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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2003

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 INTERNATIONAL, INC.

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

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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 May 1, 2003, there were 6,999,078 shares of Common Stock, $.001 par value per share, outstanding.

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SCHUFF INTERNATIONAL, INC.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SCHUFF INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

     See notes to condensed consolidated financial statements.

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SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

     See notes to condensed consolidated financial statements.

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SCHUFF INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

     See notes to condensed consolidated financial statements.

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

March 31, 2003

1.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at December 31, 2002 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 period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

2.

Stock Options

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

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3.

Reclassifications

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

4.

New Accounting Pronouncement

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of certain entities. FIN 46 will require identification of the Company’s participation in variable interest entities (“VIEs”), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit it to operate on a standalone basis. For entities identified as a VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE (if any) bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which the Company obtains an interest after that date. The Company must adopt FIN 46 in the first interim or annual period beginning after June 15, 2003 for any VIEs created before February 1, 2003. The Company is currently assessing the application of FIN 46 as it relates to its operations, but has not determined what effect, if any, the implementation of FIN 46 will have on its financial position or results of operations. Management does not believe that the Company had any VIEs at March 31, 2003.

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5.

Receivables

Receivables consist of the following at:

6.

Inventories

Inventories consist of the following at:

7.

Line of Credit

The Company is currently in the process of negotiating the final terms and conditions of its credit facility. The credit facility is primarily maintained to enable the Company to issue letters of credit to our performance bond surety. At March 31, 2003, the Company had no borrowings under its line of credit. The credit facility requires that the Company maintain a specified EBITDAR coverage (defined as the sum of earnings before interest, taxes, depreciation, amortization and rents divided by the sum of interest, rents, Senior Note and/or treasury stock repurchases and capital expenditures), a minimum tangible net worth and quarterly profitability. At March 31, 2003, the Company was not in compliance with these credit facility covenants due to its first quarter financial performance. The Company received a waiver of such noncompliance from the bank dated May 12, 2003.

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8.

Net Income (Loss) Per Share

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

Options to purchase 1,102,000 and 1,246,000 shares of common stock at prices ranging from $1.30 to $13.75 were outstanding during the three months ended March 31, 2003 and 2002, respectively, but were not included in the computation of diluted net loss per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive.

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9.		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.
		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 of 2002 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 valuation 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 results given current and expected future economic conditions in the Commercial-Pacific, Commercial-Southeast and Manufacturing-Other 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.
10.		Gain on Extinguishment of Debt
		The Company recognized a gain of $182,000 (included in other income) and related income tax expense of $78,000 during the three months ended March 31, 2003 due to the repayment of $1.0 million of the Company’s 10-1/2% Senior Notes at a 20.25% discount, net of the write-off of related unamortized debt issue costs. This gain, net of tax, decreased both basic and diluted loss per share by $0.01 for the three months ended March 31, 2003.
11.		Contingent Matters
		The Company is involved from time to time through the ordinary course of business in certain claims, litigation and assessments. Due to the nature of the construction industry, the Company’s employees from time to time become subject to injury, or even death, while employed by the Company. The Company does not believe any new contingencies arose during the three months ended March 31, 2003 nor were there any material changes to the contingencies existing at December 31, 2002, as listed in the Company’s Annual Report on Form 10-K, for which the eventual outcome could have a material adverse impact on the Company.

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12.

Segment Information

13.		Comprehensive Loss
		Total comprehensive loss for the three months ended March 31, 2003 and 2002 equaled net loss for the corresponding periods.

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

Our discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited 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, 2002.

