UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark one)

Commission File Number 001-12335

BUTLER MANUFACTURING COMPANY

1540 Genessee Street, (P.O. Box 419917, zip code 64141), Kansas City, Missouri 64102
(Address of principal executive offices)

(816) 968-3000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X  No     .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 or the Act.) Yes X  No     .

The aggregate market value of Registrant’s Common Stock held by non-affiliates based on the closing price of $16.53 on June 30, 2003, the end of the second fiscal quarter, was $103,197,311.

The Registrant had 6,335,425 shares of no par value Common Stock issued and outstanding as of February 23, 2004.

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BUTLER MANUFACTURING COMPANY

FORM 10-K

For the Fiscal Year Ended December 31, 2003

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CONTENTS

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FORWARD LOOKING INFORMATION

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

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PART I

Item 1. Business

(a) General Description of Business

General

Butler Manufacturing Company (the “company”) was founded as a partnership in 1901, incorporated in Missouri in 1902, and later reincorporated in Delaware in 1969. Its corporate headquarters are located in Kansas City, Missouri, and the company operates manufacturing facilities, engineering offices, and service centers throughout the continental United States and 15 foreign countries. Principal international operations are conducted through Chinese wholly owned subsidiaries, Butler (Shanghai) Inc., and Butler (Tianjin) Inc., and through Saudi Building Systems Ltd. and Vistawall International (UAE) Ltd., minority owned joint ventures in Saudi Arabia and the United Arab Emirates. In 2002 the company completed the sale of the assets of its European metal buildings business to the Lindab AB Group.

The company is primarily engaged in the marketing, design, and production of building systems and components for nonresidential structures. Products and services fall into five principal business segments: (1) North American Building Systems, consisting primarily of custom designed and pre-engineered steel and wood frame building systems for commercial, community, industrial, governmental, and agricultural uses; (2) International Building Systems, consisting primarily of custom designed and pre-engineered steel buildings for commercial, community, industrial, and governmental use primarily in China; (3) Architectural Products, consisting primarily of curtain wall and storefront framing systems, standard and custom window systems, skylights, and roof vents for low-rise, medium-rise, and high-rise nonresidential buildings; (4) Construction Services, providing construction management services for purchasers of large, complex, or multiple site building projects; and (5) Real Estate, providing build-to-suit-to-lease development services for corporations that prefer to lease rather than own their facilities.

The company’s products are sold, installed, and serviced through independent dealers or contractors that serve the commercial, community, industrial, governmental, and agricultural markets.

Recent Development

On February 15, 2004, the company entered into a merger agreement (“Merger Agreement”) pursuant to which BSL Acquisition Corporation, a wholly owned subsidiary of BlueScope Steel Limited (“BlueScope”), of Melbourne, Australia, will merge with and into the company (the “Merger”), and the company will become a wholly owned subsidiary of BlueScope. Pursuant to the Merger Agreement, each outstanding share of company common stock will be exchanged for the right to receive $22.50 in cash. The acquisition will be subject to a number of conditions, including the company achieving defined levels of financial performance for the first quarter of 2004, no acceleration of any amounts owed by the company to its senior lenders, and no environmental liability remediation costs in excess of $5 million, as well as shareholder approval and approval by regulatory authorities in the United States. Butler shareholders are expected to vote on the proposed acquisition in April 2004.

Pending the satisfaction of the conditions mentioned above and others included in the Merger Agreement, Butler and BlueScope expect the acquisition of Butler to be complete by April 30, although there are no assurances the Merger will close at that time or at any other time. In connection with the Merger Agreement, BlueScope, the company, and its senior note holders have reached mutually satisfactory agreements that provide the note holders assurance from BlueScope that the senior notes will be immediately paid in full if BlueScope closes the Merger. See the section on Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity in Part II, Item 7 of this report.

(b) and (d) Financial Information About Industry and Geographic Segments

For information about operating segments, see the section on Business Segments in the Notes to Consolidated Financial Statements under Part II, Item 8 of this report.

(c) Narrative Description of Business

North American Building Systems

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The company’s largest Segment, North American Building Systems, includes principally the United States, Canadian, and Latin American pre-engineered metal building systems businesses. Along with the company’s industry-leading Butler-brand building system, the Segment includes the entry-level priced metal buildings product offering of Liberty Building Systems, Inc., as well as the Lester Building System wood frame buildings business.

The company’s North American Building Systems Segment activities consist primarily of the design, engineering, fabrication, and distribution of one to five-story steel and one to two-story wood frame buildings for industrial, commercial, community, governmental, and agricultural uses, such as manufacturing facilities, warehouses, office buildings, schools, churches, shopping centers, restaurants, convenience stores, livestock, and farm buildings. Principal product components of the systems are structural members and a variety of pre-engineered wall and roof components. These are fabricated according to standard or customer specifications and shipped to building sites for assembly by independent dealers. Building components are manufactured for North American and export sales in plants located at Galesburg and Charleston, Illinois; Laurinburg, North Carolina; Visalia, California; Annville, Pennsylvania; San Marcos, Texas; Lester Prairie, Minnesota; Selmer, Tennessee; Clear Brook and Staunton, Virginia; and Monterrey, Mexico. In December 2003, the company announced the permanent closure of the Birmingham, Alabama metal buildings plant, which prior to the announcement was temporarily idled.

The primary business of the company’s North American Building Systems Segment is the design, manufacture, and sale of the Butler brand of nonresidential pre-engineered metal buildings. The company founded the pre-engineered metal buildings industry in the middle of the twentieth century and has held the leading position from inception. Butler Buildings are sold throughout the United States through a network of over 1,300 independent Butler Builders. These dealers provide construction services, and in many cases, design and engineering capabilities.

Nonresidential pre-engineered buildings compete with conventional forms of building construction in the low-rise commercial, community, industrial, agricultural, and governmental markets. Competition is primarily based upon cost, time of construction, appearance, thermal efficiency, and other specific customer requirements.

The company also competes with numerous pre-engineered steel frame building manufacturers doing business in the United States, Canada, and South America. The company is a leading manufacturer of steel frame pre-engineered building systems within the United States with its largest competitors being: American Buildings Company, a subsidiary of MAGNATRAX Corporation, NCI Building Systems, Inc., Robertson — Ceco Corporation, a subsidiary of Heico Companies LLC, and V. P. Buildings Inc., a wholly owned subsidiary of Grupo IMSA, S.A. de C.V. of Mexico. Competition among manufacturers of pre-engineered buildings is based primarily upon price, service, product design and performance, and marketing capabilities.

The company’s principal export markets are Central America, the Caribbean, select other Latin American markets, and Canada. Shipments are sourced primarily from Butler’s U.S. plants, local manufacturing alliances, and commencing in December 2003, the company’s Monterrey, Mexico metal buildings plant. Principal sales and engineering offices for these regions are located in Mexico City, Mexico and Burlington, Ontario.

Liberty Building Systems produces lower-cost metal buildings for commercial, community, and industrial end uses in smaller communities, and primarily competes with regional metal building manufacturers in the Southern and Western regions of the United States. Liberty Buildings Systems’ products are distributed directly to end-users as well as through open distribution channels.

In 2003, the company established a new manufacturing plant in Monterrey, Mexico to produce frames and its long-bay structural system known as Landmark 2000. The new leased facility enables the company to be more competitive in both costs and service in Latin American markets. The 120,000 square foot plant became operational in December of 2003 and primarily serves building markets throughout Mexico and Latin America, but also markets in the U.S. as well. The company’s investment in equipment for the facility was approximately $3 million and the operation employs approximately 50 associates.

Also in 2003, the company leased space to manufacture the new R-Steel product line, a one-piece insulated curtain wall panel system for commercial and community applications. Production began during the third quarter of 2003 in Staunton, Virginia. The product is distributed through the Butler Builder dealer network.

Lester Building Systems, the company’s wood frame buildings business, sells its products through independent dealers and a direct-sales operation. Lester operates three plants in the United States serving the mid-west and middle Atlantic markets. Lester competes with other regional wood building manufacturers, such as Morton Buildings, Inc. and Cleary Buildings, Inc., as well as several single plant manufacturers and lumberyards.

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On May 15, 2003, the company entered into a letter of intent to sell substantially all of the assets of the Lester Building Systems business to a management team headed by the current Lester Building Systems’ president. The company recorded a $7 million pretax charge related to the proposed sale to write down the assets to fair value. An additional $.8 million was recorded for selling and legal costs related to negotiating the sale. The closing of the transaction was scheduled to occur by November 21, 2003, however the company did not receive the consent from its senior lenders to proceed with the sale and the sale agreement terminated. Accordingly, at December 31, 2003, the Lester assets were reclassified from assets held for sale to assets held and used. Also, a credit to the asset impairment charge in the amount of $2.2 million was taken in the fourth quarter to adjust the Lester assets to fair market value.

In December 2003, the company announced the permanent closure of the Birmingham, Alabama metal buildings plant, which prior to the announcement was temporarily idled. The closing of this facility will result in cost savings associated with the permanent removal of overhead costs due to excess capacity. In conjunction with the closing, the company recorded $.7 in termination and severance benefits. As of December 31, 2003, the fair market value of the facility as determined by independent appraisal exceeded the net book value of the facility, thereby eliminating the need for any asset impairment charge.

Effective January 1, 2004, the company combined the Construction Segment with the North American Building Systems Segment, forming the Buildings Group. The combination is expected to provide cost savings and better alignment of capabilities, enabling more thorough integration of the construction supply chain and enhanced service to customers. In conjunction with the combination, the company recorded $.2 million in termination and severance benefits in 2003 as well as an asset impairment charge of $2.4 million. Costs related to the move as well as the effect of any contract termination costs on the existing lease will be charged to operations when incurred in 2004.

International Building Systems

The International Building Systems Segment includes Butler Shanghai Inc., and Butler Tianjin Inc., wholly owned Chinese metal building systems subsidiaries, and Saudi Building Systems Ltd., a minority owned Saudi Arabian metal buildings joint venture. Prior to its sale in July 2002, the Segment also included the company’s European metal buildings business.

The majority of the activity and assets with this Segment are those of the Chinese subsidiaries. These subsidiaries market, engineer, and manufacture metal buildings systems for the Chinese market as well as for export to other Asian countries. Products are typically distributed through direct selling to end customers and through an established builder network. In January 2003, the company opened its second manufacturing facility for this region in Tianjin, China. The manufacturing plant, with a total capital cost of $11 million, produces secondary structural frames and wall panel systems. Also in 2003 the company introduced its Vistawall architectural product line to mainland China establishing a sales, engineering, and fabrication presence. The Chinese market is highly competitive and the company competes with both local and multi-national metal building companies. As in other markets, the company’s products compete based on price, service, product design, and performance.

