UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2003~~2004

~~[ ]~~o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-22715

SCHUFF INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		86-1033353 (I.R.S. Employer Identification No.)
DELAWARE		86-1033353
1841 W. Buchanan St. Phoenix, Arizona (Address of Principal Executive Offices)		85007 (Zip Code)
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)


1841 W. Buchanan St.		85007
Phoenix, Arizona		(Zip Code)
(Address of Principal Executive Offices)

(602) 252-7787
Registrant’s Telephone Number, Including Area Code

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]~~ x No ~~[ ]~~ o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ~~[ ]~~ o No ~~[X]~~ x

Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practical date: As of ~~November~~August 39, ~~2003~~2004, there were 7,~~032~~063,~~270~~122 shares of Common Stock, $.001 par value per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2

SCHUFF INTERNATIONAL, INC.

TABLE OF CONTENTS

Page

~~Page~~

Part I:

Financial Information

Part I: Financial Information

Item 1.

Financial Statements

Item 1. Financial Statements

Consolidated Balance Sheets – September 30, 2003 (unaudited) and December 31, 2002

Condensed Consolidated Balance Sheets (unaudited) – June 30, 2004 and December 31, 2003

Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2003 and 2002

Condensed Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2004 and 2003

Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2003 and 2002

Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2004 and 2003

Notes to Consolidated Financial Statements (unaudited) – September 30, 2003

Notes to Condensed Consolidated Financial Statements (unaudited) – Three and Six Months Ended June 30, 2004 and 2003

Item 2.

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Item 4. Controls and Procedures

Part II:

Other Information

Part II: Other Information

Item 6.

Exhibits and Reports on Form 8-K

Item 6. Exhibits and Reports on Form 8-K

Signatures

Exhibit 10.1

Exhibit 10.2

Exhibit 10.3

Exhibit 10.4

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

			September 30				December 31
		June 30				December 31
			2003				2002
		2004				2003
			(Unaudited)				(Note 1)
		(in thousands)
			(in thousands)
Assets
Assets
Current assets:
Current assets:
Cash and cash equivalents		$	5,348			$	7,645
	Cash and cash equivalents		$	13,006			$	10,755
Restricted funds on deposit			7,451				7,513
	Restricted funds on deposit			7,496				3,468
Receivables			56,868				48,923
	Receivables			40,591				62,405
Income tax receivable			1,640				2,491
	Income tax receivable			2,484				—
Costs and recognized earnings in excess of billings on uncompleted contracts			12,467				10,723
	Costs and recognized earnings in excess of billings on uncompleted contracts			16,529				16,139
Inventories			6,917				4,374
	Inventories			4,334				4,714
Deferred tax asset			2,467				2,695
	Deferred tax asset			2,506				2,317
Prepaid expenses and other current assets			629				736
	Prepaid expenses and other current assets			847				590
Total current assets			93,787				85,100
Total current assets				87,793				100,388
Property and equipment, net			22,919				24,394
Property and equipment, net				24,907				27,132
Goodwill, net			17,115				17,115
Goodwill, net				17,115				17,115
Other assets			3,423				3,673
Other assets				3,739				3,710
		$	137,244			$	130,282
			$	133,554			$	148,345
Liabilities and stockholders’ equity
Liabilities and stockholders’ equity
Current liabilities:
Current liabilities:
Accounts payable		$	14,251			$	11,946
	Accounts payable		$	9,113			$	12,707
Accrued payroll and employee benefits			4,743				3,400
	Accrued payroll and employee benefits			3,920				5,015
Accrued interest			777				798
	Accrued interest			3,171				810
Other accrued liabilities			6,097				7,019
	Other accrued liabilities			5,224				5,922
Billings in excess of costs and recognized earnings on uncompleted contracts			12,068				8,464
	Billings in excess of costs and recognized earnings on uncompleted contracts			8,878				13,521
Total current liabilities			37,936				31,627
	Income taxes payable			—				23
Long-term debt			87,040				87,040
	Current portion of long-term debt			—				81
Deferred income taxes			1,500				1,728
Total current liabilities				30,306				38,079
Other liabilities			342				356
Long-term debt, less current portion				90,040				91,170
Minority interest			26				46
Deferred income taxes				1,912				1,912
Stockholders’ equity:
Other liabilities				473				1,713
Preferred stock, $.001 par value – authorized 1,000,000 shares; none issued			—				—
Minority interest				80				117
Common stock, $.001 par value – 20,000,000 shares authorized; 7,498,922 and 7,472,757 issued and 7,063,122 and 7,036,957 outstanding, respectively			7				7
Stockholders’ equity:
Additional paid-in capital			15,405				15,369
	Preferred stock, $.001 par value – authorized 1,000,000 shares; none issued			—				—
Accumulated deficit			(4,356	)			(5,235	)
	Common stock, $.001 par value – 20,000,000 shares authorized; 7,468,070 and 7,372,894 issued and 7,032,270 and 6,937,094 outstanding, respectively			7				7
Treasury stock - 435,800 shares, at cost			(656	)			(656	)
	Additional paid-in capital			15,361				15,248
Total stockholders’ equity			10,400				9,485
	(Accumulated deficit) retained earnings			(3,969	)			755
		$	137,244			$	130,282
	Treasury stock (435,800 shares), at cost			(656	)			(656	)
Total stockholders’ equity				10,743				15,354
			$	133,554			$	148,345

See notes to condensed consolidated financial statements.

SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

		Three months ended		~~Three months ended~~						Six months ended		~~Nine months ended~~
				September 30								September 30
		June 30								June 30
				2003				2002				2003				2002
		2004				2003				2004				2003
		(in thousands, except per share data)		~~(in thousands, except per share data)~~
Revenues		$	59,472	$	~~38,150~~	$	39,992	$	~~62,021~~	$	117,547	$	~~128,382~~	$	90,232	$	~~165,015~~
Cost of revenues			49,242		~~33,735~~		35,141		~~53,257~~		98,445		~~111,797~~		78,121		~~140,771~~
Gross profit	~~Gross profit~~		10,230		~~4,415~~		4,851		~~8,764~~		19,102		~~16,585~~		12,111		~~24,244~~
General and administrative expenses			7,279		~~5,740~~		5,442		~~5,738~~		13,202		~~17,206~~		11,407		~~17,693~~
	Operating (loss) income				(1,325	)			3,026				(621	)			6,551
Operating income (loss)			2,951				(591	)			5,900				704
Interest expense			(2,416	)	~~(2,515~~	)	(2,475	)	~~(2,651~~	)	(4,884	)	~~(7,490~~	)	(4,975	)	~~(7,859~~	)
Other income			92		~~114~~		121		~~287~~		126		~~619~~		505		~~728~~
	(Loss) income before income tax benefit, minority interest and the cumulative effect of a change in accounting principle				(3,726	)			662				(7,492	)			(580	)
Income (loss) before income taxes and minority interest			627				(2,945	)			1,142				(3,766	)
Income tax (benefit) expense					(1,030	)			210				(2,731	)			(192	)
Income tax (provision) benefit			(148	)			1,311				(287	)			1,701
	(Loss) income before minority interest and the cumulative effect of a change in accounting principle				(2,696	)			452				(4,761	)			(388	)
Income (loss) before minority interest			479				(1,634	)			855				(2,065	)
Minority interest in loss of subsidiaries			17		8		8		18		24		37		29		18
	(Loss) income before the cumulative effect of a change in accounting principle				(2,688	)			470				(4,724	)			(370	)
Net income (loss)		$	496			$	(1,626	)		$	879			$	(2,036	)
Cumulative effect of a change in accounting principle					—				—				—				(29,591	)
Income (loss) per share:
	Net (loss) income			$	(2,688	)		$	470			$	(4,724	)		$	(29,961	)
Basic		$	0.07			$	(0.23	)		$	0.12			$	(0.29	)
Basic (loss) income per share:
Diluted		$	0.07			$	(0.23	)		$	0.12			$	(0.29	)
(Loss) income per share before the cumulative effect of a change in accounting principle				$	(0.38	)		$	0.06			$	(0.67	)		$	(0.05	)
Weighted average shares used in computation:
Cumulative effect per share of a change in accounting principle					—				—				—				(4.07	)
Basic			7,063				6,997				7,058				6,988
Net (loss) income per share				$	(0.38	)		$	0.06			$	(0.67	)		$	(4.12	)
Diluted			7,063				6,997				7,058				6,988
Diluted (loss) income per share:
(Loss) income per share before the cumulative effect of a change in accounting principle				$	(0.38	)		$	0.06			$	(0.67	)		$	(0.05	)
Cumulative effect per share of a change in accounting principle					—				—				—				(4.07	)
Net (loss) income per share				$	(0.38	)		$	0.06			$	(0.67	)		$	(4.12	)
Weighted average shares used in computation:
	Basic				7,025				7,268				7,001				7,268
	Diluted				7,025				7,268				7,001				7,268

See notes to condensed consolidated financial statements.

SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

					Nine months ended September 30
		Six months ended June 30
					2003				2002
		2004				2003
		(in thousands)			~~(in thousands)~~
Operating activities
Net loss					$	(4,724	)		$	(29,961	)
Net income (loss)		$	879			$	(2,036	)
Adjustment to reconcile net loss to net cash provided by operating activities:
Adjustment to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	~~Depreciation and amortization~~		1,929			~~3,152~~	2,099			~~3,352~~
	Cumulative effect of a change in accounting principle					—				29,591
Gain from extinguishment of debt			—				(182	)
	Gain from extinguishment of debt					(182	)			(98	)
Loss (gain) on disposal of property and equipment			1				(98	)
	Gain on disposal of property and equipment					(88	)			(128	)
Stock compensation			12				18
	Deferred income taxes					(189	)			—
Minority interest in loss of subsidiaries			(24	)			(29	)
	Stock awards					25				74
Other			36				—
	Minority interest in loss of subsidiaries					(37	)			(18	)
Changes in operating assets and liabilities:
	Changes in operating assets and liabilities:
Restricted funds on deposit			62				(6,668	)
		Restricted funds on deposit				(4,028	)			(2,462	)
Receivables			(7,945	)			16,169
		Receivables				21,814				(362	)
Income taxes receivable/payable			851				(1,764	)
Costs and recognized earnings in excess of billings on uncompleted contracts		~~Costs and recognized earnings in excess of billings on uncompleted contracts~~	(1,744	)		~~(390~~	)2,452			~~3,030~~
Inventories		~~Inventories~~	(2,543	)		~~380~~	(7	)		~~1,524~~
Prepaid expenses and other assets		~~Prepaid expenses and other assets~~	107			~~(257~~	)(327	)		~~(156~~	)
Accounts payable		~~Accounts payable~~	2,305			~~(3,594~~	)(2,069	)		~~1,691~~
Accrued payroll and employee benefits		~~Accrued payroll and employee benefits~~	1,343			~~(1,095~~	)(1,330	)		~~(370~~	)
Accrued interest		~~Accrued interest~~	(21	)		~~2,361~~	(15	)		~~2,380~~
Other accrued liabilities		~~Other accrued liabilities~~	(922	)		~~(698~~	)(857	)		~~(403~~	)
Billings in excess of costs and recognized earnings on uncompleted contracts		~~Billings in excess of costs and recognized earnings on uncompleted contracts~~	3,604			~~(4,643~~	)(4,927	)		~~4,370~~
		Income taxes receivable/payable				(2,507	)			830
Other liabilities			(14	)			(1,104	)
		Other liabilities				(1,241	)			(19	)
Net cash used in operating activities			(2,084	)			(675	)
			Net cash provided by operating activities			4,059				12,865
Investing activities
Investing activities
Acquisition of property and equipment			(262	)			(536	)
Acquisition of property and equipment						(957	)			(662	)
Proceeds from disposals of property and equipment			17				160
Proceeds from disposals of property and equipment						191				176
Decrease in other assets			40				6
(Increase) decrease in other assets						(114	)			8
Net cash used in investing activities			(205	)			(370	)
			Net cash used in investing activities			(880	)			(478	)
Financing activities
Financing activities
Principal payments on long-term debt			—				(798	)
Principal payments on long-term debt						(798	)			(810	)
Distribution to minority shareholder			(32	)			—
Minority interest						—				150
Proceeds from the issuance of common stock			24				55
Purchase of treasury stock at cost						—				(250	)
Net cash used in financing activities			(8	)			(743	)
Payment of debt issuance costs						(218	)			—
Decrease in cash and cash equivalents			(2,297	)			(1,788	)
Proceeds from the issuance of common stock						88				168
Cash and cash equivalents at beginning of period			7,645				10,755
			Net cash used in financing activities			(928	)			(742	)
Cash and cash equivalents at end of period		$	5,348			$	8,967
			Increase in cash and cash equivalents			2,251				11,645
Supplemental Disclosures of Cash Flow Information:
Cash and cash equivalents at beginning of period						10,755				4,586
Cash paid during the period for:
			Cash and cash equivalents at end of period		$	13,006			$	16,231
Interest		$	4,905			$	4,990
Income taxes		$	40			$	282

See notes to condensed consolidated financial statements.

Schuff International, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~September~~Three and Six Months Ended June 30, 2004 and 2003

1. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in in accordance with accounting principles generally accepted in the United ~~States~~ States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting ~~principles~~ principles for complete financial statements. The balance sheet at December 31, ~~2002~~2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally ~~accepted~~ accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. ~~Operating~~ Operating results for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2003~~2004 are ~~not~~ not necessarily indicative of the results that may be expected for the year ~~ended~~ ending December 31, ~~2003~~2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2002~~2003.

2. Stock Options

The Company has a stock-based employee compensation plan. The Company generally grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. The Company accounts for stock option grants to employees and directors under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Accordingly, no compensation cost has been recognized for these stock option grants. Awards under the plan vest over periods ranging from immediate vesting to five years, depending upon the type of award. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period presented, using the Black-Scholes valuation model.

	Three months ended						~~Nine~~Six months ended
	September 30						September 30
	June 30						June 30
	2003			2002			2003			2002
	2004			2003			2004			2003
	(in thousands)			~~(in thousands)~~
Net (loss) income as reported	$	(2,688	)	$	470		$	(4,724	)	$	(29,961	)
Net income (loss) as reported	$	496		$	(1,626	)	$	879		$	(2,036	)
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards		6622			~~129~~18			~~178~~63			~~316~~112
Pro forma net (loss) income	$	(2,754	)	$	341		$	(4,902	)	$	(30,277	)
Pro forma net income (loss)	$	474		$	(1,644	)	$	816		$	(2,148	)
Net (loss) income per share-basic-as reported	$	(0.38	)	$	0.06		$	(0.67	)	$	(4.12	)
Income (loss) per share-basic-as reported	$	0.07		$	(0.23	)	$	0.12		$	(0.29	)
Pro forma net (loss) income per share—basic	$	(0.39	)	$	0.05		$	(0.70	)	$	(4.17	)
Pro forma income (loss) per share—basic	$	0.07		$	(0.23	)	$	0.12		$	(0.31	)
Net (loss) income per share-diluted-as reported	$	(0.38	)	$	0.06		$	(0.67	)	$	(4.12	)
Income (loss) per share-diluted-as reported	$	0.07		$	(0.23	)	$	0.12		$	(0.29	)
Pro forma net (loss) income per share—diluted	$	(0.39	)	$	0.05		$	(0.70	)	$	(4.17	)
Pro forma income (loss) per share—diluted	$	0.07		$	(0.23	)	$	0.12		$	(0.31	)

3. Reclassifications

Certain amounts in the ~~2002~~2003 condensed consolidated financial statements have ~~been~~ been reclassified to conform with the ~~2003~~2004 presentation.

4. New Accounting Pronouncements

In January 2003, the FASB issued ~~FASB~~ Interpretation ~~No. 46~~ (“FIN 46”) No. 46, ~~Consolidation~~ “Consolidation of Variable Interest Entities, ~~which~~— ~~clarifies~~An ~~the~~Interpretation ~~application~~ of Accounting Research Bulletin (“ARB”) No. 51~~, Consolidated Financial Statements, relating to consolidation of certain entities~~.” ~~FIN~~This 46interpretation ~~will require~~was ~~identification~~subsequently ofrevised ~~the~~by ~~Company’s~~FIN 46R ~~participation~~ in ~~variable~~December 2003. ~~interest~~This ~~entities (“VIEs”),~~revised ~~which~~interpretation ~~are~~states ~~defined as entities with a level of invested equity~~ that isconsolidation ~~not~~of ~~sufficient~~variable tointerest ~~fund future activities to permit it to operate on a standalone basis. For~~ entities ~~identified~~will asbe arequired ~~VIE,~~by ~~FIN~~the 46primary ~~sets~~beneficiary ~~forth a model~~if ~~to evaluate potential consolidation based on an assessment of which party to~~ the ~~VIE~~entities ~~(if~~do ~~any)~~not ~~bears~~effectively adisperse ~~majority~~risks ofamong the ~~exposure~~parties ~~to its expected losses, or stands to gain from a majority of its expected returns~~involved. ~~This Interpretation~~The ~~applies~~requirements ~~immediately~~are toeffective ~~variable~~for ~~interest~~fiscal ~~entities~~years ~~created~~ending after ~~January~~December 3115, 2003, ~~and~~for special-purpose toentities ~~variable~~and ~~interest~~for ~~entities~~all inother ~~which~~types ~~the~~of ~~Company~~entities ~~obtains~~for ~~an interest~~periods ending after ~~that~~March 15, ~~date~~2004. The Company ~~must~~does ~~adopt~~not ~~FIN~~have 46any invariable ~~the~~interest ~~first interim or~~entities ~~annual~~and ~~period~~the ~~beginning~~adoption ~~after~~of ~~June 15,~~FIN ~~2003 for any VIEs created before February~~No. 1,46R ~~2003.~~did ~~Management does~~ not ~~believe~~impact ~~that~~its ~~the~~financial ~~Company~~position ~~had any VIEs at~~or ~~September 30,~~results ~~2003~~of operations.