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

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

Goodwill and Intangible Asset Impairment

We assess the impairment of goodwill on an annual basis as required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” When we determine that the carrying value of goodwill may not be recoverable, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model and a comparative market analysis. In accordance with SFAS No. 142, on January 1, 2002, we ceased amortizing goodwill. SFAS No. 142 requires an assessment of goodwill upon adoption and at least annually thereafter, using a two step methodology. Based upon the assessment at adoption, we recorded a transitional impairment loss of $29.6 million, or $4.07 per basic and diluted earnings per share, as a cumulative effect of an accounting change at the beginning of the first quarter of 2002. We completed our first annual assessment of goodwill as of October 31, 2002. Our assessment determined that the fair value exceeded the carrying value of the assets.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. We have not provided for a valuation allowance because we believe that our deferred tax assets will be recovered from future taxable income. At March 31, 2003, our net deferred tax asset was $405,000.

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Legal Contingencies

We are currently involved in certain legal proceedings. We do not believe these proceedings will have a material adverse effect on our consolidated financial position or results of operations. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates as necessary. Such revisions in our estimates of the potential liability could materially impact our results of operation and financial position.

Results of Operations

Overview

During the last 18 months, the commercial construction industry has experienced a dramatic downturn as a result of macroeconomic conditions and increasing geopolitical uncertainty. The threat of possible U.S. military action in the Middle East, which ultimately came to pass late in the first quarter of 2003, was a primary cause of the uncertainty. These factors, as well as extreme pricing pressure from local and regional competitors, resulted in elongated selling cycles and reduced demand for our products and services, especially in leisure and tourism-based construction projects. In addition, to the extent that we experience a decreased demand for our products, we must manage our capacity in an effort to cover our fixed operating costs. The net results were lower revenues and gross margins across all of our business units and in projects both large and small.

Revenues

Revenues decreased by 1.7 percent to $50.2 million for the three months ended March 31, 2003 from $51.1 million for the three months ended March 31, 2002. The average revenues for our ten largest revenue generating projects in the three month period ended March 31, 2003 were $1.8 million versus $1.6 million in the three month period ended March 31, 2002. Although revenues for the ten largest revenue generating projects were higher in 2003 primarily due to project mix, overall revenues were down due to the continued downturn in the commercial construction industry mentioned above.

Gross Profit

Gross profit decreased by 14.5 percent to $7.6 million for the three month period ended March 31, 2003 from $8.9 million for the three month period ended March 31, 2002. The decrease was primarily attributable to lower demand for our products coupled with the decrease in gross profit percentage. As a percentage of revenues, gross profit decreased to 15.1 percent for the three month period March 31, 2003, from 17.3 percent for the three month period ended March 31, 2002. The decrease in gross profit as a percentage of revenues was primarily due to the extreme pricing pressures that our industry continues to face. We have accepted lower-margin projects in an attempt to sustain our volume in order to cover our fixed operating costs.

During the three month period ended March 31, 2003, payroll costs associated with certain departments at our Commercial-Southeast segment were included in general and administrative expenses. In order to conform with the 2003 presentation, $579,000 of these payroll costs for the Commercial-Southeast

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segment were reclassified from cost of revenues to general and administrative expense in the three months ended March 31, 2002. The payroll costs of these departments of our other segments continue to be included in general and administrative expense for all periods presented.

General and Administrative Expenses

General and administrative expenses were $6.3 million for the three months ended March 31, 2003 and 2002. General and administrative expenses as a percentage of revenues increased to 12.5 percent for the three months ended March 31, 2003, from 12.4 percent for the three months ended March 31, 2002. The slight increase was primarily due to decreased revenues in 2003.

Interest Expense

Interest expense decreased to $2.5 million for the three months ended March 31, 2003 from $2.6 million for the three months ended March 31, 2002. The decrease in interest expense was due to the reduction of long term debt that occurred in 2002. Interest expense is primarily attributable to our remaining $90.0 million 10-1/2% Senior Notes issued in June 1998.

Other Income

Other income increased to $384,000 for the three months ended March 31, 2003 from $152,000 for the three months ended March 31, 2002. The increase was primarily due to the $182,000 gain on the extinguishment of debt that occurred in 2003.

