<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              ---------------------
                                    FORM 10-K

(Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                  For the fiscal year ended December 31, 1997.
                                        or
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

           For the transition period from ___________ to ___________ .

                        Commission File Number 000-22715

                              SCHUFF STEEL COMPANY
             (Exact name of registrant as specified in its charter)

          DELAWARE                                      86-0318760
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                            1841 West Buchanan Street
                             Phoenix, Arizona 85009
               (Address of principal executive offices) (Zip Code)
                                 (602) 252-7787
              (Registrant's telephone number, including area code)
           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE
           Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>
       Title of Class                  Name of each Exchange on which registered
       --------------                  -----------------------------------------
<S>                                    <C>
COMMON STOCK, $.001 PAR VALUE                    NASDAQ NATIONAL MARKET
</TABLE>

         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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         At March 16, 1998, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $20,750,000 based on the closing market
price of the Common Stock on such date, as reported by the Nasdaq National
Market.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
YES [  ]  NO  [  ]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 7,000,000 shares of
the Registrant's Common Stock were outstanding as of March 16, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive Proxy Statement relating to its
annual meeting of stockholders to be held on June 2, 1998, are incorporated by
reference into Part III hereof to the extent provided herein. Except as
specifically incorporated by reference herein, the Proxy Statement is not deemed
filed as part of this Annual Report on Form 10-K.


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
PART I
         ITEM 1 - BUSINESS ..................................................             3
         ITEM 2 - PROPERTIES ................................................            14
         ITEM 3 - LEGAL PROCEEDINGS .........................................            14
         ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......            15

PART II
         ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES
                  AND RELATED STOCKHOLDER MATTERS ...........................            16
         ITEM 6 - SELECTED FINANCIAL DATA ...................................            18
         ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS .................................            20
         ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...............            30

PART III
         ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .......            30
         ITEM 11 - EXECUTIVE COMPENSATION ...................................            30
         ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                   MANAGEMENT ...............................................            30
         ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...........            30

PART IV
         ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                   ON FORM 8-K ..............................................            31
</TABLE>


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                                     PART I

                                ITEM 1 - BUSINESS

GENERAL

         Schuff Steel Company (the "Company") is a fully integrated fabricator
and erector of structural steel and heavy steel plate. The Company fabricates
and erects structural steel for commercial and industrial construction projects
such as high and low rise buildings and office complexes, hotels and casinos,
convention centers, sports arenas, shopping malls, hospitals, dams, bridges,
mines and power plants. The Company also specializes in the fabrication and
erection of heavy steel plate, including large diameter water pipe, water
storage tanks, pollution control scrubbers, tunnel liners, pressure vessels, and
a variety of customized projects. The Company seeks to differentiate its
operations by offering complete, turnkey steel construction services featuring
engineering, detailing, shop fabrication and field erection. By offering an
integrated package of steel construction services from a single source, the
Company is able to respond more efficiently to the design and construction
challenges associated with large, complex, "fast track" construction projects.

         The Company currently operates primarily in the southwestern United
States with a concentration in Arizona, Nevada, and southern California, and is
expanding its operations in South America and Mexico. The Company has
experienced significant growth in revenues and pre-tax income over the past five
years. Revenues have grown from $47.0 million in 1992 to $138.2 million in 1997.
During that same period, pre-tax income has grown at a compound annual growth
rate of 80.2% from $610,000 in 1992 to $11.6 million in 1997.

         The Company was incorporated in Arizona in 1976 and was reincorporated
in Delaware in 1997. The Company's principal executive offices are located at
1841 West Buchanan Street, Phoenix, Arizona 85009, and its telephone number is
(602) 252-7787.

         On July 7, 1997, the Company completed the initial public offering of
its common stock, par value $.001 per share (the "Common Stock"). Pursuant to
the offering, the Company sold 2,000,000 shares of Common Stock. The Common
Stock trades on the Nasdaq National Market under the symbol "SHUF."

RECENT DEVELOPMENTS

          On March 17, 1998, the Company entered into a non-binding letter of
intent to acquire all of the capital stock of Addison Structural Services, Inc.
("Addison"), a privately held holding company headquartered in Albany, Georgia.
Addison, through its operating subsidiaries, provides structural steel
fabrication and detailing services and manufactures short and long span joists,
trusses and girders for commercial and light industrial projects. Addison
operates primarily in the southeastern United States with a concentration in
Florida and Georgia, and maintains two steel fabrication plants in Lockhart,
Florida and Albany, Georgia, and a steel joist manufacturing plant in Quincy,
Florida. It is expected that certain of the principal officers of Addison's
operating subsidiaries will enter into employment agreements and will continue
to manage Addison's day-to-day operations after the acquisition.

         Addison had revenues of $63.6 million in its fiscal year ended June 30,
1997, compared to revenues of $57.6 million in its fiscal year ended June 30,
1996, according to its audited financial statements for those periods. Addison's
long-term indebtedness is expected to be satisfied by it in connection with the
acquisition. It is currently anticipated that the transaction will close in the
second quarter of 1998 and will be recorded under the purchase method of
accounting.

         The transaction is subject to a number of contingencies, including the
negotiation of definitive acquisition agreements, the completion of a
satisfactory due diligence review by Schuff, approval by Schuff's board of
directors, Schuff's ability to obtain financing on terms acceptable to it, the
receipt of necessary third party and governmental approvals and other customary
closing conditions. There can be no assurance that the transaction will
ultimately be consummated on the terms described above, if at all.

OVERVIEW OF INDUSTRY

         Companies engaged in the steel fabrication and erection industry
prepare detailed shop drawings, fabricate and erect structural steel and steel
plate weldments, and perform related engineering services for the construction
of various facilities. The primary customers for these services include private
developers, general contractors, engineering firms and governmental agencies
involved in a variety of large scale construction projects. Historically, these
customers have relied on multiple subcontractors to perform various services to
complete a single project, primarily because few companies in this industry
offer fully integrated engineering, detailing, fabrication and erection
services.


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         The Company believes that there is an increasing trend in the
construction industry toward complex, fast track, "design-as-you-go" projects.
This trend is largely driven by the desire of project owners to more quickly
secure the benefits of revenue producing projects, such as casinos, mines and
computer chip plants. These projects require that all phases of construction be
accomplished in accordance with compressed time schedules. Further, because many
construction activities are dependent on the progress of steel fabrication and
erection, timely completion of these phases is critical. These projects also are
characterized by numerous design changes requiring that all construction
participants coordinate their efforts in order to respond quickly and
efficiently in implementing these changes. These trends have created a demand
for fully integrated fabrication and erection contractors that can (i) avoid the
coordination difficulties inherent in the use of multiple subcontractors and
(ii) implement rapid and multiple design changes in a coordinated and timely
manner, preventing project delays and reducing costs to the general contractor
or owner. The Company believes that it has gained a reputation in the industry
as a reliable, fully integrated provider of engineering, detailing, fabrication
and erection services with the ability to complete large, complex projects on a
timely, cost efficient basis.

         The Company also believes that the steel fabrication and erection
industry is highly fragmented and that many of its competitors are small
businesses operating in local or regional markets. Given the trend toward the
use of fully integrated contractors and the large number of smaller companies
engaged in this industry, the Company believes the industry may experience
consolidation.

BUSINESS STRATEGY

         The Company's objective is to achieve and maintain a leading market
position in each of its geographic and specific product markets. The Company
believes that its track record of providing quality services on a timely basis
has enabled it to garner a dominant share of the primary geographic markets
served by it and to increase its market share of large, fast track projects in
markets in which it maintains a significant presence. The Company will continue
to pursue its objective by implementing a strategy comprised of the following
components:

         Promote Coordinated Service Capabilities. The Company promotes its
ability to provide a fully integrated range of engineering, detailing,
fabrication and erection services, which enables the Company to compete more
effectively on large, "design-as-you-go" projects that typically offer more
favorable contract terms. The Company believes it is positioned to capitalize on
industry trends toward construction of large, fast track projects incorporating
numerous design changes, and the increasing demand for fully integrated
fabrication and erection contractors capable of both implementing those design
changes in a timely and cost efficient manner and providing overall project
management capabilities.

         Emphasize Innovative Services. The Company focuses its engineering,
detailing, fabrication and erection expertise on distinct product segments
requiring unique or innovative techniques, where the Company typically
experiences less competition and more advantageous negotiated contract
opportunities. The Company has extensive experience in providing services
requiring complex fabrication and erection techniques and other unusual project
needs, such as specialized transportation, steel treatment or specialty coating
applications. These service capabilities have enabled the Company to address
such design sensitive projects as computer chip manufacturing facilities, large
diameter underground water pipes, and uniquely designed hotels and casinos.


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         Diversify Customer and Product Base. Although the Company seeks to
garner a leading share of the geographic and product markets in which it
competes, it also seeks to diversify its construction projects across a wide
range of commercial, industrial, and specialty projects. The following chart
sets forth the percentage of revenues attributable to the Company's various
principal geographic and project markets for 1997:

<TABLE>
<CAPTION>
                                                  INDUSTRIAL          Commercial            Other
                                                  ----------          ----------            -----
<S>                                               <C>                 <C>                   <C>
Arizona....................................          9.1%                38.6%               1.4%
California.................................          0.6%                7.6%                0.0%
Nevada.....................................          0.4%                38.0%               0.0%
New Mexico.................................          0.7%                0.0%                0.0%
International..............................          3.6%                0.0%                0.0%
</TABLE>

         In recent periods, the Company has focused efforts on diversifying into
international markets. Accordingly, the Company believes that its combined
diversification into new geographic, specific product and international markets
will better enable it to expand its revenue base and to reduce the impact of
periodic market or economic conditions adversely impacting one or more of its
market segments.

         Employ Unique Technical Expertise. The Company offers in-house project
management and design expertise not typically provided by steel fabricators and
erectors. The Company employs two registered structural engineers and
approximately 30 design and detailing personnel, which permits the Company to
occupy a more influential role in critical design decisions on many projects.
The Company believes that its ability to offer these services allows it to
negotiate rather than bid on a greater percentage of its contracts, which
enables the Company to obtain terms more favorable to it than the terms of
competitively bid projects, while at the same time providing overall cost
savings and project efficiencies to its customers. The Company's technical
expertise also permits it to compete more effectively for projects offering
unique structural or design challenges, such as the fully retractable roof on
the Bank One Ballpark project, the Salt River Siphon Replacement Project, and
specialty coating of large diameter water pipe.

GROWTH STRATEGY

         The Company believes that the steel fabrication and erection industry
will continue to be characterized by large, complex, fast track projects. The
complexity and size of these projects requires companies with extended financial
and operational capabilities. With its integrated service capabilities and
financial and management strength, the Company intends to take advantage of this
trend. Additionally, the fragmented nature of the industry provides the Company
opportunities for growth. The Company seeks to achieve continued growth and
diminish the impact of business and economic cycles by pursuing a growth
strategy consisting of the following components:

         Acquire Synergistic Businesses. In addition to Addison, the Company
intends to pursue selective acquisitions of steel detailing, fabrication and
erection companies that offer the Company increased plant facilities,
opportunities to increase market share in selected geographic markets,
penetration of new product market segments and access to domestic and
international markets targeted by the Company for geographic expansion. Such
acquisitions may also provide the additional benefits of increased purchasing
efficiencies with respect to steel and other raw materials, payment and
performance bonding and insurance premiums, and more efficient allocation and
utilization of labor resources among projects within its geographic markets. The
Company believes that many of its competitors operate primarily on a local or
limited


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geographic basis and, while having established relationships in those markets,
lack the resources to compete for large or more complex projects. In addition,
the industry is highly fragmented with many of the Company's competitors being
closely or family held entities. In January 1997, the Company completed the
acquisition of all of the outstanding capital stock of B&K Steel Fabrications,
Inc. ("B&K Steel"), a competitor of the Company located in the Phoenix
metropolitan area. B&K Steel is primarily a fabrication contractor and had
revenues of approximately $9.4 million in 1996 and $10.1 million in 1997. The
Company believes that the acquisition of B&K Steel will enable the Company to
capture a larger share of the Arizona industrial and commercial market and will
provide the Company with increased access to the mining industry throughout the
southwestern United States. The acquisition of B&K Steel also provides the
Company with additional fabrication facilities located near the Company's
existing facilities.

         Promote Internal Growth. The Company intends to pursue continued
internal growth by adding sales and marketing personnel to dedicated, fast
growing markets in which the Company is actively pursuing new projects, by
further developing its engineering and design capabilities and fabrication
capacity, and by continually updating its fabrication and detailing equipment
and technologies. The Company believes that these efforts will enhance its
market share, revenues, and operating income in its existing and targeted
principal markets and improve its operating capacity. The Company recently
secured additional office and administrative facilities, which will permit the
expansion of its existing detailing, estimating and other project operations.
The Company also invested $3.2 million in 1997, and intends to invest
approximately $1.5 million in 1998, in new fabrication equipment and
technologies.

         Create Additional Project Opportunities. The Company believes that its
ability to efficiently coordinate and implement numerous design and logistical
changes on large or more complex fast track projects, combined with its
established long term relationships with key national and multi-national general
contractors and other customers, will provide the Company with opportunities to
market its services in a number of markets in which the Company has not yet
achieved a leading position or conducted significant operations. Domestically,
the Company plans to expand into markets in which it believes it can leverage
its existing expertise to achieve a significant share of such markets. Among the
regions targeted by the Company for domestic expansion are the Pacific
Northwest, which presents several opportunities in the expanding computer chip
manufacturing industry, Texas, which offers the Company convenient and cost
effective access to its developing international markets, and the southeastern
United States, a significant Sun Belt growth area. The Company also will seek to
capture significant market share in selected product markets. Among other
markets, the Company is seeking to increase its participation in the
construction of sports stadiums and airports, through the acquisition of
Addison, commercial and light industrial projects, and, through its acquisition
of B&K Steel, the mining and smaller commercial construction markets. The
Company plans to participate in these markets through the acquisition of
existing participants, expansion of strategic customer relationships into new
markets, and through increased sales and marketing efforts generally.

         Expand Internationally and Develop Strategic Alliances. The Company
recently has developed its presence in selected international markets, including
Chile and Argentina, and is pursuing opportunities in Mexico and Southeast Asia.
Each of these international markets is expected to have a growing demand for
services offered by the Company. In Argentina, the Company recently completed
fabrication and erection coordination services for mill facilities at one of the
largest copper mines in the world. The Company also completed a large mining
project in Chile. In addition, the Company will seek to expand internationally
by partnering with existing multi-national customers such as Fluor Daniel, Inc.
and Bechtel Group, Inc., as well as other international structural and design
engineering firms, and by entering into strategic alliances with leading foreign
fabricators and erectors in the Company's targeted international markets. The
Company believes that its international alliances also will help to reduce its
risk of entry into foreign markets by partnering with entities having an
established presence and experience in such markets. The Company has developed a
strategic alliance with Corey, S.A. de C.V., Mexico's leading steel fabrication
and erection contractor. Pursuant to this alliance, the parties have formed a
corporate joint venture that provides detailing services to the Company's
domestic operations. The Mexico joint venture uses state of the art Stru-Cad and
Autocad design systems, and is expected to significantly expand the Company's
internal detailing capacity. The Company believes its investment in this joint
venture will reduce its reliance on detailing subcontractors and improve the
Company's cost profile. The Company expects the alliance to provide it access to
several large projects in Mexico through Corey's marketing, importation and
fabrication support.

PRIMARY MARKETS AND PRODUCTS

         The Company's current principal geographic markets include Arizona and
Nevada. The Company also has a substantial presence in southern California and
currently is expanding into selected international markets. Set forth below is a
description of the Company's current primary markets and products.

         ARIZONA MARKET. The Company is the leading steel fabrication and
erection firm in Arizona. The Company has been a prominent participant in many
of Arizona's largest and most visible public and private projects, including the
expansion of Sky Harbor Airport in Phoenix, which involved the night time
erection of pedestrian walkways linking the airport's main concourses; the
erection of 10,000 tons of bridge plate girders for the interchange of
Interstates 10 and 17 in Phoenix; and the fabrication of the Roosevelt Dam
penstock near Phoenix. In addition, the Company believes


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that it is the dominant fabricator and erector for Arizona's rapidly growing
semiconductor and computer chip industry. The Company's major projects in this
industry have included the fabrication and erection of structural steel for
Intel Corp.'s "Fab 12" facility, which was one of the largest construction
projects of its kind in the United States in 1994 and 1995; the fabrication and
erection of Motorola Inc.'s Chandler, Arizona computer chip manufacturing
facility in 1995; and the 1995-1996 fabrication and erection of portions of the
Sumitomo Energy Center, a new wafer manufacturing plant constructed by Sumitomo
Sitix in Scottsdale, Arizona. Recently awarded or completed large Arizona-based
projects include:

         -        Phoenix Criminal Justice Facility. The Company was recently
awarded and has begun the fabrication and erection of the structural steel
decking for a new ten story, 400,000 square foot Criminal Justice Facility
located in downtown Phoenix.

         -        U.S. Federal Building and Courthouse. The Company was awarded
a contract to fabricate and erect all of the structural steel for the new U.S.
Federal Building and Courthouse in downtown Phoenix. This project will entail
3,100 tons of structural steel which will frame an atrium attached to an eight
story concrete frame building. Erection of the atrium is expected to start in
the third quarter of 1998.

         -        Mount Graham Telescope Project. The Company recently won an
award for the second phase of the Large Binocular Telescope Project on Mount
Graham, near Safford, Arizona. In October 1997, the Company completed the first
phase of this unique project, which consisted of the construction of the
observatory base structure. The second phase will entail the fabrication and
erection of the rotating structure and four 84,000 pound steel wheel assemblies
upon which the telescope housing will rotate. This project, part of the renowned
Mount Graham International Observatory, is the collaborative effort of leading
universities and astronomical communities in the United States, Italy and
Germany and is widely regarded as the most powerful and versatile telescope
facility in the world.

