<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 SEPTEMBER 30, 1998
OR
[ ] 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 STEEL COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 86-0318760
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
1841 West Buchanan Street 85009
Phoenix, Arizona (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
(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 No
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practical date: As of November 13, 1998, there were 7,022,420
shares of Common Stock outstanding, $.001 par value per share.
<PAGE> 2
SCHUFF STEEL COMPANY
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1998 and 1997 and
Nine Months Ended September 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHUFF STEEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Note)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,532 $ 197
Restricted funds on deposit 2,545 2,096
Receivables 44,389 24,717
Costs and recognized earnings in excess of billings on uncompleted
contracts 7,598 3,982
Inventories 7,760 2,364
Prepaid expenses and other current assets 2,851 1,167
-------- --------
Total current assets 98,675 34,523
Property, plant and equipment, net 18,252 7,415
Goodwill, net 40,906 --
Other assets 5,806 100
-------- --------
$163,639 $ 42,038
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,469 $ 5,749
Accrued payroll and employee benefits 3,346 1,023
Accrued interest payable 3,545 46
Other accrued liabilities 2,522 1,095
Billings in excess of costs and recognized earnings on uncompleted
contracts 8,931 3,758
Current portion of long-term debt 3,955 304
-------- --------
Total current liabilities 31,768 11,975
Long-term debt, less current portion 103,370 4,927
Other liabilities 1,282 463
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $.001 par value - authorized 1,000,000 shares; none issued
Common stock, $.001 par value - authorized 20,000,000 shares; 7,022,420 and
7,000,000 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively 7 7
Additional paid-in capital 14,144 14,013
Retained earnings 13,068 10,653
-------- --------
Total stockholders' equity 27,219 24,673
-------- --------
$163,639 $ 42,038
======== ========
</TABLE>
Note: The balance sheet at December 31, 1997 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. See notes to condensed consolidated financial statements.
1
<PAGE> 4
SCHUFF STEEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 55,960 $ 35,439 $ 119,119 $ 98,123
Cost of revenues 46,948 29,574 101,828 83,968
--------- --------- --------- ---------
Gross profit 9,012 5,865 17,291 14,155
General and administrative expenses 4,922 2,281 10,369 6,457
--------- --------- --------- ---------
Operating income 4,090 3,584 6,922 7,698
Interest expense (2,738) (72) (3,842) (263)
Other income, net 696 146 1,241 414
--------- --------- --------- ---------
Income before income tax expense 2,048 3,658 4,321 7,849
Income tax expense 964 1,496 1,906 1,387
--------- --------- --------- ---------
Net income $ 1,084 $ 2,162 $ 2,415 $ 6,462
========= ========= ========= =========
Pro forma, net income data:
Net income, reported above $ 1,084 $ 2,162 $ 2,415 $ 6,462
Pro forma provision for income taxes
related to operations as S Corporation -- -- -- 1,513
--------- --------- --------- ---------
Pro forma net income $ 1,084 $ 2,162 $ 2,415 $ 4,949
========= ========= ========= =========
Pro forma net income per share:
Basic $ 0.15 $ 0.31 $ 0.34 $ 0.79
========= ========= ========= =========
Diluted $ 0.15 $ 0.31 $ 0.34 $ 0.78
========= ========= ========= =========
Weighted average shares used in computation:
Basic 7,022 6,931 7,011 6,275
========= ========= ========= =========
Diluted 7,161 7,077 7,180 6,334
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
SCHUFF STEEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,415 $ 6,462
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,239 1,125
Gains on disposals of property, plant and equipment (151) (21)
Deferred taxes (390) (114)
Unearned compensation 9 --
Changes in operating assets and liabilities:
Restricted funds on deposit (449) 244
Receivables (7,421) (2,497)
Costs and recognized earnings in excess of billings in
uncompleted contracts 631 (91)
Inventories (1,237) 3,997
Prepaid expenses and other current assets (240) (606)
Accounts payable (1,038) (3,196)
Accrued payroll and employee benefits 860 522
Accrued interest payable 3,499 46
Other accrued liabilities (2,134) 2,208
Billings in excess of costs and recognized earnings on
uncompleted contracts 3,192 (6,570)
Other liabilities 130 204
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 395 1,713
INVESTING ACTIVITIES
Acquisitions of property, plant and equipment (1,642) (1,338)
Proceeds from disposals of property, plant and equipment 3,767 40
Increase in other assets (10) (100)
Purchases of businesses, net of cash acquired (62,362) (427)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (60,247) (1,825)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings 41,912 17,777
Principal payments on revolving line of credit and long-term debt (44,531) (19,279)
Proceeds from issuance of senior notes, net of issuance costs 95,694 --
Proceeds from issuance of common stock, net of issuance costs -- 14,000
Proceeds from exercise of options 112 --
Cash distributions to stockholders -- (13,185)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 93,187 (687)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,335 (799)
Cash and cash equivalents at beginning of period 197 7,253
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,532 $ 6,454
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with 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. 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 nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. 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, 1997, and
the Company's Prospectus dated July 21, 1998 relating to the exchange offer of
$100.0 million in aggregate principal amount of its 10-1/2% senior notes due
June 1, 2008.
