |     |
|                            | **$**    | **8,262** |   | $ | 38,393 |   | $ | 31,174 |   |
|                                 |     |

      The 2001 pre-tax loss for International Buildings  Systems includes special charges of $8.1 million associated with the segment’s  European operations.

***Assets***

|                                 |     |        |   |
|---------------------------------|----------|-------------|--------|
| Dollars in thousands            | **2001** |        | 2000   |   |   |   |
|                                 |     |        |   |
| North American Building Systems | **$**    | **138,690** |   | $ | 156,002 |   |   |   |   |
| International Building Systems  |     | **67,064**  |   |   | 62,563 |   |   |   |   |
| Architectural Products          |     | **112,785** |   |   | 108,688 |   |   |   |   |
| Construction Services           |     | **22,465**  |   |   | 31,231 |   |   |   |   |
| Real Estate                     |     | **28,406**  |   |   | 55,331 |   |   |   |   |
| Other                           |     | **101,352** |   |   | 34,183 |   |   |   |   |
|                                 |     |        |   |
|                            | **$**    | **470,762** |   | $ | 447,998 |   |   |   |   |
|                                 |     |        |   |

      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, and various other assets which are not related to a specific  business segment.

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***Capital Expenditures***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2001** |   | 2000 |   | 1999 |   |
|                                 |     |
| North American Building Systems | **$**    | **4,559** |   | $ | 5,248 |   | $ | 8,251 |   |
| International Building Systems  |     | **6,228** |   |   | 5,849 |   |   | 2,683 |   |
| Architectural Products          |     | **6,391** |   |   | 24,229 |   |   | 2,188 |   |
| Construction Services           |     | **176** |   |   | 212 |   |   | 299 |   |
| Real Estate                     |     | **–** |   |   | – |   |   | – |   |
| Other                           |     | **27,229** |   |   | 1,400 |   |   | 213 |   |
|                                 |     |
|                            | **$**    | **44,583** |   | $ | 36,938 |   | $ | 13,634 |   |
|                                 |     |

     Included in Other and North American Building  Systems for 2001 are the expenditures for the company’s new headquarters  facility. Included in Architectural Products for 2000 are expenditures for the  Tennessee extrusion facility.

***Depreciation and Amortization***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2001** |   | 2000 |   | 1999 |   |
|                                 |     |
| North American Building Systems | **$**    | **10,371** |   | $ | 9,322 |   | $ | 14,261 |   |
| International Building Systems  |     | **2,161** |   |   | 1,772 |   |   | 1,535 |   |
| Architectural Products          |     | **4,221** |   |   | 3,098 |   |   | 2,879 |   |
| Construction Services           |     | **729** |   |   | 786 |   |   | 714 |   |
| Real Estate                     |     | **8** |   |   | 8 |   |   | 9 |   |
| Other                           |     | **614** |   |   | 608 |   |   | 574 |   |
|                                 |     |
|                            | **$**    | **18,104** |   | $ | 15,594 |   | $ | 19,972 |   |
|                                 |     |

***Geographic Information by Country***  The following table presents revenues by country based on the location of delivery  of the product or service. The U.S. is the only country in which net sales exceeded  10% of the company’s consolidated net sales.

***Net Sales***

|                          |     |
|--------------------------|----------|
| Dollars in thousands     | **2001** |   | 2000 |   | 1999 |   |
|                          |     |
| United States of America | **$**    | **781,646** |   | $ | 824,552 |   | $ | 829,187 |   |
| All other countries      |     | **114,926** |   |   | 135,825 |   |   | 143,966 |   |
|                          |     |
|                     | **$**    | **896,572** |   | $ | 960,377 |   | $ | 973,153 |   |
|                          |     |

     The following table presents all noncurrent assets  by country based on the location of the asset. The U.S. is the only country  in which long-lived assets exceeded 10% of the company’s consolidated long-lived  assets.

***Tangible Long-Lived Assets***

|                          |     |        |   |
|--------------------------|----------|-------------|--------|
| Dollars in thousands     | **2001** |        | 2000   |   |   |   |
|                          |     |        |   |
| United States of America | **$**    | **141,034** |   | $ | 116,863 |   |   |   |   |
| All other countries      |     | **20,513**  |   |   | 18,485 |   |   |   |   |
|                          |     |        |   |
|                     | **$**    | **161,547** |   | $ | 135,348 |   |   |   |   |
|                          |     |        |   |

### Debt, Leases, Commitments, and Contingencies

***Long-Term Debt***

|                              |           |
|------------------------------|----------------|
| Dollars in thousands         |           |   | **2001** |   | 2000 |   |
|                              |           |
| 2001 private placement notes |           |   |   | **$** | **50,000** |   | $ | – |   |
| 1998 private placement notes |           |   |   |   | **35,000** |   |   | 35,000 |   |
| 1994 private placement notes |           |   |   |   | **10,000** |   |   | 15,000 |   |
| Industrial revenue bonds     |           |   |   |   | **6,250** |   |   | 6,250 |   |
| Other debt                   |           |   |   |   | **2,611** |   |   | 2,611 |   |
|                              |           |
| Total long-term debt         |           |   |   |   | **103,861** |   |   | 58,861 |   |
| Less current maturities      |           |   |   |   | **5,617** |   |   | 5,563 |   |
|                              |           |
|                         | Long-term debt |   |   |   | **$** | **98,244** |   | $ | 53,298 |   |
|                              |           |