~~In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No~~5. ~~150,~~ ~~Accounting for Certain Financial Instruments with~~Receivables ~~Characteristics of both Liabilities and Equity. This Statement requires~~ ~~certain financial instruments, previously classified within the equity section~~ ~~of the balance sheet, to be included in liabilities. This Statement is~~ effective for financial instruments entered into or modified after May 31, 2003 and June 15, 2003 for all other instruments. The adoption of this Statement as of July 1, 2003 had no impact on the Company’s financial position or results of operations.

5Receivables consist of the following at:


	June 30			December 31
	2004			2003
	(in thousands)
Contract receivables:
Contracts in progress	$	43,619		$	36,433
Unbilled retentions		12,791			12,578
Allowance for doubtful accounts		(243	)		(227	)

		56,167			48,784
Other receivables		701			139

	$	56,868		$	48,923

5~~. Receivables~~

ReceivablesTable consist of the following at: Contents

		September 30			December 31
		2003			2002
		(in thousands)
Contract receivables:
	Contracts in progress	$	28,551		$	47,829
	Unbilled retentions		12,057			14,524
	Allowance for doubtful accounts		(398	)		(318	)
			40,210			62,035
Other receivables			381			370
		$	40,591		$	62,405

6. Inventories

6. Inventories consist of the following at:

Inventories consist of the following at:


	June 30		December 31
	2004		2003
	(in thousands)
Raw materials	$	6,810	$	4,266
Finished goods		107		108

	$	6,917	$	4,374

	September 30		December 31
	2003		2002
	(in thousands)
Raw materials	$	4,232	$	4,632
Finished goods		102		82
	$	4,334	$	4,714

7. Line of Credit

7On August 13, 2003, the Company entered into a Credit and Security Agreement with Wells Fargo Credit, Inc. ~~Line~~(“Wells Fargo”), pursuant to which Wells Fargo agreed to advance up to a maximum aggregate amount of $15.0 million to the Company and cause the issuance of letters of credit in the maximum amount of $11.5 million for the Company’s account. The facility under the Credit and Security Agreement replaced the Company’s credit facility under the Credit Agreement, dated June 30, 1998, as amended, between the Company and Wells Fargo Bank, N.A. The credit facility is primarily maintained to enable the Company to issue letters of credit to its performance bond surety and workers compensation insurance carrier. At June 30, 2004, the Company had no borrowings but had $9.9 million of outstanding letters of credit issued under its line of credit. These letters of credit are collateralized by cash held in an escrow account, which is classified as restricted funds on deposit on the June 30, 2004 balance sheet. On July 16, 2004, the Company amended the credit facility to allow it to issue up to $14.5 million in letters of credit.

OnThe ~~August 13,~~credit ~~2003,~~facility ~~the~~is ~~Company~~secured ~~entered~~by ~~into~~ a ~~Credit~~first ~~and Security Agreement with Wells Fargo Credit~~priority, ~~Inc.~~perfected ~~(“Wells~~security ~~Fargo”), pursuant to which Wells Fargo~~interest ~~agreed~~in toall ~~advance up to a maximum aggregate amount~~ of ~~$15.0 million to~~ the Company’s assets and ~~cause~~its ~~the~~present ~~issuance~~and offuture ~~letters~~subsidiaries. ofThe interest ~~credit~~rate inis ~~the~~prime ~~maximum~~plus ~~amount of $11~~1.~~5 million for the Company’s account~~50%. The ~~facility under the Credit and Security Agreement replaces the Company’s~~ credit facility ~~under~~contains ~~the Credit~~covenants ~~Agreement~~that, ~~dated~~among ~~June 30,~~other ~~1998~~things, aslimit ~~amended, between~~ the Company’s ~~and~~ability ~~Wells~~to ~~Fargo Bank,~~pay ~~N.A.~~cash ~~The~~dividends ~~credit~~or make ~~facility~~other isdistributions; ~~primarily~~repurchase ~~maintained~~its toSenior ~~enable~~Notes; ~~the~~incur ~~Company~~additional toindebtedness; ~~issue~~change ~~letters of credit to~~ its ~~performance~~business; ~~bond~~and ~~surety. At September 30~~merge, ~~2003,~~ ~~the~~consolidate ~~Company~~or ~~had~~dispose ~~no borrowings but had $9.9 million~~ of material ~~outstanding~~portions ~~letters~~ of ~~credit issued under~~ its ~~line of credit~~assets. ~~These~~The ~~letters~~security ofagreements ~~credit~~pursuant ~~are~~to ~~secured~~which the byCompany’s ~~cash~~assets ~~held~~are inpledged anprohibit ~~escrow~~any ~~account,~~further ~~which~~pledge isof ~~classified~~such asassets ~~restricted funds on~~without ~~deposit on~~ the ~~September 30,~~written ~~2003~~consent ~~balance~~of ~~sheet~~the bank.

The ~~new~~ credit facility isrequires ~~secured~~that bythe aCompany ~~first~~maintain ~~priority,~~a ~~perfected~~specified ~~security~~Debt Service ~~interest~~Coverage inRatio ~~all~~(defined ofas the ~~Company’s~~sum ~~assets~~of ~~and~~net ~~its~~income, ~~present~~depreciation and ~~future subsidiaries. The~~ amortization, interest ~~rate~~expense isand ~~prime~~unfinanced ~~plus~~capital ~~1.50%.~~expenditures ~~The~~divided ~~credit facility contains covenants~~by ~~that,~~the ~~among~~sum ~~other~~of ~~things,~~current ~~limit~~maturities ~~the~~of ~~Company’s~~long-term ~~ability~~debt toand ~~pay~~interest ~~cash~~expense), ~~dividends or~~a ~~make~~minimum ~~other~~book ~~distributions,~~net ~~repurchase its Senior Notes~~worth, ~~incur~~a ~~additional indebtedness,~~minimum ~~change~~monthly ~~its~~stop ~~business,~~loss ~~and~~(defined ~~merge,~~as ~~consolidate~~a ornet ~~dispose~~loss ofnot ~~material~~exceeding ~~portions~~$500,000 ofin ~~its~~any ~~assets.~~one ~~The~~month ~~security~~and ~~agreements~~$1.0 million ~~pursuant~~in toany ~~which~~two ~~the~~consecutive ~~Company’s~~months) ~~assets~~and ~~are~~maximum ~~pledged~~capital ~~prohibit~~expenditures. ~~any~~At ~~further~~June 30, ~~pledge~~2004, ofthe ~~such~~Company ~~assets~~was ~~without~~in ~~the~~compliance ~~written~~with ~~consent~~these ofcredit ~~the~~facility ~~bank~~covenants.

~~The~~8. ~~new~~Income ~~credit facility requires that the Company maintain a specified Debt Service Coverage Ratio~~ (~~defined as the sum of net income, depreciation and amortization, interest expense and unfinanced capital expenditures divided by the sum of current maturities of long-term debt and interest expense~~Loss), ~~a minimum~~Per ~~book net worth, a minimum monthly stop loss and maximum capital~~Share ~~expenditures. At September 30, 2003, the Company was not in compliance with~~ ~~some of these credit facility covenants due to its third quarter financial~~ ~~performance. The Company received a waiver of such noncompliance from the bank dated November 17, 2003. Additionally, the bank amended the minimum book net worth covenant for the remainder of 2003.~~

8.The ~~Net~~following ~~Loss~~table ~~Per~~sets ~~Share~~forth the computation of basic and diluted income (loss) per share:

The following table sets forth the computation of basic and diluted net (loss) income per share:


	Three months ended					Six months ended
	June 30					June 30
	2004		2003			2004		2003
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	496	$	(1,626	)	$	879	$	(2,036	)

Denominator for basic income (loss) per share:
Weighted average shares		7,063		6,997			7,058		6,988
Effect of dilutive securities:
Employee and director stock options		—		—			—		—

Denominator for diluted net income (loss) per share – adjusted weighted average shares and assumed conversions		7,063		6,997			7,058		6,988

Income (loss) per share:
Basic	$	0.07	$	(0.23	)	$	0.12	$	(0.29	)

Diluted	$	0.07	$	(0.23	)	$	0.12	$	(0.29	)

		Three months ended					Nine months ended
		September 30					September 30
		2003			2002		2003			2002
		(in thousands, except per share data)
Numerator:
(Loss) income before the cumulative effect of a change in accounting principle		$	(2,688	)	$	470	$	(4,724	)	$	(370	)
Cumulative effect of a change in accounting principle			—			—		—			(29,591	)
Net (loss) income		$	(2,688	)	$	470	$	(4,724	)	$	(29,961	)
Denominator for basic (loss) income per share:
	Weighted average shares		7,025			7,268		7,001			7,268
Effect of dilutive securities:
	Employee and director stock options		—			—		—			—
	Denominator for diluted net (loss) income per share – adjusted weighted average shares and assumed conversions		7,025			7,268		7,001			7,268
Basic (loss) income per share:
(Loss) income per share before the cumulative effect of a change in accounting principle		$	(0.38	)	$	0.06	$	(0.67	)	$	(0.05	)
Cumulative effect per share of a change in accounting principle			—			—		—			(4.07	)
Net (loss) income per share		$	(0.38	)	$	0.06	$	(0.67	)	$	(4.12	)
Diluted (loss) income per share:
(Loss) income per share before the cumulative effect of a change in accounting principle		$	(0.38	)	$	0.06	$	(0.67	)	$	(0.05	)
Cumulative effect per share of a change in accounting principle			—			—		—			(4.07	)
Net (loss) income per share		$	(0.38	)	$	0.06	$	(0.67	)	$	(4.12	)

Options to purchase 969,000 shares of common stock at prices ranging from $1.30 to $13.75 were outstanding during the three and six months ended June 30, 2004 but were not included in the computation of diluted income per share because the weighted average share price was less than the option price. Options to purchase 1,017,686 shares of common stock at prices ranging from $1.30 to $13.75 were outstanding during the three and six months ended June 30, 2003 but were not included in the computation of diluted loss per share because the options would be anti-dilutive due to the net loss.

~~Options~~9. toGains ~~purchase~~on ~~1,011,326~~Extinguishment ~~shares~~ of ~~common stock at prices ranging from~~Debt ~~$1.30 to $13.75 were outstanding during the three and nine months ended~~ ~~September 30, 2003 but were not included in the~~

7The Company recognized a gain of $182,000 (included in other income) during the six months ended June 30, 2003 due to the repayment of $1.0 million of the Company’s 10-1/2% Senior Notes at a 20.25% discount, net of the write-off of related unamortized debt issue costs.

~~Table~~10. ofContingent ~~Contents~~Matters

~~computation~~The ofCompany ~~diluted~~is ~~net~~involved ~~loss~~from ~~per~~time ~~share~~to ~~because~~time through the ~~options~~ordinary ~~would~~course beof ~~anti-dilutive~~business ~~due~~in tocertain ~~the~~claims, ~~net~~litigation ~~loss~~and assessments. ~~Options~~Due to ~~purchase~~the ~~1,129,774~~nature ~~shares~~ of ~~common~~the ~~stock~~construction atindustry, ~~prices~~the ~~ranging~~Company’s employees from ~~$2.50~~time to ~~$13.75~~time ~~were outstanding during the~~become ~~three~~subject ~~months~~to ~~ended September 30~~injury, ~~2002~~or ~~but~~even ~~were~~death, ~~not~~while ~~included~~employed inby the ~~computation of diluted net income per share because the weighted average share price was less than the option price~~Company. ~~Options~~The ~~to purchase 1,129,774 shares of common~~Company ~~stock~~does atnot ~~prices~~believe ~~ranging~~any ~~from~~new ~~$2.50~~contingencies toarose ~~$13.75~~during ~~were~~the ~~outstanding~~three ~~during~~and ~~the~~six ~~nine~~ months ended ~~September~~June 30, ~~2002 but were not included in the computation of diluted net loss per share because the options would be anti-dilutive due to the net loss~~2004.

9On April 2, 2003, Evans Welding Services Inc. ~~Adoption~~brought suit in the General Court of ~~SFAS~~Justice, ~~No. 142~~Superior Court Division, ~~“Goodwill~~County ~~and~~of ~~Other~~Mecklenburg, ~~Intangible~~North ~~Assets”~~Carolina against the Company’s subsidiary, Addison

~~Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and~~7 Other Intangible Assets,” which establishes financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17, “Intangible Assets.” Under SFAS No. 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment.

SFASTable No. 142 requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a two step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of this unit may be impaired. The amount, if any, of the impairment would then be measured in the second step. Contents

InSteel, ~~connection~~Inc., ~~with~~its ~~adopting~~surety ~~this~~bond, ~~standard~~the asgeneral ofcontractor ~~January 1,~~J.A. ~~2002,~~Jones ~~during the~~Construction ~~first~~Company ~~quarter~~and ofits ~~2002~~surety ~~the~~bonds ~~Company~~and ~~completed~~Starport ~~step~~I, ~~one~~LLC, the owner of the ~~test~~new ~~for~~Westin ~~impairment,~~Hotel ~~which~~in ~~indicated~~Charlotte, ~~that~~North ~~the~~Carolina. ~~carrying~~J.A. ~~values~~Jones ofwas ~~certain~~the ~~reporting~~general ~~units~~contractor to ~~exceeded~~the ~~their~~owner, ~~estimated~~Starport. ~~fair~~Addison ~~values,~~Steel aswas ~~determined~~the ~~utilizing~~structural ~~various~~steel ~~valuation~~subcontractor to ~~techniques~~J.A. ~~including~~Jones ~~discounted~~and ~~cash~~Evans ~~flow~~Welding ~~and~~was ~~comparative~~Addison’s ~~market~~erection ~~analysis~~subcontractor. Evans ~~Given~~Welding’s ~~the~~claim ~~indication~~was for approximately $300,000 of aadditional ~~potential~~work ~~impairment,~~on the project. ~~Company~~Addison ~~completed~~Steel ~~step~~filed ~~two of~~a ~~the~~cross ~~test.~~claim ~~Based~~and onits ~~that~~own ~~analysis~~action, awhich ~~transitional~~was consolidated ~~impairment~~with ~~loss~~the ofEvans ~~$29~~Welding lawsuit.~~6 million,~~ orAddison ~~$4.07~~Steel ~~per~~sought ~~basic~~to ~~and~~enforce its ~~diluted~~lien ~~earnings~~and ~~per~~bond ~~share,~~rights and was ~~recognized~~owed asapproximately $2.4 million from J.A. ~~the~~Jones ~~cumulative~~for ~~effect~~unpaid ofcontract anwork, ~~accounting~~retention, change asorders ofand ~~January~~claims. On September 125, ~~2002~~2003, J.A. ~~The impairment~~Jones ~~charge~~filed ~~resulted~~for ~~from~~bankruptcy. ~~declining~~However, ~~results~~Addison ~~given~~Steel continued ~~current~~to ~~and~~pursue ~~expected future~~its ~~economic~~lien ~~conditions~~and inbond ~~the~~rights ~~Commercial-Pacific,~~against ~~Commercial-Southeast~~the owner and ~~Manufacturing-Other~~ ~~segments~~J.A. Jones’ sureties. The ~~enterprise~~sureties ~~values~~asserted ofbackcharges ~~the~~against ~~reporting~~Addison ~~units~~Steel for ~~were~~approximately ~~estimated~~$1.0 million. byOn aApril 9, ~~third~~2004, ~~party~~the ~~appraisal~~Company ~~firm~~reached ~~considering~~a ~~both an income and~~settlement ~~market~~in ~~multiple~~which ~~approach.~~the ~~The~~sureties ~~impaired~~paid ~~goodwill~~Addison ~~was~~Steel ~~not~~approximately ~~deductible~~$1.5 million ~~for~~on ~~tax purposes~~May 14, 2004. ~~and~~As aspart aof ~~result~~the settlement, noAddison ~~tax~~Steel ~~benefit~~paid ~~was~~Evans ~~recorded~~Welding inServices $100,000 ~~relation~~on toApril 15, ~~the charge~~2004.

