FRIEDMAN INDUSTRIES INC, 10-K405, 1998-06-29

FRIEDMAN INDUSTRIES INC
10-K405, 1998-06-29
STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS

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<PAGE> 1

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended March 31, 1998

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _______

Commission File No. 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
incorporation or organization) Identification No.)

4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (713) 672-9433

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1 Par Value American Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

None

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 the filing
requirements for the past 90 days.

Yes X No _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Yes X No _____

The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of June 18, 1998 (computed by reference to the closing price
on the American Stock Exchange on such date), was approximately $29,000,000.

The number of shares of the registrant's Common Stock outstanding at June
18, 1998 was 6,818,999 shares.

================================================================================
<PAGE> 2

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders of Friedman Industries,
Incorporated for the fiscal year ended March 31, 1998 -- Part II.

Proxy Statement for the 1998 Annual Meeting of Shareholders -- Part III.

PART I

ITEM 1. BUSINESS

Friedman Industries, Incorporated (the "Company"), a Texas corporation
incorporated in 1965, is in the steel processing and distribution business. The
Company has two product groups: coil processing (steel sheet and plate) and
tubular products.

Significant financial information relating to the Company's product and
service groups for the last three years is contained in Note 6 of the Company's
Consolidated Financial Statements appearing on page 11 of the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1998, which is
incorporated herein by reference elsewhere in this report.

Coil Processing

The Company purchases domestic and foreign hot-rolled steel coils,
processes the coils into steel sheet and plate and sells these products on a
wholesale, rapid-delivery basis in competition with steel mills, importers and
steel service centers. The Company also processes customer-owned coils on a fee
basis. The Company has coil processing plants located at Lone Star, Texas,
Houston, Texas and Hickman, Arkansas. At each plant, the steel coils are
processed through a cut-to-length line which levels the steel and cuts it to
prescribed lengths. The Company's processing machinery is heavy, mill-type
equipment capable of processing steel coils weighing up to 25 tons. Coils are
processed to the specifications required for a particular order. Shipments are
made via unaffiliated truckers or by rail and, in times of normal supply and
market conditions, can generally be made within 48 hours of receipt of the
customer's order.

At its Lone Star facility, the Company purchases hot-rolled steel coils
primarily from Lone Star Steel Company ("LSS"), which is located approximately
four miles from the Company's plant. The Lone Star plant purchases its supply of
steel from LSS and other suppliers at competitive prices determined at the time
of purchase. During fiscal 1998 and 1997, the Company purchased approximately
77% and 86%, respectively, of its tonnage for the Lone Star facility from LSS
and was able to purchase sufficient tonnage at competitive prices from other
suppliers to meet the requirements of this facility. Loss of LSS as a source of
coil supply could have a material adverse effect on the Company's business.

At its Houston facility, the Company warehouses and processes hot-rolled
steel coils, which are generally purchased on the open market at competitive
prices from importers, trading companies and domestic steel mills.

At the Company's Hickman facility, the Company warehouses and processes
steel coils which are purchased primarily from Nucor Steel Company ("NSC"). NSC
is located approximately one-half mile from the Hickman facility. Loss of NSC as
a source of coil supply could have a material adverse effect on the Company's
business.

At the Lone Star facility, the Company maintains three cut-to-length lines
and a coil-to-coil 2-Hi rolling mill. This equipment is capable of processing
steel up to 84 inches wide and up to one-half inch thick. At the Houston
facility, the Company has a cut-to-length line and a rolling mill that are
capable of processing steel up to 90 inches wide and up to one-half inch thick.
The Hickman facility operates a cut to length line which has 84 inch wide and
one-half inch thick capacity. The Company intends to install a 2-Hi rolling mill
at the Hickman facility in fiscal 1999 that will be capable of processing steel
up to 74 inches wide and one-half inch thick in a coil-to-coil mode or directly
from coil to cut-to-length processing. The Company believes this process will
improve surface quality, impart a higher degree of flatness, reduce scrap loss
and increase sales capacity.

2
<PAGE> 3

Tubular Products

Through its Texas Tubular Products ("TTP") operation in Lone Star, Texas,
the Company purchases, markets, processes (e.g., sorting, end-beveling,
threading, etc.) and manufactures tubular products.

TTP employs various pipe processing equipment including threading and
beveling machines, pipe handling equipment and other related machinery. This
machinery can process pipe up to 13 3/8 inches in outside diameter.

The TTP operation includes a pipe mill that is capable of producing pipe
from 2 3/8 inches to 8 5/8 inches in outside diameter. The pipe mill is
API-licensed to manufacture line and oil country pipe and also manufactures pipe
for structural and piling purposes that meets recognized industry standards. The
Company currently manufactures and sells substantially all of its line and oil
country pipe to LSS pursuant to orders received from LSS. In addition, LSS sells
pipe to the Company for structural applications for some sizes of pipe that are
beyond the capability of the pipe mill.

The Company purchases a substantial portion of its annual supply of pipe
and coil material used in pipe production from LSS. The Company can make no
assurances as to the amounts of pipe and coil material that will be available
from LSS in the future. Loss of LSS as a source of supply or as a customer could
have a material adverse effect on the Company's business. A summary of tubular
operations is provided in Note 6 of the Company's Consolidated Financial
Statements incorporated herein by reference.

Marketing

The following table sets forth the approximate percentage of total sales
contributed by each group of steel products during each of the Company's last
three fiscal years:

<TABLE>
<CAPTION>
PRODUCT GROUPS 1998 1997 1996
-------------- ---- ---- ----
<S> <C> <C> <C>
Coil Processing............................................. 59% 56% 60%
Tubular Products............................................ 41% 44% 40%
</TABLE>

Coil Processing (Steel Sheet and Plate). The Company's coil processing
products and services are sold to approximately 440 customers located primarily
in the midwestern, southwestern and southeastern sections of the United States.
The Company's principal customers for these products and services are steel
distributors and customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products. During each of
the fiscal years ended March 31, 1998, 1997 and 1996, nine, seven and seven
customers, respectively, accounted for approximately 25% of the Company's sales
of coil processing products. No coil processing customer accounted for as much
as 10% of the Company's total sales during those years.

The Company sells substantially all of its coil processing products through
its own sales force. At March 31, 1998, the sales force consisted of a senior
vice president of sales and marketing, six inside and one outside salesmen. The
senior vice president of sales and marketing supervises the sales department and
performs the duties of an inside salesman. The inside sales force handles mostly
telephone orders from customers. Outside salesmen take telephone orders and call
on customers and potential customers in the field. Salesmen are paid on a salary
and commission basis with the rate of commission depending upon the tonnage
shipped to the salesman's customers in a particular month.

Shipments of particular products are made from the facility offering the
product desired. If the product is available at more than one facility, other
factors such as location of the customer, productive capacity of the facility
and activity of the facility enter into the decision regarding shipments. The
Company regularly contracts on a quarterly basis with many of its larger
customers to supply minimum quantities of steel.

Tubular Products. Tubular products are sold nationally to approximately 340
customers. The Company's principal customers of these products are steel and
pipe distributors, piling contractors and LSS. Sales of pipe to LSS accounted
for approximately 15% of the Company's total sales in fiscal 1998.

3
<PAGE> 4

The Company sells its tubular products through its own sales force, which
includes three inside salesmen and one manager. Salesmen are paid on a salary
and commission basis.

Competition

The Company is engaged in a non-seasonal, highly competitive business. The
Company competes with steel mills, importers and steel service centers. The
steel industry, in general, is characterized by a small number of extremely
large companies dominating the bulk of the market and a large number of
relatively small companies, such as the Company, competing for a limited share
of such market. The large companies and many of the small companies possess
resources substantially greater than those of the Company.

In the opinion of management, the competitive position of the Company in
times of normal supply and market conditions is dependent upon its ability to
offer steel products at prices competitive with or below those of other steel
suppliers, as well as its ability to provide products meeting customer
specifications on a rapid delivery basis.

Employees

At March 31, 1998, the Company had approximately 170 full-time employees.