***Long-Term Debt***  During 2001 the company issued $50 million in senior unsecured private placement  notes to a group of insurance companies. The 2001 private placement notes carry  an all-in fixed interest rate of 7.91% and are payable in equal annual installments  of $4.5 million beginning in 2006. The notes mature December 30, 2016.        The 1998 private placement notes carry a fixed  interest rate of 6.57% and are payable in equal annual installments of $3.5  million beginning in 2004. The notes mature March 20, 2013.        The 1994 private placement notes carry a fixed  interest rate of 8.02% and are payable in equal annual installments of $5 million.  The notes mature December 30, 2003.        The Industrial Revenue Bonds mature in 2015,  are guaranteed by the company, and are fully secured by a bank letter of credit  which is guaranteed by the company. The weighted-average interest rate on the  bond issue was 3.9% for 2001, 5% for 2000, and 3.9% for 1999.        Total principal payments due on all debt in each  of the five years subsequent to December 31, 2001 are $5.6 million in 2002,  $5.5 million in 2003, $4 million in 2004, $3.9 million in 2005, $3.8 million  in 2006, and $81.1 million thereafter. Cash payments for interest on long-term  debt were $6.9 million, $5.1 million and $4.6 million in 2001, 2000, and 1999,  respectively.

***Short-Term Borrowings***  During 2001 and 2000 the company borrowed to meet working capital needs and  other requirements. At December 31, 2001 the company and its subsidiaries had  short-term bank credit facilities totaling $56 million. Two foreign subsidiary  credit facilities totaling $6 million are secured. The $3 million facility for  the company’s Hungarian subsidiary is secured by all of its assets. Certain  assets of its assets secure the $3 million facility for the company’s China  subsidiary. Borrowings outstanding at December 31, 2001 were $2.1 million at  a weighted average interest rate of 5.27%. The company has committed $9.6 million  of its credit facilities under various letters of credit for certain obligations.  At December 31, 2001 the company had approximately $44.3 million of available  borrowing capacity under existing facilities.

Page 29

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

***Debt and Borrowing Covenants***  The company’s credit agreements contain certain limitations on additional  borrowings, the payment of cash dividends, and the purchase of company stock,  as well as covenants related to the maintenance of certain financial ratios.  As of December 31, 2001 the company was in compliance with all covenants and  at that date, approximately $29 million was available for additional cash dividends  and share repurchases.

***Leases***  Rental expense under operating leases was $10.9 million, $11.3 million, and  $11 million in 2001, 2000, and 1999, respectively. Minimum rental commitments  under noncancelable operating leases are $6 million in 2002, $4.5 million in  2003, $2.9 million in 2004, $1.4 million in 2005, and $.6 million in 2006.

***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.

***Related Party Transaction***  During 2001, the company purchased real estate in Kansas City, Missouri upon  which the company constructed its new corporate and certain division headquarters  building. The company purchased the site, constituting approximately 7.8 acres,  from N.F. Bldg. Corp., a unit of National Farms, Inc. for the price of $2.7  million. The purchase price was determined by independent appraisals of the  site. C.L. William Haw, a director of the company, is President and Chief Executive  Officer of National Farms, Inc.

### Taxes on Income

The components of the provision for income taxes are shown below. 

***Components of Income Taxes***

|                      |                     |
|----------------------|--------------------------|
| Dollars in thousands | **2001**                 |   | 2000 |   | 1999 |   |
|                      |                     |
| Current:             |                     |   |   |   |   |   |   |   |   |
|                 | Federal                  | **$** | **(1,646** | **)** | $ | 12,442 |   | $ | 3,665 |   |
|                 | Foreign                  |   | **720** |   |   | 186 |   |   | 13 |   |
|                 | State and local          |   | **842** |   |   | 2,131 |   |   | 1,755 |   |
|                      |                     |
|                 |                     |   | **(84** | **)** |   | 14,759 |   |   | 5,433 |   |
|                      |                     |
| Deferred:            |                     |   |   |   |   |   |   |   |   |
|                 | Federal                  |   | **479** |   |   | (1,456 | ) |   | (86 | ) |
|                 | Foreign                  |   | **(234** | **)** |   | – |   |   | – |   |
|                 | State and local          |   | **41** |   |   | (125 | ) |   | (7 | ) |
|                      |                     |
|                 |                     |   | **286** |   |   | (1,581 | ) |   | (93 | ) |
|                      |                     |
|                 | Total income tax expense | **$** | **202** |   | $ | 13,178 |   | $ | 5,340 |   |
|                      |                     |

      Tax expense in 2001 reflects a one-time tax  benefit of $4.5 million related to the disposition of the European business.  Year 2000 was the last year of a full tax holiday for the company’s Chinese  subsidiary. Beginning in 2001, its earnings were taxed at a reduced percentage  of the Chinese statutory rate. In 1999 the company sold all shares of its United  Kingdom metal building business and recorded a tax benefit of $5.8 million.  The sale of shares resulted in a capital loss used to offset prior capital gains.  Cash payments for income taxes were $3.6 million, $5.3 million, and $15.8 million  in 2001, 2000, and 1999, respectively. The foreign components of pretax earnings  were net profits (loss) of $(6.1) million, $4.5 million and $4.4 million in  2001, 2000 and 1999, respectively.        A reconciliation of the statutory federal income  tax and the income tax expense is shown below.