         -        Bank One Ballpark. In 1995, the Company was awarded a contract
to provide steel fabrication and erection services for the Bank One Ballpark in
Phoenix, a new state of the art baseball stadium for Major League Baseball's
Arizona Diamondbacks franchise that will feature, among other things, a fully
retractable roof consisting of steel components detailed, fabricated and erected
by the Company. The stadium contract is divided into three phases representing a
total of approximately $61 million in revenues to the Company, of which
approximately $59 million had been earned as of December 31, 1997. The stadium
required over 20,000 tons of structural steel and employed approximately 160
iron workers at the peak of construction.

         -        Barrows Neurological Institute. The Company was the fabricator
and erector for the Barrows Neurological Center in Phoenix, Arizona. Due to the
unique nature of this facility, the project required highly specialized
vibration control which resulted in a structural frame that weighs five times
normal tonnage for a building of this size.

         -        Mayo Hospital. The Company is the fabricator and erector for
the Mayo Clinic's newest hospital facility currently being constructed in
Phoenix, Arizona.

         NEVADA MARKET. The Company believes that it is the dominant fabricator
and erector in the Nevada hotel and casino construction industry, which has
experienced rapid expansion over the past several years and is expected to
continue its expansion for the foreseeable future. The Company maintains a sales
manager dedicated to pursue Nevada-based projects. In recent years, the Company
has completed several large fast track projects in the Nevada hotel and casino
industry, including the 500,000 square foot Sands Expo and Convention Center,
which was completed in nine months; the Mirage Hotel and Casino; the Holiday
Riverboat remodeling project, which involved the fabrication and erection of two
120 foot high river boat "stacks" constructed by the Company during the active
operation of the resort; the launch tower of the "SkyScreamer SkyCoaster" thrill
ride at the MGM Grand Theme Park, a 220 foot high structure that was erected by
the Company in only three days; and the Orleans Hotel and Casino, which involved
the fabrication and erection of over 7,900 tons of structural steel for the
casino, entertainment, and retail areas. Among the Company's recent hotel and
casino projects in Nevada are the following:


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         -        Bellagio Hotel and Casino. The Company is the fabricator and
erector for the casino and retail areas of the Bellagio Hotel and Casino, a new
$1.2 billion Spanish themed resort consisting of over one million square feet of
retail and casino space and a 37 story hotel tower with approximately 3,800
rooms.

         -        MGM Grand Hotel and Casino Renovation. This structure is
presently the world's largest hotel and casino with 5,005 hotel rooms and one
million square feet of retail and casino space. The Company's participation
includes the completion of a facade renovation and the provision of fabrication
and erection services for the new MGM Convention Center, which will consist of
over 250,000 square feet of convention area.

         -        New York, New York Hotel and Casino. The Company was the
fabricator and erector for the New York, New York hotel and casino, which
required approximately 6,500 tons of structural steel and represented a contract
price to the Company of over $15 million. The hotel was constructed to resemble
the New York City skyline, including replicas of the Statute of Liberty, the
Brooklyn Bridge, and other New York City landmarks.

         -        Luxor Hotel and Casino Showroom Theater. The Company has been
involved in the construction of the Luxor Hotel and Casino Showroom Theater and
renovation of the hotel ballroom.

         -        Paris Hotel & Casino. The Company was recently awarded two
contracts for the fabrication and erection of the structural steel for the 1.2
million square foot low-rise area and the 34 story tower of the new Paris Hotel
and Casino in Las Vegas, which will include hotel, casino, showroom, convention
center and retail shopping areas. The project also entails the fabrication and
erection by the Company of a 540 foot tall scale replica of the Eiffel Tower
which will be built over and penetrate into the casino area and include
restaurant and retail areas and an observation desk. The replica will be
designed and constructed by the Company based on the original engineering
drawings for the Eiffel Tower.

         CALIFORNIA AND OTHER WESTERN U.S. MARKETS. The Company has maintained a
strong presence in the California market and intends to achieve a greater share
of this geographic market as it experiences an increase in new construction
activity. The Company provided fabrication and erection services for several new
hospital facilities in California, including the new Children's Hospital and
Health Center in San Diego, the expansion of the Sharp Women's Center in San
Diego, which required construction around existing and operating hospital wings,
and the Valley Medical Center in San Jose. The Company also was selected as the
fabricator and erector for the Fashion Valley Mall in San Diego, which involved
the fabrication and erection of over 7,000 tons of steel for a new second level
of retail shopping space, which was erected at night over the existing shopping
facility without disturbing the ordinary operations of the mall. Other recently
awarded California projects include the fabrication and erection of the 380,000
square foot City Mills Mall in Orange, California; the Bakersfield Arena, an ice
hockey rink being built as part of the Bakersfield Convention Center expansion;
Baxter International, Inc.'s, laboratory facility located in Thousand Oaks,
California; and the expansion of a manufacturing facility for Sony Corporation
located in San Diego.

         The Company has also been awarded a contract to provide the fabrication
and erection of the new Assembly Building for the Church of Jesus Christ of
Latter Day Saints in Salt Lake City, Utah. This large project, which is expected
to begin in June 1998 and be completed in September 1998, will include the
fabrication and erection of several large and uniquely designed steel trusses
supporting a main roof and is estimated to consist of between 8,000 and 10,000
tons of structural steel.

         SPECIALTY MARKETS. In addition to seeking to achieve a leading market
share in the principal geographic markets that it serves, the Company focuses
its fabrication and erection expertise on distinct product segments,
particularly product segments requiring unique or specialized expertise where
the Company has the potential to achieve a dominant market share. A recent
example of such a product segment is large diameter water pipe used in
governmental aqueduct systems. These projects require the complex formation and
welding of steel plate into large diameter pipe sections that are used to
transport water from major supply sources to various population centers,
primarily in the arid southwestern United States. The Company has developed
in-house specialized fabrication equipment used to construct and weld these pipe
sections, a unique coal tar and fiberglass enamel application system used to
coat the pipe, and customized transportation equipment necessary to deliver the
system to its ultimate destination. The Company's expertise and


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specialized equipment development has made it a dominant fabricator and erector
of these large aqueduct projects in Arizona, Nevada, and California. The
Company's recently completed large diameter pipe projects include the following:

         -        Salt River Siphon Replacement Project. The Company served as
the fabricator and erector for the Salt River Siphon Replacement Project, a
project requiring the fabrication of over 8,500 feet of 21 foot diameter pipe
for the U. S. Bureau of Reclamation. The system will transport water from the
Salt River near Phoenix, Arizona to the major population centers of Arizona.

         -        Agua Fria Siphon Project. This project was similar in scope to
and followed the Company's successful completion of the Salt River Siphon
project, and entailed the specialized fabrication and erection of over two miles
of 21 foot diameter pipe from the Central Arizona Project canal system under the
Agua Fria River to Phoenix, Arizona.

         -        Mohave Underground Aqueduct. The Company was the contractor
for the Mohave Underground Aqueduct project, a massive underground siphon system
for the California Department of Water that will transport water to San
Bernardino, California. The aqueduct system utilized over seven miles of 12 foot
diameter pipe.

         -        River Mountain Tunnel. The Company recently completed
fabrication of the River Mountain Tunnel water system in Nevada, which consists
of several uniquely constructed pieces of 12 foot diameter pipe and will be
used to transport water to Las Vegas, Nevada.

         Other recent specialty projects completed by the Company include the
fabrication and erection of a missile launch complex at Vandenberg Air Force
Base, a thermal blast simulator for the U.S. Corps of Engineers designed to test
military and other equipment against the simulated forces of an atomic blast,
and numerous large capacity water storage tanks holding up to five million
gallons of water that have been fabricated by the Company for a variety of
governmental agencies, private utilities, and other industrial customers.

         INTERNATIONAL MARKETS. The Company recently has focused its expansion
into selected international markets such as South America and Mexico, and is
exploring opportunities in Southeast Asia. In South America, the Company
provided the design consultation, fabrication, and delivery of approximately
7,200 tons of structural steel for the Bajo de la Alumbrera mining project in
Argentina, which is one of the largest copper mines in the world. In addition,
the Company was recently awarded its second contract in Argentina, which will
consist of the design and fabrication of the structural steel for the expansion
of the Aluar (Aluminios Argentinos) aluminum smelter facility in Puerto Madryn,
Argentina. The Company's innovative design capabilities are expected to reduce
the total weight of the facility while continuing to meet design and load
standards. In Chile, the Company recently completed the Verde Gold mine project
for Fluor Daniel, Inc. In Mexico, the Company is currently providing the
fabrication of an ore facility and conveyor system.

BUSINESS OPERATIONS

         The primary services provided by the Company are engineering and
preparation of detail drawings, shop fabrication, and field erection. Following
is a description of the Company's principal services.

         ENGINEERING AND DETAILING. The Company maintains significant in-house
structural engineering and detailing capabilities which enable it to implement
and coordinate with its shop and field personnel changes to building and
structural designs sought by project owners or general contractors, and to help
influence critical determinations as to the most cost effective systems,
designs, connections, and erection procedures for a particular project. The
Company's detailers prepare detail shop drawings of the dimensions, positions,
locations, and connections, and the fabrication and erection sequences of, each
piece of steel utilized in a project, and continually update these drawings to
accommodate design and other changes. The Company utilizes a Stru-CAD automated
detailing system that interacts electronically with the Company's numerically
controlled fabrication equipment and produces updated detail drawings
electronically, which are delivered to each of the Company's domestic and
foreign field locations. The Company's detailing division initially prepares
advance materials bills by size and length of each steel piece within
pre-defined areas or sequences of erection for each project. Detailers
coordinate directly with customers and the Company's fabrication and erection


                                        9
<PAGE>   10
teams to determine and plan the order of fabrication and erection of a project
and associated personnel and equipment requirements.

         SHOP FABRICATION. The Company's fabrication services consist of the
procurement from steel producers of raw steel shapes in different sizes and
lengths. These shapes vary in cross-section from I-beams to angle, channel,
tube, pipe, and plate. Upon delivery of these steel shapes, and prior to
fabrication, the Company prepares load lists that identify the sequence and date
that each individual piece of steel is required on a project, a procedure that
reduces the handling of and the need to store materials in the field. Upon
completion of detail shop drawings, the Company's fabrication shop cuts the raw
steel pieces to length, drills and punches holes through the use of numerically
controlled beam lines, and completes coping and beveling with its numerically
controlled machinery and automated burning equipment. The Company then
fabricates fittings and completes welding and inspection of each finished
structural piece. The Company utilizes advanced technologies to inspect weld
seams, which significantly reduces costs, fabrication hours, and the likelihood
of structural defects. After the completion of processing to customer
specifications, finished pieces are loaded for shipment to the construction
site, often pursuant to just-in-time delivery schedules.

         FIELD ERECTION. The erection process typically consists of pre-assembly
of steel component parts at the project site, the lifting of components by crane
to the appropriate location at the site and the final assembly of major
components to form the steel backbone of the project. The Company's field
erection crews erect fabricated steel components in accordance with erection
drawings prepared and updated by the Company's detailers. The erection process
for each project is managed by experienced field supervisors and the Company
employs local union erection personnel on an as needed basis in areas near the
project sites.

PROJECT MANAGEMENT

         All contract awards to the Company are assigned a project number which
is used to track each steel component and man-hour associated with the project
through the entire construction process. All project drawings, specifications,
and completion schedules on a project are reviewed by the Company's Vice
President of Project Coordination and all projects are assigned to one or more
Project Managers who assume primary responsibility for all aspects of the
project. Often a Project Manager assigned to a given project will have
significant experience in similar projects. A Project Manager generally will be
responsible for one to five projects in various stages of completion at any
given time, depending on the scope, complexity, and geographic location of such
projects. Each project is divided into critical sequences of steel groups that
follow the anticipated erection or fabrication path. Each sequence follows a
timeline and the status is continually monitored. The Vice President of Project
Coordination and Project Manager for each project coordinate and manage design
changes or other changes in scheduled completion deadlines in an effort to
minimize overall project delays. The Company provides production bonuses to its
Project Managers based on, among other factors, the achievement of lower costs
on a project than the estimated costs used to formulate the initial bid or price
or prices of subsequent change orders, and the ability to minimize costs or cost
overruns on particularly complex projects or on projects that exceed initial
cost estimates.

         The Company believes that a key factor in its success has been its
ability to provide through its in-house personnel valuable input and assistance
to general contractors, engineering firms, and other customers with respect to
overall project design of fabrication and erection sequences and other critical
project decisions, which often results in overall project cost savings and
efficiencies and helps to solidify key customer relationships. In addition to
its centralized project management, the Company also uses a high percentage of
skilled erection employees local to projects and utilizes advanced scheduling
systems to enhance its ability to provide project management services to
customers complementary to its core engineering, detail drawing, shop
fabrication, and field erection services.

SAFETY AND QUALITY ASSURANCE

         The Company has adopted and maintains important safety policies that
are administered and enforced by the Company's top management. The Company
considers workplace accident prevention to be of primary importance in all
phases of its operations and provides continual training on safety procedures
and techniques to all of its shop and field personnel.


                                       10
<PAGE>   11
         The Company uses advanced welding and fabrication technologies and all
of the Company's products are fabricated in accordance with applicable industry
and specific customer standards and specifications. The Company has achieved and
maintains a level three certification by the American Institute of Steel
Construction (AISC) with respect to its fabrication operations, the highest
level of certification available from AISC. In addition, the Company's welding
employees are certified in accordance with the American Society of Mechanical
Engineers (ASME) Section IX, Non-Destructive Examination Inspector Certification
to Society Non-Destructive Testing TC-IA Standards. The Company has developed
project-specific and Company-wide quality assurance and quality control
programs, and utilizes sophisticated x-ray and ultra-sonic systems to inspect
weld seams.

SALES AND ESTIMATING

         The Company's domestic sales and marketing efforts are led by five
sales managers. Each sales manager is responsible primarily for the Company's
sales and marketing efforts in defined geographic areas, including the emerging
South American and Mexican markets. In addition, the Company employs fifteen
full-time project estimators and three chief estimators. The Company's sales
representatives maintain relationships with and make personal and other sales
calls on general contractors, architects, engineers, and other potential sources
of business to determine potential new projects under consideration, which
provides the Company with valuable market information and new project
opportunities. The Company maintains future projects reports in order to track
the weekly progress of new opportunities. The Company's sales efforts are
further supported by most of its executive officers and by its engineering
personnel, who have substantial experience in the design, fabrication, and
erection of structural steel and heavy steel plate.

         The Company competes for new project opportunities through its
relationships and interaction with its active and prospective customer base,
which provides the Company with valuable current market information and sales
opportunities. In addition, the Company frequently is contacted by governmental
agencies in connection with public construction projects, and by large private
sector project owners and by general contractors and engineering firms in
connection with new building projects such as plants, warehouse and distribution
centers, and other industrial and commercial facilities.

         Upon selection of projects to bid or price, the Company's estimating
division reviews and prepares projected costs of shop, field, detail drawing
preparation and crane hours, steel and other raw materials, and other costs. On
bid projects, a formal bid is prepared detailing the specific services and
materials to be provided by the Company, payment terms and project completion
timelines. Upon acceptance, the Company's bid proposal is finalized in a
definitive contract.

CONTRACTING METHODS AND PERFORMANCE BONDING

         The Company's projects are awarded through a competitive bid process or
are obtained through negotiation, in either case generally using one of two
types of contract pricing approaches: fixed price or cost-plus pricing. Under
the fixed price approach, the Company receives the price fixed in the contract,
subject to adjustment only for change orders placed by the customer. As a
result, the Company retains all cost savings but is also responsible for cost
overruns. Under the cost-plus arrangement, the Company receives a specified fee
in excess of its direct labor and material cost, up to a maximum amount, and
thus seeks to gain protection against cost overruns and sometimes benefits
directly from cost savings. Historically, a substantial majority of the
Company's contracts have been fixed price arrangements.

         While customers may consider a number of factors, including
availability, capability, reputation, and safety record, price and the ability
to meet customer imposed project schedules are the principal factors on which
the Company obtains contracts. Generally, the Company's contracts and projects
vary in length from three to twelve months depending on the size and complexity
of the project, project owner demands, and other factors.

         The Company's contract arrangements with customers sometimes require
the Company to provide payment and performance bonds and, in selected cases
typically associated with international projects, letters of credit, to
partially secure the Company's obligations under its contracts. Bonding
requirements typically arise in connection with public


                                       11
<PAGE>   12
works projects and sometimes with respect to certain private contracts. The
Company's payment and performance bonds are obtained through surety companies
and typically cover the entire contract price on a project. The Company believes
that its bonding capacity provides a competitive advantage in some cases due to
the Company's ability to obtain large bonds and to negotiate more favorable
pricing of bonds.

BACKLOG

         The Company considers backlog an important indicator of its operating
condition because its engineering, detailing, fabrication, and erection services
are characterized by long lead times for projects and orders. The Company
defines its backlog of contract commitments as the potential future revenues to
be recognized upon performance of contracts awarded to the Company. Backlog
increases as new contract commitments are obtained, decreases as work is
performed and the related revenues are recognized, and increases or decreases as
modifications in work are performed under a contract. As of December 31, 1997,
the Company's backlog was $56.8 million, of which approximately $12.2 million
was attributable to two projects for a single customer in Las Vegas, Nevada, and
approximately $9.4 million was attributable to one project in Phoenix, Arizona.
The Company expects approximately 95% of its backlog as of December 31, 1997 to
be recognized as revenues in 1998.

COMPETITION

         The principal geographic and product markets served by the Company are
highly competitive. The Company competes with other contractors on a local,
regional, or national basis, and, in certain cases, on an international basis.
The Company has different competitors for each of its services and product
segments and within each geographic market served by the Company. The Company
believes that it can compete effectively for new projects both nationally and
internationally and that it is among the largest competitors in its industry.
Among the principal competitive factors within the industry are price,
timeliness of completion of projects, quality, reputation, and the desire of
customers to utilize specific contractors with whom they have favorable
relationships and prior experience. Certain of the Company's competitors have
financial and operating resources greater than those of the Company.