Executive Officers of the Company

The following table sets forth the name, age, officer positions and family
relationships, if any, of each executive officer of the Company and period
during which each officer has served in such capacity:

<TABLE>
<CAPTION>
POSITION, OFFICES WITH THE COMPANY
NAME AGE AND FAMILY RELATIONSHIPS, IF ANY
---- --- ----------------------------------
<S> <C> <C>
Jack Friedman.... 77 Chairman of the Board of Directors and Chief
Executive Officer since 1970, Director since
1965, brother of Harold Friedman
Harold 68 Vice Chairman since 1995, formerly President and
Friedman....... Chief Operating Officer since 1975, Executive
Vice President from 1973 to 1975, Director since
1965, brother of Jack Friedman
William E. 51 President and Chief Operating Officer since 1995,
Crow........... formerly Vice President since 1981 and formerly
President of Texas Tubular Products Division
since August 1990
Benny Harper..... 52 Senior Vice President -- Finance since 1995
(formerly Vice President since 1990), Treasurer
since 1980 and Secretary since May 1992
Thomas 47 Senior Vice President -- Sales and Marketing since
Thompson....... 1995, formerly Vice President -- Sales since 1990
Ronald 59 Vice President since 1974
Burgerson......
Ted Henderson.... 70 Vice President since 1985
Dale Ray......... 52 Vice President since 1994
</TABLE>

Dale Ray was elected a vice president in March 1994. Prior thereto, Mr. Ray
was a plant manager at the Company's Lone Star facility for more than five
years.

4
<PAGE> 5

ITEM 2. PROPERTIES

The principal properties of the Company are described in the following
table:

<TABLE>
<CAPTION>
APPROXIMATE TYPE OF
LOCATION SIZE OWNERSHIP CONSTRUCTION
-------- ----------- --------- ------------
<S> <C> <C> <C>
Lone Star, Texas
Plant -- Coil Processing...... 42,260 sq. feet Owned(1) Steel frame/siding
Plant -- Texas Tubular
Products................... 76,000 sq. feet Owned(1) Steel frame/siding
Offices -- Coil Processing.... 1,200 sq. feet Owned(1) Steel building
Offices -- Texas Tubular
Products................... 5,000 sq. feet Owned(1) Cinder block
Land -- Coil Processing....... 13.93 acres Owned(1) --
Land -- Texas Tubular
Products................... 67.77 acres Leased(2) --
Longview, Texas Offices......... 2,600 sq. feet Leased(3) Office Building
Houston, Texas
Plant and Warehouse -- Coil
Processing................. 70,000 sq. feet Owned(1) Rigid steel frame
and steel siding
Offices -- Coil Processing.... 4,000 sq. feet Owned(1) Brick veneer;
steel
building
Land -- Coil Processing....... 12 acres Owned(1) --
Hickman, Arkansas
Plant and Warehouse -- Coil
Processing................. 25,500 sq. feet Owned(1) Steelframe/siding
Offices -- Coil Processing.... 1,200 sq. feet Owned(1) Cinder block
Land -- Coil Processing....... 20 acres Owned(1) --
</TABLE>

- ---------------

(1) All of the Company's owned real estate, plants and offices are held in fee
and are not subject to any mortgage or deed of trust.

(2) The real estate lease is with LSS and its affiliate, Texas & Northern
Railway, Inc., and expires August 31, 2010. The lease provides for monthly
payments of $1,667 adjusted each January 1 for changes in the Consumer Price
Index. The Company has an exclusive option to purchase this property during
a 240-day period ending December 30, 1998.

(3) The office lease is with a nonaffiliated party, expires April 30, 2001, and
provides for an annual rental of $24,672.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to, nor is its property the subject of, any
material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

5
<PAGE> 6

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is traded principally on the American Stock
Exchange (Symbol: FRD).

Reference is hereby made to the sections of the Company's Annual Report to
Shareholders for the fiscal year ended March 31, 1998, entitled "Description of
Business -- Range of High and Low Sales Prices of Common Stock" and "Description
of Business -- Dividends Declared Per Share of Common Stock", which sections are
hereby incorporated herein by reference.

The approximate number of shareholders of record of Common Stock of the
Company as of May 29, 1998 was 700.

ITEM 6. SELECTED FINANCIAL DATA

Information with respect to Item 6 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1998, entitled "Selected Financial Data".

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Information with respect to Item 7 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1998, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and notes thereto of the Company
included in the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1998, are hereby incorporated herein by reference:

Consolidated Balance Sheets -- March 31, 1998 and 1997

Consolidated Statements of Earnings -- Years ended March 31, 1998, 1997
and 1996

Consolidated Statements of Stockholders' Equity -- Years ended March 31,
1998, 1997 and 1996

Consolidated Statements of Cash Flows -- Years ended March 31, 1998,
1997 and 1996

Notes to Consolidated Financial Statements -- March 31, 1998

Report of Independent Auditors

Information with respect to supplementary financial information relating to
the Company appears in Note 7 -- Summary of Quarterly Results of Operations
(Unaudited) of the Notes to Consolidated Financial Statements incorporated
herein by reference above in this Item 8 from the Company's Annual Report to
Shareholders for the fiscal year ended March 31, 1998.

The following supplementary schedule for the Company for the year ended
March 31, 1998, is included elsewhere in this report.

Schedule II -- Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have been
omitted.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None

6
<PAGE> 7

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to Item 10 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1998 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1998 fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to Item 11 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1998 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1998 fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to Item 12 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1998 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1998 fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to Item 13 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1998 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1998 fiscal year.

7
<PAGE> 8

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents included in this report

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 and 2 -- The responses to this section of Item 14 appears in this
report as a separate section of this report.
3 -- Exhibits
3.1 -- Articles of Incorporation of the Company, as amended,
filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended March 31, 1982, and
incorporated herein by reference.
3.2 -- Articles of Amendment to the Articles of Incorporation of
the Company, as filed with the Texas Secretary of State
on September 22, 1987, filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended
March 31, 1988, and incorporated herein by reference.
3.3 -- Bylaws of the Company, amended as of March 27, 1992,
filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended March 31, 1992, and
incorporated herein by reference.
4.1 -- Promissory Note of the Company to Texas Commerce Bank
National Association, dated December 1, 1993, in the
amount of $4,000,000, filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1993, and incorporated herein
by reference.
4.2 -- Letter Agreement dated March 22, 1993, as amended by the
First Amendment dated December 31, 1993, by and between
the Company and Texas Commerce Bank National Association
regarding a $5,000,000 revolving credit line, filed as an
exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1993, and
incorporated herein by reference.
4.3 -- Amended and Restated Letter Agreement dated April 1,
1995, between the Company and Texas Commerce Bank
National Association regarding an $8,000,000 revolving
line of credit, filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31,
1995, and incorporated herein by reference.
10.1 -- Lease Agreement between NCNB Texas National Bank, as
Trustee, and the Company dated September 10, 1990, and
Addendum No. 1 thereto dated November 11, 1991, filed as
an exhibit to the Company's Annual Report on Form 10-K
for the year ended March 31, 1992, and incorporated
herein by reference.
10.2 -- Lease, effective September 1, 1990, by and between Lone
Star Steel Company, Texas & Northern Railway, Inc., a
Texas corporation, and the Company, filed as an exhibit
to the Company's Current Report on Form 8-K dated August
1, 1990, and incorporated herein by reference.
*10.3 -- Friedman Industries, Incorporated 1989 Incentive Stock
Option Plan, filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1991, and incorporated herein by reference.
10.4 -- Promissory Note of the Company to Texas Commerce Bank
National Association, dated December 1, 1993, in the
amount of $4,000,000 (included as Exhibit 4.1 hereto).
10.5 -- Letter Agreement dated March 22, 1993, as amended by the
First Amendment dated December 31, 1993, by and between
the Company and Texas Commerce Bank National Association
regarding a $5,000,000 revolving credit line (included as
Exhibit 4.2 hereto).
</TABLE>

8
<PAGE> 9

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 -- Amended and Restated Letter Agreement dated April 1,
1995, between the Company and Texas Commerce Bank
National Association regarding an $8,000,000 revolving
line of credit (included as Exhibit 4.3 hereto).
10.7 -- Lease Agreement between Judson Plaza, Inc. and the
Company dated March 16, 1996, regarding the lease of
office space (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended March 31,
1996).
*10.8 -- Friedman Industries, Incorporated 1996 Stock Option Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.9 -- $8,000,000 Revolving Promissory Note dated April 1, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.10 -- First Amendment to Amended and Restated Letter Agreement
between the Company and Texas Commerce Bank National
Association dated April 1, 1997 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1997).
10.11 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997 (incorporated by reference to the Company's Report
on Form 10-Q for the three months ended June 30, 1997).
10.12 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 (incorporated by reference to the Company's
Report on Form 10-Q for the three months ended June 30,
1997).
10.13 -- Second Amendment to Amended and Restated Letter Agreement
between the Company and TCB dated July 21, 1997
(incorporated by reference to the Company's Report on
Form 10-Q for the three months ended June 30, 1997).
*10.14 -- First Amendment to the Friedman Industries, Incorporated
1989 Incentive Stock Option Plan (incorporated by
reference to the Company's Report on Form 10-Q for the
three months ended September 30, 1997).
*10.15 -- Friedman Industries, Incorporated 1995 Non-Employee
Director Stock Plan and First Amendment thereto dated
effective August 22, 1997.
13.1 -- The Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1998.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
</TABLE>

- ---------------

* Management contract or compensation plan.