2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), adopted by the Company on December
31, 1997. SFAS No. 128 replaced the previously reported primary or fully diluted
pro forma earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported primary earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS No. 128 requirements. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for each of
the periods presented was not material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows. Schuff Steel is a calendar year end company, so it must adopt
SFAS No. 131 in 1998. Because SFAS No. 131 is not required to be applied to
interim financial statements in the initial year of adoption, the Company is not
required to disclose segment information in accordance with SFAS No. 131 until
its 1998 annual report, at which time it will restate prior years' segment
disclosures to conform to the SFAS No. 131
4
<PAGE> 7
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
segment presentation, if practicable. In the Company's first quarter 1999
report, and in subsequent quarters, it will present the interim disclosures
required by SFAS No. 131 for both 1999 and 1998.
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and stockholders' equity. SFAS No. 130 requires
the Company's changes in unfunded pension losses, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income. During the three and nine month periods ended September
30, 1998, total comprehensive income approximated net income.
3. RECEIVABLES
Receivables consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(in thousands)
<S> <C> <C>
Contract receivables:
Contracts in progress $38,199 $18,094
Unbilled retentions 6,161 6,520
------- -------
44,360 24,614
Other receivables 29 103
------- -------
$44,389 $24,717
======= =======
</TABLE>
4. INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(in thousands)
<S> <C> <C>
Raw materials $6,730 $1,846
Work-in-process 454 --
Finished goods 576 518
------ ------
$7,760 $2,364
====== ======
</TABLE>
5
<PAGE> 8
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
5. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted pro forma
net income per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
(in thousands, except per share date)
<S> <C> <C> <C> <C>
Numerator:
Pro forma net income $1,084 $2,162 $2,415 $4,949
====== ====== ====== ======
Denominator:
Weighted average shares 7,022 6,870 7,011 5,630
Net effect of shares issued that are attributed to
stockholder distributions made from initial
public offering proceeds -- 61 -- 645
------ ------ ------ ------
Denominator for basic pro forma net income per share 7,022 6,931 7,011 6,275
Effect of dilutive securities:
Employee and director stock options 139 146 169 59
------ ------ ------ ------
Denominator for diluted pro forma net income
per share - adjusted weighted average shares
and assumed conversions 7,161 7,077 7,180 6,334
====== ====== ====== ======
Pro forma net income per share:
Basic $ 0.15 $ 0.31 $ 0.34 $ 0.79
====== ====== ====== ======
Diluted $ 0.15 $ 0.31 $ 0.34 $ 0.78
====== ====== ====== ======
</TABLE>
6. INCOME TAXES
For the period from January 1, 1997 to June 26, 1997, the financial statements
of the Company do not include a provision for income taxes because the taxable
income of the Company was included in the income tax returns of the stockholders
under the S Corporation elections. Pro forma net income reflects the provision
for income taxes that would have been recorded had all of the Company's income
been subject to income taxes as a C Corporation for the S Corporation period
assuming an effective tax rate of 40 percent.
6
<PAGE> 9
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
7. ACQUISITIONS
Effective June 4, 1998, the Company purchased all of the issued and outstanding
capital stock of Addison Structural Services, Inc. (Addison). As a result of
such purchase, the Company acquired indirect ownership of the assets of
Addison's operating subsidiaries, Addison Steel, Inc. and Quincy Joist Company.
The aggregate purchase price was approximately $59.4 million.
Effective August 31, 1998, the Company purchased all of the issued and
outstanding capital stock of Six Industries, Inc. (Six). The aggregate purchase
price was approximately $17.9 million.
The acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been preliminarily allocated
to the assets and liabilities acquired based on the fair value at the date of
the acquisition. Goodwill is being amortized over 25 years. The operating
results of the acquirees have been included in the Company's consolidated
financial statements from the date of acquisition. The following unaudited pro
forma information presents a summary of consolidated results of operations as if
the acquisition had occurred on January 1, 1997:
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
-------- --------
(in thousands, except per
share date)
<S> <C> <C>
Revenues $162,348 $158,737
Net income 3,169 4,889
Diluted pro forma net income per share 0.44 0.77
</TABLE>
The pro forma amounts include a charge for all of the debt costs related to the
issuance of $100 million of the Company's 10-1/2 % senior notes, although the
entire amount of the debt was not used to finance the acquisitions. The pro
forma amounts do not reflect interest income that would have been earned on the
portion of the debt proceeds that were not used to fund the cash portion of the
purchase price of the acquirees, although such funds would have been available
to the Company for investment purposes.