The company’s operations in China represent an increasing portion of the company’s business in terms of revenues, earnings, and assets. Accordingly, changes in political or regulatory conditions, trade protection measures, or currency exchange policies could adversely affect operating results in any reporting period.

The company is exposed to foreign currency exchange rate risks with respect to its sales, profits, and assets and liabilities denominated in currencies other than the U.S. dollar. Factors reducing such exposure in China include the historical pegging of the Chinese currency to the U.S. currency. The company’s manufacturing facilities in China serve predominantly Chinese markets and its activities are largely denominated in the Chinese currency. However, there can be no assurance that the company will be fully protected against foreign currency fluctuations.

In July 2002, the company completed the sale of certain assets of its European metal building systems subsidiaries, closed its European sales and engineering offices, and disposed of the remaining assets of the European operation. The relatively small scale of the European operation, the continued loss position of the business, and a business recession in Europe contributed to this decision. The company continues to be represented in Europe through licensee arrangements.

Saudi Building Systems, Ltd. manufactures pre-engineered steel frame buildings for Middle Eastern markets at manufacturing facilities located in Jeddah, Saudi Arabia. The company owns a 30% interest in this joint venture and accounts for its activities using the equity method.

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Architectural Products

The Architectural Products Segment includes the operations of the Vistawall group which designs, manufactures, and sells aluminum extruded curtain wall systems for mid and high-rise office markets, and sells entry doors, standard and custom architectural window systems, translucent roof and wall systems, custom and standard skylights, and other standard storefront products primarily for low-rise retail and commercial markets. The Vistawall Group’s products are primarily distributed on a material supply basis to either curtain wall erection subcontractors or general contractors, and through its distribution warehouses to glazing contractors for storefront and entry door applications. Manufacturing facilities are located in Midway, Tennessee and Terrell, Texas. Fabrication facilities are located in Warwick, Rhode Island; Newnan, Georgia; Modesto, California; and Wausau, Wisconsin. Distribution warehouses are located in Tucker, Georgia; Hayward, Rancho Cucamonga, and Sacramento, California; Denver, Colorado; Brooklyn Park, Minnesota; Cincinnati and Cleveland, Ohio; Houston and Dallas, Texas; Tampa, Florida; Chicago, Illinois; Jessup, Maryland; St. Louis, Missouri; and Seattle, Washington. In 2001 Vistawall added to its production capacity the extruding and finishing facility located in Midway, Tennessee. During 2003, Vistawall added the distribution warehouses in Sacramento, California and Brooklyn Park, Minnesota.

The Vistawall Group operates in highly competitive markets with other national manufacturers which operate multiple plants and distribution facilities, and with regional manufacturers. Competition is primarily based on price, engineering capabilities, delivery, appearance, and other specific customer requirements.

The company has a 40% interest in Vistawall International Ltd, a joint venture located within the United Arab Emirates which designs, manufactures, and sells architectural aluminum products in Middle Eastern markets. In 2003, the business activity of and investments of the joint venture were immaterial to the operations of the company.

Construction Services

The company’s Construction Services Segment consists of Butler Construction, a wholly owned construction subsidiary also known as BUCON, Inc. BUCON provides comprehensive design, planning, execution, and construction management services to major purchasers of construction. Butler Heavy Structures is an operating unit of Butler Construction serving markets requiring large, complex building designs using fabricated mill steel in combination with Butler’s pre-engineered secondary structural and metal cladding systems. Revenues from the Construction Services Segment are derived primarily from turnkey construction, material-erect, and material only subcontracts. Butler Construction’s projects typically incorporate products from several company businesses, predominantly the company’s U.S. metal buildings businesses. The Construction Services Segment is headquartered in Kansas City, Missouri.

BUCON competes with numerous international, national, regional, and local general contracting firms, and whenever possible, performs projects in conjunction with independent Butler dealers. Competition is primarily based upon price, design, speed of project execution, and product performance.

As discussed previously in General Description of Business section under Part I Item 1 (a), effective January 1, 2004, the company combined the Construction Services Segment with the North American Buildings Systems Segment, forming the Buildings Group.

Real Estate

The Real Estate Segment consists of Butler Real Estate, Inc., a wholly owned subsidiary of the company, which provides value-added real estate development and leasing services to major corporations in cooperation with Butler dealers. Butler Real Estate, Inc. generally functions as a development and financing source during the lead procurement and construction process, and as a seller of the completed project. On the basis of commitments to lease obtained from credit worthy tenants, Butler Real Estate, Inc. acquires building sites, arranges with Butler dealers for construction of build-to-suit projects, and sells the completed projects to permanent investors when the facilities are occupied by lessees.

Manufacturing and Materials

The company’s manufacturing facilities include most conventional metal fabricating operations, such as punching, shearing, welding, extruding, and forming of sheet and structural steel and aluminum. Other metal manufacturing processes include painting and anodizing. Wood frame manufacturing operations include sawing and truss fabrication. The principal materials used in the manufacture of products include steel, aluminum, wood, and purchased parts.

During 2003 steel prices moved erratically but were generally higher than those of 2002. In 2002, the United States invoked tariffs on certain steel product imports causing significant price increases in the latter half of that year. Competitive pricing pressures have prevented the company from recapturing all of the steel price differential in its selling prices. Early in 2004, the

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company experienced unprecedented increases in steel pricing as a result of lower availability of raw materials, escalating energy costs and unusually high demand in China. Consequently pricing contracts with the company’s vendors were being modified on a weekly basis, either through actual material costs changes or surcharges. To minimize the erosion of margins, price increases on incoming sales were being passed to customers to the extent possible through the company’s product sales pricing. Further increases are expected into the second quarter of 2004, which may impact the level of both sales and profitability.

Aluminum costs were stable through October of 2003, but then experienced a 6% increase through the end of the year. Further increases of up to 8% are expected during the first quarter of 2004. Improved economic conditions throughout the world and increased consumption in China were the most recognized causes of the change in prices, while improvement in the U.S. economy along with continued curtailments of U.S. aluminum production has tightened local supply. For all of 2004, the company anticipates aluminum costs will remain strong for the balance of 2004 with some escalation possible. Vistawall continues to manage exposure to rising aluminum prices through hedging contracts and forward purchase contracts, while implementing price adjustments on its products.

Business Cycles and Seasonal Demand

Historically, the company’s sales and net earnings have been affected by cycles in the general economy, which influence nonresidential construction markets (see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview in Part II, Item 7 of this report). In 2003, the domestic construction markets recorded the fourth consecutive annual decline, as F.W. Dodge reported a 3% decline in nonresidential construction orders, with the commercial segment off 6% and the manufacturing segment up 8%, a positive development albeit increasing from a very low base. Because the economy appears to be showing signs of improvement, coupled with the aggressive cost reductions and new products and capabilities developed during 2003, management believes that the company is on a path toward profitability.

The company also experiences seasonal demand, which increases and decreases based upon how conducive the weather is for construction. Sales for the first, second, third, and fourth quarters of 2003 were $170 million, $174 million, $221 million, and $231 million, respectively. For 2002, sales for the first, second, third, and fourth quarters of 2002 were $183 million, $213 million, $239 million, and $193 million, respectively. The seasonal demand is negatively influenced by severe weather including significant precipitation and extremes in temperatures.

Research and Development Costs

Costs incurred in the creation and start-up of new products or changes of existing products are charged to expense as incurred. The company expended $.6 million of research and development costs each year during 2003, 2002, and 2001.

Backlog

The company’s backlog of orders believed to be firm was $318 million at December 31, 2003, 20% higher than a year ago. The higher margin product backlog was about 17% higher than the levels of the previous year, while the construction backlog was 33% higher.

Backlog by segment is presented below.

Employees

At December 31, 2003 the company employed 4,298 persons, 3,986 of whom

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were non-union employees, and 312 of whom were hourly paid employees that were members of two unions.

Available Information

The company’s Internet website address is http://www.butlermfg.com. The company makes the following reports filed or furnished by it available, free of charge, on its website under the heading “Investor Relations:”

The foregoing reports are made available on the company’s website as soon as practicable after they are filed or furnished with the Securities and Exchange Commission (“SEC”) at http://www.sec.gov.

Item 2. Properties

The principal plants and physical properties of the company consist of the manufacturing facilities described under Part I, Item 1 and its world headquarters office in Kansas City, Missouri. Through a subsidiary, the company also owns a land development venture with property located on approximately 75 acres in San Marcos, Texas. The property is recorded as “Assets held for sale” and described in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report. All other plants and offices described under Part I, Item 1 are utilized by the company and are generally suitable and adequate for the business activity conducted therein. The company’s manufacturing facilities, along with current outsourcing agreements with various domestic and foreign fabricators, provide production capabilities sufficient to meet current and foreseeable needs.

Except for leased facilities listed below, all of the company’s principal plants and offices are owned:

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Item 3. Legal Proceedings

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

On October 15, 2002, a McLeod County, Minnesota District Court jury awarded the company $29.6 million for its Lester building business in its suit against Louisiana-Pacific Corporation. The suit pertained to Louisiana-Pacific’s Inner-Seal siding product. The award compensates the company for damages and other losses resulting from product purchased by the company and sold to its dealers. However, on December 13, 2002 the United States District Court for the District of Oregon enjoined the Minnesota trial court from entering judgment against Louisiana-Pacific for $11.2 million of the total verdict. The company has appealed the December 2002 Order by the federal court to the Ninth Circuit U.S. Court of Appeals.

On February 17, 2004, the State of Minnesota Court of Appeals affirmed the October 2002 verdict of the McLeod County, Minnesota, District Court jury. This decision of the Minnesota Court of Appeals relates solely to that portion of the original verdict unaffected by the federal court injunction, and is subject to appeal to the Supreme Court of the State of Minnesota, the acceptance of which appeal is discretionary with the Supreme Court.

The company is unable to estimate the impact the award may have on its financial position or results of operations at this time. However, if the entire award is paid, the company believes it will recognize approximately $14 million pretax income for damages and recovery of prior costs in the period in which the award is paid.

There are no other material legal or environmental proceedings pending as of March 12, 2004, nor does the company have any known material environmental contingencies as of this date. Proceedings, other than the Louisiana-Pacific case, consist of matters normally incident to the business conducted by the company and taken together are not believed to be material.

Item 4. Submissions of Matters to a Vote of Security Holders

No matters have been submitted to a vote of stockholders since the last annual meeting of stockholders on April 15, 2003.