Copies of exhibits filed as a part of this Annual Report on Form 10-K may
be obtained by shareholders of record at a charge of $.10 per page. Direct
inquiries to: Benny Harper, Senior Vice President -- Finance, Friedman
Industries, Incorporated, P. O. Box 21147, Houston, Texas 77226.

(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1998:

None

9
<PAGE> 10

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Friedman Industries, Incorporated has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Houston, and State of Texas, this 29th day of June, 1998.

FRIEDMAN INDUSTRIES, INCORPORATED

By: /s/ JACK FRIEDMAN
----------------------------------
Jack Friedman
Chairman of the Board
and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated on behalf of Friedman Industries, Incorporated in the City
of Houston, and State of Texas.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JACK FRIEDMAN Chairman of the Board, Chief June 29, 1998
- ----------------------------------------------------- Executive Officer and
Jack Friedman Director (Principal Executive
Officer)

/s/ HAROLD FRIEDMAN Vice Chairman of the Board and June 29, 1998
- ----------------------------------------------------- Director
Harold Friedman

/s/ BENNY B. HARPER Senior Vice President -- June 29, 1998
- ----------------------------------------------------- Finance and Treasurer
Benny B. Harper (Principal Financial and
Accounting Officer)

/s/ HENRY SPIRA Director June 29, 1998
- -----------------------------------------------------
Henry Spira

/s/ CHARLES W. HALL Director June 29, 1998
- -----------------------------------------------------
Charles W. Hall

Director June , 1998
- -----------------------------------------------------
Kirk K. Weaver

/s/ ALAN M. RAUCH Director June 29, 1998
- -----------------------------------------------------
Alan M. Rauch

/s/ HERSHEL M. RICH Director June 29, 1998
- -----------------------------------------------------
Hershel M. Rich
</TABLE>

10
<PAGE> 11

FRIEDMAN INDUSTRIES, INCORPORATED
HOUSTON, TEXAS

ANNUAL REPORT ON FORM 10-K
YEAR ENDED MARCH 31, 1998

ITEM 14(A)1 AND 2

LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

11
<PAGE> 12

FORM 10-K

ITEM 14(A)1 AND 2

FRIEDMAN INDUSTRIES, INCORPORATED
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following financial statements of the Company are set forth herewith in
response to Item 14(a)1 and 2 of this report.

Consolidated Balance Sheets -- March 31, 1998 and 1997

Consolidated Statements of Earnings -- Years ended March 31, 1998, 1997
and 1996

Consolidated Statements of Stockholders' Equity -- Years end March 31,
1998, 1997 and 1996

Consolidated Statements of Cash Flows -- Years ended March 31, 1998,
1997 and 1996

Notes to Consolidated Financial Statements -- March 31, 1998

Report of Independent Auditors

The following financial statement schedule of the Company is included in
this report.

S-1-Schedule II -- Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore, have
been omitted.

12
<PAGE> 13

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

FRIEDMAN INDUSTRIES, INCORPORATED

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------------------- ------------- -------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES(1) DESCRIBE DESCRIBE(A) END OF PERIOD
----------- ---------- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $7,276 $200,000 $200,000 $7,276
====== ======== ====== ======== ======
Year ended March 31, 1997
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $5,794 $ 5,000 $ 3,518 $7,276
====== ======== ====== ======== ======
Year ended March 31, 1996
Allowance for doubtful
accounts receivable
(deducted from related
asset account)......... $5,970 $ 9,500 $ 9,676 $5,794
====== ======== ====== ======== ======
</TABLE>

- ---------------

(A) Accounts and notes receivable written off.

S-1
<PAGE> 14

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 -- Lease Agreement between Judson Plaza, Inc. and the
Company dated March 16, 1996, regarding the lease of
office space (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended March 31,
1996).
*10.8 -- Friedman Industries, Incorporated 1996 Stock Option Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.9 -- $8,000,000 Revolving Promissory Note dated April 1, 1997
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
10.10 -- First Amendment to Amended and Restated Letter Agreement
between the Company and Texas Commerce Bank National
Association dated April 1, 1997 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1997).
10.11 -- ISDA Master Agreement between the Company and Texas
Commerce Bank National Association ("TCB") dated July 21,
1997 (incorporated by reference to the Company's Report
on Form 10-Q for the three months ended June 30, 1997).
10.12 -- Advancing Promissory Note of the Company to TCB dated
July 21, 1997 (incorporated by reference to the Company's
Report on Form 10-Q for the three months ended June 30,
1997).
10.13 -- Second Amendment to Amended and Restated Letter Agreement
between the Company and TCB dated July 21, 1997
(incorporated by reference to the Company's Report on
Form 10-Q for the three months ended June 30, 1997).
*10.14 -- First Amendment to the Friedman Industries, Incorporated
1989 Incentive Stock Option Plan (incorporated by
reference to the Company's Report on Form 10-Q for the
three months ended September 30, 1997).
*10.15 -- Friedman Industries, Incorporated 1995 Non-Employee
Director Stock Plan and First Amendment thereto dated
effective August 22, 1997.
13.1 -- The Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1998.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
</TABLE>

- ---------------

* Management contract or compensation plan.

(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1998:

None

<PAGE> 1

EXHIBIT 10.15

FRIEDMAN INDUSTRIES, INCORPORATED

1995 Non-Employee Director Stock Plan

SECTION 1. Purpose.

The purpose of the Friedman Industries, Incorporated 1995 Non-Employee
Director Stock Plan is to promote the interests of Friedman Industries,
Incorporated and its shareholders by providing it with a mechanism to enable
the Company to attract and retain persons with outstanding qualifications to
serve as directors of the Company and to provide the directors with a financial
interest in the Company through the ownership of stock of the Company.

SECTION 2. Definitions.

(A) "Award" shall mean an award of Common Stock pursuant to Section 6
of the Plan.

(B) "Board" shall mean the Board of Directors of the Company.

(D) "Common Stock" shall mean the Common Stock of the Company, $1.00
par value per share, subject to adjustment pursuant to Section 10 of the Plan.

(E) "Company" shall mean Friedman Industries, Incorporated, a Texas
corporation.

(F) "Employee Director" shall mean a member of the Board who is a
full-time employee of the Company.

(G) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(H) "Grant Date" shall mean the date on which an Award of Common
Stock is granted to an Outside Director pursuant to Section 6 of the Plan.

(I) "Outside Director" shall mean a member of the Board who is not a
full-time employee of the Company.

(J) "Plan" shall mean this Friedman Industries, Incorporated 1995
Non-Employee Director Stock Plan.
<PAGE> 2
(K) "Securities Act" shall mean the Securities Act of 1933, as
amended.

SECTION 3. Administration.

The Plan shall be administered by the Committee. The Committee shall
have full power, discretion and authority to interpret and administer the Plan,
except that the Committee shall have no power to determine the eligibility for,
the number of shares of Common Stock to be covered by or the timing of Awards
to be granted pursuant to the Plan. The Committee's interpretations and
actions, except as otherwise determined by the Board, shall be final,
conclusive and binding on all persons for all purposes. The Committee may
authorize any one or more of their number or any officer of the Company to
execute and deliver documents on behalf of the Committee.

No member of the Committee shall be liable for any action taken or
omitted to be taken by him or by any other member of the Committee in
connection with the Plan, except for his own willful misconduct or as expressly
provided by statute.

SECTION 4. Eligibility.

The only persons eligible to participate in the Plan shall be Outside
Directors. An Employee Director who retires from employment with the Company
shall become eligible to participate in the Plan and shall be entitled to
receive an award upon re-election as an Outside Director as provided in Section
6 hereof.

SECTION 5. Stock Subject to the Plan.

There shall be reserved for Awards under the Plan an aggregate of
10,000 shares of Common Stock. Such shares shall be, in whole or in part,
authorized but unissued shares of Common Stock or previously issued and
outstanding shares that have been reacquired by the Company.

SECTION 6. Grants of Awards.