7
<PAGE> 10
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
8. SUBSIDIARY GUARANTORS
The Company's 10-1/2% senior notes are fully and unconditionally guaranteed,
jointly and severally, on a senior subordinated basis by the Company's current
and future, direct and indirect subsidiaries (collectively the Subsidiary
Guarantors), all wholly owned. The following table sets forth the "summarized
combined financial information" of the Subsidiary Guarantors. There are
currently no restrictions on the ability of the Subsidiary Guarantors to
transfer funds to the Company in the form of cash dividends, loans or advances.
<TABLE>
<CAPTION>
September 30,
1998
-------------
(in thousands)
<S> <C>
Balance sheet data:
Current assets $40,588
Noncurrent assets 12,201
Total assets 52,789
Current liabilities 11,662
Noncurrent liabilities 636
Total stockholders' equity 40,491
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
------------------
(in thousands)
<S> <C>
Operating data:
Revenues $28,880
Gross profit 7,620
Net income 1,402
</TABLE>
The Company has no other subsidiaries other than the Subsidiary Guarantors. The
summarized combined financial information of the Subsidiary Guarantors includes
information only for the periods from the Subsidiary Guarantors' dates of
acquisitions, since prior to such acquisition dates, the Subsidiary Guarantors
were not subsidiaries of the Company. The Subsidiary Guarantors' net income also
includes goodwill amortization and interest expense, net of tax benefits,
allocated from the Company to reflect the amount of long-term debt used and
goodwill generated in the acquisitions.
8
<PAGE> 11
SCHUFF STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (CONTINUED)
9. CONTINGENT MATTERS
The Company is involved from time to time in 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 there are any such contingencies at December 31, 1997 or September 30,
1998 for which the eventual outcome would have a material adverse impact on the
Company.
10. SUBSEQUENT EVENT
On October 15, 1998, the Company purchased all of the issued and outstanding
capital stock of Bannister Steel, Inc. (Bannister). The aggregate purchase price
was $16.8 million, of which $15.8 was paid in cash and $1.0 million in the form
of a note payable. The acquisition will be accounted for under the purchase
method of accounting.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis of financial condition and results of operations
should be read in conjunction with the unaudited condensed consolidated
financial statements and the related disclosures included elsewhere herein and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and the Company's Prospectus dated July 21, 1998,
relating to the exchange offer of $100.0 million in aggregate principal amount
of its 10-1/2% senior notes due June 1, 2008.
Results of Operations
Revenues increased by 57.9 percent to $56.0 million for the three months ended
September 30, 1998 from $35.4 million for the three months ended September 30,
1997. Revenues increased by 21.4 percent to $119.1 million for the nine months
ended September 30, 1998 from $98.1 million for the nine months ended September
30, 1997. The increase in revenues for the three and nine month periods ended
September 30, 1998 was primarily a result of an additional $21.9 and $28.9
million, respectively, of revenues being generated by Addison Structural
Services, Inc. (Addison) and Six Industries, Inc. (Six) following their
acquisitions by the Company in June 1998 and August 1998. The average revenues
for the Company's ten largest revenue generating projects in the three and nine
month periods ended September 30, 1998 were $2.8 million and $5.7 million,
respectively, versus $2.7 million and $6.7 million in the three and nine month
periods ended September 30, 1997, respectively.
Gross profit increased by 53.7 percent to $9.0 million for the three-month
period ended September 30, 1998 from $5.9 million for the three-month period
ended September 30, 1997. Gross profit increased 22.2 percent to $17.3 million
for the nine-month period ended September 30, 1998 from $14.2 million for the
nine-month period ended September 30, 1997. The increases for the three and nine
month periods ended September 30, 1998 were primarily attributable to increases
in revenues. As a percentage of revenues, gross profit was 16.1 percent and 16.5
percent for the three month periods ended September 30, 1998 and 1997,
respectively, and 14.5 percent and 14.4 percent for the nine month periods ended
September 30, 1998 and 1997, respectively. The slight decrease in gross profit
as a percentage of revenues during the three-month period ended September 30,
1998 was primarily attributable to slightly higher margins achieved in the third
quarter of 1997.
General and administrative expenses increased by 115.8 percent to $4.9 million
for the three months ended September 30, 1998 from $2.3 million for the three
months ended September 30, 1997. General and administrative expenses increased
by 60.6 percent to $10.4 million for the nine months ended September 30, 1998
from $6.5 million for the nine months ended September 30, 1997. General and
administrative expenses as a percentage of revenues increased to 8.8 percent for
the three months ended September 30, 1998 from 6.4 percent for the three months
ended September 30, 1997. General and administrative expenses as a percentage of
revenues increased to 8.7 percent for the nine months ended September 30, 1998
from 6.6 percent for the
10
<PAGE> 13
nine months ended September 30, 1997. The increases in general and
administrative costs as a percentage of revenues were due primarily to increased
administrative costs associated with the Company's acquisitions, the addition of
general and administrative costs of the acquired companies which had higher
general and administrative costs as a percentage of revenues than the Company,
and amortization of $330,000 and $425,000 relating to the goodwill generated
from such acquisitions for the three and nine month periods ended September 30,
1998, respectively. General and administrative expenses include those for
contract bids, estimating, sales and marketing, facilities, project management,
and support services, none of which increased in proportion to the increase in
revenues, primarily because the Company's higher average contracts during the
period did not require proportionately higher general and administrative
expenses.