GOVERNMENTAL REGULATION

         The Company's operations are governed by and subject to government
regulations in the United States and in foreign countries in which the Company
operates, including laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and regulations
thereunder in the United States. With respect to its international operations,
the Company is subject to a number of laws and regulations, including those
relating to taxation of its earnings and earnings of its personnel and its use
of local personnel and suppliers. The Company's operations are subject to the
risk of changes in federal, state, and local laws and policies which may impose
restrictions on the Company, including trade restrictions, expropriation or
nationalization decrees, confiscatory tax systems, primary or secondary boycotts
or embargos directed at specific countries, import restrictions or other trade
barriers, and mandatory sourcing rules, any of which could, if adopted or
implemented, materially and adversely affect the Company. The Company believes
that it is in material compliance with the laws and regulations under which it
and its operations are currently governed and does not believe that future
compliance with such laws and regulations will have a material and adverse
effect on it. The Company cannot determine, however, to what extent future
operations and earnings of the Company may be affected by new legislation, new
regulations, or changes in or new interpretations of existing regulations.

         The Company is subject to licensure and holds licenses in each of the
states in the United States in which it operates and in certain local
jurisdictions within such states. The Company believes that it is in material
compliance with all contractor licensing requirements in the various states in
which it operates. The loss or revocation of any license or the limitation on
any of the Company's primary services thereunder in any state in which the
Company conducts substantial operations could prevent the Company from
conducting further operations in such jurisdiction and would have a material
adverse effect on the Company.


                                       12
<PAGE>   13
ENVIRONMENTAL REGULATION

         The Company's operations and properties are affected by numerous
federal, state, and local environmental protection laws and regulations, such as
those governing discharges into air and water, and the handling and disposal of
solid and hazardous waste. The requirements of these laws and regulations have
become increasingly stringent, complex, and costly to comply with. In addition,
the Company may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances. The Company is not
aware of any non-compliance with environmental laws that could have a material
adverse effect on the Company's business or operations. There can be no
assurance, however, that such laws, regulations, or their interpretation will
not change in the future in a manner that could materially and adversely affect
the Company.

         Certain environmental laws, such as CERCLA, provide for strict and
joint and several liability for investigation and/or remediation of spills and
other releases of hazardous substances. Such laws may apply to conditions at
properties presently owned or operated by the Company or its predecessors, as
well as to conditions at properties at which waste or other contamination
attributable to an entity or its predecessors come to be located. The Company's
facilities have been operated for many years, and substances that are or might
be considered hazardous were used at such locations. The Company does not
anticipate incurring material capital expenditures for environmental controls or
for investigation or remediation of environmental conditions during the current
or succeeding fiscal year. Nevertheless, the Company can give no assurance that
it, or entities for which it may be responsible, will not incur liability in
connection with the investigation and remediation of facilities it currently
owns or operates or other locations in a manner that could materially and
adversely affect the Company.

EMPLOYEES

         As of December 31, 1997, the Company employed approximately 645 people.
The number of persons employed by the Company on an hourly basis fluctuates
directly in relation to the amount of business performed by the Company. Certain
of the fabrication and erection personnel employed by the Company are
represented by the United Steelworkers of America, the International Association
of Bridge, Structural and Ornamental Iron Workers Union, the International Union
of Operating Engineers, and the International Brotherhood of Boilermakers, Iron
Shipbuilders, Blacksmiths, Forgers and Helpers Union. The Company is a party to
several separate collective bargaining agreements with such unions in certain of
the Company's current operating regions, which expire (if not renewed) at
various times in the future. Most of the Company's collective bargaining
agreements are subject to automatic annual or other renewal unless either party
elects to terminate the agreement on the scheduled expiration date. The Company
considers its relationship with its employees to be good and, other than
sporadic and unauthorized work stoppages of an immaterial nature, none of which
have been related to the Company's own labor relations, the Company has not
experienced a work stoppage or other labor disturbance.

         The Company utilizes third-party fabrication subcontractors on many of
its projects and also subcontracts detailing services from time to time when it
lacks available in-house capacity for such services. The Company's inability to
engage fabrication and detailing subcontractors on terms favorable to the
Company could limit the Company's ability to complete projects in a timely
manner or compete for new projects and could have a material adverse effect on
the Company.

SUPPLIERS

         The Company currently purchases a majority of its steel and steel
components from several domestic and foreign steel producers and suppliers.
However, steel is readily available from numerous foreign and domestic steel
producers and the Company is not dependent on any one supplier. The Company
believes that its relationships with its suppliers are good and has no long term
commitments with any of its suppliers. In recent periods, there has been an
increased demand for steel from domestic mills and the Company has purchased a
portion of its steel requirements from Asian producers.


                                       13
<PAGE>   14
                               ITEM 2 - PROPERTIES

         The Company's primary fabrication facilities consist of over 400,000
square feet of shop space under roof on approximately 26 acres in Phoenix,
Arizona. These facilities also house the Company's operations, erection,
engineering and detailing departments and are leased by the Company from a
partnership, the general partners of which are David A. Schuff, Nancy A. Schuff
and Scott A. Schuff and the limited partners of which are family trusts of Mr.
Scott A. Schuff and certain of his siblings (the "Schuff Partnership"). This
lease was amended as of March 1, 1997 and expires on February 28, 2017. Annual
rent under the lease totaled $264,000 and $295,000 for 1996 and 1997,
respectively, and will be $414,000 in 1998, $556,000 in 1999, $601,000 in 2000,
and $605,000 in each year thereafter during the remaining term of the lease,
subject to increase every five years commencing in 2002 pursuant to a Consumer
Price Index formula.

         With the acquisition of B&K Steel, the Company added approximately
145,000 square feet of covered fabrication, office, engineering and detailing
facilities on approximately 23 acres in Gilbert, Arizona. The property on which
B&K Steel's facilities are located was acquired by the Schuff Partnership and is
leased to the Company by that partnership. This lease commenced on March 1, 1997
and expires on February 28, 2017. Annual rent under the lease was approximately
$283,000 in 1997 and is expected to be $340,000 in each year thereafter, subject
to increase every five years commencing in 2002 based on a Consumer Price Index
formula.

         The Schuff Partnership also owns and is leasing to the Company
additional facilities consisting of approximately 22,000 square feet of office
space adjacent to its existing principal fabrication and office facilities in
Phoenix, Arizona. This facility houses the Company's executive offices and
sales, estimating, finance and administrative departments. This lease commenced
on May 1, 1997 and expires April 30, 2017. Annual rent under the lease was
$90,000 in 1997 and is expected to be $135,000 in each year thereafter, subject
to increase every five years based on a Consumer Price Index formula. The
Company subleases a portion of the premises.

         Under each of the foregoing leases, the Company also is obligated to
pay all taxes, insurance and maintenance costs.


                           ITEM 3 - LEGAL PROCEEDINGS

         Construction in general and the fabrication and erection of structural
steel and heavy steel plate in particular involve a high degree of operational
risk. Adverse weather conditions, operator and other error, and other unforeseen
factors can cause personal injury or loss of life, severe damage to or
destruction of property and equipment, and suspension of operations. Litigation
arising from such occurrences may result in the Company being named as a party
to lawsuits asserting substantial claims or to administrative or criminal
actions that may involve substantial monetary penalties or the restriction of
the Company's operations in one or more jurisdictions. The Company is a
defendant in lawsuits from time to time, including lawsuits arising in the
normal course of its business. While it is impossible at this time to determine
with certainty the ultimate outcome of these lawsuits, the Company's management
believes that the ultimate outcome will not have a material adverse effect on
the Company.

         The Company maintains workers compensation insurance that provides full
coverage of statutory workers compensation benefits. The Company also maintains
employer liability insurance in its principal geographic markets in amounts of
$1,000,000 per accident for bodily injury by accident and $1,000,000 per
employee (and as a policy limit) for bodily injury by disease and contractors
commercial general liability insurance in the amount of $1,000,000. In addition,
the Company maintains umbrella coverage limits of $20,000,000. The Company also
maintains insurance against property damage caused by fire, flood, explosion and
similar catastrophic events that may result in physical damage or destruction of
the Company's facilities and property. All policies are subject to various
deductibles and coverage limitations. Although management of the Company
believes that the Company's insurance is adequate for its present needs, there
can be no assurance that the Company will be able to maintain adequate insurance
at premium rates that management considers commercially reasonable, nor can
there be any assurance that such coverage will be adequate to cover all claims
that may arise.


                                       14
<PAGE>   15
         Currently, the Company does not maintain any reserves for its ongoing
litigation. The Company periodically reviews the need to maintain a litigation
reserve. The Company seeks to mitigate the effects of loss or damage through the
maintenance of risk management, insurance, and safety programs. There can be no
assurance, however, that the Company's efforts to mitigate losses will be
successful or that any losses incurred will not exceed the Company's insurance
or estimated reserves therefor.


          ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1997.


                                       15
<PAGE>   16
                                     PART II

          ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES
                         AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is traded on Nasdaq National Market under
the symbol "SHUF." The Common Stock commenced public trading on July 1, 1997 in
connection with the Company's initial public offering. As a result, high and low
market price information is not available for periods prior to the third quarter
of fiscal 1997. The following table sets forth the high and low closing sale
prices of the Common Stock, as reported by Nasdaq National Market, for the
periods indicated:

<TABLE>
<CAPTION>
                                                     Market Price
FISCAL YEAR 1997                                   High       Low
                                                   ----       ---
<S>                                               <C>        <C>
Third Quarter (from July 1, 1997).......          $11.125    $7.50
Fourth Quarter..........................          $11.875    $8.625
FISCAL YEAR 1998
First Quarter (through March 16, 1998)..          $11.25     $8.875
</TABLE>

         As of March 16, 1998, there were approximately 32 holders of record of
the Company's Common Stock.

         Except for certain distributions to its then current shareholders while
the Company was subject to taxation under subchapter S of the Internal Revenue
Code of 1986, as amended, and certain other distributions, including those made
in connection with the closing of the Company's initial public offering in July
1997 to the Company's shareholders prior to the offering, the Company has not
made distributions or declared dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. It is the current policy of the
Company's Board of Directors to retain its earnings, if any, to finance the
operation and expansion of the Company's business. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

SALES OF UNREGISTERED SECURITIES DURING THE YEAR ENDED DECEMBER 31, 1997

         On May 8, 1997, the Company reincorporated from Arizona to Delaware by
way of a merger in which the predecessor of the Company, an Arizona corporation,
merged with and into a newly created Delaware subsidiary of the Company. In the
merger, each share of the Arizona corporation's issued and outstanding common
stock was exchanged for 50,000 shares of the Delaware corporation's common stock
and each option to purchase one share of the Arizona corporation's common stock
was exchanged for 50,000 options to purchase shares of the Delaware
corporation's common stock. All share figures set forth above give effect to
this exchange ratio. Exemption from registration for this transaction was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering and/or pursuant to Rule 145 under
the Securities Act regarding transactions the sole purpose of which is to change
an issuer's domicile solely within the United States.

         On February 5, 1997, the Company granted stock options to purchase a
total of 6.91 shares of its Common Stock at an exercise price of $250,000 per
share. All of these options vest over a five year period with 20% of such
options of each grantee vesting on each anniversary of the date of grant. After
the reincorporation, the options were exchanged for 345,500 options to purchase
the Company's Common Stock at an exercise price of $5.00 per share. Following
consummation of the Company's initial public offering on July 7, 1997, the
Company granted to each of its current non-employee directors options to
purchase 7,500 shares of Common Stock, or 15,000 shares in the aggregate, in
consideration for their services on the Board of Directors. These options vest
on the first anniversary of the grant date. Exemption from restriction for these
transactions was claimed pursuant to Section 4(2) of the Securities Act
regarding transactions by an issuer not involving any public offering.


                                       16
<PAGE>   17
USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES

         The Company sold 2,000,000 shares of Common Stock pursuant to a
Registration Statement on Form S-1 (File No. 333-26711), which was declared
effective by the Securities and Exchange Commission on June 26, 1997 (the
"Offering"). The Company's total expenses in connection with the Offering from
the effective date of the registration statement through December 31, 1997 were
approximately $2,000,000, of which $1,120,000 was for underwriting discounts and
commissions and approximately $880,000 was for other expenses, all of which were
paid to persons other than directors or officers of the Company, persons owning
more than 10 percent of any class of equity securities of the Company, or
affiliates of the Company. As of December 31, 1997, the Company expended
$7,000,000 on S corporation distributions to certain of its stockholders prior
to the Offering (each of which own more than 10 percent of the Company's
outstanding Common Stock and are controlled by two directors and an executive
officer of the Company), and approximately $2,500,000 of such net proceeds for
the purchase of specialized fabrication equipment. As of December 31, 1997, the
remaining net proceeds of approximately $4,500,000 were used for general working
capital purposes.

FACTORS THAT MAY AFFECT FUTURE STOCK PERFORMANCE

         The performance of the Company's Common Stock is dependent upon several
factors including those set forth below and in Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations --Factors That May
Affect Future Results and Financial Condition."

Control by Majority  Shareholders; Ability to Issue Preferred Stock

         Mr. David A. Schuff, the Company's Chairman and co-founder, and Mr.
Scott A. Schuff, the Company's President, Chief Executive Officer, co-founder
and a member of its Board of Directors, collectively control the voting of
approximately 71.4% of the outstanding Common Stock. As a result, these
individuals control the vote on all matters requiring approval of the
stockholders, including causing or restricting the sale or merger of the
Company. In addition, the Company's Certificate of Incorporation authorizes the
Company to issue shares of "blank check" preferred stock, the designation,
number, voting powers, preferences, and rights of which may be fixed or altered
from time to time by the Board of Directors. Accordingly, the Board of Directors
has the authority, without stockholder approval, to issue preferred stock with
rights that could adversely affect the voting power or other rights of the
holders of the Common Stock.

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 the Common Stock is
also subject to significant fluctuations in response to variations in the
Company's quarterly operating results, analyst reports, announcements concerning
the Company, legislative or regulatory changes or the interpretation of existing
statutes or regulations affecting the Company's business, litigation, general
trends in the industry and other events or factors.

Shares Eligible for Future Sale

         There were 7,000,000 shares of Common Stock outstanding as of March 16,
1998. Of these shares, 2,000,000 shares of Common Stock are freely tradeable.
The 5,000,000 remaining shares of Common Stock are beneficially held by Messrs.
David A. Schuff and Scott A. Schuff and are "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, if two years
have elapsed since the later of the date of acquisition of restricted shares
from either an issuer by an affiliate of the issuer, or from an affiliate of an
issuer, the affiliate acquiror or subsequent holder is entitled to sell in the
open market, within any three-month period, a number of shares that does not
exceed the greater of one percent of the outstanding shares of the same class or
the average weekly trading volume during the four calendar weeks preceding the
filing of the required notice of sale. Of the "restricted securities"
outstanding, substantially all of these shares have been held for the two-year
holding period


                                       17
<PAGE>   18
required under Rule 144. No predictions can be made with respect to the effect,
if any, that sales of Common Stock in the market or the availability of shares
of Common Stock for sale under Rule 144 will have on the market price of Common
Stock prevailing from time to time. Sales of substantial amounts of Common Stock
in the open market could adversely affect the prevailing market price of the
Common Stock and may make it more difficult for the Company to sell its equity
securities in the future on terms it deems appropriate.


                        ITEM 6 - SELECTED FINANCIAL DATA

         The following sets forth selected historical consolidated financial
data of the Company for each of the years in the five-year period ended December
31, 1997. The selected annual historical consolidated financial data are derived
from the Company's Consolidated Financial Statements audited by independent
auditors. For additional information, see the Consolidated Financial Statements
of the Company and Notes thereto included elsewhere in this report. The
following table should be read in conjunction with Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
qualified by reference thereto and to the Company's Consolidated Financial
Statements and Notes thereto.

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                (In thousands, except per share data)
                                              --------------------------------------------------------------------------
                                                1993            1994            1995             1996            1997(1)
                                              --------        --------        --------        ---------        ---------
<S>                                           <C>             <C>             <C>             <C>              <C>
STATEMENT OF INCOME DATA:
Revenues ..............................       $ 58,640        $ 68,199        $ 62,090        $ 103,912        $ 138,218
Cost of revenues ......................         50,376          58,874          54,222           86,998          117,955
                                              --------        --------        --------        ---------        ---------
         Gross profit .................          8,264           9,325           7,868           16,914           20,263
General and administrative expenses ...          4,367           4,915           5,284            6,715            8,880
                                              --------        --------        --------        ---------        ---------
         Operating income .............          3,897           4,410           2,584           10,199           11,383
Interest expense ......................           (627)           (718)           (752)            (452)            (348)
Other income ..........................             60              67             618              303              520
                                              --------        --------        --------        ---------        ---------
         Income before income taxes ...          3,330           3,759           2,450           10,050           11,555
Provision for income taxes ............           --              --              --               --              2,823
                                              --------        --------        --------        ---------        ---------
Net income ............................          3,330           3,759           2,450           10,050            8,732
Pro forma income taxes (2) ............          1,330           1,500             980            4,020            1,513
                                              --------        --------        --------        ---------        ---------
         Pro forma net income (2) .....       $  2,000        $  2,259        $  1,470        $   6,030        $   7,219
                                              ========        ========        ========        =========        =========
Pro forma net income per share (2)(3):
         - basic ......................                                                       $    1.02        $    1.12
         - diluted ....................                                                       $    1.02        $    1.10
Shares used in computation(3):
         - basic ......................                                                           5,941            6,457
         - diluted ....................                                                           5,941            6,556

OPERATING DATA:
Backlog(4) ............................       $ 18,387        $ 22,544        $ 80,834        $  67,335        $  56,793


BALANCE SHEET DATA:
Cash and cash equivalents .............       $    113        $     63        $    289        $   7,253        $     197
Restricted funds on deposit(5) ........           --              --               220            2,249            2,096
Costs and recognized earnings in excess
   of billings on uncompleted
   contracts(6) .......................            714             777           1,076            3,331            3,982
Billings in excess of costs and
   recognized earnings on uncompleted
   contracts(6) .......................          4,215           6,506           5,940           12,051            3,758
Property and equipment, net ...........          4,310           4,666           4,222            5,116            7,415
Total assets ..........................         25,387          26,244          25,260           36,397           42,038
Long term debt, excluding current
   portion ............................          3,806           7,057           5,271            2,753            4,927
Stockholders' equity ..................       $  5,320        $  6,032        $  6,768        $  10,682        $  24,673
</TABLE>

                                       18
<PAGE>   19
----------------

(1)      Gives effect to the Company's acquisition of B&K Steel on January 31,
         1997, which was accounted for under the purchase method of accounting.
         Financial information relating to B&K Steel has not been included in
         periods prior to the acquisition.