Subject to shareholder approval of this Plan, on September 1, 1995,
each Outside Director shall be granted 400 shares of Common Stock without any
further action required to be taken by the Board or any committee of the Board.
On each September 1 thereafter, for so long as this Plan is in effect and
shares are available for the grant of Awards hereunder, there shall be granted
to each Outside Director who has served as a director of the Company for at
least the 12 immediately preceding calendar months, 400 shares of Common Stock.

Awards of Common Stock under this Plan shall be in consideration of
the past services of each such Outside Director to the Company, which services
are found to

-2-
<PAGE> 3
have a value in excess of the aggregate par value ($1.00 per share) of the
Common Stock subject to such Award.

SECTION 7. Mergers and Other Corporate Changes.

The existence of this Plan shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

If the Company merges or consolidates with another corporation and is
not a surviving corporation, or if the Company is liquidated or sells or
otherwise disposes of substantially all its assets, this Plan automatically
terminates on the effective date of such merger, consolidation, liquidation,
sale or other disposition, as the case may be.

SECTION 8. Requirements of Law.

The shares issued under this Plan have not been registered under the
Securities Act. Each certificate for such shares may bear the following legend
or any other legend which counsel for the Company considers necessary or
advisable to comply with the Securities Act:

"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR
SUCH SALE OR TRANSFER."

The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act (as now in effect or as hereafter
amended) and, if any shares are so registered, the Company may remove any
legend on certificates representing such shares. The Company shall not be
obligated to take any other affirmative action to cause the issuance of shares
pursuant hereto to comply with any law or regulation of any governmental
authority.

-3-
<PAGE> 4
Shares received under the Plan may be deemed "restricted securities"
for purposes of the Securities Act and, accordingly, sales by the recipient
thereof may be subject to satisfaction of a holding period specified in Rule
144 promulgated under the Securities Act.

SECTION 9. Withholding Taxes.

At the time of any Award hereunder, the Outside Director shall pay to
the Company, or the Company may deduct from any other compensation payable to
such Outside Director, the amount of any federal, state or local taxes of any
kind required by law to be withheld by the Company with respect thereto. If
any such amounts must be withheld by the Company and the Outside Director
elects to pay such sums directly, written notice of that election shall be
delivered to the Company prior to the grant of such Award, and payment in cash
or by check of such sums for taxes shall be delivered within ten days after the
date on which any taxes become due.

SECTION 10. Adjustment in the Event of Changes of Common Stock.

In the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend (other than stock
dividends of 5% or less, which shall not trigger an adjustment in the number of
shares constituting an Award), recapitalization or other similar change in
capitalization, the aggregate number and class of Common Stock available for
grant under the Plan, and the number or kind of shares that would constitute an
Award under Section 6, shall be appropriately adjusted by the Committee, whose
determination shall be conclusive.

SECTION 11. Amendments and Termination.

The Board may at any time terminate, modify or amend the Plan in such
respects as it shall deem advisable; provided, however, that the Board may not,
without approval or consent of the holders of a majority of the voting power of
the outstanding shares of Common Stock:

(a) increase (except as provided in Section 10) the maximum number
of shares which may be issued pursuant to Awards granted under
the Plan;

(b) materially modify the requirements for eligibility for
participation under the Plan; or

(c) materially increase the benefits accruing to participants
under the Plan, unless, in each such case, the Board of
Directors of the Company shall have obtained an opinion of
legal counsel to the effect that shareholder

-4-
<PAGE> 5
approval of the amendment is not required (i) by law, (ii) by
any applicable rules and regulations of, or any agreement
with, the American Stock Exchange, Inc. or any other national
securities exchange on which the Common Stock may then be
listed or (iii) in order to make available to any recipient of
an Award the benefits of Rule 16b-3 of the Rules and
Regulations under the Exchange Act or any similar or successor
rule.

In no event, however, may the Plan be amended more than once in a six-month
period.

SECTION 12. Miscellaneous Provisions.

(A) Nothing in the Plan or any grant shall confer upon any Outside
Director the right to be nominated for re-election to the Board.

(B) An Outside Director's rights and interest under the Plan may not
be assigned or transferred in whole or in part, either directly or by operation
of law or otherwise (except pursuant to a qualified domestic relations order
or, in the event of an Outside Director's death, by will or the laws of descent
and distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Outside Director in the Plan shall be subject to any
obligation or liability of such individual.

(C) No shares shall be granted hereunder unless counsel for the
Company shall be satisfied that such grant will be in compliance with
applicable federal, state or other securities laws.

(D) The expenses of the Plan shall be borne by the Company.

(E) By accepting any Award under the Plan, each Outside Director or
beneficiary claiming under or through him or her shall be conclusively deemed
to have indicated his or her acceptance and ratification of, and consent to,
any action taken under the Plan by the Committee or the Board.

(F) The appropriate officers of the Company shall cause to be filed
any reports, return or other information regarding Awards hereunder or any
Common Stock issued pursuant hereto as may be required by Section 13 or 15(d)
of the Exchange Act, or any other applicable statute, rule or regulation.

-5-
<PAGE> 6
SECTION 13. Effectiveness of the Plan.

The Plan shall be submitted to the shareholders of the Company for
approval and adoption. The Plan shall not be effective unless and until the
Plan has been so approved and adopted by the Company's shareholders, or the
Committee shall have received an opinion of legal counsel to the effect that
such approval is not required by law or in order to make available to any
recipient of an Award the benefits of Rule 16b-3 promulgated under the Exchange
Act; provided, however, that grants of Awards under the Plan may be made prior
to such approval as long as such grants are made subject to such approval.

SECTION 14. Governing Law.

The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the State of Texas.

-6-
<PAGE> 7

FIRST AMENDMENT
TO
FRIEDMAN INDUSTRIES, INCORPORATED
1995 NON-EMPLOYEE DIRECTOR STOCK PLAN

1. Section 2(C) of the Friedman Industries, Incorporated 1995
Non-Employee Director Stock Plan (the "Plan") is hereby deleted in its entirety
and replaced by the following:

"(C) "Committee" shall mean a committee of one or more members of
the Board."

2. Except as expressly amended by this First Amendment, the Plan shall
continue in full force and effect in accordance with its terms.

3. The effective date of this First Amendment shall be August 22, 1997.

Board of Directors Approval: September 25, 1997

<PAGE> 1

FRIEDMAN
INDUSTRIES,
INCORPORATED

1998
ANNUAL REPORT
<PAGE> 2
FRIEDMAN INDUSTRIES, INCORPORATED

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales................................ $148,840,724 $119,920,966
Net earnings............................. $4,809,992 $3,630,071
Net earnings per share*.................. $0.71 $0.53
Cash dividends per share*................ $0.28 $0.20
Stock dividend........................... 5% 5%
Stockholders' equity..................... $25,732,957 $22,781,959
Stockholders' equity per share*.......... $3.78 $3.35
Working capital.......................... $25,910,370 $23,184,488
* Adjusted for stock dividends.
</TABLE>

- --------------------------------------------------------------------------------

TO OUR SHAREHOLDERS:

As reflected in the financial highlights set forth above, the Company's
results of operations in fiscal 1998 increased substantially compared to the
results recorded in fiscal 1997. The aggressive growth program which has been
pursued by the management team installed in 1995 and strong market conditions
contributed to increased sales and earnings.

The Company incurred major capital expenditures in fiscal 1998 for a new
seam annealer at its pipe mill and for the ongoing construction of the temper
pass mill at the Arkansas coil facility. These projects are designed to improve
product quality and increase operating efficiency.

You are cordially invited to attend the Annual Meeting of Shareholders
scheduled to start at 11 a.m. (local time) on August 21, 1998 in the offices of
Fulbright & Jaworski L.L.P., 1301 McKinney, Houston, Texas.