Interest expense increased to $2.7 million for the three months ended September
30, 1998 from $72,000 for the three months ended September 30, 1997. Interest
expense increased to $3.8 million for the nine months ended September 30, 1998
compared to $263,000 for the nine months ended September 30, 1997. The increases
in interest expense were attributable to the interest costs related to the
$100.0 million in principal amount of the Company's 10-1/2% senior notes in
June 1998.
Other income increased to $696,000 for the three-month period ended September
30, 1998 from $146,000 for the three-month period ended September 30, 1997.
Other income increased to $1.2 million for the nine-month period ended September
30, 1998 from $414,000 for the nine-month period ended September 30, 1997. The
increases in other income were attributable primarily to earnings on funds
invested from the cash proceeds of the $100.0 million private placement of the
10-1/2 % senior notes.
Income tax expense for the three month period ended September 30, 1998 was
$964,000, which reflects an effective tax rate of approximately 47 percent
compared to $1.5 million reflecting a 41 percent effective tax rate for the
three month period ended September 30, 1997. Income tax expense for the nine
month period ended September 30, 1998 was $1.9 million, which represents an
effective tax rate of 40 percent compared to a pro forma income tax expense for
the nine month period ended September 30, 1997 of $2.9 million reflecting a pro
forma effective tax rate of 37 percent. The increases in effective tax rates
were due primarily to amortization of goodwill of $330,000 and $425,000 for the
three and nine months ended September 30, 1998, respectively, which resulted
from the 1998 acquisitions and which is not deductible for tax purposes. The pro
forma effective tax rate for the nine months ended September 30, 1997 represents
an effective tax rate of 40 percent on the Company's earnings from the date of
its S Corporation status termination on June 26, 1997, offset by a $300,000
credit to deferred taxes generated upon the revocation of the Company's S
Corporation status.
Backlog remained relatively constant at $113.9 million at September 30, 1998
compared to $113.8 million at June 30, 1998. Backlog at December 31, 1997 was
$56.8 million. The increase in backlog compared to December 31, 1997 was the
result of additional backlog of approximately $40.6 million generated from the
Addison and Six acquisitions as well as backlog for one Schuff project in
California of $23.7 million.
11
<PAGE> 14
The Company has experienced, and is expected 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.
Liquidity and Capital Resources
The Company attempts to structure the payment arrangements under its contracts
to match costs incurred under the project. To the extent the Company is able to
bill in advance of costs incurred, it generates working capital through billings
in excess of costs and recognized earnings on uncompleted contracts. To the
extent the Company is not able to bill in advance of costs, it relies on its
credit facilities to meet its working capital needs. At September 30, 1998, the
Company had $2.0 million of borrowings under its line of credit. At such date,
the Company had working capital of approximately $66.9 million. The Company
believes that it has sufficient liquidity through its present resources,
including the remaining net proceeds of its initial public offering and funds
available under its bank credit facility, to meet its near term financial needs.
The Company's short-term cash needs are primarily for working capital to support
operations including receivables, inventories, and other costs incurred in
performing its contracts. Operating activities provided cash flows of $395,000
and $1.7 million for the nine months ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998, operating cash flows
were less than net income due to an increase in receivables of $7.0 million
offset by an increase of billings in excess of costs and recognized earnings on
uncompleted contracts of $3.2 million due to favorable billing terms,
depreciation and amortization of $2.2 million, and other changes in working
capital requirements. For the nine months ended September 30, 1997, operating
cash flows were less than net income due to increased working capital
requirements, which included a decrease of $6.6 million in billings in excess of
costs and recognized earnings on uncompleted contracts. Investing activities
required $60.2 million and $1.8 million for the nine months ended September 30,
1998 and 1997, respectively, substantially all of which were related to
purchases and disposals of property and equipment and the cash portion of the
acquisitions of Addison and Six in 1998 and B&K Steel in 1997. Financing
activities provided $93.2 million for the nine months ended September 30, 1998,
primarily consisting of $95.7 million in net funds received from the $100.0
million private placement of 10-1/2 % senior notes, of which $3.3 million was
used to pay existing indebtedness of the Company. Financing activities consumed
$687,000 for the nine months ended September 30, 1997, and were related to $1.5
million in net draws of long-term debt and line of credit balances,
distributions of $13.2 million to stockholders for income taxes related to the
operations of the business and other stockholder distributions relating to the
Company's prior status as an S Corporation, and $14.0 million in net proceeds
from the Company's initial public offering.
On June 4, 1998, the Company completed a private placement pursuant to Rule 144A
of the Securities Act of 1933 (Securities Act) of $100.0 million in principal
amount of its 10-1/2% senior notes due 2008 (Private Placement). Net proceeds
of the Private Placement were used to repay certain indebtedness of the Company
and to pay the cash portions of the purchase price for the
12
<PAGE> 15
Company's acquisitions of Addison and Six.
