UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended June 30, 2004

OR

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.

(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.

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

Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practical date: As of August 9, 2004, there were 7,063,122 shares of Common Stock, $.001 par value per share, outstanding.

SCHUFF INTERNATIONAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHUFF INTERNATIONAL, INC.

See notes to condensed consolidated financial statements.

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SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to condensed consolidated financial statements.

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SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

     See notes to condensed consolidated financial statements.

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Schuff International, Inc.

Three and Six Months Ended June 30, 2004 and 2003

1. Basis of Presentation

The accompanying condensed consolidated financial statements 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. 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, 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 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 and six month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 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.

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3. Reclassifications

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

4. New Accounting Pronouncements

In January 2003, the FASB issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities — An Interpretation of Accounting Research Bulletin (“ARB”) No. 51.” This interpretation was subsequently revised by FIN 46R in December 2003. This revised interpretation states that consolidation of variable interest entities will be required by the primary beneficiary if the entities do not effectively disperse risks among the parties involved. The requirements are effective for fiscal years ending after December 15, 2003 for special-purpose entities and for all other types of entities for periods ending after March 15, 2004. The Company does not have any variable interest entities and the adoption of FIN No. 46R did not impact its financial position or results of operations.

5. Receivables

Receivables consist of the following at:

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6. Inventories

Inventories consist of the following at:

7. Line of Credit

On August 13, 2003, the Company entered into a Credit and Security Agreement with Wells Fargo Credit, Inc. (“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.

The credit facility is secured by a first priority, perfected security interest in all of the Company’s assets and its present and future subsidiaries. The interest rate is prime plus 1.50%. The credit facility contains covenants that, among other things, limit the Company’s ability to pay cash dividends or make other distributions; repurchase its Senior Notes; incur additional indebtedness; change its business; and merge, consolidate or dispose of material portions of its assets. The security agreements pursuant to which the Company’s assets are pledged prohibit any further pledge of such assets without the written consent of the bank.

The 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), 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, the Company was in compliance with these credit facility covenants.

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8. Income (Loss) Per Share

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

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.

9. Gains on Extinguishment of Debt

The 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.

10. Contingent Matters

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 three and six months ended June 30, 2004.

On April 2, 2003, Evans Welding Services Inc. brought suit in the General Court of Justice, Superior Court Division, County of Mecklenburg, North Carolina against the Company’s subsidiary, Addison

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Steel, Inc., its surety bond, the general contractor J.A. Jones Construction Company and its surety bonds and Starport I, LLC, the owner of the new Westin Hotel in Charlotte, North Carolina. J.A. Jones was the general contractor to the owner, Starport. Addison Steel was the structural steel subcontractor to J.A. Jones and Evans Welding was Addison’s erection subcontractor. Evans Welding’s claim was for approximately $300,000 of additional work on the project. Addison Steel filed a cross claim and its own action, which was consolidated with the Evans Welding lawsuit. Addison Steel sought to enforce its lien and bond rights and was owed approximately $2.4 million from J.A. Jones for unpaid contract work, retention, change orders and claims. On September 25, 2003, J.A. Jones filed for bankruptcy. However, Addison Steel continued to pursue its lien and bond rights against the owner and J.A. Jones’ sureties. The sureties asserted backcharges against Addison Steel for approximately $1.0 million. On April 9, 2004, the Company reached a settlement in which the sureties paid Addison Steel approximately $1.5 million on May 14, 2004. As part of the settlement, Addison Steel paid Evans Welding Services $100,000 on April 15, 2004.

11. Segment Information

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12. Comprehensive Loss

Total comprehensive loss for the three and six months ended June 30, 2004 and 2003 equaled net loss for the corresponding periods.

13. Backlog

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.

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 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.

Recent Developments

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.

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

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extending the expiration date of the tender offer to 5:00 p.m., Denver Time, on June 24, 2004, unless further extended. On June 24, 2004, SAC announced that it was extending the expiration date of the tender offer to 5:00 p.m., Denver Time, on July 29, 2004.

The tender offer expired at 5:00 p.m., 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.

Effective June 1, 2004, we completed a name change for three of our subsidiaries. Bannister Steel, Inc. is now Schuff Steel – Pacific, Inc.; Six Industries, Inc. is now Schuff Steel – Gulf Coast, Inc., and Addison Steel, Inc. is now Schuff Steel – Atlantic, Inc.

Critical Accounting Policies and Estimates

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.

The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments, include our revenue recognition, goodwill impairment assessment, accounting for income taxes and legal contingencies. Our inability to accurately estimate expenses, accruals, income taxes or impairment of goodwill could result in charges, or income, in future periods, which relate to activities or transactions in a preceding period.

Results of Operations

Overview

Our results of operations are affected primarily by (i) the level of commercial and 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.

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During 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.

Revenues

Revenues 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 generat