Sincerely,

/s/ JACK FRIEDMAN
Jack Friedman
Chairman of the Board
and Chief Executive Officer

1
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED

OFFICERS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
Vice Chairman of the Board

William E. Crow
President and Chief Operating Officer

Benny B. Harper
Senior Vice President -- Finance
and Secretary/Treasurer

Thomas N. Thompson
Senior Vice President -- Sales and Marketing

Ronald L. Burgerson
Vice President

Ted Henderson
Vice President

Dale Ray
Vice President

Charles W. Hall
Assistant Secretary

DIRECTORS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
Vice Chairman of the Board

Charles W. Hall
Partner, Fulbright & Jaworski L.L.P. (law firm)
Houston, Texas

Alan M. Rauch
President, Ener-Tex
International, Inc.
(oilfield equipment sales)
Houston, Texas

Hershel M. Rich
Private investor and
business consultant
Houston, Texas

Henry Spira
Retired; Former Vice President,
Friedman Industries, Incorporated
Houston, Texas

Kirk K. Weaver
President,
Parkans International, L.L.C.
(recycling services),
Houston, Texas;
Chairman of the Board and
Chief Executive Officer,
LTI Technologies, Inc.
(technical services)
Houston, Texas

COMPANY OFFICES
MAIN OFFICE
4001 Homestead Road
Houston, Texas 77028
713-672-9433

SALES OFFICE
1121 Judson Road
Longview, Texas 75606
903-758-3431

COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, 51st Floor
Houston, Texas 77010

AUDITORS
Ernst & Young LLP
1221 McKinney, Suite 2400
Houston, Texas 77010

TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005

STOCK EXCHANGE LISTING
American Stock Exchange
(Trading symbol: FRD)

APPROXIMATE NUMBER OF
SHAREHOLDERS OF RECORD
700 at May 29, 1998

ANNUAL REPORT ON FORM 10-K

Shareholders may obtain without charge a copy of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998 as filed with the Securities and
Exchange Commission. Written requests should be addressed to: Benny B. Harper,
Senior Vice President, Friedman Industries, Incorporated, P.O. Box 21147,
Houston, Texas 77226.
2
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED

DESCRIPTION OF BUSINESS

Friedman Industries, Incorporated is in the steel processing and
distribution business. The Company has two product groups: coil processing
(steel sheet and plate) and tubular products.

At its facilities in Lone Star, Texas, Houston, Texas and Hickman,
Arkansas, the Company processes semi-finished, hot-rolled steel coils into flat,
finished sheet and plate, and sells these products on a wholesale,
rapid-delivery basis in competition with steel mills, importers and steel
service centers. The Company also processes customer-owned coils on a fee basis.
The Company purchases a substantial amount of its annual coil tonnage from Lone
Star Steel Company ("LSS") and Nucor Steel Company ("NSC"). Loss of LSS or NSC
as a source of coil supply could have a material adverse effect on the Company's
business.

Steel sheet and plate and coil processing services are sold directly
through the Company's own sales force to approximately 440 customers located
primarily in the midwestern, southwestern and southeastern sections of the
United States. These products and services are sold principally to steel
distributors and to customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products.

The Company, through its Texas Tubular Products operation located in Lone
Star, Texas, purchases, processes, manufactures and markets tubular products
("pipe"). Pipe is sold nationally to approximately 340 customers and a
substantial amount of manufactured pipe is sold to LSS. The Company purchases a
substantial portion of its annual supply of pipe and coil material used in pipe
production from LSS. Loss of LSS as a source of pipe and coil material supply or
as a customer of manufactured pipe could have a material adverse effect on the
Company's business.

Significant financial information relating to the Company's product groups
is contained in Note 6 of Notes to the Company's Consolidated Financial
Statements appearing herein.

------------------
RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK

<TABLE>
<CAPTION>
FISCAL 1998 FISCAL YEAR 1997
----------------- -----------------
HIGH LOW HIGH LOW
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter............................................... 6 3/8 5 1/8 4 3/4 3 7/8
Second Quarter.............................................. 9 1/2 6 5 4 3/16
Third Quarter............................................... 9 1/2 5 13/16 6 5/8 4 1/2
Fourth Quarter.............................................. 7 11/16 5 1/2 6 5 1/4
</TABLE>

------------------

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

<TABLE>
<CAPTION>
FISCAL 1998 FISCAL YEAR 1997
------------------ ------------------
CASH STOCK CASH STOCK
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter............................................... $ .07 $ .05
Second Quarter.............................................. $.075 $ .05
Third Quarter............................................... $.075 $ .06
Fourth Quarter.............................................. $.075 5% $ .06 5%
(Per share amounts above have not been adjusted to reflect stock dividends.)
</TABLE>

3
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
MARCH 31
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,361,693 $ 168,245
Accounts receivable, less allowance for doubtful
accounts of $7,276 in 1998 and 1997.................. 13,205,113 11,902,925
Inventories............................................ 24,586,863 21,203,665
Other.................................................. 193,879 82,325
------------ -----------
TOTAL CURRENT ASSETS.............................. 39,347,548 33,357,160
PROPERTY, PLANT AND EQUIPMENT:
Land................................................... 198,021 198,021
Buildings and yard improvements........................ 2,882,358 2,695,913
Machinery and equipment................................ 13,999,439 11,724,974
Less accumulated depreciation.......................... (10,468,859) (9,909,444)
------------ -----------
6,610,959 4,709,464
OTHER ASSET:
Cash value of officers' life insurance................. 80,854 50,567
------------ -----------
TOTAL ASSETS...................................... $ 46,039,361 $38,117,191
============ ===========
</TABLE>

4
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
MARCH 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $10,925,023 $ 8,112,096
Current portion of long-term debt...................... 800,000 800,000
Dividends payable...................................... 486,886 369,715
Income taxes payable................................... 344,465 256,434
Contribution to profit sharing plan.................... 280,000 242,000
Employee compensation and related expenses............. 600,804 392,427
----------- -----------
TOTAL CURRENT LIABILITIES......................... 13,437,178 10,172,672
LONG-TERM DEBT, less current portion........................ 6,366,666 4,600,000
DEFERRED INCOME TAXES....................................... 389,560 449,560
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 113,000 113,000
STOCKHOLDERS' EQUITY:
Common stock, par value $1:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 6,491,808 in 1998
and 6,161,994 in 1997............................. 6,491,808 6,161,994
Additional paid-in capital............................. 23,680,628 22,377,246
Retained deficit....................................... (4,439,479) (5,757,281)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................ 25,732,957 22,781,959
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $46,039,361 $38,117,191
=========== ===========
</TABLE>

See accompanying notes.

5
<PAGE> 7
FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales.......................................... $148,840,724 $119,920,966 $106,849,181
Costs and expenses:
Cost of products sold..................... 135,981,231 109,801,719 98,435,636
Selling, general, and administrative...... 5,193,206 4,196,358 3,567,785
Interest expense.......................... 431,498 509,275 617,629
------------ ------------ ------------
141,605,935 114,507,352 102,621,050
------------ ------------ ------------
7,234,789 5,413,614 4,228,131
Interest and other income...................... 53,080 86,493 70,001
------------ ------------ ------------
EARNINGS BEFORE FEDERAL INCOME
TAXES.............................. 7,287,869 5,500,107 4,298,132
Federal income taxes:
Current................................... 2,537,877 1,880,999 1,423,588
Deferred.................................. (60,000) (10,963) 37,776
------------ ------------ ------------
2,477,877 1,870,036 1,461,364
------------ ------------ ------------
NET EARNINGS......................... $ 4,809,992 $ 3,630,071 $ 2,836,768
============ ============ ============
Average number of common shares outstanding:
Basic........................................ 6,814,423 6,793,599 6,753,810
Diluted...................................... 6,941,978 6,793,599 6,753,810
Net earnings per share:
Basic........................................ $ .71 $ .53 $ .42
Diluted...................................... $ .69 $ .53 $ .42
</TABLE>

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
---------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1995......................... $5,554,858 $20,571,057 $(7,403,134)
Net earnings...................................... -- -- 2,836,768
Issuance of Directors' shares..................... 2,000 6,625 --
Stock dividend (5%)............................... 277,337 866,678 (1,145,690)
Cash dividends ($.17 per share)................... -- -- (1,137,563)
---------- ----------- -----------
BALANCE AT MARCH 31, 1996............... 5,834,195 21,444,360 (6,849,619)
Net earnings...................................... -- -- 3,630,071
Exercise of stock options......................... 34,482 33,103 --
Issuance of Directors' shares..................... 2,000 7,625 --
Stock dividend (5%)............................... 291,317 892,158 (1,185,068)
Cash dividends ($.20 per share)................... -- -- (1,352,665)
---------- ----------- -----------
BALANCE AT MARCH 31, 1997............... 6,161,994 22,377,246 (5,757,281)
Net earnings...................................... -- -- 4,809,992
Exercise of stock options......................... 20,077 17,467 --
Issuance of Directors' shares..................... 2,000 16,500 --
Stock dividend (5%)............................... 307,737 1,269,415 (1,579,431)
Cash dividends($0.28 per share)................... -- -- (1,912,759)
---------- ----------- -----------
BALANCE AT MARCH 31, 1998............... $6,491,808 $23,680,628 $(4,439,479)
========== =========== ===========
</TABLE>

See accompanying notes.