The Company utilizes a $25.0 million credit facility with a bank that matures on
June 30, 2001. The credit facility is secured by a first priority, perfected
security interest in all assets of the Company and its present and future
subsidiaries and is available for working capital and general corporate
purposes. Interest payable on borrowings outstanding under this credit facility
initially is equal to either the bank's base rate plus 0.50 percent or LIBOR
plus 2.50 percent, at the Company's option. The Company will be eligible for
reductions in the initial margins on the credit facility if the Company achieves
certain performance targets based upon certain financial ratios, as defined.
The credit facility also requires that the Company maintain specified leverage
ratios, interest coverage ratios, fixed charge coverage ratios and a specified
minimum EBITDA. The credit facility also contains other covenants that, among
other things, limit the Company's ability to pay cash dividends or make other
distributions, change its business, 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 contains events of default customary for facilities of this
type, including, without limitation, the Company's failure to pay principal,
interest, fees or other amounts when due, the breach of any covenant,
representation or warranty, bankruptcy, insolvency or similar events involving
the Company or its subsidiaries, the unenforceability of any of the credit
facility agreements or liens securing payment obligations under the credit
facility, and the occurrence or existence of any event or circumstances which
has a material adverse affect upon the Company.
The Company estimates that its capital expenditures for 1998 will be
approximately $3.0 million of which approximately $1.7 million had been expended
as of September 30, 1998. The Company estimates that its available funds, cash
generated by operating activities and funds available under its bank credit
facility will be sufficient to fund these capital expenditures and its working
capital needs. However, the Company may expand its operations through future
acquisitions and may require additional equity or debt financing.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), adopted by the Company on December
31, 1997. SFAS No. 128 replaced the previously reported primary or fully diluted
pro forma earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported primary earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS No. 128 requirements. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for each of
the periods presented was not material.
13
<PAGE> 16
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows. Schuff Steel is a calendar year end company, so it must adopt
SFAS No. 131 in 1998. Because SFAS No. 131 is not required to be applied to
interim financial statements in the initial year of adoption, the Company is not
required to disclose segment information in accordance with SFAS No. 131 until
its 1998 annual report, at which time it will restate prior years' segment
disclosures to conform to the SFAS No. 131 segment presentation, if practicable.
In the Company's first quarter 1999 report, and in subsequent quarters, it will
present the interim disclosures required by SFAS No. 131 for both 1999 and 1998.
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and stockholders' equity. SFAS No.
130 requires the Company's changes in unfunded pension losses, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income.
Year 2000
The Company has determined that it and one of its subsidiaries, Six, will need
to modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and beyond. The Company
also has initiated discussions with its significant suppliers, large customers
and financial institutions to ensure that those parties have appropriate plans
to remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.
14
<PAGE> 17
Addison has determined that the majority of its financial accounting, inventory
and other software and its computer systems are not year 2000 compliant. Addison
is assessing the necessary modifications and costs associated with the year 2000
issue and is assessing the compliance of its customers' and suppliers' software
and computer systems or the steps, if any, taken or expected to be taken by them
to remediate potential year 2000 issues where their systems interface with
Addison's systems. The Company intends to upgrade Addison's software and
computer systems and to integrate such software and systems with those utilized
by the Company.
The Company's assessment of and necessary modifications for the year 2000 issue
are estimated to be completed in early 1999. Schuff believes that with current
systems and anticipated modifications, the year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and necessary conversions are not made or are not completed in a
timely manner, the year 2000 issue could have a material impact on the
operations of the Company. There can also be no assurance that the systems of
any other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the Company.
Any remaining costs of year 2000 initiatives are not expected to be material to
the Company's results of operation or financial position.
Special Note Concerning Forward Looking Statements
This Quarterly Report on Form 10-Q, including the Notes to the Condensed
Consolidated Financial Statements and this "Management's Discussion and Analysis
of Financial Condition and Results of Operations," contain forward looking
statements. Additional written or oral forward looking statements may be made by
the Company from time to time in filings with the Securities and Exchange
Commission, in its 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 services of the Company, 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.
Forward looking statements reflect the Company's 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 by, or underlying the forward looking statements. Statements in
this Quarterly Report, including the Notes to the Condensed Consolidated
Financial Statements and in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," describe factors, among others,
that could contribute to or cause such differences. Other factors that could
cause actual results to differ materially from those expressed in such forward
looking statements are set forth below 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. The
Company undertakes no obligation to publicly update or review any forward
looking statements as a result of new information, future events, or any other
reason.
Factors That May Affect Future Operating Results and Financial Condition.
The Company's future operating results and financial condition are dependent on
a number of factors.
15
<PAGE> 18
Substantial Leverage and Ability to Service Debt
With the Company's 10-1/2% senior notes, existing line of credit facility and
other positionings, the Company is highly leveraged with substantial debt
service in addition to operating expenses and planned capital expenditures. The
Company's 10-1/2% senior notes permit the Company to incur additional
indebtedness, subject to certain limitations, including additional secured
indebtedness under existing credit facilities.