1011. ~~Gains~~Segment ~~on Extinguishment of Debt~~Information

The Company recognized a gain of $182,000 (included in other income) during the nine months ended September 30, 2003 due to the repayment of $1.0 million of the Company’s 10-1/2% Senior Notes at a 20.25% discount, net of the write-off of related unamortized debt issue costs.


	Three Months Ended June 30, 2004
	Commercial							Manufacturing
	Pacific		Southwest		Southeast			Other		Total
	(in thousands)
Revenues from external customers	$	12,216	$	29,251	$	7,307		$	10,698	$	59,472
Intersegment revenues		15		515		141			776		1,447
Gross profit		1,032		5,999		812			2,387		10,230
Operating income (loss)		383		1,867		(316	)		1,017		2,951

The Company recognized a gain of $163,000 (included in other income) during the three and nine months ended September 30, 2002 due to the repayment of $1.0 million of the Company’s 10-1/2% Senior Notes at a 19% discount, net of the write-off of related unamortized debt issue costs.


	Three Months Ended June 30, 2003
	Commercial								Manufacturing
	Pacific			Southwest		Southeast			Other			Total
	(in thousands)
Revenues from external customers	$	7,539		$	18,496	$	7,822		$	6,135		$	39,992
Intersegment revenues		—			1,126		—			1,175			2,301
Gross (loss) profit		(181	)		2,992		953			1,087			4,851
Operating (loss) income		(958	)		714		(233	)		(114	)		(591	)


	Six Months Ended June 30, 2004
	Commercial							Manufacturing
	Pacific		Southwest		Southeast			Other		Total
	(in thousands)
Revenues from external customers	$	21,011	$	61,148	$	13,421		$	21,967	$	117,547
Intersegment revenues		15		977		559			1,663		3,214
Gross profit		1,664		10,708		1,909			4,821		19,102
Operating income (loss)		331		3,869		(333	)		2,033		5,900

~~Table of Contents~~8

11.Table Contingentof Matters Contents

The Company is involved from time to time through the ordinary course of business in certain claims, litigation and assessments. Due to the nature of the construction industry, the Company’s employees from time to time become subject to injury, or even death, while employed by the Company. The Company does not believe any new contingencies arose during the nine months ended September 30, 2003.


	Six Months Ended June 30, 2003
	Commercial							Manufacturing
	Pacific			Southwest		Southeast		Other		Total
	(in thousands)
Revenues from external customers	$	13,967		$	44,792	$	16,533	$	14,940	$	90,232
Intersegment revenues		—			1,329		—		3,004		4,333
Gross profit		687			5,717		2,548		3,159		12,111
Operating (loss) income		(860	)		941		94		529		704

On October 24, 2002, a union organizer and several employees brought a lawsuit against the Company’s subsidiary, Bannister Steel, in San Diego County Superior Court, State of California, alleging certain violations of the California wage and hour laws12. ~~The~~Comprehensive ~~Company denied any knowing violation of the California wage~~Loss ~~and hour laws and believed the lawsuit was improperly brought as part of union~~ ~~organizing efforts by the Ironworkers Local 627, Shopworkers (the “Union”). An~~ organizing election was held in the fourth quarter of 2002 with the Union prevailing. Bannister objected to the election because the Union impermissibly influenced the election by sponsoring and pursuing the wage and labor lawsuit against Bannister. The Local Region of the National Labor Relations Board (“NLRB”) denied Bannister’s objections to the election in late February 2003. Bannister appealed that decision to the NLRB in Washington D.C. to pursue a new election. In June 2003, the Union, several employees and Bannister Steel reached a comprehensive settlement agreement of all outstanding matters. The settlement resulted in the recognition of the Union until the end of 2003, with an extension of a collective bargaining agreement until June 2006 upon approval by the San Diego Superior Court of the settlement and dismissal of the wage and hour lawsuit. Under the terms of the settlement, Bannister will pay a class of current and former employees the sum of $120,000. The Company believes that this was a satisfactory resolution to the matter, given the time, expense and distraction of litigation. The Company has provided an accrual for the $120,000 settlement in the accompanying consolidated balance sheet and statements of operations. The Company had paid approximately $78,000 as of September 30, 2003.

~~The~~Total ~~Company~~comprehensive ~~does~~loss ~~not~~for ~~believe~~the ~~there~~three ~~were~~and ~~any~~six ~~material~~months ~~changes~~ended ~~to the other contingencies existing at December~~June 3130, ~~2002,~~2004 ~~as listed in the Company’s Annual~~and ~~Report~~2003 onequaled ~~Form 10-K,~~net loss for ~~which~~ the ~~eventual~~corresponding ~~outcome could have a material adverse impact on the Company~~periods.

1213. ~~Segment Information~~Backlog

	Three Months Ended September 30, 2003
				Commercial					Manufacturing
	Pacific			Southwest		Southeast			Other		Total
	(in thousands)
Revenues from external customers	$	5,613		$	17,926	$	7,601		$	7,010	$	38,150
Intersegment revenues		—			965		—			774		1,739
Operating (loss) income		(445	)		286		(1,208	)		42		(1,325	)

The Company’s backlog was $122.5 million ($45.4 million under contracts or purchase orders and $77.1 million under letters of intent) at June 30, 2004. The Company’s backlog can be significantly affected by the receipt, or loss, of individual contracts. Approximately $55.4 million, representing 45.3% of the Company’s backlog at June 30, 2004, is attributable to five contracts, letters of intent, notices to proceed or purchase orders. In the event one or more large contracts were terminated or their scope reduced, the Company’s backlog could decrease substantially.

9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Table~~Our discussion and analysis of ~~Contents~~financial condition and results of operations should be read in conjunction with the unaudited consolidated condensed financial statements and the related disclosures included elsewhere herein and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2003.

	Three Months Ended September 30, 2002
			Commercial				Manufacturing
	Pacific		Southwest		Southeast		Other		Total
	(in thousands)
Revenues from external customers	$	11,355	$	26,486	$	13,248	$	10,932	$	62,021
Intersegment revenues		—		636		—		1,035		1,671
Operating income		882		695		1,045		404		3,026

Recent Developments

	Nine Months Ended September 30, 2003
				Commercial					Manufacturing
	Pacific			Southwest		Southeast			Other		Total
	(in thousands)
Revenues from external customers	$	19,580		$	62,716	$	24,135		$	21,951	$	128,382
Intersegment revenues		—			2,295		—			3,777		6,072
Operating (loss) income		(1,306	)		1,227		(1,114	)		572		(621	)
Total assets		18,549			78,760		38,031			43,149		178,489
Goodwill		2,309			—		4,377			10,429		17,115

On April 30, 2004, our Chairman of the Board, David A. Schuff, and our President and Chief Executive Officer, Scott A. Schuff, and their affiliates (the “Schuffs”) caused Schuff Acquisition Corp., an Arizona corporation wholly owned by the Schuffs (“SAC”), to commence a tender offer to acquire all of the outstanding shares of our common stock not already owned by SAC and the Schuffs for $2.17 in cash per share.

	Nine Months Ended September 30, 2002
			Commercial					Manufacturing
	Pacific		Southwest			Southeast		Other		Total
	(in thousands)
Revenues from external customers	$	26,283	$	66,279		$	41,763	$	30,690	$	165,015
Intersegment revenues		—		2,396			—		2,906		5,302
Operating income (loss)		1,989		(374	)		3,746		1,190		6,551

In response to the tender offer, a special committee, comprised of the three independent members of our Board, was formed to review and evaluate the going private proposal. Following an evaluation and review of the tender offer by the special committee, and subsequent discussions with the Schuffs, the Schuffs agreed to cause SAC to increase its tender offer to $2.30 in cash per share. The tender offer was scheduled to expire at 5:00 p.m., Denver Time, on May 28, 2004, unless extended. On May 28, 2004, SAC announced that it was extending the expiration date of the tender offer to 5:00 p.m., Denver Time, on June 10, 2004, unless further extended. On June 10, 2004, SAC announced that it was

		September 30
Reconciliation of Total Assets		2003
		(in thousands)
Total assets for reportable segments		$	178,489
Elimination of intercompany receivables			(29,799	)
Elimination of investment in subsidiaries			(15,147	)
Other adjustments			11
	Total consolidated assets	$	133,554

13.Table Comprehensiveof Loss Contents

~~Total~~extending ~~comprehensive~~the ~~loss~~expiration ~~for~~date of the ~~three~~tender ~~and~~offer ~~nine~~to ~~months~~5:00 ~~ended~~p.m., ~~September~~Denver Time, on June 3024, ~~2003~~2004, unless further extended. On June 24, 2004, SAC announced that ~~and~~it ~~2002~~was ~~equaled~~extending ~~net~~the ~~loss~~expiration ~~for~~date of the ~~corresponding~~tender ~~periods~~offer to 5:00 p.m., Denver Time, on July 29, 2004.

14The tender offer expired at 5:00 p.m., ~~Backlog~~Denver time, on July 29, 2004, at which time, approximately 849,168 shares of our common stock had been tendered and not withdrawn. On July 29, 2004, SAC announced that the number of shares tendered pursuant to its offer to purchase all of our outstanding common stock not owned by SAC was not sufficient to satisfy the non-waivable minimum tender condition of the tender offer and that the tender offer had been withdrawn. All tendered shares of common stock were returned to their respective holders. Currently, both SAC and Schuff International are considering alternatives to the going private proposal, but have not yet determined a course of action.

~~The~~Effective ~~Company’s~~June 1, ~~backlog~~2004, ~~was~~we ~~$104~~completed a name change for three of our subsidiaries.~~0 million~~ ~~($39~~Bannister Steel, Inc.~~3 million~~ ~~under~~is ~~contracts~~now ~~or purchase~~Schuff ~~orders~~Steel ~~and~~– ~~$64~~Pacific, Inc.~~7 million~~; ~~under~~Six Industries, ~~letters~~Inc. ofis ~~intent)~~now atSchuff ~~September 30~~Steel – Gulf Coast, Inc., and Addison Steel, ~~2003~~Inc. ~~The~~is ~~Company’s~~now ~~backlog~~Schuff ~~can~~Steel be– ~~significantly~~Atlantic, Inc.

10Critical Accounting Policies and Estimates

~~Table~~Our discussion and analysis of ~~Contents~~financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, intangible assets, income taxes and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

~~affected~~The byaccounting ~~the~~policies ~~receipt,~~that we ordeem ~~loss~~most critical to us, ofand ~~individual~~involve ~~contracts.~~the ~~Approximately~~most ~~$59.9 million~~difficult, subjective ~~representing~~or ~~57.6 percent~~complex ofjudgments, ~~the~~include ~~Company’s~~our ~~backlog~~revenue ~~at September 30~~recognition, ~~2003,~~goodwill isimpairment ~~attributable~~assessment, toaccounting ~~five~~for ~~contracts,~~income ~~letters~~taxes ofand legal ~~intent,~~contingencies. ~~notices~~Our inability to ~~proceed~~accurately estimate expenses, accruals, income taxes or ~~purchase~~impairment ~~orders.~~of Ingoodwill ~~the~~could ~~event~~result ~~one~~in charges, or ~~more~~income, ~~large~~in ~~contracts~~future ~~were~~periods, ~~terminated~~which ~~or their~~relate ~~scope~~to ~~reduced,~~activities ~~the~~or transactions ~~Company’s~~in ~~backlog~~a ~~could~~preceding ~~decrease substantially~~period.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and~~ Results of Operations

~~Our discussion and analysis of financial condition and results of operations~~Overview ~~should be read in conjunction with the unaudited consolidated financial~~ ~~statements and the related disclosures included elsewhere herein and in~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2002.~~

~~Critical~~Our ~~Accounting~~results ~~Policies~~of operations are affected primarily by (i) the level of commercial and ~~Estimates~~industrial construction in our principal markets; (ii) our ability to win project contracts; (iii) the amount and complexity of project changes requested by customers or general contractors; (iv) our success in utilizing our resources at or near full capacity; and (v) our ability to complete contracts on a timely and cost-effective basis. The level of commercial and industrial construction activity is related to several factors, including local, regional and national economic conditions, interest rates, availability of financing, and the supply of existing facilities relative to demand.

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10~~-Q and Article 10 of Regulation S-X. The preparation of these financial~~ statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, intangible assets, income taxes and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

WeTable have adopted the following critical accounting policies used in the preparation of our consolidated financial statements. Contents

~~Revenue~~During ~~Recognition~~the first half of 2004, the commercial and industrial construction industry, which includes commercial steel fabrication and erection along with joist manufacturing, began to experience less difficult conditions in most regions of the country as a result of the improving macroeconomic climate. All regions in which we operate, except the Southeastern United States, began to see more and larger projects available for bid with higher profit margins. The Southeast, however, continued to experience a regional economic downturn, which resulted in few projects available to bid and intense competition for those available projects. Joist manufacturing also continued to feel the effect of higher steel costs and reduced availability of steel.

We perform our services primarily under fixed-price contracts and recognize revenues using the percentage of completion accounting method. Under this method, revenues are recognized based upon either the ratio of costs incurred to date to the estimated total cost to complete the project or the ratio of labor hours incurred to date to the total estimated labor hours. Revenue recognition begins when work has commenced. Revenues ~~relating to changes in the~~ ~~scope of a contract are recognized when the work has commenced, we have made an~~ ~~estimate of the amount that will be paid for the change, and there is a high~~ degree of probability that the charges will be approved by the customer or general contractor. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which revisions become known. Estimated losses on contracts are recognized in full when it is determined that a loss will be incurred on a contract.

11Revenues increased by 48.7% to $59.5 million for the three months ended June 30, 2004 from $40.0 million for the three months ended June 30, 2003. The average revenues for our ten largest revenue generating projects in the three month period ended June 30, 2004 were $2.2 million versus $1.4 million in the three month period ended June 30, 2003. Revenues increased by 30.3% to $117.5 million for the six months ended June 30, 2004 from $90.2 million for the six months ended June 30, 2003. The average revenues for our ten largest revenue generating projects in the six month period ended June 30, 2004 were $4.5 million versus $2.7 million in the six month period ended June 30, 2003. The increase in revenues was primarily a result of a large amount of work being performed in the three and six months ended June 30, 2004 on both a large casino project in Southern California and the Arizona Cardinals Stadium project. The increase in the average revenues was primarily due to these two projects that generated approximately $7.4 million and $20.8 million in revenue in the three and six months ended June 30, 2004, respectively.

~~Table~~• Revenues for the Commercial-Pacific segment increased by 62.0% to $12.2 million for the three months ended June 30, 2004 from $7.5 million for the three months ended June 30, 2003 and by 50.4% to $21.0 million for the six months ended June 30, 2004 from $14.0 million for the six months ended June 30, 2003. The increases were primarily because of ~~Contents~~an increase in the number of projects awarded to this segment due to the increased commercial construction activity in the region and less competition from Los Angeles-based companies.

~~Goodwill~~• Revenues for the Commercial-Southwest segment increased by 58.1% to $29.3 million for the three months ended June 30, 2004 from $18.5 million for the three months ended June 30, 2003 and ~~Intangible~~by ~~Asset~~36.5% ~~Impairment~~ to $61.1 million for the six months ended June 30, 2004 from $44.8 million for the six months ended June 30, 2003. The increases were primarily because of increased activity on the Cardinals Stadium project along with casino projects in Southern California and Las Vegas.

We• ~~assess~~Revenues for the ~~impairment~~Commercial-Southeast ofsegment ~~goodwill~~decreased ~~on an annual basis as required~~ by ~~Statement~~ ~~of Financial Accounting Standards (“SFAS”) No~~6. ~~142,~~6% ~~Goodwill~~to ~~and Other Intangible Assets~~$7.3 ~~When~~million wefor ~~determine that~~ the ~~carrying~~three ~~value~~months ofended ~~goodwill may~~June ~~not be recoverable~~30, we2004 ~~measure~~from ~~any~~$7.8 ~~impairment~~million ~~based~~for ~~on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with~~ the ~~risk~~three ~~inherent~~months inended ~~our~~June ~~current~~30, ~~business~~2003 ~~model~~ and ~~a comparative~~by ~~market analysis~~18.8% Into ~~accordance with SFAS No~~$13. ~~142,~~4 onmillion ~~January 1, 2002,~~for wethe ~~ceased~~six ~~amortizing~~months ~~goodwill.~~ended ~~SFAS~~June ~~No. 142 requires an assessment of goodwill upon adoption and at least annually thereafter~~30, ~~using~~2004 afrom ~~two step methodology~~$16.5 ~~Based~~million ~~upon~~for the ~~assessment~~six atmonths ~~adoption,~~ended weJune ~~recorded a transitional impairment loss of $29.6 million~~30, ~~or $4~~2003.07 ~~per~~The ~~basic~~decreases ~~and~~were ~~diluted~~primarily ~~earnings~~because ~~per share, as a cumulative effect~~ of ~~an accounting change at~~ the ~~beginning~~continued ofregional ~~the first~~economic ~~quarter~~downturn ofand ~~2002.~~intense Wecompetition ~~are~~for ~~currently in~~ the ~~process~~projects ofthat ~~performing~~became ~~our annual~~available ~~assessment~~to ~~of goodwill as of October 31, 2003~~bid.