6
<PAGE> 8
FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings....................... $ 4,809,992 $ 3,630,071 $ 2,836,768
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation.................. 665,908 645,591 616,991
Loss on disposal of property,
plant, and equipment........ 26,008 -- --
Directors' shares issued...... 18,500 9,625 8,625
Provision for deferred
taxes....................... (60,000) (10,963) 37,776
Decrease (increase) in operating
assets:
Accounts receivable........... (1,302,188) (2,479,721) (752,568)
Inventories................... (3,383,198) (3,812,040) (832,851)
Other......................... (72,517) 32,300 (52,007)
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
expenses.................... 2,812,809 3,372,890 468,397
Contribution to profit sharing
plan........................ 38,000 26,000 16,000
Employee compensation and
related expenses............ 208,377 81,862 57,440
Federal income taxes
payable..................... 48,994 203,387 38,389
----------- ----------- -----------
Net cash provided by operating
activities.................. 3,810,685 1,699,002 2,442,960
INVESTING ACTIVITIES
Purchase of property, plant, and
equipment........................ (2,593,410) (86,642) (470,210)
Decrease (increase) in cash value
of officers' life insurance...... (30,287) (30,664) 683,210
Other.............................. -- -- --
----------- ----------- -----------
Net cash (used in) provided by
investing activities........ (2,623,697) (117,306) 213,000
FINANCING ACTIVITIES
Cash dividends paid................ (1,795,890) (1,274,659) (1,123,596)
Proceeds from borrowings of
long-term debt................... 2,566,666 -- --
Principal payments on long-term
debt............................. (800,000) (800,000) (1,600,000)
Cash paid on fractional shares from
stock dividend................... (1,859) (1,593) (1,675)
Cash received from exercised stock
options.......................... 37,543 67,585 --
----------- ----------- -----------
Net cash provided by (used in)
financing activities........ 6,460 (2,008,667) (2,725,271)
----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents........ 1,193,448 (426,971) (69,311)
Cash and cash equivalents at
beginning of year................ 168,245 595,216 664,527
----------- ----------- -----------
Cash and cash equivalents at
end of year................. $ 1,361,693 $ 168,245 $ 595,216
=========== =========== ===========
</TABLE>

See accompanying notes.

7
<PAGE> 9
FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated, and its subsidiary (collectively,
the "Company"). All material intercompany amounts and transactions have been
eliminated.

CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash
equivalents.

INVENTORIES: The following is a summary of inventory by product group:

<TABLE>
<CAPTION>
MARCH 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Coil................................................... $12,984,266 $ 8,900,962
Tubular................................................ 11,602,597 12,302,703
----------- -----------
$24,586,863 $21,203,665
=========== ===========
</TABLE>

Coil inventory consists primarily of raw materials. Tubular inventory
consists of both raw materials and finished goods. Inventories are valued at the
lower of cost or replacement market. Cost for the Company's coil inventory is
determined under the last-in, first-out ("LIFO") method. Cost for tubular
inventories is determined using the first-in, first-out method. At March 31,
1998 and 1997, the current replacement cost of LIFO inventories exceeded their
LIFO value by approximately $2,782,000 and $3,072,000, respectively.

PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are stated
on the basis of cost. Depreciation is calculated primarily by the straight-line
method over the estimated useful lives of the various classes of assets.
Interest costs incurred during construction projects are capitalized as part of
the cost of such assets.

EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, Earnings per
Share, which is required to be adopted for financial statements issued for
periods ending after December 31, 1997. The statement replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. The
Company adopted this new standard in the third quarter of 1998. This new
standard did not have a significant effect on earnings per share. The difference
between weighted average shares outstanding used for basic and diluted earnings
per share is the effect of stock options.

All applicable per share amounts herein have been retroactively adjusted to
give effect to a 5% stock dividend distributed May 29, 1998.

SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $513,000 in 1998, $508,000 in 1997, and $679,000 in 1996. The
Company paid income taxes, net of refunds, of $2,455,000 in 1998, $1,678,000 in
1997, and $1,385,000 in 1996.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.

FINANCIAL INSTRUMENTS: The carrying value of the Company's financial
instruments approximates fair value.

ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company supply a significant amount of steel products to the Company. Loss of
either of these mills as a
8
<PAGE> 10
FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
source of supply could have a material adverse effect on the Company.
Additionally, the Company derives revenue by selling a substantial amount of its
manufactured pipe to LSS. Total sales to LSS were approximately $21.7 million,
$17.8 million, and $15.6 million in 1998, 1997, and 1996, respectively. Loss of
LSS as a customer could have a material adverse effect on the Company's
business.

2. CAPITAL STOCK AND STOCK OPTIONS

Under the Company's 1989 and 1996 Incentive Stock Option Plans, incentive
options were granted to certain officers and key employees to purchase common
stock of the Company. Pursuant to the terms of the plans, 54,860 additional
options may be granted. All options have ten-year terms and become fully
exercisable at the end of six months of continued employment. The following is a
summary of activity relative to options outstanding during the years ended March
31 (adjusted for stock dividends):

<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 399,932 $4.11 101,700 $1.95 90,124 $1.78
GRANTED................................... -- $ -- 336,249 $4.50 11,576 $3.24
EXERCISED OR CANCELED..................... (22,558) $1.78 (38,017) $1.78 -- $ --
------- ------- -------
OUTSTANDING AT END OF YEAR................ 377,374 $4.24* 399,932 $4.11 101,700 $1.95
======= ======= =======
EXERCISABLE AT END OF YEAR................ 377,374 $4.24 179,168 $2.95 101,700 $1.95
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE YEAR................. N/A $1.06 $0.76
</TABLE>

* Range of $1.78 to $5.05 per share and a weighted average remaining life of 7.7
years

The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), in accounting for its employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Had the Company followed the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, the effect would be a 1.3% and 6%
reduction in net earnings and earnings per share for 1998 and 1997,
respectively, and no effect for 1996. The fair value of options was estimated
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.5%, a dividend yield of 3.8%,
volatility factor of the expected market price of the Company's common stock of
.28, and a weighted average expected life of the option of four years.

The Company has 1,000,000 authorized shares of the Cumulative Preferred
Stock with a par value of $1 per share. The stock may be issued in one or more
series, and the Board of Directors is authorized to fix the designations,
preferences, rights, qualifications, limitations, and restrictions of each
series, except that any series must provide for cumulative dividends and must be
convertible into common stock.

3. LONG-TERM DEBT

The Company has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility") and a term credit
facility (the "term credit facility"). Pursuant to the revolving facility which
expires April 1, 2000, the Company may borrow up to $8 million at an interest
rate no greater than the bank's prime rate. At March 31, 1998, the Company had
borrowings outstanding under the revolving facility of $4 million. The term
credit facility includes borrowings of $1.2 million from the previous term notes
and also provides for additional advances up to $3.5 million, all of which
convert to a term loan on December 31, 1998. The amount outstanding under the
9
<PAGE> 11
FRIEDMAN INDUSTRIES, INCORPORATED

3. LONG-TERM DEBT (CONTINUED)
term credit facility bears interest at a stated rate of LIBOR plus 1.25% and
requires quarterly principal payments of $200,000 plus accrued interest through
March 1, 2003. In July 1997, the Company entered into a swap transaction with
the bank pursuant to which it exchanged the term credit facility's LIBOR-based
interest rate obligation for a fixed interest rate obligation of 8% to remain in
effect for the entire term of the term credit facility. As of March 31, 1998,
the principal amount of indebtedness outstanding under the term credit facility
was $3,166,666. The annual principal payments required on long-term debt during
the next five years are as follows:

<TABLE>
<S> <C>
1999........................................................ $ 800,000
2000........................................................ 800,000
2001........................................................ 4,800,000
2002........................................................ 766,666
2003........................................................ --
----------
Total.................................................. $7,166,666
==========
</TABLE>

In July 1995, the Company borrowed $708,168 at an average interest rate of
7.1% against the cash surrender value of officers' life insurance policies (the
"borrowings"). The borrowings do not require specific repayment terms except
that in the case of death, that portion of the borrowings related to the death
will be deducted from the proceeds of the life insurance policy.

During 1998, interest cost of approximately $82,000 was capitalized as part
of the construction cost of property, plant, and equipment.