The Company's level of indebtedness will have several important effects on its
future operations, including, without limitation, (i) a substantial portion of
the Company's cash flow from operations must be dedicated to the payment of
interest and principal on its 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 the Company to meet certain financial tests, and other restrictions
will limit its ability to borrow additional funds or to dispose of assets, and
may affect the Company's flexibility in planning for, and reacting to, changes
in its business, including possible acquisition activities, (iii) the Company's
leveraged position will substantially increase its vulnerability to adverse
changes in general economic, industry and competitive conditions, (iv) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be limited
and (v) the Company's leveraged position and the various covenants contained in
the senior notes and the credit facility may place the Company at a relative
competitive disadvantage as compared to certain of its competitors. The
Company's ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic, industry and competitive conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it 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 its indebtedness, including the 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 enable the Company to service its debt, or that any of
these measures could be effected on satisfactory terms, if at all.
Fluctuating Quarterly Results of Operations
The Company has experienced, and in the future is expected to continue to
experience, substantial variations in its results of operations as a result of a
number of factors, many of which are outside the Company's control. In
particular, the Company's operating results may vary because of downturns in one
or more segments of the building construction industry, changes in economic
conditions, the Company's failure to obtain, or delays in awards of, major
projects, the cancellation of major projects, or the Company's failure to timely
replace projects that have been completed or are nearing completion. Any of
these factors could result in the periodic inefficient use or underutilization
of the Company's resources and could cause the Company's operating results to
fluctuate significantly from period to period, including on a quarterly basis.
16
<PAGE> 19
Fixed Price Contracts
A substantial portion of the Company's backlog consists of projects being
performed on a fixed price basis. In bidding on projects, the Company estimates
its 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, increases in labor or material costs and other
factors. These variations could have a material adverse effect on the Company's
business, financial condition and results of operations for any period.
Dependence On Construction Industry
The Company earns virtually all of its revenues in the building construction
industry, which is subject to local, regional and national economic cycles. The
Company's 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 declines
significantly in the Company's principal markets, the Company's business,
financial condition and results of operations would be adversely affected.
Capacity Constraints, Dependence On Subcontractors
The Company routinely relies on subcontractors to perform a significant portion
of its fabrication and project detailing to fulfill projects that the Company
cannot fulfill in-house due to capacity constraints or that are in markets in
which the Company has not established a strong local presence. Addison and
Bannister currently subcontracts to others all of its erection services and most
of their project detailing. With respect to these projects, the Company's
success depends on its ability to retain and successfully manage these
subcontractors. Any difficulty in attracting and retaining qualified
subcontractors on terms and conditions favorable to the Company could have an
adverse effect on the Company's ability to complete these projects in a timely
and cost effective manner.
Operating Risks; Litigation
Construction and heavy steel plate weldments involve a high degree of
operational risk. Natural disasters, adverse weather conditions, design,
fabrication and erection errors and work environment accidents can cause death
or personal injury, property damage and suspension of operations. The occurrence
of any of these events could result in loss of revenues, increased costs, and
liability to third parties. The Company is subject to litigation claims in the
ordinary course of business, including lawsuits asserting substantial claims.
Currently, the Company does not maintain any reserves for its ongoing
litigation, and expenses litigation costs as incurred. The Company periodically
reviews the need to maintain a litigation reserve. The Company maintains risk
management, insurance, and safety programs intended to prevent or mitigate
losses. There
17
<PAGE> 20
can be no assurance that any of these programs will be adequate or that the
Company will be able to maintain adequate insurance in the future at rates that
it considers reasonable.
Union Contracts
The Company currently is a party to a number of collective bargaining agreements
with various unions representing some of the Company's fabrication and erection
employees. These contracts expire or are subject to expiration at various times
in the future. The inability of the Company to renew such contracts could result
in work stoppages and other labor disturbances, which could disrupt the
Company's business and adversely affect the Company's results of operations.
Revenue Recognition Estimates
The Company recognizes revenues using the percentage of completion accounting
method. Under this method, revenues are recognized based on the ratio that costs
incurred to date bear to the total estimated costs to complete the project.
Estimated losses on contracts are recognized in full when the Company determines
that a loss will be incurred. The Company frequently reviews and revises revenue
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,
the Company would recognize a charge against operating results, which could have
a material adverse effect on the Company's results of operations for the
applicable period.
Geographic Concentration
The Company's fabrication and erection operations currently are conducted
primarily in Arizona, Nevada, Florida, Georgia, California and Texas, states in
which the construction industry has experienced substantial growth during recent
years. Because of this concentration, future construction activity and the
Company's business may be adversely affected in the event of a downturn in
economic conditions existing in these states and in the southwestern and
southeastern United States generally. Factors that may affect economic
conditions include increases in interest rates or limitations in the
availability of financing for construction projects, decreases in the amount of
funds budgeted for governmental projects, decreases in capital expenditures
devoted to the construction of plants, distribution centers, retail shopping
centers, industrial facilities, hotels and casinos, convention centers and other
facilities, the prevailing market prices of copper, gold and other metals that
impact related mining activity, and downturns in occupancy rates, office space
demand, tourism and convention related activity and population growth.
