<PAGE>
 
Five year selected financial data

<TABLE>
<CAPTION>
Years ended December 31,                                1998        1997       1996       1995       1994
------------------------                              --------     ------     -------    -------    --------
(Dollars in thousands, except per share amounts)
<S>                                                   <C>          <C>        <C>        <C>        <C>
Operating Performance
Earned revenue                                         $566,711    $474,568   $468,274   $461,274   $408,061
Income from operations                                   30,827      24,950     20,588     22,077     15,508
Income before income taxes                               33,552      23,963     20,629     21,255     18,656
Net income                                               20,155      14,400     12,551     13,019     12,060
Earnings per share                                     $   2.85    $   2.06   $   1.80   $   1.87   $   1.73
Earnings per share -- assuming dilution                $   2.72    $   2.02   $   1.78   $   1.86   $   1.73
Financial Position
Total assets                                           $289,383    $231,939   $199,885   $201,136   $214,201
Long-term debt                                           35,000      11,000         --     13,000     22,000
Stockholders' equity                                    149,254     129,663    118,619    108,942     98,549
Other Information
For the year:
  Cash provided (utilized) by operations               $(13,062)   $ 10,578   $ 24,749   $ 14,630   $ (2,784)
  Depreciation expense                                    6,109       5,784      5,681      5,662      5,037
  Capital expenditures                                   17,301      10,607      4,153      5,304      7,919
  Dividends per common share                                .60         .55       0.43       0.33       0.30
At year end:
  Book value per common share                          $  20.60    $  18.49   $  17.03   $  15.66   $  14.15
  Employees                                               2,479       2,210      2,006      2,082      2,257
</TABLE>
<PAGE>
 
The following discussion and analysis is provided to assist readers in
understanding the Company's financial performance during the periods presented
and significant trends which may impact the future performance of the Company.
It should be read in conjunction with the consolidated financial statements and
accompanying notes included elsewhere in this Annual Report.

Results of Operations

PDM is a diversified engineering and construction company, and a distributor of
a broad range of carbon steel products. The Company currently operates in two
business segments: Engineering and Construction and Steel Distribution. The
Engineering and Construction segment specializes in the engineering and design,
procurement, fabrication, erection and rehabilitation of steel products
including liquid and cryogenic storage and processing systems, water storage
systems, bridges and buildings. The Steel Distribution segment processes and
distributes a full line of heavy carbon steel products and manufactures and
markets corrugated metal culvert pipe and accessories.

The Company realized net income of $20.2 million in 1998 compared with $14.4
million in 1997 and $12.6 million in 1996. The related earnings per share were
$2.72 in 1998 compared with $2.02 in 1997 and $1.78 in 1996. Earned revenue
increased $92.1 million in 1998 when compared with 1997 and increased $6.3
million in 1997 when compared with 1996. Income from operations of $30.8 million
in 1998 increased $5.9 million from $25.0 million in 1997 and increased $4.4
million in 1997 when compared with $20.6 million in 1996. The increase in earned
revenue and income from operations from 1997 to 1998 is primarily attributable
to the strength of the Engineering and Construction segment. For additional
discussion on the results of operations refer to the individual business segment
narratives below.

Engineering and Construction

The economic conditions and competitive environments in which Engineering and
Construction operates vary independently from market to market and year to year.
These external factors, outside of management's control, impact financial
results. The following table sets forth the segment's earned revenue and new
awards for the years ended December 31, 1998, 1997 and 1996.

                                        1998       1997       1996
                                        ----       ----       ----        
                                          (Dollars in thousands)
Earned Revenue
Liquid & Cryogenic Storage            $163,148   $121,168   $129,415      
Water Storage                           78,758     68,736     63,684
Steel Bridges                           74,952     51,809     44,396
Steel Buildings                         50,133     44,927     71,355
                                      --------   --------   --------
                                      $366,991   $286,640   $308,850
                                      ========   ========   ======== 
<PAGE>
 
New Awards
Liquid & Cryogenic Storage            $182,129   $188,441   $133,135
Water Storage                           89,006     80,424     68,603
Steel Bridges                          102,744     62,846     43,983
Steel Buildings                         84,120     33,458     51,632
                                      --------   --------   --------
                                      $457,999   $365,169   $297,353
                                      ========   ========   ========

Earned revenue increased $80.4 million in 1998 due to the strength of the Liquid
and Cryogenic Storage and Steel Bridge markets. The Liquid and Cryogenic Storage
growth is attributable to progress on significant contracts including a liquid
natural gas import terminal in Puerto Rico, while the Steel Bridge market
benefited from an ongoing capital investment program by the railroad industry,
as well as increased federal and state infrastructure spending. The level of
infrastructure spending is expected to increase over the next several years due
to the passage of the "Transportation Equity Act for the 21st Century." In 1997,
earned revenue decreased $22.2 million from 1996 levels due to the closure of a
structural steel fabricating facility in Illinois.

New awards for 1998 increased $92.8 million, or 25 percent, as the Engineering
and Construction segment experienced solid sales growth in the Steel Building
and Steel Bridge markets. Strong demand for commercial office space in the
Western United States contributed to the growth in Steel Building new awards,
while the above noted railroad industry and infrastructure spending accounted
for the increase in Steel Bridge new awards. Total new awards increased $67.8
million during 1997, reflecting a significant contract for a liquid natural gas
import terminal. The total increase for 1997 was partially offset by a decline
in new awards for the construction of steel buildings due to a lack of building
construction awards in the Chicago area.

Selling, general and administrative (S,G&A) expense as a percentage of earned
revenue was 7.4 percent, 9 percent and 8.3 percent for 1998, 1997 and 1996,
respectively. In 1998, S,G&A expense increased in absolute dollars due to
increased headcount to accommodate the expansion of operations. S,G&A expenses
remained unchanged in 1997, but increased as a percentage of revenue as a result
of the closure of the Company's structural steel fabricating facility in
Illinois, which reduced the Company's earned revenue.

Income from operations was $26.2 million in 1998 compared with $16.4 million and
$16.9 million in 1997 and 1996, respectively. The increase in 1998 is primarily
attributable to the Company's significant revenue growth. In addition, lower
S,G&A expense as a percentage of earned revenue also contributed to the
increase.
<PAGE>
 
During 1998, the Company completed construction of a new structural steel
fabricating facility in Eloy, Arizona which expands the Company's capabilities
to fabricate and erect structural steel buildings in the West Coast and
Southwest markets. Also during the year, the Company expanded its Palatka,
Florida bridge fabrication facility to capitalize on the positive bridge
construction market outlook.

Capital expenditures, exclusive of business acquisitions, were $9.8 million in
1998 compared with $8.2 million and $3.0 million in 1997 and 1996, respectively.
Expenditures during 1998 related primarily to completion of the structural steel
fabricating facility in Eloy, Arizona and expansion of the bridge fabrication
facility in Palatka, Florida. During 1997, capital expenditures were incurred in
the construction of the Arizona facility, while 1996 expenditures related to
plant and construction equipment.

Steel Distribution

For the Steel Distribution segment, earned revenue of $203.3 million increased
$14.2 million over 1997 earned revenue of $189.1 million. A 10 percent increase
in volume, despite weaker market demand, accounted for the growth over the prior
year. Steel Distribution's strategic capital expansion program continues to
benefit the Company by adding capacity to increase market penetration. Further
expansion is scheduled for 1999 as the Company expects to have two new steel
service centers operational in the first half of the year. In 1997, earned
revenue increased $28.2 million over 1996 levels due to higher sales volumes.
Increased market demand, as a result of an ongoing economic recovery across the
Western United States, coupled with the capture of additional market share
accounted for the 1997 growth.

Income from operations was $17.4 million compared with $16.6 million and $13.1
million in 1997 and 1996, respectively. The higher operating income for both
periods was primarily attributable to growth in earned revenues. The increase in
1998 was partially offset by slightly lower gross margins which were negatively
impacted by weaker market demand and competitive pricing pressure. S,G&A expense
as a percentage of earned revenue was 6.9 percent, 7.4 percent and 7.4 percent
for 1998, 1997 and 1996, respectively.

