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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 DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1504405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office zip code)
Registrant's telephone number, including area code (713) 672-9433
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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 December 31, 1995, the number of shares outstanding of the issuer's only
class of stock was 5,834,195 shares of Common Stock.
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PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 891,433 $ 664,527
Accounts receivable, less allowance for doubtful accounts
($5,720 at December 31, 1995 and $5,970 at March 31, 1995)... 8,223,380 8,670,636
Inventories -- Note B........................................... 17,186,521 16,558,774
Prepaid expenses & other current assets......................... 160,581 62,618
----------- -----------
TOTAL CURRENT ASSETS.................................... 26,461,915 25,956,555
PROPERTY, PLANT & EQUIPMENT
Land............................................................ 198,021 198,021
Buildings and improvements...................................... 2,689,895 2,595,826
Machinery & equipment........................................... 11,635,757 11,320,928
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14,523,673 14,114,775
Less allowance for depreciation................................. (9,152,656) (8,699,581)
----------- -----------
5,371,017 5,415,194
OTHER ASSETS
Cash value of officers' life insurance -- Note C................ 15,577 703,113
----------- -----------
$31,848,509 $32,074,862
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses..................... $ 4,367,169 $ 4,270,809
Current portion of long-term debt............................... 800,000 800,000
Dividends payable............................................... 262,538 277,742
Contribution to profit-sharing plan............................. 150,003 200,000
Federal income taxes payable.................................... 28,434 14,658
Employee compensation and related expenses...................... 236,552 253,125
----------- -----------
TOTAL CURRENT LIABILITIES............................... 5,844,696 5,816,334
LONG-TERM DEBT, less current portion.............................. 5,600,000 7,000,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS...................... 113,000 113,000
DEFERRED INCOME TAXES............................................. 385,247 422,747
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share; authorized 10,000,000 shares issued
and outstanding shares -- 5,834,195 at December 31, 1995 and
5,554,858 at March 31, 1995................................. 5,834,195 5,554,858
Additional paid-in capital...................................... 21,444,360 20,571,057
Retained earnings............................................... (7,372,989) (7,403,134)
----------- -----------
19,905,566 18,722,781
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$31,848,509 $32,074,862
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31 ENDED DECEMBER 31
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............................. $25,559,420 $24,228,187 $80,520,472 $71,878,040
Costs and expenses:
Costs of goods sold................. 23,526,339 22,286,794 74,445,656 66,624,245
General, selling and administrative
costs............................ 869,800 754,056 2,583,171 2,376,448
Interest............................ 144,520 104,715 478,769 251,408
----------- ----------- ----------- -----------
24,540,659 23,145,565 77,507,596 69,252,101
Interest and other income............. (18,293) (8,043) (50,287) (34,733)
----------- ----------- ----------- -----------
Earnings before federal income
taxes............................... 1,037,054 1,090,665 3,063,163 2,660,672
Provision (benefit) for federal income
taxes:
Current............................. 365,098 376,825 1,078,975 922,628
Deferred............................ (12,500) (6,000) (37,500) (18,000)
----------- ----------- ----------- -----------
352,598 370,825 1,041,475 904,628
----------- ----------- ----------- -----------
Net earnings.......................... $ 684,456 $ 719,840 $2,021,688 $1,756,044
=========== =========== =========== ===========
Net earnings per share -- Note D...... $0.12 $0.12 $0.35 $0.30
===== ===== ===== =====
Cash Dividends:
Common Stock -- per share dividend
declared during periods (shares
outstanding at record date:
5,832,195 and 5,834,195 in 1995 and
5,553,642 in 1994).................. $0.045 $0.06 $0.145 $0.16
====== ===== ====== =====
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31
-------------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.................................................... $2,021,688 $1,756,044
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation................................................. 453,077 432,599
Provision for nonpension retirement benefits................. -- 27,000
Provision for deferred taxes................................. (37,500) (18,000)
Decrease (increase) in operating assets:
Accounts receivable.......................................... 447,256 113,051
Inventories.................................................. (627,747) (4,502,701)
Other........................................................ (97,963) 18,391
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses........................ 96,360 945,107
Contribution to profit sharing plan.......................... (49,997) (45,000)
Employee compensation and related expenses................... (16,573) 79,452
Federal income taxes......................................... 13,776 155,820
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................ 2,202,377 (1,038,237)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment...................... (408,896) (373,722)
Decrease (increase) in cash value of officers' life
insurance -- Note C.......................................... 687,536 (27,118)
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES................ 278,640 (400,840)
FINANCING ACTIVITIES
Cash dividends paid............................................. (862,734) (768,857)
Proceeds from borrowings of long-term debt...................... 1,000,000 2,000,000
Principal payments of long-term debt............................ (2,400,000)
Exercise of stock options....................................... 8,623
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NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES................ (2,254,111) 1,231,143
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................................. 226,906 (207,934)
Cash and cash equivalents at beginning of period................ 664,527 330,289
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CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 891,433 $ 122,355
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
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
December 31, 1995 and December 31, 1994, are based on the weighted average
number of common and common equivalent (stock options) shares outstanding as
follows:
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<CAPTION>
1995 1994
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<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 effect of stock options exercised..................... 667 --
--------- ---------
Weighted average number of common and common equivalent
shares....................................................... 5,832,862 5,831,324
========= =========
</TABLE>
Earnings per share assuming full dilution for the quarters and nine months
ended December 31, 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.
