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-tax profitability of $1.00 and cash or margined security collateral pledged dollar for dollar for any outstanding letters of credit. The $15 million credit facility is also restricted to $5 million until the Company’s rolling 12-month EBITDA exceeds $25 million.

7. Net (Loss) Income Per Share

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


		Three months ended					Six months ended
		June 30					June 30

		2002			2001		2002			2001

		(in thousands, except per share data)
Numerator:




(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

Denominator:




	Weighted average shares		7,273			7,209		7,268			7,206





Denominator for basic net (loss) income per share			7,273			7,209		7,268			7,206
Effect of dilutive securities:




	Employee and director stock options		—			448		—			255

	Denominator for diluted net (loss) income per share – adjusted weighted average shares and assumed conversions		7,273			7,657		7,268			7,461





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

8. Adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”

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

continue to be amortized over their useful lives.

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

In connection with adopting this standard as of January 1, 2002, during the first quarter the Company completed step one of the test for impairment, which indicated that the carrying values of certain reporting units exceeded their estimated fair values, as determined utilizing various evaluation techniques including discounted cash flow and comparative market analysis. Given the indication of a potential impairment, the Company completed step two of the test. Based on that analysis, a transitional impairment loss of $29.6 million, or $4.07 per basic and diluted earnings per share, was recognized as the cumulative effect of an accounting change. The impairment charge resulted from declining near term results given current economic conditions in the Western US, Southwest and Southeastern US segments. The enterprise values of the reporting units were estimated by a third party appraisal firm considering both an income and market multiple approach. The impaired goodwill was not deductible for tax purposes, and as a result, no tax benefit was recorded in relation to the charge.

The following table presents the pro forma financial results for the three and six month periods ended June 30, 2002 and 2001, respectively, on a basis consistent with the new accounting principle:


	Three months ended					Six months ended
	June 30					June 30

	2002			2001		2002			2001

	(in thousands, except per share data)
Reported (loss) income before cumulative effect of a change in accounting principle	$	(931	)	$	1,969	$	(840	)	$	3,789




Add back goodwill amortization		—			541		—			1,082

Adjusted (loss) income before cumulative effect of a change in accounting principle		(931	)		2,510		(840	)		4,871




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

Adjusted net (loss) income	$	(931	)	$	2,510	$	(30,431	)	$	4,871

Basic (loss) income per share:




(Loss) income per share before the cumulative effect of a change in accounting principle	$	(0.13	)	$	0.35	$	(0.12	)	$	0.68




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

Net (loss) income per share	$	(0.13	)	$	0.35	$	(4.19	)	$	0.68

Diluted (loss) income per share:




(Loss) income per share before the cumulative effect of a change in accounting principle	$	(0.13	)	$	0.33	$	(0.12	)	$	0.65




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

Net (loss) income per share	$	(0.13	)	$	0.33	$	(4.19	)	$	0.65

The changes in the carrying amount of goodwill for the six months ended June 30, 2002 are as follows:


	Western
	US		Southwest		Southeastern US		Total

	(in thousands)
Balance at December 31, 2001	$	11,233	$	11,937	$	23,536	$	46,706




Transitional impairment charge		8,924		8,569		12,098		29,591

Balance at June 30, 2002	$	2,309	$	3,368	$	11,438	$	17,115

9. Gain on Extinguishment of Debt

The Company recognized a gain of $183,000 (included in other income) and related income tax expense of $73,000 during the three months ended March 31, 2001 due to the repayment of $2.0 million of the Company’s 10-1/2% Senior Notes at a 12% discount, net of the write-off of related unamortized debt issue costs. This gain, net of tax, increased both basic and diluted earnings per share by $0.02.

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 six months ended June 30, 2002 nor were there any material changes to the contingencies existing at December 31, 2001, as listed in the Company’s 10-K, for which the eventual outcome could have a material adverse impact on the Company.