4. INCOME TAXES

Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for tax purposes. Significant components of the Company's
consolidated deferred tax assets and liability are as follows:

<TABLE>
<CAPTION>
MARCH 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation........................................ $530,040 $558,624
Other............................................... 27,924 --
-------- --------
Total deferred tax liabilities........................ 557,964 558,624
DEFERRED TAX ASSETS:
Inventory capitalization............................ 76,089 62,517
Postretirement benefits other than pensions......... 38,420 38,420
Other............................................... 53,895 8,127
-------- --------
Total deferred tax assets............................. 168,404 109,064
-------- --------
Net deferred tax liabilities.......................... $389,560 $449,560
======== ========
</TABLE>

5. PROFIT SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS

The Company has a defined contribution plan (the "Plan") covering
substantially all employees, including officers. Company contributions, which
are made at the discretion of the Board of Directors in an amount not to exceed
15% of the total compensation paid during the year to all eligible employees,
were $280,000 for the year ended March 31, 1998, $242,000 for the year ended
March 31, 1997, and $216,000 for the year ended March 31, 1996. Contributions,
Plan earnings, and forfeitures of terminated participants' nonvested accounts
are allocated to the individual accounts of participating employees based on
compensation received during the Plan year and years of active service with the
Company.
10
<PAGE> 12
FRIEDMAN INDUSTRIES, INCORPORATED

5. PROFIT-SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
In addition, certain health care benefits are provided for retired
employees. Employees with a minimum of 20 years of employment with the Company
who retire at age 65 or older are eligible. The Company has not funded the cost
of the postretirement health care plan.

6. INDUSTRY SEGMENT DATA

The Company is engaged in the steel processing and distribution business.
Within the Company, there are two product groups: coil processing (steel sheet
and plate) and tubular products. Coil processing converts steel coils into flat
sheet and plate steel cut to customer specifications. Through its Texas Tubular
Products operation, the Company purchases, processes, manufactures, and markets
tubular products.

The following is a summary of significant financial information relating to
the product groups:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES:
Coil processing....................... $ 87,619,322 $ 66,979,133 $ 63,811,709
Tubular............................... 61,221,402 52,941,833 43,037,472
------------ ------------ ------------
TOTAL NET SALES............... $148,840,724 $119,920,966 $106,849,181
============ ============ ============
OPERATING PROFIT:
Coil processing....................... $ 1,876,097 $ 1,578,403 $ 1,856,750
Tubular............................... 7,593,430 5,933,923 4,218,560
------------ ------------ ------------
TOTAL OPERATING PROFIT........ 9,469,527 7,512,326 6,075,310
Corporate expenses.................... (1,803,240) (1,589,437) (1,229,550)
Interest expense...................... (431,498) (509,275) (617,629)
Interest and other income............. 53,080 86,493 70,001
------------ ------------ ------------
TOTAL EARNINGS BEFORE TAXES... $ 7,287,869 $ 5,500,107 $ 4,298,132
============ ============ ============
IDENTIFIABLE ASSETS:
Coil processing....................... $ 25,404,991 $ 18,345,255 $ 15,132,983
Tubular............................... 19,054,950 19,474,470 16,998,998
------------ ------------ ------------
44,459,941 37,819,725 32,131,981
General corporate assets.............. 1,579,420 297,466 681,005
------------ ------------ ------------
TOTAL ASSETS.................. $ 46,039,361 $ 38,117,191 $ 32,812,986
============ ============ ============
DEPRECIATION:
Coil processing....................... $ 317,851 $ 316,714 $ 310,840
Tubular products...................... 337,485 322,071 299,714
Corporate and other................... 10,572 6,806 6,437
------------ ------------ ------------
$ 665,908 $ 645,591 $ 616,991
============ ============ ============
CAPITAL EXPENDITURES:
Coil processing....................... $ 2,372,483 $ 16,895 $ 108,765
Tubular products...................... 200,635 66,057 359,737
Corporate assets...................... 20,292 3,690 1,708
------------ ------------ ------------
$ 2,593,410 $ 86,642 $ 470,210
============ ============ ============
</TABLE>

Operating profit is total revenue less operating expenses, excluding
general corporate expenses, interest expense, and interest and other income.
Corporate assets consist primarily of cash and cash equivalents and the cash
value of officers' life insurance. There are no sales between product groups.
11
<PAGE> 13
FRIEDMAN INDUSTRIES, INCORPORATED

7. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 1998 and 1997 (per share amounts have been adjusted
for subsequent stock dividends):

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
June 30 September 30 December 31 March 31
1997 1997 1997 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $38,300,432 $36,961,370 $34,300,676 $39,278,246
Gross profit............................ 3,234,811 2,895,901 2,767,442 3,961,339
Net earnings............................ 1,176,564 1,017,931 1,009,148 1,606,349
Net earnings per share:
Basic................................. 0.17 0.15 0.15 0.24
Diluted(1)............................ 0.17 0.15 0.15 0.23
</TABLE>

<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
June 30 September 30 December 31 March 31
1996 1996 1996 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $28,751,479 $29,486,754 $28,468,809 $33,213,924
Gross profit............................ 2,622,513 2,530,609 2,298,822 2,667,303
Net earnings............................ 930,812 957,992 791,309 949,958
Net earnings per share:
Basic(1).............................. 0.14 0.14 0.12 0.14
Diluted(1)............................ 0.14 0.14 0.12 0.14
</TABLE>

(1) The sum of the quarterly net income per share amounts does not equal the
annual amount reported, as per share amounts are computed independently for
each quarter and for the full year based on the respective weighted average
common shares outstanding.

8. CONCENTRATION OF RECEIVABLES

The Company's sales are concentrated primarily in the midwestern,
southwestern, and southeastern sections of the United States, and are primarily
to customers in the steel distributing and fabricating industries. The Company
performs periodic credit evaluations of the financial conditions of its
customers and generally does not require collateral. Generally, receivables are
due within 30 days.

12
<PAGE> 14
FRIEDMAN INDUSTRIES, INCORPORATED

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Friedman Industries, Incorporated

We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman
Industries, Incorporated, at March 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1998, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP
May 26, 1998
Houston, Texas

------------------------------------------

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 148,840,724 $ 119,920,966 $ 106,849,181 $ 97,968,805 $ 70,908,065
Net earnings........................ 4,809,992 3,630,071 2,836,768 2,458,132 1,691,075(A)
Total assets........................ 46,039,361 38,117,191 32,812,986 32,074,862 27,184,421
Long-term debt...................... 6,366,666 4,600,000 5,400,000 7,000,000 3,800,000
Stockholders' equity................ 25,732,957 22,781,959 20,428,936 18,722,781 17,430,337
Net earnings per share:
Basic............................. 0.71 0.53 0.42 0.36 0.25(A)
Diluted........................... 0.69 0.53 0.42 0.36 0.25(A)
Cash dividends declared per share
adjusted for stock dividends...... 0.28 0.20 0.17 0.17 0.12
</TABLE>

(A) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

See also Note 1 of Notes to the Company's Consolidated Financial Statements
herein which describes the Company's relationship with its primary suppliers of
steel products.
13
<PAGE> 15
FRIEDMAN INDUSTRIES, INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS

Year ended March 31, 1998 compared to year ended March 31, 1997

During the year ended March 31, 1998, sales, cost of products sold and
gross profit increased $28,919,758, $26,179,512 and $2,740,246, respectively,
from the comparable amounts recorded during the year ended March 31, 1997. These
increases were primarily related to an increase of approximately 24% in tons
sold of tubular and coil products. This increase in volume resulted primarily
from strong demand for tubular products and from the Company aggressively
marketing coil products to increase its market share. Gross profit as a
percentage of sales increased from 8.4% in fiscal 1997 to 8.6% in fiscal 1998.
This increase was primarily related to tubular operations which benefited from
stronger market conditions and from efficiencies associated with increased
production.

Selling, general and administrative expenses increased $996,848 from the
amount recorded during fiscal 1997. This increase was primarily related to
variable expenses related to increased volume and/or earnings such as incentive
bonuses, commissions, supplies and other variable expenses. In addition, the
Company recorded increases in bad debt expense and sales expenses associated
primarily with additional sales personnel.

Interest expense during fiscal 1998 declined $77,777 from the amount
recorded in fiscal 1997. This decrease was primarily associated with reductions
in term debt and a decline in interest rates paid on borrowed funds in fiscal
1998. Interest costs associated with advances of additional term debt were
related to construction cost and were capitalized.

Interest and other income declined $33,413. This decline was primarily
related to the loss on the sale of fixed assets.

Federal income taxes increased $607,841 from the amount recorded in fiscal
1997. This increase resulted from the increase in earnings before taxes as the
effective tax rates were the same for both years.

