<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
Commission file number 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 74-1504405
- ----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
4001 Homestead Road, Houston, Texas 77028-5585
---------------------------------------------------
(Address of principal executive office zip code)
Registrant's telephone number, including area code (713) 672-9433
----------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
At September 30, 1995, the number of shares outstanding of the issuer's
only class of stock was 5,832,195 shares of Common Stock.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, MARCH 31,
1995 1995
------------ ------------
CURRENT ASSETS <C> <C>
Cash and cash equivalents $ 425,897 $ 664,527
Accounts receivable, less allowance
for doubtful accounts ($5,970 at
September 30, 1995 and March 31,
1995) 8,380,271 8,670,636
Inventories -- Note B 17,886,602 16,558,774
Prepaid expenses & other
current assets 243,018 62,618
----------- ----------
TOTAL CURRENT ASSETS 26,935,788 25,956,555
PROPERTY, PLANT & EQUIPMENT
Land 198,021 198,021
Buildings and improvements 2,689,895 2,595,826
Machinery & equipment 11,625,650 11,320,928
----------- -----------
14,513,566 14,114,775
Less allowance for depreciation (8,997,106) (8,699,581)
----------- -----------
5,516,460 5,415,194
OTHER ASSETS
Cash value of officers' life insurance
Note C 13,793 703,113
----------- -----------
$32,466,041 $32,074,862
=========== ===========
</TABLE>
<PAGE> 3
CONSOLIDATED BALANCE SHEETS - UNAUDITED
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and
accrued expenses $ 5,221,497 $ 4,270,809
Current portion of long-term debt 800,000 800,000
Dividends payable 291,609 277,742
Contribution to profit-sharing plan 100,000 200,000
Federal income taxes payable -- 14,658
Employee compensation and related
expenses 267,066 253,125
----------- -----------
TOTAL CURRENT LIABILITIES 6,680,172 5,816,334
LONG-TERM DEBT, less current portion 5,800,000 7,000,000
PROVISION FOR NONPENSION RETIREMENT
BENEFITS 113,000 113,000
DEFERRED INCOME TAXES 397,747 422,747
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares
Issued and outstanding
shares - 5,832,195 at
September 30, 1995 and
5,554,858 at March 31, 1995 5,832,195 5,554,858
Additional paid-in capital 21,437,734 20,571,057
Retained earnings (7,794,807) (7,403,134)
----------- -----------
19,475,122 18,722,781
----------- -----------
$32,466,041 $32,074,862
=========== ===========
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $26,208,387 $24,651,141 $54,961,052 $47,649,853
Costs of goods sold 24,433,119 22,853,508 50,919,317 44,337,451
General, selling and
administrative costs 789,582 811,432 1,713,371 1,622,392
Interest 167,557 77,500 334,249 146,693
----------- ----------- ----------- -----------
25,390,258 23,742,440 52,966,937 46,106,536
Interest and
other income (21,291) (19,460) (31,994) (26,690)
----------- ----------- ----------- -----------
Earnings before federal
income taxes 839,420 928,161 2,026,109 1,570,007
Provision (benefit) for
federal income taxes:
Current 297,902 321,575 713,877 545,803
Deferred (12,500) (6,000) (25,000) (12,000)
----------- ----------- ----------- -----------
285,402 315,575 688,877 533,803
----------- ----------- ----------- -----------
Net earnings $ 554,018 $ 612,586 $ 1,337,232 $ 1,036,204
=========== =========== =========== ===========
Net earnings per share --
Note D $0.09 $0.11 $0.23 $0.18
===== ===== ===== =====
Cash Dividends
Common Stock -- per share
dividend declared during
periods (shares outstanding
at record date:
5,832,195 in 1995 and
5,553,642 in 1994) $0.05 $0.05 $0.10 $0.10
===== ===== ===== =====
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,337,232 $ 1,036,204
Adjustments to reconcile net
earnings to cash provided by
operating activities:
Depreciation 297,526 288,333
Provision for nonpension
retirement benefits -- 18,000
Provision for deferred taxes
(benefit) (25,000) (12,000)
Decrease (increase) in operating assets:
Accounts receivable 290,365 (386,246)
Inventories (1,327,828) 221,494
Other (180,400) 51,838
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses 950,688 (603,222)
Contribution to profit sharing plan (100,000) (90,000)
Employee compensation and
related expenses 13,941 69,313
Federal income taxes payable (14,658) 63,995
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 1,241,866 657,709
INVESTING ACTIVIIES
Purchase of property, plant and equipment (398,791) (278,456)
(Increase) Decrease in cash value of
officers' life insurance - Note C 689,320 (21,008)
----------- -----------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES 290,529 (299,464)
FINANCING ACTIVITIES
Cash dividends paid (571,025) (491,175)
Principal payments of long-term debt (2,200,000)
Proceeds from borrowings of
long term debt 1,000,000
----------- -----------
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES (1,771,025) (491,175)
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (238,630) (132,930)
Cash and cash equivalents at beginning
of period 664,527 330,289
----------- -----------
Cash and cash equivalents at end
of period $ 425,897 $ 197,359
=========== ===========
</TABLE>
<PAGE> 6
NOTES TO QUARTERLY REPORT - UNAUDITED
FRIEDMAN INDUSTRIES, INCORPORATED
September 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
For further information refer to the financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended
March 31, 1995.