***Reconciliation of Income Tax Expense***

|                                                                                                                                     |                      |
|-------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
| Dollars in thousands                                                                                                                | **2001**                  |   | 2000 |   | 1999 |   |
|                                                                                                                                     |                      |
| Expected income tax expense on        pretax earnings before asset impair-        ment and restructuring charge | **$**                     | **5,615** |   | $ | 13,438 |   | $ | 5,100 |   |
| State and local income        tax, net of federal benefits                                                                |                      | **554** |   |   | 1,385 |   |   | 1,141 |   |
| Nondeductible losses (nontaxable        profits) of foreign subsidiaries                                                  |                      | **1,199** |   |   | (1,378 | ) |   | (1,533 | ) |
| Tax benefit from foreign sales corporation                                                                                          |                      | **(307** | **)** |   | (229 | ) |   | (350 | ) |
| China tax less than U.S. statutory rate                                                                                             |                      | **(1,195** | **)** |   | – |   |   | – |   |
| Settlement of audits                                                                                                                |                      | **(577** | **)** |   | – |   |   | – |   |
| Utilization of capital loss carryforward                                                                                            |                      | **(651** | **)** |   | – |   |   | – |   |
| Asset impairment and restructuring charge                                                                                           |                      | **(4,500** | **)** |   | – |   |   | – |   |
| Other                                                                                                                               |                      | **64** |   |   | (38 | ) |   | 982 |   |
|                                                                                                                                     |                      |
|                                                                                                                                | Actual income tax expense | **$** | **202** |   | $ | 13,178 |   | $ | 5,340 |   |
|                                                                                                                                     |                      |

      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 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.

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***Net Current Deferred Tax Assets and Liabilities***

|                                            |                            |
|--------------------------------------------|---------------------------------|
| Dollars in thousands                       | **2001**                        |   | 2000 |   | 1999 |   |
|                                            |                            |
| Current deferred tax assets (liabilities): |                            |   |   |   |   |   |   |   |   |
|                                       | Operating expenses              | **$** | **11,318** |   | $ | 9,722 |   | $ | 8,156 |   |
|                                       | Inventory                       |   | **1,439** |   |   | 656 |   |   | 821 |   |
|                                       | Restructuring charge            |   | **(182** | **)** |   | (27 | ) |   | – |   |
|                                       | Minimum pension liability       |   | **4,061** |   |   | – |   |   | – |   |
|                                       | Other                           |   | **–** |   |   | 235 |   |   | 261 |   |
|                                            |                            |
|                                       | Net current deferred tax assets | **$** | **16,636** |   | $ | 10,586 |   | $ | 9,238 |   |
|                                            |                            |

***Net Noncurrent Deferred Tax Assets and Liabilities***

|                                               |                                                                       |
|-----------------------------------------------|----------------------------------------------------------------------------|
| Dollars in thousands                          | **2001**                                                                   |   | 2000 |   | 1999 |   |
|                                               |                                                                       |
| Noncurrent deferred tax assets (liabilities): |                                                                       |   |   |   |   |   |   |   |   |
|                                          | Depreciation                                                               | **$** | **(9,621** | **)** | $ | (8,308 | ) | $ | (8,664 | ) |
|                                          | Operating expenses                                                         |   | **3,440** |   |   | 4,839 |   |   | 5,845 |   |
|                                          | Minority investments                                                       |   | **293** |   |   | 280 |   |   | (428 | ) |
|                                          | Foreign net operating loss and         capital loss carryforward |   | **2,675** |   |   | 1,641 |   |   | 1,347 |   |
|                                          | Asset impairment                                                           |   | **2,676** |   |   | 2,783 |   |   | 2,905 |   |
|                                          | Deferred income                                                            |   | **–** |   |   | (572 | ) |   | (655 | ) |
|                                          | Other                                                                      |   | **(471** | **)** |   | (431 | ) |   | (645 | ) |
|                                               |                                                                       |
|                                          | Net noncurrent deferred tax assets (liabilities)                           |   | **(1,008** | **)** |   | 232 |   |   | (295 | ) |
|                                          | Valuation allowance                                                        |   | **(2,675** | **)** |   | (1,641 | ) |   | (1,347 | ) |
|                                               |                                                                       |
|                                          |                                                                       | Net noncurrent deferred tax liabilities | **$** | **(3,683** | **)** | $ | (1,409 | ) | $ | (1,642 | ) |
|                                               |                                                                       |

### 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 as to retirement benefits, in a floor-offset  arrangement. The monthly benefit value of the IRAA lump sum distributable to  a participant 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 IRAA assets include the company’s common  stock, other equities, bonds, and government securities. The IRAA had net assets  of $50 million and $51 million, including 727,101 shares and 768,637 shares  of company stock with a market value of $19.9 million and $19.5 million at December  31, 2001 and 2000, respectively. The company expensed $.7 million for IRAA contributions  in 2001, 2000, and 1999, respectively.        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  market value of IRAA assets is not expressly shown in the tables, the effect  of the IRAA offset against the company’s defined benefit obligation has  been recognized by a reduction in the various benefit obligations presented.  The assets of the defined benefit plans are primarily equities, bonds, and government  securities.

