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

### Results of Operations

Butler Manufacturing Company (the company) supplies products and services for  nonresidential construction markets. These markets are cyclical in nature and  are subject to changes in the general economy. In 2002, while most of the domestic  economy remained subdued, nonresidential construction activity posted its second  year of decline. The company’s financial results reflected that trend.

[Graphical chart represented as table]:

| **Sales by Segment (in millions)**                                  |   | 2002 |  | 2001 |  | 2000 |
|---------------------------------------------------------------------|--------|------|--|------|--|------|
|                                                                     |
| North American Building Systems                                     |   | $394 |  | $440 |  | $530 |
| International Building Systems                                      |   | $108 |  | $82  |  | $86  |
| Architectural Products                                              |   | $220 |  | $232 |  | $224 |
| Construction                                                        |   | $111 |  | $133 |  | $149 |
| Real Estate                                                         |   | $16  |  | $38  |  | $8   |
|                                                                |   |      |  |      |  |      |
| For Intersegment Sales eliminations, see footnotes      on page 27. |

[Graphical chart represented as table]:

| **Pretax Earnings by Segment (in      millions)**                    |   | 2002   |  | 2001   |  | 2000  |
|----------------------------------------------------------------------|--------|--------|--|--------|--|-------|
|                                                                      |
| North American Building Systems                                      |   | $(7.6) |  | $10.4  |  | $31.7 |
| International Building Systems                                       |   | $8.0   |  | $(6.1) |  | $4.1  |
| Architectural Products                                               |   | $8.9   |  | $13.8  |  | $16.8 |
| Construction                                                         |   | $2.0   |  | $3.2   |  | $2.5  |
| Real Estate                                                          |   | $3.3   |  | $6.0   |  | $2.6  |
|                                                                 |   |        |  |        |  |       |
| For Pretax Earnings (Loss) for Other, see      footnotes on page 27. |

***2002 Compared to 2001***

Sales were $828 million in 2002, down $69 million or 7.6% from the prior year.  The majority of the decline occurred in the North American Building Systems  segment with sales of $394 million, a decline of $46 million or 10.5% from a  year ago. Sales were lower in both the U.S. steel buildings and the Lester®  buildings businesses compared with the prior year as demand in the manufacturing  and commercial construction sectors, important markets of this segment, declined  further from the already lower demand levels of 2001. 

The International Building Systems segment was the bright spot with sales of  $108 million reported in 2002 compared with $82 million a year ago. This segment  consists primarily of the China buildings business, as the sale of the company’s  European buildings business announced earlier in the year was completed in the  third quarter of 2002. The increase in sales was due to growth in the China  nonresidential construction markets generally, and superior execution by this  business for new and repeat relationship building buyers. 

The Architectural Products segment began to experience softness in their markets  as sales retreated $12 million or 4.9% to $220 million in 2002. The depressed  conditions in the commercial construction sector contributed to their sales  decline for the year.

The Construction Services segment reported sales of $111 million in 2002, a  decline of $22 million compared with a year ago. Construction opportunities  for this segment declined during the year as a consequence of the generally  lower demand for nonresidential structures.

The Real Estate segment’s sales were $16 million in 2002, down $22 million  or 56.1% compared with a year ago. Depressed commercial construction opportunities  and the de-ple-tion of project backlog affected this segment’s sales,  which are project-based and generally more erratic than revenues of the company’s  manufacturing operations.

Gross profit was $113 million or 13.6% of sales in 2002 compared with $137  million or 15.3% of sales in 2001. Lower sales, competitive pressures on selling  prices, coupled with higher costs for raw materials, specifically steel, as  well as higher employee benefits costs, contributed to lower gross profit margins  in 2002. Gross profit by segment is presented below.

|                                 |
|---------------------------------|
| **                              | ***2002*** | ** | *Change* | ** | *Gross Profit as* |   |
| **                              | ***Gross*** | ** | *from* | ** | *a % of sales* |   |
| *Dollars in millions*           | ***Profit*** | ** | *2001* | ****** | ***2002*** |   | ***2001*** | ****** |
|                                 |
| North American Building Systems | **$** | **51** |   | $ | (18 | ) | **12.9** | % | 15.7 | % |
| International Building Systems  | **** | **17** |   |   | 4 |   | **15.5** |   | 15.9 |  |
| Architectural Products          | **** | **33** |   |   | (7 | ) | **15.2** |   | 17.2 |  |
| Construction Services           | **** | **11** |   |   | (2 | ) | **9.5** |   | 9.4 |  |
| Real Estate                     | **** | **1** |   |   | (1 | ) | **7.7** |   | 6.0 |  |
|                                 |
| Total                           | **$** | **113** |   | $ | (24 | ) | **13.6** | % | 15.3 | % |
|                                 |

Gross profit in the North American Building Systems segment was 12.9% in 2002  compared with 15.7% in 2001. Continued decline in sales opportunities, lower  selling prices due to intense competitive pricing conditions, and rising steel  prices during the year, along with increases in health care, insurance, pension,  and employee separation costs were major contributors to the decline in gross  profit for this segment. A plant in the U.S. metal buildings business remained  offline during 2002 to balance capacity with lower market demand. The Lester®  buildings business also incurred employee separation costs as their sales volume  declined.

International Building Systems segment’s gross profit was 15.5% in 2002  comparable with gross profit of 15.9% in 2001.

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The company continued expanding market presence in China with additional branch  offices and the construction of a second manufacturing plant to be ready in  early 2003. Gross profit margins were comparable to the previous year in spite  of intense competition and raw material cost increases. 

The Architectural Products segment’s gross profit was 15.2% in 2002 compared  with 17.2% in 2001. Declining demand, especially in the commercial construction  markets served by this segment, increased price competition among industry participants  and lowered profit margins. 

The Construction Services segment’s gross profit was 9.5% in 2002, comparable  with a year ago. Although sales volume declined with construction market conditions,  this segment was successful in managing margins by continuing to focus on material  erect projects, and improving construction execution.

The Real Estate segment’s gross profit was 7.7% in 2002, up from 6.0%  in 2001. This business’s revenues are project-based causing gross margins  to be less comparable from period to period.

Selling, general, and administrative expenses were $115 million in 2002, comparable  with the prior year, while expenses as a percent of sales were higher. In general,  higher costs in 2002 for health care, pension, separation costs, and other costs  were offset by lower average employment levels and other cost cutting measures.  The North American Building Systems segment’s selling, general, and administrative  expenses also increased due to legal costs in the Lester® buildings business  related to its lawsuit against the Louisiana Pacific Corporation. The International  Building Systems segment incurred lower costs primarily due to the sale of European  metal buildings business during the year. All other segments costs were comparable  with the prior year.

Restructuring credits associated with the sale of the European metal buildings  business were recorded during the year. Asset values received upon conclusion  of the European metal buildings sale were greater than originally estimated,  and more than offset additional severance and other benefit costs incurred,  allowing for a net restructuring recovery of $.6 million. 

Other income of $2.4 million increased in 2002 compared with $.9 million a  year ago, due partly to the absence of a number of non-recurring costs recorded  in 2001 including the move of the company’s Corporate and Buildings Division’s  headquarters operations and costs associated with the company’s 100th  anniversary celebration. This balance includes the rental income earned on Butler  Real Estate projects being marketed for sale to third party investors.

Interest expense of $7.5 million in 2002 was slightly higher than the $6.9  million in 2001 due primarily to a combination of higher effective interest  rates on slightly lower borrowing levels, and greater capitalized interest on  the company’s headquarters project in 2001.

The company reported a pretax loss of $6.9 million in 2002 compared with pretax  earnings of $8.3 million in 2001. The 2001 amount includes asset impairment  and restructuring charges of $4.3 million and $3.9 million, respectively. The  tax benefit of $5.0 million recognized in 2002 was due to a higher effective  domestic tax rate on domestic losses, a lower effective tax rate due to a partial  tax holiday on earnings in China, and the utilization of a capital loss carry  forward. The company’s effective tax rate was a benefit of 73.2% in 2002  and an expense of 2.4% in 2001. The 2001 tax rate was lower than the statutory  rate primarily due to a $4.5 million benefit associated with the impairment  and restructuring charges noted above. 

The company reported a net loss for 2002 of $1.8 million or $.29 per share  compared with net earnings in 2001 of $8.1 million or $1.28 per share.

***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 17.0%. 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. 

The International Building Systems segment’s 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’s 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’s slowed in the latter part of the year as the commercial construction  market demand declined. 

The Construction Services segment’s sales were $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

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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.

The Real Estate segment’s 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. 

The International Building Systems segment’s 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, as previously out-sourced production was transitioned  in-house during the year, 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 selling, general, and administrative expenses were $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 North American 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 of its European metal buildings  operation. The after-tax impact of the charges was $3.6 million, or $.58 per  share. A letter of intent was signed early in the year and the sale was completed  in the third 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

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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 carry forward 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.

[Graphical chart represented as a table]:

| **Cash Increased        $23 Million During 2002 (in millions)** |
|-----------------------------------------------------------------|
|                                                                 |
| **Sources**                                                     |  |
|                                                            | Net earnings adjusted for non-cash items | $16 |
|                                                            | Working Capital plus noncurrent activities | $1 |
|                                                            | Real Estate Developments – Net | $11 |
|                                                            | Proceeds from Assets Sales | $26 |
|                                                            |   |   |
| **Uses**                                                        |   |
|                                                            | Capital Expenditures and Other | $24 |
|                                                            | Borrowing Activities – Net | $3 |
|                                                            | Dividends and Treasury Stock | $4 |

### Liquidity and Capital Resources

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

| Dollars in millions                        | **2002**                   |         | 2001   |        | 2000   |   |
|--------------------------------------------|----------------------------|---------|--------|--------|--------|--------|
|                                            |                       |
| Net earnings adjusted for non-cash items   | **$**                      | **16**  |   | $      | 34     |   | $ | 40 |   |
| Working capital plus noncurrent activities | ****                       | **1**   |   |   | 11     |   |   | (16 | ) |
| Real estate developments                   | ****                       | **11**  |   |   | 29     |   |   | (34 | ) |
|                                            |                       |
|                                       | Total operating activities | ****    | **28** |   |   | 74     |   |   | (10 | ) |
|                                            |                       |
| Capital expenditures and other – Net | ****                       | **(24** | **)**  |   | (46    | )      |   | (35 | ) |
| Proceeds from asset sales                  |                       | **26**  |   |   | -      |   |   | – |   |
| Borrowings activities – Net          | ****                       | **(3**  | **)**  |   | 12     |   |   | 28 |   |
| Dividends and treasury stock               | ****                       | **(4**  | **)**  |   | (4     | )      |   | (19 | ) |
|                                            |                       |
| Cash flow                                  | **$**                      | **23**  |   | $      | 36     |   | $ | (36 | ) |
|                                            |                       |

During 2002, the company increased its cash and cash equivalents by $23 million.  The main contributors to this increase were $28 million generated from operations  and $26 million from asset sales. The main use of cash during 2002 was $24 million  used for capital investments, $3 million for net repayment of debt, and $4 million  for dividends and treasury stock transactions.

The $28 million in operating cash flow was comprised of several components.  Net losses of $2 million plus $18 million of non-cash items charged to earnings,  including depreciation and amortization expense, and restructuring items provided  $16 million. Net reductions in various working capital and other noncurrent  operating assets provided $1 million. Positive cash flow from receivables reductions  were offset by decreases in accounts payable, both due primarily to the declining  business activity. Proceeds from the sales of real estate development projects,  net of costs incurred for new developments, provided additional operating cash  of $11 million in 2002. 

Net funds provided for investing purposes totaled $2 million in 2002. Capital  expenditures of $24 million included $16 million used for property, plant, and  equipment additions, of which approximately $10 million was used for the construction  of a second manufacturing plant in China. In addition, $8 million was capitalized  for computer systems primarily for the North American Building Systems segment.  Funds generated from asset sales of $26 million include the $2 million generated  from the European asset sale in the third quarter of 2002, as well as $24 million  proceeds from the sale and leaseback of the company’s headquarters facility,  which occurred in the fourth quarter.

At year end, the company’s domestic credit agreement provided $35 million  of total credit capacity, with sub-limits of $30 million for letters of credit  and $10 million for cash borrowings. As of December 31, 2002, the company had  used $20.2 million of the line for letters of credit. During the fourth quarter  of 2002, the company asked for and received both a waiver and an amendment to  the credit agreement to reset covenants under the line. The amendment, along  with a subsequent waiver and amendment issued in February 2003, required the  company to provide security for the credit line. In February, 2003, amendments  and agreements were entered into between the company, the credit agreement banks,  and the company’s private placement note holders, which provided these  creditors security by granting liens on substantially all domestic assets of  the company. In addition, certain covenants within the private placement note  agreements were amended, and the coupon rate for the notes was increased by  1.5 percent. Upon the achievement of certain provisions of the note amendments,  1.25 percent of this increase shall expire. The amended credit agreement and  note agreements allow the company’s Real Estate Segment to incur up to  $35 million in non-recourse debt with other lenders to fund a portion of its  development activity, providing another avenue for liquidity. As of December  31, 2002, the company had no debt outstanding under this provision.

At December 31, 2002, the company had additional credit lines available for  foreign subsidiary borrowings of approximately $3.5 million at current exchange  rates, with no borrowings outstanding. 

Based upon the current outlook for the company, management believes the company’s  cash balances, anticipated operating cash flow, complemented by the existing  bank credit lines, is sufficient to meet foreseen liquidity requirements.

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[Graphical chart represented as a table]:

| **Capital Employed        by Segment,        at Year End (in millions)** |   | 2002 |  | 2001 |  | 2000 |
|--------------------------------------------------------------------------|--------|------|--|------|--|------|
|                                                                          |
| North American Building Systems                                          |   | $66  |  | $93  |  | $100 |
| International Building Systems                                           |   | $34  |  | $27  |  | $29  |
| Architectural Products                                                   |   | $81  |  | $92  |  | $84  |
| Construction                                                             |   | $2   |  | $(7) |  | $8   |
| Real Estate                                                              |   | $29  |  | $28  |  | $52  |

### 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. Steel prices  in 2002 have risen sharply partly due to tariffs imposed by the U.S. Government  on certain imported steel products. While recent investments and increased operating  efficiencies in the company’s operations have helped to dampen the impact  of the increase, the company implemented price increases on most of its products  to mitigate the impact of rising steel prices. Due to the intensity of competitive  pricing of the company’s products, not all of the price increases were  realized in 2002.

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.

The company hedges aluminum and Canadian foreign exchange exposures created  by its ongoing operations. At December 31, 2002, the fair value of open aluminum  contracts recorded in cumulative other comprehensive income was less than $.1  million, pretax. Unrealized losses on the company’s Canadian currency  exchange contracts were recorded in earnings and were less than $.1 million  pretax at December 31, 2002. At December 31, 2002, a 10% change in either aluminum  or Canadian currency contracts would be immaterial to the company.

***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, 2002, holding all other variables constant, including levels of indebtedness,  a one percentage point change in interest rates would result in an approximate  $5.1 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 $34.2  million, with a weighted-average interest rate of 7.15%. At the end of five  years, then outstanding fixed-rate debt of $61.9 million will carry a weighted-average  interest rate of 7.49%. 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, 2002, the company’s net asset investment in foreign operations  was $31 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.