NOTE B - INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C- CASH VALUE OF OFFICERS' LIFE INSURANCE
In July 1995, the Company borrowed $708,168 against the cash surrender
value of officers' life insurance policies (the "borrowings"). The
borrowings do not require specific repayment terms except that in case of
a death, that portion of the borrowings related to the death will be
deducted from the proceeds of the life insurance policy. The average
interest rate paid on the borrowings is lower than the bank's prime rate
charged on the Company's term loan and the proceeds of the borrowings were
used to reduce the term note.
NOTE D - EARNINGS PER SHARE
Earnings per common and common equivalent share for the periods ended
September 30, 1995 and September 30, 1994, are based on the weighted
average number of common and common equivalent (stock options) shares
outstanding as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Common Stock:
Shares outstanding during
the entire period 5,554,858 5,289,598
Retroactive effect of stock
dividends declared 277,337 541,726
--------- ---------
Weighted average number of common
and common equivalent shares 5,832,195 5,831,324
========= =========
</TABLE>
Earnings per share assuming full dilution for the quarters and six months
ended September 30, 1995 and 1994, are not presented because they are not
materially dilutive. Stock options are not included in the above
computations of common and common equivalent shares outstanding since their
effect is not significant.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FRIEDMAN INDUSTRIES, INCORPORATED
Six Months Ended September 30, 1995 Compared
To Six Months Ended September 30, 1994
During the six month period ended September 30, 1995, sales, costs of
goods sold and gross profit increased $7,311,199, $6,581,866 and $729,333,
respectively from the comparable amounts recorded during the six month period
ended September 30, 1994. The sales increase was primarily related to the
Company's tubular operations which reflected a substantial increase in tons
sold. Tubular operations benefited from stronger market conditions for each of
its product lines. The increases in costs of goods sold and gross profit were
primarily related to the increase in tubular sales noted above. Gross profit
rates were 7.4% and 7.0% during the 1995 and 1994 periods, respectively. This
improvement was primarily related to improved margins on sales of structural
tubular products and pipe piling.
Interest expense during the 1995 period increased $187,556 from the
amount recorded during the 1994 period. This increase was primarily related to
interest paid on borrowings under the Company's bank line of credit which were
used to support working capital.
Federal income taxes increased $155,074 as a result of an increase in
earnings before taxes. Tax rates were the same for both periods.
Three Months Ended September 30, 1995 Compared
To Three Months Ended September 30, 1994
During the quarter ended September 30, 1995, sales, costs of goods sold
and gross profit were approximately even with the respective amounts recorded
during the quarter ended September 30, 1994. An increase in sales of tubular
products offset a decline in sales of coil products. Gross profit rates were
6.8% in 1995 and 7.3% in 1994. This decline was primarily related to the
Company's coil operations. During the 1995 quarter, the cost of coil material
declined, and the Company reduced selling prices to its customers
to retain its market share. Since the Company did not immediately benefit from
these cost reductions, the margins earned on coil sales declined.