Income Tax Provision

Income tax benefit was $389,000, which reflects a 47.4 percent effective tax rate, for the three months ended March 31, 2003. The effective tax rate was higher for purposes of calculating the tax benefit than the federal statutory rate due to the recognition of reserved federal research and development tax credits for book purposes offset by state income taxes and the effect of permanent tax differences. Income tax benefit was $51,000, or a (127.5) percent effective tax rate for the three months ended March 31, 2002. The effective tax rate was lower than the federal statutory rates primarily because of the available federal and state research and development tax credits.

Cumulative Effect of a Change in Accounting Principle

We adopted SFAS No. 142 at the beginning of 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 three month periods ended March 31, 2003 and 2002 and incurred a noncash transitional impairment charge of $29.6 million during the quarter ended March 31, 2002.

Backlog

Backlog decreased 4.4 percent to $107.6 million ($38.3 million under contracts or purchase orders and $69.3 million under letters of intent) at March 31, 2003 from $112.6 million ($52.4 million under contracts or purchase orders and $60.2 million under letters of intent) at December 31, 2002. The decrease in backlog compared to December 31, 2002 was the result of several large projects nearing

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completion that have not been replaced by other projects of a comparable size. 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. If we were not able to bill in advance of costs, we would rely on our credit facility to meet our working capital needs. At March 31, 2003, we had working capital of approximately $61.5 million. We believe that we have sufficient liquidity through our present resources to meet our near-term operating needs.

We are currently in the process of negotiating the final terms and conditions of our credit facility. The credit facility is primarily maintained to enable us to issue letters of credit to our performance bond surety. At March 31, 2003, we had no outstanding borrowings under our credit facility. There was approximately $7.0 million of credit available under the credit facility for borrowings, after it was reduced by approximately $3.0 million of outstanding letters of credit issued to our performance bond surety. We also have an additional $3.1 million of outstanding letters of credit that are not under the $10.0 million credit facility. These letters of credit are secured by cash held in an escrow account, which is classified as restricted funds on deposit on the March 31, 2003 balance sheet.

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 prime plus 1.50%. The credit facility contains covenants that, among other things, limit our ability to pay cash dividends or make other distributions, repurchase our Senior Notes, incur additional indebtedness, 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 the bank.

The credit facility also requires that we maintain a specified EBITDAR coverage (defined as the sum of earnings before interest, taxes, depreciation, amortization and rents divided by the sum of interest, rents, Senior Note and/or treasury stock repurchases and capital expenditures), a minimum tangible net worth and quarterly profitability. At March 31, 2003, we were not in compliance with these credit facility covenants due to our first quarter financial performance. We received a waiver of such noncompliance from the bank dated May 12, 2003.

Although we have received a waiver from the bank, there is no guarantee that we will be able to successfully negotiate the final terms and conditions of an amendment to our existing credit facility. If we are unable to finalize negotiations regarding our credit facility, we will have to try to negotiate a new credit facility with another financial institution. If we are unable to negotiate a credit facility with any financial institution, our liquidity and ability to obtain performance bonding on projects may be negatively impacted.

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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 $7.3 million and $9.2 million in the three months ended March 31, 2003 and 2002, respectively. For the three months ended March 31, 2003, operating cash flows were greater than net loss due to the $15.1 million decrease in accounts receivable, $2.4 million decrease in costs and recognized earnings in excess of billings and $2.4 million increase in accrued interest offset by the $4.7 million decrease in accounts payable, $5.6 million decrease in billings in excess of costs and recognized earnings and $1.0 million decrease in other liabilities. For the three months ended March 31, 2002, operating cash flows were greater than net loss due to the addback of the $29.6 million non-cash charge for the cumulative effect of a change in accounting principle, $3.6 million decrease in accounts receivable, $2.5 million decrease in costs and recognized earnings in excess of billings on uncompleted contracts, and $2.5 million increase in accrued interest offset by a $1.0 million decrease in accounts payable and a $248,000 decrease in billings in excess of costs and estimated earnings on uncompleted projects. Cash provided by investing activities totaled $65,000 for the three months ended March 31, 2003, substantially all of which was proceeds from the sale of property and equipment offset by purchases of equipment. Cash used in investing activities totaled $52,000 for the three months ended March 31, 2002, substantially all of which was upgrades of fabrication equipment offset by the proceeds from the sale of property and equipment. Financing activities used $743,000 in the three months ended March 31, 2003, substantially all of which was related to the repayment of $1.0 million of our 10-1/2% Senior Notes at a discount. Financing activities provided $17,000 in the three months ended March 31, 2002, substantially all of which was related to the issuance of common stock offset by the purchase of treasury stock.