### New Accounting Pronouncements 

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement  of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other  Intangible Assets” which was effective January 1, 2002. SFAS 142 eliminates  further amortization on goodwill and intangible assets with indefinite useful  lives, and requires impairment of goodwill and intangible assets be assessed  annually, with valuation write-downs, if any, reflected in the financial statements.  Adoption of SFAS 142 did not have a material impact on the company’s results  of operations or financial position. 

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement  Obligations”, which was effective January 1, 2003. SFAS 143 requires the  fair value of a liability for an asset retirement obligation be recognized in  the period in which it is incurred. The adoption of SFAS 143 is not expected  to have a material impact on the company’s results of operations or financial  position. 

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In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment  or Disposal of Long-Lived Assets”. In general, SFAS 144 changes and clarifies  the accounting for long-lived assets. SFAS 144 was effective January 1, 2002,  and did not have a material impact on the Company’s results of operations  or financial position.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated  with Exit or Disposal Activities”. This statement is effective on January  1, 2003. SFAS 146 changes the accounting for costs associated with exit or disposal  activities. It is not expected that this statement will have a material effect  on the company’s results of operations or financial position. 

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantors  Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees  of Indebtedness of Others”. FIN 45 requires a liability to be recognized  at the time a company issues a guarantee for the fair value of the obligations  assumed under certain guarantee agreements. Additional disclosures about guarantee  agreements are also required in the interim and annual financial statements.  The disclosure requirements of FIN 45 were effective for the year ended December  31, 2002. The liability recognition requirements are effective January 1, 2003.  Adoption of FIN 45 is not expected to have a material impact on the company’s  results of operations or financial position. 

### Management’s Judgments and Estimates

In preparing the financial statements, a number of assumptions and estimates  are determined, that in the judgment of management, are proper in light of existing  general economic and company-specific circumstances. Examples of areas in which  judgments and estimates are required include 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.

### Contractual Obligations, Commercial Commitments

The company’s principal contractual obligations and other commercial  commitments are summarized below and disclosed in the footnotes to consolidated  financial statements:

|                               | Payments due by        period (in thousands) |
|------------------------------------|----------------------------------------------|
|                               |                                              |
|                                    |                                              |  | Less than |  |  |  |  |  | After 5 |
|                                    | Total                                        |  | 1 year |  | 1-3 years |  | 4-5 years |  | years |
|                                    |
| Contractual Cash Obligations:      |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                               | Long-term debt other than capital leases     | $ | 97,950 |   | $ | 5,460 |   | $ | 7,629 |   | $ | 16,701 |   | $ | 68,160 |
|                               | Capital lease obligations                    |   | 4,389 |   |   | 813 |   |   | 1,828 |   |   | 1,748 |   |   | - |
|                               | Operating lease obligations                  |   | 55,763 |   |   | 6,492 |   |   | 10,901 |   |   | 6,096 |   |   | 32,274 |
|                               | Hedge contract obligations                   |   | 3,104 |   |   | 3,104 |   |   | - |   |   | - |   |   | - |
|                               |                                              |
| Total contractual cash obligations | $                                            | 161,206 |   | $ | 15,869 |   | $ | 20,358 |   | $ | 24,545 |   | $ | 100,434 |
|                               |                                              |
|                               |                                         |  |   |   |  |   |   |  |   |   |  |   |   |  |
| Other Commercial Commitments:      |                                         |  |   |   |  |   |   |  |   |   |  |   |   |  |
|                               | Standby letters of credit                    | $ | 20,158 |   | $ | 20,158 |   | $ | - |   | $ | - |   | $ | - |
|                               |                                              |
| Total commercial commitments       | $                                            | 20,158 |   | $ | 20,158 |   | $ | - |   | $ | - |   | $ | - |
|                               |                                              |

###   Critical Accounting Policies

Critical accounting policies are defined as those that are both most important  to the portrayal of a company’s financial condition and results of operations,  and require management’s most difficult, subjective or complex judgments.  In many cases, the accounting treatment of a particular transaction is specifically  dictated by generally accepted accounting principles with no need for the application  of management’s judgment. In certain circumstances, however, the preparation  of the consolidated financial statements in conformity with generally accepted  accounting principles requires judgment to make certain estimates and assumptions.  These estimates affect the reported amounts of assets and liabilities and disclosures  of contingent assets and liabilities at the date of the consolidated financial  statements and the reported amounts of revenues and expenses during the reporting  period. The company’s critical accounting polices include its sales recognition  for construction and project contracts, inventory valuation, estimation of product  liability for third-party claims, estimation of insurance reserves, and accounting  for impairment of long-lived assets. See Note 1 to our consolidated financial  statements for a detailed discussion of these and other accounting policies.

Page 14

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***Sales Recognition:*** Sales  and gross profit recognition for construction and project contracts are based  upon the percentage of completion method. This method requires the company to  estimate total 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 of 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.  Provision is made for estimated probable losses on projects when it is determined  that a loss will be incurred. Actual costs for completed projects can and typically  will vary from earlier estimates, with the final adjustment from estimate to  actual costs recognized during the period when the project is completed.

***Inventory Valuation:***  The company has chosen the last-in, first-out (LIFO) accounting method for valuing  inventory in the majority of its manufacturing businesses. In periods of rising  prices and steady or increasing levels of inventory, the effect of the LIFO  method is to charge the current year cost of sales with inventory purchases  that reflect current year costs. This method results in a better matching of  current costs with current sales during an accounting period. Generally it presents  a more conservative valuation of the company’s inventory, and the gross  profit and net earnings reported for the period. The LIFO valuation is a year  end measurement process requiring estimates for the determination of quarterly  gross profit and quarter-end inventory valuation. At December 31, 2002, the  cumulative effect of choosing the LIFO method was a reduction in inventory values  of $9.5 million. During 2002, the company reduced inventory levels, which had  the effect of charging the current year cost of sales with prior years’  costs. For 2002, the use of LIFO inventory accounting decreased gross margins  by $1.0 million.

***Third-Party Claims:***  The company is subject to third-party claims associated with its products and  services. The time period from when a claim is asserted to when it is resolved  either by dismissal, negotiation, settlement, or litigation can be several years.  While the company maintains product liability insurance, its arrangements include  significant self-retention of risk in the form of policy deductibles. In addition,  certain claims are not insured. Actual claim settlement costs and litigation  awards can and probably will vary from the estimates made by the company. Management  believes that any difference in the actual results from the estimates will not  have a material adverse effect upon the company’s financial position or  results of operations.

***Insurance Accruals:***  Generally, the company is self-insured for workers’ compensation for certain  subsidiaries and for all group medical insurance. Under these plans, liabilities  are recognized for claims incurred (including claims incurred but not reported)  and changes in the accruals. At the time a worker’s compensation claim  is filed, a liability is estimated to settle the claim. The liability for workers’  compensation claims is determined based on management’s estimates of the  nature and severity of the claims using analyses provided by third party administrators.  Since the liability is an estimate, the ultimate liability may be more or less  than reported. If previously established accruals are required to be adjusted,  such amounts are included in cost of sales and selling, general, and administrative  expenses in the period of adjustment. Group medical accruals are estimated using  historical claims experience.

The company maintains excess liability insurance with insurance carriers to  minimize its risks related to catastrophic claims in excess of all self-insured  positions. Any material change in the aforementioned factors could have an adverse  impact on operating results.

***Long-Lived Assets:*** The  company accounts for the impairment of long-lived assets in accordance with  SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived  Assets.” When events or circumstances indicate that a long-lived asset  may not be recoverable, the company tests for recoverability of the asset by  comparing undiscounted future cash flows to the carrying amount. If undiscounted  future cash flows are less than the asset carrying amount, an impairment charge  is recorded and the asset’s carrying value is reduced to fair value. Management  estimates the future cash flows based on current operating conditions. Changes  in estimates of such cash flows could impact the results of the impairment test.  There were no impairment charges recorded in 2002.

### Management Transition and Director Retirements

Robert J. Reintjes, Sr., retired from the Board of Directors in 2002 after  8 years of service. Succeeding Mr. Reintjes is Mark A. McCollum, who was elected  to the board in January 2003. Mr. McCollum is Senior Vice President and Chief  Financial Officer of Tenneco Automotive, Inc., a global manufacturer of ride  control and exhaust systems. 

### Share Repurchase Agreement and Cash Dividends

In April 2000, the Board of Directors authorized the repurchase of 750,000  shares of Butler common stock to be used for employee benefit plans and other  corporate purposes. Stock purchases may be made from time to time in the open  market and in private transactions at prevailing market prices. At December  31, 2002, 380,814 shares remained available for repurchase from the April 2000  Board authorization. 

Page 15

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On January 21, 2003, the Board of Directors declared a regular dividend of  $.18 per share, payable on April 4, 2003, to shareholders of record on March  21, 2003. Dividends paid during 2002 totaled $4.5 million. 

### Change In Company’s Certifying Accountants

The Board of Directors of the company, upon the recommendation of its Audit  Committee, approved dismissal of Arthur Andersen LLP (“Arthur Andersen”)  as the company’s independent auditors and the appointment of KPMG LLP  to serve as the company’s independent auditors for the year ending December  31, 2002. The change was effective May 16, 2002.

KPMG LLP issued their audit report on the company’s consolidated financial  statements for the year ending December 31, 2002. A copy of their audit report  is included with the company’s financial statements. Included also is  a copy of Arthur Andersen’s audit report on the company’s consolidated  financial statements for each of the years ended December 31, 2001 and 2000.

### Outlook

At this point in the economic cycle, it is difficult to predict when nonresidential  construction demand will recover from the current low levels. F.W. Dodge forecasts  little change in overall construction demand for 2003. The company’s systems  approach to building construction solutions continues to capture a significant  share of the nonresidential market served. Order backlog at year end was $264  million, 14% lower than a year ago. While the construction project backlog was  down 40%, the higher margin product backlog was 2% lower compared with 2001.  The Company will continue its focus on reducing costs, and also on developing  products and services for a broader segment of the nonresidential construction  market. 

### 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.

Page 16

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## Reports of Independent Public Accountants

### To the Shareholders of Butler Manufacturing Company:

We have audited the accompanying consolidated balance sheet of Butler Manufacturing  Company (a Delaware corporation) and subsidiaries as of December 31, 2002 and  the related consolidated statements of earnings and retained earnings, comprehensive  income, and cash flows for the year then ended. These consolidated financial  statements are the responsibility of the company’s management. Our responsibility  is to express an opinion on these financial statements based on our audit. The  accompanying consolidated financial statements of the company as of December  31, 2001 and for the years ended December 31, 2001 and 2000 were audited by  other auditors who have ceased operations. Those auditors’ report, dated  January 29, 2002, on those financial statements, expressed an unqualified opinion  and included an explanatory paragraph that described the change in the company’s  method of accounting for the recognition of asset gains and losses considered  in the determination of net pension expense for its base retirement pension  plan.

We conducted our audit in accordance with auditing standards generally accepted  in the United States of America. Those standards require that we plan and perform  the audit to obtain reasonable assurance about whether the financial statements  are free of material misstatement. An audit includes examining, on a test basis,  evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant  estimates made by management, as well as evaluating the overall financial statement  presentation. We believe that our audit provides a reasonable basis for our  opinion.

In our opinion, the 2002 consolidated financial statements referred to above  present fairly, in all material respects, the financial position of Butler Manufacturing  Company and subsidiaries at December 31, 2002, and the results of their operations  and their cash flows for the year then ended, in conformity with accounting  principles generally accepted in the United States of America.

/s/ KPMG LLP

Kansas City, Missouri  February 28, 2003

### 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

*This audit report of Arthur Andersen LLP, our former independent  public accountants, is a copy of the original report dated January 29, 2002  rendered by Arthur Andersen LLP on our consolidated financial statements included  in our form 10-K filed on March 28, 2002, and has not been reissued by Arthur  Andersen LLP since that date. This report refers to financial statements not  physically included in this annual report.*

Page 17

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## Consolidated Balance Sheets

|                                          |                                 |
|------------------------------------------|--------------------------------------|
|                                          | *At December        31,*             |   |
| *Dollars in thousands*                   | **2002**                             |   | 2001 |   |
|                                          |                                 |
| **Assets**                               |
| Current assets:                          |
|                                     | Cash and cash equivalents            | **$** | **75,778** | **** | $ | 52,569 |   |
|                                     | Receivables:                         | **** | **** | **** |  |  |   |
|                                     |                                      | Trade | **** | **100,026** | **** |  | 112,459 |   |
|                                     |                                 | Other | **** | **2,472** | **** |  | 4,201 |   |
|                                          |                                 |
|                                     |                                 |   | **** | **102,498** | **** |  | 116,660 |   |
|                                     |                                 | Allowance for possible losses | **** | **(7,496** | **)** |  | (7,138 | ) |
|                                          |                                 |
|                                     |                                 |   | Net receivables | **** | **95,002** | **** |  | 109,522 |   |
|                                     | Inventories                          | **** | **57,489** | **** |  | 57,435 |   |
|                                     | Real estate developments in progress | **** | **13,203** | **** |  | 23,966 |   |
|                                     | Net current deferred tax assets      | **** | **25,238** | **** |  | 16,636 |   |
|                                     | Income tax receivable                | **** | **6,132** | **** |  | 4,500 |   |
|                                     | Other current assets                 | **** | **8,360** | **** |  | 10,439 |   |
|                                          |                                 |
|                                     |                                 |   | Total current assets | **** | **281,202** | **** |   | 275,067 |   |
|                                     | ****                                 | **** | **** |   |  |   |
| Investments and other assets             | ****                                 | **50,684** | **** |   | 48,741 |   |
|                                     | ****                                 | **** | **** |   |  |   |
| Assets held for sale                     | ****                                 | **3,684** | **** |   | 3,684 |   |
|                                     |                                 | **** | **** | **** |   |  |   |
| Property, plant, and equipment, at cost: | ****                                 | **** | **** |   |  |   |
|                                     | Land                                 | **** | **6,212** | **** |   | 7,280 |   |
|                                     | Buildings                            | **** | **81,088** | **** |   | 93,515 |   |
|                                     | Machinery, tools, and equipment      | **** | **163,974** | **** |   | 160,726 |   |
|                                     | Office furniture and fixtures        | **** | **30,042** | **** |   | 38,498 |   |
|                                     | Transportation equipment             | **** | **2,430** | **** |   | 2,341 |   |
|                                          |                                 |
|                                     |                                 | **** | **283,746** | **** |   | 302,360 |   |
|                                     | Accumulated depreciation             | **** | **(163,482** | **)** |   | (159,090 | ) |
|                                          |                                 |
|                                     |                                 |   | Net property, plant, and equipment | **** | **120,264** | **** |   | 143,270 |   |
|                                          |                                 |
|                                     |                                 | **$** | **455,834** | **** | $ | 470,762 |   |
|                                          |                                 |

See Accompanying Notes to Consolidated Financial Statements.