~~Income~~• ~~Taxes~~ Revenues for the Manufacturing-Other segment increased by 74.4% to $10.7 million for the three months ended June 30, 2004 from $6.1 million for the three months ended June 30, 2003 and 47.0%

~~As part of the process of preparing our consolidated financial statements, we~~11 are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. We have provided for a valuation allowance because we believe that our deferred tax assets related to state net operating losses may not be recovered from future taxable income.

LegalTable Contingencies of Contents

Weto ~~are currently involved in certain legal proceedings~~$22.0 Wemillion dofor ~~not~~the ~~believe these~~six ~~proceedings~~months ~~will~~ended ~~have~~June a30, ~~material~~2004 ~~adverse~~from ~~effect on our consolidated financial position or results of operations~~$14.9 ~~Because~~million offor the ~~uncertainties related~~six tomonths ~~both~~ended ~~the~~June ~~amount and range of loss on the remaining pending litigation~~30, ~~management~~2003. isThe ~~unable~~increases towere ~~make~~primarily abecause ~~reasonable estimate~~ of the ~~liability that~~increased ~~could~~activity ~~result~~in ~~from an unfavorable outcome. As additional information becomes available, we will assess~~ the ~~potential~~industrial ~~liability~~construction ~~related~~market toalong ~~our pending~~with ~~litigation~~improvement ~~and~~in ~~revise~~pricing ~~our estimates as necessary. Such revisions~~ in ~~our~~ ~~estimates of~~ the ~~potential~~joist ~~liability could materially impact our results of operations and financial position~~market.

~~Results~~Gross ~~of Operations~~Profit

~~Overview~~Gross profit increased by 110.9% to $10.2 million for the three month period ended June 30, 2004, from $4.9 million for the three month period ended June 30, 2003. As a percentage of revenues, gross profit increased to 17.2% for the three month period ended June 30, 2004, from 12.1% for the three month period ended June 30, 2003. Gross profit increased by 57.7% to $19.1 million for the six month period ended June 30, 2004 from $ 12.1 million for the six month period ended June 30, 2003. As a percentage of revenues, gross profit increased to 16.3% for the six month period ended June 30, 2004, from 13.4% for the six month period ended June 30, 2003. The increases were primarily attributable to:

~~During~~• ~~the~~Gross ~~last~~profit ~~two~~for ~~years,~~ the ~~commercial~~Commercial-Pacific ~~construction~~segment ~~industry~~increased ~~has~~by ~~experienced a~~670.2% ~~dramatic~~to ~~downturn~~$1.0 asmillion afor ~~result~~the ofthree ~~macroeconomic~~months ~~conditions~~ended ~~and~~June ~~increasing geopolitical~~30, ~~uncertainty.~~2004 ~~The~~from ~~continued instability in the Middle East is~~ a ~~primary~~ ~~cause~~loss of ~~the uncertainty. These factors~~$181,000 asfor ~~well~~the asthree ~~extreme~~months ~~pricing pressure~~ended ~~from~~June ~~local~~30, 2003 and ~~regional~~by ~~competitors,~~142.2% ~~resulted~~to in$1.7 ~~elongated~~million ~~selling cycles~~for ~~and~~the ~~reduced~~six ~~demand~~months ~~for~~ended ~~our~~June ~~products~~30, ~~and~~2004 ~~services~~from $687,000 ~~especially~~for inthe ~~leisure and~~six ~~tourism-based~~months ~~construction~~ended ~~projects.~~June ~~In addition~~30, to2003. ~~the~~The ~~extent~~increases ~~that~~are ~~we experience~~primarily abecause ~~decreased~~of ~~demand~~improved ~~for~~fabrication ~~our~~efficiency ~~products,~~due weto ~~must~~the ~~manage~~resolution ~~our~~of ~~capacity~~issues ~~in an~~relating ~~effort~~ to ~~cover~~the ~~our~~start-up ~~fixed~~of ~~operating~~the ~~costs.~~union ~~The~~and ~~net~~more ~~results~~negotiated ~~were~~work, ~~lower revenues~~which ~~and~~typically ~~gross~~has ~~margins~~higher ~~across~~profit ~~all~~margins, of being available.

12 • Gross profit for the Commercial-Southwest segment increased by 100.5% to $6.0 million for the three months ended June 30, 2004 from $3.0 million for the three months ended June 30, 2003 and by 87.3% to $10.7 million for the six months ended June 30, 2004 from $5.7 million for the six months ended June 30, 2003. The increases are primarily because of the large Cardinals Stadium project and the casino projects in Southern California and Las Vegas. The casino projects were not in our project mix and there was no work being performed on the Cardinals Stadium in the three and six months ended June 30, 2003.

~~Table~~• Gross profit for the Commercial-Southeast segment decreased by 14.8% to $812,000 for the three months ended June 30, 2004 from $1.0 million for the three months ended June 30, 2003 and by 25.1% to $1.9 million for the six months ended June 30, 2004 from $2.5 million for six months ended June 30, 2003. The decreases are primarily because of ~~Contents~~the continued economic downturn in the region and the apparent continued willingness of local competitors to bid and complete projects at or below their cost.

~~our~~• ~~business~~Gross ~~units~~profit for the Manufacturing-Other segment increased by 119.6% to $2.4 million for the three months ended June 30, 2004 from $1.1 million for the three months ended June 30, 2003 and inby 52.6% to $4.8 million for the six months ended June 30, 2004 from $3.2 million for the six months ended June 30, 2003. The increases were primarily because of obtaining a higher number of projects ~~both~~in ~~large~~the petro-chemical industry, which had higher margins over the previous year. Additionally, the joist market has begun to experience improved pricing and ~~small~~gross margins.

~~Revenues~~12

RevenuesTable decreased by 38.5 percent to $38.2 million for the three months ended September 30, 2003 from $62.0 million for the three months ended September 30, 2002. The average revenues for our ten largest revenue generating projects in the three month period ended September 30, 2003 were $1.5 million versus $2.2 million in the three month period ended September 30, 2002. Revenues decreased by 22.2 percent to $128.4 million for the nine months ended September 30, 2003 from $165.0 million for the nine months ended September 30, 2002. The average revenues for our ten largest revenue generating projects in the nine month period ended September 30, 2003 were $4.0 million versus $4.6 million in the nine month period ended September 30, 2002. The decrease in revenues and average revenues was primarily the result of the continued downturn of the commercial construction industry, as described above. Contents

~~Gross~~General ~~Profit~~and Administrative Expenses

~~Gross~~General ~~profit~~and ~~decreased~~administrative expenses increased by 4933.~~6 percent~~8% to $47.43 million for the three ~~month period~~months ended ~~September~~June 30, ~~2003~~2004 from $85.84 million for the three ~~month~~months ~~period~~ ended ~~September~~ June 30, ~~2002.~~2003 ~~Gross~~and ~~profit decreased~~ by 3115.~~6 percent~~7% to $1613.6 2 million for the ~~nine~~six ~~month~~months ~~period~~ ended ~~September~~June 30, 2004 ~~2003~~ from $2411.24 million for the ~~nine~~six ~~month~~months ~~period~~ ended ~~September~~June 30, ~~2002~~2003. AsGeneral ~~a percentage of~~and ~~revenues,~~administrative ~~gross~~costs ~~profit~~increased ~~decreased~~due to ~~11.6 percent~~legal ~~for~~fees ~~the~~associated ~~three~~with ~~month~~a ~~period~~lien ~~September 30~~foreclosure lawsuit, ~~2003~~higher bonus expense due to our improved financial performance, ~~from~~and ~~14.1 percent~~costs ~~for~~associated with the ~~three~~special ~~month~~committee ~~period~~formed ~~ended~~to review ~~September 30,~~and ~~2002.~~evaluate Asthe atender ~~percentage~~offer. ofWe ~~revenues,~~are ~~gross~~still ~~profit~~making ~~decreased~~a concerted effort to ~~12.9 percent~~contain ~~for~~costs while supporting the ~~nine~~increase ~~month~~in ~~period~~our ~~September 30~~revenues. However, ~~2003~~due to the tender offer discussed above, ~~from~~our ~~14.7 percent~~general and administrative costs ~~for~~increased approximately $300,000 in the ~~nine~~second ~~month~~quarter ~~period~~for ~~ended~~costs ~~September 30,~~related ~~2002~~to the special committee. ~~The~~General ~~decreases~~and ~~were~~administrative expenses as a percentage of ~~primarily~~revenues ~~attributable~~decreased to ~~lower~~12.2% ~~demand~~and 11.2% for ~~our~~the ~~products~~three and ~~our~~six ~~acceptance~~months ofended June ~~lower-margin~~30, ~~projects~~2004, respectively, from 13.6% ~~Our~~and ~~industry~~12.6% ~~continues~~for tothe ~~face~~three ~~extreme~~and ~~pricing~~six months ended ~~pressures.~~June 30, ~~Therefore~~2003, werespectively. ~~have~~The ~~accepted~~decreases ~~lower-margin projects~~ in angeneral ~~attempt~~and toadministrative ~~sustain~~expenses ~~our~~as ~~volume~~a inpercentage ~~order~~of torevenues ~~cover~~were ~~our~~primarily ~~fixed~~due ~~operating~~to ~~costs~~increased revenues in 2004.

~~During~~Interest ~~the three and nine month periods ended September 30, 2003, costs~~Expense ~~associated with certain departments at our Commercial-Southeast segment were~~ ~~included in general and administrative expenses. In order to conform with the~~ 2003 presentation, $321,000 and $805,000 of these costs for the Commercial-Southeast segment were reclassified from cost of revenues to general and administrative expense in the three and nine months ended September 30, 2002, respectively. The costs of these departments of our other segments continue to be included in general and administrative expense for all periods presented.

~~General~~Interest expense was $2.4 million and ~~Administrative~~$2.5 million ~~Expenses~~for the three months ended June 30, 2004 and 2003, respectively and $4.9 million and $5.0 million for the six months ended June 30, 2004 and 2003, respectively. Interest expense is primarily attributable to our remaining $87.0 million 10-1/2% Senior Notes issued in June 1998.

~~General~~Other ~~and administrative expenses were $5.7 million for the three months~~Income ~~ended September 30, 2003 and 2002. General and administrative expenses~~ ~~decreased by 2.8 percent to $17.2 million for the nine months ended September~~ 30, 2003 from $17.7 million for the nine months ended September 30, 2002. The decrease was largely attributable to our continued efforts to reduce costs. General and administrative expenses as a percentage of revenues increased to 15.0 percent and 13.4 percent for the three and nine months ended September 30, 2003, respectively, from 9.3 percent and 10.7 percent for the three and nine

13Other income decreased to $92,000 for the three months ended June 30, 2004 from $121,000 for the three months ended June 30, 2003. Other income decreased to $126,000 for the six months ended June 30, 2004 from $505,000 for the six months ended June 30, 2003. The decrease in other income for the three month period was primarily due to a decrease in interest income resulting from lower balances of cash funds invested in the second quarter of 2004. The decrease in other income for the six month period was primarily due to the $182,000 gain on extinguishment of debt and the $98,000 gain on the disposal of property and equipment that occurred in 2003 but not in 2004.

~~Table~~Income ofTax ~~Contents~~Provision

Income tax provision was $148,000, which reflects a 23.6% effective tax rate, and $287,000, which reflects a 25.1% effective tax rate, for the three and six months ended ~~September~~June 30, ~~2002~~2004, respectively. The ~~increase~~effective ~~was~~tax rates for the three and six months ended June 30, 2004 were lower than the federal statutory rates primarily ~~due~~because they were reduced by available federal and state toresearch ~~decreased~~and ~~revenues~~development intax credits which were partially offset by state income taxes and the effect of permanent tax differences. Income tax benefit was $1.3 million, which reflects a 44.5% effective tax rate, and $1.7 million, which reflects a 45.2% effective tax rate, for the three and six months ended June 30, 2003, respectively. The effective tax rates for the three and six months ended June 30, 2003 were higher for purposes of calculating the tax benefit than the federal statutory rates due to the recognition of federal research and development tax credits for financial statement purposes which was partially offset by state income taxes and the effect of permanent tax differences.

~~Interest Expense~~13

InterestTable expense decreased to $2.5 million for the three months ended September 30, 2003 from $2.7 million for the three months ended September 30, 2002 and to $7.5 million for the nine months ended September 30, 2003 from $7.9 million for the nine months ended September 30, 2002. The decrease in interest expense was due to the reduction of long term debt that occurred in late 2002 and the first quarter of 2003. Interest expense is primarily attributable to our remaining $90.0 million 10-1/2% Senior Notes issued in June 1998. Contents

~~Other Income~~Backlog

~~Other~~Backlog ~~income~~increased ~~decreased~~22.3% to $~~114,000~~122.5 million ~~for~~($45.4 million ~~the~~under ~~three~~contracts ~~months ended September 30,~~or ~~2003~~purchase ~~from~~orders and $~~287,000~~77.1 million ~~for~~under ~~the~~letters ~~three~~of ~~months~~intent) ~~ended~~at ~~September~~June 30, ~~2002. The decrease~~2004 infrom ~~other~~$100.1 million ~~income~~($43.0 million ~~was~~under ~~primarily~~contracts ~~due~~or topurchase ~~the~~orders and $~~163,000~~57.1 million ~~gain~~under onletters ~~extinguishment~~ of ~~debt~~ ~~that~~intent) ~~occurred~~at inMarch 31, ~~2002~~2004. ~~Other~~The ~~income~~increase ~~decreased~~in ~~to $619,000 for the nine~~backlog ~~months~~compared ~~ended~~to ~~September~~March 3031, ~~2003~~2004 ~~from~~was ~~$728,000~~due ~~for~~to ~~the~~several ~~nine~~large ~~months~~projects ~~ended~~in Southern ~~September 30,~~ California ~~2002.~~and ~~The~~Nevada ~~decrease~~being ~~was~~awarded ~~primarily~~to ~~due~~us toduring athe ~~decrease~~quarter inended ~~interest~~June 30, ~~income~~2004.

~~Income~~We ~~Tax~~have ~~Provision~~experienced, and expect to continue to experience, variations in quarterly and annual results of operations. Factors that may affect these results include, among other things, the timing and terms of major contract awards and the starting and completion dates of projects.

~~Income~~Liquidity ~~tax benefit was $1.0 million, which reflects a 27.6 percent effective tax rate,~~ and ~~$2.7 million,~~Capital ~~which reflects a 36.5 percent effective tax rate,~~Resources ~~for the three and nine months ended September 30, 2003, respectively. The~~ ~~effective tax rate for the three months ended September 30, 2003 was lower than~~ the statutory rates due to a reduced projected state tax rate to reflect the lower expected benefit from state net operating loss carryforwards and a valuation reserve related to the deferred tax assets resulting from state net operating loss carryforwards. For the nine months ended September 30, 2003, the establishment of the valuation allowance was completely offset by the recognition of federal research and development tax credits for book purposes, which resulted in an effective tax rate that was consistent with the statutory rates. We expect to carryback the net operating loss at September 30, 2003 for federal tax purposes, which will be fully utilized to result in an estimated current tax refund of $2.5 million. Income tax expense was $210,000, which reflects a 31.7 percent effective tax rate, for the three months ended September 30, 2002. Income tax benefit was $192,000, which reflects a 33.1 percent effective tax rate, for the nine months ended September 30, 2002. The effective tax rate was lower than the federal statutory rates primarily because of the available federal and state research and development tax credits.

~~Cumulative~~Cash ~~Effect~~Used ~~of a Change~~ in ~~Accounting~~Operating ~~Principle~~Activities

WeOur ~~adopted~~short-term ~~SFAS~~cash ~~No. 142~~needs atare ~~the~~primarily ~~beginning~~for ofworking ~~the~~capital ~~quarter~~to support ~~ended~~operations ~~March 31~~including receivables, ~~2002.~~inventories, and other costs incurred ~~This~~in ~~standard~~performing ~~eliminates~~our ~~goodwill~~contracts. ~~amortization~~We ~~upon~~attempt ~~adoption~~to ~~and~~structure ~~requires~~the anpayment arrangements ~~assessment~~under ~~for~~our ~~goodwill~~contracts ~~impairment~~to ~~upon~~match ~~adoption~~costs ~~and~~incurred atunder ~~least~~the ~~annually thereafter~~project. AsTo athe ~~result~~extent ofwe are ~~adoption~~able to bill in advance of ~~this~~costs ~~standard~~incurred, we ~~did~~generate ~~not~~cash ~~amortize~~through ~~goodwill~~billings ~~during~~in ~~the~~excess ~~three~~of costs and ~~nine~~recognized ~~month~~earnings ~~periods~~on ~~ended~~uncompleted ~~September 30~~contracts. To the extent we are not able to bill in advance of costs, ~~2003~~we ~~and~~rely on ~~2002~~our ~~and~~existing ~~incurred~~cash abalance ~~noncash~~and credit ~~transitional~~facilities ~~impairment~~to ~~charge~~meet ofour ~~$29~~working capital needs.~~6 million~~ We believe that our ~~during~~existing ~~the~~borrowing ~~quarter~~availability ~~ended~~together ~~March 31~~with our existing cash balance and cash from operations will be adequate to meet all funding requirements for our operating expenses, ~~2002~~interest payments on debt and capital expenditures for the foreseeable future.