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 the three months ended March 31, 2003, we repurchased $1.0 million in principal amount of our Senior Notes at a discount on the open market.

We have no other long-term debt commitments.

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 based on the Consumer Price Index. Our annual rental payments for the three leases were $1.0 million in 2002. During 2002, we amended the leases. The annual rent was reduced to $800,000 from $1.1 million. With a 30-day written notice, the partnership may increase the rent to the original amount.

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The rent continues to be subject to an increase every five years based on the Consumer Price Index. All other terms and conditions of the lease remain unchanged.

We estimate that our capital expenditures for 2003 will approximate $1.6 million in addition to the approximately $123,000 that has been expended as of March 31, 2003. We believe that our available funds, cash generated by operating activities and funds available under our bank credit facilities will be sufficient to fund these capital expenditures and our operating needs. However, we may expand our operations through future acquisitions and may require additional equity or debt financing.

Factors 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 improve our 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.

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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 $63.5 million, representing 59.0 percent of our backlog at March 31, 2003, 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,

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our anticipated revenue from that project may not be realized until later than anticipated. In particular, political or other considerations could cause further delays in constructing the Arizona Cardinals multipurpose facility, which currently accounts for $46.1 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 $107.6 million backlog at March 31, 2003 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.

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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,

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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. (“OTSM”). In September 2002, we created two additional subsidiaries, On-Time Steel Management-Colorado (“OTSM-CO”) and On-Time Steel Management-Northwest (“OTSM-NW”). All three of these new subsidiaries bid and contract for work but subcontract all of their fabrication and erection labor. We believe that OTSM’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 OTSM 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

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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 $1.10 per share and as high as $15.625 per share. The market price for our common stock remains volatile and there is no assurance that the market price will not experience significant changes in the future.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the Notes to the Condensed Consolidated Financial Statements and “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 2003, 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.

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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences, including the potential that unanticipated repairs or replacement of fabrication equipment could increase our capital expenditures and that the loss of major contracts could negatively impact our liquidity. Other factors that could cause actual results to differ materially from those expressed in such forward-looking statements are set forth above under the caption “Factors That May Affect Future Operating Results and Financial Condition.” In addition, new factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward looking statements. We undertake no obligation to 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 March 31, 2003, 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 $90.0 million of Senior Notes. The variation in fair value is a function of market interest rate changes and the investor perception of the investment quality of the Senior Notes.

Item 4. Controls and Procedures

Within the 90 days prior to the date of the filing of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Schuff International, Inc. (including our consolidated subsidiaries) required to be included in our periodic SEC filings. There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.

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PART II OTHER INFORMATION

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)		The Company filed no reports on Form 8-K during the quarter for which this report is filed.

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.

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CERTIFICATIONS

     I, Scott A. Schuff, certify that:

     1.     I have reviewed this quarterly report on Form 10-Q of Schuff International, Inc.;

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

          b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

          c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

          a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

          b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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     I, Michael R. Hill, certify that:

     1.          I have reviewed this quarterly report on Form 10-Q of Schuff International, Inc.;

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

          b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

          c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

          a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

          b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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INDEX TO EXHIBITS

		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