***Reconciliations of Benefit Obligation and Plan Assets, Funded Status  and Amounts Recognized in the Consolidated Balance Sheets***

|                                                                                                                                                                           |                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| Dollars in thousands                                                                                                                                                      |                                        |   | **2001** |   | 2000 |   |
|                                                                                                                                                                           |                                        |
| **Reconciliation of projected benefit obligation**(Actuarial present value of future benefits including       future increases in compensation levels and future service) |                                        |   |   |   |   |   |   |   |   |
| Projected benefit obligation at January 1                                                                                                                                 |                                        |   |   | **$** | **101,258** |   | $ | 87,413 |   |
| Service cost–benefits earned during the year                                                                                                                         |                                        |   |   |   | **4,994** |   |   | 4,657 |   |
| Interest accrued on projected benefit obligation                                                                                                                          |                                        |   |   |   | **8,400** |   |   | 7,086 |   |
| Amendments to plans                                                                                                                                                       |                                        |   |   |   | **3,659** |   |   | 421 |   |
| Actuarial loss during the year                                                                                                                                            |                                        |   |   |   | **16,859** |   |   | 5,135 |   |
| Benefits paid                                                                                                                                                             |                                        |   |   |   | **(3,626** | **)** |   | (3,454 | ) |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      | Projected benefit obligation at December 31 |   |   |   | **$** | **131,544** |   | $ | 101,258 |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      |                                        |   |   |   |   |   |   |   |   |
| **Vested and accumulated benefit obligations**(For service and compensation through December 31)                                                                          |                                        |   |   |   |   |   |   |   |   |
| Vested benefit obligation                                                                                                                                                 |                                        |   |   | **$** | **76,149** |   | $ | 64,792 |   |
| Non-vested accrued benefits                                                                                                                                               |                                        |   |   | **$** | **6,715** |   | $ | 4,740 |   |
|                                                                                                                                                                           |                                        |
| Accumulated benefit obligation                                                                                                                                            |                                        |   |   | **$** | **82,864** |   | $ | 69,532 |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      |                                        |   |   |   |   |   |   |   |   |
| **Reconciliation of fair value of plan assets**                                                                                                                           |                                        |   |   |   |   |   |   |   |   |
| Fair value of plan assets at January 1                                                                                                                                    |                                        |   |   | **$** | **80,761** |   | $ | 79,325 |   |
| Actual return on plan assets                                                                                                                                              |                                        |   |   |   | **(5,258** | **)** |   | (3,993 | ) |
| Employer contributions                                                                                                                                                    |                                        |   |   |   | **10,176** |   |   | 8,883 |   |
| Benefits paid                                                                                                                                                             |                                        |   |   |   | **(3,626** | **)** |   | (3,454 | ) |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      | Fair value of plan assets at December 31    |   |   |   | **$** | **82,053** |   | $ | 80,761 |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      |                                        |   |   |   |   |   |   |   |   |
| **Funded status and net amount recognized at December 31**                                                                                                                |                                        |   |   |   |   |   |   |   |   |
| Funded status–projected benefit obligation        greater than plan assets                                                                                 |                                        |   |   | **$** | **(49,491** | **)** | $ | (20,497 | ) |
| Unrecognized net transition obligation cost                                                                                                                               |                                        |   |   |   | **2** |   |   | 77 |   |
| Unrecognized prior service cost                                                                                                                                           |                                        |   |   |   | **4,769** |   |   | 2,318 |   |
| Unrecognized net actuarial loss                                                                                                                                           |                                        |   |   |   | **53,428** |   |   | 25,336 |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      | Net amount recognized (see detail below)    |   |   |   | **$** | **8,708** |   | $ | 7,234 |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      |                                        |   |   |   |   |   |   |   |   |
| **Amounts recognized in the consolidated balance sheet at      December 31**                                                                                              |                                        |   |   |   |   |   |   |   |   |
| Prepaid pension expense                                                                                                                                                   |                                        |   |   | **$** | **9,391** |   | $ | 8,048 |   |
| Accrued pension liability                                                                                                                                                 |                                        |   |   |   | **(15,032** | **)** |   | (814 | ) |
| Intangible asset                                                                                                                                                          |                                        |   |   |   | **4,237** |   |   | – |   |
| Cumulative other comprehensive income                                                                                                                                     |                                        |   |   |   | **10,112** |   |   | – |   |
|                                                                                                                                                                           |                                        |
|                                                                                                                                                                      | Net amount recognized                       |   |   |   | **$** | **8,708** |   | $ | 7,234 |   |
|                                                                                                                                                                           |                                        |

 Page 31

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

     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 percent corridor, were recognized and amortized in determination of  the net periodic pension cost. The new method recognizes and then amortizes  annual asset gains or losses over a five-year period in 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.  However, had this method been applied retroactively, net income would have been  reduced by $.3 million or $.05 per share in 2000 and $.2 million or $.03 per  share in 1999.      The company also changed, effective April 1, 2001, the  period used to amortize prior service costs associated with amendments to its  pension plans. Previously, the effect of these amendments was amortized over  the average future working lifetime of those expected to receive benefits. The  new amortization period recognizes the cost of such plan amendments in the year  during which the benefit is earned. 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.

