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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 JUNE 30, 1996
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 of (I.R.S. Employer Identification
incorporation or organization) Number)
</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
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, of 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 June 30, 1996, the number of shares outstanding of the issuer's only
class of stock was 6,125,512 shares of Common Stock.
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PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1996 MARCH 31, 1996
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents...................................... $ 26,025 $ 595,216
Accounts receivable, less allowance for doubtful accounts
($5,794 at June 30, 1996 and March 31, 1996,
respectively)............................................... 9,824,112 9,423,204
Inventories -- Note B.......................................... 18,702,116 17,391,625
Prepaid expenses and other current assets...................... 195,694 114,625
----------- ------------
Total Current Assets................................... 28,747,947 27,524,670
PROPERTY, PLANT AND EQUIPMENT
Land........................................................... 198,021 198,021
Buildings and improvements..................................... 2,687,730 2,687,730
Machinery and equipment........................................ 11,702,925 11,699,234
Less allowance for depreciation................................ (9,474,582) (9,316,572)
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5,114,094 5,268,413
OTHER ASSETS
Cash value of officers' life insurance......................... 43,731 19,903
----------- ------------
$33,905,772 $ 32,812,986
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses.................... $ 5,470,147 $ 4,739,206
Current portion of long-term debt.............................. 800,000 800,000
Dividends payable.............................................. 306,274 291,709
Contribution to profit-sharing plan............................ 54,000 216,000
Federal income taxes payable................................... 95,056 53,047
Employee compensation and related expenses..................... 367,392 310,565
----------- ------------
Total Current Liabilities.............................. 7,092,869 6,410,527
LONG-TERM DEBT, less current portion............................. 5,200,000 5,400,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS..................... 113,000 113,000
DEFERRED INCOME TAXES............................................ 448,023 460,523
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 6,125,512 at June 30, 1996 and 5,834,195 at
March 31, 1996............................................ 6,125,512 5,834,195
Additional paid-in capital..................................... 22,336,518 21,444,360
Retained earnings.............................................. (7,410,150) (6,849,619)
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Total Stockholders' Equity............................. 21,051,880 20,428,936
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$33,905,772 $ 32,812,986
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENT OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
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1996 1995
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<S> <C> <C>
Net sales......................................................... $28,751,479 $28,752,665
Costs and expenses
Costs of goods sold............................................. 26,128,966 26,486,198
General, selling and administrative costs....................... 1,106,965 923,789
Interest........................................................ 134,223 166,692
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27,370,154 27,576,679
Interest and other income......................................... (28,996) (10,703)
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Earnings before federal income taxes.............................. 1,410,321 1,186,689
Provision (benefit) for federal income taxes:
Current......................................................... 492,009 415,975
Deferred........................................................ (12,500) (12,500)
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479,509 403,475
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Net earnings...................................................... $ 930,812 $ 783,214
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Net earnings per share -- Note C.................................. $ 0.15 $ 0.13
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Dividends
Common Stock -- per share dividend declared during periods
(shares outstanding at record dates: 6,125,512 in 1996 and
5,832,195 in 1995)........................................... $ 0.05 $ 0.05
=========== ===========
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2
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
--------------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings..................................................... $ 930,812 $ 783,214
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation.................................................. 158,010 147,405
Provision for deferred taxes.................................. (12,500) (12,500)
Decrease (increase) in operating assets:
Accounts receivable........................................... (400,908) (478,969)
Inventories................................................... (1,310,491) 42,229
Other current assets.......................................... (81,069) (6,086)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses......................... 730,941 (201,800)
Contribution to profit-sharing plan payable................... (162,000) (150,000)
Employee compensation and related expenses.................... 56,827 46,108
Federal income taxes payable.................................. 42,009 415,977
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................... (48,369) 585,578
INVESTING ACTIVITIES
Purchase of property, plant and equipment........................ (3,691) (259,332)
Increase in cash surrender value of officers' life insurance..... (23,828) (4,583)
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NET CASH USED IN INVESTING ACTIVITIES.................... (27,519) (263,915)
FINANCING ACTIVITIES
Cash dividends paid.............................................. (293,303) (279,417)
Proceeds from borrowings of long-term debt....................... 1,000,000
Principal payments on long-term debt............................. (200,000) (200,000)
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NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES......... (493,303) 520,583
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (569,191) 842,246
Cash and cash equivalents at beginning of period................. 595,216 664,527
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CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 26,025 $1,506,773
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED JUNE 30, 1996
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, 1996.