11. Segment Information


	Three Months Ended June 30, 2002

	Western		Pacific					Southeastern
	US		Southwest			Southwest		US		Total

	(in thousands)
Revenues from external customers	$	6,944	$	20,334		$	4,983	$	19,638	$	51,899




Intersegment revenues		—		836			—		587		1,423




Operating income (loss)		523		(1,229	)		202		1,512		1,008

	Three Months Ended June 30, 2001

	Western		Pacific					Southeastern
	US		Southwest			Southwest		US		Total

	(in thousands)
Revenues from external customers	$	6,980	$	24,807		$	3,702	$	21,467	$	56,956




Intersegment revenues		—		81			240		1,071		1,392




Operating income, excluding goodwill amortization		845		822			586		3,849		6,102

	Six Months Ended June 30, 2002

	Western		Pacific					Southeastern
	US		Southwest			Southwest		US		Total

	(in thousands)
Revenues from external customers	$	14,928	$	39,794		$	9,190	$	39,082	$	102,994




Intersegment revenues		—		1,759			10		1,863		3,632




Operating income (loss)		1,107		(1,069	)		136		3,342		3,516


	Six Months Ended June 30, 2001

	Western		Pacific				Southeastern
	US		Southwest		Southwest		US		Total

	(in thousands)
Revenues from external customers	$	14,943	$	49,789	$	6,240	$	45,664	$	116,636




Intersegment revenues		—		325		26		2,468		2,819




Operating income, excluding goodwill amortization		1,423		2,219		592		7,724		11,958

A reconciliation of combined operating income, excluding goodwill amortization, for all segments to consolidated income before income taxes is as follows:


	Three Months Ended						Six Months Ended
	June 30						June 30

	2002			2001			2002			2001

	(in thousands)
Total operating income, excluding goodwill amortization for reportable segments	$	1,008		$	6,102		$	3,516		$	11,958




Goodwill amortization		—			(541	)		—			(1,082	)




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




Other income		298			416			450			1,019

(Loss) income before income taxes	$	(1,282	)	$	3,231		$	(1,243	)	$	6,355

12. Comprehensive Income

Total comprehensive (loss) income for the three and six months ended June 30, 2002 and 2001 equaled net (loss) income for the corresponding periods.

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 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, 2001.

Results of Operations

Overview

During the third and fourth quarters of 2001 and continuing into the first and second quarters of 2002, the commercial construction industry experienced a dramatic downturn as a result of macroeconomic conditions and the terrorist attacks of September 11, 2001. These factors resulted in elongated selling cycles and reduced demand for our products and services, especially in leisure and tourism-based construction projects. The net result was lower revenues and depressed gross margins across the majority of our business units and in projects both large and small.

Revenues

Revenues decreased by 8.9 percent to $51.9 million for the three months ended June 30, 2002 from $57.0 million for the three months ended June 30, 2001. Revenues decreased by 11.7 percent to $103.0 million for the six months ended June 30, 2002 from $116.6 million for the six months ended June 30, 2001. The average revenues for our ten largest revenue generating projects in the three and six month periods ended June 30, 2002 were $1.7 million and $3.0 million, respectively, versus $2.1 million and $3.4 million in the three and six month periods ended June 30, 2001, respectively. The decrease in revenues and average revenues was the result of the continuing downturn of the commercial construction industry, as described above.

Gross Profit

Gross profit decreased by 43.3 percent to $6.7 million for the three month period ended June 30, 2002 from $11.9 million for the three month period ended June 30, 2001. Gross profit decreased by 38.2 percent to $15.0 million for the six month period ended June 30, 2002 from $24.3 million for the six month period ended June 30, 2001. Such decreases were primarily attributable to cost overruns on some projects coupled with the decreases in gross profit percentage. As a percentage of revenues, gross profit decreased to 13.0 percent and 14.6 percent for the three and six month periods ended June 30, 2002, from 20.8 percent for both the three and six month periods ended June 30, 2001. The decrease in gross profit as a percentage of revenues was primarily due to the receipt of a number of lower margin projects last year and into 2002. We accepted these projects to sustain our volume and keep our shops at capacity.

During the three and six month periods ended June 30, 2002, costs associated with the project management department at our Pacific Southwest segment were charged directly to projects and were therefore included in the cost of revenues for the quarter and year. In order to conform with the 2002 presentation, $623,000 and $1.3 million of project management costs for the Pacific Southwest segment were reclassified from general and administrative expenses to cost of revenues in the three and six month periods ended June 30, 2001. Costs of the project management departments of our other segments continue to be included in the cost of revenues for all periods presented.

General and Administrative Expenses

General and administrative expenses decreased by 1.0 percent to $5.7 million for the three months ended June 30, 2002 from $5.8 million for the three months ended June 30, 2001. General and administrative expenses decreased by 6.8 percent to $11.5 million for the six months ended June 30, 2002 from $12.3 million for the six months ended June 30, 2001. The decreases in 2002 were largely attributable to our continued efforts to reduce costs. General and administrative expenses as a percentage of revenues increased to 11.0 percent and 11.1 percent for the three and six months ended June 30, 2002, respectively, from 10.1 percent and 10.6 percent for the three and six months ended June 30, 2001. The increases were primarily a result of decreased revenues in 2002.