During 1998, the Company began construction of a new steel service center in
Woodland, Washington. This facility will enable the Company to provide broader
geographic coverage and enhance customer service to the Northwest United States.
In early 1999, the Company completed the conversion of a portion of a former
fabricating facility in Des Moines, Iowa to supply the Midwest United States.
<PAGE>
 
Capital expenditures were $6.8 million in 1998 compared with $1.6 million and
$1.0 million in 1997 and 1996, respectively. The 1998 expenditures were
primarily incurred in the construction of the Woodland, Washington and Des
Moines, Iowa, steel service centers. The 1997 and 1996 capital expenditures
consisted of the acquisition of plant equipment.

Other

Corporate unallocated expenses, consisting of salaries, benefits, outside
professional services, taxes and insurance, were $12.8 million in 1998 compared
with $8.1 million and $9.4 million in 1997 and 1996, respectively. The increase
in 1998 relates primarily to $3.0 million of compensation expense recognized
under an incentive stock plan. The decrease for 1997 resulted from adjustments
to insurance accruals of approximately $2.0 million.

Interest expense of $1.9 million in 1998 compares with $0.8 million in 1997 and
$1.3 million in 1996. Interest expense is directly related to the level of net
borrowings the Company maintains throughout the year. The increase in interest
expense for 1998 resulted from the higher level of borrowings to fund capital
expansion and to finance general working capital needs. On December 31, 1998 the
Company had $35 million of outstanding debt under its revolving credit facility
compared with $11 million at December 31, 1997. The Company had no outstanding
debt obligations under the revolving credit facility at December 31, 1996.

The gain on sale of assets was $4.3 million, $0.4 million and $0.5 million in
1998, 1997 and 1996, respectively. In all three years, gains on the sale of idle
properties were recognized. In addition to the sale of idle properties, in 1996
the Company realized a gain on the sale of a foreign investment.

The effective tax rate was approximately 40 percent in 1998 and 1997 compared
with 39 percent in 1996.

Liquidity and Capital Resources

The decrease in cash provided by operating activities in 1998, compared with
1997 and 1996, is primarily due to a net increase in operating assets and
liabilities (excluding the effects of acquisitions), related to an increase in
the volume of work performed on engineering and construction contracts. The
changes in operating assets and liabilities vary from year to year and are
affected by the mix, stage of completion and commercial terms of contracts.
During 1998, increases in accounts receivable and net costs incurred on
contracts of $38.1 million contributed to the decrease in cash provided by
operating activities. During 1997, increases in inventories and costs incurred
on contracts were only partially offset by increases in contract related short-
term liabilities.
<PAGE>
 
The Company expended $17.3 million for capital improvements in 1998, and
realized $6.7 million in proceeds from the sale of idle property. Capital
expenditures in the Engineering and Construction segment were for the expansion
and improvement of facilities and additional field equipment. Capital
expenditures by the Steel Distribution segment were also for the expansion and
improvement of facilities. During 1998 and 1997, the Company had annual capital
spending of approximately two times annual depreciation expense to maintain its
competitive position. The Company anticipates that capital expenditures in the
near future will approximate the level of depreciation and amortization,
although there can be no assurance that such levels will not increase or
decrease.

The Company continues to evaluate and selectively pursue opportunities for
growth or expansion of its business through investment in or acquisition of
complementary businesses. Acquisition and investment candidates are evaluated
based on various criteria in a process which includes due diligence, management
reviews and board approval. Management anticipates that investment and/or
acquisition opportunities will be available to the Company and intends to
investigate those opportunities for future growth and expansion of its business.
The Company expects that any such acquisitions will be financed from cash on
hand or available under the Company's revolving credit facility. In certain
cases, acquisitions may be funded using stock or pursuant to stand-alone credit
facilities.

Cash utilized by financing activities consisted primarily of dividend payments
and payment of debt obligations. The Company paid cash dividends of $4.4 million
($.60 per share) in 1998 compared with $3.8 million ($.55 per share) in 1997 and
$3.0 million ($.43 per share) in 1996.

On February 6, 1999, the Board of Directors declared a 13 percent increase in
its quarterly dividend to $.17 per share. The payment of future dividends will
be evaluated based on business conditions.

The Company has on hand and access to sufficient sources of funds to meet its
anticipated operating, expansion and capital needs. These sources include the
unused portion of a $70.0 million unsecured revolving credit facility,
established in February of 1999, which expires on January 31, 2002. On December
31, 1998, $9.1 million of stand-by letters of credit were outstanding under this
credit facility. The Company expects to borrow under its credit facility for
working capital requirements in 1999.

Inflation has not had a material effect on the Company in recent years, and the
effect is expected to be minimal in the foreseeable future.
<PAGE>
 
Year 2000

The Company initiated a review of its software systems in 1997 in view of the
fact that certain systems may not properly recognize dates after the year 1999,
which could cause those systems to produce invalid results or fail to operate.
This is commonly referred to as "the Year 2000 problem." The Company's Year 2000
plan encompasses three main phases: Assessment, Remediation and Testing. All
phases of the Year 2000 plan have generally been conducted by Information
Technology personnel. While the Company has not tracked these costs separately,
it does not believe the impact of the Year 2000 remediation efforts has had a
material impact on the Company's results of operations for the periods
presented, or that any additional costs will have a material impact on the
Company's future results of operations.

The Company has completed the assessment phase of all major information
technology systems. The majority of these systems, including software
applications, have been updated through the normal course of upgrades and
program maintenance. The remaining systems have been assessed and the Company
has established plans for remediation and testing which the Company anticipates
will conclude by the second quarter of 1999.

The Company has substantially completed the assessment phase of operating
equipment which utilizes non-information technology systems, typically embedded
technology such as micro controllers. In most cases the Company has either made
the recommended changes, or contacted vendors to determine that the equipment
will not experience Year 2000 problems. The majority of the remaining systems
have been assessed and the Company has established plans for remediation and
testing which the Company anticipates will conclude by the third quarter of
1999.

The Company has contacted its significant suppliers and financial institutions
but has not yet received adequate responses from all of them to determine the
status of their Year 2000 compliance. Management continues to evaluate what
impact the failure of these organizations to become Year 2000 compliant could
have on the Company's consolidated financial position or results of operations.

Management of the Company believes its Year 2000 program is addressing the Year
2000 issue in a timely manner. However, as noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any remaining phases, the Company may have to conduct
certain operations in an alternative manner. There can be no assurance that the
Company's results of operations would not be materially and adversely affected
by the delays and inefficiencies inherent in conducting operations in such a
manner. In addition, disruptions in the general economy or from third parties
resulting from Year 2000 issues could also materially adversely affect the
Company. The amount of potential liability and lost revenue, as a result of the
Company's 
<PAGE>
 
failure to be in compliance, a third party's failure to be in compliance or an
economic slowdown, cannot be reasonably estimated.

The Company is currently evaluating contingency plans in the event of a Year
2000 failure. The Company anticipates these contingency plans will be completed
by the first quarter of 1999.

Market Risk

Due to current conditions in the credit markets and considering the favorable
terms of the Company's borrowing facility, management believes interest rate
exposure is minimal.

The Company has limited operations outside the United States. As such, there is
limited exposure to the Company's future earnings due to changes in foreign
currency exchange rates. A 10 percent appreciation of the United States dollar
against the related currencies would not have a significant effect on the future
earnings of the Company.

Recent Accounting Pronouncements

In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) effective for years starting after June
15, 1999. This Statement addresses the accounting for derivatives and hedging
activities. The Company does not currently utilize derivatives or engage in
hedging activities; therefore, management does not anticipate that the adoption
of this statement will have a material impact on the Company's financial
position or results of operations.

During 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). The Company early adopted SOP 98-1 in
1998, which requires the capitalization of certain costs incurred in connection
with developing or obtaining software for internal use. Qualifying software
costs are capitalized and amortized over the estimated useful life of the
software. Prior to the adoption of SOP 98-1, software costs were expensed as
incurred. Restatement of prior-year financial statements was not permitted. The
adoption of SOP 98-1 did not have a material impact on the Company's financial
position or results of operations.

