<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE
SECURITIES EXCHANGE ACT OF 1934
FROM THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1504405
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
</TABLE>
4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office zip code)
Registrant's telephone number, including area code (713) 672-9433
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, of changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
At December 31, 1997, the number of shares outstanding of the issuer's only
class of stock was 6,488,987 shares of Common Stock.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 3,193,609 $ 168,245
Accounts receivable, less allowance for doubtful accounts
($7,276 at December 31, 1997 and March 31, 1997,
respectively).......................................... 12,025,211 11,902,925
Inventories -- Note B..................................... 21,555,566 21,203,665
Prepaid expenses and other current assets................. 296,350 82,325
------------ -----------
Total Current Assets.............................. 37,070,736 33,357,160
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 198,021 198,021
Buildings and improvements................................ 2,732,072 2,695,913
Machinery and equipment................................... 13,440,527 11,724,974
Less allowance for depreciation........................... (10,309,629) (9,909,444)
------------ -----------
6,060,991 4,709,464
OTHER ASSETS
Cash value of officers' life insurance.................... 74,744 50,567
------------ -----------
$ 43,206,471 $38,117,191
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 10,499,610 $ 8,112,096
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 486,141 369,715
Contribution to profit-sharing plan....................... 187,497 242,000
Federal income taxes payable.............................. -- 256,434
Employee compensation and related expenses................ 373,188 392,427
------------ -----------
Total Current Liabilities......................... 12,346,436 10,172,672
LONG-TERM DEBT, less current portion........................ 5,733,333 4,600,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 404,560 449,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 6,488,987 at December 31, 1997 and
6,161,994 at March 31, 1997.......................... 6,488,987 6,161,994
Additional paid-in capital................................ 23,678,173 22,377,246
Retained earnings......................................... (5,558,018) (5,757,281)
------------ -----------
Total Stockholders' Equity........................ 24,609,142 22,781,959
------------ -----------
$ 43,206,471 $38,117,191
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENT OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales............................... $34,300,676 $28,468,809 $109,562,478 $86,707,042
Costs and expenses:
Costs of goods sold................... 31,533,234 26,169,987 100,664,324 79,255,098
General, selling and administrative
costs.............................. 1,151,863 986,574 3,757,117 3,071,552
Interest.............................. 116,799 125,588 344,533 389,416
----------- ----------- ------------ -----------
32,801,896 27,282,149 104,765,974 82,716,066
Interest and other income............... (30,233) (12,293) (57,503) (69,800)
----------- ----------- ------------ -----------
Earnings before federal income taxes.... 1,529,013 1,198,953 4,854,007 4,060,776
Provision (benefit) for federal income
taxes:
Current............................... 534,865 420,144 1,695,364 1,418,163
Deferred.............................. (15,000) (12,500) (45,000) (37,500)
----------- ----------- ------------ -----------
519,865 407,644 1,650,364 1,380,663
----------- ----------- ------------ -----------
Net earnings............................ $ 1,009,148 $ 791,309 $ 3,203,643 $ 2,680,113
=========== =========== ============ ===========
Weighted average shares outstanding
Basic................................. 6,483,359 6,436,583 6,476,114 6,436,583
=========== =========== ============ ===========
Diluted............................... 6,625,480 6,436,583 6,609,678 6,436,583
=========== =========== ============ ===========
Earnings per share -- Note C
Basic................................. $ 0.16 $ 0.12 $ 0.49 $ 0.42
=========== =========== ============ ===========
Diluted............................... $ 0.15 $ 0.12 $ 0.48 $ 0.42
=========== =========== ============ ===========
Cash dividends per common share......... $ 0.075 $ 0.06 $ 0.22 $ 0.16
=========== =========== ============ ===========
</TABLE>
2
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS
ENDED DECEMBER 31
--------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 3,203,643 $ 2,680,113
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation........................................... 506,678 475,028
Provision for deferred taxes........................... (45,000) (37,500)
Decrease (increase) in operating assets:
Accounts receivable.................................... (122,286) 1,296,073
Inventories............................................ (351,901) (3,246,164)
Other.................................................. (214,025) (44,055)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 2,387,514 1,172,787
Contribution to profit sharing plan.................... (54,503) (47,000)
Employee compensation and related expenses............. (19,239) (5,954)
Federal income taxes................................... (256,434) (34,449)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.......... 5,034,447 2,208,879
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (1,858,205) (84,466)
Decrease (increase) in cash value of officers' life
insurance.............................................. (24,177) (26,338)
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES.......... (1,882,382) (110,804)
FINANCING ACTIVITIES
Cash dividends paid....................................... (1,310,801) (906,534)
Principal payments on long-term debt...................... 2,733,333 --
Proceeds from borrowings of long-term debt................ (1,600,000) (600,000)
Exercise of stock options................................. 50,767 45,297
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES.......... (126,701) (1,461,237)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 3,025,364 636,838
Cash and cash equivalents at beginning of period.......... 168,245 595,216
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 3,193,609 $ 1,232,054
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</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED DECEMBER 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information
refer to the financial statements and footnotes included in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
NOTE B -- INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C -- EARNINGS PER SHARE
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 implemented this new
standard for the quarter and year to date ended December 31, 1997. 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. Applicable per share amounts have been
adjusted to give effect to stock dividends.