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PART II

Item 5. Market for Registrant’s Common Equity

The company’s common stock is traded on the New York Stock Exchange under the symbol BBR. The table below presents the high and low sales prices as reported by the exchange for each quarter in the last two years.

Price Range of Common Stock

Year end closing price:

On February 23, 2004, there were 1,981 stockholders of record of common stock.

Under the company’s note agreements, restricted payments, including dividends and treasury stock purchases, may not in the aggregate exceed the sum of $10 million, plus 75% of consolidated net income or less 100% of any deficit for each fiscal quarter subsequent to March 31, 2003, and may not be made if a default or event of default exists under the note agreements. Due to the losses and the uncertain course of the economy, the company discontinued the quarterly cash dividend in the third quarter of 2003. Because it was in default under the credit agreements and note agreements as of September 30, 2003, and December 31, 2003 and remains in default, the company is currently prohibited from paying dividends under the terms of those agreements. Further, the Merger Agreement between the company and BlueScope prohibits the payment of dividends prior to the effective time of the Merger or the termination of the Merger Agreement.

Dividends Declared

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Item 6. Selected Financial Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

In 2003, the domestic nonresidential construction markets recorded their fourth consecutive annual decline, as F.W. Dodge reported a 3% decline in orders, with the commercial segment off 6% and the manufacturing segment up 8%, the latter a positive development albeit increasing from a very low base. The general U.S. economy continues to show signs of a recovery from recession; nevertheless, the turnaround may be more gradual than past recoveries given increasing costs early in 2004 for raw materials, energy, and employee benefit costs. Increasing costs for steel and aluminum have been a particular concern. See the Manufacturing and Materials section in Part I, Item I of this report.

While the United States’ construction markets continued in decline in 2003, China’s economy continued to enjoy relatively large increases in gross domestic product. The estimated economic growth in China approached 8% in 2003, and demand for the company’s products was strong. During the fourth quarter of 2003 and into early 2004, China experienced large commodity price increases similar to those incurred in the United States. Butler’s China operations were impacted primarily by increases in steel costs. The company implemented price increases on its products to blunt the impact of these rising raw materials costs.

During 2003, the company experienced a pretax loss of $22.2 million and a net loss after taxes of $32.1 million. This followed a pretax loss of $6.9 million and a net loss after taxes of $1.8 million in 2002. During the fourth quarter of 2003, the company established a deferred tax asset valuation reserve of $24.7 million, charging this amount to income tax expense. The need for the valuation reserve stemmed from uncertainty as to whether the company will be able to utilize these assets given continued losses and ongoing noncompliance with the senior lenders’ debt covenants. The valuation allowance is reflected in two places on the December 31, 2003 balance sheet, $14 million is netted against the net current deferred tax assets and $11 million is netted against net noncurrent deferred tax assets. The realization of net deferred tax assets is dependent on generating $75 million of domestic taxable income in the future.

As discussed below and in the Liquidity section, the most significant and immediate challenge facing the company is its ability to generate positive cash flow during the prolonged economic downturn. The severe cyclical decline in the nonresidential construction industry during the past three years has outstripped the savings realized from cost reductions and capacity closures that the company has implemented over this period. During 2003, notwithstanding various cost cutting measures, the company had negative cash flow from operating activities of $18 million. The net decrease in cash for the year was $21.4 million. This liquidity challenge is heightened by an agreement with the company’s senior note holders to consummate a transaction, which would generate enough funds to repay the note holders in full by April 30, 2004. The principal balance owed on the notes at December 31, 2003 was $90 million. This amount does not include any make-whole payment, a payment designed to compensate the note holders for changes in market interest rates since the original borrowing date, due to accelerated payment of the notes. Because of the company’s continuing default under the bank credit agreement the company has no committed line of credit to provide liquidity.

At September 30 and December 31, 2003 the company was not in compliance with its financial covenants within the bank credit agreement and the senior notes agreements. As a result, the company was required under accounting standards to reclassify the related long-term portion of this debt, $81.5 million, as a current liability on both the September 30, 2003 and December 31, 2003 consolidated balance sheets.

As reported in the second and third quarter, the company has been in discussions with the senior lenders to restructure its debt agreements. Also as reported in the third quarter, the company’s Board authorized management to explore various strategic options available to the company, including solicitation of private investment capital, asset sales, and the sale of the company. In the fourth quarter the company reached agreement with its senior note holders to defer the December 30, 2003 and March 20, 2004 principal payments in the aggregate amount of $8.5 million on the company’s long-term senior notes. In exchange, the company has agreed to satisfy certain milestones including consummation of a transaction that provides for repayment in full of its outstanding senior notes, including make-whole amounts, by April 30, 2004.

Notwithstanding the December agreement with its note holders, the senior lenders have the right at any time to require payment of $90 million of debt (as well as any make-whole amount due upon acceleration) as well as require funding of $23 million of stand-by letters of credit. If the senior lenders were to exercise this right, the company would not have the ability to fund these obligations immediately, and the senior lenders could pursue other remedies.

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On February 15, 2004, the company entered into a Merger Agreement pursuant to which the company will become a wholly owned subsidiary of BlueScope. In connection with the Merger Agreement, BlueScope, the company and the senior note holders have reached mutually acceptable agreements that provide the note holders assurance from BlueScope that the senior notes will be immediately paid in full if BlueScope closes the Merger. See the General Description of the Business – Recent Development section in Part I, Item I and the Liquidity section in Part II, Item 7 of this report. The Merger is subject to various conditions, including the company achieving certain defined levels of financial performance — see the Liquidity and Capital Resources section below and Business – General Description of Business – Recent Development in Part I, Item I, as well as shareholder and regulatory approvals.

If the Merger is not completed, the company must recapitalize, restructure debt, dispose of assets, procure additional equity, or effect a combination of the foregoing actions, which may be with or without filing for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable arrangement with its senior creditors and to continue operations with minimal disruption and preserve the value of its assets. Management believes it will be difficult to obtain a workable arrangement with the company’s senior creditors to continue operations as currently conducted if the Merger is not completed on or before April 30, 2004.

The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if the company were not to continue as a going concern. The auditor’s report on the company’s financial statements as of December 31, 2003 contains an explanatory paragraph which refers to the company’s net losses in 2003 and 2002 and its difficulties in meeting its loan covenants and notes that these matters raise substantial doubt about the company’s ability to continue as a going concern.

Initiatives to Reduce Costs and Increase Revenues

Nonresidential construction markets are cyclical by nature. During the current prolonged downturn the company has taken many actions to reduce costs and increase revenues from underserved markets. Related to cost reductions, in the face of continued declining demand, the company’s domestic employment levels are approximately 8% lower since the beginning of 2003. This is in addition to employment reductions in 2001 and 2002. Along with expense reductions related to volume initiated in most downturns, the company has implemented more permanent cost cutting measures. The company implemented a change during the third quarter of 2003 in its primary pension plan benefit, which helped to offset most factors causing pension expense increases. The change is expected to have a $5.7 million favorable impact annually. The company's pension expense for 2003 was $13.0 million compared to $10.9 million in 2002. Also, the company discontinued the subsidy for its retiree health care plan and ended certain retiree group life insurance programs effective January 1, 2004. The company reversed approximately $5.1 million of accrued liabilities related to these retiree plans to pretax income during the fourth quarter of 2003. The net expense for retiree medical and life benefits for 2003 was a credit of $2.1 million compared to $3.0 million of expense in 2002. The company expects these actions to reduce retiree group insurance costs by approximately $2.8 million annually beginning in 2004.

The above mentioned cost reductions have been partially offset by: increased costs for steel caused primarily by tariffs imposed by the U.S. Government in April, 2002; higher business insurance costs driven in part by the September 11, 2001 terrorist attacks; and the costs under the company’s credit agreements.

The company continued its efforts to increase revenues and earnings in previously underserved markets. Within the North American Building Systems Segment, sales of the company’s Liberty Buildings product line, a first price point building solution, continued to grow. The plant to produce the new R-Steel panel product line, a one piece insulated curtain wall panel system for commercial and community applications, began production in the third quarter of 2003. Construction of the company’s frame fabrication plant in Mexico, which is to serve Mexican and Latin American markets as well as for the U.S., was completed in the fourth quarter of 2003 and commenced operations in December 2003. Within the Architectural Products Segment, two new distribution outlets and the introduction of new product offerings, including hurricane/blast resistant products, have provided incremental sales growth. Finally, the start-up of the company’s second plant in China for the International Building Systems Segment has provided needed capacity to support the demand growth in this region.

RESULTS OF OPERATIONS

Butler Manufacturing Company supplies products and services for nonresidential construction markets. These markets are cyclical in nature and are subject to changes in the general economy. In 2003, while most of the domestic economy

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experienced growth, nonresidential construction activity posted its fourth year of decline. The company’s financial results reflected that trend.

2003 Compared to 2002

Net sales were $796 million in 2003, down from $828 million or a 4% decrease from the prior year. Lower sales were caused by a continued decline in nonresidential construction project opportunities and lower sales prices for Butler’s metal building products due to a very competitive domestic construction market. The North American Building Systems, Architectural Products, Construction Services and Real Estate segments reported lower sales for 2003 than a year ago while International Building Systems reported higher sales for the period than a year ago. This trend in North American opportunities along with the $4.8 million restructuring charge and $.8 selling expense for the anticipated sale of Lester Building Systems business, a $2.4 million asset impairment charge taken related to the combination of the North American Building Systems Segment and the Construction Services Segment, $.9 million in severance and termination benefits related to the combination of segments and the closure of a facility in Birmingham, Alabama, $3.4 million of consulting and legal expense related to debt restructuring, and increased interest expense due to negotiated higher interest rates on the company’s long-term borrowings were the primary factors for greater operating and pretax losses compared with the prior year. Net sales and pretax earnings by segment are presented below. For further information on segments, see the section on Business Segments under the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.

Sales in the North American Building Systems Segment were $375 million, a decline from $394 million or a 5% decrease from the prior year. The decline in sales occurred in the metal buildings business and reflected continued weak demand in the manufacturing end-use market, which typically represents a significant percentage of the company’s revenues.

The International Building Systems Segment sales were $138 million, up 28% from the prior year. All the sales reported in 2003 in this Segment were from China, while the prior year’s sales included $9.8 million from the European business, which was sold in 2002. The higher sales volume in China was related to the company’s continued penetration of the market in China for nonresidential construction, seasonal increases, and a post-SARS business rebound.