Forward-Looking Statements

Any of the comments in this Annual Report that refer to the Company's estimated
or future results, margins on existing or future projects, long-term
profitability and demand and growth trends for Pitt-Des Moines, Inc., are
forward-looking and reflect the Company's current analysis of existing trends
and information. Actual results may differ materially from current expectations
or projections based on 
<PAGE>
 
a number of factors affecting the Company's businesses. The Company's estimates
of future performance depend on, among other things, the likelihood of receiving
certain new awards. While these estimates are based on the good faith judgment
of management, these estimates frequently change based on new facts which become
available. In addition, the timing of receipt of revenue by the Company from
engineering and construction projects can be affected by a number of factors
outside the control of the Company. The Company's businesses are also subject to
fluctuations in demand and to changing global economic and political conditions
which are beyond the control of the Company and may cause actual results to
differ from the forward-looking statements contained in this Annual Report.

These forward-looking statements represent the Company's judgment only as of the
date of this Annual Report. As a result, the reader is cautioned not to rely on
these forward-looking statements. The Company disclaims any intent or obligation
to update these forward-looking statements.
<PAGE>
 
Consolidated statements of income
<TABLE>
<CAPTION>
 
Years ended December 31,                                 1998            1997            1996
------------------------                                 ----            ----            ----
<S>                                                  <C>             <C>             <C>
Earned revenue                                       $566,710,817    $474,567,956    $468,273,510
Cost of earned revenue                                481,905,383     402,532,030     403,799,573
                                                     ------------    ------------    ------------
Gross profit from operations                           84,805,434      72,035,926      64,473,937
Selling, general and administrative expenses           53,978,365      47,085,543      43,886,217
                                                     ------------    ------------    ------------
Income from operations                                 30,827,069      24,950,383      20,587,720
Other income (expense):
  Interest income                                         625,218         752,638       1,320,422
  Interest expense                                     (1,914,450)       (847,334)     (1,269,500)
  Gain on sale of assets                                4,260,911         437,935         559,581
  Miscellaneous, net                                     (246,773)     (1,330,472)       (569,197)
                                                     ------------    ------------    ------------
                                                        2,724,906        (987,233)         41,306
                                                     ------------    ------------    ------------
Income before income taxes                             33,551,975      23,963,150      20,629,026
Income tax expense                                     13,396,975       9,562,750       8,077,805
                                                     ------------    ------------    ------------
Net income                                           $ 20,155,000    $ 14,400,400    $ 12,551,221
                                                     ============    ============    ============ 
Earnings per share                                          $2.85           $2.06           $1.80
Earnings per share -- assuming dilution                     $2.72           $2.02           $1.78
Shares used to calculate:
Earnings per share                                      7,069,122       6,998,698       6,969,200
Earnings per share -- assuming dilution                 7,422,435       7,112,796       7,052,304
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
 
Consolidated statements of financial condition
<TABLE>
<CAPTION>
 
December 31,                                               1998            1997
------------                                               ----            ----
<S>                                                    <C>             <C>
Assets
Current Assets
Cash and cash equivalents                              $  8,446,701    $ 12,036,908
Accounts and notes receivable                           103,998,461      78,216,135
Inventories                                              31,118,073      26,236,138
Costs and estimated profits in excess of billings        63,700,086      46,493,184
Deferred income taxes                                     5,875,969       4,426,760
Prepaid expenses                                          1,204,821       1,085,823
                                                       ------------    ------------
Total current assets                                    214,344,111     168,494,948
 
Other Assets                                             10,454,132       8,408,183
 
Goodwill                                                  6,587,744       6,171,570
 
Property, Plant and Equipment
Land                                                     13,362,470       7,610,688
Buildings                                                40,857,586      41,631,446
Machinery and equipment                                  75,220,762      69,971,046
                                                       ------------    ------------
                                                        129,440,819     119,213,180
 
Allowances for depreciation                             (71,443,382)    (70,349,355)
                                                       ------------    ------------
Net property, plant and equipment                        57,997,437      48,863,825
                                                       ------------    ------------
                                                       $289,383,424    $231,938,526
                                                       ============    ============
</TABLE>
<PAGE>
 
Consolidated statements of financial condition
<TABLE>
<CAPTION>
 
December 31,                                                1998            1997
------------                                                ----            ----
<S>                                                    <C>             <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable                                       $ 52,776,621    $ 48,812,440
Accrued compensation, related taxes and benefits         14,200,709      12,491,759
Other accrued expenses                                    3,655,130       2,283,178
Billings in excess of costs and estimated profits        14,774,001       9,905,559
Income taxes                                              4,640,052       2,888,966
Casualty and liability insurance                          5,784,305       6,040,734
                                                       ------------    ------------
Total current liabilities                                95,830,818      82,422,636
 
Revolving Credit Facility                                35,000,000      11,000,000
 
Deferred Income Taxes                                     6,936,811       6,316,352
 
Minority Interest                                         2,361,666       2,536,773
 
Contingencies and Commitments
 
Stockholders' Equity
Preferred stock -- par value $.01 per share;
  authorized 3,000,000 shares; issued -- none
  Common stock -- no par value; authorized
  15,000,000 shares; issued 8,946,468 shares             33,549,255      33,549,255
Additional paid-in capital                                4,183,698          95,370
Retained earnings                                       126,081,860     110,270,788
Accumulated other comprehensive income                     (290,402)       (271,007)
                                                       ------------    ------------
                                                        163,524,411     143,644,406
Treasury stock at cost (1998 - 1,700,552 shares;
       1997 - 1,933,094 shares)                         (12,299,282)    (13,981,641)
Unearned compensation - restricted stock                 (1,971,000)             --
                                                       ------------    ------------
Total stockholders' equity                              149,254,129     129,662,765
                                                       ------------    ------------
                                                       $289,383,424    $231,938,526
                                                       ============    ============


See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
 
Consolidated statements of cash flows
<TABLE>
<CAPTION>
 
Years ended December 31,                                                    1998            1997            1996
------------------------                                                    ----            ----            ----
<S>                                                                     <C>             <C>             <C>
Cash Flows from Operating Activities
Net income                                                              $ 20,155,000    $ 14,400,400    $ 12,551,221
Adjustments to reconcile net income to net cash
  provided (utilized) by operating activities:
  Depreciation                                                             6,109,472       5,784,194       5,680,977
  Gain on sale of assets                                                  (4,260,911)       (437,935)       (559,581)
  Deferred income taxes (credits)                                           (828,750)         52,336         493,889
  Minority interest in earnings, net of dividends paid                       (90,686)        473,194         279,715
  Other non-cash debits (credits), net                                       692,038        (824,396)       (547,440)
Change in operating assets and liabilities providing (using) cash:
  Accounts and notes receivable                                          (25,782,326)       (139,306)      5,798,778
  Inventories                                                             (4,881,935)     (4,928,286)     (1,774,334)
  Prepaid expenses                                                          (118,998)        (65,197)         91,569
  Costs, estimated profits and billings, net                             (12,338,460)     (8,879,535)      5,632,331
  Accounts payable                                                         3,964,181       3,422,738         (17,781)
  Accrued liabilities                                                      2,568,788        (495,818)     (2,028,861)
  Income taxes                                                             1,751,086       2,215,687        (851,427)
                                                                        ------------    ------------    ------------
  Net cash provided (utilized) by operating activities                   (13,061,501)     10,578,076      24,749,056
Cash Flows from Investing Activities
  Capital expenditures                                                   (17,300,645)    (10,607,303)     (4,152,931)
  Proceeds from sale of assets                                             6,724,520         655,397       1,459,907
  Acquisitions, net of cash acquired                                        (614,135)    (13,657,216)             --
  Change in non-current assets                                               194,650         610,059       1,124,410
                                                                        ------------    ------------    ------------
  Net cash utilized by investing activities                              (10,995,610)    (22,999,063)     (1,568,614)
Cash Flows from Financing Activities
  Proceeds from revolving credit facility                                 27,000,000      17,000,000       8,000,000
  Payments of revolving credit facility                                   (3,000,000)     (6,000,000)    (21,000,000)
  Dividends paid                                                          (4,359,366)     (3,849,127)     (3,020,275)
  Other                                                                      826,270         492,138         146,902
                                                                        ------------    ------------    ------------
  Net cash provided (utilized) by financing activities                    20,466,904       7,643,011     (15,873,373)
                                                                        ------------    ------------    ------------
(Decrease) increase in cash and cash equivalents                          (3,590,207)     (4,777,976)      7,307,069
Cash and cash equivalents at beginning of year                            12,036,908      16,814,884       9,507,815
                                                                        ------------    ------------    ------------
Cash and Cash Equivalents at End of Year                                $  8,446,701    $ 12,036,908    $ 16,814,884
                                                                        ============    ============    ============