Variations In Backlog; Dependence on Large Contracts
The Company's backlog can be significantly affected by the receipt, or loss, of
individual contracts. In the event one or more large contracts were terminated
or their scope reduced, the
18
<PAGE> 21
Company's backlog would decrease substantially. The Company's future business
and results of operations may be adversely affected if it is unable to replace
significant contracts when lost or completed, or if it otherwise fails to
maintain a sufficient level of backlog.
Risks Of International Operations
The Company currently operates in selected international markets and is seeking
to further expand its presence in these markets. The Company's international
operations are subject to certain political, economic and other uncertainties,
including risks of war, nationalization of assets, renegotiation or
nullification of existing contracts, changing political conditions, changing
laws and policies affecting trade and investment, and overlap of different tax
structures. Although the Company currently attempts to limit its exposure to
currency fluctuations by dealing solely in United States dollars, there can be
no assurance that the Company's international operations will escape the risks
of fluctuating currency values, hard currency shortages, or controls on currency
exchange.
Competition
Many small and various large companies offer fabrication, erection and related
services that compete with those provided by the Company. Local and regional
companies offer competition in one or more of the Company's geographic markets
or product segments. Out of state or international companies may provide
competition in any market. The Company competes for every project it obtains.
Although the Company believes customers consider, among other things, the
availability and technical capabilities of equipment and personnel, efficiency,
safety record and reputation, price competition usually is the primary factor in
determining which qualified contractor is awarded a contract. Competition has
resulted in pressure on pricing and operating margins, and the effects of
competitive pressure in the industry may continue. Some of the Company's
competitors have greater capital and other resources and are less leveraged than
the Company and are well established in their respective markets. There can be
no assurance that the Company's competitors will not substantially increase
their commitment of resources devoted to competing aggressively with the Company
or that the Company will be able to compete profitably with its competitors.
Substantial Liquidity Requirements
The Company's operations require significant amounts of working capital to
procure materials for contracts to be performed over relatively long periods,
and for purchases and modifications of heavy-duty and specialized fabrication
equipment. In addition, the Company's contract arrangements with customers
sometimes require the Company to provide payment and performance bonds and, in
selected cases, letters of credit, to partially secure the Company's obligations
under its contracts, which may require the Company to incur significant
expenditures prior to receipt of payments. Furthermore, the Company's customers
often will retain a portion of amounts otherwise payable to the Company during
the course of a project as a guarantee of completion of that project. To the
extent the Company is unable to receive project payments in the early stages of
a project, the Company's cash flow would be reduced, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
19
<PAGE> 22
No Assurance Of Successful Acquisitions
In addition to the acquisitions of Addison, Six, and Bannister, the Company
intends to consider, and is currently pursuing, acquisitions of and alliances
with other companies in its industry that could complement the Company's
business, including the acquisition of entities in diverse geographic regions
and entities offering greater access to industries and markets not currently
served by the Company. There can be no assurance that suitable acquisition or
alliance candidates can be identified or, if identified, that the Company will
be able to consummate such transactions or obtain the necessary funding for such
acquisitions. Further, there can be no assurance that the Company will be able
to integrate successfully any acquired companies into its existing operations,
or to retain key customers and employees of acquired businesses. If the costs of
such integration exceed expectations or if the Company experiences unexpected
costs or liabilities in the acquired business, the Company's operating results
and financial condition could be materially and adversely affected. In addition,
any acquisition may result in incurrence of additional debt and assumption of
additional liabilities, including contingent liabilities, all of which could
adversely affect the Company's cash flow. Acquisitions involve numerous risks,
such as diverting attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has 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 the Company's
business, financial condition and results of operations.
The acquisitions of Addison, Six and Bannister have consumed and will continue
to consume substantial management attention and resources of the Company, and
will require substantial efforts and entail certain risks in the integration of
its operations. There can be no assurance that anticipated cost savings or
synergies will be achieved. The Company will be dependent on the retention and
performance of the acquired companies' existing management and employees for
their day-to-day management and future operating results of Addison, Six and
Bannister.
Dependence Upon Key Personnel
The Company's success depends on the continued services of the Company's senior
management and key employees as well as the Company's ability to attract
additional members to its management team with experience in the steel
fabrication and erection industry. The unexpected loss of the services of any of
the Company's management or other key personnel, or its inability to attract new
management when necessary, could have a material adverse effect upon the
Company.
Potential Environmental Liability
The Company's 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
20
<PAGE> 23
could materially and adversely affect the Company. 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 the Company has not incurred any material environmental related
liability in the past and believes that it is in material compliance with
environmental laws, there can be no assurance that the Company, or entities for
which it may be responsible, will not incur such liability in connection with
the investigation and remediation of facilities it currently operates (or
formerly owned or operated) or other locations in a manner that could materially
and adversely affect the Company.