(2)      Prior to the completion of its initial public offering in July 1997,
         the Company elected to be treated as an S corporation under the
         Internal Revenue Code of 1986, as amended. As an S corporation, the
         Company was not subject to income taxes. Pro forma net income reflects
         the provision for income taxes that would have been recorded had the
         Company been subject to income taxes as a C corporation for all
         periods, assuming an effective tax rate of 40%. Provision for income
         taxes for 1997 includes credits of $300,000 to income recorded upon
         revocation of the Company's S corporation election in June 1997.

(3)      Shares used in the computation of pro forma net income per share are
         based upon the weighted average number of common shares and common
         stock equivalents outstanding during each year. In February 1997, the
         Financial Accounting Standards Board (FASB) issued SFAS No. 128,
         "Earnings Per Share" ("SFAS No. 128"), which was adopted by the Company
         on December 31, 1997. SFAS No. 128 replaced the previously reported
         primary or fully diluted pro forma earnings per share with basic and
         diluted earnings per share. Unlike primary earnings per share, basic
         earnings per share exclude any dilutive effects of options, warrants,
         and convertible securities. Diluted earnings per share is very similar
         to the previously reported primary earnings per share. All earnings per
         share amounts for all periods have been presented and, where necessary,
         restated to conform to the SFAS No. 128 requirements. The impact of
         SFAS No. 128 on the calculation of fully diluted earnings per share for
         each of the periods presented was not material.

(4)      Backlog is the amount of potential future revenues to be recognized
         upon performance of contracts awarded to the Company. Backlog increases
         as new contract commitments are received, decreases as revenues are
         recognized, and increases or decreases to reflect modifications in the
         work to be performed under a contract. Of the Company's $56.8 million
         backlog as of December 31,1997, approximately $12.2 million was
         attributable to two projects for a single customer in Las Vegas,
         Nevada, and approximately $9.4 million was attributable to one project
         in Phoenix, Arizona.

(5)      Restricted funds on deposit represent funds on deposit in an interest
         bearing escrow account which are maintained in lieu of retention for a
         specific contract. Retentions on contract receivables are amounts due
         which are withheld until the completed project has been accepted by the
         customer in accordance with the contract. See Note 1 to Consolidated
         Financial Statements.

(6)      The Company recognizes revenues and costs from construction projects
         using the percentage of completion accounting method. Under this
         method, revenues are recognized based upon the ratio of the costs
         incurred to date to the total estimated costs to complete the project,
         commencing when progress is sufficient to estimate final results with
         reasonable accuracy, which typically occurs when fabricated product is
         shipped to the project site or when erection of the project commences.
         Construction contracts with customers generally provide that billings
         are to be made monthly in amounts which are commensurate with the
         extent of performance under the contracts. Costs and recognized
         earnings in excess of billings on uncompleted contracts primarily
         represent revenues earned under the percentage of completion method
         which have not been billed, and also include costs incurred in excess
         of billings on contracts for which sufficient work has not been
         performed to allow for recognition of revenues. Billings in excess of
         costs and recognized earnings on uncompleted contracts represent
         amounts billed on contracts in excess of the revenues allowed to be
         recognized under the percentage of completion method on those
         contracts.


                                       19
<PAGE>   20
      ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         The following discussion and analysis provides information regarding
the Company's financial position as of December 31, 1996 and 1997, and its
results of operations for the years ended December 31, 1995, 1996, and 1997.
This discussion should be read in conjunction with the preceding "Selected
Consolidated Financial and Operating Data" and the Company's Consolidated
Financial Statements and related Notes thereto appearing elsewhere in this
report.


INTRODUCTION

         The Company's results of operations are affected primarily by (i) the
level of commercial and industrial construction in its principal markets, (ii)
the Company's ability to win project contracts, (iii) the amount and complexity
of project changes requested by customers or general contractors, (iv) the
Company's success in utilizing its resources at or near full capacity, and (v)
the Company's ability to complete contracts on a timely and cost effective
basis. The level of commercial and industrial construction activity is related
to several factors, including local, regional and national economic conditions,
interest rates, availability of financing, and the supply of existing facilities
relative to demand.

         The Company believes that there is an increasing trend in the steel
fabrication and erection industry to design and build large, complex projects
according to accelerated time schedules. With many projects, only a portion of
the detail design drawings are completed when construction begins. The remaining
drawings are completed, with numerous design changes being implemented,
throughout the construction process. These fast track,"design-as-you-go"
projects are well-suited to integrated contractors that can (i) reduce the
logistical and coordination problems inherent in the use of multiple
subcontractors to complete a large, complex project and (ii) more efficiently
respond to rapid and multiple design changes while minimizing project delays and
cost overruns commonly associated with such changes. The complexity and size of
these projects requires subcontractors possessing extended financial and
operational capabilities. Typically, these projects offer greater potential
profit than small, less complex projects because project management and overhead
requirements for large projects usually are proportionately less. Individual
large projects can have a substantial impact upon the Company's results of
operations and cause significant fluctuations from quarter to quarter.

         The Company obtains contracts through competitive bidding or
negotiation, which generally are either fixed price or cost-plus arrangements.
During 1996 and 1997, approximately $94.0 million (91.0%) and $133.8 million
(96.8%), respectively, of the Company's revenues were derived from projects
performed pursuant to fixed price contracts. In bidding or negotiating
contracts, the Company must estimate its costs, including projected increases in
labor, material, and service costs. Project duration typically lasts from three
to twelve months.

         The Company recognizes revenues using the percentage of completion
accounting method. Under this method, revenues are recognized based upon the
ratio of costs incurred to date to the estimated total cost to complete the
project. Revenue recognition begins when progress is sufficient to estimate
final results with reasonable accuracy, which typically occurs when fabricated
product is shipped to the project site or when erection of the project
commences. Revenues relating to changes in the scope of a contract are
recognized when the customer has authorized the change, the work is commenced
and the Company has made an estimate of the amount that will be paid for the
change. The cumulative impact of revisions in total cost estimates during the
progress of work is reflected in the period in which these revisions become
known. Estimated losses on contracts are recognized in full when it is
determined that a loss will be incurred on a contract.

         Cost of revenues consists of the costs of materials, equipment, direct
labor, fringe benefits, and indirect costs associated with detailing,
fabrication and erection, including rent, depreciation and supervisory labor.
Other costs not associated with specific projects are included in general and
administrative expenses.

         Gross profit margins can be positively affected by large, more complex
projects, the percentage of negotiated contracts relative to competitively bid
contracts, the number and scope of contract modifications and improvements in


                                       20
<PAGE>   21
operating efficiencies. Gross profit margins can be adversely affected by
construction delays, inefficient or underutilization of the Company's resources,
availability and cost of materials and labor, the timing and performance of work
by other contractors, weather conditions and construction site conditions.

         Backlog increases as contract commitments are obtained, decreases as
revenues are recognized, and increases or decreases to reflect modifications in
the work to be performed under the contract. The timing of contract commitments,
the size of projects and other factors beyond the Company's control can cause
significant fluctuation in backlog outstanding at any given date.

         Prior to the completion of the Company's initial public offering in
July 1997, the Company was taxed as an S corporation for income tax purposes.
Accordingly, its income was taxed directly to its stockholders. Immediately
prior to the offering, the Company's S corporation election was revoked and the
Company became subject to income tax as a C corporation. For purposes of the
financial information contained in this section, pro forma income tax expense
has been included assuming an income tax rate of 40%, and pro forma net income
reflects this provision.

         On March 17, 1998, the Company entered into a non-binding letter of
intent to acquire all of the outstanding capital stock of Addison Structural
Services, Inc. Substantially all of the purchase price will be paid in cash. The
transaction is subject to a number of contingencies and closing conditions, and
there can be no assurance that the transaction will be consummated on the terms
currently anticipated, if at all. See "Business-Recent Developments."

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated certain
financial data as a percentage of revenues:

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                          ------------------------------------
                                           1995           1996           1997
                                          ------         ------         ------
<S>                                        <C>            <C>            <C>
Revenues .............................     100.0%         100.0%         100.0%
Cost of revenues .....................      87.3           83.7           85.3
                                          ------         ------         ------
  Gross Profit .......................      12.7           16.3           14.7
General and administrative expenses ..       8.5            6.5            6.4
                                          ------         ------         ------
  Operating income ...................       4.2            9.8            8.3
Interest expense .....................      (1.2)          (0.4)          (0.3)
Other income .........................       1.0            0.3            0.4
                                          ------         ------         ------
Income before income taxes ...........       4.0            9.7            8.4
Provision for income taxes ...........        --             --            2.1
Pro forma income taxes ...............       1.6            3.9            1.1
                                          ------         ------         ------
Pro forma net income .................       2.4%           5.8%           5.2%
                                          ======         ======         ======
</TABLE>

         YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Revenues. Revenues increased by 33.0% to $138.2 million in 1997 from
$103.9 million in 1996. The increase was largely attributable to an increase in
revenues generated from the Bank One Ballpark project of $19.2 million to $39.0
million in 1997 from revenues of $19.8 million in 1996. Revenues for 1997 also
include $10.1 million of revenues of B&K Steel following its acquisition by the
Company on January 31, 1997 for which there were no


                                       21
<PAGE>   22
respective revenues in 1996. The average revenues for the Company's ten largest
revenue generating projects was $9.3 million in 1997 versus $7.8 million in
1996, which represents a 19.2% increase.

         Gross profit. Gross profit increased 19.8% to $20.3 million in 1997
from $16.9 million in 1996 primarily due to the 33.0% increase in revenues. As a
percentage of revenues, gross profit decreased to 14.7% in 1997 from 16.3% in
1996. The decrease as a percentage of revenues was primarily attributable to
above average 1996 margins resulting from higher than anticipated revenues from
requested contract modifications and higher then expected costs on the Company's
largest contract as a result of increased efforts on the project for which the
Company is not assured of being reimbursed.

         General and administrative expenses. General and administrative
expenses increased by 32.2% to $8.9 million in 1997 from $6.7 million in 1996.
Of the $2.2 million increase in 1997, $1.7 million was attributable to
additional general and administrative costs resulting from the B&K Steel
acquisition and the remaining $500,000 was attributable to increases required to
support the increased revenues in 1997. General and administrative expenses as a
percentage of revenues remained relatively constant at 6.4% in 1997 compared to
6.5% in 1996. General and administrative expenses include those for contract
bids, estimating, sales and marketing, facilities, project management, and
support services, none of which increased in proportion to the increase in
revenues, primarily because the Company's higher average contracts during the
period did not require proportionately higher general and administrative
expenses.

         Interest expense. Interest expense decreased by 23.0% to $348,000 in
1997 from $452,000 in 1996. The decrease was attributable largely to the lower
average monthly line of credit borrowings and more favorable interest rate
terms.

         Other income. Other income increased 71.6% to $520,000 in 1997 from
$303,000 in 1996. The increases in other income was primarily attributable to
earnings on funds invested.

         Income tax expense. Income tax expense for 1997 was $2.8 million which
represents a 40% effective tax rate on earnings of the Company from the date of
its S corporation status termination on June 26, 1997. The 1997 expense is
offset by a $300,000 credit to deferred taxes generated upon the revocation of
the Company's S corporation status for the effect of cumulative temporary
differences as of the date of the S corporation termination. Prior to 1997, the
Company was an S corporation and the related S corporation earnings were taxed
directly to the stockholders.

         Pro forma net income. Pro forma net income increased by 19.7% to $7.2
million in 1997 from 6.0 million in 1996.

         Backlog. Backlog decreased 15.6% to $56.8 million at December 31, 1997
from $67.3 million at December 31, 1996. The $10.5 million net decrease is due
to a decrease of backlog of $32.4 million to $1.9 million in 1997 from $34.3
million in 1996 relating to the Bank One Ballpark project. This decrease was
offset by an increase in backlog related to three significant projects awarded
in 1997 for which backlog is approximately $21.6 million on total contract
amounts of $31.5 million. Of the backlog at December 31, 1997, approximately
$12.2 million was attributable to two projects for a single customer in Las
Vegas, Nevada, and approximately $9.4 million was attributable to one project in
Phoenix, Arizona.

         YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         Revenues. Revenues increased by 67.4% to $103.9 million in 1996 from
$62.1 million in 1995. The increase was attributable primarily to larger
individual contracts in 1996 compared to 1995, including the Bank One Ballpark,
which contributed $19.8 million. The Bank One Ballpark project is expected to
generate total revenues approaching $55.0 million when completed in 1998. The
average revenues for the Company's ten largest revenue generating projects was
$7.8 million in 1996 versus $3.3 million in 1995. Excluding Bank One Ballpark,
the ten largest revenue generating projects averaged $6.4 million in 1996, which
represented a 93.9% increase over the 1995 average of $3.3 million.

         Gross profit. Gross profit increased by 115.0% to $16.9 million in 1996
from $7.9 million in 1995 primarily due to the 67.4% increase in revenues. As a
percentage of revenues, gross profit increased to 16.3% in 1996 from 12.7%


                                       22
<PAGE>   23
in 1995. The increase as a percentage of revenues was attributable primarily to
greater overhead absorption, better pricing associated with larger projects,
improved operating efficiencies, and modifications to specific contracts. By
obtaining larger average value and more complex contracts, the Company has been
able to realize higher gross margins on such projects, a trend that was
reflected in the Company's gross profit in 1996. In addition, many of the
Company's fixed costs, such as depreciation, increased proportionately less than
the 67.4% increase in revenues, which further served to improve gross margins.

         General and administrative expenses. General and administrative
expenses increased by 27.1% to $6.7 million in 1996 from $5.3 million in 1995.
Of the $1.4 million increase in 1996, $590,000 was attributable to bonus
payments to employees and $529,000 was attributable to a deferred compensation
plan implemented in 1996. The Company's deferred compensation plan was
terminated in 1997. General and administrative expenses as a percentage of
revenues decreased to 6.5% in 1996 from 8.5% in 1995 due to the benefits of
having larger average contracts in 1996. In 1995, the Company experienced a 9.0%
decrease in revenues from 1994 and elected not to reduce general and
administrative costs proportionately in anticipation of future contract awards,
thereby causing higher general and administrative expenses as a percentage of
revenues.

         Interest expense. Interest expense decreased by 39.9% to $452,000 in
1996 from $752,000 in 1995. The decrease was attributable to the lower average
line of credit borrowings, which reflected in large part the Company's ability
to increase its billings in excess of costs and recognized earnings on
uncompleted contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

         Pro forma net income. Pro forma net income increased by 310.2% to $6.0
million in 1996 from $1.5 million in 1995.

         Backlog. Backlog at December 31, 1996 was $13.5 million less than at
December 31, 1995 due to the receipt of four contract awards that collectively
represented backlog of $47.2 million at December 31, 1995. Additionally, the
high level of backlog at the end of the first quarter of 1996 caused the Company
to become more selective in the pursuit of new contract awards during the
remainder of the year. Of the backlog at December 31, 1996, approximately $13.1
million was attributable to three projects for a single customer in Las Vegas,
Nevada, and approximately $34.3 million was attributable to the Bank One
Ballpark project in Phoenix, Arizona.

LIQUIDITY AND CAPITAL RESOURCES

         The Company completed its initial public offering of 2,000,000 shares
of Common Stock on or about July 1, 1997, and closed such offering on July 7,
1997. The offering yielded $14.0 million in proceeds net of underwriting
discounts and other costs. The Company used approximately $7.0 million of the
proceeds to fund S corporation distributions, and has used the remaining
proceeds to purchase specialized fabrication equipment and to fund general
corporate purposes.

         The Company attempts to structure the payment arrangements under its
contracts to match costs incurred under the project. To the extent the Company
is able to bill in advance of costs incurred, it generates working capital
through billings in excess of costs and recognized earnings on uncompleted
contracts. To the extent the Company is not able to bill in advance of costs, it
relies on its credit facilities to meet its working capital needs. At December
31, 1997, the Company had $2.6 million of borrowings under its line of credit
due in large part to its decrease in billings in excess of costs and recognized
earnings on uncompleted contracts of $8.3 million and a $6.6 million increase in
receivables during 1997. At December 31, 1997, the Company had working capital
of approximately $22.5 million. The Company believes that it has sufficient
liquidity through its present resources and the existence of its bank credit
facility to meet its near term operating needs.

         The Company's short term cash needs are primarily for working capital
to support operations including receivables, inventories, and other costs
incurred in performing its contracts. Operating activities required cash flows
of $4.5 million for the year ended December 31, 1997 and provided cash flows of
$14.4 million for the year ended December 31, 1996. For the year ended December
31, 1997, operating cash flows were less than net income (excluding


                                       23
<PAGE>   24
pro forma income taxes) due to the $8.3 million decrease in billings in excess
of costs and recognized earnings on uncompleted contracts, a $6.6 million
increase in receivables, and other net working capital fluctuations. The
increase in billings in excess of costs and recognized earnings on uncompleted
contracts was a result of project advance billings being recognized as revenues
and costs under percentage of completion accounting as the contracts moved
toward completion. The increase in receivables was due to an increase of $1.5
million in retentions as projects moved toward total completion and the
continued growth of revenues. Investing activities required $3.6 million for the
year ended December 31, 1997 and $2.3 million during the year ended December 31,
1996, substantially all of which were related to purchases of property and
equipment in 1997 and 1996 and the cash portion of the acquisition of B&K Steel
in 1997. Financing activities provided $1.1 million for the year ended December
31, 1997 and consumed $5.1 million for the year ended December 31, 1996. Cash
provided by financing activities in 1997 was primarily a result of $14.0 million
net proceeds from the issuance of 2 million additional shares of Common Stock
offset by $13.8 million in S corporation stockholder distributions, of which
$7.0 million was distributed at the effective date of the offering. Cash
consumed by financing activities in 1996 was related primarily to repayments of
long-term debt, payments on line of credit balances and $2.3 million of
stockholder distributions.