Page 18

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|                                                    |                                                                                                                                                                         |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                    | *At December        31,*                                                                                                                                                     |   |
| *Dollars in thousands*                             | **2002**                                                                                                                                                                     |   | 2001 |   |
|                                                    |                                                                                                                                                                         |
| **Liabilities and Shareholders’      Equity** |
| Current liabilities:                               |
|                                               | Notes payable to banks                                                                                                                                                       | **$** | **-** | **** | $ | 2,100 |   |
|                                               | Current maturities of long-term debt                                                                                                                                         | **** | **6,273** | **** |  | 5,617 |   |
|                                               | Accounts payable                                                                                                                                                             | **** | **58,578** | **** |   | 70,362 |   |
|                                               | Dividends payable                                                                                                                                                            | **** | **1,136** | **** |   | 1,131 |   |
|                                               | Accrued taxes and other expenses                                                                                                                                             | **** | **93,677** | **** |   | 79,624 |   |
|                                               | Accrued payroll and benefit expense                                                                                                                                          | **** | **13,077** | **** |   | 17,049 |   |
|                                               | Billings in excess of costs and estimated earnings                                                                                                                           | **** | **3,356** | **** |   | 1,564 |   |
|                                               | Taxes on income                                                                                                                                                              | **** | **10,665** | **** |   | 8,659 |   |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | Total current liabilities | **** | **186,762** | **** |   | 186,106 |   |
|                                                    |                                                                                                                                                                         |
| Net noncurrent deferred tax liabilities            | ****                                                                                                                                                                         | **4,442** | **** |   | 3,683 |   |
|                                               |                                                                                                                                                                         | **** | ******** | **** |   |  |   |
| Other noncurrent liabilities                       | ****                                                                                                                                                                         | **19,393** | **** |   | 18,254 |   |
|                                               |                                                                                                                                                                         | **** | ******** | **** |   |  |   |
| Long-term debt, less current maturities            | ****                                                                                                                                                                         | **96,066** | **** |   | 98,244 |   |
|                                               |                                                                                                                                                                         |
| Shareholders’ equity:                         | ****                                                                                                                                                                         | ******** | **** |   |  |   |
|                                               | Common stock, no par value, authorized 20,000,000        shares, issued 9,088,200 shares, at stated value, outstanding 6,310,502        shares in 2002 and 6,280,783 in 2001 | **** | **12,623** | **** |   | 12,623 |   |
|                                               | Foreign currency translation adjustment and hedging      activity                                                                                                            | **** | **329** |   |   | (165 | ) |
|                                               | Minimum pension liability, net of tax                                                                                                                                        | **** | **(16,822** | **)** |   | (6,626 | ) |
|                                               | Retained earnings                                                                                                                                                            | **** | **217,307** | **** |   | 223,594 |   |
|                                               | Cost of common stock in treasury, 2,777,698 shares      in 2002 and 2,807,417 shares in 2001                                                                                 | **** | **(64,266** | **)** |   | (64,951 | ) |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | Total shareholders’ equity | **** | **149,171** | **** |   | 164,475 |   |
|                                                    |                                                                                                                                                                         |
|                                               |                                                                                                                                                                         | **$** | **455,834** | **** | $ | 470,762 |   |
|                                                    |                                                                                                                                                                         |

Page 19

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## Consolidated Statements of Earnings and  Retained Earnings

|                                                                       |                                      |
|-----------------------------------------------------------------------|-------------------------------------------|
|                                                                       | *Years Ended        December 31,*         |   |
| *Dollars in thousands, except        per share amounts*               |                                      | **2002** |  | 2001 |  | 2000 |   |
|                                                                       |                                      |
| Net sales                                                             | **$**                                     | **828,209** | **** | $ | 896,572 |   | $ | 960,377 |   |
| Cost of sales                                                         | ****                                      | **715,203** | **** |   | 759,331 |   |   | 791,654 |   |
|                                                                       |                                      |
|                                                                  | Gross profit                              | **** | **113,006** | **** |   | 137,241 |   |   | 168,723 |   |
| Selling, general, and administrative expenses                         | ****                                      | **115,370** | **** |   | 114,846 |   |   | 123,975 |   |
| Asset impairment charge                                               | ****                                      | **–** | **** |   | 4,285 |   |   | – |   |
| Restructuring charge (credit), net                                    | ****                                      | **(631** | **)** |   | 3,854 |   |   | (441 | ) |
|                                                                       |                                      |
|                                                                  | Operating income (loss)                   | **** | **(1,733** | **)** |   | 14,256 |   |   | 45,189 |   |
| Other income (expense), net                                           | ****                                      | **2,404** | **** |   | 935 |   |   | (1,637 | ) |
|                                                                       |                                      |
|                                                                  | Operating and other income (expense), net | **** | **671** | **** |   | 15,191 |   |   | 43,552 |   |
| Interest expense                                                      | ****                                      | **7,529** | **** |   | 6,929 |   |   | 5,159 |   |
|                                                                       |                                      |
|                                                                  | Pretax earnings (loss)                    | **** | **(6,858** | **)** |   | 8,262 |   |   | 38,393 |   |
| Income tax expense (benefit)                                          | ****                                      | **(5,022** | **)** |   | 202 |   |   | 13,178 |   |
|                                                                       |                                      |
|                                                                  | Net earnings (loss)                       | **** | **(1,836** | **)** |   | 8,060 |   |   | 25,215 |   |
| Retained earnings at beginning of year                                | ****                                      | **223,594** | **** |   | 220,113 |   |   | 199,229 |   |
|                                                                       |                                      |
|                                                                  | ****                                      | **221,758** | **** |   | 228,173 |   |   | 224,444 |   |
| Dividends declared – common stock: $.72,      $.70, $.66        | ****                                      | **(4,541** | **)** |   | (4,400 | ) |   | (4,241 | ) |
| Net change in retained earnings from treasury stock      transactions | ****                                      | **90** |   |   | (179 | ) |   | (90 | ) |
|                                                                       |                                      |
| Retained earnings at end of year                                      | **$**                                     | **217,307** | **** | $ | 223,594 |   | $ | 220,113 |   |
|                                                                       |                                      |
| Basic earnings (loss) per share                                       | **$**                                     | **(0.29** | **)** | $ | 1.28 |   | $ | 3.87 |   |
|                                                                       |                                      |
| Diluted earnings (loss) per share                                     | **$**                                     | **(0.29** | **)** | $ | 1.28 |   | $ | 3.86 |   |
|                                                                       |                                      |

## Consolidated Statements of Comprehensive Income

|                                                 |                               |
|-------------------------------------------------|------------------------------------|
|                                                 | *Years Ended        December 31,*  |   |
| *Dollars in thousands*                          |                               | **2002** |  | 2001 |  | 2000 |   |
|                                                 |                               |
| Net earnings (loss) per Statements of Earnings: | **$**                              | **(1,836** | **)** | $ | 8,060 |   | $ | 25,215 |   |
|                                            | Other comprehensive income (loss): | **** | **** | **** |   |  |   |   |  |   |
|                                            |                               | Foreign currency translation adjustment and hedging activity | **** | **388** |   |   | (437 | ) |   | (375 | ) |
|                                            |                               | Minimum pension liability, net of tax | **** | **(10,196** | **)** |   | (6,626 | ) |   | – |   |
|                                                 |                               |
| Comprehensive income (loss)                     | **$**                              | **(11,644** | **)** | $ | 997 |   | $ | 24,840 |   |
|                                                 |                               |

 See Accompanying Notes to Consolidated Financial Statements.

Page 20

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## Consolidated Statements of Cash Flows

|                                                                                                             |                                                                                                                                                         |
|-------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                             | *Years Ended        December 31,*                                                                                                                            |   |
| *Dollars in thousands*                                                                                      |                                                                                                                                                         | **2002** |  | 2001 |  | 2000 |   |
|                                                                                                             |                                                                                                                                                         |
| **Cash flows from operating      activities:**                                                              |                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Net earnings (loss)                                                                                         | **$**                                                                                                                                                        | **(1,836** | **)** | $ | 8,060 |   | $ | 25,215 |   |
| Adjustments to reconcile net earnings (loss)      to      net cash provided (used) by operating activities: |                                                                                                                                                         |
|                                                                                                        | Depreciation and amortization                                                                                                                                | **** | **18,914** | **** |   | 18,104 |   |   | 15,594 |   |
|                                                                                                        | Asset impairment                                                                                                                                             | **** | **–** | **** |   | 4,285 |   |   | – |   |
|                                                                                                        | Restructuring charge (credit), net                                                                                                                           | **** | **(631** | **)** |   | 3,854 |   |   | (441 | ) |
|                                                                                                        | Equity in loss (earnings) of joint ventures                                                                                                                  | **** | **104** | **** |   | 87 |   |   | (349 | ) |
|                                                                                                        | Change in assets and liabilities, net of sale of      businesses and excluding effect of pension and hedging related other comprehensive      income (loss): | **** | **** | **** |   |  |   |   |  |   |
|                                                                                                        |                                                                                                                                                         | Net receivables | **** | **14,779** | **** |   | 28,175 |   |   | (23,122 | ) |
|                                                                                                        |                                                                                                                                                         | Inventories | **** | **(804** | **)** |   | 2,928 |   |   | (1,519 | ) |
|                                                                                                        |                                                                                                                                                         | Real estate developments in progress, net | **** | **10,763** | **** |   | 28,657 |   |   | (33,898 | ) |
|                                                                                                        |                                                                                                                                                         | Net current deferred tax assets |   | **(1,594** | **)** |   | 285 |   |   | (1,581 | ) |
|                                                                                                        |                                                                                                                                                         | Other current assets and current liabilities | **** | **(14,347** | **)** |   | (1,908 | ) |   | 9,707 |   |
|                                                                                                        |                                                                                                                                                         | Other noncurrent operating assets and liabilities | **** | **2,706** |   |   | (18,836 | ) |   | 704 |   |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         |   | Net cash provided (used) by operating activities | **** | **28,054** | **** |   | 73,691 |   |   | (9,690 | ) |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         |   |   |   |   |   |   |   |   |
| **Cash flows from investing      activities:**                                                              | ****                                                                                                                                                         | **** | **** |   |  |   |   |  |   |
| Capital expenditures – property, plant, and      equipment                                            | ****                                                                                                                                                         | **(16,276** | **)** |   | (44,583 | ) |   | (36,938 | ) |
| Capital expenditures – software                                                                       | ****                                                                                                                                                         | **(7,637** | **)** |   | (5,355 | ) |   | (1,930 | ) |
| Proceeds from European assets sale                                                                          |                                                                                                                                                         | **2,345** |   |   | – |   |   | – |   |
| Headquarters building sale                                                                                  |                                                                                                                                                         | **24,000** |   |   | – |   |   | – |   |
| Dividend received from joint venture                                                                        | ****                                                                                                                                                         | **–** | **** |   | – |   |   | 2,400 |   |
| Net decrease in other nonoperating assets                                                                   | ****                                                                                                                                                         | **–** |   |   | 4,029 |   |   | 1,049 |   |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         |   | Net cash provided (used) by investing activities | **** | **2,432** |   |   | (45,909 | ) |   | (35,419 | ) |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         |   | **** | **** | **** |   |  |   |   |  |   |
| **Cash flows from financing      activities:**                                                              | ****                                                                                                                                                         | **** | **** |   |  |   |   |  |   |
| Proceeds from issuance of long-term debt                                                                    | ****                                                                                                                                                         | **4,131** | **** |   | 50,701 |   |   | 1,650 |   |
| Repayment of long-term debt                                                                                 | ****                                                                                                                                                         | **(5,653** | **)** |   | (5,755 | ) |   | (5,373 | ) |
| Net change in notes payable to banks                                                                        | ****                                                                                                                                                         | **(2,100** | **)** |   | (33,001 | ) |   | 31,731 |   |
| Dividends paid                                                                                              | ****                                                                                                                                                         | **(4,536** | **)** |   | (4,332 | ) |   | (4,277 | ) |
| Issuance of treasury stock                                                                                  | ****                                                                                                                                                         | **710** | **** |   | 871 |   |   | 778 |   |
| Purchase of treasury stock                                                                                  | ****                                                                                                                                                         | **(25** | **)** |   | (279 | ) |   | (15,121 | ) |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         | Net cash provided (used) by financing activities | **** | **(7,473** | **)** |   | 8,205 |   |   | 9,388 |   |
| Effect of exchange rate changes                                                                             | ****                                                                                                                                                         | **196** |   |   | (273 | ) |   | (375 | ) |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         | Net change in cash and cash equivalents | **** | **23,209** | **** |   | 35,714 |   |   | (36,096 | ) |
| Cash and cash equivalents at beginning of year                                                              | ****                                                                                                                                                         | **52,569** | **** |   | 16,855 |   |   | 52,951 |   |
|                                                                                                             |                                                                                                                                                         |
|                                                                                                        |                                                                                                                                                         | Cash and cash equivalents at end of year | **$** | **75,778** | **** | $ | 52,569 |   | $ | 16,855 |   |
|                                                                                                             |                                                                                                                                                         |

 See Accompanying Notes to Consolidated Financial Statements.

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## Notes to Consolidated Financial Statements

###  Significant Accounting Policies

***Principles of Consolidation***The  consolidated financial statements include Butler Manufacturing Company 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% ownership) are accounted for by the equity method. All  significant intercompany profits, account balances, and transactions are eliminated  in consolidation.

***Reclassifications***  Certain inconsequential reclassifications have been made to prior years information  to conform to the 2002 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.

***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.

***Sales Recognition***  Sales from manufacturing operations are recognized when goods are shipped “free  on board” (FOB) from their shipping point and when all obligations of  the company have been met. For those limited instances where goods are shipped  on company trucks, sales are recognized on a FOB destination point basis.

Sales and gross profit recognition for construction and project contracts are  based upon the percentage of completion method. This method requires the company  to estimate total contract cost at completion for each in-process construction  project. Total contract revenue less total estimated costs generates an estimated  gross profit for each contract. Based upon estimated total costs and estimated  gross profit, the Company recognizes construction sales and gross profit over  the life of the project using a percentage of completion method. The percentage  complete at each period end date is generally determined using costs actually  incurred as of that date compared to the estimate of total contract cost at  completion. Periodic re-evaluation of estimated total costs at completion are  made with the resulting cumulative adjustments recognized in the current period  financial statements. Provision is made for estimated probable losses on projects  when it is determined that a loss will be incurred. Actual costs for completed  projects can and typically will vary from earlier estimates, with the final  adjustment from estimate to actual costs recognized during the period when the  project is considered completed.

Sales and gross profit for the Real Estate segment are recognized when real  estate development projects are sold to third party investors. Rental income,  classified as other income, is recognized on completed projects occupied by  leasing tenants while the project is being held for sale.

***Inventory Valuation***  Inventories are valued at the lower of cost or market and include material,  labor, and manufacturing overhead. The last-in, first-out (LIFO) method of determining  cost is used for substantially all domestic inventories. If the first-in, first-out  (FIFO) method had been used for all locations, inventories would have been $9.5  million and $8.5 million higher than those reported at December 31, 2002 and  2001, respectively.

The use of the LIFO method to calculate cost of sales decreased net earnings  by $.6 million ($.10 per share) in 2002, increased net earnings by $.9 million  ($.14 per share) in 2001, and decreased net earnings by $.4 million ($.06 per  share) in 2000. During 2002, inventory levels decreased in certain of the company’s  business units. Under the LIFO method, the decrease in inventory levels had  the effect of charging the 2002 cost of sales with prior years’ costs  of less than $.1 million, thereby increasing net earnings less than $.1 million  or less than $.01 per share. These amounts are included in the net earnings  and per share amounts presented above. 