Year ended March 31, 1997 compared to year ended March 31, 1996

During the year ended March 31, 1997, sales, cost of products sold and
gross profit increased $13,071,785, $11,366,083 and $1,705,702, respectively,
from the comparable amounts recorded during the year ended March 31, 1996. Each
of these increases was primarily related to the Company's tubular operations.
Stronger demand for tubular products during fiscal 1997 supported improved sales
and gross profit and contributed to a substantial increase in volume and
production levels. Margins earned on sales increased from 7.9% in fiscal 1996 to
8.4% in fiscal 1997. This increase was primarily related to tubular operations
which benefited from the above noted demand factor and from efficiencies related
to increased production.

Selling, general and administrative expenses increased $628,573 from the
amount recorded during fiscal 1996. This increase was primarily related to
variable expenses associated with volume and/or earnings such as employee
incentive bonuses, commissions and supplies.

Interest expense during fiscal 1997 declined $108,354 from the amount
recorded during fiscal 1996. This decline was primarily related to a decline in
interest rates paid on borrowed funds and reductions in long term debt in fiscal
1997.
14
<PAGE> 16
FRIEDMAN INDUSTRIES, INCORPORATED

Interest and other income increased $16,492. This increase was primarily
related to the sale of machinery and equipment during fiscal 1997.

Federal income taxes increased $408,672 from the amount recorded in fiscal
1996. This increase was related to the increase in earnings before taxes as the
effective tax rates were the same for both years.

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

The Company remained in a strong, liquid position at March 31, 1998.
Current ratios were 2.9 and 3.3 at March 31, 1998 and March 31, 1997,
respectively. Working capital was $25,910,370 at March 31, 1998 and $23,184,488
at March 31, 1997.

The Company has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility") and a term credit
facility (the "term facility"). Pursuant to the revolving facility which expires
April 1, 2000, the Company may borrow up to $8 million at an interest rate no
greater than the bank's prime rate. At March 31, 1998, the Company had
borrowings outstanding under the revolving facility of $4 million. The term
facility includes borrowings of $1.2 million from the previous term note and
also provides for additional advances up to $3.5 million, all of which convert
to a term loan on December 31, 1998. The amount outstanding under the term
facility bears interest at a stated rate of LIBOR plus 1.25% and requires
quarterly principal payments of $200,000 plus accrued interest through March 1,
2003. In July 1997, the Company entered into a swap transaction with the bank
pursuant to which it exchanged the term facility's LIBOR-based interest rate
obligation for a fixed interest rate obligation of 8% to remain in effect for
the entire term of the term facility. As of March 31, 1998, the principal amount
of indebtedness outstanding under the term facility was $3,166,666.

The Company believes that its cash flow from operations and borrowing
capability under its line of credit and term debt facilities are adequate to
fund its expected cash requirements for the year ended March 31, 1999.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1996) and that involve risk and uncertainty. These forward-looking
statements may include, but are not limited to, future results of operations,
future production capacity and product quality. Forward-looking statements may
be made by management orally or in writing including, but not limited to, this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Company's filings with the Securities and
Exchange Commission under the Securities Act of 1933 and the Securities Exchange
Act of 1934. Actual results and trends in the future may differ materially
depending on a variety of factors including but not limited to, the success of
the Company's capital improvements at its Hickman, Arkansas facility, changes in
the demand and prices for the Company's products and changes in the demand for
steel and steel products in general, and the Company's success in executing its
internal operating plans.

YEAR 2000 ISSUE

With the turn of the century, time sensitive software using two digits may
not identify the year 2000, which could result in system failure and
miscalculations disrupting the ability to conduct normal business operations.
The Company completed an assessment of its information systems for year 2000
compliance during 1998 and developed a plan to resolve all major issues by the
end of 1999. As a result, the year 2000 issue is not expected to pose
significant operational or financial problems for the Company.

15
<PAGE> 17

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $148,840,724 $119,920,966 $106,849,181 $97,968,805 $70,908,065 $56,230,967
Earnings........................... $ 4,809,992 $ 3,630,071 $ 2,836,768 $ 2,458,132 $ 1,691,075(1) $ 806,272
Current assets..................... $ 39,347,548 $ 33,357,160 $ 27,524,670 $25,956,555 $21,014,281 $16,542,769
Current liabilities................ $ 13,437,178 $ 10,172,672 $ 6,410,527 $ 5,816,334 $ 5,534,143 $ 3,549,495
Net working capital................ $ 25,910,370 $ 23,184,488 $ 21,114,143 $20,140,221 $15,480,138 $12,993,274
Total assets....................... $ 46,039,361 $ 38,117,191 $ 32,812,986 $32,074,862 $27,184,421 $20,491,441
Stockholders' equity............... $ 25,732,957 $ 22,781,959 $ 20,428,936 $18,722,781 $17,430,337 $16,528,543
Earnings as a percent of
Net sales...................... 3.2 3.0 2.7 2.5 2.4 1.4
Stockholders' equity........... 18.7 15.9 13.9 13.1 9.7 4.9
Average number of common shares
outstanding: Basic(3)............ 6,814,423 6,793,599 6,753,810 6,751,965 6,749,105 6,748,597
Per share
Net earnings per share:
Basic(3)....................... $ 0.71 $ 0.53 $ 0.42 $ 0.36 $ 0.25(1) $ 0.12
Stockholders' equity(3).......... $ 3.78 $ 3.35 $ 3.02 $ 2.77 $ 2.58 $ 2.45
Cash dividends per common
share(3)......................... $ 0.28 $ 0.20 $ 0.17 $ 0.17 $ 0.12 $ 0.08
Stock dividend declared............ 5% 5% 5% 5% 5% 5%

<CAPTION>
YEAR ENDED MARCH 31
------------------------------------------------------
1992 1991 1990 1989
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... $42,609,330 $50,264,851 $50,043,949 $53,499,476
Earnings........................... $ 483,720 $ 866,259 $ 1,560,701 $ 1,830,861(2)
Current assets..................... $15,537,203 $16,826,544 $16,731,964 $19,592,919
Current liabilities................ $ 2,849,637 $ 2,501,178 $ 1,783,375 $ 4,695,397
Net working capital................ $12,687,566 $14,325,366 $14,948,589 $14,897,522
Total assets....................... $19,619,875 $20,936,487 $19,042,527 $21,803,286
Stockholders' equity............... $16,277,792 $16,274,914 $16,186,557 $15,715,223
Earnings as a percent of
Net sales...................... 1.1 1.7 3.1 3.4
Stockholders' equity........... 3.0 5.3 9.6 11.7
Average number of common shares
outstanding: Basic(3)............ 6,748,597 6,748,597 6,748,597 6,647,246
Per share
Net earnings per share:
Basic(3)....................... $ 0.07 $ 0.13 $ 0.23 $ 0.28(2)
Stockholders' equity(3).......... $ 2.41 $ 2.41 $ 2.39 $ 2.36
Cash dividends per common
share(3)......................... $ 0.07 $ 0.12 $ 0.16 $ 0.25
Stock dividend declared............ 5% 5% 5% 5%
</TABLE>

- ------------

(1) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

(2) Includes an after-tax loss of $544,500 ($0.08 per share) due to an
extraordinary item.

(3) Adjusted for stock dividends.

<PAGE> 1

Exhibit 21.1
SUBSIDIARIES

Royal Fasteners Corporation Texas Corporation 100% owned

<PAGE> 1

EXHIBIT 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Friedman Industries, Incorporated of our report dated May 26, 1998, included
in the 1998 Annual Report to Shareholders of Friedman Industries, Incorporated.

Our audits also included the financial statement schedule of Friedman
Industries, Incorporated listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

ERNST & YOUNG LLP

Houston, Texas
May 26, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FORM 10K - YEAR ENDED MARCH 31, 1998.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES INCORPORATED

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,361,693
<SECURITIES> 0
<RECEIVABLES> 13,205,113
<ALLOWANCES> 0
<INVENTORY> 24,586,863
<CURRENT-ASSETS> 39,347,548
<PP&E> 17,079,818
<DEPRECIATION> 10,468,859
<TOTAL-ASSETS> 46,039,361
<CURRENT-LIABILITIES> 13,437,178
<BONDS> 6,366,666
0
0
<COMMON> 6,491,808
<OTHER-SE> 19,241,149
<TOTAL-LIABILITY-AND-EQUITY> 46,039,361
<SALES> 148,840,724
<TOTAL-REVENUES> 148,840,724
<CGS> 135,981,231
<TOTAL-COSTS> 141,174,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431,498
<INCOME-PRETAX> 7,287,869
<INCOME-TAX> 2,477,877
<INCOME-CONTINUING> 4,809,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,809,992
<EPS-PRIMARY> .71
<EPS-DILUTED> .69

</TABLE>