<PAGE> 1
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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 SEPTEMBER 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
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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 September 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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<PAGE> 2
PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....................................... $20,105 $ 595,216
Accounts receivable, less allowance for doubtful accounts
($5,794 at September 30, 1996 and March 31, 1996,
respectively)................................................ 8,986,876 9,423,204
Inventories -- Note B........................................... 20,350,792 17,391,625
Prepaid expenses and other current assets....................... 291,290 114,625
------------ -----------
Total Current Assets.................................... 29,649,063 27,524,670
PROPERTY, PLANT AND EQUIPMENT
Land............................................................ 198,021 198,021
Buildings and improvements...................................... 2,695,912 2,687,730
Machinery and equipment......................................... 11,706,794 11,699,234
Less allowance for depreciation................................. (9,579,873) (9,316,572)
------------ -----------
5,020,854 5,268,413
OTHER ASSETS
Cash value of officers' life insurance.......................... 43,731 19,903
------------ -----------
$34,713,648 $32,812,986
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses..................... $5,720,874 $ 4,739,206
Current portion of long-term debt............................... 800,000 800,000
Dividends payable............................................... 306,959 291,709
Contribution to profit-sharing plan............................. 108,000 216,000
Federal income taxes payable.................................... 101,066 53,047
Employee compensation and related expenses...................... 425,314 310,565
------------ -----------
Total Current Liabilities............................... 7,462,213 6,410,527
LONG-TERM DEBT, less current portion.............................. 5,000,000 5,400,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS...................... 113,000 113,000
DEFERRED INCOME TAXES............................................. 435,523 460,523
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 6,125,512 at September 30, 1996 and 5,834,195 at
March 31, 1996.............................................. 6,125,512 5,834,195
Additional paid-in capital...................................... 22,336,517 21,444,360
Retained earnings............................................... (6,759,117) (6,849,619)
------------ -----------
Total Stockholders' Equity.............................. 21,702,912 20,428,936
------------ -----------
$34,713,648 $32,812,986
========== ==========
</TABLE>
1
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENT OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................. $29,486,754 $26,208,387 $58,238,233 $54,961,052
Costs and expenses
Costs of goods sold..................... 26,956,145 24,433,119 53,085,111 50,919,317
General, selling and administrative
costs................................ 978,013 789,582 2,084,978 1,713,371
Interest................................ 129,605 167,557 263,828 334,249
----------- ----------- ----------- -----------
28,063,763 25,390,258 55,433,917 52,966,937
Interest and other income................. (28,511) (21,291) (57,507) (31,994)
----------- ----------- ----------- -----------
Earnings before federal income taxes...... 1,451,502 839,420 2,861,823 2,026,109
Provision (benefit) for federal income
taxes:
Current................................. 506,010 297,902 998,019 713,877
Deferred................................ (12,500) (12,500) (25,000) (25,000)
----------- ----------- ----------- -----------
493,510 285,402 973,019 688,877
----------- ----------- ----------- -----------
Net earnings.............................. $ 957,992 $ 554,018 $ 1,888,804 $ 1,337,232
========== ========== ========== ==========
Net earnings per share -- Note D.......... $0.16 $0.09 $0.31 $0.22
========== ========== ========== ==========
Cash Dividends
Common Stock -- per share dividend
declared during periods (shares
outstanding at record date:
6,125,512 in 1996 and 5,832,195 in 1995).. $0.05 $0.05 $0.10 $0.10
========== ========== ========== ==========
</TABLE>
2
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.................................................... $ 1,888,804 $ 1,337,232
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation................................................. 316,020 297,526
Provision for deferred taxes................................. (25,000) (25,000)
Decrease (increase) in operating assets:
Accounts receivable.......................................... 436,328 290,365
Inventories.................................................. (2,959,167) (1,327,828)
Other........................................................ (176,665) (180,400)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses........................ 981,665 950,688
Contribution to profit-sharing plan.......................... (108,000) (100,000)
Employee compensation and related expenses................... 114,749 13,941
Federal income taxes payable................................. 48,019 (14,658)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES........ 516,753 1,241,866
INVESTING ACTIVITIES
Purchase of property, plant and equipment....................... (68,461) (398,791)
(Increase) decrease in cash value of officers' life
insurance -- Note C.......................................... (23,828) 689,320
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES........ (92,289) 290,529
FINANCING ACTIVITIES
Cash dividends paid............................................. (599,575) (571,025)
Principal payments on long-term debt............................ (400,000) (2,200,000)
Proceeds from borrowings of long term debt...................... 1,000,000
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES........ (999,575) (1,771,025)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (575,111) (238,630)
Cash and cash equivalents at beginning of period................ 595,216 664,527
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 20,105 $ 425,897
========== ==========
</TABLE>
3
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED SEPTEMBER 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 -- 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, the
borrowings will be deducted from the proceeds of the life insurance policy. 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, 1996 and September 30, 1995 are based on the weighted average
number of common and common equivalent (stock options) shares outstanding as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<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 September
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
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS
ENDED SEPTEMBER 30, 1995
During the six months ended September 30, 1996, net sales, costs of goods
sold and gross profit increased $3,277,181, $2,165,794 and $1,111,387,
respectively, from the comparable amounts recorded during the six months ended
September 30, 1995. The increase in sales was primarily related to volume
increases associated with coil and tubular operations. Both operations benefited
from improved market conditions during the 1996 period. The increase in costs of
goods sold primarily resulted from the increase in sales noted above. The
increase in gross profit was principally related to improved margins and
increased sales. Margin rates were 8.85% and 7.35% in the 1996 and 1995 periods,
respectively. Management believes that stronger demand for the Company's
products was the primary factor associated with the increase in margins.