Interest Expense

Interest expense decreased to $2.6 million for the three months ended June 30, 2002 from $2.7 million for the three months ended June 30, 2001 and to $5.2 million for the six months ended June 30, 2002 from $5.5 million for the six months ended June 30, 2001. The decrease in interest expense is due to the reduction of long term debt during 2001. Interest expense is primarily attributable to our remaining $95.5 million 10-1/2% Senior Notes issued in June 1998.

Other Income

Other income decreased to $298,000 for the three months ended June 30, 2002 from $416,000 for the three months ended June 30, 2001 and to $450,000 for the six months ended June 30, 2002 from $1.0 million for the six months ended June 30, 2001. The decrease was primarily due to the $183,000 gain on the extinguishment of debt and the $107,000 gain on the sale of a long-term investment, which both occurred in 2001 but not in 2002.

Income Tax Provision

The income tax benefit was $351,000, which reflects a 27.4 percent effective tax rate, and $403,000, which reflects a 32.4 percent effective tax rate, for the three and six month periods ended June 30, 2002, respectively. The effective tax rate was lower than the federal statutory rates primarily because of the available federal and state research and development tax credits. The income tax expense was $1.3 million, or a 39.1 percent effective tax rate, and $2.6 million, or a 40.4 percent effective tax rate, for the three and six month periods ended June 30, 2001, respectively. The effective tax rates for the three and six month periods ended June 30, 2001 were higher than the federal statutory rates primarily because of state income taxes and the amortization of goodwill, which is not deductible for tax purposes.

Cumulative Effect of a Change in Accounting Principle

We adopted SFAS No. 142 during the quarter ended March 31, 2002. This standard eliminates goodwill amortization upon adoption and requires an assessment for goodwill impairment upon adoption and at least annually thereafter. As a result of adoption of this standard, we did not amortize goodwill during the quarter ended March 31, 2002 and incurred a noncash transitional impairment charge of $29.6 million.

Backlog

Backlog increased 20.4 percent to $189.6 million ($100.8 million under contracts or purchase orders and $88.8 million under letters of intent) at June 30, 2002 from $157.5 million at March 31, 2002. The increase in backlog compared to March 31, 2002 was the result of the award of several large projects. We have made a continuing effort to focus on bidding on a greater number of projects with a shorter duration to maximize efficiencies and reduce risk.

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

Liquidity and Capital Resources

We attempt to structure the payment arrangements under our contracts to match costs incurred under related projects. To the extent we are able to bill in advance of costs incurred, we generate working capital through billings in excess of costs and recognized earnings on uncompleted contracts. To the extent we are not able to bill in advance of costs, we rely on our credit facilities to meet our working capital needs. At June 30, 2002, we had working capital of approximately $63.3 million and no borrowings under our credit facility. Our $15 million credit facility is currently restricted to $5 million until our rolling 12-month EBITDA (i.e., Earnings Before Interest, Taxes, Depreciation and Amortization) exceeds $25 million. At June 30, 2002, there was approximately $4.0 million of credit available under the credit facility for borrowings, which is net of approximately $1.0 million of outstanding letters of credit under which we are committed. We believe that we have sufficient liquidity through our present resources and the existence of our bank credit facility to meet our near-term operating needs.

We renewed our bank credit facility in September 2001. The credit facility now matures on June 30, 2003, and is available for working capital and general corporate purposes. In July 2002, we amended our credit facility and covenants due to our second quarter financial performance and our outlook for the remainder of the year 2002. The leverage ratio covenant was eliminated and new minimum levels for EBITDA 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-tax profitability of $1.00 and cash or margined security collateral pledged dollar for dollar for any outstanding letters of credit.

The credit facility is secured by a first priority, perfected security interest in all of our assets and our present and future subsidiaries. The interest rate is currently prime plus 1.5%.

The credit facility also requires that we maintain a specified fixed charge coverage ratio, a specified minimum EBITDA and specified maximum capital expenditures. The credit facility also contains other covenants that, among other things, limit our ability to pay cash dividends or make other distributions, change our business, merge, consolidate or dispose of material portions of our assets.

The security agreements pursuant to which our assets are pledged prohibit any further pledge of such assets without the written consent of our bank.