The Construction Services Segment sales were $81 million during 2003, compared to $111 million during 2002. The entire decline in sales occurred in the first half of 2003 primarily as the result of an uncertain domestic economy. At December 31, 2003, the Segment’s backlog was up 33% from December 31, 2002. As noted previously, effective

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January 1, 2004, the company combined the Construction business with the North American Buildings business, forming the Buildings Group. This combination is expected to improve the alignment, capabilities, and talents of the two operations in order to better serve customers.

Sales in the Architectural Products Segment were $217 million for the year compared with $220 million during the prior year. The 1% decline in sales was a better performance when compared to the overall 6% drop in commercial construction awards. Along with better than market performance, the Segment also supported the start-up of architectural product operations in China and the United Arab Emirates.

The Real Estate Segment produced $5 million in sales during 2003 compared with $16 million a year ago. The Real Estate Segment’s sales are based on individual projects and it is not unusual for the Segment to report large fluctuations in sales from year to year.

Gross profit for Butler was $101 million or 12.7% of sales in 2003 compared with $113 million or 13.6% of sales in 2002. Lower sales, competitive pressures on selling prices, coupled with higher costs for raw materials, specifically steel, contributed to lower gross profit margins in 2003. Continued cost cutting in employee benefits helped to blunt the profit margin decline. Gross profit by segment is presented below.

The North American Building Systems and Construction Services segments were the most severely affected due to weak markets and a fiercely competitive pricing environment, causing reduced standard margins and higher unabsorbed fixed costs. The International Buildings Systems Segment gross profit increased $5 million, or 29%, over the prior year. This increase mirrored the 28% increase noted in net sales for the division. The Architectural Products Segment realized a slight increase in gross profit despite a decrease in net sales for the year, due primarily to greater production efficiencies.

Selling, general, and administrative expenses declined to $107 million compared with $115 million a year ago due to lower employment levels and other cost reduction efforts. These reduction efforts included the discontinuance of the subsidy for the retiree health care plan as well as the termination of certain retiree group life insurance programs discussed previously. Increased costs included higher business insurance costs driven in part by the September 11, 2001 terrorist attacks; and additional consulting and legal costs related to the company’s debt restructuring.

For the year, the company recorded a $4.8 million pretax charge for the write-down of assets to net fair market value in conjunction with the proposed sale of the Lester Buildings Systems business, which is included in the North American Building Systems Segment. An additional $2.4 million charge was taken during the fourth quarter of 2003 for the write-off of leasehold improvements related to the pretax combination of the North American Buildings Systems and the Construction Services Segments. The effect of these charges was reduced by a restructuring reserve credit taken in 2003 totaling $.8 million which was a result of reevaluation of the restructuring reserve necessary for the disposition of the European metal buildings business primarily due to one of the European subsidiaries being allowed to go into receivership.

The company recorded other expense of $.3 million during 2003 compared to $2.4 million of other income in the previous year. Lower rental income this year on Real Estate Segment projects and higher interest income in the previous year contributed to the difference in results. In addition, nonrecurring expenses in 2003 including an $.8 million charge for selling and legal costs related to negotiating the Lester sale and approximately $.9 million depreciation expense within Butler Real Estate caused the unfavorable change.

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Interest expense was $9.1 million for the year, up from $7.5 million in the prior year due to higher interest costs charged on the company’s amended credit and note agreements.

The company reported a pretax loss for 2003 of $22.2 million compared to the pretax loss of $6.9 million for 2002. The company recorded tax expense of $9.9 million for the period due to the establishment of a $24.7 million valuation allowance for deferred tax assets that served to offset the tax benefit recorded for the increase in pretax losses. The need for the valuation reserve stemmed from uncertainty as to whether the company will be able to utilize these assets given continued losses. Net loss for the year was $32.1 million, or $5.06 per share, compared with a net loss of $1.8 million, or $.29 per share, a year ago.

2002 Compared to 2001

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

The International Building Systems Segment was the bright spot with sales of $108 million reported in 2002 compared with $82 million during 2001. This Segment consists primarily of the China buildings business, as the sale of the company’s European buildings business was completed in the third quarter of 2002. The increase in sales was due to growth in the China nonresidential construction markets generally, and to superior execution by this business for new and repeat relationship building buyers.

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

The Construction Services Segment reported sales of $111 million in 2002, a decline of $22 million compared with 2001. Construction opportunities for this Segment declined during the year as a consequence of the generally lower demand for nonresidential structures.

The Real Estate Segment’s sales were $16 million in 2002, down $21 million or 56.1% compared with the prior year. Depressed commercial construction opportunities and the depletion of project backlog affected this Segment’s sales, which are project-based and generally more erratic than revenues of the company’s manufacturing operations.

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

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

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major contributors to the decline in gross profit for this segment. A plant in the U.S. metal buildings business remained offline during 2002 to balance capacity with lower market demand. The Lester Building Systems business also incurred employee separation costs as its sales volume declined.

International Building Systems Segment’s gross profit was 15.5% in 2002 comparable with gross profit of 15.9% in 2001. The company continued expanding market presence in China with additional branch offices and the construction of a second manufacturing plant to be ready in early 2003. Gross profit margins were comparable to the previous year in spite of intense competition and raw material cost increases.

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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Since December 2002, cash and cash equivalents decreased $21 million to $54 million due to declines in cash flows from operations and investing activities. Included in the company’s cash and cash equivalents is $2.6 million of restricted cash at December 31, 2003, for the benefit of the company’s senior lenders, which is unavailable to the company until certain contractual terms and conditions are met.

Cash flow from operating activities for 2003 was an approximate $18 million outflow. The net loss of $32.1 million and changes in working capital and noncurrent items were only partially offset by $19.3 million in depreciation and amortization, $7.2 million in asset impairment charges, and the establishment of a $24.7 million deferred tax asset valuation allowance.

Working capital changes plus noncurrent activities resulted in a $45 million reported cash outflow. The working capital change accounted for $41 million of the total while the change in noncurrent assets and liabilities accounted for the additional $4 million. The change in working capital was primarily the result of receivables increasing $27 million, primarily in the North American Building System Segment, due to seasonal demand and timing delays in billing caused by the implementation of a new computer system, and in the International Building Systems Segment due to increased demand. Inventories increased $4 million primarily due to the expansion of operations in the International Building Systems Segment. Net current deferred tax assets decreased $10 million, after the $13 million reclassification to the valuation allowance. This decrease was primarily due to the reclassification from current to noncurrent of the deferred tax asset related to the minimum pension liability. The $20 million decrease recorded in other current assets and liabilities includes a $17 million increase in customer liabilities, offset by a reclass of the $32 million minimum pension liability to noncurrent liabilities as the company determined it was unlikely this liability would be extinguished during the next 12 months, and a decrease in income taxes payable of $6 million due to the release of income taxes payable for settlement of tax audits and tax cash payments made to foreign and state tax jurisdictions, and other items netting to a $1 million source.

Other noncurrent assets increased $32 million and other noncurrent liabilities increased $28 million, resulting in a reported net use of cash of $4 million. This change was primarily the result of: a $32 million reclassification of minimum pension liability from current to long-term mentioned above; a $16 million increase in noncurrent deferred tax asset (after the $11 million reclassification to the valuation allowance) primarily due to a separate reclassification of the tax asset related to minimum pension liability from current to noncurrent; a $16 million increase in investments and other assets, which includes a real estate development of $9 million reclassed from real estate developments in progress; and a $4 million decrease in noncurrent deferred tax liabilities.

A reported $9 million increase in cash due to a lower real estate developments in progress balance at the end of 2003 was caused primarily by the reclassification of a real estate project to noncurrent as its anticipated sale date is expected to extend beyond one year.

Approximately $14 million of cash outflow was used to fund capital expenditures projects. Capital expenditures were primarily incurred within the North American Building Systems Segment for equipment to manufacture frames in Mexico and the R-Steel product line in the United States, as well as costs to complete the enterprise resource planning

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computer system. Capital expenditures also included the costs to complete construction of a second plant in China for the International Building Systems Segment.

Borrowing activities net of repayments provided $13 million of positive cash flow. The majority of this borrowing was related to nonrecourse mortgage loans on real estate developments. Cash was used for payment of dividends. The company decreased its quarterly dividend in the second quarter to $.04 per share from $.18 per share, and then suspended the dividend during the third quarter, both actions due to the losses incurred to date and the uncertain course of the economy. Dividends paid totaled $2.5 million and $4.5 million in 2003 and 2002, respectively.

During the second quarter of 2003 a $4 million cash dividend was declared and paid to the U.S. parent company from the company’s Chinese subsidiary to increase domestic cash resources. During 2003, treasury stock purchases were immaterial.

Cash paid for interest on debt totaled $5.6 million year to date. The cash paid for taxes totaled $2.8 million during 2003, while tax refunds totaled $8.4 million for the year.

Total backlog at year-end was $318 million compared with $264 million a year ago. Higher margin product backlog was approximately 17% higher, while construction backlog increased 33% when compared to the same period a year ago.

In June 2001, the company entered into a three year $50 million bank credit facility with a group of banks and issued $50 million of senior unsecured notes in a private placement to institutional investors for the purpose of funding certain capital expenditures and providing additional liquidity for operations. Following a waiver by the banks of certain financial covenants in the third quarter of 2002, the bank credit facility was amended in December 2002 to a $35 million facility with sub-limits of $30 million for letters of credit and $10 million for cash advances. At December 31, 2003, the company had approximately $23.3 million of standby letters of credit issued under the bank credit facility. Commitments under the credit facility expire on June 20, 2004, at which time any outstanding advances are payable.

For the twelve months ended December 31, 2003, there were no domestic short-term borrowings under the credit facility. After giving effect to all amendments, interest on advances under the credit facility is based on either (a) the banks’ base rate, which is the higher of the Federal Funds rate plus .50% or the prime rate, plus a margin ranging from 1.0% to 1.25%, or (b) LIBOR plus a margin ranging from 1.75% to 2.5%. During the occurrence of a default, interest on advances is the applicable rate plus 2%. Interest on base rate advances is payable quarterly and is payable on LIBOR advances at the end of periods ranging from one to six months. The credit facility provides for a commitment fee on unused advances ranging from .20% to .30%. As noted below, the company does not believe it will receive additional funds from or be able to issue new letters of credit under its bank credit facility.

Per the terms of the company’s bank credit and note agreements and subject to certain limitations, the company may borrow up to $35 million from other lenders to fund the Real Estate Segment’s project development activities. At December 31, 2003, $11.9 million had been borrowed to fund development projects. During the construction period of the real estate development the construction loans are interest only with rates ranging from prime plus .50% to prime plus 1%. Upon completion of construction, these loans convert to a two to four year term loan, with fixed or variable monthly payments of principal and interest. The term loans bear interest ranging from a fixed rate of 6% to a variable rate of prime plus 1% at the conversion date. The loans become due upon sale of the real estate project. The Merger Agreement between BlueScope and Butler limits future borrowings by the Real Estate Segment to projects already in progress at February 15, 2004.

