SCHUFF INTERNATIONAL INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


		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		86-1033353




(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 (XBOX) No (BOX)

Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practical date: As of July 19, 2002, there were 7,263,755 shares of Common Stock, $.001 par value per share, outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Notes to Condensed Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 99.1
Exhibit 99.2

SCHUFF INTERNATIONAL, INC.

TABLE OF CONTENTS


		Page

Part I:	Financial Information









Item 1.	Financial Statements









	Condensed Consolidated Balance Sheet — June 30, 2002 (unaudited) and December 31, 2001	1









	Condensed Consolidated Statements of Operations (unaudited) — Three Months Ended June 30, 2002 and 2001 and Six Months Ended June 30, 2002 and 2001	2









	Condensed Consolidated Statements of Cash Flows (unaudited) — Six Months Ended June 30, 2002 and 2001	3









	Notes to Condensed Consolidated Financial Statements (unaudited) — June 30, 2002	4









Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10









Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21









Part II:	Other Information









Item 4.	Submission of Matters to a Vote of Security Holders	21









Item 6.	Exhibits and Reports on Form 8-K	22









Signatures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30			December 31
		2002			2001

		(Unaudited)			(Note 1)
		(in thousands)
Assets




Current assets:




	Cash and cash equivalents	$	12,206		$	4,586




	Receivables		58,958			60,387




	Income tax receivable		—			612




	Costs and recognized earnings in excess of billings on uncompleted contracts		13,694			15,293




	Inventories		6,072			7,214




	Deferred tax asset		1,692			1,692




	Prepaid expenses and other current assets		440			529

Total current assets			93,062			90,313




Property and equipment, net			28,463			30,111




Goodwill, net			17,115			46,706




Other assets			3,738			3,971

		$	142,378		$	171,101

Liabilities and stockholders’ equity




Current liabilities:




	Accounts payable	$	9,026		$	7,885




	Accrued payroll and employee benefits		4,912			6,086




	Accrued interest		864			944




	Other accrued liabilities		3,973			4,353




	Billings in excess of costs and recognized earnings on uncompleted contracts		10,771			8,802




	Income taxes payable		249			—

Total current liabilities			29,795			28,070




Long-term debt			95,500			95,500




Deferred income taxes			2,022			2,022




Other liabilities			375			387




Stockholders’ equity:




	Preferred stock, $.001 par value – authorized 1,000,000 shares; none issued		—			—




	Common stock, $.001 par value – 20,000,000 shares authorized; 7,322,855 and 7,262,519 issued and 7,267,555 and 7,262,519 outstanding, respectively		7			7




	Additional paid-in capital		15,143			14,989




	Retained (deficit) earnings		(305	)		30,126




	Treasury stock (55,300 shares), at cost		(159	)		—

Total stockholders’ equity			14,686			45,122

		$	142,378		$	171,101

See notes to condensed consolidated financial statements.

SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


			Three months ended						Six months ended
			June 30						June 30

			2002			2001			2002			2001

			(in thousands, except per share data)
Revenues			$	51,899		$	56,956		$	102,994		$	116,636




Cost of revenues				45,180			45,100			87,998			92,360

	Gross profit			6,719			11,856			14,996			24,276




General and administrative expenses				5,711			5,754			11,480			12,318




Goodwill amortization				—			541			—			1,082

	Operating income			1,008			5,561			3,516			10,876




Interest expense				(2,588	)		(2,746	)		(5,209	)		(5,540	)




Other income				298			416			450			1,019





	(Loss) income before income tax (benefit) provision and the cumulative effect of a change in accounting principle			(1,282	)		3,231			(1,243	)		6,355




Income tax (benefit) provision				(351	)		1,262			(403	)		2,566

	(Loss) income before the cumulative effect of a change in accounting principle			(931	)		1,969			(840	)		3,789




Cumulative effect of a change in accounting principle				—			—			(29,591	)		—

		Net (loss) income	$	(931	)	$	1,969		$	(30,431	)	$	3,789

Basic (loss) income per share:




(Loss) income per share before the cumulative effect of a change in accounting principle			$	(0.13	)	$	0.27		$	(0.12	)	$	0.53




Cumulative effect per share of a change in accounting principle				—			—			(4.07	)		—