***Inventories by Component***

|                      |           |
|----------------------|----------------|
| Dollars in thousands | **2002**       |  | 2001 |   |
|                      |           |
| Raw materials        | **$**          | **23,108** |   | $ | 20,132 |   |
| Work in process      | ****           | **7,608** |   |   | 13,692 |   |
| Finished goods       | ****           | **36,283** |   |   | 32,100 |   |
|                      |           |
|                 | FIFO inventory | **** | **66,999** |   |   | 65,924 |   |
| LIFO reserve         | ****           | **(9,510** | **)** |   | (8,489 | ) |
|                      |           |
|                 | Inventory      | **$** | **57,489** |   | $ | 57,435 |   |
|                      |           |

***Third Party Claims***  The company is subject to third-party claims associated with its products and  services. The time period from when a claim is asserted to when it is resolved  either by dismissal, negotiation, settlement, or litigation can be several years.  While the company maintains product liability insurance, its arrangements include  significant self-retention of risk in the form of policy deductibles. In addition,  certain claims are not insured. Actual claim settlement costs and litigation  awards can and probably will vary from the estimates made by the company. Management  believes that any difference in the actual results from the estimates will not  have a material adverse effect upon the company’s financial position or  results of operations.

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***Insurance Accruals***  Generally, the company is self-insured for workers’ compensation for certain  subsidiaries and for all group medical insurance. Under these plans, liabilities  are recognized for claims incurred (including claims incurred but not reported)  and changes in the accruals. At the time a worker’s compensation claim  is filed, a liability is estimated to settle the claim. The liability for workers’  compensation claims is determined based on management’s estimates of the  nature and severity of the claims using analyses provided by third party administrators.  Since the liability is an estimate, the ultimate liability may be more or less  than reported. If previously established accruals are required to be adjusted,  such amounts are included in cost of sales and selling, general, and administrative  expenses in the period of adjustment. Group medical accruals are estimated using  historical claims experience.

The company maintains excess liability insurance with insurance carriers to  minimize its risks related to catastrophic claims in excess of all self-insured  positions. Any material change in the aforementioned factors could have an adverse  impact on operating results.

***Long-Lived Assets***  The company accounts for the impairment of long-lived assets in accordance with  SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived  Assets.” When events or circumstances indicate that a long-lived asset  may not be recoverable, the company tests for recoverability of the asset by  comparing estimates of undiscounted future cash flows to the carrying amount.  If undiscounted future cash flows are less than the asset carrying amount, an  impairment charge is recorded and the asset’s carrying value is reduced  to fair value. Management, based on current operating conditions, estimates  the future cash flows; however, changes in estimates of such cash flows could  impact the results of the impairment test. There were no impairment charges  recorded in 2002.

***Property, Plant, and Equipment***  Depreciation is calculated using the straight-line method over the estimated  useful lives of the assets for financial reporting purposes and accelerated  methods for income tax purposes. Expenditures for maintenance and repairs are  charged to expense as incurred. Upon sale or retirement of assets, the cost  and the accumulated depreciation amounts are removed from the accounts. The  estimated useful lives of property are as follows:

| Land improvements             | 15 to 20 years |
|-------------------------------|----------------|
| Buildings and improvements    | 7 to 33 years  |
| Machinery and equipment       | 3 to 15 years  |
| Office furniture and fixtures | 3 to 15 years  |

Capital expenditures for property, plant and equipment in 2002 were $16 million  compared to $45 million in 2001. In 2002, approximately $10 million was used  in construction of a second metal buildings plant in Tianjin, China, which will  go into service in 2003. Other expenditures, in 2002, included general factory  capital costs. In 2001, $27 million was used to construct and furnish the majority  of the company’s new world headquarters building, which subsequently has  been sold and leased back. Other 2001 expenditures included costs to complete  the installation of process lines in the Vistawall manufacturing plant in Tennessee  and the construction of the company’s Shanghai, China office and warehouse  facilities. Interest has been capitalized in connection with the development  of new facilities and is amortized over the estimated useful live of the related  assets. Interest capitalized was $.1 million during 2002, $.6 million in 2001,  and $.3 million in 2000.

***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 $1.2 million,  $1.3 million, and $1.2 million of research and development costs in 2002, 2001,  and 2000, respectively.

***Capitalized Software***  Capitalized software costs are recorded in “Investments and other assets”  in the consolidated balance sheets. At December 31, 2002 and 2001, capitalized  software costs, net of amortization, were $18.0 million and $14.6 million, respectively.  Costs capitalized in 2002 and 2001 include the implementation of a scalable  enterprise system in the North American Building Systems segment. Costs are  amortized on a straight-line basis over periods not exceeding seven years once  applications are implemented and operational. Amortization of software cost  was $4.2 million in 2002 and 2001, respectively, and $3.4 million in 2000. During  2001, $1.3 million, reflecting the disposition of certain software applications  in the North American Building Systems segment, reduced unamortized costs of  software applications.

***Goodwill and Other Intangible Assets***  In July 2001, the Financial Accounting Standards Board (FASB) issued Statement  of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other  Intangible Assets.” SFAS No. 142 provides guidance on accounting and reporting  for goodwill and intangible assets. Goodwill and intangible assets acquired  in a purchase business combination which are determined to have an indefinite  useful life are no longer amortized over future periods, but are assessed at  least annually for impairment using a fair value based test. Intangible assets  with estimable useful lives continue to be amortized over their respective useful  lives. The company adopted the new standard on January 1, 2002. 

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In September 2002, the company performed the annual impairment test for goodwill  related to its Architectural Products business segment using methodology required  under SFAS No. 142, which requires the company to evaluate impairment based  on the fair value of assets held in the relevant reporting unit. It was determined  that the fair value of assets related to the Architectural Products reporting  unit exceeded its carrying value and no impairment was recognized. 

Prior to the 2001 asset impairment charge, referenced In the Restructuring  and Asset Impairment Charges footnote, $5.9 million of goodwill was recorded  in the balance sheet, with $5.5 million in the Architectural Products segment  and $.4 million in the European operation of its International Building Systems  segment. European goodwill was written off in 2001 with the announced disposition  of that business. Goodwill was amortized over 40 years prior to adoption of  this standard. At the end of 2002 and 2001, the company had $5.5 million of  goodwill and other intangible assets recorded in the balance sheets. Goodwill  amortization in 2001 and 2000 was $.1 million, respectively, net of tax. 

 million and $1.4 million at December 31, 2002 and 2001, respectively. These  costs are being amortized over the fifteen year life of the agreements. For  2002, 2001, and 2000, amortization was $.1 million, net of tax each year. Estimated  amortization expense for each of the next five years is $.2 million.

***Derivative Instruments and Hedging Activities***  The company enters into aluminum contracts to hedge the cost of a portion of  the aluminum used in its Architectural Products segment. These contracts qualify  for hedge accounting. Unrealized gains or losses on open contracts are recorded  in comprehensive income until the contract settles with a corresponding adjustment  to inventory (for losses) or deferred income (for gains). Gains or losses on  contracts are recognized in earnings as an adjustment to cost of sales when  the underlying inventory is sold. No gain or loss was recorded for open contracts  due to the highly effective nature of the hedges in 2002 and 2001. The amounts  recorded in cumulative other comprehensive income related to these contracts  was a gain of less than $.1 million for 2002 and a $.2 million loss for 2001.  The 2001 amount was recognized in 2002 earnings, and the 2002 amount is expected  to be recognized in 2003. 

The company enters into forward currency exchange contracts to hedge a portion  of its exposure associated with Canadian dollar denominated sales and net cash  flow for its Canadian operations within the North American Building Systems  segment. The company’s costs for this operation are primarily denominated  in U.S. dollars. While these hedge contracts would qualify for hedge accounting,  the company has chosen not to designate these derivatives as hedge contracts,  due to the immateriality of the unrealized gains or losses on such open contracts,  at its normal level of activity. Accordingly, the company records the unrealized  gain or loss from these derivatives in earnings as opposed to other comprehensive  income. For major customer projects or for non-Canadian operations, where customer  or vendor payments are denominated in a foreign currency, the company may designate  related forward currency exchange contracts as cash flow hedges on a case-by-case  basis. No such designation was made during 2002 or 2001.

***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, 2002 and 2001, 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. 

***Accounting for Stock Options***  The company records stock compensation costs for employee and directors stock  options in accordance with Accounting Principal Board Opinion No. 25 “Accounting  for Stock Issued to Employees” versus FASB No. 123 “Accounting for  Stock-Based Compensation,” which recommends the recording of compensation  costs for options under the fair value method at the date of grant. Under APB  25, no charges are recorded to earnings for stock options granted, since the  options exercise price equals their fair value at date of grant. In accordance  with APB 25 differences in amounts received when stock options are exercised,  and their carrying value in treasury stock, are recorded in retained earnings  at their exercise date.

In January 2003, the FASB issued SFAS No. 148 “Accounting for Stock-Base  Compensation-Transition and Disclosure.” SFAS No. 148 amends Statement  No. 123 and provides for alternative methods of transition for a voluntary change  to the fair value method of accounting for stock-base compensation. In addition  it requires more frequent and prominent financial statement disclosure of the  effect of stock-based compensation on the results of operation. Below is the  effect on the company’s net earnings and earnings per share (EPS) if stock  options were accounted for under the fair value method.

|                                        |                             |
|----------------------------------------|----------------------------------|
| Dollars in millions                    | **2002**                         |  | 2001 |  | 2000 |   |
|                                        |                             |
| Net earnings (loss) as reported        | **$**                            | **(1.8** | **)** | $ | 8.1 |   | $ | 25.2 |   |
|                                   | After tax effect of SFAS No. 123 | **** | **(.2** | **)** |   | (.1 | ) |   | – |   |
|                                        |                             |
| Net earnings (loss) after SFAS No. 123 | ****                             | **(2.0** | **)** |   | 8.0 |   |   | 25.2 |   |
|                                        |                             |
|                                   |                             |   |   |   |   |   |   |   |   |
| EPS effect in dollars                  |                             |   |   |   |   |   |   |   |   |
|                                        |                             |
| Diluted, EPS as reported               | **$**                            | **(0.29** | **)** | $ | 1.28 |   | $ | 3.86 |   |
|                                   | EPS effect of SFAS No. 123       | **** | **(0.03** | **)** |   | (0.02 | ) |   | – |   |
|                                        |                             |
| Diluted EPS after SFAS No. 123         | **$**                            | **(0.32** | **)** | $ | 1.26 |   | $ | 3.86 |   |
|                                        |                             |

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

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

|                                                                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          | **2002** |
|                                                                                                                                          |  |
| Dollars and shares in thousands,                                                                                                              | Net |  |  |  | Per Share |
| except per share amounts                                                                                                                      | Loss |  | Shares |  | Amount |
|                                                                                                                                               |
| Basic EPS available to common shareholders                                                                                                    | **$** | **(1,836** | **)** | **6,313** | **** | **$** | **(0.29)** |
| Assumed net conversion of stock options                                                                                                       | **** | **** | **** | **–** | **** | **** | **** |
|                                                                                                                                               |
| Diluted EPS available to common shareholders  plus      assumed conversions                                                              | **$** | **(1,836** | **)** | **6,313** | **** | **$** | **(0.29)** |
|                                                                                                                                               |
|                                                                                                                                          |   |   |   |   |   |   |   |
| No dilutive calculations were performed due to a net loss      for 2002 resulting in the dilutive and basic weighted shares being equivalent. |
|                                                                                                                                          |
|                                                                                                                                               |
|                                                                                                                                          | 2001 |
|                                                                                                                                          |  |
| Dollars and shares in thousands,                                                                                                              | Net |  |  |  | Per Share |
| except per share amounts                                                                                                                      | Earnings |  | Shares |  | Amount |
|                                                                                                                                               |
| Basic EPS available to common shareholders                                                                                                    | $ | 8,060 |  | 6,282 |   | $ | 1.28 |
| Assumed net conversion of stock options                                                                                                       |   |  |  | 3 |   |   |  |
|                                                                                                                                               |
| 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 net conversion of stock options                                                                                                       |   |  |   | 10 |   |   |  |
|                                                                                                                                               |
| Diluted EPS available to common shareholders  plus assumed conversions                                                                   | $ | 25,215 |   | 6,531 |   | $ | 3.86 |
|                                                                                                                                               |

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 |
|  |
| **2002** | **367,427** | **$23.00 - $38.50** | **2002 to 2012** |
| 2001 | 487,719 | $26.00 - $38.50 | 2001 to 2006 |
| 2000 | 513,500 | $26.00 - $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. 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 $.3 million at December  31, 2002 and less than $.1 million at December 31, 2001.

***Comprehensive Income***  The components of comprehensive income include adjustments for minimum pension  liabilities, foreign currency translation items, and hedging activities. The  majority of the charges to comprehensive income relate to the company’s  minimum pension liabilities. In 2002 and 2001, $10.2 million and $6.6 million,  respectively and net of tax, was charged to other comprehensive income to recognize  changes in the company’s minimum pension liabilities.***Construction and Project Contracts***  Costs and estimated earnings in excess of billings on construction and project  contracts, reflected in Inventories on the consolidated balance sheets, were  $3.6 million and $4.9 million at December 31, 2002 and 2001, respectively. Billings  in excess of costs are specifically identified on the consolidated balance sheets  and were $3.4 and $1.6 million at December 31, 2002 and 2001, respectively.

Total receivables due under construction and project contracts, included as  trade receivables, were $18.8 million and $21.7 million at December 31, 2002  and 2001, respectively. Included in the contract receivables were $6.1 million  and $6.3 million at December 31, 2002 and 2001, respectively, for amounts billed  but not collected pursuant to retainage provisions. These amounts are generally  due upon completion of the contracts. Construction contract receivables, including  retentions, where the collection is not anticipated within twelve months are  classified under Investments and other assets and totaled $1.9 million and $1.5  million at December 31, 2002 and 2001, respectively. Included in these amounts  is retention older than one year of $.6 million and $1.1 million at December  31, 2002 and 2001, respectively.

***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,  which is included in the International Building Systems segment. As a result,  the company recorded an $8.1 million pretax charge in December 2001. The company  recorded a $4.3 million pretax charge in 2001 for the write-down of certain  assets at its European business to estimated net realizable value based on estimated  proceeds from the sale. The asset impairment charge was utilized in 2002 upon  disposition of these assets. In 2001, the company also recorded a $3.9 million  restructuring charge for employee separation costs, costs to close offices,  and

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other expenses related to the disposition of the business.

During 2002 and 2001, the company utilized $1.9 million and $1.7 million of  the restructuring reserve, respectively. An additional $1.4 million was accrued  in 2002 for severance, termination, and legal costs associated with the disposition  of the European building business. The balance of the restructuring reserve  totaled $1.5 million at the end of 2002. Recap of activity in the restructuring  reserve during 2002 and 2001, is presented below.