At December 31, 2003 there were outstanding $90 million principal in senior notes comprised as follows: $50 million principal amount of the company’s 2001 senior notes due 2016, $35 million principal amount of its 1998 senior notes due 2013, and $5 million principal amount of its 1994 senior notes due 2003. Interest on the 2001 and 1994 senior notes is payable semiannually on June 30 and December 30 and interest on the 1998 senior notes is payable semiannually on March 20 and September 20. As set forth in the Long Term Debt Note to the Consolidated Financial Statements in Part II, Item 8 of this report, due to the covenant noncompliance the note holders have the right to declare all amounts due and payable at any time.

During the first quarter of 2003, the company and its note holders amended the senior notes to increase the interest rate for each series by 1.5%, of which increase .25% is permanent, .5% is applicable until the company’s bank credit facility

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is on a pari passu basis with the note agreements, and .75% is applicable until the later of the time that the bank credit facility is on a pari passu basis with the note agreements and the fixed charge ratio as defined in the notes exceeds 2.25 to 1 for two consecutive four trailing quarters. In connection with this amendment, the company granted the note holders and lenders under the credit facility a security interest in its domestic accounts receivable, domestic inventory, domestic subsidiary stock, certain foreign subsidiary stock and certain other personal property. Upon a payment default under any of the note agreements, the interest rate of the related notes would increase to the greater of such rate plus 2% or that rate which is 2% greater than the Bank of America’s prime rate.

Efforts in mid-2003 to replace the bank credit facility with an asset-based facility were unsuccessful when none of the proposals considered provided sufficient liquidity without adversely modifying the existing security interests of the senior notes. Accordingly, since that time the company has been in discussions with the senior lenders to restructure its debt agreements. These discussions have not resulted in any arrangements that were satisfactory to both the company and its lenders. Pending resolution of these discussions, the company does not believe it will receive additional funds from or be able to issue new letters of credit under its bank credit agreement. In the fourth quarter, the company’s banks notified the company that it would be required to prefund its daily disbursements on an ongoing basis, which had the effect of further reducing its liquidity.

The severe cyclical decline in the nonresidential construction industry during the past three years has outstripped the savings realized from cost reductions and capacity closures that the company has implemented over this period. Both the credit facility and the senior notes contain financial covenants and operating covenants. As a result, although the company was current with all payments under its debt agreements at September 30, 2003, it was not in compliance with its financial covenants within the bank credit facility and the senior note agreements related to the following matters: the minimum domestic EBITDA level of $5 million, the fixed charge coverage ratio of 1.25 to 1, and the leverage ratio of 7.0 to 1. At December 31, 2003 the company was not in compliance with its financial covenants within the bank credit agreement and the senior notes agreements related to the following matters: the minimum domestic EBITDA level of $15 million on a rolling four quarter basis; the capitalization ratio of .45 to 1; the leverage ratio (based generally upon the level of funded debt less cash and equivalents to EBITDA as defined in the agreements, for the trailing four quarters) of 4.0 to 1; the adjusted consolidated tangible net worth of $110 million plus 50% of consolidated net income since December 31, 2002; the consolidated indebtedness to consolidated total capitalization of 50%; and the fixed charge coverage ratio of 1.25 to 1 (based generally upon the ratio of EBITDA plus rents over the trailing four quarters to the amount of interest expense and rents during such period). Despite repeated attempts, the company has been unable to obtain any waivers or cures of the defaults. As a result, the company classified the related long-term portion of this debt, $81.5 million, as a current liability on the December 31, 2003 consolidated balance sheet. The attached financial statements reflect this change. See the section on Debt, Leases, Commitments, and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

Because the company was not in compliance with the financial covenants, the senior lenders have the right to accelerate payment of $90 million of debt recorded on the company’s balance sheet, as well as require cash funding of the stand-by letters of credit. In conjunction with any demand for repayment of the principal outstanding under the senior notes, the company may also be required to pay any make-whole amount due under the notes. The make-whole amount would be approximately $18 million (assuming a closing date of the Merger of April 30, 2004 and a reference interest rate for U.S. Treasuries as in effect on February 9, 2004). The company’s senior lenders have not accelerated the company’s payment obligations and have allowed the company to remain in breach of these agreements, although they have the right to declare such default and take such action at any time. If the senior lenders were to exercise this right, the company would not have the ability to fund these obligations immediately, and the senior lenders could pursue other remedies. Pending resolution of these discussions, the company does not believe it will receive additional funds from or be able to issue new letters of credit under its bank credit agreement.

Most of the letters of credit currently issued under the company's bank credit facility automatically renew on their expiration date unless the issuing bank gives the beneficiary notice of non-renewal at least 60 days prior to the expiration date. If the issuing bank gives notice of non-renewal, the beneficiary is entitled to draw the full amount of the letter of credit prior to the expiration date. If the beneficiary elects to draw on a non-renewed letter of credit, the drawn amount is treated as a funded advance under the company's bank credit facility. As the company is in default under the bank credit facility, the banks are entitled to demand at any time immediate repayment of any funded advance and are also entitled to require cash funding on all undrawn letters of credit. An $.8 million letter of credit expires April 1, 2004 and two additional letters of credit totaling $1.3 million expires June 1, 2004, for which the issuing bank has given notice of non-renewal, and approximately $20.1 million of automatically renewable letters of credit have expiration dates in June 2004.

As a result of the continued decline in domestic nonresidential construction markets, the company’s financial condition, and difficulties experienced in obtaining a replacement to the credit agreement, in the third quarter of 2003 the company’s Board engaged a financial advisor to assist it in evaluating the company’s strategic options, including but not limited to private investment capital, assets sales, and the sale of the company.

In December 2003, the company and the senior lenders under the 1994, 1998, and the 2001 senior notes amended the note agreements to provide for a principal payment deferral due under certain notes in the aggregate amount of $8.5 million. The deferral of these payments was based upon the company agreeing to meet certain milestones including the consummation of a transaction that would repay the $90 million notes in full by April 30, 2004, including principal,

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interest, default interest, make-whole amounts, and fees. The purchaser in the transaction was required to have financial qualifications acceptable to the senior note holders and the related agreement was required to be reasonably satisfactory to the note holders with respect to the treatment of the notes at closing and the conditions of closing. The company also agreed to deposit cash of $2.6 million on December 30, 2003 and $1.4 million on March 20, 2004 into a blocked collateral account for the benefit of its senior lenders and to accrue the default rate of interest on the deferred December and March principal and interest payments at a rate 2.00% above the respective amended coupon rates described in the Debt, Leases, Commitments, and Contingencies in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

On February 15, 2004, the company entered into a Merger Agreement pursuant to which the company will become a wholly owned subsidiary of BlueScope. See the section on Business — General Description of the Business — Recent Development in Part I, Item I of this report. In connection with the Merger, the company, BlueScope and the senior note holders have reached mutually acceptable agreements that (i) provide the note holders assurance from BlueScope that the senior notes will be immediately paid in full if BlueScope closes the Merger, (ii) provide BlueScope and the company assurance that the Merger Agreement satisfies the requirements of the note holders and (iii) agree on the proper calculation of the make-whole amount, which agreed amount would be approximately $18 million (assuming a closing on April 30, 2004 and a reference interest rate for U.S. Treasuries as in effect on February 9, 2004). The company estimates that a 25 basis points change in the reference rates would cause the make-whole amount to increase or decrease, as applicable, by approximately $1.5 million.

The Merger is subject to certain conditions, including the company achieving defined levels of financial performance for the first quarter of 2004, and shareholder and regulatory approvals. There are two groups of financial performance measures that must be met. The first group requires that, as defined, and independent of each other, EBIT cannot be less than $(8.30) million, net cash flow cannot be less than $(8.25) million, and backlog must be at least $305 million. The second group requires that, as defined, at least two of the following three measures must be met: EBIT cannot be less than $(7.25) million, net cash flow cannot be less than $(7.10) million, and backlog must be at least $317 million.

If the Merger is not completed, the company must recapitalize, restructure debt, dispose of assets, procure additional equity, or effect a combination of the foregoing actions, which may be with or without filing for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable arrangement with its senior creditors and to continue operations with minimal disruption and preserve the value of its assets. Management believes it will be difficult to obtain a workable arrangement with the company’s senior creditors to continue operations as currently conducted if the Merger is not completed on or before April 30, 2004.

The company’s principal contractual obligations and other commercial commitments are summarized below and disclosed in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.

Contractual Obligations, Commercial Commitments

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In addition to amounts shown above, in conjunction with any demand for repayment of the principal outstanding under the company’s senior notes, the company would be required to pay any make-whole amount due under the notes, as well as cash collateralize the company’s obligation to reimburse the banks for third party draws against approximately $23 million of letters of credit.

In the event the Merger Agreement is terminated by BlueScope because the company’s Board fails to recommend or reconfirm its recommendation of the transaction to the company’s stockholders or the company’s Board withdraws, adversely modifies, or amends its approval or recommendation of the transaction, then the company will be obligated to pay BlueScope a termination fee of $5.5 million and all expenses of BlueScope incurred in connection with the transaction contemplated by the Merger Agreement, up to a maximum of $1.5 million. If the Merger Agreement is terminated because it is not approved by stockholders or is not consummated by August 1, 2004 and prior to such termination another acquisition proposal for the company is publicly made, then the company will be obligated to pay BlueScope’s expenses incurred in connection with the Merger Agreement, up to a maximum of $1.5 million. If following such termination, the company enters into a definitive agreement for an acquisition transaction, as defined in the Merger Agreement, within twelve months after the date of any such termination, it must also pay the $5.5 million termination fee. These contingent obligations are not reflected in the foregoing table.

The company has submitted an application to the Internal Revenue Service requesting a funding waiver for the 2004 plan year contributions for all of its pension plans. If such application is granted, the waived contributions for the 2004 plan year in the amount of $21 million would then be due and payable in quarterly installments with interest over the next five years commencing April 2005.