Interest expense during the 1995 quarter increased $90,057 from the
amount recorded during the 1994 quarter. This increase was primarily related to
interest paid on borrowings under the Company's bank line of credit which were
used to support working capital.
Federal income taxes during the 1995 quarter declined $30,173 due to
the reduction in earnings before taxes. The effective tax rates were the same,
quarter to quarter.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at September 30,
1995. Current ratios were 4.0 and 4.5 at September 30, 1995, and March 31,
1995, respectively. Working capital was $20,255,616 at September 30, 1995, and
$20,140,221 at March 31, 1995. The Company has a line of credit
arrangement with a bank whereby it may borrow up to $8,000,000. At
September 30, 1995, borrowings of $4,000,000 had been made under this line
of credit arrangement which expires April 1, 1998.
In July 1995, the Company borrowed $708,168 against the cash surrender
value of officers' life insurance policies and used such proceeds to reduce
outstanding indebtedness under the Company's term note. See also Note C
appearing herein.
<PAGE> 8
FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED SEPTEMBER 30, 1995
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
a). Not applicable
b). Not applicable
Item 3. Defaults upon senior securities
a). None
b). Not applicable
Item 4. Submission of matters to a vote of security holders
At the Annual Meeting of Shareholders held on August 25, 1995,
the Company's shareholders elected seven directors to the
Company's Board of Directors and approved the Friedman
Industries, Incorporated 1995 Non-employee Director Plan. The
number of shares voted for and withheld with respect to the
election of each director was as follows:
Name Shares Voted For Shares Withheld
---- ---------------- ---------------
Jack Friedman 5,217,638 74,226
Harold Friedman 5,214,402 77,462
Charles W. Hall 5,218,461 73,403
Alan M. Rauch 5,218,755 73,109
Hershel M. Rich 5,215,504 76,360
Henry Spira 5,218,740 73,124
Kirk K. Weaver 5,221,489 70,375
The number of shares voted for, against and abstain with
respect to the 1995 Non-employee Director plan was as follows:
For 5,114,699
---------
Against 138,824
---------
Abstain 38,341
---------
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
a). None
b). None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
Date 11/14/95 By /s/ BEN HARPER
------------------------ ------------------------------------
Ben Harper, Senior Vice President -
Finance (Chief Accounting Officer)
Date 11/14/95 By /s/ HAROLD FRIEDMAN
------------------------ ------------------------------------
Harold Friedman, Vice Chairman
<PAGE> 9
[LETTERHEAD OF ERNST & YOUNG LLP]
Independent Accountants' Review Report
Board of Directors
Friedman Industries, Incorporated
We have reviewed the accompanying condensed consolidated balance sheet of
Friedman Industries, Incorporated as of September 30, 1995, the related
consolidated statements of earnings for the three-month and six-month periods
ended September 30, 1995 and 1994, and the consolidated statement of cash flows
for the six-month periods ended September 30, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Friedman Industries, Incorporated
as of March 31, 1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein) and in our report dated May 26, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1995 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
November 9, 1995
<PAGE> 10
Index to Exhibits
Exhibit 27 Financial Data Schedule Ended September 30, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM
10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 425,897
<SECURITIES> 0
<RECEIVABLES> 8,380,271
<ALLOWANCES> 0
<INVENTORY> 17,886,602
<CURRENT-ASSETS> 26,935,788
<PP&E> 14,513,566
<DEPRECIATION> 8,997,106
<TOTAL-ASSETS> 32,466,041
<CURRENT-LIABILITIES> 6,680,172
<BONDS> 5,800,000
<COMMON> 5,832,195
0
0
<OTHER-SE> 13,642,927
<TOTAL-LIABILITY-AND-EQUITY> 32,466,041
<SALES> 26,208,387
<TOTAL-REVENUES> 26,208,387
<CGS> 24,433,119
<TOTAL-COSTS> 25,222,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,557
<INCOME-PRETAX> 839,420
<INCOME-TAX> 285,402
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554,018
<EPS-PRIMARY> $.09
<EPS-DILUTED> $.09
</TABLE>