         As described above, the Company has entered into a non-binding letter
of intent to acquire Addison. See "Business-Recent Developments." If the Company
ultimately consummates such acquisition on the terms currently anticipated, it
would not, and does not expect to have, sufficient working capital or available
credit under its bank credit facilities to pay the entire purchase price in the
transaction. The Company is currently pursuing various debt financing
alternatives in connection with this and potentially other acquisitions.

         The Company maintains a $10.0 million credit facility with a commercial
bank that is subject to renewal on June 30, 1999 and is collateralized by
contract receivables, equipment and inventory. The Company's credit facility
requires that the Company maintain minimum tangible net worth of $19.0 million,
minimum owners equity (the sum of capital, capital surplus and retained earnings
divided by total assets) of 40%, a minimum current ratio of 1.25 to 1.0, and
minimum debt coverage ratio of 1.5 to 1.0 (net profit after tax plus
depreciation and amortization plus changes in deferred taxes divided by
long-term debt including current maturities). The security agreements pursuant
to which the Company's assets are pledged prohibit any further pledge of such
assets without the written consent of the Company's lender. Under this facility,
the Company may borrow up to an amount equal to the greater of (a) 75% of
qualifying contracts receivable and inventories of up to a maximum of $10.0
million, or (b) a maximum of $5.0 million based on the greater of (i) 50% of the
net book value of fixed assets or (ii) 75% of the fair market value of fixed
assets. The Company's ability to borrow is subject to, among other restrictions,
billings in excess of costs and recognized earnings on uncompleted contracts. At
December 31, 1997, there was $6.2 million available under the line for future
borrowings.

         The Company has two other long-term debt commitments that are related
to its property and equipment. One is a subordinated note payable to a limited
partnership comprised of David A. Schuff, Scott Schuff and certain of their
family members, which requires monthly payments of $12,037 plus interest and
matures in 2003. The balance on this loan was approximately $1.8 million at
December 31, 1997. The other long-term debt of the Company consists of two notes
in the aggregate principal amount of $796,250 incurred as part of the
consideration paid to the sellers in the B&K Steel acquisition. Such notes are
payable in five equal annual installments ending in 2002. The acquisition of B&K
Steel, which had 1996 revenues of approximately $9.4 million and 1997 revenues
of approximately $10.1 million, was accounted for under the purchase method of
accounting. The fair value of the tangible net assets acquired approximated the
purchase price so no goodwill was recorded with respect to the transaction.

         Effective December 10, 1997, the Company obtained a $10,000,000 line of
credit (the "Acquisition Facility") with a commercial bank solely to finance the
acquisition of other companies. The covenants of this facility are consistent
with the credit facility mentioned above. The Acquisition Facility is
collateralized by the Company's accounts receivable, inventory and equipment,
any real property or securities purchased by utilization of the credit facility
or owned by a purchased subsidiary, and other items as described in the credit
facility agreement. Interest is payable in one, two, or three month periods at
the LIBOR or prime rate plus 0.25 percent. Outstanding principal on the
acquisition line will be payable in installments commencing on January 30, 1999,
as described in the acquisition facility agreement. At December 31, 1997, no
amounts were outstanding under the acquisition line.


                                       24
<PAGE>   25
         The Company leases its fabrication and office facilities from a
partnership in which the present beneficial stockholders of the Company and
their family members are the general and limited partners. Under the lease for
the Company's principal fabrication and office facilities, the Company's annual
rental payments were $295,000 in 1997, increasing to $414,000 for 1998, $556,000
for 1999, $601,000 in 2000, and $605,000 in each year thereafter during the 20
year term of the lease. The lease agreement for the B&K Steel property and
equipment provides for rental payments in the amount of $340,000 per year over
the 20 year term of the lease. The Company also leases additional office
facilities adjacent to the Company's existing principal office and shop
facilities. This office lease provides for rental payments of $135,000 per year
over the 20 year term of the lease. See Item 2. "Properties."

         The Company estimates that its capital expenditures for 1998 will be
approximately $1.5 million. The Company believes that its available funds, cash
generated by operating activities and funds available under its bank credit
facilities will be sufficient to fund these capital expenditures and its working
capital needs. However, the Company may expand its operations through future
acquisitions, including the acquisition of Addison, and may require additional
equity or debt financing.

IMPACT OF RECENTLY  ISSUED ACCOUNTING STANDARDS

         In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), which was adopted by
the Company on December 31, 1997. SFAS No. 128 replaced the previously reported
primary or fully diluted pro forma earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
exclude any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS No. 128
requirements. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for each of the periods presented was not material.

         SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") was
issued by the FASB in June 1997, and is effective for periods beginning after
December 15, 1997. For periods after that time, the Company will be required to
change the method currently used to compute income and to restate all prior
periods. Under the new requirements for calculating income, SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
impact of SFAS No. 130 on the calculation of comprehensive income for these
periods was not material.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the manner in which public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 will have no impact
on the Company's consolidated results of operations, financial position or cash
flows.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

         The Company's future operating results and financial condition are
dependent on a number of factors that the Company 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, including in Item 5." Market for Registrant's Common Equity
and Related Stockholder Matters," could affect the Company's future operating
results, financial condition, and the market price of its Common Stock.

Fluctuating Quarterly Results of Operations

         The Company has experienced, and in the future is expected to continue
to experience, substantial variations in its results of operations as a result
of a number of factors, many of which are outside the Company's control. In
particular, the Company's operating results may vary because of downturns in one
or more segments of the building


                                       25
<PAGE>   26
construction industry, changes in economic conditions, the Company's failure to
obtain, or delays in awards of, major projects, the cancellation of major
projects, the Company's failure to timely replace projects that have been
completed or are nearing completion, or declines in the amount of the Company's
billings in excess of costs and recognized earnings on uncompleted projects. Any
of these factors could result in the periodic inefficient or underutilization of
the Company's resources and could cause the Company's operating results to
fluctuate significantly from period to period, including on a quarterly basis.

No Assurance of Successful Acquisitions

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

         The Company has devoted and expects to continue to devote substantial
management attention and resources to the proposed acquisition of Addison. In
addition, the Company does not currently have sufficient working capital or
available bank financing to pay the entire purchase price in the acquisition,
and is pursuing various debt financing alternatives. In the event the Company
completes the acquisition, it is currently anticipated that the Company would
incur additional indebtedness. In addition, due to the geographic disposition of
Addison's operations from the Company's present facilities and management, the
Company will be dependent on the retention and future performance of Addison's
officers and employees for the day-to-day operations of Addison.

Large Fixed Price Contracts

         A substantial portion of the Company's backlog consists of projects
being performed on a fixed price basis. In bidding on projects, the Company
estimates its costs, including projected increases in costs of labor, material
and services. Despite these estimates, costs and gross profit realized on a
fixed price contract may vary from estimated amounts because of unforeseen
conditions or changes in job conditions, variations in labor and equipment
productivity over the terms of contracts, higher than expected increases in
labor or material costs and other factors. These variations could have a
material adverse effect on the Company's business, financial condition and
results of operations for any period.

Dependence on Construction Industry

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

Dependence on Subcontractors

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

Operating Risks; Litigation

         Construction and heavy steel plate weldments involve a high degree of
operational risk. Natural disasters, adverse weather conditions, design,
fabrication and erection errors and work environment accidents can cause death
or personal injury, property damage and suspension of operations. The occurrence
of any of these events could result in loss of revenues, increased costs, and
liability to third parties. The Company is subject to litigation claims in the
ordinary course of business, including lawsuits asserting substantial claims.
Currently, the Company does not maintain any reserves for its ongoing
litigation. The Company periodically reviews the need to maintain a litigation
reserve. The Company maintains risk management, insurance, and safety programs
intended to prevent or mitigate losses. There can be no assurance that any of
these programs will be adequate or that the Company will be able to maintain
adequate insurance in the future at rates that it considers reasonable.

Union Contracts

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


                                       26
<PAGE>   27
Risks Associated with Percentage of Completion Accounting

         The Company recognizes revenues using the percentage of completion
accounting method. Under this method, revenues are recognized based on the ratio
that costs incurred to date bear to the total estimated costs to complete the
project. Estimated losses on contracts are recognized in full when the Company
determines that a loss will be incurred. The Company frequently reviews and
revises 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, the Company would recognize a charge against
operating results, which could have a material adverse effect on the Company's
results of operations for the applicable period.

Geographic Concentration

         The Company's fabrication and erection operations currently are
conducted primarily in Arizona and Nevada, states in which the construction
industry has experienced substantial growth during recent years. Because of this
concentration, future construction activity and the Company's business may be
adversely affected in the event of a downturn in economic conditions existing in
Arizona and Nevada and in the southwestern 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, industrial facilities, hotels and casinos, convention centers and other
facilities, the prevailing market prices of copper, gold and other metals that
impact related mining activity, and downturns in occupancy rates, office space
demand, tourism and convention related activity and population growth.

Variations in Backlog

         The Company's backlog can be significantly affected by the receipt, or
loss, of individual contracts. In the event one or more large contracts were
terminated or their scope reduced, the Company's backlog would decrease
substantially. The Company's future business and results of operations may be
adversely affected if it is unable to replace significant contracts when lost or
completed, or if it otherwise fails to maintain a sufficient level of backlog.

Risks Of International Operations

         The Company currently is expanding into international markets. The
Company's international operations are subject to certain political, economic
and other uncertainties, including risks of war, nationalization of assets,
renegotiation or nullification of existing contracts, changing political
conditions, changing laws and policies affecting trade and investment, and
overlap of different tax structures. Although the Company currently attempts to
limit its exposure to currency fluctuations by dealing solely in United States
dollars, there can be no assurance that the Company's international operations
will escape the risks of fluctuating currency values, hard currency shortages,
or controls on currency exchange.

Competition

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


                                       27
<PAGE>   28
Substantial Liquidity Requirements

         The Company's operations require significant amounts of working capital
to procure materials for contracts to be performed over relatively long periods,
and for purchases and modifications of heavy-duty and specialized fabrication
equipment. In addition, the Company's contract arrangements with customers
sometimes require the Company to provide payment and performance bonds and, in
selected cases, letters of credit, to partially secure the Company's obligations
under its contracts, which may require the Company to incur significant
expenditures prior to receipt of payments. Furthermore, the Company's customers
often will retain a portion of amounts otherwise payable to the Company during
the course of a project as a guarantee of completion of that project. To the
extent the Company is unable to receive project payments in the early stages of
a project, the Company's cash flow would be reduced, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Dependence Upon Key Personnel

         The Company's success depends on the continued services of the
Company's senior management and key employees as well as the Company's ability
to attract additional members to its management team with experience in the
steel fabrication and erection industry. Although the Company has implemented a
stock option plan designed to retain key management and other employees, and
believes that it offers competitive compensation to such personnel, the Company
is not currently a party to any employment agreements with its executive
management personnel or other key employees. The unexpected loss of the services
of any of the Company's management or other key personnel, or its inability to
attract new management when necessary, could have a material adverse effect upon
the Company.

Potential Environmental Liability

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


                                       28
<PAGE>   29
Governmental Regulation

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

Year 2000

         The Company has determined that it will need to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers, large customers and
financial institutions to ensure that those parties have appropriate plans to
remediate year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.

         The assessment and necessary modifications for the Year 2000 issue is
estimated to be completed in early 1999. The Company believes that with current
systems and anticipated modifications, the year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and necessary conversions are not made or not completed timely,
the year 2000 issue could have a material impact on the operations of the
Company. There can also be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be converted on a timely
basis and will not have a material effect on the Company. Any remaining costs of
the year 2000 initiatives is not expected to be material to the Company's
results of operation or financial position.

Forward Looking Statements

         This Annual Report on Form 10-K, including Item 1. "Business," Item 3.
"Legal Proceedings," the Notes to the Condensed Consolidated Financial
Statements and in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contains forward looking statements.
Additional written or oral forward looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission, in its
press releases, or otherwise. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions identify forward
looking statements. Such statements may include, but not be limited to, the
anticipated outcome of contingent events, including consummation of acquisitions
and the integration and benefits expected to be derived from the acquired
companies, litigation, projections of revenues, income or loss, capital
expenditures, plans for future operations, growth and acquisitions, financing
needs or plans and the availability of financing, and plans relating to services
of the Company, as well as assumptions relating to the foregoing. Such forward
looking statements are within the meaning of that term in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.

         Forward looking statements reflect the Company's current views with
respect to future events and financial performance and speak only as of the date
the statements are made. Such forward looking statements are inherently subject
to risks and uncertainties, some of which cannot be predicted or quantified.
Future events and actual results could differ materially from those set forth
in, contemplated by, or underlying the forward looking statements. Statements in
this Annual Report, including Item 1 "Business," Item 3 "Legal Proceedings," 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. In addition, new factors emerge from time to time and it is
not possible for management to predict all of such factors, nor can it assess
the impact of each such factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from forward looking statements. The Company undertakes no obligation to


                                       29
<PAGE>   30
publicly update or review any forward looking statements, whether as a result of
new information, future events, or otherwise.


              ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Independent Auditors' Report and Consolidated Financial Statements
of the Company, including the Notes to such statements, are set forth on pages
F-1 through F-27.


             ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE

         The Company has had no disagreements with its independent accountant in
regard to accounting and financial disclosure and has not changed its
independent accountants during the two most recent fiscal years.


                                    PART III

          ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding (i) directors and executive officers of the
Company is set forth under the caption "Information Concerning Directors and
Executive Officers" and (ii) compliance with Section 16(a) is set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance," in the
Company's Proxy Statement relating to its 1998 Annual Meeting of Stockholders
(the "1998 Proxy Statement") incorporated by reference into this Form 10-K
Report, which has been filed with the Commission in accordance with Rule 14a-6
promulgated under the Exchange Act. With the exception of the foregoing
information and other information specifically incorporated by reference into
this report, the Company's 1998 Proxy Statement is not being filed as a part
hereof.


                        ITEM 11 - EXECUTIVE COMPENSATION

         Information regarding executive compensation is set forth under the
caption "Executive Compensation" in the 1998 Proxy Statement, which information
is incorporated herein by reference; provided, however, that the "Compensation
Committee Report on Executive Compensation" and the "Stock Price Performance
Graph" contained in the 1998 Proxy Statement are not incorporated by reference
herein.


          ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                                   MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1998 Proxy Statement, which information
is incorporated herein by reference.


            ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions of
management is set forth under the caption "Certain Transactions and
Relationships" in the 1998 Proxy Statement, which information is incorporated
herein by reference.


                                       30
<PAGE>   31
                                    PART IV

         ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                                   ON FORM 8-K

         (a)      CONSOLIDATED FINANCIAL STATEMENTS.

             The following documents are filed as part of this Annual Report on
Form 10-K:

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                      <C>
         Report of Ernst & Young LLP, Independent Auditors............................................    F-1

         Consolidated Financial Statements and Notes thereto of Schuff Steel Company:

                  Consolidated Balance Sheets at December 31, 1997 and 1996...........................    F-2

                  Consolidated Statements of Income for the years ended December 31, 1997, 1996,
                  and 1995............................................................................    F-4

                  Consolidated Statements of Changes in Stockholders' Equity for the years ended
                  December 31, 1997, 1996, and 1995...................................................    F-5

                  Consolidated Statements of Cash Flows for the years ended December 31, 1997,
                  1996, and  1995.....................................................................    F-6

                  Notes to Consolidated Financial Statements..........................................    F-7
</TABLE>

     (b)          REPORTS ON FORM 8-K.

          No report on Form 8-K was filed during the last quarter of the period
covered by this report.

     (c)          EXHIBITS AND SCHEDULES.

          The following exhibits and schedules are filed as part of this Annual
Report on Form 10-K.

