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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, 1996
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
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<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, 1996, the number of shares outstanding of the issuer's only
class of stock was 6,145,712 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,
1996 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,232,054 $ 595,216
Accounts receivable, less allowance for doubtful accounts
($5,794 at December 31, 1996 and March 31, 1996)....... 8,127,131 9,423,204
Inventories -- Note B..................................... 20,637,789 17,391,625
Prepaid expenses & other current assets................... 158,680 114,625
----------- -----------
Total Current Assets.............................. 30,155,654 27,524,670
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 198,021 198,021
Buildings and improvements................................ 2,695,912 2,687,730
Machinery & equipment..................................... 11,722,799 11,699,234
Less allowance for depreciation........................... (9,738,883) (9,316,572)
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4,877,849 5,268,413
OTHER ASSETS
Cash value of officers' life insurance -- Note C.......... 46,241 19,903
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$35,079,744 $32,812,986
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 5,911,993 $ 4,739,206
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 369,718 291,709
Contribution to profit-sharing plan....................... 169,000 216,000
Federal income taxes payable.............................. 18,598 53,047
Employee compensation and related expenses................ 304,611 310,565
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Total Current Liabilities......................... 7,573,920 6,410,527
LONG-TERM DEBT, less current portion........................ 4,800,000 5,400,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 423,023 460,523
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share; Authorized 10,000,000 shares;
Issued and outstanding shares -- 6,145,712 at December
31, 1996 and 5,834,195 at March 31, 1996.............. 6,145,712 5,834,195
Additional paid-in capital................................ 22,361,615 21,444,360
Retained earnings......................................... (6,337,526) (6,849,619)
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Total Stockholders' Equity........................ 22,169,801 20,428,936
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$35,079,744 $32,812,986
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
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<CAPTION>
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31 ENDED DECEMBER 31
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales................................. $28,468,809 $25,559,420 $86,707,042 $80,520,472
Costs and expenses:
Costs of goods sold..................... 26,169,987 23,526,339 79,255,098 74,445,656
General, selling and administrative
costs................................ 986,574 869,800 3,071,552 2,583,171
Interest................................ 125,588 144,520 389,416 478,769
---------- ---------- ---------- ----------
27,282,149 24,540,659 82,716,066 77,507,596
Interest and other income................. (12,293) (18,293) (69,800) (50,287)
---------- ---------- ---------- ----------
Earnings before federal income taxes...... 1,198,953 1,037,054 4,060,776 3,063,163
Provision (benefit) for federal income
taxes:
Current................................. 420,144 365,098 1,418,163 1,078,975
Deferred................................ (12,500) (12,500) (37,500) (37,500)
---------- ---------- ---------- ----------
407,644 352,598 1,380,663 1,041,475
---------- ---------- ---------- ----------
Net earnings.............................. $ 791,309 $ 684,456 $2,680,113 $2,021,688
========== ========== ========== ==========
Average number of common shares
outstanding............................. 6,130,079 6,124,505 6,130,079 6,124,505
========== ========== ========== ==========
Net earnings per share -- Note D.......... $0.13 $0.11 $0.44 $0.33
Cash dividends per common share........... $0.06 $0.045 $0.16 $0.145
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $2,680,113 $2,021,688
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation........................................... 475,028 453,077
Provision for deferred taxes........................... (37,500) (37,500)
Decrease (increase) in operating assets:
Accounts receivable.................................... 1,296,073 447,256
Inventories............................................ (3,246,164) (627,747)
Other.................................................. (44,055) (97,963)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 1,172,787 96,360
Contribution to profit sharing plan.................... (47,000) (49,997)
Employee compensation and related expenses............. (5,954) (16,573)
Federal income taxes................................... (34,449) 13,776
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.......... 2,208,879 2,202,377
INVESTING ACTIVITIES
Purchase of property, plant, and equipment................ (84,466) (408,896)
Decrease (increase) in cash value of officers' life
insurance -- Note C.................................... (26,338) 687,536
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NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES.......... (110,804) 278,640
FINANCING ACTIVITIES
Cash dividends paid....................................... (906,534) (862,734)
Proceeds from borrowings of long-term debt................ -- 1,000,000
Principal payments of long-term debt...................... (600,000) (2,400,000)
Exercise of stock options................................. 45,297 8,623
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NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES.......... (1,461,237) (2,254,111)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................ 636,838 226,906
Cash and cash equivalents at beginning of period.......... 595,216 664,527
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CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $1,232,054 $ 891,433
========== ==========
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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, 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 share are based on the weighted average number of common
shares outstanding. Stock options are not included in the computation of the
weighted average number of common shares outstanding since their effect is not
significant. Fully diluted earnings per share are not presented because they are
not materially dilutive. Applicable per share amounts have been adjusted to give
effect to stock dividends.