On December 31, 2003, the company’s cash balance of $54.4 million included $2.6 million of restricted cash for the benefit of the company’s senior lenders, and $16.3 million of cash in its International Building Systems Segment, $14.1 million of which was not immediately available for repatriation to the parent company. Approximately $8 million of the $14.1 million not immediately available for repatriation is expected to be available for repatriation after May 2004. However, the Merger Agreement prohibits the payment of dividends by the company’s Asian subsidiaries prior to April 30, 2004 or at any time thereafter without BlueScope’s consent, which BlueScope has agreed will not be unreasonably withheld. Although there can be no assurance, management believes that absent the company’s obligation to repay the senior notes or for funding letters of credit under the bank credit agreement, the company’s cash and cash flow from operations, as projected for the twelve months following the date of the financial statements, will be sufficient to provide for normal operating needs. However, actual results or events may differ from management’s expectations in this forward looking statement as a result of any one or more of the factors cited under Forward Looking Statements preceding Item I of this report, including the following factors: an inability to consummate a transaction that provides for repayment in full of its outstanding senior notes by April 30, 2004 coupled with the inability to negotiate amendments to loan covenants, the requirement by the company’s senior lenders to fund the outstanding debt obligations, weak demand for the company’s products, a loss of customer relationships, elevated raw materials prices, or changes in payment terms by the company’s suppliers and vendors.

Along with existing cash balances and cash flow from operations, other possible sources of domestic liquidity include additional cash dividends from the company’s International Building Systems Segment; loan transactions utilizing the company’s approximately $30 million of unencumbered operating real estate assets; loans or the early sale of approximately $14 million of project related net assets of the company’s Real Estate Segment; a funding waiver of the company’s 2004 pension plan contributions of approximately $21 million: and the proceeds, if any, from the $29.6 million jury verdict awarded to the company related to a lawsuit involving Louisiana-Pacific Corporation. There is no assurance that the timing of availability of these additional possible sources of liquidity would correspond with future liquidity requirements.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146 (SFAS 146), “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 is effective for all exit or disposal activities entered into after December 31, 2002. SFAS 146 changes the accounting for costs associated with exit or disposal activities. The statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred as opposed to on the date of an entity’s commitment to an exit plan. The company applied the provisions of SFAS 146 in conjunction with the combination of the North American Buildings System Segment and the Construction Services Segment effective January 1, 2004 as well as the closure of the Birmingham, Alabama manufacturing facility in 2003.

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

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation — Transition and Disclosure”. SFAS 148 amends SFAS 123 “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123 to require more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years ending after December 15, 2002. The adoption of SFAS 148 had no impact on the company’s results of operations, liquidity, or financial condition. The company included the revised disclosure provisions of SFAS 148 in the Stock Option Plans footnote included in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.

In December 2003, FASB issued FASB Interpretation No. 46R (FIN 46R), “Consolidation of Variable Interest Entities,” an Interpretation of ARB No. 51”. FIN 46R supercedes FIN 46 issued in January 2003. The interpretation provides guidance on the identification of variable interest entities (VIE) and clarifies when a company is determined to be a “primary beneficiary” and required to consolidate in its financial statements the assets, liabilities, and activities of a variable interest entity. In addition, FIN 46R requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. For public entities that are not small business issuers, FIN 46R is effective for the first reporting period after December 31, 2003 for all variable interest entities classified as special purpose entities. FIN 46R is applicable for all other variable interest entities in the first interim or annual reporting period beginning after March 15, 2004. The adoption of FIN 46 had no impact on the company’s financial reporting and disclosures.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133. SFAS 149 is effective for contracts and hedging relationships entered into after June 30, 2003. The adoption of SFAS 149 had no impact on the company’s results of operations, liquidity, or financial condition.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. SFAS 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. Many of these instruments were previously classified as equity or temporary equity and as such, SFAS 150 represents a significant change in practice in the accounting for a number of mandatory redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. SFAS 150 is effective for all financial instruments created or modified after May 31, 2003, and to other instruments for the first interim period beginning after June 15, 2003. The adoption of SFAS 150 had no impact on the company’s results of operations, liquidity, or financial condition.

In 2003, the FASB issued a revision to Statement of Financial Accounting Standards No. 132 (SFAS 132), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. The revised SFAS 132 retains the disclosures required by the original SFAS 132 and requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The provisions of the original SFAS 132 remain in effect until the provisions of the revised SFAS 132 are adopted. With certain limited exceptions, the provisions of the revised SFAS 132 are effective for financial statements issued after December 15, 2003. The company included the additional disclosure provisions of the revised SFAS 132 in the Employee Benefit Plans footnote included in the Notes to Consolidated Financial Statements in Part II, Item 8 of this report.

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In January 2004, the FASB issued FASB Staff Position No. 106-1 (FSP 106-1), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”. FSP 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Regardless of whether a sponsor elects the one-time deferral, FSP 106-1 requires certain disclosures about the Act. FSP 106-1 is effective for financial statements of fiscal years ending after December 7, 2003. The provisions of FSP 106-1 had no impact on the company’s results of operations, liquidity, financial condition, or disclosures.

MANAGEMENT’S JUDGMENTS AND ESTIMATES

In preparing the financial statements, a number of assumptions and estimates are determined that, in the judgment of management, are proper in light of existing general economic and company-specific circumstances. Examples of areas in which judgments and estimates are required include recognition of sales income, the collectibility of receivables, the value of inventory, the future useful life of long-lived assets, such as plant, equipment, and internally generated software, as well as the value of certain contingent liabilities, including product warranties and claims arising in the ordinary course of business. While the company has taken reasonable care in preparing these estimates and making these judgments, actual results could and probably will differ from the estimates. Management believes that any difference in the actual results from the estimates will not have a material adverse effect upon the company’s financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

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

Sales Recognition

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

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

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

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Inventory Valuation

The company has chosen the last-in, first-out (LIFO) accounting method for valuing inventory in the majority of its manufacturing businesses. In periods of rising prices and steady or increasing levels of inventory, the effect of the LIFO method is to charge the current year cost of sales with inventory purchases that reflect current year costs. This method results in a better matching of current costs with current sales during an accounting period. Generally it presents a more conservative valuation of the company’s inventory, and the gross profit and net earnings reported for the period. The LIFO valuation is a year-end measurement process requiring estimates for the determination of quarterly gross profit and quarter-end inventory valuation. At December 31, 2003, the cumulative effect of choosing the LIFO method was a reduction in inventory values of $9.4 million. During 2003, the company reduced inventory levels, which had the effect of charging the current year cost of sales with prior years’ costs. For 2003, the use of LIFO inventory accounting increased gross margins by $.1 million.

Third-Party Claims

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

Insurance Accruals

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

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

Long-Lived Assets

The company accounts for the impairment of long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” When events or circumstances indicate that a long-lived asset may not be recoverable, the company tests for recoverability of the asset by comparing estimates of undiscounted future cash flows to the carrying amount. If undiscounted future cash flows are less than the asset-carrying amount, an impairment charge is recorded and the asset’s carrying value is reduced to fair value. Management, based on current operating conditions, estimates the future cash flows; however, changes in estimates of such cash flows could impact the results of the impairment test. During 2003, the company incurred an asset impairment charge of $7.2 million. $4.8 million related to the write-down of assets from the proposed sale of the Lester division, and $2.4 million related to the write-off of leasehold improvements within the Construction Services Segment Butler Construction as a result of combining this segment with the North American Building Systems Segment.

Income taxes

The company records income taxes in accordance with SFAS 109, “Accounting for Income Taxes.” SFAS 109 establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax

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returns. The measurement of current and deferred tax assets is reduced by the amount of any tax benefits that, based on available evidence, it is more likely than not the assets value will not be realized. During 2003, the Company established a valuation allowance of $24.7 million to reduce the amount of deferred tax assets where management believed it was more likely than not the assets value will not be realized. Judgment is required in assessing the valuation allowance as well as the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations.

Pension and Postretirement Benefits

The company records pension expense, assets, and liabilities in accordance with SFAS 87 and based upon an independent actuarial valuation that is conducted annually. The actuarial valuation requires various assumptions by the company such as the rate of future increases in compensation, the rate of future asset returns, and the rate of employee turnover. The measurement date is December 31 of each fiscal year. The company uses the asset-smoothing method for its base pension plan to recognize over time the differences between the actual asset returns and the returns assumed in the above noted actuarial valuation for purposes of determining its annual pension expense. During the third quarter of 2003 the company amended its base plan to reduce the rate of future benefit accruals. The reduction in the projected benefit obligation due to this amendment was recognized as a prior service credit that is being amortized over the remaining working lives of the active participants as a credit component included in pension expense.

The company records postretirement benefit expense and liabilities in accordance with SFAS 106 and based upon an independent actuarial valuation that is conducted annually. The measurement date is December 31 of each fiscal year. During the fourth quarter of 2003 the company terminated all postretirement medical benefits and certain life insurance benefits. The company accounted for this partial termination as a settlement of a portion of its obligations under SFAS 88 that resulted in a reversal of a portion of the accrued liability for these obligations.

MANAGEMENT TRANSITION AND DIRECTOR RETIREMENTS

Robert J. Reintjes, Sr., retired from the Board of Directors in 2002 after 8 years of service. Mark A. McCollum was elected to the board in January 2003 succeeding Mr. Reintjes. Mr. McCollum is Senior Vice President and Chief Accounting Officer of Halliburton Company, a global energy services company.

SHARE REPURCHASE PROGRAM

In April 2000, the Board of Directors authorized the repurchase of 750,000 shares of Butler common stock to be used for employee benefit plans and other corporate purposes. Stock purchases may be made from time to time in the open market and in private transactions at prevailing market prices. At December 31, 2003, 379,253 shares remained available for repurchase from the April 2000 Board authorization.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The company’s principal exposures to market risk are changes in commodity prices, interest rates, currency exchange rates, and product pricing. To limit exposure to select risks, the company enters into commodity and currency hedging transactions, and forward purchasing arrangements. The company does not use financial instruments for trading purposes.

Commodity Price Exposure

The primary commodities used in the company’s operations are steel, aluminum, and lumber. Steel is the company’s largest purchased commodity. The company enters into forward steel and wood purchase arrangements in its metal buildings businesses for periods of less than one year’s duration to protect against potential price increases.

During 2003 steel prices moved erratically but were generally higher than those of 2002. In 2002, the United States invoked tariffs on certain steel product imports causing significant price increases in the latter half of that year. Competitive pricing pressures have prevented the company from recapturing all of the steel price differential in its selling prices. Early in 2004, the company experienced unprecedented increases in steel pricing as a result of lower availability of raw materials, escalating energy costs and unusually high demand in China. Consequently pricing

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contracts with the company’s vendors were being modified on a weekly basis, either through actual material costs changes or surcharges. To minimize the erosion of margins, price increases on incoming sales were being passed in the company’s product sales pricing to the customers. Further increases are expected into the second quarter of 2004, which may impact the level of both sales and profitability.