4
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FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1994
During the nine month period ended December 31, 1995, sales, costs of goods
sold and gross profit increased $8,642,432, $7,821,411 and $821,021,
respectively, from the comparable amounts recorded during the nine month period
ended December 31, 1994. The sales increase was primarily related to the
Company's tubular operations which benefited from stronger market conditions for
its products, and accordingly, reflected a substantial increase in volume. The
increases in costs of goods sold and gross profit were primarily related to the
sales increase noted above. Gross profit rates were 7.5% in 1995 compared to
7.3% in 1994. This improvement was primarily related to improved margins on pipe
piling and other structural tubular products.
Interest expense increased $227,361 from the amount recorded in 1994. This
increase was primarily related to interest paid on additional borrowings under
the Company's bank line of credit which were used to support working capital.
Federal income taxes increased $136,847 as a result of the increase in
earnings before taxes. The effective tax rates were the same for both periods.
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1994
During the three months ended December 31, 1995, sales, costs of goods sold
and gross profit did not significantly change from the respective amounts
recorded during the three months ended December 31, 1994. In addition, gross
profit rates for each quarter were approximately 8%.
General, selling and administrative costs increased $115,744 from the
amount recorded during the quarter ended December 31, 1994. This increase was
primarily related to an increase in property rental expense, to increases in
executive compensation relative to promotions, to an increase in ad valorem and
franchise taxes and to an increase in selling expenses associated with tubular
products.
Interest expense in the 1995 quarter increased $39,805 from the 1994
amount. This increase was primarily associated with interest paid on additional
borrowings under the Company's bank line of credit arrangement. These borrowings
were used to support working capital.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at December 31, 1995.
Current ratios were 4.53 and 4.46 at December 31, 1995, and March 31, 1995,
respectively. Working capital was $20,617,219 at December 31, 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 December 31, 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.
5
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED DECEMBER 31, 1995
PART II -- OTHER INFORMATION
<TABLE>
<S> <C> <C>
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). EXHIBIT 23 Consent Ernst & Young LLP
b). None
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<S> <C>
Date By /s/ BEN HARPER
--------------- --------------------------------
Ben Harper, Senior Vice
President -- Finance
(Chief Accounting Officer)
Date By /s/ HAROLD FRIEDMAN
--------------- ----------------------------------
Harold Friedman, Vice Chairman
</TABLE>
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<PAGE> 8
INDEX TO EXHIBITS
EX-23 Consent of Independent Accountants
(Ernst & Young LLP)
EX-27 Financial Data Schedule
<PAGE> 1
EXHIBIT 23
[ERNST & YOUNG LLP LETTERHEAD]
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 December 31, 1995, the related
consolidated statements of earnings for the three-month and nine-month periods
ended December 31, 1995 and 1994 and the consolidated statements of cash flows
for the nine-month periods ended December 31, 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.
February 12, 1996 /s/ ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 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> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 891,433
<SECURITIES> 0
<RECEIVABLES> 8,223,380
<ALLOWANCES> 0
<INVENTORY> 17,186,521
<CURRENT-ASSETS> 26,461,915
<PP&E> 14,523,673
<DEPRECIATION> 9,152,656
<TOTAL-ASSETS> 31,848,509
<CURRENT-LIABILITIES> 5,844,696
<BONDS> 5,600,000
<COMMON> 5,834,195
0
0
<OTHER-SE> 14,071,371
<TOTAL-LIABILITY-AND-EQUITY> 31,848,509
<SALES> 25,559,420
<TOTAL-REVENUES> 25,559,420
<CGS> 23,526,339
<TOTAL-COSTS> 24,396,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,520
<INCOME-PRETAX> 1,037,054
<INCOME-TAX> 352,598
<INCOME-CONTINUING> 684,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684,456
<EPS-PRIMARY> $.12
<EPS-DILUTED> $.12
</TABLE>