14We are required to make semi-annual interest payments on our 10 1/2% Senior Notes on June 1st and December 1st of each year. Based upon the June 30, 2004 Senior Note balance of $87.0 million, we anticipate that our semi-annual interest payments will be $4.6 million each.

~~Table~~Net ofcash ~~Contents~~used in operations was $2.1 million in the six months ended June 30, 2004 versus $675,000 in the six months ended June 30, 2003. Cash flow used in operations was higher in the six months ended June 30, 2004 due to the increase in expenditures to support the increased revenue activity from the Cardinals Stadium and other large casino projects in Southern California and Las Vegas. We will continue our efforts to collect outstanding retention receivables on completed projects, effectively manage our inventory levels and keep our required overhead increases to a minimum.

~~Backlog~~Cash Used in Investing Activities

~~Backlog~~Net ~~increased~~cash ~~7.2 percent~~used toin ~~$104.0 million~~investing ~~($39.3 million~~activities ~~under~~totaled ~~contracts or purchase orders and~~ $~~64.7 million~~205,000 ~~under~~in ~~letters~~the ofsix ~~intent)~~months ~~at September~~ended June 30, ~~2003~~ ~~from~~2004 ~~$97.0 million~~versus ($~~41.6 million~~370,000 ~~under~~in ~~contracts~~the orsix ~~purchase~~months ~~orders~~ended ~~and $55.4 million under letters of intent) at~~ June 30, 2003. The decrease ~~increase~~ in ~~backlog~~ ~~compared~~cash toused ~~June 30,~~in ~~2003~~investing ~~was~~activities ~~the~~in ~~result~~2004 offrom ~~the~~2003 ~~award~~is ~~of several new~~primarily ~~projects~~related ~~during~~to ~~the~~decreased ~~third~~capital ~~quarter~~expenditures. WeOur ~~have~~capital ~~made~~expenditures aare primarily ~~continuing~~for ~~effort~~new toand ~~focus on~~replacement ~~bidding~~fabrication onequipment aat ~~greater~~each ~~number~~ of ~~projects with a shorter duration to maximize~~our ~~efficiencies and reduce risk~~segments.

~~We have experienced, and expect to continue to experience, variations in~~14 quarterly and annual results of operations. Factors that may affect these results include, among other things, the timing and terms of major contract awards and the starting and completion dates of projects.

LiquidityTable andof Capital Resources Contents

We ~~attempt~~estimate tothat ~~structure~~our ~~the~~capital ~~payment~~expenditures ~~arrangements~~for ~~under~~2004 ~~our~~will ~~contracts~~be toapproximately ~~match~~$1.2 ~~costs~~million ~~incurred~~in ~~under~~addition ~~related~~to ~~projects. To~~ the ~~extent~~$262,000 wethat ~~are~~has ~~able~~been toexpended ~~bill~~as ~~in advance~~ of ~~costs incurred~~June 30, ~~we generate working capital through billings in~~2004. ~~excess~~We ofbelieve ~~costs~~that ~~and~~our ~~recognized~~available ~~earnings~~funds, oncash ~~uncompleted~~generated ~~contracts.~~by Ifoperating weactivities ~~were~~and ~~not~~funds ~~able~~available tounder ~~bill~~our inbank ~~advance~~credit offacilities ~~costs,~~will webe ~~would~~sufficient ~~rely~~to onfund these ~~our~~capital ~~credit~~expenditures ~~facility~~and ~~to meet~~ our working capital needs. ~~At September 30~~However, ~~2003,~~ we ~~had working capital~~may ofexpand ~~approximately~~our ~~$57.5 million.~~operations Wethrough ~~believe~~future ~~that~~acquisitions weand ~~have~~may ~~sufficient~~require ~~liquidity~~additional ~~through~~equity ~~our~~or ~~present~~debt ~~resources to meet our near-term operating needs~~financing.

OnCash ~~August 13,~~Used 2003, we signed a new credit facility agreement with Wells Fargo Credit, Inc. The credit facility is primarily maintained to enable us to issue letters of credit to our performance bond surety. At September 30, 2003, we had no outstanding borrowings under our existing credit facility. We have $9.9 million of outstanding letters of credit that were issued under the $15.0 million credit facility. These letters of credit are secured by cash held in an ~~escrow~~Financing ~~account, which is classified as restricted funds on deposit on the~~Activities ~~September 30, 2003 balance sheet.~~

~~The~~Net ~~new~~cash ~~credit~~used ~~facility is secured~~ by afinancing ~~first~~activities ~~priority~~was $8,000 ~~perfected security interest~~ in ~~all~~the ofsix ~~our~~months ~~assets~~ended ~~and our present and future subsidiaries. The~~June ~~interest rate is prime plus 1.50%. The existing credit facility contains covenants that~~30, ~~among~~2004 ~~other~~versus ~~things~~$743,000 ~~limit~~in ~~our~~the ~~ability~~six tomonths ~~pay~~ended ~~cash dividends or make other distributions~~June 30, ~~repurchase~~2003. ~~our~~During ~~Senior~~the ~~Notes, incur additional~~six ~~indebtedness,~~months ~~change~~ended ~~our business~~June 30, ~~and merge~~2003, ~~consolidate~~we orrepurchased ~~dispose of material portions of our assets~~$1.0 million ~~The~~in ~~security~~principal ~~agreements~~amount ~~pursuant to which our~~of ~~assets~~our ~~are~~Senior ~~pledged~~Notes ~~prohibit~~at ~~any~~a ~~further~~discount ~~pledge~~on ~~of such assets without~~ the ~~written~~ ~~consent~~open ~~of the bank~~market.

~~The~~We ~~new~~had ~~credit~~the ~~facility~~following ~~requires~~contractual ~~that~~obligations weoutstanding ~~maintain a specified Debt Service Coverage Ratio (defined~~ as ~~the sum~~ of net income, depreciation and amortization, interest expense and unfinanced capital expenditures divided by the sum of current maturities of long-term debt and interest expense), a minimum book net worth, a minimum monthly stop loss and maximum capital expenditures. At SeptemberJune 30, ~~2003, we were not in compliance with some of~~2004: ~~these credit facility covenants due to our third quarter financial performance.~~ ~~We received a waiver of such noncompliance from the bank dated November 17,~~ ~~2003. Additionally, the bank amended the minimum book net worth covenant for the remainder of 2003.~~

Although our credit facility bank has waived noncompliance with the credit facility covenants, there is no guarantee that events of noncompliance, if any, will be waived in the future. If we lose and are unable to


	Payments Due by Period
	(in thousands)
			Less than 1
	Total		year		1-3 years		4-5 years		After 5 years
Long-Term Debt	$	87,040	$	—	$	—	$	87,040	$	—
Operating Leases		14,851		1,302		2,477		2,317		8,755

Total Contractual Cash Obligations	$	101,891	$	1,302	$	2,477	$	89,357	$	8,755

15We had the following commercial commitments outstanding as of June 30, 2004:


	Amount of Commitment Expiration Per Period
	(in thousands)
	Total
	Amounts		Less than 1
	Committed		year		1-3 years		4-5 years		After 5 years
Standby Letters of Credit	$	9,891	$	9,891	$	—	$	—	$	—

Total Commercial Commitments	$	9,891	$	9,891	$	—	$	—	$	—

~~replace~~Performance ~~our~~bonds ~~credit~~issued ~~facility,~~on our ~~ability~~behalf toas ~~issue letters~~ of ~~credit~~June 30, to2004 ~~our~~totaled $14.4 ~~performance~~million. ~~bond~~The ~~and~~performance ~~workers’~~bonds ~~compensation~~were ~~sureties~~required ~~would~~by bevarious ~~adversely affected,~~general ~~which~~contractors ~~is likely~~ to guarantee ~~have~~our aperformance ~~material effect~~ on ~~our business~~projects.

~~Our short~~ Long-term ~~cash needs are primarily for working capital to support~~Debt ~~operations including receivables, inventories, and other costs incurred in~~ ~~performing our contracts. Operating activities provided cash flows of $4.1~~ million and $12.9 million in the nine months ended September 30, 2003 and 2002, respectively. For the nine months ended September 30, 2003, operating cash flows were greater than net loss due to the $21.8 million decrease in accounts receivable, $2.4 million increase in accrued interest and $3.2 million of depreciation and amortization offset by the $3.6 million decrease in accounts payable, $4.6 million decrease in billings in excess of costs and recognized earnings and $4.0 million increase in restricted cash. For the nine months ended September 30, 2002, operating cash flows were greater than net loss due to the addback of the $29.6 million non-cash charge for the cumulative effect of a change in accounting principle, $3.0 million decrease in costs and recognized earnings in excess of billings on uncompleted contracts, $1.7 million increase in accounts payable, $2.4 million increase in accrued interest and $4.4 million increase in billings in excess of costs and recognized earnings offset by a $2.5 million increase in restricted funds on deposit. Cash used in investing activities totaled $880,000 and $478,000 for the nine months ended September 30, 2003 and 2002, respectively, substantially all of which was purchases of equipment offset by proceeds from the sale of property and equipment. Financing activities used $928,000 in the nine months ended September 30, 2003, substantially all of which was related to the repayment of $1.0 million of our 10-1/2% Senior Notes at a discount. Financing activities used $742,000 in the nine months ended September 30, 2002, substantially all of which was related to the repayment of $1.0 million of our 10 ½% Senior Notes at a discount.

On June 4, 1998, we completed a private placement ~~pursuant to Rule 144A~~ of ~~the Securities Act of 1933 of~~ $100.0 million in principal amount of our 10- 1/2% Senior Notes due 2008 (“Senior Notes”). Net proceeds from the Senior Notes were used to repay certain indebtedness and to pay the cash portions of the purchase price for our acquisitions of Addison Structural Services, Inc., Six Industries, Inc. and Bannister Steel, Inc. The Senior Notes are redeemable at our option, in whole or in part, beginning in 2003 at a premium declining ratably to par by 2006. We may redeem up to 35.0% of the Senior Notes at a premium with the proceeds of an equity offering, provided that at least 65.0% of the aggregate amount of the Senior Notes originally outstanding remain outstanding. The Senior Notes contain covenants that, among other things, provide limitations on additional indebtedness, sale of assets, change of control and dividend payments. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by our current and future, direct and indirect subsidiaries. During the six ~~nine~~ months ended ~~September~~June 30, 2003, we repurchased $1.0 million in principal ~~amount of~~ ~~our Senior Notes at a discount on the open market.~~

~~We have no other long-term debt commitments.~~15

WeTable lease some of our fabrication and office facilities from a partnership in which our principal beneficial stockholders and their family members are the general and limited partners. We have three leases with the partnership for our principal fabrication and office facilities, the property and equipment acquired in the 1997 acquisition of B&K Steel Fabrications, Inc., and additional office facilities adjacent to our principal office and shop facilities. Each lease has a 20-year term and is subject to increases every five years based on the Consumer Price Index. Our annual rental payments for the three leases were $1.0 million in 2002. During 2002, we amended the leases. The annual rent was reduced to $800,000 from Contents

16amount of our Senior Notes at a discount on the open market. We recognized a gain of $182,000 during the six months ended June 30, 2003 on the repurchase of our Senior Notes. At June 30, 2004, the Company was in compliance with all covenants under our Senior Notes.

~~Table~~Operating ~~of Contents~~Leases

~~$1.1 million.~~We ~~With~~lease some of our fabrication and office facilities from a ~~30-day~~partnership ~~written~~in which ~~notice,~~our principal beneficial stockholders and their family members are the general and limited partners. We have three leases with the partnership ~~may~~for ~~increase~~our principal fabrication and office facilities, the property and equipment ~~rent~~acquired toin the ~~original~~1997 ~~amount.~~acquisition ~~The~~of ~~rent~~B&K ~~continues~~Steel, and additional office facilities adjacent to beour principal office and shop facilities. Each lease has a 20-year term and is subject to anincreases ~~increase~~ every five years ~~based~~pursuant onto the Consumer Price Index. ~~All~~Our ~~other~~annual ~~terms~~rental ~~and conditions~~payments offor the ~~lease~~three ~~remain~~leases ~~unchanged~~were $1.0 million in In2003. ~~July~~During ~~2003~~2002, we amended the leases. The annual rent was ~~returned~~ reduced to $800,000 from $1.1 million. ~~due~~Effective July 1, 2003, the partnership increased the annual rent to the ~~receipt~~original ofamount. aOur ~~written~~annual ~~notice~~rental ~~from~~payments for the ~~partnership~~three leases will be $1.1 million in 2004.

WeLine ~~estimate that our capital expenditures for 2003 will approximate $500,000 in addition to the approximately $957,000 that has been expended as~~ of ~~September~~Credit ~~30, 2003. We believe that our available funds, cash generated by operating~~ ~~activities and funds available under our bank credit facilities will be~~ ~~sufficient to fund these capital expenditures and our operating needs. However, we may expand our operations through future acquisitions and may require additional equity or debt financing.~~

~~Factors~~On ~~That~~August 13, ~~May~~2003, ~~Affect~~we ~~Future~~signed ~~Operating~~a ~~Results~~$15.0 million credit facility agreement with Wells Fargo Credit, Inc. (the “Bank”). The credit facility is primarily maintained to enable us to issue letters of credit to our performance bond surety and ~~Financial~~workers’ ~~Condition~~compensation insurance carrier. At June 30, 2004, we had no outstanding borrowings under our credit facility.

~~Our~~The ~~future~~credit ~~operating~~facility ~~results~~is ~~and~~secured ~~financial~~by ~~condition~~a ~~are~~first ~~dependent~~priority, onperfected asecurity ~~number~~interest in all of ~~factors~~our ~~that~~assets weand ~~must~~our ~~successfully~~present ~~manage~~and infuture ~~order~~subsidiaries. toThe ~~achieve~~interest rate ~~favorable~~is prime plus 1.50%. The credit facility contains covenants that, among ~~future~~other ~~operating~~things, ~~results~~limit ~~and~~our ~~improve~~ability to pay cash dividends or make other distributions; repurchase our ~~financial~~Senior ~~condition.~~Notes; ~~The~~incur ~~following~~additional indebtedness; ~~potential~~change ~~risks~~our business; and ~~uncertainties~~merge, ~~together~~consolidate ~~with~~or ~~those~~dispose ~~mentioned~~of ~~elsewhere~~material portions of ~~herein,~~our ~~could~~assets. ~~affect~~The ~~our~~security ~~future~~agreements ~~operating~~pursuant ~~results,~~to ~~financial~~which ~~condition,~~our ~~and~~assets ~~the~~are pledged ~~market~~prohibit ~~price~~any further pledge of ~~our~~such ~~Common~~assets ~~Stock~~without the written consent of the Bank.

~~Substantial~~The ~~Leverage~~credit ~~and~~facility ~~Ability~~requires tothat ~~Service~~we maintain a specified Debt Service Coverage Ratio (defined as the sum of net income, depreciation and amortization, interest expense and unfinanced capital expenditures divided by the sum of current maturities of long-term debt and interest expense), a minimum book net worth, a minimum monthly stop loss (defined as a net loss not exceeding $500,000 in any one month and $1.0 million in any two consecutive months) and maximum capital expenditures. At June 30, 2004, we were in compliance with all of these credit facility covenants.