The company’s wood frame building business enters into forward purchase arrangements for commercial grade lumber for periods of less than one year’s duration. Lumber costs are generally more volatile than steel costs. To offset increases in lumber costs, the company adjusts product prices accordingly.

Aluminum hedge contracts of less than one year’s duration are purchased to hedge the engineered products backlog of the Vistawall group against potential losses caused by increases in aluminum costs. This product line is sensitive to material cost movements due to the longer lead times from project quoting to manufacture. Gains or losses recorded on hedge contracts are offset against the actual aluminum costs charged to cost of sales when contracts are settled.

The company hedges aluminum and Canadian foreign exchange exposures created by its ongoing operations. At December 31, 2003, the fair value of open aluminum contracts recorded in cumulative other comprehensive income was a gain of $.1 million, pretax. There were no open Canadian currency exchange contracts at December 31, 2003; therefore there were no unrealized losses. At December 31, 2003, a percentage change in aluminum contracts would be immaterial to the company.

Interest Rates

Ninety-five percent of the company’s total debt carries a fixed rate of interest, which limits the company’s exposure to increases in market rates. However, interest rate changes impact the fair market value of the company’s fixed rate debt. At December 31, 2003 and 2002, the fair value of the company’s long-term debt was materially in line with its carrying value. Principal payments over the next five years on the fixed-rate debt are $108.4 million, with a weighted-average interest rate of 8.55%. At the end of five years, then outstanding fixed-rate debt of $.6 million will carry a weighted-average interest rate of 6.5%. The company’s short-term bank borrowings provide for interest at variable rates. The company does not hedge its interest rate exposure.

Foreign Currency Fluctuation

The majority of the company’s business is conducted in U.S. dollars, limiting the company’s exposure to foreign currency fluctuations. The company’s foreign-based operations use the local currency as their functional currency. The company has both transaction and translation foreign exchange exposure in its foreign markets. Due to relative cost and limited availability, the company does not hedge its foreign net asset exposure.

At December 31, 2003, the company’s net asset investment in foreign operations was $42 million, primarily in China. The company hedges its short-term foreign currency transaction exposures related to metal building sales in Canada. Forward exchange contracts are purchased to cover a portion of the exposure. Mark to market gains on the company’s currency exchange contracts were recorded in earnings and were immaterial.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Shareholders of Butler Manufacturing Company:

We have audited the accompanying consolidated balance sheets of Butler Manufacturing Company (a Delaware corporation) and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of earnings and retained earnings, comprehensive income, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedules for the years ended December 31, 2003 and 2002. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. The accompanying consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors’ report, dated January 29, 2002, expressed an unqualified opinion on those financial statements and included an explanatory paragraph that described the changed in the Company’s method of accounting for the recognition of asset gains and losses considered in the determination of net pension expense for its base retirement pension plan.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Butler Manufacturing Company and subsidiaries as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements and financial statement schedules have been prepared assuming that the Company will continue as a going concern. As discussed in notes to the financial statements, the Company has incurred net losses in 2003 and 2002 and, at December 31, 2003, the Company was not in compliance with certain covenants of its loan agreements. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in the notes. The consolidated financial statements and financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty.

KPMG LLP

Kansas City, Missouri
February 15, 2004

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Butler Manufacturing Company:

We have audited the accompanying consolidated balance sheets of Butler Manufacturing Company (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of earnings and retained earnings, comprehensive income and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Butler Manufacturing Company and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

As explained in the notes to the financial statements, effective January 1, 2001, the company changed its method of accounting for the recognition of asset gains and losses considered in the determination of net pension expense for its base retirement pension plan.

Arthur Andersen LLP

Kansas City, Missouri
January 29, 2002

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

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BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands

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Dollars in thousands

See Accompanying Notes to Consolidated Financial Statements.

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BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
AND RETAINED EARNINGS
Dollars in thousands except for shares and per share data

See Accompanying Notes to Consolidated Financial Statements.

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BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands

See Accompanying Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if the company were not to continue as currently conducted. The auditor’s report on the company’s financial statements as of December 31, 2003 contains an explanatory paragraph which refers to the company’s net losses in 2003 and 2002 and its difficulties in meeting its loan covenants and notes that these matters raise substantial doubt about the company’s ability to continue as currently conducted.

As reported in the third quarter of 2003, the company was not in compliance with the financial covenants within its senior lending agreements. The company reached an agreement with its senior note holders to defer the December 30, 2003 and March 20, 2004 principal payments in the aggregate amount of $8.5 million on the company’s long-term senior notes. In exchange, the company has agreed to satisfy certain milestones including consummation of a transaction that provides for repayment in full of its outstanding senior notes by April 30, 2004 and the make-whole payments. The lenders retained the right to demand the outstanding obligations at any time.

On February 15, 2004, the company entered into a Merger Agreement pursuant to which BSL Acquisition Corporation, a wholly owned subsidiary of BlueScope Steel Limited (“BlueScope”), of Melbourne, Australia, will merge with and into the company, and the company will become a wholly owned subsidiary of BlueScope. Pursuant to the Merger Agreement, each outstanding share of company common stock will be exchanged for the right to receive $22.50 in cash. The acquisition will be subject to a number of conditions, including the company achieving defined levels of financial performance for the first quarter of 2004, no acceleration of any amounts owed by Butler to its senior lenders, and no environmental liability remediation costs in excess of $5 million, as well as shareholder approval and approval by regulatory authorities in the United States. Butler shareholders are expected to vote on the proposed acquisition in April 2004.

Pending the satisfactory conclusions to the conditions mentioned above and others included in the Merger Agreement, Butler and BlueScope expect the acquisition of Butler to be complete by April 30, although there are no assurances of this. In connection with the Merger, the company, BlueScope and the senior note holders have reached mutually acceptable agreements that (i) provide the note holders assurance from BlueScope that the senior notes will be immediately paid in full if BlueScope closes the Merger, (ii) provide BlueScope and the company assurance that the Merger Agreement satisfies the requirements of the note holders and (iii) agree on the proper calculation of the make-whole amount, which agreed amount would be approximately $18 million (assuming a closing on April 30, 2004 and a reference interest rate for U.S. Treasuries as in effect on February 9, 2004). The company estimates that a 25 basis points change in the reference rates would cause the make-whole amount to increase or decrease, as applicable, by approximately $1.5 million.

If the Merger is not completed, the company must recapitalize, restructure debt, dispose of assets, procure additional equity, or effect a combination of the foregoing actions, which may be with or without filing for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, in order to reach a workable arrangement with is senior creditors and to continue operations with minimal disruption and preserve the value of its assets. Management believes it will be difficult to obtain a workable arrangement with the company’s senior creditors to continue operations as currently conducted if the Merger is not completed before April 30, 2004.

Principles of Consolidation

The consolidated financial statements include Butler Manufacturing Company and all subsidiaries more than 50% owned. Investments in business entities in which the company does not have control (generally 20% to 50% ownership) or is not deemed to be the primary beneficiary are accounted for by the equity method. All significant intercompany profits, account balances, and transactions are eliminated in consolidation.

Reclassifications

Certain inconsequential reclassifications have been made to prior years information to conform to the 2003 presentation.

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Use of Estimates

Management of the company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles in the United States. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are defined as all demand deposits and highly liquid investments with original maturities of 90 days or less. Included in the company’s cash and cash equivalents is $2.6 million of restricted cash at December 31, 2003, for the benefit of the company’s senior lenders, which is unavailable to the company until certain contractual terms and conditions are met.

Sales Recognition

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

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

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

Inventory Valuation

Inventories are valued at the lower of cost or market and include material, labor, and manufacturing overhead. The last-in, first-out (LIFO) method of determining cost is used for substantially all domestic inventories. The first-in, first-out (FIFO) method of determining cost is used for inventories in the International Buildings Systems Segment and Lester Buildings, a component of North American Building Systems Segment. If the FIFO method had been used for all locations, inventories would have been $9.4 million and $9.5 million higher than those reported at December 31, 2003 and 2002, respectively.

The use of the LIFO method to calculate cost of sales increased net earnings by $.1 million ($.01 per share) in 2003, decreased net earnings by $.6 million ($.10 per share) in 2002, and increased net earnings by $.9 million ($.14 per share) in 2001. During 2003 and 2002, inventory levels decreased in certain of the company’s business units. Under the LIFO method, the decrease in inventory levels had the effect of charging the 2003 cost of sales with prior years’ costs of less than $.02 million, thereby increasing net earnings less than $.01 million or less than $.01 per share. The decrease in inventory levels had the effect of charging the 2002 cost of sales with prior years’ costs of less than $.03 million, thereby increasing net earnings less than $.02 million or less than $.01 per share. These amounts are included in the net earnings and per share amounts presented above.

Inventories by Component

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Third Party Claims

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

Insurance Accruals

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

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

Long-Lived Assets

The company accounts for the impairment of long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” When events or circumstances indicate that a long-lived asset may not be recoverable, the company tests for recoverability of the asset by comparing estimates of undiscounted future cash flows to the carrying amount. If undiscounted future cash flows are less than the asset carrying amount, an impairment charge is recorded and the asset’s carrying value is reduced to fair value. Management, based on current operating conditions, estimates the future cash flows; however, changes in estimates of such cash flows could impact the results of the impairment test. During 2001, the company incurred an asset impairment charge of $4.3 million in connection with the disposition of the European building business.

On May 15, 2003, the company entered into a letter of intent to sell substantially all of the assets of the Lester Building Systems business to a management team headed by the current Lester Building Systems’ president. The company recorded a $7 million pretax charge related to the proposed sale to write down the assets to net sale value. An additional $.8 million was recorded for selling and legal costs related to negotiating the sale. The closing of the transaction was scheduled to occur by November 21, 2003, however the company did not receive the consent from its senior lenders to proceed with the sale and the sale agreement terminated. Accordingly, at December 31, 2003, the Lester assets were reclassified from assets held for sale to assets held and used in business. Also, a credit to the asset impairment charge in the amount of $2.2 million was taken in the fourth quarter to adjust the Lester assets to fair market value.

Effective January 1, 2004, the company combined the Butler Construction business with the North American Building Systems business, forming the Buildings Group. In conjunction with the combination, the company recorded an asset impairment charge of $2.4 million in 2003 related to the write-down of Butler Construction leasehold improvements.

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Property, Plant, and Equipment

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

Capital expenditures for property, plant and equipment in 2003 were $11 million compared to $16 million in 2002. Expenditures during 2003 included the completion of a metal buildings plant in Monterrey, Mexico, the start up of the R-Steel plant in Staunton, Virginia, and approximately $1 million to complete a second metal buildings plant in Tianjin, China. In 2002, approximately $10 million was used in construction of the Tianjin plant. Other expenditures in 2002 included general factory capital costs. Interest has been capitalized in connection with the development of new facilities and is amortized over the estimated useful live of the related assets. Interest capitalized was $.1 million each for 2003 and 2002, and $.6 million in 2001.