Our short term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing our contracts. Operating activities provided cash flows of $7.9 million and $2.7 million in the six months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002, operating cash flows were greater than net loss due to the addback of the $29.6 million non-cash charge for the cumulative effect of a change in accounting principle, $1.4 million decrease in accounts receivable, $1.6 million decrease in costs in excess of billings and estimated earnings on uncompleted contracts, $1.1 million increase in accounts payable and $2.0 million increase in billings in excess of costs and estimated earnings on uncompleted projects offset by a $1.2 million decrease in accrued payroll and employee benefits. For the six months ended June 30, 2001, operating cash flows were less than net income due to a $5.9 million increase in costs and recognized earnings in excess of billings on uncompleted contracts and a $3.1 million decrease in billings in excess of costs and

estimated earnings on uncompleted projects offset by a $6.1 million decrease in accounts receivable and a $2.0 million decrease in inventory. Cash used in investing activities totaled $246,000 for the six months ended June 30, 2002, substantially all of which was upgrades of fabrication equipment offset by the proceeds from the sale of property and equipment. Cash used in investing activities totaled $3.0 million for the six months ended June 30, 2001, substantially all of which was related to the expansion of one of our facilities and upgrades of fabrication equipment. Financing activities used $61,000 in the six months ended June 30, 2002, substantially all of which was related to the purchase of treasury stock offset by the issuance of common stock. Financing activities required $3.0 million in the six months ended June 30, 2001, substantially all of which was related to the repayment of $2.0 million of our 10-1/2% Senior Notes at a discount.

On June 4, 1998, we completed a private placement pursuant to Rule 144A of the Securities Act of 1933 of $100.0 million in principal amount of our 10-1/2% Senior Notes due 2008 (“Senior Notes”). Net proceeds from the Senior Notes were used to repay certain indebtedness and to pay the cash portions of the purchase price for our acquisitions of ASSI, Six and Bannister. The Senior Notes are redeemable at our option, in whole or in part, beginning in 2003 at a premium declining ratably to par by 2006. We may redeem up to 35.0% of the Senior Notes at a premium with the proceeds of an equity offering, provided that at least 65.0% of the aggregate amount of the Senior Notes originally outstanding remain outstanding. The Senior Notes contain covenants that, among other things, provide limitations on additional indebtedness, sale of assets, change of control and dividend payments. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by our current and future, direct and indirect subsidiaries. During 2001, we repurchased $4.5 million in principal amount of our Senior Notes at a discount on the open market.

We have no other long-term debt commitments.

We lease some of our fabrication and office facilities from a partnership in which our principal beneficial stockholders and their family members are the general and limited partners. We have three leases with the partnership for our principal fabrication and office facilities, the property and equipment acquired in the 1997 acquisition of B&K Steel Fabrications, Inc., and additional office facilities adjacent to our principal office and shop facilities. Each lease has a 20-year term and is subject to increases every five years commencing in 2002 pursuant to a Consumer Price Index formula. Our annual rental payments for the three leases were $1.1 million in 2001 and each year thereafter during the remaining terms of the leases.

We estimate that our capital expenditures for 2002 will approximate $550,000 in addition to the approximately $450,000 that has been expended as of June 30, 2002. We believe that our available funds, cash generated by operating activities and funds available under our bank credit facilities will be sufficient to fund these capital expenditures and our operating needs. However, we may expand our operations through future acquisitions and may require additional equity or debt financing.

Factors That May Affect Future Operating Results and Financial Condition.

Our future operating results and financial condition are dependent on a number of factors that we must successfully manage in order to achieve favorable future operating results and financial condition. The following potential risks and uncertainties, together with those mentioned elsewhere herein, could affect our future operating results, financial condition, and the market price of our Common Stock.

Substantial Leverage and Ability to Service Debt

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

Dependence on Construction Industry

We earn virtually all of our revenues in the building construction industry, which is subject to local, regional and national economic cycles. Our revenues and cash flows depend to a significant degree on major construction projects in various industries, including the hotel and casino, retail shopping, health care, mining, computer chip manufacturing, public works and other industries, each of which industries may be adversely affected by general or specific economic conditions. If construction activity declines significantly in our principal markets, our business, financial condition and results of operations would be adversely affected.