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, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
During the nine month period ended December 31, 1996, net sales, costs of
goods sold and gross profit increased $6,186,570, $4,809,442 and $1,377,128 from
the respective amounts recorded during the nine months ended December 31, 1995.
The increase in net sales and costs of goods sold were primarily associated with
an increase in tons sold during the 1996 period. Both coil and tubular
operations benefited from stronger market conditions in the 1996 period. Gross
profit increased as a result of the above noted increase in sales and improved
margins (7.5% in the 1995 period and 8.6% in the 1996 period). Demand for coil
and tubular products was stronger during the 1996 period and supported improved
sales and margins.
General, selling and administrative costs increased $488,381 from the
comparable amount recorded during the 1995 period. This increase was primarily
related to expenses associated with increased volume and/or earnings such as
employee incentive bonuses and commissions, contribution to the profit sharing
plan, and other variable expenses.
Interest expense for the 1996 period declined $89,353 from the amount
recorded in the 1995 period. This decrease was primarily related to a decrease
in term debt and a decline in interest rates charged on borrowed funds.
Interest and other income increased $19,513. This increase was primarily
related to a gain on the sale of machinery and equipment.
Federal income taxes increased $339,188 as a result of the increase in
earnings before taxes. Effective tax rates were the same for both periods.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
During the three months ended December 31, 1996, net sales, costs of goods
sold and gross profit increased $2,909,389, $2,643,648 and $265,741,
respectively, from the comparable amounts recorded during the three months ended
December 31, 1995. The increases in sales and costs of goods sold were primarily
related to the Company's tubular operations. These operations benefited from
stronger demand for its products during the 1996 quarter, and accordingly,
increased its production. A decline in gross profit associated with coil
products was more than offset by an increase in gross profit related to tubular
products. The net increase in gross profit was primarily related to the sales
increase noted above. Margin rates were approximately the same, quarter to
quarter.
General, selling and administrative costs increased $116,774 from the
amount recorded during the 1995 quarter. This increase was primarily related to
expenses associated with increased volume and/or earnings such as employee
remuneration and expense and other variable expenses.
Interest expense declined $18,932. This decrease was primarily related to a
decline in term debt.
Federal income taxes increased $55,046 from the amount recorded during the
1995 quarter. This increase was related to the increase in earnings before
taxes. Effective tax rates were the same for both quarters.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at December 31, 1996.
Current ratios were 4.0 and 4.3 at December 31, 1996, and March 31, 1996,
respectively. Working capital was $22,581,734 at December 31, 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 December 31, 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.
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED DECEMBER 31, 1996
PART II -- OTHER INFORMATION
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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). Financial Data Schedule
b). None
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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
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<S> <C>
Date 11/14/97 By /s/ BEN HARPER
--------------------------------------------------
Ben Harper, Senior Vice
President -- Finance
(Chief Accounting Officer)
Date 11/14/97 By /s/ HAROLD FRIEDMAN
--------------------------------------------------
Harold Friedman, Vice Chairman
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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 December 31, 1996, and the related
consolidated statements of earnings for the three-month and nine-month periods
ended December 31, 1996 and 1995 and the consolidated statements of cash flows
for the nine-month periods ended December 31, 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
February 10, 1997
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,232,054
<SECURITIES> 0
<RECEIVABLES> 8,127,131
<ALLOWANCES> 0
<INVENTORY> 20,637,789
<CURRENT-ASSETS> 30,155,654
<PP&E> 14,616,732
<DEPRECIATION> 9,738,883
<TOTAL-ASSETS> 35,079,744
<CURRENT-LIABILITIES> 7,573,920
<BONDS> 4,800,000
0
0
<COMMON> 6,145,712
<OTHER-SE> 16,024,089
<TOTAL-LIABILITY-AND-EQUITY> 35,079,744
<SALES> 28,468,809
<TOTAL-REVENUES> 28,468,809
<CGS> 26,169,987
<TOTAL-COSTS> 27,156,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,588
<INCOME-PRETAX> 1,198,953
<INCOME-TAX> 407,644
<INCOME-CONTINUING> 791,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,309
<EPS-PRIMARY> $0.13
<EPS-DILUTED> $0.13
</TABLE>