          (i)     EXHIBITS


        EXHIBIT
         NUMBER                          Description
         ------                          -----------
         3.1(a)   Certificate of Incorporation of the Registrant (1)

         3.1(b)   Certificate of Amendment of Certificate of Incorporation of
                    the Registrant (1)

         3.2      Bylaws of the Registrant (1)

         4.1      Certificate of Incorporation of the Registrant
                    (filed as Exhibit 3.1) (1)

         10.1(a)  Loan Agreement dated June 30, 1996 between the Registrant and
                     Bank One, Arizona, NA (1)

         10.1(b)  Variable Rate Revolving Line of Credit Note dated
                     June 30, 1996 (1)

         10.2(a)  Revolving Line of Credit Loan Agreement and Addendum dated
                     June 30, 1995 between the Registrant and Bank One,
                     Arizona, NA (1)

         10.2(b)  Variable Rate Revolving Line of Credit Note and Addendum
                     dated June 30, 1995(1)


                                       31
<PAGE>   32
<TABLE>
<S>               <C>
         10.2(c)  Modification Agreement dated June 30, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(d)  Continuing Guaranty dated June 30, 1995 between David A.
                  Schuff, Nancy A. Schuff and Bank One, Arizona, NA (1)

         10.2(e)  Continuing Guaranty dated June 30, 1995 between Scott A.
                  Schuff and Bank One, Arizona, NA (1)

         10.2(f)  Modification Agreement dated March 31, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(g)  Modification Letter Agreement dated May 7, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(h)  Modification Agreement dated June 30, 1997 between the
                  Registrant and Bank One, Arizona, NA (2)

         10.2(i)  Continuing Guaranty dated June 30, 1997 between B & K Steel
                  Fabrications, Inc. and Bank One, Arizona, NA (2)

         10.2(j)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property Located at 420 South 19th Avenue, Phoenix, Arizona (2)

         10.2(k)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property located at 1833-1841 West Buchanan Street, Phoenix,
                  Arizona (2)

         10.2(l)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property Located at 619 North Cooper Road, Gilbert, Arizona (2)

         10.2(m)  Subordination Agreement dated June 30, 1997 between 19th
                  Avenue/Buchanan Limited Partnership, the Registrant and
                  Bank One, Arizona, NA (2)

         10.3(a)  Loan Agreement and Addendum dated June 30, 1995 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.3(b)  Variable Rate Line of Credit Note and Addendum dated June 30,
                  1995 (1)

         10.3(c)  Modification Agreement dated June 30, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.4     Continuing Guaranty dated April 22, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.5     Guaranty of Payment dated April 22, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.6     Guaranty of Payment dated January 31, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.7     Promissory Note dated December 31, 1989 between the Registrant
                  and 19th Avenue/Buchanan Limited Partnership (1)

         10.7.1   Modification and Extension Agreement dated as of September 30,
                  1997 between the Registrant and 19th Avenue/Buchanan Limited
                  Partnership (3)

         10.8     Lease dated March 1, 1997 for 420 S. 19th Avenue in Phoenix,
                  Arizona between 19th Avenue/Buchanan Limited Partnership and
                  the Registrant (1)
</TABLE>


                                       32
<PAGE>   33
<TABLE>
<S>               <C>

         10.9     Lease dated March 1, 1997 for 619 N. Cooper Road in Gilbert,
                  Arizona between 19th Avenue/Buchanan Limited Partnership and
                  the Registrant (1)

         10.10    Lease dated May 1, 1997 for 1841 W. Buchanan Street in
                  Phoenix, Arizona between 19th Avenue/Buchanan Limited
                  Partnership and the Registrant (1)

         10.11    Schuff Steel Company Supplemental Retirement and Deferred
                  Compensation Plan (1)*

         10.12(a) Schuff Steel Company 1997 Stock Option Plan (1)*

         10.12(b) Form of Incentive Stock Option Agreement for 1997 Stock Option
                  Plan (1)*

         10.12(c) Form of Non-Qualified Stock Option Agreement for 1997 Stock
                  Option Plan (1)*

         10.13    Form of Indemnity Agreement between the Registrant and its
                  directors (1)

         10.14(a) Modification and Extension Agreement dated as of September 30,
                  1997 between the Registrant and 19th Avenue/Buchanan Limited
                  Partnership (2)

         10.15(a) Credit Agreement dated December 10, 1997 between the Registrant
                  and Bank One, Arizona, NA

         10.15(b) Promissory Note dated December 10, 1997 between the Registrant
                  and Bank One, Arizona, NA

         23.1     Consent of Ernst & Young LLP, independent auditors

         24.1     Power of Attorney of David A. Schuff

         24.2     Power of Attorney of Dennis DeConcini

         24.3     Power of Attorney of Edward M. Carson

         27       Financial Data Schedule
</TABLE>


          (ii)       FINANCIAL STATEMENT SCHEDULES:

          The financial statement schedules have been omitted since they are not
applicable or the information required to be set forth therein is contained
elsewhere herein.
------------------

*         Indicates a management contract or compensation plan.

(1)   Incorporated by reference to the Company's Registration Statement on Form
      S-1 (Registration No. 333-26711), effective June 26, 1997.

(2)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1997.

(3)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1997.


                                       33
<PAGE>   34
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   SCHUFF STEEL COMPANY,
                                   a Delaware corporation


                                   By: /s/ Scott A. Schuff
                                      ----------------------------------------
                                          Scott A. Schuff
                                          President and Chief Executive Officer

                                   Date:  March 31, 1998


          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Name and Signature                                  Title                          Date
         ------------------                                  -----                          ----
<S>                                                   <C>                                  <C>
 /s/ Scott A. Schuff                                  President, Chief Executive           March 31, 1998
----------------------------------                    Officer and
Scott A. Schuff                                       Director (Principal Executive
                                                      Officer)




 /s/ Kenneth F. Zylstra                               Vice President and                   March 31, 1998
----------------------------------                    Chief Financial Officer,
Kenneth F. Zylstra                                    Secretary, Treasurer and Director
                                                      (Principal financial and
                                                      accounting officer)





                *                                     Chairman of the Board of             March 31, 1998
----------------------------------                    Directors
David A. Schuff


                *                                                                          March 31, 1998
----------------------------------                    Director
Dennis DeConcini


                *                                                                          March 31, 1998
----------------------------------                    Director
Edward M. Carson
</TABLE>


* By:   /s/ Kenneth F. Zylstra
        ------------------------------
        Kenneth F. Zylstra
         Attorney-in-Fact


                                       36
<PAGE>   35
                Report of Ernst & Young LLP, Independent Auditors


Board of Directors
Schuff Steel Company


We have audited the accompanying consolidated balance sheets of Schuff Steel
Company and subsidiaries as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Schuff Steel
Company and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.


                                                      /s/ ERNST & YOUNG LLP

Phoenix, Arizona
February 20, 1998, except for Note 16 as
     to which the date is March 18, 1998


                                      F-1
<PAGE>   36
                              Schuff Steel Company

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31
                                                                             1997             1996
                                                                            -------          -------
                                                                                 (in thousands)
<S>                                                                         <C>              <C>
         ASSETS
         Current assets:
            Cash and cash equivalents                                       $   197          $ 7,253
            Restricted funds on deposit                                       2,096            2,249
            Receivables                                                      24,717           16,885
            Costs and recognized earnings in excess of billings on
              uncompleted contracts                                           3,982            3,331
            Inventories                                                       2,364            1,279
            Prepaid expenses                                                    750              178
            Deferred income taxes                                               417               --
                                                                            -------          -------

                                              TOTAL CURRENT ASSETS           34,523           31,175

         Property and equipment, net                                          7,415            5,116

         Other assets                                                           100              106


                                                                            =======          =======
                                                                            $42,038          $36,397
                                                                            =======          =======
</TABLE>


See accompanying notes.


                                      F-2
<PAGE>   37
                              Schuff Steel Company

                     Consolidated Balance Sheets (continued)

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31
                                                                                       1997             1996
                                                                                     -------          --------
                                                                                           (in thousands)
<S>                                                                                  <C>              <C>
         LIABILITIES AND STOCKHOLDERS' EQUITY
          Current liabilities:
            Accounts payable                                                         $ 5,749          $  4,043
            Accrued payroll and employee benefits                                      1,023             1,539
            Insurance payable                                                            721               181
            Other accrued liabilities                                                    420               186
            Billings in excess of costs and recognized earnings on
              uncompleted contracts                                                    3,758            12,051
            Stockholder distributions payable                                             --             4,555
            Current portion of long-term debt                                            304               144
                                                                                     -------          --------

                                              TOTAL CURRENT LIABILITIES               11,975            22,699

         Long-term debt, less current portion                                          4,927             2,753
         Deferred income taxes                                                           226                --
         Other liabilities                                                               237               263

         Stockholders' equity
            Preferred Stock, $.001 par value - authorized 1,000,000 shares,
              none issued                                                                 --                --
            Common Stock, $.001 par value - authorized 20,000,000 shares,
              7,000,000 and 5,000,000 shares issued and outstanding in
              1997 and 1996, respectively                                                  7                 5
            Additional paid-in-capital                                                14,013                15
            Unfunded pension losses                                                       --              (519)
            Retained earnings                                                         10,653            11,181
                                                                                     -------          --------
                                                                                      24,673            10,682
                                                                                     =======          ========
                                                                                     $42,038          $ 36,397
                                                                                     =======          ========
</TABLE>


See accompanying notes.


                                      F-3
<PAGE>   38
                              Schuff Steel Company

                        Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31
                                                                           1997          1996          1995
                                                                        ----------     ---------     ---------
                                                                          (in thousands except per share data)
<S>                                         <C>                         <C>            <C>           <C>
Revenues                                                                $  138,218     $ 103,912     $  62,090
Cost of revenues                                                           117,955        86,998        54,222
                                                                        ----------     ---------     ---------
                                                       GROSS PROFIT         20,263        16,914         7,868
General and administrative expenses                                          8,880         6,715         5,284
                                                                        ----------     ---------     ---------
                                                   OPERATING INCOME         11,383        10,199         2,584
Interest expense                                                              (348)         (452)         (752)
Other income                                                                   520           303           618
                                                                        ----------     ---------     ---------
                                            NET INCOME BEFORE TAXES         11,555        10,050         2,450

Provision for income taxes                                                   2,823             -             -
                                                                        ==========     =========     =========
                                                         NET INCOME     $    8,732     $  10,050     $   2,450
                                                                        ==========     =========     =========

Pro forma net income data (unaudited)

Net income as reported                                                  $    8,732     $  10,050
Pro forma additional tax provision                                           1,513         4,020
                                                                       -----------   -----------
Pro forma net income                                                    $    7,219     $   6,030
                                                                       ===========   ===========

Pro forma net income per share:
   Basic                                                               $      1.12   $      1.02
                                                                       ===========   ===========
   Diluted                                                             $      1.10   $      1.02
                                                                       ===========   ===========


Weighted average shares used in computation:
   Basic                                                                     6,457         5,941
                                                                       ===========   ===========
   Diluted                                                                   6,556         5,941
                                                                       ===========   ===========
</TABLE>


See accompanying notes.


                                      F-4
<PAGE>   39
                              Schuff Steel Company

           Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                         Common Stock     Additional     Unfunded
                                      -----------------     Paid-In      Pension      Retained
                                      Shares     Amount     Capital       Losses       Earnings          Total
                                      ------     ------     -------       ------       --------          -----
                                                                  (in thousands)
<S>                                    <C>       <C>        <C>           <C>          <C>             <C>
Balance December 31, 1994              5,000       $5       $    15       $(563)       $  6,575        $  6,032
   Changes in unfunded pension
     losses                               --        -            --         137              --             137
   Distributions to stockholders          --        -            --          --          (1,851)         (1,851)
   Net income                             --        -            --          --           2,450           2,450
                                       -----       --       -------       -----        --------        --------
Balance December 31, 1995              5,000        5            15        (426)          7,174           6,768
   Changes in unfunded pension
     losses                               --        -            --         (93)             --             (93)
   Distributions to stockholders          --        -            --          --          (6,043)         (6,043)
   Net income                             --        -            --          --          10,050          10,050
                                       -----       --       -------       -----        --------        --------
Balance December 31, 1996              5,000        5            15        (519)         11,181          10,682
   Issuance of common stock, net
     of offering expenses              2,000        2        13,998          --              --          14,000
   Changes in unfunded pension
     losses                               --        -            --         519              --             519
   Distributions to stockholders          --        -            --          --          (9,260)         (9,260)
   Net income                             --        -            --          --           8,732           8,732
                                       =====       ==       =======       =====        ========        ========
Balance December 31, 1997              7,000       $7       $14,013       $  --        $ 10,653        $ 24,673
                                       =====       ==       =======       =====        ========        ========
</TABLE>


See accompanying notes.


                                      F-5
<PAGE>   40
                              Schuff Steel Company
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31
                                                                                1997            1996            1995
                                                                              --------        --------        --------
                                                                                           (in thousands)
<S>                                                                           <C>             <C>             <C>
OPERATING ACTIVITIES
Net income                                                                     $  8,732        $ 10,050        $  2,450
Adjustment to reconcile net income to net cash provided by (used in)
   operating activities:
     Depreciation and amortization                                                1,520           1,267           1,248
     Gain on disposal of property and equipment                                     (21)            (13)            (20)
     Deferred income taxes                                                         (191)             --              --
     Loss on pension plan termination                                               251              --              --
     Changes in operating assets and liabilities net of effects from
       purchase of B&K Steel Fabrications, Inc.:
         Restricted funds on deposit                                                153          (2,029)           (220)
         Receivables                                                             (6,585)         (5,598)          4,092
         Costs and recognized earnings in excess of billings on
           uncompleted contracts                                                    (53)         (2,255)         (1,014)
         Inventories                                                               (989)          6,491          (2,461)
         Prepaid expenses                                                          (479)             40              47
         Accounts payable                                                           917              58           1,882
         Accrued payroll and employee benefits                                     (541)            606            (322)
         Insurance payable                                                          540             253             (72)
         Other accrued liabilities                                                  205            (448)           (290)
         Billings in excess of costs and recognized earnings on
           uncompleted contracts                                                 (8,293)          6,111            (566)
         Deferred rents payable                                                     237              --              --
         Accrued pension cost                                                       111            (142)            (97)
                                                                              --------        --------        --------
                     NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES         (4,486)         14,391           4,657

INVESTING ACTIVITIES
Increase in receivables from stockholders                                            --            (185)             --
Repayment of receivables from stockholders                                           --              18              45
Acquisitions of property and equipment                                           (3,188)         (2,337)           (814)
Proceeds from disposals of property and equipment                                    79             189              30
Increase in other assets                                                           (100)             --              --
Purchase of business                                                               (427)             --              --
                                                                              --------        --------        --------
                                   NET CASH USED IN INVESTING ACTIVITIES         (3,636)         (2,315)           (739)

FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings                  23,874          33,500          64,558
Principal payments on revolving line of credit and long-term debt               (22,993)        (36,278)        (66,436)
Proceeds from issuance of common stock, net of offering expenses                 14,000              --              --
Cash distributions to stockholders                                              (13,815)         (2,334)         (1,814)
                                                                              --------        --------        --------
                  NET CASH PROVIDED BY (USED IN) IN FINANCING ACTIVITIES          1,066          (5,112)         (3,692)
                                                                              --------        --------        --------
                        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         (7,056)          6,964             226
Cash and cash equivalents at beginning of year                                    7,253             289              63
                                                                               --------        --------        --------
                                CASH AND CASH EQUIVALENTS AT END OF YEAR       $    197        $  7,253        $    289
                                                                               ========        ========        ========
</TABLE>


See accompanying notes.


                                      F-6
<PAGE>   41
                              Schuff Steel Company

                   Notes to Consolidated Financial Statements

                               December 31, 1997


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Schuff Steel Company (the Company) is a steel fabrication and erection
contractor based in Phoenix, Arizona. The Company's construction projects are
located primarily in Arizona, Nevada, California and South America.

Principles of Consolidation

As more fully described in Note 15, the Company acquired B&K Steel Fabrications,
Inc. (B&K Steel) on January 31, 1997 and accounted for the transaction using the
purchase method. Effective as of that date, B&K Steel became a wholly owned
subsidiary of the Company and began consolidating its financial statements from
the date of acquisition. All intercompany transactions have been eliminated for
the year ended December 31, 1997. Financial statements for the years ended
December 31, 1996 and 1995 are not consolidated since the Company had no
subsidiaries during those periods.

Operating Cycle

Balance sheet items expected to be paid or received within one year are
classified as current. Assets and liabilities relating to long-term construction
contracts are included in current assets and current liabilities in the
accompanying consolidated balance sheet, since they will be realized or
liquidated in the normal course of contract completion, although completion may
require more than one year.

Cash and cash equivalents

Cash consists of cash in noninterest bearing checking accounts. Cash equivalents
consist of investments in a money market mutual fund which is invested in
financial instruments and securities issued and guaranteed by the U.S. Treasury,
the U.S. government or its agencies or instrumentalities. All such investments
are completely liquid and are made through the Company's bank pursuant to an
investment and custody agreement.

Restricted Funds on Deposit

Restricted funds on deposit represent funds on deposit in an interest bearing
escrow account which is maintained in lieu of retention for a specific contract.

Inventories

Inventories, primarily steel components, are stated at the lower of cost or
market under the first-in, first-out method.


                                      F-7
<PAGE>   42
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment is stated at cost and is depreciated over the estimated
useful lives, which generally range from five to ten years, of the related
assets using the straight line method. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life. Amortization of
leasehold improvements is included in depreciation and amortization.

Revenue and Cost Recognition

The Company performs its services primarily under fixed-price contracts and
recognizes revenues and costs from construction projects using the percentage of
completion method. Under this method, revenue is recognized based upon the ratio
of the costs incurred to date to the total estimated costs to complete the
project. Revenue recognition begins when progress is sufficient to estimate
final results with reasonable accuracy. Costs include all direct material and
labor costs related to contract performance, subcontractor costs, indirect
labor, and fabrication plant overhead costs, which are charged to contract costs
as incurred. Revenues relating to changes in the scope of a contract are
recognized when the customer has authorized the change, the work is commenced
and the Company has made an estimate of the amount that is probable of being
paid for the change. Revisions in estimates during the course of contract work
are reflected in the accounting period in which the facts requiring the revision
become known. Provisions for estimated losses on uncompleted contracts are made
in the period a loss on a contract becomes determinable.

Construction contracts with customers generally provide that billings are to be
made monthly in amounts which are commensurate with the extent of performance
under the contracts. Contract receivables arise principally from the balance of
amounts due on progress billings on jobs under construction. Retentions on
contract receivables are amounts due on progress billings which are withheld
until the completed project has been accepted by the customer.

Costs and recognized earnings in excess of billings on uncompleted contracts
primarily represent revenue earned under the percentage of completion method
which has not been billed, and also include costs incurred in excess of the
billings on contracts for which sufficient work has not been performed to allow
for the recognition of revenue. Billings in excess of related costs and
recognized earnings on uncompleted contracts represent amounts billed on
contracts in excess of the revenue allowed to be recognized under the percentage
of completion method on those contracts.


                                      F-8
<PAGE>   43
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock Based Compensation

The Company 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 in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and accordingly, recognizes
no compensation expense for these stock option grants.

Income Taxes

The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."

On June 26, 1997, the Company's stockholders elected to terminate the Company's
status to be treated as an S Corporation. As an S Corporation, the Company was
not subject to federal and state income taxes. Pro forma net income information
presented in the consolidated statements of income reflects the provision for
income taxes that would have been recorded had the Company been taxed on its
income through the S Corporation termination date. As an S Corporation, the
Company would from time to time make S Corporation distributions to its
stockholders in amounts sufficient for the stockholders to pay their income tax
liability related to the earnings of the Company. The actual provisions reported
for the periods subsequent to the S Corporation termination date reflect the
Company's C Corporation status.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values of financial instruments. Cash
and cash equivalents, restricted funds on deposit, receivables, accounts
payable, and other accrued liabilities are carried at amounts that reasonably
approximate their fair values. The Company believes the carrying amount of their
long-term debt approximates fair value at December 31, 1997 largely due to the
variable nature of the interest rates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
receivables. The Company maintains cash and cash equivalents, restricted funds
on deposit and certain other financial instruments with large financial
institutions. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. Concentrations of credit risk with respect to receivables
are limited as the Company's customers tend to be larger general contractors on
adequately funded projects and the Company has certain lien rights.