See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
 
Consolidated statements of stockholders' equity

<TABLE>
<CAPTION>                                                                                                                   
                                                              Unearned                                
                                                Additional  compensation-
                                     Common      paid-in     restricted    Retained    Comprehensive  
                                      stock      capital       stock       earnings       Income      
                                     ------     ----------  ------------   --------     ------------  
<S>                                <C>          <C>         <C>           <C>                         
Balance on January 1, 1996         $33,549,255                            $ 90,017,313   
Comprehensive income:                                                                                 
  Net income                                                                12,551,221   $12,551,221  
  Minimum pension liability                                                                   88,478  
  Total comprehensive income                                                              12,639,699  
Cash dividends ($0.43 per share)                                            (3,020,275)               
Other                                                                           46,619                
                                  -----------                             ------------
Balance on December 31, 1996       33,549,255                               99,594,878                
Comprehensive income:                                                                                 
  Net income                                                                14,400,400    14,400,400  
  Minimum pension liability                                                                  (19,652) 
  Total comprehensive income                                                              14,380,748  
Cash dividends ($0.55) per share)                                           (3,849,127)               
Other                                               $95,370                    124,637                
                                  -----------    ----------               ------------
Balance on December 31, 1997       33,549,255        95,370                110,270,788                
Comprehensive income:                                                                                 
  Net income                                                                20,155,000    20,155,000  
  Minimum pension liabilty                                                                   (19,395) 
  Total comprehensive income                                                              20,135,605  
Cash dividends ($0.60 per share)                                            (4,359,366)               
Issuance of restricted stock                      2,581,810 $(3,696,000)                              
Stock plan amortization                           1,245,000   1,725,000                               
Other                                               261,518                     15,438                
                                  -----------    ---------- -----------   ------------
Balance on December 31, 1998      $33,549,255    $4,183,698 $(1,971,000)  $126,081,860                
                                  ===========    ========== ===========   ============

                                                      Accumulated                Treasury
                                                        other                      stock
                                                     comprehensive               Number of
                                                        income        Cost         Shares
                                                     -------------   -------     ----------
<S>                                                    <C>         <C>           <C> 
Balance on January 1, 1996                             $(339,833)  $(14,285,229)  (1,987,570) 
Comprehensive income:                                                           
  Net income                                                                    
  Minimum pension liability                               88,478                
  Total comprehensive income                                                    
Cash dividends ($0.43 per share)                                                
Other                                                                    11,805        7,104
                                                       ---------   ------------   ----------
Balance on December 31, 1996                            (251,355)   (14,273,424)  (1,980,466)
Comprehensive income:                                                           
  Net income                                                                    
  Minimum pension liability                              (19,652)               
  Total comprehensive income                                                    
Cash dividends ($0.55) per share)                                               
Other                                                                   291,783       47,372 
                                                       ---------   ------------   ----------
Balance on December 31, 1997                            (271,007)   (13,981,641)  (1,933,094)
Comprehensive income:                                                           
  Net income                                                                    
  Minimum pension liabilty                               (19,395)
  Total comprehensive income                          
Cash dividends ($0.60 per share)                                                
Issuance of restricted stock                                          1,114,190      154,000 
Stock plan amortization                                                         
Other                                                                   568,169       78,542
                                                       ---------   ------------   ----------
Balance on December 31, 1998                           $(290,402)  $(12,299,282)  (1,700,552)
                                                       =========   ============   ==========
See Notes to Consolidated Financial Statements.
</TABLE> 
<PAGE>
 
Notes to consolidated financial statements

Significant Accounting Policies
Basis of Presentation

The consolidated financial statements include the accounts of Pitt-Des Moines,
Inc. and its subsidiaries (the "Company"). Intercompany accounts and
transactions have been eliminated in consolidation.

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

Reclassifications

Certain amounts in the 1996 and 1997 consolidated financial statements and notes
to consolidated financial statements have been reclassified to conform with the
1998 and 1997 presentation.

Classifications of Current Assets and Liabilities

The Company, consistent with industry practice, includes in current assets and
current liabilities amounts realizable and payable under contracts which extend
beyond one year. Other assets and liabilities are classified as current or non-
current on the basis of expected realization or payment within or beyond one
year, respectively.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash and short-term investments with
maturities of three months or less at the time of acquisition.

Inventories

Inventories of raw materials and fabricated parts are principally valued
at the lower of last-in, first-out (LIFO) cost or market, except for certain
inventories which are valued at the lower of first-in, first-out (FIFO)
cost or market.

Contract material inventories included in accumulated contract costs are valued
using the specific identification method.
<PAGE>
 
Depreciation and Amortization

Land, buildings, machinery and equipment are carried at cost. Buildings,
machinery and equipment, including capitalized leases, are generally depreciated
by accelerated methods.

At December 31, 1998, $6.0 million of long-lived assets to be disposed of were
included in Property, Plant and Equipment.

Goodwill is amortized on the straight-line method over periods not longer than
forty years.

Revenue Recognition

The Company's revenues are composed of product sales and products and services
provided under engineering and construction contracts. The Company recognizes
product sales revenues upon delivery to the customer and engineering and
construction contract revenues using the percentage-of-completion method.
Contract revenue recognition is generally based on the proportion of man-hours
incurred to date to total estimated man-hours, but for certain contracts is
based on the relationship of actual costs incurred to date to total estimated
costs. The revenue recognized on contracts is not related to progress billings
to customers.

As long-term contracts extend over one or more years, revisions to estimates of
costs and profits are reflected in the accounting period in which the facts
which require the revisions become known. At the time a loss on a contract
becomes known, the entire amount of the estimated loss is recognized in the
financial statements.

The Company has a history of making reasonably dependable estimates of the
extent of progress towards completion, contract revenues, and contract costs on
its long-term contracts. However, due to uncertainties inherent in the
estimation process, actual results could differ materially from those estimates.

Revenue from contract change orders and claims is recognized when the settlement
is probable and the amount can be reasonably estimated. Contract costs include
all direct material, labor, subcontract costs and those indirect costs related
to contract performance. Costs and estimated profits in excess of billings are
classified as a current asset. Amounts billed in excess of costs and estimated
profits are classified as a current liability.
<PAGE>
 
Stock Plans

The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. This expense is recognized
ratably over the vesting period.

The market value of restricted stock at the grant date is recorded as unearned
compensation in a separate component of stockholders' equity and adjusted to
current market value at each reporting period. Assuming certain performance
criteria are met, unearned compensation is amortized to expense over the vesting
period.

Earnings Per Common Share

Earnings per share (basic) is calculated by dividing net income by the weighted-
average number of shares of common stock outstanding.

Earnings per share (assuming dilution) reflects the assumed conversion of all
dilutive securities, consisting of employee stock options and restricted stock.
Such adjustments to the weighted-average number of shares of common stock
outstanding are made only when such adjustments dilute earnings per common
share.

Comprehensive Income

In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No. 130). This Statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and minimum pension liability
adjustments and is presented in the Consolidated Statements of Stockholders'
Equity. The adoption of SFAS No. 130 had no impact on total stockholders'
equity. Prior-year financial statements have been reclassified for comparative
purposes.

Recent Accounting Pronouncements

In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" effective for years starting after June 15, 1999. This
Statement addresses the accounting for derivatives and hedging activities. The
Company does not currently utilize derivatives or engage in hedging activities;
therefore, management does not anticipate that the adoption of this statement
will have a material impact on the Company's financial position or results of
operations.
<PAGE>
 
During 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). The Company early adopted SOP 98-1 in
1998, which requires the capitalization of certain costs incurred in connection
with developing or obtaining software for internal use. Qualifying software
costs are capitalized and amortized over the estimated useful life of the
software. Prior to the adoption of SOP 98-1, software costs were expensed as
incurred. Restatement of prior-year financial statements was not permitted. The
adoption of SOP 98-1 did not have a material impact on the Company's financial
position or results of operations.