Governmental Regulation
Many aspects of the Company's operations are subject to governmental regulations
in the United States and in other countries in which the Company operates,
including regulations relating to occupational health and workplace safety,
principally the Occupational Safety and Health Act and regulations thereunder.
In addition, the Company is subject to licensure and holds or has applied for
licenses in each of the states in the United States in which it operates and in
certain local jurisdictions within such states. Although the Company believes
that it is in material compliance with applicable laws and permitting
requirements, there can be no assurance that it will be able to maintain this
status. Further, the Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new regulations
or changes in or new interpretations of existing regulations.
Year 2000
The Company has determined that it and one of its subsidiaries, Six, will need
to modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and beyond. The Company
also has initiated discussion with its significant suppliers, large customers
and financial institutions to ensure that those parties have appropriate plans
to remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.
21
<PAGE> 24
Addison has determined that the majority of its financial accounting, inventory
and other software and its computer systems are not year 2000 compliant. Addison
is assessing the necessary modifications and costs associated with the year 2000
issue and has not assessed the compliance of its customers' and suppliers'
software and computer systems or the steps, if any, taken or expected to be
taken by them to remediate potential year 2000 issues where their systems
interface with Addison's systems. Following the acquisition, the Company began
to upgrade Addison's software and computer systems and to integrate such
software and systems with those utilized by the Company.
The Company's assessment of and necessary modifications for the year 2000 issue
are estimated to be completed in early 1999. The Company believes that with
current systems and anticipated modifications, the year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and necessary conversions are not made or are not completed in a
timely manner, the year 2000 issue could have a material impact on the
operations of the Company. There can also be no guarantee that the systems of
any other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the Company.
Any remaining costs of year 2000 initiatives are not expected to be material to
the Company's results of operation or financial position.
Possible Volatility Of Stock Price
In recent years, the stock market has experienced significant price and volume
fluctuations that have had a substantial effect on the market prices for many
companies and have often been unrelated to the operating performance of such
companies. Such market fluctuations could materially adversely affect the market
price for the Company's Common Stock. The market price of the Common Stock could
also be subject to significant fluctuations in response to variations in the
Company's quarterly operating results, analyst reports, announcements concerning
the Company, legislative or regulatory changes or the interpretation of existing
statutes or regulations affecting the Company's business, litigation, general
trends in the industry and other events or factors.
22
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 15, 1998, and pursuant to a Stock Purchase Agreement dated as of
September 30, 1998 (Purchase Agreement), among the Company; Ted F. Rossin and
Connie A. Rossin, John N. Achuff, II and Mary P. Achuff, Arnold Baumgartner,
Ronald Bowers and Tonie L. Bowers, Jeffrey Clinkscales and Kimberly Clinkscales,
Guadalupe Nunez and Graciela Nunez (collectively the Sellers); and Bannister
Steel, Inc. (Bannister); the Company purchased all of the issued and outstanding
shares of capital stock of Bannister from Sellers. Bannister provides structural
steel fabrication services for industrial and commercial projects to the
Southern California construction market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
27 Financial Data Schedule
(b) During the quarter ended September 30, 1998, the Company filed: (i)
Current Report on Form 8-K dated August 12, 1998, pursuant to Items 5
and 7, to file a copy of the Company's press release entitled, "Schuff
Steel Announces Definitive Agreement To Acquire Six Industries, Inc.,"
and (ii) Current Report on Form 8-K dated August 31, 1998, pursuant to
Items 5 and 7, to disclose the completion of the Company's acquisition
of Six Industries, Inc. ("Six") and to file copies of the Stock
Purchase Agreement among the Company, Wayne Harris, and Six and the
Company's press release relating to the foregoing.
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 STEEL COMPANY
Date: November 16, 1998 By: /s/ Kenneth F. Zylstra
--------------------------
KENNETH F. ZYLSTRA
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
23
<PAGE> 26
Exhibits Index
Exhibit
Number Description of Exhibit
------- ----------------------
27 Financial Data Schedule
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<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1,000
<CASH> 36,077
<SECURITIES> 0
<RECEIVABLES> 44,389
<ALLOWANCES> 0
<INVENTORY> 7,760
<CURRENT-ASSETS> 98,675
<PP&E> 30,193
<DEPRECIATION> 11,941
<TOTAL-ASSETS> 163,639
<CURRENT-LIABILITIES> 31,768
<BONDS> 103,370
0
0
<COMMON> 7
<OTHER-SE> 27,212
<TOTAL-LIABILITY-AND-EQUITY> 163,639
<SALES> 119,119
<TOTAL-REVENUES> 119,119
<CGS> 101,828
<TOTAL-COSTS> 101,828
<OTHER-EXPENSES> 10,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,842
<INCOME-PRETAX> 4,321
<INCOME-TAX> 1,906
<INCOME-CONTINUING> 2,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,415
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