~~With~~At ~~our~~June 30, ~~10-1/2% Senior Notes and new line of credit facility~~2004, we ~~are~~had ~~highly leveraged~~no ~~with~~outstanding ~~substantial~~borrowings debt service in addition to operating expenses and planned capital expenditures. Our 10-1/2% Senior Notes permit us to incur additional indebtedness, subject to certain limitations, including additional secured indebtedness under ~~existing credit facilities. Our level of indebtedness will have several important effects on~~ our ~~future~~line ~~operations, including, without limitation, (i) a substantial portion~~ of our cash flow from operations must be dedicated to the payment of interest and principal on our indebtedness, reducing the funds available for operations and for capital expenditures, including acquisitions, (ii) covenants contained in the Senior Notes or the credit ~~facility or other credit facilities will require us to meet certain financial tests~~, ~~and other restrictions will limit our ability to~~ ~~borrow~~with ~~additional~~approximately ~~funds or to dispose of assets, and may affect our flexibility in planning for, and reacting to, changes in our business, including possible acquisition activities, (iii)~~$5.1 ~~our~~million ~~leveraged~~available ~~position will substantially increase our vulnerability to adverse changes in general economic, industry and competitive conditions, (iv) our ability to obtain additional financing~~ for ~~working~~ capital, capital expenditures, acquisitions, general corporate and other purposes may be limited and (v) our leveraged position and the various covenants contained in the Senior Notes and the credit facility may place us at a relative competitive disadvantage as compared to certain of our competitorsborrowings. ~~Our ability to meet our debt service obligations and to reduce our total~~ ~~indebtedness will be dependent upon our future performance, which will be~~ subject to general economic, industry and competitive conditions and to financial, business and other factors affecting our operations, many of which are beyond our control. There can be no assurance that our business will continue to generate cash flow at or above current levels. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other things, to seek additional financing in the debt or equity markets, to refinance or restructure all or a portion of our indebtedness, including the Senior Notes, to sell selected assets, or to reduce or delay planned capital expenditures and growth or business strategies. There can be no assurance that any such measures would be sufficient to

17Standby Letters of Credit

~~Table~~We have $9.9 million of ~~Contents~~standby letters of credit issued under our $15.0 million credit facility, of which $6.0 million are for the benefit of our performance bond surety and $3.9 million are for the benefit of our workers’ compensation insurance carrier.

~~enable us to service our debt, or that any of these measures could be effected~~16 ~~on satisfactory terms, if at all.~~

DependenceTable onof Construction Industry Contents

WeOur ~~earn~~performance ~~virtually~~bond ~~all~~surety ofrequires ~~our~~that ~~revenues~~standby inletters ~~the~~of ~~building~~credit ~~construction~~be ~~industry,~~issued ~~which~~because isof ~~subject~~our topast ~~local,~~financial ~~regional~~performance and ~~national~~the ~~economic~~surety ~~cycles.~~industry ~~Our~~as ~~revenues~~a whole. ~~and~~Since ~~cash~~the ~~flows~~terrorist ~~depend~~attacks tothat aoccurred ~~significant degree~~ on ~~major~~September 11, ~~construction projects in various industries~~2001, ~~including~~ the ~~hotel~~number ~~and~~of available ~~casino,~~reinsurance ~~retail~~companies ~~shopping,~~that ~~health care,~~the ~~mining,~~sureties ~~computer~~assigned ~~chip~~their ~~manufacturing,~~bonding ~~public~~risk to ~~works~~has ~~and~~dramatically ~~other~~decreased. ~~industries~~Therefore, ~~each~~ ofour ~~which~~performance ~~industries~~bond ~~may~~surety behas ~~adversely~~now been ~~affected~~forced byto ~~general~~retain ora ~~specific economic~~major ~~conditions.~~portion Ifof ~~construction~~their ~~activity~~risk ~~declines~~that ~~significantly~~was ~~in our~~previously ~~principal~~assigned ~~markets,~~to ~~our~~reinsurance ~~business,~~companies. ~~financial~~Their ~~condition~~retention ~~and~~of ~~results~~this ofrisk ~~operations would~~has becaused ~~adversely~~the surety ~~affected.~~to Inrequire ~~fact,~~us ~~since~~to issue the ~~third~~standby ~~quarter~~letters of ~~2001,~~credit ~~a general~~as ~~decline~~collateral infor our ~~the~~performance ~~construction~~bonds. ~~industry~~Our ~~due~~collateral torequirement anwill ~~economic~~be ~~downturn~~reviewed periodically and ~~global~~ ~~developments~~is ~~following~~based ~~the~~upon ~~terrorist~~our ~~attacks~~overall onfinancial ~~September 11,~~performance. ~~2001~~If ~~and~~our ~~the~~financial ~~war~~performance inand ~~Iraq~~liquidity improves in ~~early~~the ~~2003~~future, ~~has adversely affected demand in~~ our ~~industry,~~surety may ~~particularly~~reduce ~~with~~or ~~respect~~eliminate ~~to projects in~~ the ~~tourism~~collateral ~~industry~~requirements.

~~Fluctuating~~Our ~~Quarterly~~workers’ ~~Results~~compensation insurance carrier requires standby letters of ~~Operations~~credit to be issued as collateral on all of our outstanding indemnity cases. The amount of collateral required is determined each year and is provided to the carrier for outstanding indemnity claims not greater than 54 months old. The prior years’ levels of required collateral can be adjusted each year based upon the costs incurred and settlements reached on the outstanding indemnity cases.

WeThese ~~have~~letters ~~experienced,~~of ~~and~~credit inare ~~the~~secured ~~future~~by ~~expect~~cash toheld ~~continue~~in toan ~~experience~~investment account, ~~substantial~~which ~~variations~~is inclassified ~~our~~as ~~results~~restricted offunds ~~operations~~on ~~because~~deposit ofon athe ~~number~~June 30, of2004 balance ~~factors,~~sheet. ~~many~~The ofBank ~~which~~has ~~are~~required ~~outside~~us ~~our~~to ~~control.~~deposit Incash ~~particular,~~into ~~our~~an ~~operating results~~investment ~~may~~account ~~vary~~to support ~~because~~the issuance of ~~downturns~~our instandby ~~one~~letters orof ~~more~~credit ~~segments~~issued ofunder ~~the~~our ~~building~~$15.0 ~~construction~~million ~~industry,~~credit ~~changes~~facility. inUnder ~~economic~~the ~~conditions,~~credit ~~our~~facility ~~failure~~agreement, tothe ~~obtain,~~first $5.0 ormillion ~~delays~~of instandby ~~awards~~letters of, ~~major~~credit ~~projects,~~issued ~~the~~require ~~cancellation~~us ofto ~~major~~deposit ~~projects,~~cash totaling ~~changes~~100% inof ~~construction~~the ~~schedules~~value ~~for~~of ~~major~~those ~~projects~~standby orletters ~~our~~of ~~failure~~credit. toWhen ~~timely replace~~the ~~projects~~amount ~~that~~of standby ~~have~~letters ~~been~~of ~~completed~~credit orissued ~~are~~exceeds ~~nearing completion~~$5. ~~In addition~~0 million, ~~from~~we ~~time~~are required to deposit ~~time~~cash wetotaling ~~have~~75% ~~disputes~~of ~~with~~the ~~our~~total ~~customers~~outstanding ~~concerning~~standby letters of ~~change~~credit. ~~orders~~On toJuly 16, ~~our~~2004, ~~contracts.~~we Toamended the ~~extent~~credit ~~such~~facility ~~disputes~~to require ~~are~~us ~~not~~to ~~resolved on~~deposit acash ~~timely~~equal ~~basis,~~to ~~our~~the ~~results~~greater of ~~operations may be affected~~$5.0 million or ~~Any~~75% of ~~these factors~~the ~~could~~first ~~result~~$9.9 million inof ~~the~~outstanding ~~periodic~~standby ~~inefficient~~letters of orcredit, ~~underutilization~~25% of ~~our resources~~the ~~and~~next ~~could~~$4.0 million ~~cause~~of ~~our~~outstanding ~~operating~~standby letters ~~results~~of tocredit ~~fluctuate~~and ~~significantly~~75% ~~from period~~of tothe ~~period,~~balance ~~including~~of onoutstanding astandby letters ~~quarterly~~of ~~basis~~credit.

~~Revenue~~On ~~Recognition~~June 17, ~~Estimates~~2004, Standard & Poor’s Ratings Service lowered our corporate credit rating to CCC (currently vulnerable and dependent upon favorable business, financial and economic conditions to meet its financial commitments) from B- (currently has the capacity to meet its financial commitments but adverse business, financial or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments). The downgrade was prompted by our heightened financial risk due to a low unrestricted cash balance at March 31, 2004, bank covenant violations at December 31, 2003, limited credit facility capacity, increased liquidity constraints, declining backlog and extremely high debt leverage. The downgrading of our credit rating may result in higher borrowing costs on any future financings.

WeIf ~~recognize~~we ~~revenues using the percentage of completion accounting method. Under this method, revenues~~ are ~~recognized~~unable ~~based on either the ratio that costs incurred~~ to ~~date~~generate ~~bear~~sufficient tocash ~~the~~flow ~~total~~from ~~estimated~~operations ~~costs~~in ~~to complete~~ the ~~project or~~future ~~the~~to ~~ratio~~service ofour ~~labor~~debt, ~~hours~~we ~~incurred~~may tobe ~~date~~required to ~~the~~sell ~~total~~assets, ~~estimated~~reduce ~~labor hours.~~capital ~~Estimated~~expenditures, ~~losses~~refinance onall ~~contracts~~or ~~are~~a ~~recognized~~portion inof ~~full~~our ~~when~~existing wedebt ~~determine~~or ~~that a~~obtain ~~loss~~additional ~~will be incurred~~financing. WeOur ~~frequently~~ability ~~review~~to ~~and~~make ~~revise~~scheduled ~~revenues~~principal ~~and~~payments, ~~total~~to ~~cost~~pay ~~estimates~~interest ~~as work progresses~~ on aor ~~contract~~to ~~and~~refinance asour ~~contracts~~indebtedness ~~are~~depends ~~modified. Accordingly,~~on ~~revenue~~our ~~adjustments~~future ~~based upon the revised completion percentage~~performance ~~are~~and ~~reflected~~financial inresults, ~~the~~which, ~~period~~to ~~that~~a ~~estimates~~certain ~~are~~extent, ~~revised. Although revenue estimates~~ are ~~based~~subject ~~upon~~to ~~management assumptions supported by historical~~general ~~experience,~~conditions ~~these~~in ~~estimates~~or ~~could~~affecting ~~vary materially from actual results. To~~ the ~~extent~~ ~~percentage~~construction ofindustry ~~completion~~and ~~adjustments~~to ~~reduce~~general ~~previously reported~~economic, ~~revenues~~political, wefinancial, ~~would~~competitive, ~~recognize~~legislative aand ~~charge~~regulatory ~~against~~factors ~~operating~~beyond our ~~results~~control, ~~which~~including ~~could have~~the aseverity ~~material~~and ~~adverse~~duration ~~effect on our results~~ of ~~operations for~~ the ~~applicable period~~economic downturn.

~~Variations in Backlog; Dependence on Large Contracts~~17

18 Table of Contents

~~Table~~Off-Balance ofSheet ~~Contents~~Arrangements

~~Our~~The ~~backlog~~nature ~~can~~of beour ~~significantly~~off-balance ~~affected~~sheet byarrangements ~~the~~at ~~receipt~~June 30, or2004 ~~loss,~~includes letters of ~~individual~~ ~~contracts.~~credit ~~For~~of ~~example, approximately~~ $599.9 million, ~~representing 57.6 percent~~performance bonds of ~~our backlog at September~~$14.4 30million, ~~2003, is attributable to five~~and ~~contracts,~~operating ~~letters~~leases of ~~intent,~~approximately ~~notices to proceed or purchase orders~~$14. ~~In the event one or more large contracts were terminated or their scope reduced, our backlog could decrease substantially~~9 million. ~~Our~~These ~~future~~items ~~business and results of operations may be adversely affected if we~~ are ~~unable~~more ~~to replace significant~~fully ~~contracts~~discussed ~~when~~earlier ~~lost~~in orthis ~~completed, or if we otherwise fail to maintain a sufficient level of backlog~~section. ~~In addition, if a project representing a~~ ~~significant portion of our backlog is delayed or otherwise postponed, our~~ ~~anticipated revenue from that project may not be realized until later than~~ ~~anticipated.~~

~~Fixed~~Factors ~~Price~~That ~~Contracts~~May Affect Future Operating Results and Financial Condition.

~~Most~~Our offuture ~~our~~operating ~~$104.0 million~~results ~~backlog~~and atfinancial ~~September 30,~~condition ~~2003~~are ~~represented~~dependent ~~projects being performed~~ on a ~~fixed~~number of ~~price~~factors ~~basis.~~that ~~In bidding on projects,~~ we ~~estimate~~must ~~our costs,~~successfully ~~including~~manage ~~projected increases~~ in ~~costs~~order ofto ~~labor,~~achieve ~~material and services.~~favorable ~~Despite~~future ~~these~~operating ~~estimates,~~results ~~costs~~ and ~~gross~~improve ~~profit~~our ~~realized~~financial oncondition. aThe ~~fixed price~~following ~~contract~~potential ~~may~~risks ~~vary from estimated amounts because of unforeseen conditions or changes in job conditions, variations in labor~~ and ~~equipment productivity over the terms of contracts~~uncertainties, ~~higher~~together ~~than~~with ~~expected~~those ~~increases~~mentioned ~~in labor or material~~elsewhere ~~costs~~herein, ~~and other factors. These variations~~ could ~~have~~affect aour ~~material~~future ~~adverse~~operating ~~effect on our business~~results, financial condition, and ~~results~~the market price of ~~operations~~our ~~for~~Common ~~any period~~Stock.

~~Geographic~~Substantial ~~Concentration~~Leverage and Ability to Service Debt

~~Our~~With ~~fabrication~~our 10-1/2% Senior Notes and ~~erection~~new ~~operations~~line ~~currently~~of credit facility, we are ~~conducted~~highly leveraged ~~primarily~~with substantial debt service in addition to operating expenses and ~~Arizona,~~planned ~~Nevada,~~capital ~~Florida,~~expenditures. ~~Georgia,~~Our ~~California~~10-1/2% Senior Notes permit us to incur additional indebtedness, ~~Texas~~subject ~~and~~to ~~Colorado~~certain limitations, ~~states~~including inadditional ~~which~~secured ~~the~~indebtedness ~~construction~~under ~~industry~~existing ~~has~~credit ~~experienced~~facilities. ~~cycles~~Our level of indebtedness ~~substantial~~will ~~growth~~have several important effects on our future operations, ~~followed~~including, bywithout ~~periodic~~limitation, ~~economic~~(i) a ~~downturns.~~substantial ~~Because~~portion of ~~this~~our ~~concentration,~~cash ~~future~~flow from ~~construction~~operations ~~activity~~must be dedicated to the payment of interest and principal on our indebtedness, ~~business~~reducing ~~may~~the befunds ~~adversely~~available ~~affected~~for operations and for capital expenditures, including acquisitions, (ii) covenants contained in the ~~event~~Senior ofNotes aor ~~downturn~~the incredit ~~economic~~facility ~~conditions~~or ~~existing~~other incredit ~~these~~facilities ~~states~~will ~~and~~require inus ~~the~~to meet ~~southwestern~~certain financial tests, and ~~southeastern~~other ~~United~~restrictions ~~States~~will ~~generally.~~limit ~~Factors~~our ~~that~~ability to borrow additional funds or to dispose of assets, and may affect our flexibility ~~economic~~in ~~conditions~~planning ~~include~~for, ~~increases~~and reacting to, changes in ~~interest~~our ~~rates~~business, orincluding ~~limitations~~possible acquisition activities, (iii) our leveraged position will substantially increase our vulnerability to adverse changes in ~~the~~general economic, industry and ~~availability~~competitive ofconditions, (iv) our ability to obtain additional financing for working ~~construction~~capital, ~~projects~~capital expenditures, ~~decreases~~acquisitions, general corporate and other purposes may be limited and (v) our leveraged position and the various covenants contained in the ~~amount~~Senior ofNotes and the credit facility may place us at ~~funds~~a ~~budgeted~~relative ~~for~~competitive ~~governmental~~disadvantage ~~projects,~~as ~~decreases~~compared into ~~capital~~certain ~~expenditures~~of our competitors. ~~devoted~~Our ability to ~~the~~meet ~~construction~~our ofdebt ~~plants,~~service ~~distribution~~obligations ~~centers~~and to reduce our total indebtedness will be dependent upon our future performance, ~~retail~~which ~~shopping~~will be ~~centers~~subject to general economic, ~~industrial~~industry ~~facilities~~and competitive conditions and to financial, ~~hotels~~business and ~~casinos~~other factors affecting our operations, ~~convention~~many ~~centers~~of ~~and~~which are beyond our control. There can be no assurance that our business will continue to generate cash flow at or above current levels. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other ~~facilities~~things, to seek additional financing in the ~~prevailing~~debt ~~market~~or ~~prices~~equity markets, to refinance or restructure all or a portion of ~~copper~~our indebtedness, ~~gold~~including the Senior Notes, to sell selected assets, or to reduce or delay planned capital expenditures and ~~other~~growth ~~metals~~or business strategies. There can be no assurance that ~~impact~~any ~~related~~such ~~mining~~measures ~~activity,~~would ~~and~~be ~~downturns~~sufficient into ~~occupancy~~enable ~~rates,~~us ~~office~~to ~~space~~service ~~demand~~our debt, ~~tourism~~or ~~and~~that ~~convention~~any ~~related~~of ~~activity~~these ~~and~~measures ~~population~~could ~~growth~~be effected on satisfactory terms, if at all.