Acquisitions

During 1998, the Company completed the acquisition of the remaining 40 percent
interest in Tecnologia de Almacenamiento Industrial, TAI, S.A., an engineering
and construction company located in Caracas, Venezuela. Pro forma information
has not been presented because it is immaterial.

Accounts and Notes Receivable

Accounts and notes receivable at December 31, 1998 and 1997, include
approximately $18.8 million and $18.5 million, respectively, due from customers
in accordance with applicable retainage provisions of engineering and
construction contracts. These amounts become due upon completion of such
contracts. The allowance for doubtful accounts was approximately $0.8 million
and $1.1 million on December 31, 1998 and 1997, respectively.

Inventories

Inventories aggregating approximately $26.3 million and $21.3 million on
December 31, 1998 and 1997, respectively, are valued at the lower of LIFO cost
or market. If these amounts had been valued on the FIFO method, which
approximates replacement cost, these amounts would have been approximately $12.7
million and $15.3 million higher than reported on December 31, 1998 and 1997,
respectively.

Inventories carried on a FIFO basis were $4.9 million and $5.0 million on
December 31, 1998 and 1997, respectively.

Costs and Estimated Profits on Uncompleted Contracts

Costs and estimated profits on uncompleted contracts are summarized as follows:

<TABLE>
<CAPTION>
December 31,                                      1998             1997
-------------                                   -------           ------
<S>                                          <C>              <C>
Costs incurred on uncompleted contracts      $ 608,869,644    $ 679,157,138
Estimated profits                               71,450,525       91,177,830
                                             -------------    -------------
                                               680,320,169      770,334,968
Billings to date                              (631,394,084)    (733,747,343)
                                             -------------    -------------
                                             $  48,926,085    $  36,587,625
                                             =============    =============
</TABLE>
<PAGE>
 
Costs, estimated profits and billings on uncompleted contracts are included in
the accompanying Consolidated Statements of Financial Condition under the
following captions:

<TABLE>
<CAPTION>
December 31,                                              1998            1997
------------                                             ------          ------
<S>                                                    <C>             <C>
Costs and estimated profits in excess of billings      $ 63,700,086    $46,493,184
Billings in excess of costs and estimated profits       (14,774,001)    (9,905,559)
                                                        -----------    -----------
                                                        $48,926,085    $36,587,625
                                                        ===========    ===========
</TABLE>

Included in costs and estimated profits in excess of billings on uncompleted
contracts was approximately $6.5 million at December 31, 1998 and 1997, relating
to an unapproved change order arising from a dispute over design and
specification changes on a project that has been completed. On May 14, 1996 the
Company filed an action in the United States District Court for the Northern
District of Illinois (Eastern Division) captioned PITT-DES MOINES, INC. V.
METROPOLITAN PIER & EXPOSITION AUTHORITY ET AL. seeking reimbursement in excess
of $15.0 million for additional work and making other claims in connection with
an unapproved change order. On June 4, 1996, certain of the defendants in said
action made counterclaims against the Company in amounts approximating $3.5
million. While counsel believes that the Company has a legal basis for the
claim, neither management nor counsel is able to predict with certainty the
ultimate resolution of this matter. As additional information becomes available,
the Company may revise its estimate of potential recovery, which could result in
a material adjustment to the results of operations in future periods.

Other Assets

Other assets include prepaid pension costs and notes receivable.

Pensions

Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits". This Statement does not change the measurement or
recognition provisions of previously issued standards, but revises disclosures
about pensions and other postretirement benefit plans. Restatement of
disclosures for the prior years has been made for comparative purposes.

The Company has a number of noncontributory defined benefit pension plans
covering most employees. Plans covering salaried employees provide monthly
benefits at retirement age based on the participant's monthly salary and years
of employment. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service although certain of such plans provide
benefits based on the participant's hourly wage rate and years of service. The
plans permit the Company, at any time, to amend or terminate the plans subject
to union approval, if applicable.
<PAGE>
 
The Company's policy is to fund the legal minimum required contributions. Plan
assets on December 31, 1998 consisted primarily of listed stocks, bonds,
investments in pooled funds and group annuity contracts of insurance carriers.

Net periodic pension expense (income) for the Company's defined benefit pension
plans included the following components:

<TABLE>
<CAPTION>
 
Years ended December 31,                                1998           1997           1996
------------------------                               ------         ------         ------
<S>                                                 <C>            <C>            <C>
Service cost-benefits earned during the period      $ 1,732,878    $ 1,520,237    $ 1,475,183
Interest cost on projected benefit obligation         4,773,205      4,617,668      4,311,399
Expected return on plan assets                       (7,778,867)    (6,453,641)    (5,829,341)
Amortization of transition amount                      (711,825)      (711,825)      (711,825)
Amortization of prior service cost                      252,717        254,233        244,936
Recognized net actuarial (gain) loss                   (140,022)        48,819        (25,021)
                                                    -----------    -----------    -----------
Net periodic pension income                         $(1,871,914)   $  (724,509)   $  (534,669)
                                                    ===========    ===========    ===========
</TABLE>

As a result of restructuring activities, curtailment losses of $99,887 are
reflected in the recognized net actuarial loss component of net periodic pension
income for the year ended December 31, 1997.

The following assumptions were used in the determination of net periodic cost:

<TABLE>
<CAPTION>
Years ended December 31,                          1998    1997    1996
------------------------                         ------  ------  ------
<S>                                              <C>     <C>     <C>
Discount rate                                     7.0%    7.5%    7.5%
Rate of increase in compensation levels           5.5%    5.5%    5.5%
Expected long-term rate of return on assets       9.0%    9.0%    9.0%
</TABLE>

The interest rates used to discount actuarial liabilities to present value at
December 31, 1998 and 1997 were 6.75 percent and 7.0 percent, respectively.

The following table sets forth the change in benefit obligation, plan assets and
funded status of the Company's defined benefit pension plans:

<TABLE>
<CAPTION>
December 31,                                                                               1998            1997
-------------                                                                             ------          ------
<S>                                                                                    <C>             <C>
Change in benefit obligation
  Benefit obligation at beginning of year                                              $ 70,180,029    $ 61,461,724
  Service cost                                                                            1,732,878       1,520,237
  Interest cost                                                                           4,773,205       4,617,668
  Plan amendments                                                                                --          65,345
  Curtailments                                                                                   --         (10,253)
  Benefits paid                                                                          (3,832,011)     (3,742,623)
  Actuarial (gain) or loss                                                                2,367,836       6,230,354
  Other                                                                                      32,793          37,577
                                                                                       ------------    ------------
Benefit obligation at end of year                                                      $ 75,254,730    $ 70,180,029
                                                                                       ============    ============
Change in plan assets
  Fair value of plan assets at beginning of year                                       $ 88,179,350    $ 73,243,670
  Actual return on plan assets                                                           18,242,082      17,897,373
  Employer contributions                                                                    415,673         780,930
  Benefits paid                                                                          (3,832,011)     (3,742,623)
                                                                                       ------------    ------------
Fair value of plan assets at end of year                                               $103,005,094    $ 88,179,350
                                                                                       ============    ============
Reconciliation of funded status
  Funded status                                                                        $ 27,750,364    $ 17,999,321
  Unrecognized transition amount                                                         (1,412,999)     (2,124,824)
  Unrecognized prior service cost                                                         1,757,970       2,010,687
  Unrecognized net gain                                                                 (18,403,871)    (10,448,514)
                                                                                       ------------    ------------
Net amount recognized                                                                  $  9,691,464    $  7,436,670
                                                                                       ============    ============ 

Amounts recognized in the Consolidated Statements of Financial Condition include:

December 31,                                                                                1998            1997
------------                                                                               ------          ------
Prepaid benefit cost                                                                   $ 10,155,553    $  7,840,662
Accrued benefit liability                                                                  (926,941)     (1,037,247)
Intangible asset                                                                            172,450         362,248
Accumulated other comprehensive income                                                      290,402         271,007
                                                                                       ------------    ------------
Net amount recognized                                                                  $  9,691,464    $  7,436,670
                                                                                       ============    ============ 
</TABLE>
<PAGE>
 
The projected benefit obligation and accumulated benefit obligation for pension
plans with accumulated benefit obligations in excess of plan assets were
$2,122,470 and $1,918,706 as of December 31, 1998 and 1997, respectively. The
fair value of plan assets for these plans was $1,365,197 and $1,125,575 as of
December 31, 1998 and 1997, respectively.