                                      F-9
<PAGE>   44
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the
reporting period for long-term contracts.

The Company has a substantial history of making reasonably dependable estimates
of the extent of progress towards completion, contract revenues, and contract
costs on its long-term contracts. The estimates inherent in such provisions are
periodically evaluated and revisions are made as required to reflect the most
up-to-date information. However, due to uncertainties inherent in the estimation
process, actual results could differ materially from those estimates.

Pro Forma Net Income Data

Basic pro forma net income per share is computed using the weighted average
common shares outstanding and diluted pro forma net income per share is computed
using the weighted average common shares and common stock equivalents if
dilutive. Pro forma tax provision is based on the effective tax rate that the
Company believes would have been incurred had the Company not been an S
corporation for income tax purposes. That rate of 40 percent is comprised of a
34 percent federal statutory rate plus an effective state tax rate net of
federal benefit of six percent.

Impact of Recently Issued Accounting Standards

In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share" (SFAS No. 128), adopted by the Company on December
31, 1997. SFAS No. 128 replaced the previously reported primary or fully diluted
pro forma earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported primary earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS No. 128 requirements. The impact of
SFAS No. 128 on the calculation of fully diluted earnings per share for each of
the periods presented was not material.

SFAS No. 130 "Reporting Comprehensive Income" (SFAS No. 130), issued by the FASB
in June 1997, is effective for periods beginning after December 15, 1997. Under
the new requirements for calculating income, this statement requires that an
enterprise (a) classify items of other comprehensive income by


                                      F-10
<PAGE>   45
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
impact of SFAS No. 130 on the calculation of comprehensive income for these
periods is not expected to be material.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 will have no impact
on the Company's consolidated results of operations, financial position or cash
flows.

Reclassifications

Certain amounts in the 1995 and 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation.

2. RECEIVABLES AND CONTRACTS IN PROGRESS

Receivables consist of the following:

<TABLE>
<CAPTION>
                                            DECEMBER 31
                                         1997          1996
                                        -------       -------
                                           (in thousands)
<S>                                     <C>           <C>
         Contract receivables:
            Contracts in progress       $18,094       $11,566
            Unbilled retentions           6,520         5,112
                                        -------       -------
                                         24,614        16,678
         Other receivables                  103           207
                                        =======       =======
                                        $24,717       $16,885
                                        =======       =======
</TABLE>

Substantially all of the Company's receivables are due from general contractors
located in Arizona, California, Nevada and South America.


                                      F-11
<PAGE>   46
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


2. RECEIVABLES AND CONTRACTS IN PROGRESS (CONTINUED)

Costs and estimated earnings on completed and uncompleted contracts consist of
the following:

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31
                                                                               1997                  1996
                                                                             ---------             ---------
                                                                                   (in thousands)
<S>                                                                          <C>                   <C>
         Costs incurred on completed and contracts in progress               $ 222,669             $ 165,108
         Estimated earnings                                                     32,274                23,058
                                                                             ---------             ---------
                                                                               254,943               188,166
         Less progress billings                                                254,719               196,886
                                                                             =========             =========
                                                                             $     224             $  (8,720)
                                                                             =========             =========

         Included in the accompanying consolidated
            balances sheets under the following captions:
              Costs and recognized earnings in excess of
                billings on uncompleted contracts                            $   3,982             $   3,331
              Billings in excess of costs and recognized earnings
                on uncompleted contracts                                        (3,758)              (12,051)
                                                                             ---------             ---------
                                                                             $     224             $  (8,720)
                                                                             =========             =========
</TABLE>

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                         DECEMBER 31
                                    1997              1996
                                   ------            ------
                                        (in thousands)
<S>                                <C>               <C>
         Raw materials             $1,846            $  665
         Finished goods               518               614
                                   ======            ======
                                   $2,364            $1,279
                                   ======            ======
</TABLE>


                                      F-12
<PAGE>   47
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31
                                                                       1997               1996
                                                                      -------            -------
                                                                            (in thousands)
<S>                                                                   <C>                <C>
         Property and equipment:
            Leasehold improvements                                    $ 2,647            $ 2,334
            Furniture and fixtures                                        309                 91
            Transportation equipment                                    1,547              1,308
            Machinery and equipment                                    10,274              7,995
            Cranes                                                        644                654
            Office equipment                                              322                285
            Detailing equipment                                           316                 83
            EDP equipment                                               1,835              1,524
                                                                      -------            -------
                                                                       17,894             14,274
            Less amortization and accumulated depreciation             10,479              9,158
                                                                      =======            =======
                                                                      $ 7,415            $ 5,116
                                                                      =======            =======
</TABLE>

5. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                                              DECEMBER 31
                                                                                                        1997              1996
                                                                                                       ------            ------
                                                                                                            (in thousands)
<S>                                                                                                    <C>               <C>
         Note payable to a bank under a revolving line of credit agreement maturing in
            1999, with interest payable monthly at the bank's prime rate                               $2,640            $   --
         Subordinated note payable to a related party, payable in monthly installments of
            $12,037, plus interest at the bank's prime rate plus 0.75 percent, maturing
            in 2003                                                                                     1,795             2,897
         Notes payable to related parties under a stock purchase agreement, payable in
            annual installments of $159,250 plus interest at 5.73 percent, maturing in 2002               796                --
                                                                                                       ------            ------
                                                                                                        5,231             2,897
         Less current portion                                                                             304               144
                                                                                                       ------            ------
                                                                                                       $4,927            $2,753
                                                                                                       ======            ======
</TABLE>


                                      F-13
<PAGE>   48
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


5. LONG-TERM DEBT (CONTINUED)

The Company maintains a $10,000,000 credit facility with a commercial bank that
is subject to renewal on June 30, 1999 and is collateralized by contract
receivables, equipment and inventory. The security agreements pursuant to which
the Company's assets are pledged prohibit any further pledge of such assets
without the written consent of the Company's lender. Under this facility, the
Company may borrow up to an amount equal to the greater of a) 75 percent of
qualified contract receivables and inventories up to a maximum of $10,000,000,
or b) a maximum of $5,000,000 based on the greater of i) 50 percent of the net
book value of fixed assets, or ii) 75 percent of the fair market value of fixed
assets. The Company's ability to borrow is also subject to, among other
restrictions, billings in excess of costs and recognized earnings on uncompleted
contracts. At December 31, 1997, there was approximately $6,200,000 of credit
available under the credit facility for borrowings which has been reduced by
approximately $945,000 of outstanding letters of credit under which the Company
is committed. The Company's credit facility requires that the Company maintain
certain financial ratios as well as other covenants. The Company made interest
payments on its line of credit of approximately $45,000, $64,000 and $272,000
for the years ended December 31, 1997, 1996 and 1995, respectively. The weighted
average interest rate on the revolving line of credit was approximately 8.5
percent at December 31, 1997 and 1996.

The subordinated note payable to a related party is a long-term loan from a
partnership owned by related parties which includes certain of the Company's
stockholders. The partnership obtained the funds loaned to the Company from a
bank under terms similar to those included in the loan it made to the Company.
Under the terms of the loan agreement between the partnership and the bank,
certain officers and stockholders of the Company have guaranteed repayment of
the partnership's loan.

Effective December 10, 1997, the Company was granted a $10,000,000 line of
credit agreement (Acquisition Line) with a commercial bank solely to finance the
acquisition of other companies and/or their assets. The covenants of this
agreement are consistent with the credit facility mentioned above. The
Acquisition Line is collateralized by the Company's accounts receivable,
inventory and equipment; any real property purchased through the credit
agreement or property owned by an acquired subsidiary; and other items as
defined in the agreement. Interest is payable in one, two, or three month
periods at LIBOR or prime rate plus 0.25 percent. Borrowings under the
Acquisition Line will be payable in installments as defined in the related
agreement commencing on January 30, 1999. At December 31, 1997, no amounts were
due under the acquisition line.

Annual principal amounts of long-term debt maturing subsequent to December 31,
1997 are: 1998--$304,000, 1999--$2,944,000, 2000--$304,000, 2001--$304,000,
2002--$304,000 and thereafter--$1,071,000. The Company made interest payments of
approximately $325,000, $420,000 and $449,000 for the years ended December 31,
1997, 1996 and 1995, respectively, on its long-term debt.


                                      F-14
<PAGE>   49
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


6. STOCKHOLDERS' EQUITY

On May 8, 1997, the Company effected a 50,000 for one common stock split.
Accordingly, all shares of common stock have been retroactively restated in the
consolidated financial statements to reflect the effect of this stock split. At
the same time the Company also reincorporated in Delaware and changed its
authorized shares and classes of stock. The information set forth in the
financial statements reflect the authorized shares after having given effect to
the reincorporation.

On July 7, 1997, the Company sold 2,000,000 common shares pursuant to the
Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission. The Company received net proceeds of approximately
$14,000,000 from the sale of the shares of which approximately $7,000,000 was
used to fund S Corporation distributions payable to stockholders of record of
the Company immediately prior to the effective date of the Form S-1.

Prior to June 26, 1997, the Company's principal stockholders were the sole
parties to a share repurchase agreement that was funded by life insurance
proceeds and personal promissory notes in the event of the death of either
stockholder. Under the terms of the Company's bank loan agreement, the Company
was permitted to make distributions to enable the shareholders to pay the
premiums on their life insurance policies. Effective June 26, 1997, with the
termination of the Company's "S" election, this agreement was canceled.

Due to the Company's status as a qualified S corporation through June 26, 1997,
there was no income tax expense to the Company for the period from January 1,
1997 through June 26, 1997 or the years ended December 31, 1996 and 1995.
However, it was the policy of the Company to also make distributions to
stockholders in such amounts as were required to enable them to pay income taxes
attributable to their allocable share of taxable S corporation income from the
Company through June 26, 1997. A final accounting was made by the Company in
December 1997 for the period ended June 26, 1997 prior to the preparation and
filing of the Company's final "S" corporation income tax return. Pursuant to
provisions in the Company's bank loan agreement, the Company was also permitted
at its discretion to declare an annual dividend to the stockholders providing
the Company maintained certain financial criteria.


                                      F-15
<PAGE>   50
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


6. STOCKHOLDERS' EQUITY (CONTINUED)

Following is an analysis of stockholder distributions:

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31
                                                                           1997               1996                1995
                                                                          -------            -------             -------
                                                                                         (in thousands)
<S>                                                                       <C>                <C>                 <C>
Stockholder distributions payable at beginning of year                    $ 4,555            $ 1,071             $ 1,297

Additions (deductions):
   Life insurance premiums                                                    173                346                 346
   Current year income taxes                                                2,087              5,105               1,217
   Prior year income taxes                                                     --                (73)                (93)
   Less:  Prior year refunds applied to current year taxes                     --                (35)                (79)
   Current year dividend                                                    7,000                700                 460
                                                                          -------            -------             -------
                                                                            9,260              6,043               1,851
                                                                          -------            -------             -------
Cash distributions:
   Life insurance premiums                                                    173                226                 226
   Current year income taxes                                                2,087                925                 369
   Prior year income taxes                                                  4,140                798                 691
   Current year dividend                                                    7,000                185                 128
   Prior year dividend                                                        415                200                 400
                                                                          -------            -------             -------
                                                                           13,815              2,334               1,814
                                                                          -------            -------             -------
Noncash distributions applied to receivables from stockholders                 --                225                 263
                                                                          -------            -------             -------
Stockholder distributions payable at end of year                          $    --            $ 4,555             $ 1,071
                                                                          =======            =======             =======
</TABLE>

7. INCOME TAXES

As discussed in Note 1, on June 26, 1997, the Company's stockholders elected to
terminate the Company's status as an "S" Corporation, and the Company became
subject to federal and state income taxes. Upon revocation of the S Corporation
election, the Company recorded a $300,000 credit to income as a deferred tax
benefit for the effect of cumulative temporary differences as of the date of the
termination. Prior to its termination as an S Corporation, the Company declared
an additional distribution of $7,000,000 to its then current stockholders. The
Company's retained earnings include undistributed S Corporation earnings of
approximately $3,100,000 and certain C Corporation earnings prior to the
Company's election of subchapter S Corporation status in 1987.


                                      F-16
<PAGE>   51
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

Deferred tax assets and liabilities are composed of the following at December
31, 1997:

<TABLE>
<CAPTION>
                                                                  (in thousands)
<S>                                                                <C>
         Deferred tax assets:
            Vacation accrual                                            $190
            Deferred recognition on contracts in progress                174
            Property tax accrual                                          53
            Deferred rents payable                                        95
            Other                                                         35
                                                                        ----
                                                                         547

         Deferred tax liabilities:
            Depreciation                                                 158
            Pension accrual                                               48
            Other                                                        150
                                                                        ----
                                                                         356
                                                                        ----
            Net deferred tax assets                                     $191
                                                                        ====
         </TABLE>

Significant components of the income tax expense (benefit) for the year ended
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                               (in thousands)
<S>                            <C>
         Current:
            Federal               $ 2,562
            State                     452
                                  -------
                                    3,014

         Deferred:
            Federal                  (163)
            State                     (28)
                                  -------
                                     (191)
                                  -------
                                  $ 2,823
                                  =======
</TABLE>


                                      F-17
<PAGE>   52
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

The reconciliation of income tax computed at the U.S. federal statutory rates to
provision for income taxes follows:

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31, 1997
                                                                             ACTUAL                PRO FORMA
                                                                             -------                -------
                                                                                   (in thousands)
<S>                                                                          <C>                    <C>
         Tax at U.S. federal statutory rates                                 $ 3,929                $ 3,929
         State income taxes, net of federal tax benefit                          280                    693
         S Corporation termination                                              (300)                  (300)
         Tax attributable to S Corporation portion of earnings                (1,213)                    --
         Other                                                                   127                     14
                                                                             -------                -------
                                                                             $ 2,823                $ 4,336
                                                                             =======                =======
</TABLE>

Total income tax payments for the period from June 27, 1997 (date of C
Corporation commencement) to December 31, 1997 were approximately $3,012,000.

8. EMPLOYEE RETIREMENT PLANS

The Company maintains a 401(k) retirement savings plan which covers eligible
employees and which permits participants to contribute to the plan, subject to
Internal Revenue Code restrictions. The plan also permits the Company to make
discretionary matching contributions, which amounted to approximately $70,000
and $35,000 for the years ended December 31, 1997 and 1996, respectively (none
for 1995).

In 1996, the Company adopted the "Supplemental Retirement and Deferred
Compensation Plan" for certain management employees. The Plan is an unfunded
deferred compensation plan whereby the Company contributes an amount equal to 10
percent of annual net profits after deducting taxes to be paid by the
stockholders, as defined in the Plan. During the year ended December 31, 1996,
total expense recognized by the Company was $529,000, which was distributed to
eligible employees in 1997 pursuant to termination of this Plan in January 1997.

Substantially all of the Company's fabrication and erection workforce is subject
to collective bargaining agreements. The Company made contributions to union
sponsored pension plans of $1,836,000, $1,122,000 and $883,000 during the years
ended December 31, 1997, 1996 and 1995, respectively. Information from the
administrators of the plans is not available to permit the Company to determine
its share of accumulated benefits and related assets.


                                      F-18
<PAGE>   53
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


8. EMPLOYEE RETIREMENT PLANS (CONTINUED)

The Company has a 401(k) defined contribution retirement savings plan for union
steelworkers. Currently, only participants contribute to this plan on a
voluntary basis, subject to Internal Revenue Code restrictions. All account
balances are 100 percent vested.

On August 15, 1994, the Company and local representatives of the United
Steelworkers of America reached an agreement whereby the Company became a
participating employer in a multi-employer defined benefit retirement plan.
Effective January 1, 1997, the Company is required to contribute 40 cents to the
plan (compared to 35 cents in 1996 and 30 cents in 1995) for each hour worked in
the preceding month by each plan participant. The Company has also agreed to
increase its hourly contribution by five cents per participant annually through
the year 1999. The Company's funding policy is to make monthly contributions to
the plan. Total cost recognized as expense was approximately $147,000, $124,000
and $97,000 during the years ended December 31, 1997, 1996 and 1995,
respectively.

In December 1997, the Company terminated a second, contributory defined benefit
plan that had been maintained to provide pension and disability benefits to
union steelworkers. The plan had previously been curtailed in 1989 when all
pension credits were frozen. At the time of plan termination, all undistributed
benefits were fully vested. Annuities were purchased to settle pension
obligations under the terminated plans and excess pension assets returned to the
Company. As a result of the settlement, the Company recorded a loss of
approximately $251,000.

Prior to its termination in 1997, the Company accounted for pension expense
under its noncontributory defined benefit pension plan under the provisions of
SFAS No. 87, "Employers' Accounting for Pensions." The weighted average discount
rate used in determining the actuarial present value of accumulated and
projected benefit obligations was 6.5 percent in 1996. The expected long-term
rate of return on plan assets was 8.5 percent in 1996. The weighted average rate
of compensation increase is not applicable because the benefit is not pay
related.