Net (loss) income per share			$	(0.13	)	$	0.27		$	(4.19	)	$	0.53

Diluted (loss) income per share:




(Loss) income per share before the cumulative effect of a change in accounting principle			$	(0.13	)	$	0.26		$	(0.12	)	$	0.51




Cumulative effect per share of a change in accounting principle				—			—			(4.07	)		—

Net (loss) income per share			$	(0.13	)	$	0.26		$	(4.19	)	$	0.51

Weighted average shares used in computation:




	Basic			7,273			7,209			7,268			7,206

	Diluted			7,273			7,657			7,268			7,461

See notes to condensed consolidated financial statements.

SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


				Six months ended June 30
				2002			2001

				(in thousands)
Operating activities




Net (loss) income				$	(30,431	)	$	3,789




Adjustment to reconcile net (loss) income to net cash provided by operating activities:




	Depreciation and amortization				2,242			3,323




	Cumulative effect of a change in accounting principle				29,591			—




	Gain from extinguishment of debt, net of tax				—			(110	)




	Gain on disposal of property and equipment				(115	)		(4	)




	Gain on sale of long-term investment				—			(107	)




	Stock awards				56			10




	Changes in operating assets and liabilities:




		Receivables			1,429			6,142




		Costs and recognized earnings in excess of billings on uncompleted contracts			1,599			(5,882	)




		Inventories			1,143			1,953




		Prepaid expenses and other assets			89			233




		Accounts payable			1,141			(1,255	)




		Accrued payroll and employee benefits			(1,174	)		(171	)




		Accrued interest			(81	)		(13	)




		Other accrued liabilities			(379	)		(579	)




		Billings in excess of costs and recognized earnings on uncompleted contracts			1,969			(3,126	)




		Income taxes receivable/payable			861			(1,494	)




		Other liabilities			(13	)		(13	)

			Net cash provided by operating activities		7,927			2,696




Investing activities




Acquisitions of property and equipment					(448	)		(3,129	)




Proceeds from disposals of property and equipment					160			40




Proceeds from sale of long-term investment					—			132




Decrease in other assets					42			3

			Net cash used in investing activities		(246	)		(2,954	)




Financing activities




Principal payments on long-term debt					—			(3,150	)




Purchase of treasury stock at cost					(159	)		—




Proceeds from the issuance of common stock					98			102

			Net cash used in financing activities		(61	)		(3,048	)




			Increase (decrease) in cash and cash equivalents		7,620			(3,306	)




Cash and cash equivalents at beginning of period					4,586			11,073

			Cash and cash equivalents at end of period	$	12,206		$	7,767

See notes to condensed consolidated financial statements.

Schuff International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2002

1. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 for complete financial statements. The balance sheet at December 31, 2001 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 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 results for the three month and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001.

2. Reclassifications

Certain amounts in the 2001 condensed consolidated financial statements have been reclassified to conform with the 2002 presentation.

3. New Accounting Pronouncement

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 related to the disposal of a segment of a business. The provisions of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on January 1, 2002, and the adoption did not have a material impact on the consolidated financial statements.

4. Receivables

Receivables consist of the following at:


		June 30		December 31
		2002		2001

		(in thousands)
Contract receivables:




	Contracts in progress	$	45,006	$	43,826




	Unbilled retentions		13,146		15,810





			58,152		59,636




Other receivables			806		751

		$	58,958	$	60,387

5. Inventories

Inventories consist of the following at:


	June 30		December 31
	2002		2001

	(in thousands)
Raw materials	$	5,959	$	6,879




Finished goods		113		335

	$	6,072	$	7,214

6. Line of Credit

In July 2002, the Company amended its credit facility and its covenants due to the Company’s second quarter financial performance and its outlook for the remainder of the year 2002. The leverage ratio covenant was eliminated and new minimum levels for EBITDA (i.e. Earnings Before Interest, Taxes, Depreciation and Amortization) and the fixed charge coverage ratio were established. The covenants were also modified to eliminate the LIBOR pricing option and to reduce the capital expenditure limit from $5.0 million to $2.0 million for the year ended December 31, 2002. Effective in the third quarter, two additional covenants were added which require a minimum quarterly pre-t

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