The Company also makes contributions to certain multi-employer defined benefit
pension plans primarily for field union employees. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
are generally based on the number of man-hours worked. Company contributions and
costs recognized for these plans were approximately $482,000, $791,000 and
$664,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The
estimated accumulated plan benefits and plan assets for these plans are not
available.

The Company sponsored or contributed to union sponsored defined contribution
plans which cover nearly all salaried employees, certain hourly groups in
accordance with their union labor contracts and nearly all non-union field
employees. Based upon the respective plans, the Company contributions represent
either a stated matching percentage of the participant's basic contribution or a
stated rate per hour worked. Company contributions and costs recognized for
these plans were $2.4 million, $1.8 million and $1.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively.

Employee Stock Ownership Plan

The Company has a noncontributory Employee Stock Ownership Plan (ESOP) which
provides salaried employees, who have at least one year of continuous service,
an opportunity to own Company Common Stock and to accumulate additional
retirement benefits. The Company's contributions, whether in cash or in stock,
are determined annually by the Board of Directors in an amount not to exceed the
maximum allowable as an income tax deduction. Company contributions are 100
percent vested after five years of continuous service. The ESOP contribution is
allocated to the participant's account based upon the actual salary paid to the
participant during that year. The following table sets forth the status of the
Company's ESOP:

<TABLE>
<CAPTION>
 
Years ended December 31,               1998         1997         1996
------------------------              ------       ------       ------
<S>                                <C>          <C>          <C>
Contributions                      $  735,000   $  682,000   $  663,000
Dividends paid on ESOP shares      $  151,079   $  125,474   $   83,000
Number of shares held by ESOP         247,199      222,304      189,720
Plan assets at market value        $5,900,000   $4,100,000   $2,600,000
 
</TABLE>
<PAGE>
 
Revolving Credit Facility

The Company has an unsecured revolving credit agreement (the "Credit Agreement")
that was consummated subsequent to year end. The Credit Agreement is with a bank
group for $70 million and matures on January 31, 2002, at which time all
borrowings must be repaid in full. This agreement calls for the election of
interest at rates based on the prime rate or London Interbank Offered Rate and
requires the payment of a quarterly commitment fee ranging from .20 percent to
 .30 percent of the unutilized credit facility. The interest and commitment fee
percentages are determined based upon the ratio of debt to earnings before
interest, taxes, depreciation and amortization for the trailing four quarters.
The Credit Agreement contains restrictive financial covenants that require
minimum levels of tangible net worth, as defined, and the maintenance of certain
financial ratios. On December 31, 1998, $9.1 million of stand-by-letters of
credit were outstanding.

Interest paid during the years ended December 31, 1998, 1997 and 1996 amounted
to $1.7 million, $0.7 million and $1.2 million, respectively.

Common Stock Split

On May 7, 1998, the Company declared a 2-for-1 stock split effective in the form
of a stock dividend payable June 26, 1998 to stockholders of record at the close
of business on June 12, 1998. Per share amounts, market prices, number of shares
and stock option amounts have been adjusted for the stock split for all periods
presented.

Stock Plans

The Company's stock plans (the "plans") provide for grants of nonqualified or
incentive stock options and restricted stock awards to officers and key
employees. The plans are administered by a committee consisting of at least
three directors of the Company. A total of 2,000,000 shares of the Company's
common stock may be issued pursuant to the plans. Total compensation expense
recognized in the Consolidated Statements of Income for stock-based compensation
awards was $3.0 million in 1998. No compensation expense was recognized in 1997
and 1996.

Restricted stock awards issued under the plans provide that shares awarded may
not be sold or otherwise transferred until restrictions as established by the
committee have lapsed. Restricted stock issued under the plans totaled 154,000
in 1998. There were no restricted stock grants in 1997. The weighted-average
fair value of restricted stock granted in 1998 was $26.38.

Stock options are generally granted at the fair market value of the Company's
common stock on the date of grant. The vesting periods of options are determined
on a grant-by-grant basis, and may be accelerated in the event of certain
circumstances such as death or disability of the optionee. These options
generally expire within ten years from the date of grant.
<PAGE>
 
During 1998, stock options were granted with a fair market value greater than
the amount a recipient must pay to acquire the stock. Therefore, total
compensation expense of $6.2 million is being recognized ratably over the five
year vesting period.

The following table summarizes option activity for the three years ended
December 31, 1998:

<TABLE>
<CAPTION>
                                                           Weighted-average
                                           Shares           exercise price
                                          --------        ------------------
<S>                                       <C>             <C>
Outstanding on December 31, 1995               393,000            $11.06
Granted                                        120,000            $14.03
Exercised                                      (12,000)           $10.25
                                             ---------
Outstanding on December 31, 1996               501,000            $11.79
Exercised                                      (49,500)           $11.47
Surrendered                                     (3,750)           $11.58
                                             ---------
Outstanding on December 31, 1997               447,750            $11.83
Granted                                        706,000            $17.56
Exercised                                      (75,750)           $10.69
                                             ---------
Outstanding on December 31, 1998             1,078,000            $15.66
                                             =========
Exercisable:
December 31, 1996                              281,250            $10.90
December 31, 1997                              297,376            $11.03
December 31, 1998                              374,825            $13.64
Available for future grant:
December 31, 1996                               73,500
December 31, 1997                               77,250
December 31, 1998                              617,250
</TABLE>

Stock options outstanding at December 31, 1998 of 1,078,000 shares at option
prices ranging from $10.25 to $17.56, had a weighted-average remaining
contractual life of 8.0 years.

Pro Forma Net Income and Earnings Per Share

Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its stock options under the fair
value method. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998 and 1996. There were no stock options granted in 1997 under
the plans.
<PAGE>
 
<TABLE>
<CAPTION>
 
December 31,                        1998    1996
------------                       ------  ------
<S>                                 <C>     <C>
Risk-free interest rate             4.91%   6.39%
Dividend yield                      2.50%   3.41%
Volatility factor                   .203    .190
Weighted-average expected life         8      10
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restriction and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's employee
stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma net
earnings and earnings per share were as follows:

<TABLE>
<CAPTION>
Years ended December 31,                               1998       1997       1996
------------------------                              ------     ------     ------
<S>                                                   <C>        <C>        <C>
(Dollars in thousands, except per share amounts)
Net income - as reported                              $20,155    $14,400    $12,551
Compensation expense recognized under
  APB opinion No. 25, net of tax                        1,782         --         --
Compensation expense computed under FAS 123,
  net of tax                                           (2,113)      (130)       (95)
                                                      -------    -------    -------
Net income - pro forma                                $19,824    $14,270    $12,456
                                                      =======    =======    =======
Earnings per share - as reported:
Earnings per share                                    $  2.85    $  2.06    $  1.80
Earnings per share - assuming dilution                $  2.72    $  2.02    $  1.78
Earnings per share - pro forma:
Earnings per share                                    $  2.80    $  2.04    $  1.79
Earnings per share - assuming dilution                $  2.67    $  2.01    $  1.77
Weighted-average fair value of
  options granted during the year                     $ 10.29        N/A    $  3.36
</TABLE>
<PAGE>
 
Income Taxes

The income tax expense (benefit) included in the Consolidated Statements of
Income is as follows:

<TABLE>
<CAPTION>
Years ended December 31,                   1998          1997         1996
------------------------                  ------        ------       ------
<S>                                     <C>            <C>          <C>
Current:
  Federal                               $11,337,381    $7,481,146   $5,887,905
  State                                   2,300,000     1,600,000    1,250,000
  Foreign                                   588,344       429,268      446,011
                                        -----------    ----------   ----------
  Total current expense                  14,225,725     9,510,414    7,583,916
Deferred:
  Federal                                  (669,375)       42,272      332,447
  State                                    (159,375)       10,064      161,442
                                        -----------    ----------   ----------
  Total deferred expense (benefit)         (828,750)       52,336      493,889
                                        -----------    ----------   ----------
Total income tax expense                $13,396,975    $9,562,750   $8,077,805
                                        ===========    ==========   ==========
</TABLE>