***Restructuring Charge Accrual Activity***

|                                 |
|---------------------------------|
|                            |  |  |  | 2001 |  | 2002 |
|                            |  |  |  |
|                            | 12/31/00 |  |  |  |  |  |  |  | 12/31/01 |  |  |  |  |  |  |  | 12/31/02 |
| Dollars in thousands            | Balance |  | Accrual |  | Recovery |  | Utilized |  | Balance |  | Accrual |  | Recovery |  | Utilized |  | Balance |
|                                 |
| Severance and termination costs | $ | – |   | $ | 1,161 |   | $ | – |   | $ | – |   | $ | 1,161 |   | $ | 931 |   | $ | – |   | $ | (943 | ) | $ | 1,149 |
| Foreign exchange loss           |   | – |   |   | 1,749 |   |   | – |   |   | (1,749 | ) |   | – |   |   | 106 |   |   | – |   |   | (106 | ) |   | – |
| Legal, claims, and other costs  |   | – |   |   | 944 |   |   | – |   |   | – |   |   | 944 |   |   | 330 |   |   | – |   |   | (898 | ) |   | 376 |
|                                 |
|                            | $ | – |   | $ | 3,854 |   | $ | – |   | $ | (1,749 | ) | $ | 2,105 |   | $ | 1,367 |   | $ | – |   | $ | (1,947 | ) | $ | 1,525 |
|                                 |

In 2002, an additional $2 million was recovered on the sale of certain assets  of the business. The detail of restructuring and asset impairment charges (credits)  reported on the company’s consolidated statements of earnings for 2002,  2001, and 2000 is presented below.

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

|                                               |     |
|-----------------------------------------------|----------|
| Dollars in thousands                          | **2002** |  | 2001 |  | 2000 |   |
|                                               |     |
| Restructuring charges                         | **$**    | **1,367** |   | $ | 3,854 |   | $ | – |   |
| Asset impairment and restructuring recoveries | ****     | **(1,998** | **)** |   | – |   |   | (620 | ) |
| Redundant–worthless assets activity      | ****     | **–** |   |   | – |   |   | 179 |   |
|                                               |     |
| Restructuring charge (credit), net            | **$**    | **(631** | **)** | $ | 3,854 |   | $ | (441 | ) |
|                                               |     |
| Asset impairment charge                       | **$**    | **–** |   | $ | 4,285 |   | $ | – |   |
|                                               |     |

***Assets Held for Sale***  BMC Real Estate, Inc., a wholly owned subsidiary, owns land for development,  which is reported as “Assets held for sale” in the consolidated  balance sheets. No land parcels were sold in 2002. During 2001, one land parcel  was sold, on which the gain on sale was less than $.1 million. Management believes,  although the sale may take several years, the ultimate book value of the asset  will be realized.

***International Joint Venture Operations***  The company has a 30% interest in an international joint venture, Saudi Building  Systems. The joint venture is involved in the design, manufacture, and marketing  of pre-engineered metal buildings for nonresidential use in its respective market.  During 2000, the company received a $2.4 million cash payment from Saudi Building  Systems, which represented a dividend and partial return of equity earnings.  No cash investments were made in Saudi Building Systems during 2002 or 2001.  The company’s net investment In Saudi Building Systems was $2 million  at December 31, 2002 and 2001, respectively. 

During 2001, the company acquired a 40% interest in Vistawall International  (UAE) Ltd. The joint venture is involved in the design, manufacture, and sale  of architectural aluminum products in the Middle Eastern markets. Cash investments  were made in Vistawall International (UAE) Ltd. of $.1 million in 2002 and $.4  million in 2001. The company’s net investment was $.2 million at December  31, 2002 and 2001, respectively.

### 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 Building Systems segment includes the building systems businesses  in Canada, the U.S., and Latin America. These business units supply steel and  wood frame pre-engineered building systems for a wide variety of commercial,  community, industrial, and agricultural applications. 

The International Building Systems segment includes the company’s building  systems businesses in Europe and China. These businesses supply pre-engineered  metal buildings for commercial, community, industrial and agricultural applications  primarily for the Chinese and European markets. The European metal buildings  business was sold in July 2002. 

The Architectural Products segment includes the operations of the Vistawall  Group. The group’s businesses design, manufacture, and market architectural  aluminum systems for nonresidential construction, including curtain wall, storefront,  window, and skylight systems.

The Construction Services segment sells and constructs large, complex metal  building systems, working primarily in conjunction with the Butler Builder organization.  Typical projects are large distribution centers and industrial buildings.

The Real Estate segment provides real estate build-to-suit-to-lease development  services in cooperation with Butler Builders.

The accounting policies for the segments are the same as those described in  the summary of significant accounting policies. The company’s reportable  segments are strategic business units that offer different products and services.  They are managed separately as each business requires different technology and  expertise.

The Other classification in the following tables represents unallocated corporate  expenses and assets, including corporate offices, deferred taxes, pension accounts,  interest expense, and intersegment eliminations.

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***Net Sales***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2002** |  | 2001 |  | 2000 |   |
|                                 |     |
| North American Building Systems | **$**    | **393,969** |   | $ | 440,049 |   | $ | 530,235 |   |
| International Building Systems  | ****     | **107,842** |   |   | 81,644 |   |   | 86,235 |   |
| Architectural Products          | ****     | **220,098** |   |   | 231,509 |   |   | 224,130 |   |
| Construction Services           | ****     | **111,428** |   |   | 132,930 |   |   | 149,273 |   |
| Real Estate                     | ****     | **16,475** |   |   | 37,555 |   |   | 7,682 |   |
| Intersegment eliminations       | ****     | **(21,603** | **)** |   | (27,115 | **)** |   | (37,178 | ) |
|                                 |     |
|                            | **$**    | **828,209** |   | $ | 896,572 |   | $ | 960,377 |   |
|                                 |     |

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

***Interest Expense***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2002** |  | 2001 |  | 2000 |   |
|                                 |     |
| North American Building Systems | **$**    | **3** |   | $ | 4 |   | $ | 27 |   |
| International Building Systems  | ****     | **57** |   |   | 122 |   |   | 206 |   |
| Architectural Products          | ****     | **92** |   |   | 61 |   |   | – |   |
| Construction Services           | ****     | **–** |   |   | – |   |   | – |   |
| Real Estate                     | ****     | **–** |   |   | 383 |   |   | 351 |   |
| Other                           | ****     | **7,377** |   |   | 6,359 |   |   | 4,575 |   |
|                                 |     |
|                            | **$**    | **7,529** |   | $ | 6,929 |   | $ | 5,159 |   |
|                                 |     |

***Pretax Earnings (Loss)***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2002** |  | 2001 |  | 2000 |   |
|                                 |     |
| North American Building Systems | **$**    | **(7,562** | **)** | $ | 10,417 |   | $ | 31,673 |   |
| International Building Systems  | ****     | **7,995** |   |   | (6,075 | ) |   | 4,127 |   |
| Architectural Products          | ****     | **8,891** | **** |   | 13,828 |   |   | 16,381 |   |
| Construction Services           | ****     | **1,952** | **** |   | 3,234 |   |   | 2,505 |   |
| Real Estate                     | ****     | **3,341** | **** |   | 5,974 |   |   | 2,644 |   |
| Other                           | ****     | **(21,475** | **)** |   | (19,116 | ) |   | (18,937 | ) |
|                                 |     |
|                            | **$**    | **(6,858** | **)** | $ | 8,262 |   | $ | 38,393 |   |
|                                 |     |

The 2001 pre-tax loss for the International Building Systems segment includes  special charges of $7.7 million associated with the segment’s European  operations. The remaining $.4 million of the special charges is contained in  the Other segment.

***Assets***

|                                 |     |        |   |
|---------------------------------|----------|-------------|--------|
| Dollars in thousands            | **2002** |             | 2001   |  |  |   |
|                                 |     |        |   |
| North American Building Systems | **$**    | **132,688** | ****   | $ | 138,690 |   |   |   |   |
| International Building Systems  | ****     | **77,159**  | ****   |   | 67,064 |   |   |   |   |
| Architectural Products          | ****     | **104,474** | ****   |   | 112,785 |   |   |   |   |
| Construction Services           | ****     | **17,807**  | ****   |   | 22,465 |   |   |   |   |
| Real Estate                     | ****     | **30,379**  | ****   |   | 28,406 |   |   |   |   |
| Other                           | ****     | **93,327**  | ****   |   | 101,352 |   |   |   |   |
|                                 |     |        |   |
|                            | **$**    | **455,834** | ****   | $ | 470,762 |   |   |   |   |
|                                 |     |        |   |

Assets represent both tangible and intangible assets used by each business  segment. Other represents corporate cash and cash equivalents, assets held for  sale, corporate fixed assets, including the company’s headquarters facility  (in 2001) and various other assets, which are not related to a specific business  segment. The company’s headquarters facility was sold in the fourth quarter  2002 and leased back by the company under an operating lease.

***Capital Expenditures – Property, Plant,  and Equipment***

|                                 |     |
|---------------------------------|----------|
| Dollars in thousands            | **2002** |  | 2001 |  | 2000 |   |
|                                 |     |
| North American Building Systems | **$**    | **3,902** |   | $ | 4,559 |   | $ | 5,248 |   |
| International Building Systems  | ****     | **10,209** |   |   | 6,228 |   |   | 5,849 |   |
| Architectural Products          | ****     | **2,044** |   |   | 6,391 |   |   | 24,229 |   |
| Construction Services           | ****     | **25** |   |   | 176 |   |   | 212 |   |
| Real Estate                     | ****     | **–** |   |   | – |   |   | – |   |
| Other                           | ****     | **96** |   |   | 27,229 |   |   | 1,400 |   |
|                                 |     |
|                            | **$**    | **16,276** |   | $ | 44,583 |   | $ | 36,938 |   |
|                                 |     |

The International Building Systems segment includes capital expenditures for  the second Butler pre-engineered metal buildings plant in China. Included in  Other, 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            | **2002** |  | 2001 |  | 2000 |   |
|                                 |     |
| North American Building Systems | **$**    | **9,943** |   | $ | 10,371 |   | $ | 9,322 |   |
| International Building Systems  | ****     | **1,753** |   |   | 2,161 |   |   | 1,772 |   |
| Architectural Products          | ****     | **4,569** |   |   | 4,221 |   |   | 3,098 |   |
| Construction Services           | ****     | **665** |   |   | 729 |   |   | 786 |   |
| Real Estate                     | ****     | **–** |   |   | 8 |   |   | 8 |   |
| Other                           | ****     | **1,984** |   |   | 614 |   |   | 608 |   |
|                                 |     |
|                            | **$**    | **18,914** |   | $ | 18,104 |   | $ | 15,594 |   |
|                                 |     |

***Geographic Information by Country***  The following table presents net sales by country based on the location of delivery  of the product or service. The United States of America and the People’s  Republic of China are the only countries where sales exceeded 10% of the company’s  con-solidated net sales.

***Net Sales***

|                                  |     |
|----------------------------------|----------|
| Dollars in thousands             | **2002** |  | 2001 |  | 2000 |   |
|                                  |     |
| United States of America         | **$**    | **688,803** |   | $ | 781,646 |   | $ | 824,552 |   |
| People’s Republic of China |     | **96,364** |   |   | 61,009 |   |   | 56,734 |   |
| All other countries              | ****     | **43,042** |   |   | 53,917 |   |   | 79,091 |   |
|                                  |     |
|                             | **$**    | **828,209** |   | $ | 896,572 |   | $ | 960,377 |   |
|                                  |     |

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The following table presents all tangible long-lived assets by country based  on the location of the asset. The United States of America and the People’s  Republic of China are the only countries in which long-lived assets exceeded  10% of the company’s consolidated long-lived assets.

***Tangible Long-Lived Assets***

|                                  |     |        |   |
|----------------------------------|----------|-------------|--------|
| Dollars in thousands             | **2002** |             | 2001   |  |  |   |
|                                  |     |        |   |
| United States of America         | **$**    | **114,060** |   | $ | 141,034 |   |   |   |   |
| People’s Republic of China |     | **27,801**  |   |   | 19,121 |   |   |   |   |
| All other countries              | ****     | **119**     |   |   | 1,392 |   |   |   |   |
|                                  |     |        |   |
|                             | **$**    | **141,980** |   | $ | 161,547 |   |   |   |   |
|                                  |     |        |   |

### Debt, Leases, Commitments, and Contingencies

***Long-Term Debt***

|                              |                                   |
|------------------------------|----------------------------------------|
| Dollars in thousands         | ****                                   |  | **2002** |  | 2001 |   |
|                              |                                   |
| 2001 private placement notes |                                   |   |   | **$** | **50,000** |   | $ | 50,000 |   |
| 1998 private placement notes |                                   |   |   | **** | **35,000** |   |   | 35,000 |   |
| 1994 private placement notes |                                   |   |   | **** | **5,000** |   |   | 10,000 |   |
| Industrial revenue bonds     |                                   |   |   | **** | **6,250** |   |   | 6,250 |   |
| Capital leases               |                                   |   |   | **** | **4,389** |   |   | 286 |   |
| Other debt                   |                                   |   |   | **** | **1,700** |   |   | 2,325 |   |
|                              |                                   |
| Total long-term debt         |                                   |   |   | **** | **102,339** |   |   | 103,861 |   |
| Less current maturities      |                                   |   |   | **** | **6,273** |   |   | 5,617 |   |
|                              |                                   |
|                         | Long-term debt less current maturities |   |   |   | **$** | **96,066** |   | $ | 98,244 |   |
|                              |                                   |

***Long-Term Debt***  The 2001 private placement notes carry an all-in fixed interest rate of 7.91%  with interest payable semi-annually on June 30 and December 30 and principal  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% with  interest payable semi-annually on March 20 and September 20 and principal 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% with  interest payable semi-annually on June 30 and December 30 and principal 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 2.9% for 2002,  3.9% for 2001, and 5% for 2000.

In the fourth quarter of 2002, the company entered into a $3.9 million sale-leaseback  lease agreement for the furniture, fixtures, and equipment at its world headquarters  facility in Kansas City, Missouri. Under the capital lease arrangement, the  lease term is five years with monthly payments carrying a fixed interest rate  of 6.00%.

Total principal payments due on all debt in each of the five years subsequent  to December 31, 2002 are as follows:

| 2003                | $6.3 million  |
|---------------------|---------------|
| 2004                | $4.7 million  |
| 2005                | $4.7 million  |
| 2006                | $9.3 million  |
| 2007                | $9.1 million  |
| 2008 and thereafter | $68.2 million |

Cash payments for interest on long-term debt were $7.4 million, $6.9 million,  and $5.1 million in 2002, 2001, and 2000, respectively.

***Short-Term Borrowings***  The company and its subsidiaries have a short-term domestic bank credit facility  of $35 million with sublimits of $30 million for letters of credit and $10 million  in borrowings. The credit facility matures on June 20, 2004. At December 31,  2002, the company had used $20.2 million of the facility for letters of credit  and had no borrowings outstanding. At December 31, 2002, the company had $10  million of borrowing capacity under the credit facility.

***Debt and Borrowing Covenants***  One of the provisions of the company’s bank credit agreement required  a fixed charge coverage ratio to be maintained at the end of each quarterly  reporting period. The company did not meet this requirement for the quarter  ended September 30, 2002. The company received a waiver for the deficiency and  was in compliance with all other covenants of this agreement as of September  30, 2002. The company amended the credit agreement in December 2002 to reset  various financial covenants, and effective February 2003 amended its private  placement notes to conform to the amended credit agreement. The bank credit  agreement and the private placement notes are secured by a pledge of the company’s  domestic cash, receivables, inventories, and equipment for the benefit of the  company’s senior lenders, which consist of the bank lenders under the  credit agreement and the note holders under the private placement notes. The  February 2003 amendment of the private placement notes increased the coupon  rate for each note by 1.5 percent. Upon the company’s achievement of certain  financial ratio and other provisions of the note amendments, 1.25 percent of  this increase shall expire. 