***Components of Net Pension Expense***

|                                                                                                 |                                              |
|-------------------------------------------------------------------------------------------------|---------------------------------------------------|
| Dollars in thousands                                                                            | **2001**                                          |   | 2000 |   | 1999 |   |
|                                                                                                 |                                              |
| Service cost – benefits earned during the year                                             | **$**                                             | **4,994** |   | $ | 4,657 |   | $ | 4,562 |   |
| Interest cost on the projected benefit obligation                                               |                                              | **8,400** |   |   | 7,086 |   |   | 6,172 |   |
| Expected return on plan assets                                                                  |                                              | **(7,412** | ) |   | (6,768 | ) |   | (5,609 | ) |
| Amortization of transition obligation                                                           |                                              | **75** |   |   | 197 |   |   | 197 |   |
| Amortization of prior service cost                                                              |                                              | **1,208** |   |   | 253 |   |   | 259 |   |
| Amortization of net actuarial loss                                                              |                                              | **1,437** |   |   | 704 |   |   | 1,282 |   |
|                                                                                                 |                                              |
|                                                                                            | Net pension expense                               | **$** | **8,702** |   | $ | 6,129 |   | $ | 6,863 |   |
|                                                                                                 |                                              |
| Key assumptions used to determine net        pension expense and benefit obligations: |                                              |   |   |   |   |   |   |   |   |
|                                                                                            | Discount rate of future benefit obligations       |   | **7.25%** |   |   | 7.75% |   |   | 7.75% |   |
|                                                                                            | Long-term expected return on plan assets          |   | **8.50%** |   |   | 8.50% |   |   | 8.50% |   |
|                                                                                            | Long-term rate of increase in compensation levels |   | **5.50%** |   |   | 5.50% |   |   | 5.50% |   |

***Other Benefit Plans***  The company sponsors the Butler Employees Savings Trust, a savings plan under  section 401(k) of the Internal Revenue Code. All U.S. based salaried and nonunion  hourly employees are eligible to participate in this plan. If certain company  profitability levels are attained, the company will match 30% of employees’  contributions, for employee contributions up to 6% of each employee’s eligible  compensation. In 2001, 2000, and 1999 the company reached the defined profitability  goals and accordingly expensed $1.8 million, $1.7 million, and $1.6 million,  respectively, as a matching contribution to the plan. In addition, the company  sponsors 401(k) savings plans for its bargaining unit employees.        The company sponsors a nonqualified ERISA-excess  retirement plan. The plan restores retirement benefits by applying the benefit  formula from the qualified plan to the portion of employee compensation that  is in excess of IRS limits for qualified plans. Life insurance arrangements  have been purchased to offset certain liabilities of the plan. The company expensed  $.4 million, $.7 million, and $1 million in 2001, 2000, and 1999, respectively,  related to this plan. In addition, the company recorded a pre-tax other comprehensive  income charge of $.6 million during 2001 for this plan.       The company offers a nonqualified, deferred compensation  plan to certain key executives. In 2001, 2000, and 1999 the company expensed  $.5 million, $.4 million, and $.4 million, respectively, which represented earnings  credited to participants’ accounts. The plan liability at December 31,  2001 and 2000 was $5.5 million and $5.2 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  measure is based on total business return, a measure of the creation of economic  value in the company’s business. At December 31, 2001, the company’s  liability under this plan for cash awards was $.3 million.

Page 32

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***Postretirement Benefits***  The company currently provides certain health care and life insurance benefits  for retired employees and their dependents. Substantially all employees become  eligible for these benefits if they reach retirement age while still working  for the company and have at least ten years of service. Company contributions  toward these benefits have been projected as fixed amounts per participant not  to exceed 175% of its 1993 per capita costs. Election of health care and life  insurance benefit coverage for retirees and dependents is optional, and requires  contributions by the retiree towards the cost of coverage. The company reserves  the right to change or terminate all employee benefits, including postretirement  benefits.       A reconciliation of benefit obligations and the  funded status and the accrued benefit liability is presented below.

***Reconciliation of Benefit Obligation, and the Funded Status and Accrued  Benefit Liability***

|                                                                                                |                                        |
|------------------------------------------------------------------------------------------------|---------------------------------------------|
| Dollars in thousands                                                                           |                                        |   | **2001** |   | 2000 |   |
|                                                                                                |                                        |
| **Reconciliation of projected benefit obligation**(Actuarial present value of future benefits) |                                        |   |   |   |   |   |   |   |   |
| Projected benefit obligation at January 1                                                      |                                        |   |   | **$** | **16,385** |   | $ | 14,301 |   |
| Service cost–benefits earned during the year                                              |                                        |   |   |   | **517** |   |   | 438 |   |
| Interest cost on projected benefit obligation                                                  |                                        |   |   |   | **1,222** |   |   | 1,070 |   |
| Actuarial loss during the year                                                                 |                                        |   |   |   | **1,186** |   |   | 2,121 |   |
| Benefits paid                                                                                  |                                        |   |   |   | **(2,874** | **)** |   | (2,536 | ) |
| Participant contributions                                                                      |                                        |   |   |   | **933** |   |   | 991 |   |
|                                                                                                |                                        |
|                                                                                           | Projected benefit obligation at December 31 |   |   |   | **$** | **17,369** |   | $ | 16,385 |   |
|                                                                                           |                                        |
| **Funded status and accrued benefit liability at December      31**                            |                                        |   |   |   |   |   |   |   |   |
| Projected benefit obligation, unfunded                                                         |                                        |   |   | **$** | **17,369** |   | $ | 16,385 |   |
| Unrecognized net transition obligation cost                                                    |                                        |   |   |   | **(5,255** | **)** |   | (5,733 | ) |
| Unrecognized net actuarial loss                                                                |                                        |   |   |   | **(7,789** | **)** |   | (6,917 | ) |
|                                                                                                |                                        |
|                                                                                           | Accrued benefit liability                   |   |   |   | **$** | **4,325** |   | $ | 3,735 |   |
|                                                                                                |                                        |

     The components of the annual net benefit cost  are presented below.