A reconciliation of U.S. statutory federal income tax to the income tax expense
on income before income taxes is as follows:

<TABLE>
<CAPTION>
Years ended December 31,                          1998          1997         1996
------------------------                         ------        ------       ------
<S>                                            <C>           <C>          <C>
U.S. statutory federal income tax expense      $11,743,191   $8,387,103   $7,220,159
Increase in taxes resulting from:
  State taxes less federal benefit               1,495,000    1,040,000      812,500
  Other, net                                       158,784      135,647       45,146
                                               -----------   ----------   ----------
Income tax expense                             $13,396,975   $9,562,750   $8,077,805
                                               ===========   ==========   ==========
</TABLE>
<PAGE>
 
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
December 31,                              1998          1997
------------                             ------        ------
<S>                                     <C>           <C>
Deferred tax assets:
  Casualty and liability insurance      $1,515,813    $1,719,531
  Contract related amounts                   6,400        12,800
  Inventory                                502,736       573,122
  Employee benefits                      3,533,820     1,717,623
  Accounts receivable allowance            317,200       403,684
                                        ----------    ----------
  Total deferred tax assets             $5,875,969    $4,426,760
                                        ==========    ==========
Deferred tax liabilities:
  Property, plant and equipment         $3,200,501    $3,354,478
  Pension                                3,805,847     3,057,081
  Other                                    (69,537)      (95,207)
                                        ----------    ----------
  Total deferred tax liabilities        $6,936,811    $6,316,352
                                        ==========    ==========
</TABLE>

Earnings Per Share

The following table sets forth the computation of earnings per share and
earnings per share assuming dilution:

<TABLE>
<CAPTION>
Years ended December 31,                                1998          1997          1996
------------------------                               ------        ------        ------
<S>                                                   <C>           <C>           <C>
Numerator:
Net income                                            $20,155,000   $14,400,400   $12,551,221
                                                      ===========   ===========   ===========
Denominator: Weighted-average shares outstanding        7,069,122     6,998,698     6,969,200
Employee stock options and restricted stock               353,313       114,098        83,104
                                                      -----------   -----------   -----------
Weighted-average shares - assuming dilution             7,422,435     7,112,796     7,052,304
                                                      ===========   ===========   ===========
Earnings per share                                    $      2.85   $      2.06   $      1.80
Earnings per share - assuming dilution                $      2.72   $      2.02   $      1.78
</TABLE>

Contingencies

As previously reported, on November 3, 1993, an accident occurred at the
construction site of a new United States Post Office in Chicago where the
Company was in the process of erecting the steel structure of the building. Two
men were killed and five seriously injured when a portion of the erected steel
collapsed. Various personal injury claims had been asserted against the Company
and others, as 
<PAGE>
 
a result of the accident (the "Personal Injury Cases"). By December 31, 1996,
the Company's insurance carriers settled all of the claims against the Company
in the Personal Injury Cases in which the Company was a defendant without the
Company incurring any additional cost.

An investigation of the November 3, 1993 accident was conducted by the Federal
Occupational Safety and Health Administration (OSHA) and the Justice Department
as required by OSHA law. OSHA cited the Company for safety violations and
assessed $147,000 in civil penalties. In an order dated April 28, 1995, an
administrative law judge dismissed OSHA's case assessing civil penalties. OSHA
appealed that dismissal and in an order dated March 24, 1997, the Occupational
Safety and Health Review Commission reversed the dismissal and entered an order
staying any further proceedings pending final disposition of the OSHA Criminal
Proceeding.

As a result of the OSHA/Justice Department investigation, on August 23, 1996,
the Company was served with an indictment issued by a grand jury for the United
States District Court for the Northern District of Illinois (the "OSHA Criminal
Proceeding"). On July 31, 1997, in the OSHA Criminal Proceeding, a jury returned
a verdict of guilty against the Company for two counts of misdemeanor violations
of OSHA regulations resulting in the deaths of two men killed in the accident. A
sentencing hearing was held on March 20, 1998 in the OSHA Criminal Proceeding
and the Company was fined $1,000,250, which the Company paid on March 27, 1998.

On February 18, 1999, a three judge panel of the United States Court of Appeals
for the Seventh Circuit affirmed the conviction in the OSHA Criminal Proceeding.
The Company does not intend to appeal the decision in the Seventh Circuit.

As a result of the Justice Department's actions, other claims, actions, or
proceedings may be instituted against the Company. The Company cannot predict
the likelihood of such a claim, action or proceeding being instituted against
it, and cannot assess the availability of any insurance coverage or the
possibility or materiality of an adverse result in the event of any such claim,
action or proceeding in advance of a claim, action or proceeding being
instituted.

On June 20, 1996 the Company was served with a subpoena to appear and produce
documents before a grand jury of the United States District Court for the
Western District of Wisconsin in connection with the United States Department of
Justice Antitrust Division's investigation of bid rigging and other criminal
violations in the steel bridge fabrication industry. The Company has been
informed that it is not the target of the investigation at present but that it
and other companies in the steel bridge fabrication industry are the subjects of
the investigation.
<PAGE>
 
While the investigation remains pending, the Company does not believe it will
become a target of the investigation or that a criminal action will be
instituted against it in these matters. If the Company becomes a target or a
criminal investigation were instituted, the Company believes that it would have
significant and meritorious defenses to any such charges and would vigorously
defend against them.

Various claims and legal proceedings are brought against the Company arising
from the normal course of business. Although counsel is unable to predict with
certainty the ultimate outcome, management and counsel believe the Company has
significant and meritorious defenses to any claims, and intend to pursue them
vigorously.

The Company's operations, including idle facilities and other property, are
subject to and affected by federal, state and local laws and regulations
regarding the protection of the environment. The Company accrues for
environmental costs where such obligations are either known or considered
probable and can be reasonably estimated.

The Company is participating as a potentially responsible party (PRP) at three
different sites, and has been requested to participate as a PRP at one
additional site, pursuant to proceedings under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). Other parties have also been
identified as PRP's at the sites. Investigative and/or remedial activities are
ongoing. The Company believes, based upon information presently available to it,
that the cost of such future activities will not have a material effect on the
Company's financial position, results of operations or liquidity. Additionally,
amounts reflected in results of operations and in the statements of financial
condition during the three years ended December 31, 1998, for investigative
and/or remedial activities have also not been material. However, the imposition
of more stringent requirements under environmental laws or regulations, new
developments or changes regarding site cleanup costs or the allocation of such
costs among PRP's or a determination that the Company is potentially responsible
for the release of hazardous substances at sites other than those currently
identified, could result in additional costs.

Management believes that the ultimate outcome of any matter currently pending
against the Company will not materially affect the financial position of the
Company although such outcome could be material to the reported results of
operations for the period in which it occurs.

This Annual Report contains certain forward-looking statements as to the outcome
of various claims and legal proceedings. Actual results may differ with respect
to such claims and proceedings as a result of factors over which the Company
does not have any control, including, but not limited to, new developments,
changes in the laws or regulations and the positions taken by the opposing
parties, the courts or the finders of fact.
<PAGE>
 
Business Segment Information

Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This Statement establishes new standards for reporting
information about operating segments in interim and annual financial statements.
Business segment disclosures for prior years have been restated for comparative
purposes.

The Company has two reportable operating segments: Engineering and Construction
and Steel Distribution. These segments are aligned based on the types of
products and services offered. The Engineering and Construction Segment
specializes in the engineering and design, procurement, fabrication, erection
and rehabilitation of steel products such as liquid and cryogenic storage and
processing systems, water storage systems, bridges and buildings. The Steel
Distribution Segment distributes a full line of heavy carbon steel products and
provides value-added processing services and the Company's Culvert facilities
manufacture and market corrugated metal culvert pipe and accessories.