                                      F-19
<PAGE>   54
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


8. EMPLOYEE RETIREMENT PLANS (CONTINUED)

The following table sets forth the funded status of the plan as provided by
consulting actuaries at December 31, 1996:

<TABLE>
<CAPTION>
                                                                                                        (in thousands)
<S>                                                                                                        <C>
         Actuarial present value of accumulated and projected benefit obligations, all of
            which are fully vested                                                                         $ 2,003
         Plan assets at fair value                                                                           1,740
                                                                                                           =======
         Funded status, projected benefit obligation in excess of plan assets                              $   263
                                                                                                           =======

         Comprised of:
            Prepaid pension cost before adjustment to recognize additional minimum liability               $   362
            Unrecognized net loss                                                                             (519)
            Unrecognized net obligation                                                                       (106)
                                                                                                           -------
         Adjustment to recognize minimum liability                                                         $  (263)
                                                                                                           =======

         Net pension cost includes the following components:
            Service costs                                                                                  $    50
            Interest cost on projected benefit obligation                                                      122
            Actual return on plan assets                                                                      (231)
            Net amortization and deferral                                                                      128
                                                                                                           =======
         Net period pension cost                                                                           $    69
                                                                                                           =======
</TABLE>


                                      F-20
<PAGE>   55
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


9. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted pro forma
net income per share:

<TABLE>
<CAPTION>
                                                                                                   1997           1996
                                                                                                   ------        ------
                                                                                                  (in thousands except
                                                                                                      per share date)
<S>                                                                                               <C>           <C>
Numerator:
   Pro forma net income                                                                            $7,219        $6,030

Denominator:
   Weighted average shares                                                                          5,975         5,000
   Net effect of shares issued that are attributed to stockholder distributions made
     from initial public offering proceeds                                                            482           941
                                                                                                   ------        ------
Denominator for basic pro forma net income per share                                                6,457         5,941

Effect of dilutive securities:
   Employee and director stock options                                                                 99            --
                                                                                                   ======        ======
Denominator for diluted pro forma net income per share - adjusted weighted average
   shares and assumed conversions                                                                   6,556         5,941
                                                                                                   ======        ======

Pro forma net income per share:
   Basic                                                                                           $ 1.12        $ 1.02
                                                                                                   ======        ======
   Diluted                                                                                         $ 1.10        $ 1.02
                                                                                                   ======        ======
</TABLE>

10. STOCK OPTIONS

The Company established a qualified stock option plan (Plan) effective February
5, 1997. The exercise price of the options, as well as the vesting period, are
established by the Company's Board of Directors. A summary of activity under the
Plan is as follows:

<TABLE>
<CAPTION>
                                                                      Outstanding Options
                                                        Shares                     Weighted-
                                                      Available                     Average
                                                        Under                       Exercise
                                                       Option          Price         Number
                                                       -------        -------        -------
<S>                                                   <C>            <C>            <C>
Balance at February 5, 1997 (inception of Plan)             --             --        $    --
   Authorized                                          600,000             --             --
   Granted                                                  --        360,500           5.12
   Exercised                                                --             --             --
   Canceled                                                 --         48,500           5.00
                                                       =======        =======        =======
Balance at December 31, 1997                           600,000        312,000        $  5.14
                                                       =======        =======        =======
Exercisable at December 31, 1997                                        -0-
                                                                      =======
</TABLE>


                                      F-21
<PAGE>   56
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


10. STOCK OPTIONS (CONTINUED)

The range of exercise prices for options outstanding at December 31, 1997 was
$5.00 to $8.00 per option. The weighted-average remaining contractual life of
those options is approximately nine years.

The Company's 1997 Stock Option Plan has authorized the grant of options up to
600,000 shares to officers, directors or key employees of the Company. All
options have ten year terms and generally vest ratably over five years from the
date of grant. The weighted average fair value of options granted during the
year ended December 31, 1997 was $3.21.

The Company has elected to follow APB 25 and related Interpretations in
accounting for its stock options issued to employees because, as discussed
below, the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," (SFAS No. 123) requires use of option
valuation models that were developed for use in valuing stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net income and pro forma earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black Scholes Option pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                         Year Ended December
                                                                 31,
                                                                 1997
                                                         --------------------
<S>                                                      <C>
          Expected life of award                                 5 years
          Volatility                                                .699
          Risk-free interest rate                              6 percent
          Expected dividends yield                             0 percent
</TABLE>

Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in 1997 consistent with the
provisions of SFAS No. 123, the estimated fair value of the options would be
amortized to expense over the option's vesting period and the Company's net
income and net income per share would have been decreased to the pro forma
amounts indicated below for the year ended December 31, 1997:


<TABLE>
<CAPTION>
                                                                                               (in thousands)
<S>                                                                                            <C>
          Pro forma net income as reported                                                         $7,219
          Pro forma net income including SFAS No. 123 expense                                      $7,114
          Pro forma earnings per share including SFAS No. 123 expense
             Basic                                                                                $  1.10
             Diluted                                                                              $  1.09
</TABLE>


                                      F-22
<PAGE>   57
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)

10. STOCK OPTIONS (CONTINUED)

Pro forma results disclosed are based on the provisions of SFAS 123 using the
Black-Scholes option valuation model and are not likely to be representative of
the effects on the net income for future years. In addition, The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's option, the
estimating models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

11. RELATED PARTY TRANSACTIONS

The Company leases certain property from a partnership owned by related parties
which includes the Company's principal stockholders. Effective March 1, 1997,
the Company terminated the existing lease and executed a new 20-year lease with
the same partnership. The lease requires monthly lease payments ranging from
$24,611 in 1997 to $50,427 in 2000 and thereafter with additional stipulated
rent increases every five years based on the Consumer Price Index. The Company
is also obligated to pay the partnership any taxes related to the lease
payments.

Effective March 1, 1997, the Company also executed a 20-year lease of certain
property with the partnership discussed above. Such property was part of the
acquisition discussed in Note 15. The lease requires monthly lease payments of
$28,333 with additional stipulated rent increases every five years based on the
Consumer Price Index. The Company is also obligated to pay the partnership any
taxes related to the lease payments.

Effective May 1, 1997, the Company also executed a 20-year lease of certain
property with the partnership discussed above. The lease requires monthly lease
payments of $11,250 with additional stipulated rent increases every five years
based on the Consumer Price Index. The Company is also obligated to pay the
partnership any taxes related to the lease payments. In connection with this
lease, the Company was assigned and did assume two sub-lease agreements with an
unrelated party for a portion of the property. The subleases were effective for
the period from April 24, 1997 through June 30, 1997, and called for monthly
rentals totaling $21,076. Effective July 1, 1997, the Company terminated one of
the subleases and renegotiated the other. The new sublease has a term of two
years (with options to extend an additional two years) and calls for monthly
rentals of $7,669.

Rent expense under the related party leases totaled approximately $900,000 in
1997, $274,000 in 1996, and $264,000 in 1995, respectively.


                                      F-23
<PAGE>   58
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)

11. RELATED PARTY TRANSACTIONS (CONTINUED)

Future minimum rentals (excluding taxes), by year, and in the aggregate under
these noncancelable operating leases at December 31, 1997, are as follows:

<TABLE>
<CAPTION>
                                                                                       (in thousands)
<S>                                                                                    <C>
         1998                                                                           $   889
         1999                                                                             1,031
         2000                                                                             1,076
         2001                                                                             1,080
         2002                                                                             1,080
         Thereafter                                                                      15,324
                                                                                        -------
                                                                                        $20,480
                                                                                        =======
</TABLE>

The Company also leases certain property, vehicles, and equipment from
nonrelated parties for which it incurred rent expense of approximately $259,000,
$233,000 and $134,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.

12. SIGNIFICANT CUSTOMERS

The Company had revenues to certain customers that were in excess of 10 percent
of the respective years revenues as follows:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31
                                              1997         1996         1995
                                              ----         ----         ----
<S>                                           <C>          <C>          <C>
          Customer A                            20%         13.4%        10.4%
          Customer B                            32%         19.5%         n/a
          Customer C                            n/a         13.7%         n/a
          Customer D                            n/a         11.5%         n/a
          Customer E                            n/a          n/a         11.2%
          Customer F                            n/a          n/a         14.4%
</TABLE>

During the years ended December 31, 1997, 1996 and 1995, the Company's revenues
included approximately $12,435,000, $14,280,000 and $1,894,000, respectively,
relating to projects carried out internationally for which approximately
$1,541,000 and $1,776,000 was in accounts receivable at December 31, 1997 and
1996, respectively.


                                      F-24
<PAGE>   59
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)

13. OTHER INCOME

During 1995, the Company received $175,000 as a result of a settlement with
third parties relating to damages to Company equipment. In addition, the Company
received approximately $371,000 from a claim related to misappropriation of
funds by a former employee.

14. CONTINGENCIES

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 under the employ of the Company. The
Company does not believe there is any such contingencies at December 31, 1997
for which the eventual outcome would have a material adverse impact on the
Company.

During 1996, the primary contractor on the Company's largest contract has
claimed that the Company was liable under delay provisions and is seeking
damages. The Company believes that the reasons for the delay were such that the
Company should not be liable and accordingly no reserves have been created for
this claim.

During 1996, the Company was named as a defendant in a lawsuit relating to an
incident at one of its worksites whereby one of its employees was killed in a
crane accident. The Company believes the loss, if any, relating to the incident
will be fully insured and does not expect the ultimate outcome of the matter to
have a material adverse impact on its financial position.

Relating to the incident set forth in the prior paragraph, the Company has been
named as a defendant in a lawsuit brought on by the crane operator who claims he
was assaulted by employees of the Company after the incident. The Company's
insurance carrier has declined coverage. However, management does not expect the
amount of loss, if any, relating to the ultimate resolution of this matter to
have a material adverse impact on its financial position regardless of whether
or not the insurance carrier ultimately provides coverage.

15. PURCHASE OF SUBSIDIARY

On January 31, 1997, the Company acquired 100 percent of the outstanding capital
stock of B&K Steel Fabrications, Inc. ("B&K"), a steel fabricator located in
Gilbert, Arizona, for $1,223,194, consisting of $426,944 in cash and $796,250 in
two promissory notes payable in annual installments over five years including
interest at 5.73 percent. In addition, the Company prepaid $1,090,000 of the
subordinated note payable discussed in Note 5 to enable a related party lessor
to the Company to acquire the real property upon which B&K is located, and
certain equipment attached to the property. The acquisition was not significant
to the Company under the definitions used by the Securities and Exchange
Commission and has been accounted for under the purchase method of accounting.
After assigning fair values to the tangible assets acquired and liabilities
assumed, there was no goodwill generated by the


                                      F-25
<PAGE>   60
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)

15. PURCHASE OF SUBSIDIARY (CONTINUED)

purchase. The results of operations of B&K have been included in those of the
Company commencing February 1, 1997. Had the purchase taken place as of January
1, 1996, the combined business would have had revenues of $113,291,000, income
before taxes of $10,165,000, pro forma net income (using a 40 percent effective
tax rate) of $6,099,000 and diluted pro forma net income per share of $1.03.
However, such information may not be indicative of future operations of the
combined business. Effective December 31, 1997, B&K was merged into the Company
and, as a result, the corporate entity of B&K was dissolved.

16. SUBSEQUENT EVENTS

On March 18, 1998, the Company announced that it had executed a letter of intent
to acquire all of the outstanding shares of stock of Addison Structural
Services, Inc. (Addison). Addison had revenues of approximately $63.6 million
for its fiscal year ended June 30, 1997. The Company is in the process of
performing its due diligence with respect to the transaction and is attempting
to obtain financing to complete the acquisition. However, there is no assurance
that the transaction will ultimately be completed.

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of the quarterly results of operations for the years ended December
31, 1997 and 1996 follows (in thousands, except for per share amounts):

<TABLE>
<CAPTION>
                                                                          Fiscal Year 1997
                                                        1st             2nd             3rd             4th
                                                        Qtr.            Qtr.            Qtr.            Qtr.
                                                       -------         -------         -------         -------
<S>                                                    <C>             <C>             <C>             <C>
Revenues                                               $25,507         $37,177         $35,439         $40,095

Gross profit                                             3,852           4,438           5,865           6,108
Pro forma net income                                     1,034           1,752           2,162           2,271
Pro forma net income per share:
   Basic                                                 $0.17           $0.29           $0.31           $0.32
   Diluted                                               $0.17           $0.28           $0.30           $0.32
Weighted average number of shares outstanding:
  Basic                                                  5,941           5,941           6,931           7,000
  Diluted                                                6,152           6,286           7,118           7,148
</TABLE>


                                      F-26
<PAGE>   61
                              Schuff Steel Company

             Notes to Consolidated Financial Statements (continued)


17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                                            Fiscal Year 1996
                                                          1st             2nd             3rd             4th
                                                          Qtr.            Qtr.            Qtr.            Qtr.
                                                         -------         -------         -------         -------
<S>                                                      <C>             <C>             <C>             <C>
Revenues                                                 $10,410         $29,691         $38,861         $24,950
Gross profit                                               1,992           4,091           5,885           4,946
Pro forma net income                                         325           1,547           2,467           1,691
Pro forma net income per share:
   Basic                                                   $0.05           $0.26           $0.42           $0.28
   Diluted                                                 $0.05           $0.26           $0.42           $0.28
Weighted average number of shares outstanding:
  Basic                                                    5,941           5,941           5,941           5,941
  Diluted                                                  5,941           5,941           5,941           5,941
</TABLE>

The 1997 quarterly results for basic and diluted pro forma net income per share,
when totaled, do not equal the basic and diluted net income per share for the
year ended December 31, 1997. These variances are due to rounding and certain
options being antidilutive for certain quarters but not for the year.


                                      F-27
<PAGE>   62


                                        EXHIBIT INDEX


        EXHIBIT
         NUMBER                          Description
         ------                          -----------
         3.1(a)   Certificate of Incorporation of the Registrant (1)

         3.1(b)   Certificate of Amendment of Certificate of Incorporation of
                    the Registrant (1)

         3.2      Bylaws of the Registrant (1)

         4.1      Certificate of Incorporation of the Registrant
                    (filed as Exhibit 3.1) (1)

         10.1(a)  Loan Agreement dated June 30, 1996 between the Registrant and
                     Bank One, Arizona, NA (1)

         10.1(b)  Variable Rate Revolving Line of Credit Note dated
                     June 30, 1996 (1)

         10.2(a)  Revolving Line of Credit Loan Agreement and Addendum dated
                     June 30, 1995 between the Registrant and Bank One,
                     Arizona, NA (1)

         10.2(b)  Variable Rate Revolving Line of Credit Note and Addendum
                     dated June 30, 1995(1)



<PAGE>   63
<TABLE>
<S>               <C>
         10.2(c)  Modification Agreement dated June 30, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(d)  Continuing Guaranty dated June 30, 1995 between David A.
                  Schuff, Nancy A. Schuff and Bank One, Arizona, NA (1)

         10.2(e)  Continuing Guaranty dated June 30, 1995 between Scott A.
                  Schuff and Bank One, Arizona, NA (1)

         10.2(f)  Modification Agreement dated March 31, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(g)  Modification Letter Agreement dated May 7, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.2(h)  Modification Agreement dated June 30, 1997 between the
                  Registrant and Bank One, Arizona, NA (2)

         10.2(i)  Continuing Guaranty dated June 30, 1997 between B & K Steel
                  Fabrications, Inc. and Bank One, Arizona, NA (2)

         10.2(j)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property Located at 420 South 19th Avenue, Phoenix, Arizona (2)

         10.2(k)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property located at 1833-1841 West Buchanan Street, Phoenix,
                  Arizona (2)

         10.2(l)  Subordination of Lien Rights between 19th Avenue/Buchanan
                  Limited Partnership and Bank One, Arizona, NA Relating to Real
                  Property Located at 619 North Cooper Road, Gilbert, Arizona (2)

         10.2(m)  Subordination Agreement dated June 30, 1997 between 19th
                  Avenue/Buchanan Limited Partnership, the Registrant and
                  Bank One, Arizona, NA (2)

         10.3(a)  Loan Agreement and Addendum dated June 30, 1995 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.3(b)  Variable Rate Line of Credit Note and Addendum dated June 30,
                  1995 (1)

         10.3(c)  Modification Agreement dated June 30, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.4     Continuing Guaranty dated April 22, 1996 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.5     Guaranty of Payment dated April 22, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.6     Guaranty of Payment dated January 31, 1997 between the
                  Registrant and Bank One, Arizona, NA (1)

         10.7     Promissory Note dated December 31, 1989 between the Registrant
                  and 19th Avenue/Buchanan Limited Partnership (1)

         10.7.1   Modification and Extension Agreement dated as of September 30,
                  1997 between the Registrant and 19th Avenue/Buchanan Limited
                  Partnership (3)

         10.8     Lease dated March 1, 1997 for 420 S. 19th Avenue in Phoenix,
                  Arizona between 19th Avenue/Buchanan Limited Partnership and
                  the Registrant (1)
</TABLE>



<PAGE>   64
<TABLE>
<S>               <C>

         10.9     Lease dated March 1, 1997 for 619 N. Cooper Road in Gilbert,
                  Arizona between 19th Avenue/Buchanan Limited Partnership and
                  the Registrant (1)

         10.10    Lease dated May 1, 1997 for 1841 W. Buchanan Street in
                  Phoenix, Arizona between 19th Avenue/Buchanan Limited
                  Partnership and the Registrant (1)

         10.11    Schuff Steel Company Supplemental Retirement and Deferred
                  Compensation Plan (1)*

         10.12(a) Schuff Steel Company 1997 Stock Option Plan (1)*

         10.12(b) Form of Incentive Stock Option Agreement for 1997 Stock Option
                  Plan (1)*

         10.12(c) Form of Non-Qualified Stock Option Agreement for 1997 Stock
                  Option Plan (1)*

         10.13    Form of Indemnity Agreement between the Registrant and its
                  directors (1)

         10.14(a) Modification and Extension Agreement dated as of September 30,
                  1997 between the Registrant and 19th Avenue/Buchanan Limited
                  Partnership (2)

         10.15(a) Credit Agreement dated December 10, 1997 between the Registrant
                  and Bank One, Arizona, NA

         10.15(b) Promissory Note dated December 10, 1997 between the Registrant
                  and Bank One, Arizona, NA

         23.1     Consent of Ernst & Young LLP, independent auditors

         24.1     Power of Attorney of David A. Schuff

         24.2     Power of Attorney of Dennis DeConcini

         24.3     Power of Attorney of Edward M. Carson

         27       Financial Data Schedule
</TABLE>


          (ii)       FINANCIAL STATEMENT SCHEDULES:

          The financial statement schedules have been omitted since they are not
applicable or the information required to be set forth therein is contained
elsewhere herein.
------------------

*         Indicates a management contract or compensation plan.

(1)   Incorporated by reference to the Company's Registration Statement on Form
      S-1 (Registration No. 333-26711), effective June 26, 1997.

(2)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1997.

(3)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1997.