Fluctuating Quarterly Results of Operations

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

Revenue Recognition Estimates

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

Variations in Backlog; Dependence on Large Contracts

Our backlog can be significantly affected by the receipt, or loss, of individual contracts. For example, approximately $74.5 million, representing 39.3% of our backlog at June 30, 2002, 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, our backlog could decrease substantially. Our future business and results of operations may be adversely affected if we are unable to replace significant contracts when lost or completed, or if we otherwise fail to maintain a sufficient level of backlog. In addition, if a project representing a significant portion of our backlog is delayed or otherwise postponed, our anticipated revenue from that project may not be realized until later than anticipated. In particular, political and site selection considerations could cause further delays in constructing or termination of the Arizona Cardinals multipurpose facility, which currently accounts for $46.5 million of our current backlog. To the extent that political or other considerations delay this project, the recognition of revenue we anticipate from this project also will be delayed.

Fixed Price Contracts

Most of our $189.6 million backlog at June 30, 2002 represented projects being performed on a fixed price basis. In bidding on projects, we estimate our costs, including projected increases in costs of labor, material and services. Despite these estimates, costs and gross profit realized on a fixed price contract may vary from estimated amounts because of unforeseen conditions or changes in job conditions, variations in labor and equipment productivity over the terms of contracts, higher than expected increases in labor or material costs and other factors. These variations could have a material adverse effect on our business, financial condition and results of operations for any period.

Geographic Concentration

Our 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 our 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.

Competition

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

Substantial Liquidity Requirements

Our 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, our contract arrangements with customers sometimes require us to provide payment and performance bonds to partially secure our obligations under our contracts, which may require us to incur significant expenditures prior to receipt of payments. Furthermore, our customers often will retain a portion of amounts otherwise payable to us during the course of a project as a guarantee of completion of that project. To the extent we are unable to receive progress payments in the early stages of a project, our cash flow would be reduced, which could have a material adverse effect on our business, financial condition and results of operations.

Capacity Constraints; Dependence on Subcontractors

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

Dependence Upon Key Personnel

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

Union Contracts

We currently are a party to a number of collective bargaining agreements with various unions representing some of our fabrication and erection employees. These contracts expire or are subject to expiration at various times in the future. Our inability to renew such contracts could result in work stoppages and other labor disturbances, which could disrupt our business and adversely affect our results of operations.

No Assurance of Successful Acquisitions or Expansion

We intend to consider acquisitions of and alliances with other companies in our industry that could complement our business, including the acquisition of entities in diverse geographic regions and entities offering greater access to industries and markets not currently served by us. There can be no assurance that suitable acquisition or alliance candidates can be identified or, if identified, that we will be able to consummate such transactions. Further, there can be no assurance that we will be able to integrate successfully any acquired companies into our existing operations, which could increase our operating expenses. Moreover, any acquisition by us may result in potentially dilutive issuances of equity securities, incurrence of additional debt and amortization of expenses related to intangible assets, all of which could adversely affect our profitability. Acquisitions involve numerous risks, such as diverting attention of our management from other business concerns, our entrance into markets in which we have had no or only limited experience and the potential loss of key employees of the acquired company, any of which could have a material adverse effect on our business, financial condition and results of operations.

In August 2001, we created a new subsidiary, On-Time Steel Management, Inc. (“On-Time”). On-Time bids and contracts for work but subcontracts all of its fabrication and erection labor. We believe that On-Time’s model is ideal for smaller, more traditional steel construction projects that do not require complex design-build work. We plan to begin creating new On-Time offices over the next 12 months in selected markets throughout the United States. This planned expansion involves numerous risks, such as our entrance into markets in which we have had no or only limited experience and diverting the attention of our management from other business concerns, either of which could have a material adverse effect on our business, financial condition and results of operations.

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. We are subject to litigation claims in the ordinary course of business, including lawsuits asserting substantial claims. Currently, we do not maintain any reserves for our ongoing litigation. We periodically review the need to maintain a litigation reserve. We maintain risk management, insurance, and safety programs intended to prevent or mitigate losses. There can be no assurance that any of these programs will be adequate or that we will be able to maintain adequate insurance in the future at rates that we consider reasonable.

Potential Environmental Liability

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

Governmental Regulation

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

Volatility Of Stock Price

The stock market has experienced price and volume fluctuations that have affected the market for many companies and have often been unrelated to the operating performance of such companies. The market price of our common stock could also be subject to significant fluctuations in response to variations in our quarterly operating results, analyst reports, announcements concerning us, legislative or regulatory changes or the interpretation of existing statutes or regulations affecting our business, litigation, general trends in the industry and other events or factors. In July 1997, we completed an initial public offering of our common stock for $8.00 per share. Since that time, our common stock has traded as low as $2.00 per share and as high as $15.625 per share. The market price for our common stock remains volatile and there is no assurance that the market price will not experience significant changes in the future.