NOTE B -- INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C -- EARNINGS PER SHARE
Earnings per common and common equivalent share for the periods ended June
30, 1996 and June 30, 1995 are based on the weighted average number of common
and common equivalent (stock options) shares outstanding as follows:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Common Stock:
Shares outstanding during the entire period................. 5,834,195 5,554,858
Retroactive effect of stock dividends declared.............. 291,317 568,947
--------- ---------
Weighted average number of common and common
equivalent shares................................. 6,125,512 6,123,805
========= =========
</TABLE>
Earnings per share assuming full dilution for the quarters ended June 30,
1996 and 1995, 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
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
During the quarter ended June 30, 1996, sales were approximately even with
sales recorded during the quarter ended June 30, 1995. During the 1996 quarter,
costs of goods sold declined 1.3% and generated an increase in gross profit of
$356,046. This increase was primarily related to the Company's coil product
operations. Market conditions for these products were somewhat stronger during
the 1996 quarter when compared to the 1995 quarter and supported improved
margins as well as increased volume.
General, selling and administrative costs increased $183,176 from the
amount recorded during the 1995 quarter. This increase was primarily related to
expenses associated with increased volume and/or earnings. In addition,
increases in rental expense and executive compensation were recorded in the 1996
quarter.
Interest expense declined $32,469 from the amount recorded during the 1995
quarter. This decrease was primarily generated by a decrease in term debt and by
lower interest rates incurred on a year to year basis.
Interest income increased $18,293. This increase was primarily related to
an increase in the average invested cash positions during the 1996 quarter.
Federal income taxes increased $76,034 as a result of the increase in
earnings before taxes. Tax rates were the same for both periods.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at June 30, 1996. Current
ratios were 4.1 and 4.3 at June 30, 1996 and March 31, 1996, respectively.
Working capital was $21,655,078 at June 30, 1996, and $21,114,143 at March 31,
1996. The Company has a line of credit arrangement with a bank whereby it may
borrow up to $8,000,000. At June 30, 1996, borrowings of $4,000,000 had been
made under this line of credit arrangement which expires April 1, 1998.
5
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED JUNE 30, 1996
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
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Financial Data Schedule
b). None
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
Date August 13, 1996 By
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date August 13, 1996 By
------------------------------------
Harold Friedman, Vice Chairman of
the Board
6
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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 June 30, 1996, and the related
consolidated statements of earnings and cash flows for the three-month periods
ended June 30, 1996 and 1995. 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, 1996, 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 28, 1996, 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, 1996, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Ernst & Young LLP
August 7, 1996
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INDEX TO EXHIBITS
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1996.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 26,025
<SECURITIES> 0
<RECEIVABLES> 9,824,112
<ALLOWANCES> 0
<INVENTORY> 18,702,116
<CURRENT-ASSETS> 28,747,947
<PP&E> 14,588,676
<DEPRECIATION> 9,474,582
<TOTAL-ASSETS> 33,905,772
<CURRENT-LIABILITIES> 7,092,869
<BONDS> 5,200,000
<COMMON> 6,125,512
0
0
<OTHER-SE> 14,926,368
<TOTAL-LIABILITY-AND-EQUITY> 33,905,772
<SALES> 28,751,479
<TOTAL-REVENUES> 28,751,479
<CGS> 26,128,966
<TOTAL-COSTS> 27,235,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,223
<INCOME-PRETAX> 1,410,321
<INCOME-TAX> 479,509
<INCOME-CONTINUING> 930,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930,812
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