***Components of Net Benefit Cost***

|                                                          |             |
|----------------------------------------------------------|------------------|
| Dollars in thousands                                     | **2001**         |   | **2000** |   | 1999 |   |
|                                                          |             |
| Service cost – benefits earned during the      year | **$**            | **517** |   | $ | 438 |   | $ | 384 |   |
| Interest cost on the projected benefit obligation        |             | **1,222** |   |   | 1,070 |   |   | 912 |   |
| Amortization of transition obligation                    |             | **478** |   |   | 478 |   |   | 478 |   |
| Amortization of net actuarial loss                       |             | **396** |   |   | 216 |   |   | 86 |   |
|                                                          |             |
|                                                     | Net benefit cost | **$** | **2,613** |   | $ | 2,202 |   | $ | 1,860 |   |
|                                                          |             |

     For measurement purposes, annual rates of future  increases in the company’s per capita cost of covered health care benefits  were assumed to be 7% for 2002 and 4.5% for 2003. During 2003, it is projected  that the plan will reach the company’s contribution cap, which is defined  as, 175% of its 1993 per capita cost.       The discount rate assumption was 7.25% at December  31, 2001 and 7.75% at December 31, 2000 and 1999. The rate of future compensation  increases has no impact on the plan. The return on plan assets is not applicable  since the plan is unfunded and benefits are paid as claims are submitted.       Assumed health care trend rates can have a significant  effect on the amounts reported for the health care plans. However, since the  plan has capped the company’s cost at 175% of its 1993 per capita cost,  the effect on the company is not material. A 1% change in assumed health care  cost trend rates would have the following effects:

|                                                                                                     |        |
|-----------------------------------------------------------------------------------------------------|-------------|
| Dollars in thousands                                                                                | 1% Increase |   | 1% Decrease |   |
|                                                                                                     |        |
| Effect on total of service and interest cost        components of net annual benefit cost | $           | 72 |   | $ | (69 | ) |
| Effect on the health care component of        the projected benefit obligation            | $           | 246 |   | $ | (244 | ) |

### 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.       Stock options are presently outstanding under  the Stock Incentive Plans of 1996 and 1987. 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.

***Stock Options Recap at December 31,***

|                                                      |     |
|------------------------------------------------------|----------|
| Number of shares                                     | **2001** |   | **2000** |   | 1999 |   |
|                                                      |     |
| Granted and exercisable                              |     | **509,500** |   |   | 519,250 |   |   | 265,249 |   |
| Authorized, unissued, and available for future grant |     | **118,699** |   |   | 94,199 |   |   | 119,979 |   |
|                                                      |     |

Page 33

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## Notes to Consolidated Financial Statements

#### Butler Manufacturing Company

     Nonqualified stock options were granted by the  company in 2000 and 1999 to key employees under the 1996 plan. There were no  options granted in 2001. Options are granted at a fixed exercise price based  upon the fair market value on the date of the grant and expire no more than  10 years from the date of grant. Options granted in 2000 and 1999 vest one year  after the date of grant and expire five years from the date of grant. Below  is a summary of stock option activity for the three years ended December 31,  2001. 

***Summary of Stock Option Activity***

|                                  |
|----------------------------------|
|                             | **2001** | 2000 | 1999 |
|                             |  |
|                             |   |   | **Weighted-average** |   |   | Weighted-average |   |   | Weighted-average |
|                             | **Shares** |   | **Exercise Price** | Shares |   | Exercise Price | Shares |   | Exercise Price |
|                                  |
| Outstanding at beginning of year | **550,750** |   | **$28.59** | 542,249 |   | $28.70 | 378,516 |   | $25.72 |
| Granted                          | **–** |   | **–** | 31,500 |   | $23.00 | 278,000 |   | $26.00 |
| Exercised                        | **(16,750** | **)** | **$  9.26** | (9,999 | ) | $11.67 | (108,267 | ) | $11.11 |
| Forfeited                        | **(24,500** | **)** | **$30.81** | (13,000 | ) | $32.39 | (6,000 | ) | $33.44 |
|                             |  |   |   |  |   |   |  |   |   |
| Outstanding at end of year       | **509,500** |   | **$29.11** | 550,750 |   | $28.59 | 542,249 |   | $28.70 |
|                                  |

A summary of outstanding and exercisable options is  shown below.

***Stock Options Outstanding and Exercisable at December 31, 2001***

|                           |
|---------------------------|
|                      |   |   | Options Outstanding |   |   | **Options Exercisable** |
|                           |
| Range of                  |   | Number | Remaining | Weighted-Average |   | **Number** | **Weighted-Average** |
| Exercise Prices           |   | Outstanding | Life in Years | Exercise Price |   | **Exercisable** | **Exercise Price** |
|                           |   |  |   |  |
| $26.00                    |   | 270,000 | 2.1 | $26.00 |   | **270,000** | **$26.00** |
| $32.19 - 35.88            |   | 119,000 | 1.2 | $32.70 |   | **119,000** | **$32.70** |
| $38.75                    |   | 77,000 | .3 | $38.75 |   | **77,000** | **$38.75** |
| $10.33 - 23.00            |   | 43,500 | 2.8 | $21.47 |   | **43,500** | **$21.47** |
|                      |   |  |   |  |   |  |  |
| Total or weighted average |   | 509,500 | 1.7 | $29.11 |   | **509,500** | **$29.11** |
|                           |

     Since the company applies APB 25 in accounting  for its plans, no compensation cost has been recognized for stock options in  net income. Stock-based compensation cost if recorded under Statement of Financial  Accounting Standard No. 123, “Accounting for Stock-Based Compensation”,  would have decreased the company’s net income and earnings per share by  $0.1 million and $.02 per share in 2000, and $1.3 million and $.18 per share  in 1999.       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 $5 in 2000 and $8 in 1999.  The following assumptions were used:

| Assumption              | **2001** |   | 2000    |   | 1999    |
|-------------------------|----------|--------|---------|--------|---------|
|                         |
| Dividend yield          | **N/A**  |   | 2.6%    |   | 2.3%    |
| Risk-free interest rate | **N/A**  |   | 5.1%    |   | 6.6%    |
| Volatility              | **N/A**  |   | 25%     |   | 34%     |
| Life of option          | **N/A**  |   | 5 years |   | 5 years |

     The company did not grant stock options during  2001.