The Company evaluates performance and allocates resources based on income or
loss from operations. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies except
that inventory is accounted for on a FIFO basis at the segment level compared to
a LIFO basis at the consolidated level, and the Company does not allocate
certain items to its segments including general corporate expenses, incentive
stock plan charges, other income (expense), income tax expense and adjustments
to the LIFO inventory reserve.
<PAGE>
 
Notes to consolidated financial statements

<TABLE>
<CAPTION>
 
Years ended December 31,              1998            1997            1996
------------------------             ------          ------          ------
<S>                                <C>             <C>             <C>
Earned Revenue
Engineering and Construction       $366,990,953    $286,640,150    $308,849,681
Steel Distribution                  203,303,858     189,087,094     160,892,019
Corporate and Other                  (3,583,994)     (1,159,288)     (1,468,190)
                                   ------------    ------------    ------------
                                   $566,710,817    $474,567,956    $468,273,510
                                   ============    ============    ============
Depreciation
Engineering and Construction       $  4,410,637    $  4,018,457    $  4,118,398
Steel Distribution                    1,542,209       1,664,531       1,519,868
Corporate and Other                     156,626         101,206          42,711
                                   ------------    ------------    ------------
                                   $  6,109,472    $  5,784,194    $  5,680,977
                                   ============    ============    ============
Income (Loss) from Operations
Engineering and Construction       $ 26,194,942    $ 16,444,274    $ 16,949,050
Steel Distribution                   17,382,353      16,610,367      13,080,119
Corporate and Other                 (12,750,226)     (8,104,258)     (9,441,449)
                                   ------------    ------------    ------------
                                   $ 30,827,069    $ 24,950,383    $ 20,587,720
                                   ============    ============    ============
Identifiable Assets
Engineering and Construction       $195,602,610    $148,295,267    $128,468,108
Steel Distribution                   80,042,903      73,790,247      59,216,014
Corporate and Other                  13,737,911       9,853,012      12,201,262
                                   ------------    ------------    ------------
                                   $289,383,424    $231,938,526    $199,885,384
                                   ============    ============    ============
Capital Expenditures
Engineering and Construction       $  9,838,712    $  8,236,762    $  2,967,717
Steel Distribution                    6,762,172       1,604,404       1,014,284
Corporate and Other                     699,761         766,137         170,930
                                   ------------    ------------    ------------
                                   $ 17,300,645    $ 10,607,303    $  4,152,931
                                   ============    ============    ============
</TABLE>

For the years ended 1998, 1997 and 1996, neither any single customer, nor any
country outside the United States, accounted for 10 percent or more of total
earned revenue.
<PAGE>
 
Report of independent auditors and management

Report of Independent Auditors
Stockholders and Board of Directors
Pitt-Des Moines, Inc.

We have audited the accompanying consolidated statements of financial condition
of Pitt-Des Moines, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pitt-
Des Moines, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.



/s/ Ernst & Young, LLP

Pittsburgh, Pennsylvania
March 3, 1999
<PAGE>
 
Report of Management

The management of Pitt-Des Moines, Inc. and its subsidiaries is responsible for
preparing the financial statements and for ensuring that other information
included in this Annual Report is consistent therewith. Estimates and judgments
are necessary ingredients in the preparation of the financial statements.
Management is considerate of these estimates and judgments and believes that the
financial statements and other financial information included herein have been
prepared, in all material respects, in conformity with accounting principles
that are generally accepted, appropriate in the circumstances and consistently
applied. The financial statements have been audited by Ernst & Young LLP,
independent auditors.

In order to prepare the financial statements, Pitt-Des Moines, Inc. maintains
and relies upon a system of internal accounting control. This system is designed
to provide reasonable assurance that assets are safeguarded, transactions are
executed in accordance with management's authorization and transactions are
recorded properly. This system is tested and evaluated by Pitt-Des Moines,
Inc.'s internal auditors. Ernst & Young LLP evaluates the system of internal
accounting control to determine the extent and timing of the procedures they
deem necessary to express an opinion on the financial statements, taken as a
whole.

Oversight of the audit process is provided by the Audit Committee of the Board
of Directors. The Audit Committee meets with the internal auditors and the
independent auditors to discuss and review audit scope and audit findings. The
internal and independent auditors have free access to the Audit Committee;
management is not present during these discussions unless requested by the Audit
Committee. The Audit Committee also recommends to the Board of Directors the
appointment of the independent auditors.

Management recognizes its responsibility for fostering a strong ethical climate
so that the business of Pitt-Des Moines, Inc. is conducted according to the
highest standard of corporate conduct.


/s/ Wm. W. McKee

Wm. W. McKee
President and Chief Executive Officer


/s/ R. A. Byers

R. A. Byers
Vice President Finance and Treasurer
<PAGE>
 
Two year quarterly results of operations

The following is a summary of the quarterly results of operations:
(unaudited)

<TABLE>
<CAPTION>
 
Quarters ended                                        March 31,   June 30,   September 30,   December 31,
---------------                                       ---------   --------   -------------   ------------
(Dollars in thousands, except per share amounts)
<S>                                                   <C>         <C>        <C>             <C>
1998                                                                                                   (1)
Earned revenue                                         $123,370   $140,188        $154,777       $148,376
Gross profit from operations                             19,075     21,205          21,389         23,137
Income before income taxes                                6,819      6,804           8,501         11,428
Net income                                                4,168      4,150           5,173          6,664
Earnings per share                                     $   0.59   $   0.59        $   0.73       $   0.94
Earnings per share - assuming dilution                 $   0.58   $   0.55        $   0.69       $   0.89
1997                                                                                                   (2)
Earned revenue                                         $109,581   $119,235        $114,662       $131,090
Gross profit from operations                             14,104     17,472          15,693         24,767
Income before income taxes                                3,445      5,872           5,308          9,338
Net income                                                2,101      3,570           3,198          5,531
Earnings per share                                     $   0.30   $   0.51        $   0.46       $   0.79
Earnings per share - assuming dilution                 $   0.30   $   0.50        $   0.45       $   0.77
</TABLE>

A separate computation of earnings per share is made for each quarter presented.
The dilutive effect on earnings per share is included in each quarter in which
dilution occurs. The earnings per share computation for the year is a separate
annual calculation. Accordingly, the sum of the quarterly earnings per share
amounts will not necessarily equal the earnings per share for the year.

(1) During the fourth quarter of 1998, a gain on the sale of an idle facility
was recognized which increased net income by $0.34 per share.

(2) During the fourth quarter of 1997, adjustments were made to insurance
accruals which increased net income by $0.17 per share.
<PAGE>
 
Stockholders' reference

Form 10-K

A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, provides additional information and may be obtained without charge,
after March 31, 1999, upon written request to:

Richard A. Byers
Vice President Finance and Treasurer
Pitt-Des Moines, Inc.
1450 Lake Robbins Drive, Suite 400
The Woodlands, Texas 77380

Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
450 West 33rd Street, 15th Floor
New York, NY 10001
800-851-9677

Independent Auditors
Ernst & Young LLP
One Oxford Centre
28th Floor
Pittsburgh, Pennsylvania 15219

Annual Meeting of Stockholders
The Company's Annual Meeting of Stockholders will be held
at 2  p.m. on May 6, 1999, at 3400 Grand Avenue, Pittsburgh, Pennsylvania 15225.

Company Contact
Investor Relations:
Richard A. Byers
281-765-4600
<PAGE>
 
Common Stock Information

The following table sets forth, for the periods indicated, the high and low
stock prices of the Common Stock and the dividends paid per share of Common
Stock.

<TABLE>
<CAPTION>
                                             
                         Price range         Quarterly
                     ----------------------  dividends 
                      High         Low       per share
                     ------   ------------- ----------- 
<S>                 <C>        <C>           <C>
1998
First Quarter       $ 24         $  18 1/8      $  .15
Second Quarter        32 3/8        24 1/8         .15
Third Quarter         29 3/4        21 3/4         .15
Fourth Quarter        27            15             .15
                                                ------
                                                $  .60
                                                ======
1997
First Quarter       $ 15 1/2     $  13          $.1375
Second Quarter        16 9/16       13           .1375
Third Quarter         18 3/4        15           .1375
Fourth Quarter        19 3/16       16 27/32     .1375
                                                ------
                                                $  .55
                                                ======
</TABLE>

On February 26, 1999, there were 7,245,916 shares outstanding and approximately
433 stockholders of record of the Company's Common Stock.

Stock Trading

The Company's Common Stock is traded on the American Stock Exchange (symbol
PDM).