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. Among other matters, this Quarterly Report on Form 10-Q includes forward-looking statements relating to our estimated capital expenditures for 2002, our belief that we have sufficient liquidity to meet our near-term operating needs and our anticipated business operations in future periods. Additional written or oral forward-looking statements may be made by us from time to time in filings with the Securities and Exchange Commission, in our press releases, or otherwise. The words “believe,” “expect,” “anticipate,” “intends,” “forecast,” “project,” and similar expressions identify forward-looking statements. Such statements may include, but not be limited to, the anticipated outcome of contingent events, including litigation, projections of revenues, income or loss, capital expenditures, plans for future operations, growth and acquisitions, financing needs or plans and the availability of financing, and plans relating to our services, as well as assumptions relating to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements reflect our current views with respect to future events and financial performance and speak only as of the date the statements are made. Such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated 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 above under the caption “Factors That May Affect Future Operating Results and Financial Condition.” In addition, new factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward looking statements. We undertake no obligation to publicly update or review any forward-looking statements as a result of new information, future events, or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

At June 30, 2002, we did not participate in any derivative financial instruments, or other financial or derivative commodity instruments, and did not hold any investment securities.

Primary Market Risk Exposure

We are exposed to market risk from changes in interest rates primarily as a result of our initial $100.0 million 10-1/2% fixed rate Senior Notes, which were issued on June 4, 1998. Specifically, we are exposed to changes in the fair value of the remaining $95.5 million of Senior Notes. The variation in fair value is a function of market interest rate changes and the investor perception of the investment quality of the Senior Notes.

PART II OTHER INFORMATION

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

(a) The Annual Meeting of Stockholders was held on May 20, 2002.

(b) The following individuals were elected to the Board of Directors: David A. Schuff, Scott A. Schuff, Michael R. Hill, Edward M. Carson, Dennis DeConcini and H. Wilson Sundt. Their terms will expire at the Company’s 2003 Annual Meeting of Stockholders.

(c) The matters submitted for vote at the Annual Meeting were as follows:

(c)(1) Election of six directors to the Board of Directors to serve until the 2003 Annual Meeting of Stockholders. See Item 4(b) above. The shares were voted as follows:


Nominee	Number of Shares

David A. Schuff	For:	6,923,368




	Withheld:	319,724









Scott A. Schuff	For:	6,911,868




	Withheld:	331,224









Michael R. Hill	For:	6,909,268




	Withheld:	333,824









Edward M. Carson	For:	6,928,268




	Withheld:	314,824


Nominee	Number of Shares










Dennis Deconcini	For:	6,925,368




	Withheld:	317,724









H. Wilson Sundt	For:	6,928,368




	Withheld:	314,724

(c)(2) Approval of the amendment to the Schuff International, Inc. 1999 Employee Stock Purchase Plan, increasing the number of shares available thereunder. The shares were voted as follows:


For:			6,797,962




Against:			458,038




Abstentions:			17,092

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 99.1. Certification of Principal Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 99.2. Certification of Principal Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

(b) During the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K dated June 6, 2002, pursuant to Item 4 to announce that the Company had dismissed Ernst & Young LLP and elected Deloitte & Touche LLP as the Company’s independent auditors.

SIGNATURES

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

SCHUFF INTERNATIONAL, INC.


Date: August 8, 2002		By: /s/ Michael R. Hill





		Michael R. Hill




		Vice President and Chief Financial Officer




		(Principal Financial Officer and Duly Authorized Officer)

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	(a)		The Annual Meeting of Stockholders was held on May 20, 2002.

	(b)		The following individuals were elected to the Board of Directors: David A. Schuff, Scott A. Schuff, Michael R. Hill, Edward M. Carson, Dennis DeConcini and H. Wilson Sundt. Their terms will expire at the Company’s 2003 Annual Meeting of Stockholders.

	(c)		The matters submitted for vote at the Annual Meeting were as follows:

	(c)(1)		Election of six directors to the Board of Directors to serve until the 2003 Annual Meeting of Stockholders. See Item 4(b) above. The shares were voted as follows:

(a)		Exhibits

		Exhibit 99.1. Certification of Principal Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

		Exhibit 99.2. Certification of Principal Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

(b)		During the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K dated June 6, 2002, pursuant to Item 4 to announce that the Company had dismissed Ernst & Young LLP and elected Deloitte & Touche LLP as the Company’s independent auditors.