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### Treasury Stock Activity

|                      |     |
|----------------------|----------|
| Thousands of dollars | **2001** |   | 2000 |   | 1999 |   |
|                      |     |
| Balance, January 1   | **$**    | **65,543** |   | $ | 51,200 |   | $ | 40,919 |   |
| Purchases            |     | **279** |   |   | 15,121 |   |   | 13,093 |   |
| Issues               |     | **(871** | **)** |   | (778 | ) |   | (2,812 | ) |
|                      |     |
| Balance, December 31 | **$**    | **64,951** |   | $ | 65,543 |   | $ | 51,200 |   |
|                      |     |

     As a result of options exercised and the issuance  of treasury stock, the company recognized a tax benefit of $.1 million, $.1  million, and $.5 million in 2001, 2000, and 1999, respectively, which was credited  directly to retained earnings.

|                             |     |
|-----------------------------|----------|
| (Number of shares)          | **2001** |   | 2000 |   | 1999 |   |
|                             |     |
| Balance, January 1          |     | **2,832,338** |   |   | 2,211,646 |   |   | 1,806,202 |   |
| Purchases                   |     | **12,730** |   |   | 654,300 |   |   | 527,321 |   |
| Issues                      |     | **(37,651** | ) |   | (33,608 | ) |   | (121,877 | ) |
|                             |     |
| Balance, December 31        |     | **2,807,417** |   |   | 2,832,388 |   |   | 2,211,646 |   |
|                             |     |
|                        |     |   |   |   |   |   |   |   |   |
| Average cost at December 31 | **$**    | **23.14** |   | $ | 23.14 |   | $ | 23.15 |   |

### Quarterly Financial Information (Unaudited)

|                                        |
|----------------------------------------|
|                                   | Quarter Ended |   |   |   |
|                                   |  |   |   |   |
| **2001**                               | March 31 |   | June 30 |   | Sept. 30 |   | Dec. 31 |   | Annual |
|                                        |
| Net Sales                              | $ | 194,859 |   | $ | 213,672 |   | $ | 249,676 |   | $ | 238,365 |   | $ | 896,572 |
| Gross profit                           |   | 24,765 |   |   | 33,658 |   |   | 40,906 |   |   | 37,912 |   |   | 137,241 |
| Net earnings (loss)                    |   | (2,685 | ) |   | 3,307 |   |   | 5,928 |   |   | 1,510 |   |   | 8,060 |
| Basic earnings (loss) per share        | $ | (0.43 | ) | $ | 0.53 |   | $ | 0.94 |   | $ | 0.24 |   | $ | 1.28 |
| Diluted earnings (loss) per share | $ | (0.43 | ) | $ | (0.54 | ) | $ | 0.94 |   | $ | 0.24 |   | $ | 1.28 |
| Dividends  declared per share     | $ | .17 |   | $ | .17 |   | $ | .18 |   | $ | .18 |   | $ | .70 |

     Annual earnings per share for 2001 do not equal  the sum of the quarterly earnings per share because of the timing of net earnings  and the company’s purchase of common shares during the year. The first  and second quarter net earnings were restated to reflect the accounting method  change for determination of the company’s net pension expense.

|                                    |
|------------------------------------|
|                               | Quarter Ended |   |   |   |
|                               |  |   |   |   |
| 2000                               | March 31 |   | June 30 |   | Sept. 30 |   | Dec. 31 |   | Annual |
|                                    |
| Net Sales                          | $ | 219,189 |   | $ | 244,036 |   | $ | 249,671 |   | $ | 247,481 |   | $ | 960,377 |
| Gross profit                       |   | 34,714 |   |   | 42,157 |   |   | 47,231 |   |   | 44,621 |   |   | 168,723 |
| Net earnings                       |   | 2,215 |   |   | 6,643 |   |   | 9,431 |   |   | 6,926 |   |   | 25,215 |
| Basic earnings per share           | $ | .33 |   | $ | 1.01 |   | $ | 1.47 |   | $ | 1.09 |   | $ | 3.87 |
| Diluted earnings per share    | $ | .33 |   | $ | 1.01 |   | $ | 1.47 |   | $ | 1.09 |   | $ | 3.86 |
| Dividends  declared per share | $ | .16 |   | $ | .16 |   | $ | .17 |   | $ | .17 |   | $ | .66 |

      Annual earnings per share for 2000 do not equal  the sum of the quarterly earnings per share because of the timing of net earnings  and the company’s purchase of common shares during the year.