Research and Development Costs

Costs incurred in the creation and start-up of new products or changes of existing products are charged to expense as incurred. The company expended $.6 million of research and development costs each year during 2003, 2002, and 2001.

Capitalized Software

Capitalized software costs are recorded in “Investments and other assets” in the consolidated balance sheets. At December 31, 2003 and 2002, capitalized software costs, net of amortization, were $13.2 million and $18.0 million, respectively. Lester had capitalized software costs of $3.1 million, which were written off as an impairment charge during 2003. Costs capitalized in 2003 and 2002 include the implementation of a scalable enterprise system in the North American Building Systems Segment. Costs are amortized on a straight-line basis over periods not exceeding seven years once applications are implemented and operational. Amortization of software cost was $4.3 million in 2003 and $4.2 million in 2002 and 2001, respectively.

Goodwill and Other Intangible Assets

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

Prior to the 2001 asset impairment charge, referenced in the Restructuring Charges footnote, $5.9 million of goodwill was recorded in the balance sheet, with $5.5 million in the Architectural Products Segment and $.4 million in the European operation of its International Building Systems Segment. European goodwill was written off in 2001 with the announced disposition of that business. Goodwill was amortized over 40 years prior to adoption of this standard. At the end of 2003 and 2002, the company had $5.5 million of goodwill recorded in the balance sheets.

During the third quarter of 2003, the company performed the annual impairment test for goodwill related to its Architectural Products Segment using methodology required under SFAS No. 142, which requires the company to evaluate impairment based on the fair value of assets held in the relevant reporting unit. It was determined that the fair value of assets related to the Architectural Products reporting unit exceeded its carrying value and no impairment was recognized.

Other intangible assets include unamortized cost associated with non-compete agreements totaling $1.1 million and $1.3 million at December 31, 2003 and 2002, respectively. These costs are being amortized over the life of the agreements.

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For 2003 and 2002, amortization was $.1 million, respectively, net of tax each year. Estimated amortization expense for each of the next five years is $.1 million, pretax.

Derivative Instruments and Hedging Activities

The company enters into aluminum contracts to hedge the cost of a portion of the aluminum used in its Architectural Products Segment. These contracts qualify for hedge accounting. Unrealized gains or losses on open contracts are recorded in comprehensive income until the contract settles with a corresponding adjustment to inventory (for losses) or deferred income (for gains). Gains or losses on contracts are recognized in earnings as an adjustment to cost of sales when the underlying inventory is sold. No gain or loss was recorded for open contracts due to the highly effective nature of the hedges in 2003 and 2002. The amounts recorded in cumulative other comprehensive income related to these contracts was a gain of $.1 million for 2003 and a gain of less than $.1 million for 2002. The 2002 amount was recognized in 2003 earnings, and the 2003 amount is expected to be recognized in 2004 earnings.

The company enters into forward currency exchange contracts to hedge a portion of its exposure associated with Canadian dollar denominated sales and net cash flow for its Canadian operations within the North American Building Systems Segment. The company’s costs for this operation are primarily denominated in U.S. dollars. While these hedge contracts would qualify for hedge accounting, the company has chosen not to designate these derivatives as hedge contracts, due to the immateriality of the unrealized gains or losses on such open contracts, at its normal level of activity. Accordingly, the company records the unrealized gain or loss from these derivatives in earnings as opposed to other comprehensive income. For major customer projects or for non-Canadian operations, where customer or vendor payments are denominated in a foreign currency, the company may designate related forward currency exchange contracts as cash flow hedges on a case-by-case basis. No such designation was made during 2003 or 2002.

Financial Instruments

The fair value of long-term debt is determined by comparing interest rates for debt with similar terms and maturities. At December 31, 2003 and 2002, the fair value of the company’s long-term debt was materially in line with its carrying value. Other financial instruments, consisting of cash and cash equivalents, net receivables, notes payable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of these instruments. The company has no significant concentrations of credit risk.

Accounting for Stock Options

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

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

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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 and units allocated under the Director Deferred Fee Plan are the company’s only common stock equivalents; there are no other potentially dilutive securities.

Basic and Diluted Earnings Per Share (EPS) Computations

No dilutive calculations were performed due to a net loss for 2003 and 2002 resulting in the dilutive and basic weighted shares being equivalent.

The following exercisable options were excluded from the computations of shares outstanding in one or more quarters in the determination of the annual diluted EPS presented above. Exercisable options are not considered to be common equivalent shares during periods when the options’ exercise price exceeded the average market price of the company’s common shares.

Options Excluded from Diluted EPS

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Foreign Currency Translation

The value of the U.S. dollar fluctuates on foreign currency exchanges, which creates exchange gains or losses on the company’s international investments. These investments, and the related equity earnings and losses, are translated into U.S. dollars. The gains or losses that result from translation are shown in the shareholders’ equity section of the consolidated balance sheets. Cumulative foreign currency exchange translation gains were $.1 million at December 31, 2003, and $.3 million at December 31, 2002.

Comprehensive Income

The components of comprehensive income include adjustments for minimum pension liabilities, foreign currency translation items, and hedging activities. The majority of the charges to comprehensive income relate to the company’s minimum pension liabilities. In 2003, $3.8 million was charged to other comprehensive income to recognize changes in the company’s minimum pension liabilities. In 2002, $10.2 million, net of tax, was charged to other comprehensive income to recognize these changes in the company’s minimum pension liabilities. The 2003 amount is no longer net of tax as a valuation reserve has been established to offset a majority of the tax benefit.

Construction and Project Contracts

Costs and estimated earnings in excess of billings on construction and project contracts, reflected in Inventories on the consolidated balance sheets, were $3.8 million and $3.6 million at December 31, 2003 and 2002, respectively. Billings in excess of costs are specifically identified on the consolidated balance sheets and were $2.2 million and $3.4 million at December 31, 2003 and 2002, respectively.

Total receivables due under construction and project contracts, included as trade receivables, were $15.9 million and $18.8 million at December 31, 2003 and 2002, respectively. Included in the contract receivables were $4.8 million and $6.1 million at December 31, 2003 and 2002, respectively, for amounts billed but not collected pursuant to retainage provisions. These amounts are generally due upon completion of the contracts, except for retention related to certain foreign receivables, which are due within 6 to 24 months of project completion. Construction contract receivables, including retentions, where the collection is not anticipated within twelve months are classified under Investments and other assets and totaled $3 million and $1.9 million at December 31, 2003 and 2002, respectively. Included in these amounts is retention older than one year of $1.7 million and $.6 million at December 31, 2003 and 2002, respectively.

Restructuring Charges

During the fourth quarter of 2001, the company’s Board approved the disposition of the assets of the company’s European building business, which is included in the International Building Systems Segment. As a result, the company recorded an $8.1 million pretax charge in December 2001. The company recorded a $4.3 million pretax charge in 2001 for the write-down of certain assets at its European business to estimated net realizable value based on estimated proceeds from the sale. The asset impairment charge was utilized in 2003 and 2002 upon disposition of these assets. In 2001, the company also recorded a $3.8 million restructuring charge for employee separation costs, costs to close offices, and other expenses related to the disposition of the business.

During 2003 and 2002, the company utilized $.8 million and $1.9 million of the restructuring reserve, respectively. An additional $1.4 million was accrued in 2002 for severance, termination, and legal costs associated with the disposition of the European building business. In 2003, $.06 million was accrued and utilized for foreign exchange loss during the year. During the fourth quarter of 2003, the company reversed $.5 million of severance and termination and $.2 million of legal, claims, and other costs. The balance of the restructuring reserve totaled $.1 million at the end of 2003 for final shut down costs. Recap of activity in the restructuring reserve during 2003 and 2002, is presented below.

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Restructuring Charge Accrual Activity

Along with the $.8 million of reserve utilized in 2003, mentioned above, the European buildings business also recorded a restructuring credit in the fourth quarter of 2003 totaling $.8 million. This was a result of better than anticipated receivables collections of $.2 million, and $.6 million of expense reversals as one of the European subsidiaries was allowed to go into receivership.

In 2002, an additional $2 million was recovered on the sale of certain European assets of the business. The detail of restructuring charges (credits) reported on the company’s consolidated statements of earnings for 2003, 2002, and 2001, is presented below.

Restructuring Charges (Credits) Activity

Assets Held for Sale

BMC Real Estate, Inc., a wholly owned subsidiary, owns land for development, which is reported as “Assets held for sale” in the consolidated balance sheets. No land parcels were sold in 2003. Management believes, although the sale may take several years, the ultimate book value of the asset will be realized.

International Joint Venture Operations

The company has a 30% interest in an international joint venture, Saudi Building Systems. The joint venture is involved in the design, manufacture, and marketing of pre-engineered metal buildings for nonresidential use in its respective market. No cash investments were made in Saudi Building Systems during 2003 or 2002. The company’s net investment in Saudi Building Systems was $2 million at December 31, 2003 and 2002, respectively.

During 2001, the company acquired a 40% interest in Vistawall International (UAE) Ltd. The joint venture is involved in the design, manufacture, and sale of architectural aluminum products in the Middle Eastern markets. A cash investment was made in Vistawall International (UAE) Ltd. of $.1 million in 2002. The company’s net investment was $.1 million at December 31, 2003 and $.2 million at December 31, 2002.

BUSINESS SEGMENTS

The company groups its operations into five business segments: North American Building Systems, International Building Systems, Architectural Products, Construction Services, and Real Estate. The company announced the planned combination of the North American Buildings Systems Segment and the Construction Services Segment, thereby forming the Buildings Group Segment effective January 1, 2004. The purpose of this change is to effect cost savings, and better alignment of capabilities, enabling more thorough integration of the construction supply chain and enhanced service to customers. Segment figures for North American Building Systems and Construction Services are reported

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separately for 2003 as these segments were managed separately during this period.

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

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

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

The Construction Services Segment sells and constructs large, complex metal building systems, working primarily in conjunction with the Butler Builder organization. Typical projects are large distribution centers and industrial buildings. As mentioned above, this Segment was combined with the North American Buildings Systems Segment as of January 1, 2004.

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

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

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

Net Sales

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

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Pretax Earnings (Loss)

The 2001 pre-tax loss for the International Building Systems Segment include impairment and restructuring charges of $7.7 million associated with the Segment’s European operations. The remaining $.4 million of the impairment and restructuring charges are contained in the Other segment.

Assets

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