~~Competition~~18

ManyTable small and various large companies offer fabrication, erection and related services that compete with those that we provide. Local and regional companies offer competition in one or more of our geographic markets or product segments. Out of state or international companies may provide competition in any market. We compete for every project we obtain. Although we believe customers consider, among other things, the availability and technical capabilities of equipment and personnel, efficiency, safety record and reputation, price usually is the primary factor in determining which qualified contractor is awarded a contract. Competition may result in pressure on pricing and operating margins, and the effects of competitive pressure in the industry could continue indefinitely. Some of our competitors may have greater capital and other resources than ours and are more established in their respective markets. There can be no assurance that our competitors will not substantially increase their commitment of resources Contents

19Dependence on Construction Industry

~~Table~~We earn virtually all of ~~Contents~~our revenues in the building construction industry, which is subject to local, regional and national economic cycles. Our revenues and cash flows depend to a significant degree on major construction projects in various industries, including the hotel and casino, retail shopping, health care, mining, computer chip manufacturing, public works and other industries, each of which industries may be adversely affected by general or specific economic conditions. If construction activity does not continue to improve in our principal markets, our business, financial condition and results of operations could be adversely affected.

~~devoted~~Rising toSteel ~~competing aggressively with us or that we will be able to compete~~Prices ~~profitably with our competitors.~~

~~Substantial~~Our ~~Liquidity~~gross ~~Requirements~~profit can be significantly affected by the cost of steel shapes and plate. Steel scrap is the primary component utilized in the production of structural steel shapes in the United States and is an essential component in the production of steel plate. The price of steel scrap has increased dramatically over the last year and we expect it to continue to increase in the future. If steel prices continue to increase or increase more than we anticipate, our gross profit could be negatively impacted. Additionally, the increased cost of steel could cause owners and contractors of projects to seek out less-expensive alternatives to steel buildings, such as concrete. If the use of steel in the construction of buildings declines significantly, it would have a material adverse effect on our business, financial condition and results of our operations for any period.

~~Our~~Fluctuating ~~operations~~Quarterly ~~require~~Results ~~significant amounts~~ of ~~working capital to procure~~Operations ~~materials for contracts to be performed over relatively long periods, and for~~ ~~purchases and modifications of heavy-duty and specialized fabrication~~ equipment. In addition, our contract arrangements with customers sometimes require us to provide payment and performance bonds to partially secure our obligations under our contracts, which may require us to incur significant expenditures prior to receipt of payments. Furthermore, our customers often will retain a portion of amounts otherwise payable to us during the course of a project as a guarantee of completion of that project. To the extent we are unable to receive progress payments in the early stages of a project, our cash flow would be reduced, which could have a material adverse effect on our business, financial condition and results of operations.

~~Capacity~~We ~~Constraints;~~have ~~Dependence~~experienced, and in the future expect to continue to experience, substantial variations in our results of operations because of a number of factors, many of which are outside our control. In particular, our operating results may vary because of downturns in one or more segments of the building construction industry, changes in economic conditions, our failure to obtain, or delays in awards of, major projects, the cancellation of major projects, changes in construction schedules for major projects or our failure to timely replace projects that have been completed or are nearing completion. In addition, from time to time, we have disputes with our customers concerning change orders to our contracts. To the extent such disputes are not resolved on ~~Subcontractors~~a timely basis, our results of operations may be affected. Any of these factors could result in the periodic inefficient or underutilization of our resources and could cause our operating results to fluctuate significantly from period to period, including on a quarterly basis.

WeRevenue ~~routinely~~Recognition ~~rely on subcontractors to perform a significant portion of our~~Estimates ~~fabrication, erection and project detailing to fulfill projects that we cannot~~ ~~fulfill in-house due to capacity constraints or that are in markets in which we~~ have not established a strong local presence. With respect to these projects, our success depends on our ability to retain and successfully manage these subcontractors. Any difficulty in attracting and retaining qualified subcontractors on terms and conditions favorable to us could have an adverse effect on our ability to complete these projects in a timely and cost effective manner.

~~Dependence~~We ~~Upon~~recognize ~~Key~~revenues ~~Personnel~~using the percentage of completion accounting method. Under this method, revenues are recognized based on either the ratio that costs incurred to date bear to the total estimated costs to complete the project or the ratio of labor hours incurred to date to the total estimated labor hours. Estimated losses on contracts are recognized in full when we determine that a loss will be incurred. We frequently review and revise revenues and total cost estimates as work progresses on a contract and as contracts are modified. Accordingly, revenue adjustments based upon the revised completion percentage are reflected in the period that estimates are revised. Although revenue estimates are based upon management assumptions supported by historical experience, these estimates could vary materially from actual results. To the extent percentage of completion adjustments reduce previously reported revenues,

~~Our success depends on the continued services of our senior management and key~~19 employees as well as our ability to attract additional members to our management team with experience in the steel fabrication and erection industry. The unexpected loss of the services of any of our management or other key personnel, or our inability to attract new management when necessary, could have a material adverse effect upon our operations.

UnionTable Contracts of Contents

Wewe ~~currently~~would ~~are~~recognize a ~~party~~charge toagainst aoperating number of collective bargaining agreements with various unions representing some of our fabrication and erection employees. These contracts expire or are subject to expiration at various times in the future. Our inability to renew such contracts could result in work stoppages and other labor disturbancesresults, which could ~~disrupt~~have ~~our~~a material ~~business~~adverse ~~and~~effect ~~adversely affect~~on our results of operations for the applicable period.

NoVariations ~~Assurance~~in ofBacklog; ~~Successful~~Dependence ~~Acquisitions~~on orLarge ~~Expansion~~Contracts

WeOur ~~intend~~backlog tocan ~~consider~~be ~~acquisitions~~significantly affected by the receipt, or loss, of individual ~~and~~contracts. ~~alliances~~For ~~with~~example, ~~other~~approximately ~~companies~~$55.4 million, inrepresenting 45.3% of our ~~industry~~ ~~that~~backlog ~~could~~at ~~complement~~June 30, ~~our~~2004, ~~business~~is attributable to five contracts, letters ~~including~~of intent, notices to proceed or purchase orders. In the ~~acquisition~~event ofone or ~~entities~~more inlarge ~~diverse~~contracts ~~geographic~~were ~~regions~~terminated ~~and~~or ~~entities~~their ~~offering~~scope ~~greater~~reduced, ~~access~~our tobacklog could ~~industries~~decrease ~~and~~substantially. ~~markets~~Our ~~not~~future ~~currently~~business ~~served~~and byresults ~~us.~~of ~~There~~operations ~~can~~may be adversely noaffected ~~assurance that~~if ~~suitable~~we ~~acquisition~~are orunable ~~alliance~~to ~~candidates~~replace ~~can~~significant becontracts ~~identified~~when lost or, ~~if identified~~completed, ~~that~~or if we ~~will~~otherwise befail ~~able~~ to ~~consummate~~maintain ~~such~~a ~~transactions~~sufficient level of backlog. ~~Further~~In addition, if a project representing a significant portion of our ~~there~~backlog ~~can~~is bedelayed noor ~~assurance~~otherwise postponed, our anticipated revenue from that project wemay ~~will~~not be ~~able~~realized tountil ~~integrate~~later than anticipated.

20Fixed Price Contracts

~~Table~~Most of ~~Contents~~our $122.5 million backlog at June 30, 2004 represented projects being performed on a fixed price basis. In bidding on projects, we estimate our costs, including projected increases in costs of labor, material and services. Despite these estimates, costs and gross profit realized on a fixed price contract may vary from estimated amounts because of unforeseen conditions or changes in job conditions, variations in labor and equipment productivity over the terms of contracts, higher than expected increases in labor or material costs, and other factors. These variations could have a material adverse effect on our business, financial condition and results of operations for any period.

~~successfully~~Geographic ~~any acquired companies into our existing operations, which could~~Concentration ~~increase our operating expenses. Moreover, any acquisition by us may result in~~ ~~potentially dilutive issuances of equity securities, incurrence of additional~~ debt and amortization of expenses related to intangible assets, all of which could adversely affect our profitability. Acquisitions involve numerous risks, such as diverting attention of our management from other business concerns, our entrance into markets in which we have had no or only limited experience and the potential loss of key employees of the acquired company, any of which could have a material adverse effect on our business, financial condition and results of operations.

InOur ~~August~~fabrication ~~2001,~~and weerection ~~created~~operations acurrently ~~new~~are ~~subsidiary~~conducted primarily in Arizona, ~~On-Time~~Nevada, ~~Steel~~Florida, ~~Management~~Georgia, ~~Inc. (“OTSM”).~~California, InTexas ~~September~~and ~~2002~~Colorado, westates ~~created~~in which ~~two~~the ~~additional~~construction ~~subsidiaries,~~industry ~~On-Time Steel~~has ~~Management-Colorado~~experienced ~~(“OTSM-CO”)~~cycles ~~and~~of ~~On-Time~~substantial ~~Steel Management-Northwest~~growth ~~(“OTSM-NW”).~~followed ~~All~~by ~~three~~periodic economic downturns. Because of ~~these~~this ~~new~~concentration, ~~subsidiaries~~future construction ~~bid~~activity and ~~contract~~our ~~for~~business ~~work~~may ~~but subcontract~~be ~~all~~adversely affected in the event of ~~their~~a ~~fabrication~~downturn in economic conditions existing in these states and ~~erection~~in ~~labor.~~the southwestern Weand ~~believe~~southeastern United States generally. Factors that may affect ~~OTSM’s~~economic ~~model~~conditions isinclude ~~ideal~~increases ~~for~~in ~~smaller,~~interest ~~more~~rates ~~traditional~~or ~~steel~~limitations in the availability of financing for construction projects ~~that~~, dodecreases ~~not~~in ~~require~~the ~~complex~~amount ~~design-build~~of funds ~~work.~~budgeted ~~However~~for governmental projects, decreases in ~~July~~capital ~~2003,~~expenditures ~~management~~devoted ~~determined~~to ~~that~~the itconstruction ~~was~~of inplants, ~~our~~distribution ~~best~~centers, ~~interest~~retail toshopping centers, ~~close~~industrial ~~the OTSM-NW~~facilities, ~~subsidiary~~hotels ~~due~~and tocasinos, ~~the~~convention ~~weak~~centers ~~construction~~and other facilities, the prevailing market inprices ~~the~~of ~~Seattle~~copper, ~~area.~~gold ~~We are~~and ~~currently~~other inmetals that ~~the~~impact ~~process~~related ofmining ~~completing~~activity, ~~existing~~and ~~projects~~downturns ~~awarded~~in tooccupancy ~~OTSM-NW~~rates, office ~~and~~space ~~expect~~demand, ~~all~~tourism ~~activity~~and toconvention berelated ~~completed~~activity byand ~~early~~population ~~2004~~growth.

~~Operating Risks; Litigation~~Competition

~~Construction~~Many small and ~~heavy~~various ~~steel~~large ~~plate~~companies ~~weldments~~offer ~~involve a high degree of operational risk. Natural disasters~~fabrication, ~~adverse weather conditions, design, fabrication and~~ erection ~~errors~~ and ~~work~~related services ~~environment~~that ~~accidents~~compete ~~can~~with ~~cause~~those ~~death or~~that ~~personal~~we ~~injury,~~provide. ~~property~~Local ~~damage~~ and ~~suspension~~regional ~~of operations. The~~companies ~~occurrence~~offer ofcompetition ~~any~~in ofone ~~these~~or ~~events~~more ~~could result in loss~~ of ~~revenues,~~our ~~increased costs,~~geographic ~~and~~markets ~~liability~~or toproduct ~~third parties~~segments. ~~We are subject to litigation claims in~~ ~~the~~Out ~~ordinary course~~ of ~~business,~~state ~~including~~or ~~lawsuits~~international ~~asserting~~companies ~~substantial claims.~~may ~~Currently,~~provide wecompetition doin ~~not maintain~~ any ~~reserves for our ongoing litigation~~market. We ~~periodically~~compete ~~review~~for ~~the~~every ~~need~~project towe ~~maintain~~obtain. aAlthough ~~litigation~~we ~~reserve.~~believe Wecustomers ~~maintain~~consider, ~~risk~~among ~~management,~~other ~~insurance~~things, ~~and~~the ~~safety~~availability ~~programs~~and ~~intended~~technical tocapabilities ~~prevent or mitigate losses. There can be no assurance that any~~ of ~~these programs will be adequate~~equipment orand ~~that~~personnel, weefficiency, ~~will~~safety berecord ~~able to maintain adequate insurance in the future at rates~~and ~~that we consider reasonable.~~

~~Potential Environmental Liability~~20

OurTable operations and properties are affected by numerous federal, state and local environmental protection laws and regulations, such as those governing discharges to air and water and the handling and disposal of solid and hazardous wastes. Compliance with these laws and regulations has become increasingly stringent, complex and costly. There can be no assurance that such laws and regulations or their interpretation will not change in a manner that could materially and adversely affect our operations. Certain environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and its state law counterparts, provide for strict and joint and several liability for investigation and remediation of spills and other releases of toxic and hazardous substances. These laws may apply to conditions at properties currently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes or other contamination attributable to an entity or its predecessors come to be located. Although we have not incurred any material environmental related liability in the past and believe that we are in material compliance with environmental laws, there can be no assurance that we, or entities for which we may be responsible, will not incur such liability in connection with the investigation and remediation of facilities we currently Contents

21reputation, price usually is the primary factor in determining which qualified contractor is awarded a contract. Competition may result in pressure on pricing and operating margins, and the effects of competitive pressure in the industry could continue indefinitely. Some of our competitors may have greater capital and other resources than ours and are more established in their respective markets. There can be no assurance that our competitors will not substantially increase their commitment of resources devoted to competing aggressively with us or that we will be able to compete profitably with our competitors.

~~Table~~Substantial ofLiquidity ~~Contents~~Requirements

~~operate~~Our ~~(or~~operations ~~formerly~~require ~~owned~~significant oramounts ~~operated)~~of orworking ~~other~~capital ~~locations~~to inprocure materials for contracts to be performed over relatively long periods, and for purchases and modifications of heavy-duty and specialized fabrication equipment. In addition, our contract arrangements with customers sometimes require us to provide payment and performance bonds to partially secure our obligations under our contracts, which may require us to incur significant expenditures prior to receipt of payments. Furthermore, our customers often will retain a ~~manner~~portion of amounts otherwise payable to us during the course of a project as a guarantee of completion of that project. To the extent we are unable to receive progress payments in the early stages of a project, our cash flow would be reduced, which could ~~materially~~have ~~and~~a ~~adversely~~material ~~affect~~adverse effect on our business, financial condition and results of operations.

~~Governmental~~Capacity ~~Regulation~~Constraints; Dependence on Subcontractors

~~Many~~We ~~aspects~~routinely ofrely ~~our~~on ~~operations~~subcontractors ~~are~~to ~~subject~~perform toa ~~governmental~~significant ~~regulations~~portion inof ~~the~~our ~~United~~fabrication, ~~States~~erection and inproject ~~other~~detailing ~~countries~~to infulfill ~~which~~projects that we ~~operate,~~cannot fulfill ~~including~~in-house ~~regulations relating~~due to ~~occupational~~capacity ~~health~~constraints ~~and~~or ~~workplace~~that ~~safety,~~are ~~principally~~in ~~the Occupational~~markets ~~Safety~~in ~~and~~which ~~Health Act and regulations thereunder. In addition,~~ we ~~are~~have ~~subject~~not toestablished ~~licensure~~a ~~and~~strong ~~hold~~local orpresence. ~~have~~With ~~applied~~respect ~~for~~to ~~licenses~~these ~~in each of the~~projects, ~~states~~our insuccess ~~the~~depends ~~United~~on ~~States~~our inability ~~which~~to weretain ~~operate~~ and insuccessfully ~~certain~~manage ~~local~~these ~~jurisdictions within such states~~subcontractors. ~~Although~~Any wedifficulty ~~believe that we are~~ in ~~material compliance~~attracting ~~with applicable laws~~ and ~~permitting~~retaining ~~requirements, there can be no~~qualified ~~assurance~~subcontractors ~~that~~on weterms ~~will~~and beconditions ~~able~~favorable to ~~maintain~~us ~~this~~could ~~status.~~have ~~Further,~~an ~~we cannot~~adverse ~~determine~~effect toon ~~what~~our ~~extent~~ability ~~future~~to ~~operations~~complete ~~and~~these ~~earnings~~projects ~~may be affected by new legislation, new regulations or changes~~ in ora ~~new~~timely ~~interpretations~~and ofcost ~~existing~~effective ~~regulations~~manner.