### Price Range of Common Stock (Unaudited)

The company’s common stock is traded on the New York Stock Exchange. The  table below presents the high and low trading prices as reported by the exchange.

|                         |
|-------------------------|
|                    | **2001** | 2000 |
|                    |  |
|                    | **High** | **Low** | High | Low |
|                         |
| First quarter           | **$28.00** | **$22.80** | $25.94 | $21.63 |
| Second quarter          | **$28.75** | **$22.25** | $25.63 | $17.00 |
| Third quarter           | **$25.90** | **$21.30** | $23.00 | $17.00 |
| Fourth quarter          | **$27.97** | **$21.50** | $25.69 | $22.00 |
| Range for the year      | **$28.75** | **$21.30** | $25.94 | $17.00 |
|                    |   |   |   |   |
| Year-end closing price: | Year | Close |   |   |
|                    |  |   |   |
|                    | **2001** | **$27.70** |   |   |
|                    | 2000 | $25.31 |   |   |
|                    | 1999 | $22.31 |   |   |

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## Historical Review (2001–1997)

#### Butler Manufacturing Company

|                                            |
|--------------------------------------------|
|                                       | Year ended December 31, |
| Thousands of dollars, except share amounts | **2001** |   | 2000 |   | 1999 |   | 1998 |   | 1997 |
|                                            |
| **Income Statement Data**                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                  | **$** | **896,572** |   | $ | 960,377 |   | $ | 973,153 |   | $ | 962,163 |   | $ | 924,646 |
|                                       | Net earnings |   | **8,060** |   |   | 25,215 |   |   | 25,834 |   |   | 6,979 |   |   | 34,384 |
|                                       | As a percent of sales |   | **.9%** |   |   | 2.6% |   |   | 2.7% |   |   | .7% |   |   | 3.7% |
|                                       | As a percent of average         shareholders’ equity |   | **4.9%** |   |   | 15.5% |   |   | 16.7% |   |   | 4.6% |   |   | 24.5% |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per share of common stock:                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | Basic earnings | **$** | **1.28** |   | $ | 3.87 |   | $ | 3.66 |   | $ | .92 |   | $ | 4.48 |
|                                       | Diluted earnings |   | **1.28** |   |   | 3.86 |   |   | 3.63 |   |   | .92 |   |   | 4.43 |
|                                       | Cash dividends declared |   | **.70** |   |   | .66 |   |   | .62 |   |   | .58 |   |   | .52 |
|                                       | Cash dividends paid |   | **.69** |   |   | .65 |   |   | .61 |   |   | .57 |   |   | .50 |
|                                            |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Financial Position At      Year End**    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | Current assets | **$** | **275,067** |   | $ | 291,770 |   | $ | 270,988 |   | $ | 253,500 |   | $ | 233,323 |
|                                       | Property, plant, and equipment, net |   | **143,270** |   |   | 117,396 |   |   | 94,051 |   |   | 97,704 |   |   | 96,339 |
|                                       | Total assets |   | **470,762** |   |   | 447,998 |   |   | 405,857 |   |   | 393,893 |   |   | 374,972 |
| Working capital                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | Net working capital | **$** | **83,523** |   | $ | 78,861 |   | $ | 96,014 |   | $ | 92,370 |   | $ | 68,819 |
|                                       | Ratio of current assets to current liabilities |   | **1.4** |   |   | 1.4 |   |   | 1.5 |   |   | 1.6 |   |   | 1.4 |
| Financial structure                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       | Long-term debt, less current maturities | **$** | **98,244** |   | $ | 53,298 |   | $ | 57,021 |   | $ | 62,901 |   | $ | 33,918 |
|                                       | Total debt |   | **103,861** |   |   | 58,861 |   |   | 62,697 |   |   | 68,733 |   |   | 39,780 |
|                                       | Shareholders’ equity |   | **164,475** |   |   | 165,716 |   |   | 159,550 |   |   | 150,188 |   |   | 156,566 |
|                                       |   | Per common share, year end |   | **26.19** |   |   | 26.49 |   |   | 23.20 |   |   | 20.62 |   |   | 20.50 |
|                                       | Total debt as a percent of total capital |   | **39%** |   |   | 26% |   |   | 28% |   |   | 31% |   |   | 20% |
|                                            |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **General Statistics**                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization              | **$** | **18,104** |   | $ | 15,594 |   | $ | 19,972 |   | $ | 14,923 |   | $ | 12,474 |
| Capital expenditures                       | **$** | **44,583** |   | $ | 36,938 |   | $ | 13,634 |   | $ | 14,800 |   | $ | 30,249 |
| Basic shares outstanding, average          |   | **6,282** |   |   | 6,521 |   |   | 7,064 |   |   | 7,553 |   |   | 7668 |
| Diluted shares outstanding, average        |   | **6,285** |   |   | 6,531 |   |   | 7,111 |   |   | 7,612 |   |   | 7,754 |
| Common shares outstanding, year end        |   | **6,281** |   |   | 6,256 |   |   | 6,877 |   |   | 7,282 |   |   | 7,637 |
| Common shareholders, year end              |   | **2,015** |   |   | 2,066 |   |   | 2,599 |   |   | 2,210 |   |   | 2,310 |
| Number of employees, year end              |   | **4,719** |   |   | 5,079 |   |   | 4,912 |   |   | 5,171 |   |   | 5,117 |
|                                            |

1. In thousands except per share amounts for common stock and  the number of shareholders and employees.  2. Excluding special charges of $3.6 million, or $.58 per share, net earnings  were $11.7 million or $1.86 per share for 2001.  3. Excluding one-time items which increased net earnings by $2.3 million, or  $.33 per share, net earnings were $23.5 million, or $3.30 per share in 1999.  4. Excluding special charges of $10.7 million or $1.41 per share, net earnings  were $17.7 million, or $2.33 per share in 1998.  5. Excluding the gain on the sale of the Grain Systems division of $13.3 million  or $1.72 per share, net earnings were $21.1 million, or $2.71 per share in 1997.

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