The company’s short-term credit agreement and long-term debt agreements  contain, among other restrictions, certain requirements to maintain a minimum  level of domestic cash and cash equivalents, limitations on the payment of cash  dividends, the purchase of company stock, capital expenditures, and the incurrence  of new debt, as well as covenants related to the maintenance of certain defined  financial ratios. As of December 31, 2002, the company was in compliance with  all covenants, and as of that date, after

Page 28

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giving effect to the February, 2003, amendments, $10 million was available  for cash dividends and share repurchases.

The amended credit agreement and note agreements allow the company’s  Real Estate Segment to incur up to $35 million in non-recourse debt with other  lenders to fund a portion of its development activity, providing another avenue  for liquidity. As of December 31, 2002, the company had no debt outstanding  under this provision.

***Sale-Leaseback***  In the fourth quarter of 2002, the company entered into a sale-leaseback transaction  of its world headquarters building located in Kansas City, Missouri. Under the  arrangement, the real estate was sold to an independent third-party for $24  million and leased back under a twenty year operating lease arrangement. The  company realized a gain on the sale of approximately $2 million, which is being  deferred and amortized as a reduction to rent expense over the term of the lease.

In 2002, the company also entered into a sale-leaseback transaction of furniture  and operating equipment used in its world headquarters building. Under the capital  lease arrangement, the furniture and operating equipment were sold for $3.9  million and leased back for five years.

***Leases***  Leases include facility, transportation equipment, and plant operating equipment.  Rental expense under operating leases was $8.9 million, $10.9 million, and $11.3  million in 2002, 2001, and 2000, respectively. Minimum rental commitments under  noncancelable operating leases subsequent to December 31, 2002 are as follows:

| 2003                | $6.5 million  |
|---------------------|---------------|
| 2004                | $6.2 million  |
| 2005                | $4.7 million  |
| 2006                | $3.5 million  |
| 2007                | $2.6 million  |
| 2008 and thereafter | $32.3 million |

***Commitments and Contingencies***  The company is subject to various legal proceedings, claims, and environmental  actions which arise in the ordinary course of business operations. Although  the ultimate outcome of these matters is presently not determinable, management,  after consultation with legal counsel, believes the resolution of these matters  will not have a material adverse effect upon the company’s financial position  or results of operations.

On October 15, 2002, a Minnesota District Court jury awarded the company $29.6  million for its Lester® building business in its suit against Louisiana-Pacific  Corporation. The suit pertained to Louisiana-Pacific’s Inner-Seal siding  product. The award compensates the company for damages and other losses resulting  from product purchased by the company and sold to its dealers.

On January 27, 2003, the Minnesota District Court entered a final judgment  in the amount of $20.1 million after ruling on post trial motions. The final  judgment added $1.7 million for interest and costs but excluded $11.2 million  of the jury’s original award as a result of a permanent injunction entered  by the U.S. District Court for the District of Oregon. The injunction enjoined  the Minnesota state court from entering judgment in the sum of $11.2 million.  Butler has appealed the U.S. District Court’s injunction to the U.S. Ninth  Circuit Court of Appeals. 

The company is unable to estimate the impact the award may have on its financial  position or results of operations at this time. However, if the entire award  is paid, the company believes it will recognize approximately $15 million pretax  as income for damages and recovery of prior costs in the period in which the  award is paid. The trial court’s judgment is subject to appeal, which  could delay payment and result in affirmation, modification, or reversal of  the award.

***Guarantees and Warranties***  In November 2002, the FASB issued FASB interpretation No. 45 (FIN 45), “Guarantors  Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees  of Indebtedness of Others.” FIN 45 requires liability to be recognized  at the time a company issues a guarantee for the fair value of the obligations  assumed under certain guarantee agreements. Additional disclosures or guarantee  agreements are also required in the interim and annual financial statements.  The disclosure requirements of FIN 45 are effective for the years ending after  December 15, 2002. The liability recognition requirements are effective January  1, 2003.

The company accrues for warranty and claim costs as a percentage of sales based  on historical trends. Actual warranty and claim costs are deducted from the  accrual when incurred. For 2002, warranty and claim accruals at the beginning  of the year were $3.6 million, current year payments exceeded current year accruals  and adjustments by $.8 million, and the balance at the end of the year was $2.8  million.

Under current operations, adoption of FIN 45 is not expected to have a material  impact on the company’s results of operations or financial position. 

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

Page 29

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### Taxes on Earnings

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

***Components of Income Taxes***

|                      |                         |
|----------------------|------------------------------|
| Dollars in thousands | **2002**                     |  | 2001 |  | 2000 |   |
|                      |                         |
| Current:             |                         |   |   |   |   |   |   |   |   |
|                 | Federal                      | **$** | **(4,622** | **)** | $ | (1,646 | ) | $ | 12,442 |   |
|                 | Foreign                      | **** | **836** | **** |   | 720 |   |   | 186 |   |
|                 | State and local              | **** | **358** | **** |   | 842 |   |   | 2,131 |   |
|                      |                         |
|                 |                         | **** | **(3,428** | **)** |   | (84 | ) |   | 14,759 |   |
|                      |                         |
| Deferred:            | ****                         | **** | **** |   |  |   |   |  |   |
|                 | Federal                      | **** | **(237** | **)** |   | 479 |   |   | (1,456 | ) |
|                 | Foreign                      | **** | **(1,337** | **)** |   | (234 | ) |   | – |   |
|                 | State and local              | **** | **(20** | **)** |   | 41 |   |   | (125 | ) |
|                      |                         |
|                 |                         | **** | **(1,594** | **)** |   | 286 |   |   | (1,581 | ) |
|                      |                         |
|                 | Income tax expense (benefit) | **$** | **(5,022** | **)** | $ | 202 |   | $ | 13,178 |   |
|                      |                         |

Tax expense in 2001 includes a tax benefit of $4.5 million related to the disposition  of the European business. 2000 was the last year of a full tax holiday for the  company’s Chinese subsidiary. In 2002 and 2001, the Chinese subsidiary’s  earnings were taxed at a reduced percentage of the Chinese statutory rate. Cash  payments, net of refunds, for income taxes were a net refund less than $.1 million  in 2002, and net payments of $3.6 million, and $5.3 million in 2001 and 2000,  respectively. The foreign components of pretax earnings were net profits (loss)  of $8.8 million, $(6.1) million, and $4.5 million in 2002, 2001, and 2000, respectively.

A reconciliation of the expected income tax expense at the statutory federal  income tax rate and the reported income tax expense is shown below.

***Reconciliation of Income Tax Expense***

|                                                                                                                                                      |                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
| Dollars in thousands                                                                                                                                 | **2002**                              |  | 2001 |  | 2000 |   |
|                                                                                                                                                      |                                  |
| Expected income tax expense (benefit) on   pretax      earnings (loss) before asset impair-   ment and restructuring      charge | **$**                                 | **(2,400** | **)** | $ | 5,615 |   | $ | 13,438 |   |
| State and local income   tax, net of federal      benefits                                                                                 | ****                                  | **233** | **** |   | 554 |   |   | 1,385 |   |
| Nondeductible losses (nontaxable   profits)      of foreign subsidiaries                                                                   | ****                                  | **(262** | **)** |   | 1,199 |   |   | (1,378 | ) |
| Tax benefit from foreign sales corporation                                                                                                           | ****                                  | **(295** | **)** |   | (307 | ) |   | (229 | ) |
| China tax less than U.S. statutory rate                                                                                                              | ****                                  | **(2,193** | **)** |   | (1,195 | ) |   | – |   |
| Settlement of audits                                                                                                                                 | ****                                  | **–** |   |   | (577 | ) |   | – |   |
| Utilization of capital loss carryforward                                                                                                             | ****                                  | **(487** | **)** |   | (651 | ) |   | – |   |
| Asset impairment and restructuring charge                                                                                                            | ****                                  | **–** |   |   | (4,500 | ) |   | – |   |
| Other                                                                                                                                                | ****                                  | **382** | **** |   | 64 |   |   | (38 | ) |
|                                                                                                                                                      |                                  |
|                                                                                                                                                 | Income tax expense (benefit) reported | **$** | **(5,022** | **)** | $ | 202 |   | $ | 13,178 |   |
|                                                                                                                                                      |                                  |

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. Management believes that future operations will  generate sufficient taxable income to realize its net deferred tax assets.

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

|                                            |                            |
|--------------------------------------------|---------------------------------|
| Dollars in thousands                       | **2002**                        |  | 2001 |  |  |   |
|                                            |                            |
| Current deferred tax assets (liabilities): |                            |   |   |   |   |   |   |   |   |
|                                       | Operating expenses              | **$** | **13,727** | **** | $ | 11,318 |   |   |   |   |
|                                       | Inventory                       | **** | **1,289** | **** |   | 1,439 |   |   |  |   |
|                                       | Restructuring charge            | **** | **(98** | **)** |   | (182 | ) |   |  |   |
|                                       | Minimum pension liability       | **** | **10,310** | **** |   | 4,061 |   |   |  |   |
|                                       | Other                           | **** | **10** | **** |   | – |   |   |  |   |
|                                            |                            |
|                                       | Net current deferred tax assets | **$** | **25,238** | **** | $ | 16,636 |   |   |  |   |
|                                            |                            |

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

|                                               |                                                                       |
|-----------------------------------------------|----------------------------------------------------------------------------|
| Dollars in thousands                          | **2002**                                                                   |  | 2001 |  |  |   |
|                                               |                                                                       |
| Noncurrent deferred tax assets (liabilities): |                                                                       |   |   |   |   |   |   |  |   |
|                                          | Depreciation                                                               | **$** | **(10,726** | **)** | $ | (9,621 | ) |   |   |   |
|                                          | Operating expenses                                                         | **** | **4,367** | **** |   | 3,440 |   |   |  |   |
|                                          | Minority investments                                                       | **** | **384** | **** |   | 293 |   |   |  |   |
|                                          | Foreign net operating loss and    capital loss      carryforward | **** | **2,045** | **** |   | 2,675 |   |   |  |   |
|                                          | Asset impairment                                                           | **** | **2,676** | **** |   | 2,676 |   |   |  |   |
|                                          | Other                                                                      | **** | **(1,143** | **)** |   | (471 | ) |   |  |   |
|                                               |                                                                       |
|                                          | Net noncurrent deferred tax assets (liabilities)                           | **** | **(2,397** | **)** |   | (1,008 | ) |   |  |   |
|                                          | Valuation allowance                                                        | **** | **(2,045** | **)** |   | (2,675 | ) |   |  |   |
|                                               |                                                                       |
|                                          |                                                                       | Net noncurrent deferred tax liabilities | **$** | **(4,442** | **)** | $ | (3,683 | ) |   |  |   |
|                                               |                                                                       |

### Employee Benefit Plans

***Retirement Plans***  The company provides retirement benefits for substantially all employees, either  through a defined benefit plan, the defined contribution Individual Retirement  Asset Account Plan (IRAA), or a combination of both types of plans. The majority  of the company’s salaried and nonunion hourly employees are covered by  both a defined benefit plan and the IRAA. These plans are integrated in a floor-offset  arrangement. The monthly benefit value of the IRAA lump sum distributable to  a participant upon their termination or retirement offsets a portion, or all,  of their defined benefit. The defined benefit, before the IRAA offset, is based  upon compensation and years of service. Bargaining unit employees are

Page 30

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covered by defined benefit retirement plans with benefits based on years of  service.

The assets of the defined benefit plans are primarily equities, bonds, and  government securities. The IRAA assets include the company’s common stock,  other equities, bonds, and government securities. The IRAA had assets of $38.4  million and $50 million, including 671,155 shares and 727,101 shares of company  stock with a market value of $13 million and $19.9 million at December 31, 2002  and 2001, respectively. The company expensed $.7 million for IRAA contributions  in each of the years 2002, 2001, and 2000. A reconciliation of benefit obligations  and plan assets, the funded status, and the amounts recognized in the company’s  balance sheets for the defined benefit plans are presented below. While the  IRAA asset activity and balances are not expressly shown in the tables below,  the effect of the IRAA offset against the company’s defined benefit obligation  has been recognized by a reduction in the various benefit obligations presented.

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

|                                                                                                                                                                                                                           |                                     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
| Dollars in thousands                                                                                                                                                                                                      | ****                                     |  | **2002** |  | 2001 |   |
|                                                                                                                                                                                                                           |                                     |
| **Reconciliation of projected benefit obligation****at      December 31,**(Actuarial present value of future      benefits including estimated      future increases in compensation levels and estimated future service) |                                     |   |   |   |   |   |
| Projected benefit obligation at January 1                                                                                                                                                                                 |                                     |   |   | **$** | **131,544** | **** | $ | 101,258 |   |
| Service cost–benefits earned during the year                                                                                                                                                                         |                                     |   |   | **** | **5,630** | **** |   | 4,994 |   |
| Interest accrued on projected benefit obligation                                                                                                                                                                          |                                     |   |   | **** | **9,071** | **** |   | 8,400 |   |
| Amendments to plans                                                                                                                                                                                                       |                                     |   |   | **** | **–** | **** |   | 3,659 |   |
| Actuarial net loss during the year                                                                                                                                                                                        |                                     |   |   | **** | **10,915** | **** |   | 16,859 |   |
| Benefits paid                                                                                                                                                                                                             |                                     |   |   | **** | **(3,809** | **)** |   | (3,626 | ) |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      | Projected benefit obligation             |   |   |   | **$** | **153,351** | **** | $ | 131,544 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      |                                     |   |   | **** | **** | **** |   |  |   |
| **Vested and accumulated benefit obligations**(For      actual service and compensation through December 31,)                                                                                                             |                                     |   |   | **** | **** | **** |   |  |   |
| Vested benefits                                                                                                                                                                                                           |                                     |   |   | **$** | **93,777** | **** | $ | 76,149 |   |
| Accrued but not yet vested benefits                                                                                                                                                                                       |                                     |   |   | **$** | **8,839** | **** | $ | 6,715 |   |
|                                                                                                                                                                                                                           |                                     |
| Accumulated benefit obligation                                                                                                                                                                                            |                                     |   |   | **$** | **102,616** | **** | $ | 82,864 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      |                                     |   |   | **** | **** | **** |   |  |   |
| **Reconciliation of fair value of plan assets at December      31,**                                                                                                                                                      | ****                                     | **** | **** |   |  |   |
| Fair value of plan assets at January 1                                                                                                                                                                                    |                                     |   |   | **$** | **82,053** | **** | $ | 80,761 |   |
| Actual return on plan assets                                                                                                                                                                                              |                                     |   |   | **** | **(8,547** | **)** |   | (5,258 | ) |
| Employer contributions                                                                                                                                                                                                    |                                     |   |   | **** | **7,033** | **** |   | 10,176 |   |
| Benefits paid                                                                                                                                                                                                             |                                     |   |   | **** | **(3,809** | **)** |   | (3,626 | ) |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      | Fair value of plan assets                |   |   |   | **$** | **76,730** | **** | $ | 82,053 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      |                                     |   |   | **** | **** | **** |   |  |   |
| **Funded status and net amount recognized at December 31,**                                                                                                                                                               | ****                                     | **** | **** |   |  |   |
| Funded status–projected benefit obligation   greater      than plan assets                                                                                                                                 |                                     |   |   | **$** | **(76,621** | **)** | $ | (49,491 | ) |
| Unrecognized net transition obligation cost                                                                                                                                                                               |                                     |   |   | **** | **–** | **** |   | 2 |   |
| Unrecognized prior service costs                                                                                                                                                                                          |                                     |   |   | **** | **3,567** | **** |   | 4,769 |   |
| Unrecognized net actuarial loss                                                                                                                                                                                           |                                     |   |   | **** | **77,868** | **** |   | 53,428 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      | Net amount recognized (see detail below) |   |   |   | **$** | **4,814** | **** | $ | 8,708 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      |                                     |   |   | **** | **** | **** |   |  |   |
| **Amounts recognized in the consolidated balance sheet at      December 31**                                                                                                                                              | ****                                     | **** | **** |   |  |   |
| Prepaid pension expense                                                                                                                                                                                                   |                                     |   |   | **$** | **5,898** | **** | $ | 9,391 |   |
| Accrued pension liability                                                                                                                                                                                                 |                                     |   |   | **** | **(31,783** | **)** |   | (15,032 | ) |
| Intangible asset – prior service cost                                                                                                                                                                               |                                     |   |   | **** | **3,567** | **** |   | 4,237 |   |
| Cumulative other comprehensive income                                                                                                                                                                                     |                                     |   |   | **** | **27,132** | **** |   | 10,112 |   |
|                                                                                                                                                                                                                           |                                     |
|                                                                                                                                                                                                                      | Net amount recognized                    |   |   |   | **$** | **4,814** | **** | $ | 8,708 |   |
|                                                                                                                                                                                                                           |                                     |

 The company recorded a deferred tax asset of $10.3 million and $4.1 million  in its balance sheets at December 31, 2002 and 2001, respectively, associated  with the cumulative other comprehensive income charge presented in the above  table. 