4
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FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996
During the nine months ended December 31, 1997, sales, costs of goods sold
and gross profit increased by $22,855,436, $21,409,226 and $1,446,210,
respectively, from the comparable amounts recorded during the nine month period
ended December 31, 1996. The increases in sales and costs of goods sold were
related to both coil and tubular operations which produced a combined increase
in tons sold of approximately 26%. The increase in gross profit was primarily
related to tubular operations which reflected both increased sales and margins
earned on sales. Market conditions for tubular goods remained strong during the
1997 period. Gross profit as a percentage of sales declined from 8.6% in the
1996 period to 8.1% in the 1997 period. This decline in margins was related to
the coil operations which were adversely affected by stiff competition within
the hot-rolled coil industry. The Company increased sales of coil products at
the expense of margins during the 1997 period.
General, selling and administrative costs during the 1997 period increased
$685,565 from the amount recorded during the 1996 period. This increase was
primarily associated with variable expenses associated with volume and/or
earnings, to an increase in bad debt expense and to sales expenses related to
additional sales employees.
Interest expense declined $44,883 due primarily to reductions in term debt
during the 1997 period.
Interest and other income declined $12,297. This decline was primarily
related to a transaction involving a gain on the sale of assets in September
1996.
Federal income taxes increased $269,701 period to period due to increased
earnings before taxes. Tax rates were the same for both periods.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1996
During the three months ended December 31, 1997, sales, costs of goods sold
and gross profit increased by $5,831,867, $5,363,247 and $468,620, respectively,
from the comparable amounts recorded during the three months ended December 31,
1996. These increases were primarily related to an increase in tons sold of
approximately 20%. Gross profit as a percentage of sales was approximately the
same for both quarters.
General, selling and administrative costs during the 1997 quarter increased
$165,289 from the amount recorded during the 1996 quarter. This increase was
primarily related to increases in selling costs associated with an increase in
sales employees and to increases in variable expenses associated with volume
and/or earnings.
Interest and other income increased $17,940 during the 1997 quarter. This
increase primarily resulted from improved invested cash positions during this
quarter.
Federal income taxes increased $112,221 as a result of the increase in
earnings before taxes. Tax rates were the same for both quarters.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at December 31, 1997.
Current ratios were 3.0 and 3.3 at December 31, 1997 and March 31, 1997,
respectively. Working capital was $24,724,300 at December 31, 1997 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
5
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
bank's prime rate. At December 31, 1997, 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 December 31, 1997, the principal amount of indebtedness
outstanding under the term facility was $2,533,333.
6
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED DECEMBER 31, 1997
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
a). Not applicable
b). Not applicable
c). Not applicable
d). Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a). Not applicable
b). Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
27 -- Financial Data Schedule
b). Reports on Form 8-K
None
7
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
Date November 13, 1997 By /s/ BEN HARPER
-----------------------------------
Ben Harper, Senior Vice
President -- Finance
(Chief Accounting Officer)
Date November 13, 1997 By /s/ HAROLD FRIEDMAN
-----------------------------------
Harold Friedman, Vice Chairman
<PAGE> 10
Independent Accountants' Review Report
Board of Directors
Friedman Industries, Incorporated
We have reviewed the accompanying condensed consolidated balance sheet of
Friedman Industries, Incorporated, as of December 31, 1997, the related
consolidated statements of earnings for the three and nine month periods ended
December 31, 1997 and 1996 and the consolidated statements of cash flows for the
nine month periods ended December 31, 1997 and 1996. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Friedman Industries, Incorporated,
as of March 31, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein) and in our report dated May 30, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Houston, Texas
February 13, 1997
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
THREE MONTHS ENDED DECEMBER 31, 1997
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,193,609
<SECURITIES> 0
<RECEIVABLES> 12,025,211
<ALLOWANCES> 0
<INVENTORY> 21,555,566
<CURRENT-ASSETS> 37,070,736
<PP&E> 16,370,620
<DEPRECIATION> 10,309,629
<TOTAL-ASSETS> 43,206,471
<CURRENT-LIABILITIES> 12,346,436
<BONDS> 5,733,333
0
0
<COMMON> 6,488,987
<OTHER-SE> 18,120,155
<TOTAL-LIABILITY-AND-EQUITY> 43,206,471
<SALES> 34,300,676
<TOTAL-REVENUES> 34,300,676
<CGS> 31,533,234
<TOTAL-COSTS> 32,685,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,799
<INCOME-PRETAX> 1,529,013
<INCOME-TAX> 519,865
<INCOME-CONTINUING> 1,009,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,009,148
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