~~Volatility~~Dependence OfUpon ~~Stock~~Key ~~Price~~Personnel

~~The~~Our ~~stock~~success ~~market~~depends ~~has~~on ~~experienced~~the ~~price~~continued ~~and~~services ~~volume~~of ~~fluctuations~~our ~~that~~senior ~~have affected~~management ~~the market for many companies~~ and ~~have often been unrelated to the~~key ~~operating~~employees ~~performance~~as ofwell ~~such~~as ~~companies. The market price of~~ our ~~common~~ability ~~stock could~~to ~~also~~attract beadditional ~~subject~~members to ~~significant~~our management ~~fluctuations~~team inwith ~~response~~experience ~~to variations~~ in ~~our~~ ~~quarterly~~the ~~operating~~steel ~~results,~~fabrication ~~analyst~~and ~~reports,~~erection ~~announcements concerning us,~~industry. ~~legislative~~The orunexpected ~~regulatory~~loss ~~changes~~of or the ~~interpretation~~services of ~~existing~~any ~~statutes~~of ~~or regulations affecting~~ our ~~business,~~management ~~litigation,~~or ~~general~~other ~~trends in the industry~~key ~~and~~personnel, ~~other events~~ or ~~factors. In July 1997, we completed an initial public offering of~~ our ~~common~~inability ~~stock~~to ~~for~~attract ~~$8.00~~new ~~per~~management ~~share.~~when ~~Since that time~~necessary, ~~our common~~could ~~stock~~have ~~has~~a ~~traded~~material asadverse ~~low~~effect asupon ~~$1.10 per share and as high as $15.625 per share. The market price for~~ our ~~common stock remains volatile and there is no assurance that the market price will not experience significant changes in the future~~operations.

~~Forward-Looking~~Union ~~Statements~~Contracts

~~This~~We ~~Quarterly~~currently ~~Report~~are ona ~~Form 10-Q,~~party ~~including the Notes~~ to ~~the~~a ~~Consolidated Financial~~number ~~Statements and “Management’s Discussion and Analysis~~ of ~~Financial Condition~~collective ~~and~~bargaining ~~Results~~agreements ~~of Operations,” contain forward-looking statements. Among~~with ~~other~~various ~~matters,~~unions ~~this~~representing ~~Quarterly~~some ~~Report~~of ~~on Form 10-Q includes forward-looking statements relating to~~ our ~~estimated~~fabrication ~~capital expenditures for 2003, our belief that we have sufficient liquidity to meet our near-term operating needs,~~ and ~~our~~ ~~anticipated~~erection ~~business operations in future periods~~employees. These ~~Additional~~contracts ~~written~~expire or ~~oral~~ ~~forward-looking~~are ~~statements~~subject ~~may be made by us from time~~ to ~~time~~expiration inat ~~filings with~~various ~~the~~times ~~Securities and Exchange Commission,~~ in ~~our press releases, or~~the ~~otherwise~~future. ~~The~~Our ~~words~~inability “believe,” “expect,” “anticipate,” “intends,” “forecast,” “project,” and similar expressions identify forward-looking statements. Such statements may include, but not be limited to, ~~the~~renew ~~anticipated~~such ~~outcome~~contracts ~~of contingent~~could ~~events,~~result ~~including~~in ~~litigation,~~work ~~projections of revenues, income or~~stoppages ~~loss, capital expenditures, plans for future operations, growth~~ and ~~acquisitions,~~ ~~financing~~other ~~needs~~labor ~~or plans and the availability of financing~~disturbances, ~~and plans~~which ~~relating~~could todisrupt our ~~services,~~business ~~as well as assumptions relating to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended,~~ and ~~Section 21E of~~adversely ~~the~~affect ~~Securities~~our ~~Exchange~~results ~~Act~~ of ~~1934, as amended~~operations.

~~Forward-looking statements reflect our current views with respect to future~~21 ~~events and financial performance and speak only as of the date the statements are made. Such forward-looking statements are~~

22 Table of Contents

~~Table~~Operating ofRisks; ~~Contents~~Litigation

~~inherently~~Construction ~~subject~~and toheavy ~~risks~~steel ~~and~~plate ~~uncertainties,~~weldments ~~some~~involve ofa ~~which~~high ~~cannot~~degree beof ~~predicted~~operational ~~or quantified~~risk. ~~Future~~Natural ~~events~~disasters, ~~and~~adverse ~~actual~~weather ~~results~~conditions, ~~could differ~~design, ~~materially~~fabrication ~~from~~and ~~those~~erection ~~set~~errors ~~forth~~and ~~in,~~work ~~contemplated~~environment ~~by,~~accidents orcan ~~underlying~~cause ~~the~~death ~~forward-looking~~or ~~statements.~~personal ~~Statements in this Quarterly Report~~injury, ~~including~~property ~~the Notes~~damage toand ~~the~~suspension ~~Consolidated~~of ~~Financial~~operations. ~~Statements~~The occurrence ~~and~~of inany ~~“Management’s~~of ~~Discussion and~~these ~~Analysis~~events ofcould ~~Financial~~result ~~Condition~~in ~~and~~loss ~~Results~~ of ~~Operations~~revenues,” ~~describe~~increased ~~factors~~costs, ~~among~~and ~~others,~~liability ~~that could contribute~~ to orthird ~~cause~~parties. ~~such~~We ~~differences, including~~are ~~the~~subject ~~potential~~to ~~that~~litigation ~~unanticipated~~claims ~~repairs or replacement of~~in ~~fabrication~~the ~~equipment~~ordinary ~~could~~course ~~increase our capital expenditures and that the loss~~ of ~~major~~business, ~~contracts~~including ~~could~~lawsuits ~~negatively~~asserting ~~impact our liquidity~~substantial claims. ~~Other~~Currently, ~~factors~~we ~~that could~~do ~~cause~~not ~~actual~~maintain ~~results~~any toreserves ~~differ~~for ~~materially~~our ~~from~~ongoing ~~those expressed in such~~litigation. ~~forward-looking~~We ~~statements~~periodically ~~are~~review ~~set forth above under~~ the ~~caption~~need ~~“Factors~~to ~~That May~~maintain ~~Affect~~a ~~Future~~litigation ~~Operating Results and Financial Condition~~reserve.” InWe ~~addition, new~~maintain ~~factors~~risk ~~emerge~~management, ~~from~~insurance, ~~time to time~~ and itsafety isprograms ~~not~~intended ~~possible~~to ~~for~~prevent ~~management~~or tomitigate ~~predict~~losses. ~~all~~There ~~of such factors, nor~~ can itbe ~~assess~~no ~~the~~assurance ~~impact~~that any of ~~each~~these ~~such~~programs ~~factor on~~will ~~the~~be ~~business~~ adequate or ~~the~~that ~~extent~~we towill ~~which~~be ~~any~~able ~~factor, or combination of factors, may cause actual results~~ to ~~differ~~maintain ~~materially~~adequate ~~from~~insurance ~~forward~~in ~~looking~~the ~~statements. We~~future ~~undertake~~at ~~no obligation to publicly update or review any forward-looking~~rates ~~statements~~that aswe aconsider ~~result of new information, future events, or otherwise~~reasonable.

~~Item 3.~~Potential ~~Quantitative~~Environmental ~~and Qualitative Disclosures About Market Risk~~Liability

~~Derivative~~Our ~~Financial~~operations ~~Instruments~~and properties are affected by numerous federal, ~~Other~~state ~~Financial~~and ~~Instruments~~local environmental protection laws and regulations, such as those governing discharges to air and ~~Derivative~~water ~~Commodity~~and the handling and disposal of solid and ~~Instruments~~hazardous wastes. Compliance with these laws and regulations has become increasingly stringent, complex and costly. There can be no assurance that such laws and regulations or their interpretation will not change in a manner that could materially and adversely affect our operations. Certain environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and its state law counterparts, provide for strict and joint and several liability for investigation and remediation of spills and other releases of toxic and hazardous substances. These laws may apply to conditions at properties currently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes or other contamination attributable to an entity or its predecessors come to be located. Although we have not incurred any material environmental related liability in the past and believe that we are in material compliance with environmental laws, there can be no assurance that we, or entities for which we may be responsible, will not incur such liability in connection with the investigation and remediation of facilities we currently operate (or formerly owned or operated) or other locations in a manner that could materially and adversely affect our operations.

AtGovernmental ~~September 30, 2003, we did not participate in any derivative financial~~Regulation ~~instruments, or other financial or derivative commodity instruments, and did~~ ~~not hold any investment securities.~~

~~Primary~~Many ~~Market~~aspects ~~Risk~~of ~~Exposure~~our operations are subject to governmental regulations in the United States and in other countries in which we operate, including regulations relating to occupational health and workplace safety, principally the Occupational Safety and Health Act and regulations thereunder. In addition, we are subject to licensure and hold or have applied for licenses in each of the states in the United States in which we operate and in certain local jurisdictions within such states. Although we believe that we are in material compliance with applicable laws and permitting requirements, there can be no assurance that we will be able to maintain this status. Further, we cannot determine to what extent future operations and earnings may be affected by new legislation, new regulations or changes in or new interpretations of existing regulations.

~~We are exposed to market risk from changes in interest rates primarily as a~~22 result of our initial $100.0 million 10-1/2% fixed rate Senior Notes, which were issued on June 4, 1998. Specifically, we are exposed to changes in the fair value of the remaining $90.0 million of Senior Notes. The variation in fair value is a function of market interest rate changes and the investor perception of the investment quality of the Senior Notes.

Item 4.Table Controlsof and Procedures Contents

~~(a)~~Volatility ~~Evaluation~~Of ofStock ~~Disclosure Controls and Procedures~~Price

~~Our~~The ~~management,~~stock ~~with~~market ~~the~~has ~~participation~~experienced ofprice ~~our~~and ~~Chief~~volume ~~Executive~~fluctuations ~~Officer~~that ~~and~~have ~~Chief~~affected ~~Financial~~the ~~Officer,~~market ~~evaluated~~for many companies and have often been unrelated to the operating ~~effectiveness~~performance of such companies. The market price of our ~~disclosure~~common ~~controls~~stock ~~and~~could ~~procedures~~also asbe ofsubject ~~September 30,~~to ~~2003.~~significant ~~Based~~fluctuations onin ~~that~~response ~~evaluation~~to variations in our quarterly operating results, ~~the~~analyst ~~Chief~~reports, announcements concerning us, ~~Executive~~legislative ~~Officer~~or ~~and~~regulatory changes or the ~~Chief~~interpretation ~~Financial~~of ~~Officer~~existing ~~concluded~~statutes ~~that~~or regulations affecting our ~~disclosure controls~~business, litigation, general trends in the industry and ~~procedures~~other asevents ofor ~~September~~factors. In July 301997, ~~2003~~we ~~have~~completed ~~been~~an ~~designed~~initial ~~and are~~public ~~functioning~~offering ~~effectively~~of toour ~~provide~~common ~~reasonable~~stock ~~assurance~~for $8.00 per share. Since that ~~the~~time, ~~information~~our common ~~required~~stock tohas betraded ~~disclosed~~as bylow usas in$1.10 ~~reports~~per ~~filed~~share ~~under~~and ~~the~~as ~~Securities~~high ~~Exchange~~as $15.625 per share. ~~Act~~The ofmarket ~~1934~~price isfor ~~recorded,~~our ~~processed,~~common ~~summarized~~stock remains volatile and ~~reported~~there ~~within~~is no assurance that the ~~time periods~~market ~~specified~~price inwill ~~the~~not ~~SEC’s~~experience ~~rules~~significant ~~and~~changes ~~forms~~in the future.

23Forward-Looking Statements

~~Table~~This Quarterly Report on Form 10-Q, including the Notes to the Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial ~~Contents~~Condition and Results of Operations,” contain forward-looking statements. Among other matters, this Quarterly Report on Form 10-Q includes forward-looking statements relating to our estimated capital expenditures for 2004, our belief that we have sufficient liquidity through our present resources and the existence of our bank credit facility to meet our near-term operating needs, our belief that our gross profit could be negatively impacted by rising steel prices, and our anticipated business operations in future periods. Additional written or oral forward-looking statements may be made by us from time to time in filings with the Securities and Exchange Commission, in our press releases, or otherwise. The words “believe,” “expect,” “anticipate,” “intends,” “forecast,” “project,” and similar expressions identify forward-looking statements. Such statements may include, but not be limited to, the anticipated outcome of contingent events, including litigation, projections of revenues, income or loss, capital expenditures, plans for future operations, growth and acquisitions, financing needs or plans and the availability of financing, and plans relating to our services, as well as assumptions relating to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

~~(b)~~Forward-looking ~~Change~~statements reflect our current views with respect to future events and financial performance and speak only as of the date the statements are made. Such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated ~~Internal~~by, ~~Control~~or ~~over~~underlying the forward-looking statements. Statements in this Quarterly Report, including the Notes to the Condensed Consolidated Financial ~~Reporting~~Statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences, including the potential that unanticipated repairs or replacement of fabrication equipment could increase our capital expenditures and that the loss of major contracts could negatively impact our liquidity. Other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are set forth above under the caption “Factors That May Affect Future Operating Results and Financial Condition.” In addition, new factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward looking statements. We undertake no obligation to

~~No change in our internal control over financial reporting occurred during~~23 ~~the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.~~

PARTTable IIof OTHER INFORMATION Contents

~~Item 6.~~publicly ~~Exhibits~~update ~~and~~or ~~Reports~~review onany ~~Form 8~~forward-Klooking statements as a result of new information, future events, or otherwise.

~~(a)~~Item ~~Exhibits~~3. Quantitative and Qualitative Disclosures About Market Risk

	Exhibit 31.1.		Certification of Principal Executive Officer of Schuff International, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2.		Certification of Principal Financial Officer of Schuff International, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1.		Certification of Chief Executive Officer of Schuff International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32.2.		Certification of Chief Financial Officer of Schuff International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments

~~(b)~~At ~~During the quarter ended September~~ June 30, ~~2003~~2004, ~~the~~we ~~Company~~did ~~filed~~not aparticipate ~~Current~~in ~~Report~~any onderivative ~~Form 8-K dated August 13~~financial instruments, ~~2003~~or ~~pursuant~~other tofinancial ~~Item~~or 5derivative tocommodity ~~announce~~instruments, ~~that the Company had entered into a Credit~~ and ~~Security~~did not ~~Agreement~~hold ~~with~~any ~~Wells~~investment ~~Fargo Credit, Inc~~securities.~~, which replaced the Credit Facility between the Company and Wells Fargo Bank, N.A.~~

~~SIGNATURES~~Primary Market Risk Exposure

~~Pursuant~~We are potentially exposed to ~~the~~market ~~requirements~~risk associated with changes in interest rates primarily as a result of ~~the~~our ~~Securities~~10-1/2% ~~Exchange~~fixed ~~Act~~rate Senior Notes in the original principal amount of ~~1934~~$100.0 million, which were issued on June 4, 1998. Specifically, we are exposed to changes in the fair value of the remaining ~~registrant~~$87.0 million ~~has~~in ~~duly~~principal ~~caused~~amount ~~this~~of ~~report~~Senior toNotes. beThe ~~signed~~variation onin ~~its~~fair ~~behalf~~value is bya function of market interest rate changes and the investor perception of ~~undersigned~~the ~~thereunto~~investment ~~duly~~quality ~~authorized~~of the Senior Notes.

			SCHUFF INTERNATIONAL, INC.
Date: November 19, 2003			By:	/s/	Michael R. Hill
					Michael R. Hill
		Vice President and Chief Financial Officer
	(Principal Financial Officer and Duly Authorized Officer)

Item 4. Controls and Procedures

24Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) as of the end of the fiscal period covered by this Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting information required to be disclosed by us in the reports we file or submit under the Exchange Act within the time periods specified in the SEC’s rules and forms. There have not been any changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits

		Exhibit 10.1. Amendment to Credit and Security Agreement and Waiver of Defaults dated November 17, 2003, by and between Schuff International, Inc., other Persons listed therein and Wells Fargo Credit, Inc.

		Exhibit 10.2. Second Amendment to Credit and Security Agreement dated March 26, 2004 by and between Schuff International, Inc., other Persons listed therein and Wells Fargo Credit, Inc.

		Exhibit 10.3. Third Amendment to Credit and Security Agreement dated May 13, 2004 by and between Schuff International, Inc., other Persons listed therein and Wells Fargo Credit, Inc.

		Exhibit 10.4. Fourth Amendment to Credit and Security Agreement dated July 16, 2004 by and between Schuff International, Inc., other Persons listed therein and Wells Fargo Credit, Inc.

		Exhibit 31.1. Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

		Exhibit 31.2. Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

		Exhibit 32.1. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)		During the quarter ended June 30, 2004, the Company filed a Current Report on Form 8-K dated April 29, 2004 pursuant to Items 5 and 7 to announce that the Company’s board had been advised that David A. Schuff, Chairman of the Board and Scott A. Schuff, President and Chief Executive Officer of the Company, intended to commence a tender offer to purchase all of the outstanding common stock of the Company. The Company also filed a Current Report on Form 8-K dated May 14, 2004 pursuant to Items 5 and 7 to announce that David A. Schuff and Scott A. Schuff and their affiliates had elected to increase their initial tender offer of $2.17 per share to $2.30 per share.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SCHUFF INTERNATIONAL, INC.

Date: August 11, 2004	By:	/s/ Michael R. Hill
	Michael R. Hill
	Vice President and Chief Financial Officer
	(Principal Financial Officer and Duly Authorized Officer)

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