Effective January 1, 2001, the company changed its method for the recognition  of asset gains and losses considered in the calculation of the annual net pension  expense for its base retirement pension plan. The company changed from the market-value  method of asset valuation to a market-related value method. Under the previous  accounting method, all gains and losses, subject to a 10% corridor, were recognized  and amortized in the determination of net periodic pension cost. The new method  recognizes and then amortizes annual asset gains or losses over a five-year  period in the determination of annual net periodic pension cost. The new method  is commonly used and is preferable to the old method because it more accurately  matches expense to accounting periods during which benefits are earned. The  impact of the change was to increase net income by $.4 million and earnings  per share by $.07 for the year ended December 31, 2001. The cumulative effect  of this change as of January 1, 2001 was immaterial. However, had this method  been applied retroactively, net income would have been reduced by $.3 million  or $.05 per share in 2000.

Effective April 1, 2001, the company also changed the period used to amortize  prior service costs associated with amendments to its pension plans. Previously,  the cost of these amendments was amortized over the average future working-lifetime  of those expected to receive the amended benefits. The new amortization period  more rapidly recognizes the cost of such plan amendments over the years during  which the covered employee earns the amended benefits. The effect of this change  in accounting estimate was a decrease in net income of $.5 million and a reduction  in earnings per share by $.07 for the year ended December 31, 2001.

The components of net pension expense of the defined benefit plans, as determined  under SFAS 87, “Employers’ Accounting for Pensions,” are presented  below.

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***Components of Net Pension Expense***

|                                                                                                 |                                              |
|-------------------------------------------------------------------------------------------------|---------------------------------------------------|
| Dollars in thousands                                                                            | **2002**                                          |  | 2001 |  | 2000 |   |
|                                                                                                 |                                              |
| Service costs – benefits earned during the year                                            | **$**                                             | **5,630** |   | $ | 4,994 |   | $ | 4,657 |   |
| Interest cost on the projected benefit obligation                                               | ****                                              | **9,071** |   |   | 8,400 |   |   | 7,086 |   |
| Expected return on plan assets                                                                  | ****                                              | **(7,419** | ) |   | (7,412 | ) |   | (6,768 | ) |
| Amortization of transition obligation                                                           | ****                                              | **2** |   |   | 75 |   |   | 197 |   |
| Amortization of prior service cost                                                              | ****                                              | **1,202** |   |   | 1,208 |   |   | 253 |   |
| Amortization of net actuarial loss                                                              | ****                                              | **2,441** |   |   | 1,437 |   |   | 704 |   |
|                                                                                                 |                                              |
|                                                                                            | Net pension expense                               | **$** | **10,927** |   | $ | 8,702 |   | $ | 6,129 |   |
|                                                                                                 |                                              |
| Key assumptions used to determine net   pension      expense and benefit obligations: | ****                                              | **** |   |   |  |   |   |  |   |
|                                                                                            | Discount rate of future benefit obligations       | **** | **6.75%** |   |   | 7.25% |   |   | 7.75% |   |
|                                                                                            | Long-term expected return on plan assets          | **** | **8.00%** |   |   | 8.50% |   |   | 8.50% |   |
|                                                                                            | Long-term rate of increase in compensation levels | **** | **5.00%** |   |   | 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 defined  company profitability levels are attained, the company will match up to 30%  of employees’ contributions, up to 6% of the employee’s eligible  compensation; with one-third of the company match in the form of restricted  company common stock. Restricted company stock and the automatically reinvested  dividends thereon held in the 401(k) may only be sold upon the employee’s  termination of employment or retirement from the company. A company match was  not made for 2002 as the defined pre-tax earnings level was not reached. In  2001 and 2000, the company reached defined pre-tax earnings levels and accordingly  expensed $1.8 million and $1.7 million, respectively, as a matching contribution  to the plan. The company also sponsors 401(k) savings plans for its bargaining  unit employees.

The company sponsors the Supplemental Benefit Plan, an unfunded and nonqualified  ERISA-excess retirement plan. The plan restores retirement benefits by applying  the defined benefit formula from the qualified retirement plan to that portion  of an employee’s total compensation that is in excess of Internal Revenue  Service limits, and therefore cannot be used in determining retirement benefits  payable by the company’s qualified retirement plan. Split-dollar life  insurance arrangements offset certain liabilities of the plan. Cash premium  payments under the split-dollar arrangements were $.2 million, $2 million, and  $1.8 million in 2002, 2001, and 2000, respectively. In addition, the company  expensed $1.1 million, $.4 million, and $.7 million in 2002, 2001, and 2000,  respectively, related to this plan. The company also recorded a pre-tax other  comprehensive income credit of $.6 million in 2002 and a pre-tax other comprehensive  income charge of $.6 million in 2001 for this plan. The 2001 charge recognized  the excess of the actuarially determined accumulated benefit obligation over  the accrued plan liability in the company’s balance sheet and the reverse  of such charge in 2002 when the accrued liability exceeded the plan’s  accumulated benefit obligation. The plan liability was $1.6 million and $2.3  million at December 31, 2002, and 2001, respectively.

The company offers a nonqualified, deferred compensation plan to certain key  executives. In 2002, 2001, and 2000, the company expensed $.2 million, $.5 million,  and $.4 million, respectively, which represented earnings credited to participant  accounts. The plan liability at December 31, 2002 and 2001 was $6.7 million  and $5.5 million, respectively.

During 2001, the company implemented a value-based Long Term Incentive Plan  (LTIP), which is designed to reward the company’s executive officers by  means of cash performance awards and stock options as shareholder value increases.  The cash performance portion of the LTIP measures and rewards value-added performance  over three-year periods. The performance measurement is based on total business  return, a measure of the creation of economic value in the company’s business.  At December 31, 2002 and 2001, the company’s liability under this plan  for cash awards was $.3 million for each year. 

***Minimum Pension Liability Charges***  The assets of the company’s defined benefit pension plans experienced  negative investment results during 2002, for the third consecutive year. The  three-year shortfall in actual asset returns as compared to the assumed rate,  reduced pension plan funding by $39 million. In addition, the decline in long-term  interest rates over the last three years reduced the discount rate used to compute  the present value of the plans’ benefit obligations. The 0.5 percent decrease  each year during 2002 and 2001 combined to increase the plans’ accumulated  benefit obligations at December 31, 2002 by $10 million. Also, the asset returns  in the IRAA plan fell $20 million short of assumed returns over the last three  years, which reduced the value of the IRAA offset, thereby increasing the pension  plans benefit obligation by the same amount. The combined result of the shortfall  in pension and IRAA plan asset returns and the lower discount rate caused the  accumulated benefit obligations of the company’s pension plans to further  exceed their respective plan assets at the December 31, 2002 measurement date.

To recognize this additional funding shortfall, the company recorded, in 2002,  a net increase in the cumulative after-tax charge to other comprehensive income  of $10.2 million and a corresponding decrease in shareholders’ equity.  The company’s accrued pension liability for the ERISA and nonqualified  plans, including

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the $30.7 million minimum pension liability, was $33.4 million as of December  31, 2002.

A summary of the $16.8 million cumulative after-tax charge to other comprehensive  income as of the December 31, 2002 measurement date is presented below.

***Minimum Pension Liability Charge at December  31, 2002***

| Dollars in thousands                                                                     |   | ERISA        Plans |    | Non-        qualified        Plan |   |
|------------------------------------------------------------------------------------------|--------|--------------------|---------|-----------------------------------|--------|
|                                                                                          |   |
| Accumulated Benefit Obligation (ABO)                                                     |   | $                  | 102,616 |                                   | $      | 1,613 |  |
| Fair market value of plan assets                                                         |   |               | 76,730  |                                   |   | – |  |
|                                                                                          |        |
| ABO in excess of plan assets                                                             |   |               | 25,886  |                                   |   | 1,613 |  |
| Prepaid pension expense – plan contributions        not yet recognized in earnings |   |               | 5,898   |                                   |   | – |  |
| Accrued liability, previously recognized in earnings                                     |   |               | (1,085  | )                                 |   | (1,648 | ) |
|                                                                                          |        |
| Minimum pension liability recognized                                                     |   |               | 30,699  |                                   |   | none |  |
| Intangible asset recognized – unamortized      prior service cost                  |   |               | 3,567   |                                   |   | N/A |  |
|                                                                                          |        |
| Cumulative charge to other comprehensive income                                          |   |               | 27,132  |                                   |   | N/A |  |
| Cumulative income tax benefit                                                            |   |               | 10,310  |                                   |   | N/A |  |
|                                                                                          |        |
| Cumulative after-tax charge                                                              |   | $                  | 16,822  |                                   |   | N/A |  |
|                                                                                          |        |

***Postretirement Benefits***  The company currently offers certain health care and life insurance benefits  for eligible retired employees and their dependents. Employees may become eligible  for these benefits if they reach retirement age while employed by the company  and meet a minimum years of service requirement. Retiree election of health  care and life insurance benefit coverage is optional and requires a contribution  by the retiree toward the total cost of coverage. The company reserves the right  to change or terminate all employee benefits, including postretirement benefits.

During 2002, the company amended its postretirement benefits program. Effective  January 1, 2003, retired employees already enrolled in the company’s postretirement  health care and life insurance plan, or active employees with either at least  ten years of service who have also attained the age of 55, or employees covered  by a collectively-bargained agreement, continue to be eligible to elect postretirement  health care and life insurance coverage under the defined benefit program. Subject  to its rights to amend or terminate the program in the future, the company currently  makes a fixed monthly contribution toward the total cost of postretirement benefit  coverage, and the retiree pays the remaining cost. 

Also effective January 1, 2003, employees ineligible to qualify for the existing  postretirement benefits plan who attained age 40 with at least one year of service  may elect to contribute to a company sponsored benefits trust to prefund a portion  of their postretirement medical expenses. Assets of the trust are invested by  the trustee at the employee’s direction. Upon retirement after age 60  with at least 15 years of service, the company will make a matching contribution  to the trust to help fund the cost of participants’ postretirement health  care expenses, based upon each participant’s annual contributions during  active employment. The company has capped its per participant contribution obligation  liability at $26,000. Upon a participant’s eligible retirement, postretirement  health care expenses can be paid from the retiree’s trust account.

A reconciliation of postretirement benefit obligations, their funded status,  and accrued benefit liability is presented below.

***Reconciliation of Benefit Obligation, the  Funded Status and Accrued Benefit Liability at December 31***

|                                                                                                |                                       |
|------------------------------------------------------------------------------------------------|--------------------------------------------|
| Dollars in thousands                                                                           | ****                                       |  | **2002** |  | 2001 |   |
|                                                                                                |                                       |
| **Reconciliation of projected benefit obligation**(actuarial present value of future benefits) |                                       |   |   |   |   |   |
| Projected benefit obligation at January 1                                                      |                                       |   |   | **$** | **17,369** | **** | $ | 16,385 |   |
| Service costs–benefits earned during the year                                             |                                       |   |   | **** | **282** | **** |   | 517 |   |
| Interest cost on projected benefit obligation                                                  |                                       |   |   | **** | **1,594** | **** |   | 1,222 |   |
| Plan amendments                                                                                |                                       |   |   |   | **(8,110** | **)** |   | – |   |
| Actuarial loss during the year                                                                 |                                       |   |   | **** | **15,467** | **** |   | 1,186 |   |
| Benefits paid                                                                                  |                                       |   |   | **** | **(4,325** | **)** |   | (2,874 | ) |
| Participant contributions                                                                      |                                       |   |   | **** | **1,182** | **** |   | 933 |   |
|                                                                                                |                                       |
|                                                                                           | Projected benefit obligation               |   |   |   | **$** | **23,459** | **** | $ | 17,369 |   |
|                                                                                           |                                       |
| **Funded status and accrued benefit liability at December      31,**                           | ****                                       | **** | **** |   |  |   |
| Projected benefit obligation, unfunded                                                         |                                       |   |   | **$** | **23,459** | **** | $ | 17,369 |   |
| Unrecognized net transition obligation cost                                                    |                                       |   |   | **** | **(4,778** | **)** |   | (5,255 | ) |
| Unrecognized prior service costs                                                               |                                       |   |   |   | **7,453** |   |   | – |   |
| Unrecognized net actuarial loss                                                                |                                       |   |   | **** | **(21,919** | **)** |   | (7,789 | ) |
|                                                                                                |                                       |
|                                                                                           | Accrued benefit liability in balance sheet |   |   |   | **$** | **4,215** | **** | $ | 4,325 |   |
|                                                                                                |                                       |

The components of the annual net benefit cost are pre-sented below.

***Components of Net Benefit Costs***

| Dollars in thousands                                      | **2002**          |           | **2001**  |        | 2000    |   |
|-----------------------------------------------------------|-------------------|-----------|-----------|--------|---------|--------|
|                                                           |              |
| Service costs – benefits earned during the      year | **$**             | **282**   |      | $      | 517     |   | $ | 438 |   |
| Interest cost on the projected benefit obligation         | ****              | **1,594** |      |   | 1,222   |   |   | 1,070 |   |
| Amortization of transition obligation                     | ****              | **478**   |      |   | 478     |   |   | 478 |   |
| Amortization of prior service costs                       |              | **(657**  | **)**     |   | – |   |   | – |   |
| Amortization of net actuarial loss                        | ****              | **1,336** |      |   | 344     |   |   | 216 |   |
|                                                           |              |
|                                                      | Net benefit costs | **$**     | **3,033** |   | $       | 2,561  |   | $ | 2,202 |   |
|                                                           |              |

The discount rate assumption was 6.75% at December 31, 2002, 7.25% at December  31, 2001 and 7.75% at December 31, 2000. As the company’s costs are fixed,  the rate of future health care cost trends has no impact on the plan. The return  on plan assets is not applicable since the plan is unfunded, with benefits paid  either as claims are submitted or in a lump sum payment by the company to the  participant’s trust account upon their eligible retirement.