General, selling and administrative costs increased $371,607 from the
amount recorded during the 1995 period. This increase was primarily related to
increases in expenses associated with volume and/or earnings such as employee
incentive bonuses and commissions, franchise taxes, contribution to profit
sharing plan and other variable expenses. In addition, increases in rental costs
and officer compensation relative to executive promotions contributed to the
overall increase.
Interest expense declined $70,421 from the amount recorded during the 1995
period. This decrease primarily resulted from a reduction in term debt and lower
interest rates on a period-to-period basis.
Interest and other income increased $25,513. This increase was primarily
related to a gain on the sale of machinery and equipment.
Federal income taxes increased $284,142 as a result of the increase in
earnings before federal income taxes. Tax rates were the same during each
period.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1995
During the three months ended September 30, 1996, net sales, costs of goods
sold and gross profit increased $3,278,367, $2,523,026 and $755,341 from the
respective amounts recorded during the three months ended September 30, 1995.
The sales and costs of goods sold increases were primarily related to volume
increases associated with coil and tubular operations. The gross profit increase
was principally related to improved margins (8.58% in the 1996 quarter and 6.77%
in the 1995 quarter) and the above noted sales increase. Demand for coil and
tubular products was stronger in the 1996 quarter when compared to the 1995
quarter and supported improved sales and margins.
General, selling and administrative costs increased $188,431 from the
comparable amount recorded in the 1995 quarter. This increase was primarily
related to variable expenses associated with volume and/or earnings.
Additionally, officer compensation relative to executive promotions increased
during the 1996 quarter.
Interest expense declined $37,952 from the amount recorded in the 1995
quarter. This decrease was principally related to a reduction in term debt and
lower interest rates paid on borrowed funds in the 1996 quarter.
Federal income taxes increased $208,108 as a result of the increase in
earnings before federal income taxes. Effective tax rates were the same for each
quarter.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at September 30, 1996.
Current ratios were 4.0 and 4.3 at September 30, 1996, and March 31, 1996,
respectively. Working capital was $22,186,850 at September 30, 1996, and
$21,114,143 at March 31, 1996. The Company has a line of credit arrangement with
5
<PAGE> 7
a bank whereby it may borrow up to $8,000,000. At September 30, 1996, 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.
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 30, 1996, the
Company's shareholders elected seven directors to the Company's Board of
Directors and approved the Friedman Industries, Incorporated 1996 Employee Stock
Option Plan. The number of shares voted for and withheld with respect to the
election of each director was as follows:
<TABLE>
<CAPTION>
NAME SHARES VOTED FOR SHARES WITHHELD
------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Jack Friedman.......................................... 5,235,463 35,350
Harold Friedman........................................ 5,235,770 35,043
Charles W. Hall........................................ 4,994,793 276,020
Alan M. Rauch.......................................... 5,235,770 35,043
Hershel M. Rich........................................ 5,232,050 38,763
Henry Spira............................................ 5,231,510 39,303
Kirk K. Weaver......................................... 5,235,770 35,043
</TABLE>
The number of shares voted for, against and abstain with respect to the
1996 Employee Stock Option Plan was as follows:
<TABLE>
<S> <C>
For....................................... 5,204,733
---------
Against................................... 78,431
---------
Abstain................................... 21,525
---------
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Financial Data Schedule
b). None
6
<PAGE> 8
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 November 13, 1996 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date November 13, 1996 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman of
the Board
7
<PAGE> 9
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, 1996, the related
consolidated statements of earnings for the three-month and six-month periods
ended September 30, 1996 and 1995 and the consolidated statements of cash flows
for the six-month periods ended September 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
November 9, 1996
<PAGE> 10
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
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 SEPTEMBER 30, 1996.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,105
<SECURITIES> 0
<RECEIVABLES> 8,986,876
<ALLOWANCES> 0
<INVENTORY> 20,350,792
<CURRENT-ASSETS> 29,649,063
<PP&E> 14,600,727
<DEPRECIATION> 9,579,873
<TOTAL-ASSETS> 34,713,648
<CURRENT-LIABILITIES> 7,462,213
<BONDS> 5,000,000
<COMMON> 6,125,512
0
0
<OTHER-SE> 15,577,400
<TOTAL-LIABILITY-AND-EQUITY> 34,713,648
<SALES> 29,486,754
<TOTAL-REVENUES> 29,486,754
<CGS> 26,956,145
<TOTAL-COSTS> 27,934,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,605
<INCOME-PRETAX> 1,451,502
<INCOME-TAX> 493,510
<INCOME-CONTINUING> 957,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 957,992
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