Page 33

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### Stock Option Plans

The company records stock compensation in accordance with Accounting Principles  Board Opinion No. 25, “Accounting for Stock Issued to Employees”  (APB 25). Under APB 25, no charges are made to earnings in accounting for stock  options granted because all options are granted with an exercise price equal  to the fair market value at the date of grant. If the amounts received when  options are exercised are different than the carrying value of treasury stock  issued, the difference is recorded in retained earnings.

In 2002, the company’s shareholders approved the Stock Incentive Plan  for 2002 for key employees and the 2002 Stock Option Plan for Outside Directors.  Stock options are presently outstanding under the Stock Incentive Plans of 1996  and 1987, and the 2002 Stock Option Plan for Outside Directors. The 1996 Plan  covering 600,000 shares was approved in April 1996. The 1987 plan was terminated  upon the approval of the 1996 plan except for outstanding stock options. The  2002 Stock Option Plan for Outside Directors was approved In April 2002.

***Stock Options Recap for All Plans at December  31,***

| Number of shares                                     | **2002**    |        | **2001** |        | 2000    |   |
|------------------------------------------------------|-------------|--------|----------|--------|---------|--------|
|                                                      |        |
| Granted and exercisable                              | **405,000** |   | 509,500  |   | 519,250 |   |
| Authorized, unissued, and available for future grant | **481,710** |   | 118,699  |   | 94,199  |   |
|                                                      |        |

The company granted nonqualified stock options in 2002 and 2000 to key employees  under the 1996 plan. There were no options granted in 2001. Options were also  granted to outside directors under the 2002 Stock Option Plan for Outside Directors.  Options are granted at a fixed exercise price based on fair market value on  the date of the grant and expire no more than ten years from the date of grant.  Options granted to employees in 2002 and 2000 vest one year after the date of  grant and expire five years from the date of grant. Options under the Outside  Directors Plan vest on the 184th day after the April 2002 date of grant and  are fully exercisable thereafter. Below is a summary of stock option activity  for each of the years ended December 31.

***Summary of Stock Option Activity***

|                                  |         |
|----------------------------------|--------------|
|                                  | **2002**     | 2001 | 2000 |   |
|                             |              |   |
|                                  | ****         | **** | **Weighted-average** |  |  | Weighted-average |  |  | Weighted-average |   |
|                                  | **Shares**   | **** | **Exercise Price** | Shares |  | Exercise Price | Shares |  | Exercise Price |   |
|                                  |
| Outstanding at beginning of year | **509,500**  | **** | **$29.11** | 550,750 |   | $28.59 | 542,249 |   | $28.70 |   |
| Granted                          | **68,000**   | **** | **$27.12** | – |   | $ 0.00 | 31,500 |   | $23.00 |   |
| Exercised                        | **(11,500**  | **)** | **$25.06** | (16,750 | ) | $ 9.26 | (9,999 | ) | $11.67 |   |
| Forfeited                        | **(117,000** | **)** | **$35.92** | (24,500 | ) | $30.81 | (13,000 | ) | $32.39 |   |
|                             |              | **** | **** |  |   |  |  |   |  |   |
| Outstanding at end of year       | **449,000**  | **** | **$27.13** | 509,500 |   | $29.11 | 550,750 |   | $28.59 |   |
|                                  |         |

A summary of outstanding and exercisable options is shown below.

***Stock Option Outstanding and Exercisable  at December 31, 2002***

|                           |
|---------------------------|
|                      |   |  | Options Outstanding |  |  | Options Exercisable |
|                           |
| Range of                  |   | Number | Remaining | Weighted-Average |  | Number | Weighted-Average |
| Exercise Prices           |   | Outstanding | Life in Years | Exercise Price |  | Exercisable | Exercise Price |
|                           |   |  |   |  |
| $10.33 - $23.00           |   | 42,000 | 1.8 | $21.57 |   | 42,000 | $21.57 |
| $26.00 - $26.00           |   | 240,000 | 1.1 | $26.00 |   | 240,000 | $26.00 |
| $26.88 - $32.19           |   | 157,000 | 4.0 | $29.99 |   | 113,000 | $31.20 |
| $32.75                    |   | 10,000 | 3.0 | $32.75 |   | 10,000 | $32.75 |
|                           |  |  |  |  |  |  | **** |
| Total or weighted average |   | 449,000 | 2.2 | $27.13 |   | 405,000 | $27.16 |
|                           |

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Under the Stock Incentive Plan of 2002, 279,000 options were authorized for  issuance but none were granted during the year. Under the 2002 Plan for Outside  Directors, 40,000 shares were available for grant. The plan provides for a single  grant of 4,000 shares to each non-employee director eligible to participate.  As of December 31, 2002, 24,000 shares had been granted and were outstanding.

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 2002 and 2000. The company did not grant stock options  during 2001. The following assumptions were used:

| Assumption              | **2002**       |   | 2001 |   | 2000    |
|-------------------------|----------------|--------|------|--------|---------|
|                         |
| Dividend yield          | **3.7%**       |   | N/A  |   | 2.6%    |
| Risk-free interest rate | **3.8%**       |   | N/A  |   | 5.1%    |
| Volatility              | **25%**        |   | N/A  |   | 25%     |
| Life of option          | **5-10 years** |   | N/A  |   | 5 years |

### Treasury Stock Activity

| Thousands of dollars | **2002** |            | 2001  |        | 2000   |   |
|----------------------|----------|------------|-------|--------|--------|--------|
|                      |     |
| Balance, January 1   | **$**    | **64,951** | ****  | $      | 65,543 |   | $ | 51,200 |   |
| Purchases            | ****     | **25**     | ****  |   | 279    |   |   | 15,121 |   |
| Issues               | ****     | **(710**   | **)** |   | (871   | )      |   | (778 | ) |
|                      |     |
| Balance, December 31 | **$**    | **64,266** | ****  | $      | 64,951 |   | $ | 65,543 |   |
|                      |     |

As a result of options exercised and the issuance of treasury stock, the company  recognized a tax benefit of less than $.1 million in 2002, and $.1 million in  2001 and 2000, respectively, which was credited directly to retained earnings.

| (Number of shares)          | **2002** |               | 2001   |        | 2000      |   |
|-----------------------------|----------|---------------|--------|--------|-----------|--------|
|                             |     |
| Balance, January 1          | ****     | **2,807,417** |   |   | 2,832,338 |   |   | 2,211,646 |   |
| Purchases                   | ****     | **950**       |   |   | 12,730    |   |   | 654,300 |   |
| Issues                      | ****     | **(30,669**   | )      |   | (37,651   | )      |   | (33,608 | ) |
|                             |     |
| Balance, December 31        | ****     | **2,777,698** |   |   | 2,807,417 |   |   | 2,832,388 |   |
|                             |     |
|                        | ****     | ****          |   |   |           |   |   |  |   |
| Average cost at December 31 | **$**    | **23.14**     |   | $      | 23.14     |   | $ | 23.14 |   |

### Quarterly Financial Information (Unaudited)

|                                        |
|----------------------------------------|
|                                   | Quarter        Ended |   |   |   |   |
|                                   |  |   |   |   |   |
| **2002**                               | March        31 |  | June        30 |  | Sept.        30 |  | Dec.        31 |  | Annual |   |
|                                        |
| Net Sales                              | $ | 182,852 |   | $ | 213,421 |   | $ | 238,501 |   | $ | 193,435 |   | $ | 828,209 |   |
| Gross profit                           |   | 22,119 |   |   | 29,211 |   |   | 32,269 |   |   | 29,407 |   |   | 113,006 |   |
| Net earnings (loss)                    |   | (5,368 | ) |   | 294 |   |   | 1,692 |   |   | 1,546 |   |   | (1,836 | ) |
| Basic earnings (loss) per share        | $ | (0.85 | ) | $ | 0.05 |   | $ | 0.27 |   | $ | 0.24 |   | $ | (0.29 | ) |
| Diluted earnings (loss) per share | $ | (0.85 | ) | $ | 0.05 |   | $ | 0.27 |   | $ | 0.24 |   | $ | (0.29 | ) |
| Dividends  declared per share     | $ | .18 |   | $ | .18 |   | $ | .18 |   | $ | .18 |   | $ | .72 |   |

|                                        |
|----------------------------------------|
|                                   | 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. 

Special charges in the fourth quarter of 2001 decreased net earnings by $3.6  million or $.58 per share.

### 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.

|                    | **2002**   | 2001       |
|-------------------------|------------|------------|
|                    |            |
|                    | **High**   | **Low**    | High | Low |
|                         |
| First quarter           | **$27.97** | **$24.27** | $28.00 | $22.80 |
| Second quarter          | **$29.10** | **$25.29** | $28.75 | $22.25 |
| Third quarter           | **$27.63** | **$20.40** | $25.90 | $21.30 |
| Fourth quarter          | **$22.40** | **$18.34** | $27.97 | $21.50 |
| Range for the year      | **$29.10** | **$18.34** | $28.75 | $21.30 |
|                    |            |            |  |  |
| Year-end closing price: | Year       | Close      |  |  |
|                    |            |       |   |
|                    | **2002**   | **$19.35** |  |  |
|                    | 2001       | $27.70     |  |  |
|                    | 2000       | $25.31     |  |  |

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----

## Historical Review (2002–1998)

|                                                           | Year ended December        31,                                      |
|----------------------------------------------------------------|---------------------------------------------------------------------|
| Dollars and share, except per share, amounts      in thousands | **2002**                                                            |  | 2001 |  | 2000 |  | 1999 |  | 1998 |
|                                                                |
| **Income Statement Data**                                      |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                      | **$**                                                               | **828,209** |   | $ | 896,572 |   | $ | 960,377 |   | $ | 973,153 |   | $ | 962,163 |
|                                                           | Net earnings (loss)                                                 | **** | **(1,836** | ) |   | 8,060 |   |   | 25,215 |   |   | 25,834 |   |   | 6,979 |
|                                                           | As a percent of sales                                               | **** | **(.2%** | ) |   | .9% |   |   | 2.6% |   |   | 2.7% |   |   | .7% |
|                                                           | As a percent of average    shareholders’      equity | **** | **(1.2%** | ) |   | 4.9% |   |   | 15.5% |   |   | 16.7% |   |   | 4.6% |
|                                                           | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
| Per share of common stock:                                     | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
|                                                           | Basic earnings (loss)                                               | **$** | **(0.29** | ) | $ | 1.28 |   | $ | 3.87 |   | $ | 3.66 |   | $ | .92 |
|                                                           | Diluted earnings (loss)                                             | **** | **(0.29** | ) |   | 1.28 |   |   | 3.86 |   |   | 3.63 |   |   | .92 |
|                                                           | Cash dividends declared                                             | **** | **.72** |   |   | .70 |   |   | .66 |   |   | .62 |   |   | .58 |
|                                                           | Cash dividends paid                                                 | **** | **.72** |   |   | .69 |   |   | .65 |   |   | .61 |   |   | .57 |
|                                                                |
|                                                           |                                                                | **** | **** |   |   |  |   |   |  |   |   |  |   |   |  |
| **Financial Position At      Year End**                        | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
| Assets                                                         | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
|                                                           | Current assets                                                      | **$** | **281,202** |   | $ | 275,067 |   | $ | 291,770 |   | $ | 270,988 |   | $ | 253,500 |
|                                                           | Property, plant, and equipment                                      | **** | **120,264** |   |   | 143,270 |   |   | 117,396 |   |   | 94,051 |   |   | 97,704 |
|                                                           | Total assets                                                        | **** | **455,834** |   |   | 470,762 |   |   | 447,998 |   |   | 405,857 |   |   | 393,893 |
| Working capital                                                | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
|                                                           | Net working capital                                                 | **$** | **94,440** |   | $ | 88,961 |   | $ | 78,861 |   | $ | 96,014 |   | $ | 92,370 |
|                                                           | Ratio of current assets to current liabilities                      | **** | **1.5** |   |   | 1.5 |   |   | 1.4 |   |   | 1.5 |   |   | 1.6 |
| Financial structure                                            | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
|                                                           | Long-term debt, less current maturities                             | **$** | **96,066** |   | $ | 98,244 |   | $ | 53,298 |   | $ | 57,021 |   | $ | 62,901 |
|                                                           | Total debt                                                          | **** | **102,339** |   |   | 103,861 |   |   | 58,861 |   |   | 62,697 |   |   | 68,733 |
|                                                           | Shareholders’ equity                                           | **** | **149,171** |   |   | 164,475 |   |   | 165,716 |   |   | 159,550 |   |   | 150,188 |
|                                                           |                                                                | Per common share, year end | **** | **23.64** |   |   | 26.19 |   |   | 26.49 |   |   | 23.20 |   |   | 20.62 |
|                                                           | Total debt as a percent of total capital                            | **** | **41%** |   |   | 39% |   |   | 26% |   |   | 28% |   |   | 31% |
|                                                                |
|                                                           |                                                                | **** | **** |   |   |  |   |   |  |   |   |  |   |   |  |
| **General Statistics**                                         | ****                                                                | **** |   |   |  |   |   |  |   |   |  |   |   |  |
| Depreciation and amortization                                  | **$**                                                               | **18,914** |   | $ | 18,104 |   | $ | 15,594 |   | $ | 19,972 |   | $ | 14,923 |
| Capital expenditures – property, plant, and equipment    | **$**                                                               | **16,276** |   | $ | 44,583 |   | $ | 36,938 |   | $ | 13,634 |   | $ | 14,800 |
| Capital expenditures – software                          | **$**                                                               | **7,637** |   | $ | 5,355 |   | $ | 1,930 |   | $ | 6,660 |   | $ | 6,073 |
| Basic shares outstanding, average                              | ****                                                                | **6,313** |   |   | 6,282 |   |   | 6,521 |   |   | 7,064 |   |   | 7,553 |
| Diluted shares outstanding, average                            | ****                                                                | **6,313** |   |   | 6,285 |   |   | 6,531 |   |   | 7,111 |   |   | 7,612 |
| Common shares outstanding, year end                            | ****                                                                | **6,311** |   |   | 6,281 |   |   | 6,256 |   |   | 6,877 |   |   | 7,282 |
| Common shareholders, year end                                  | ****                                                                | **2,022** |   |   | 2,015 |   |   | 2,066 |   |   | 2,599 |   |   | 2,210 |
| Number of employees, year end                                  | ****                                                                | **4,487** |   |   | 4,719 |   |   | 5,079 |   |   | 4,912 |   |   | 5,171 |
|                                                                |

1. Excluding special charges of $3.6 million, or $.58 per share,  net earnings were $11.7 million or $1.86 per share for 2001.  2. Excluding special 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.  3. 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.

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