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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 September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At September 30, 2000, the number of shares outstanding of the issuer's
only class of stock was 7,548,921 shares of Common Stock.
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PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 16,137 $ 443,818
Accounts receivable, less allowance for doubtful accounts
($7,276 at September 30, 2000 and March 31, 2000,
respectively).......................................... 10,517,773 13,533,550
Inventories............................................... 29,119,743 22,910,509
Prepaid expenses and other current assets................. 316,037 57,501
------------ ------------
Total Current Assets.............................. 39,969,690 36,945,378
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 221,543 221,543
Buildings and improvements................................ 3,346,912 3,346,912
Machinery and equipment................................... 16,279,008 16,075,816
Less allowance for depreciation........................... (12,674,887) (12,170,191)
------------ ------------
7,172,576 7,474,080
OTHER ASSETS
Cash value of officers' life insurance.................... 883,197 687,332
------------ ------------
$ 48,025,463 $ 45,106,790
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 8,939,843 $ 6,447,538
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 302,746 287,522
Contribution to profit-sharing plan....................... 138,000 274,000
Income taxes payable...................................... 134,400 256,906
Employee compensation and related expenses................ 346,917 311,313
------------ ------------
Total Current Liabilities......................... 10,661,906 8,377,279
LONG-TERM DEBT, less current portion........................ 7,200,000 7,600,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 420,560 393,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 7,548,921 at September 30, 2000 and
7,188,213 at March 31, 2000.......................... 7,548,921 7,188,213
Additional paid-in capital................................ 27,686,582 26,878,477
Retained earnings......................................... (5,605,506) (5,443,739)
------------ ------------
Total Stockholders' Equity........................ 29,629,997 28,622,951
------------ ------------
$ 48,025,463 $ 45,106,790
============ ============
</TABLE>
1
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................ $31,064,827 $29,397,118 $63,339,757 $56,061,380
Costs and expenses
Costs of goods sold.................... 28,585,878 27,117,844 58,267,509 51,628,785
General, selling and administrative
costs............................... 1,131,146 1,095,197 2,398,957 2,246,167
Interest............................... 158,687 97,345 323,556 235,056
----------- ----------- ----------- -----------
29,875,711 28,310,386 60,990,022 54,110,008
Interest and other income................ (30,094) (33,433) (89,956) (78,113)
----------- ----------- ----------- -----------
Earnings before federal income taxes..... 1,219,210 1,120,165 2,439,691 2,029,485
Provision (benefit) for federal income
taxes:
Current................................ 401,031 364,857 802,494 658,026
Deferred............................... 13,500 16,000 27,000 32,000
----------- ----------- ----------- -----------
414,531 380,857 829,494 690,026
----------- ----------- ----------- -----------
Net earnings............................. $ 804,679 $ 739,308 $ 1,610,197 $ 1,339,459
=========== =========== =========== ===========
Average number of common shares
outstanding:
Basic.................................. 7,548,921 7,547,624 7,548,921 7,547,624
Diluted................................ 7,548,921 7,547,624 7,548,921 7,547,624
Net earnings per share:
Basic.................................. $ 0.11 $ 0.10 $ 0.21 $ 0.18
Diluted................................ $ 0.11 $ 0.10 $ 0.21 $ 0.18
Cash dividends declared per common
share.................................. $ 0.04 $ 0.05 $ 0.08 $ 0.10
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 1,610,197 $ 1,339,459
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation........................................... 520,875 519,400
Provision for deferred taxes........................... 27,000 32,000
Decrease (increase) in operating assets:
Accounts receivable.................................... 3,015,777 (1,462,385)
Inventories............................................ (6,209,234) (4,998,201)
Other.................................................. (258,536) (154,992)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 2,492,305 5,357,253
Contribution to profit-sharing plan.................... (136,000) (126,000)
Employee compensation and related expenses............. 35,604 60,317
Federal income taxes payable........................... (122,506) (5,974)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES..................................... 975,482 560,877
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (219,371) (149,388)
(Increase) decrease in cash value of officers' life
insurance.............................................. (195,865) (388,422)
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING
ACTIVITIES..................................... (415,236) (537,810)
FINANCING ACTIVITIES
Cash dividends paid....................................... (590,550) (771,225)
Principal payments on long-term debt...................... (400,000) (2,400,000)
Exercise of stock options................................. 2,623 60,438
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (987,927) (3,110,787)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (427,681) (3,087,720)
Cash and cash equivalents at beginning of period.......... 443,818 3,798,935
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 16,137 $ 711,215
=========== ===========
</TABLE>
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
SIX MONTHS ENDED SEPTEMBER 30, 2000
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, 2000.
NOTE B -- INVENTORIES
Coil inventory consists primarily of raw materials. Tubular inventory is
comprised of both raw materials and finished goods.
NOTE C -- CASH VALUE OF OFFICERS' LIFE INSURANCE
During the six months ended September 30, 2000, the Company repaid $172,038
in borrowings against the cash surrender value of officers' life insurance
("CSV"), which had the effect of increasing CSV by such amount.
NOTE D -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales
Coil processing..................................... $17,356 $19,927 $37,267 $38,728
Tubular............................................. 13,709 9,470 26,073 17,333
------- ------- ------- -------
Total net sales............................. $31,065 $29,397 $63,340 $56,061
======= ======= ======= =======
Operating profit
Coil processing..................................... $ 478 $ 1,007 $ 795 $ 2,112
Tubular............................................. 1,392 707 3,109 1,248
------- ------- ------- -------
Total operating profit...................... 1,870 1,714 3,904 3,360
Corporate expenses.................................. 522 530 1,230 1,174
Interest expense.................................... 159 97 324 235
Interest & other income............................. (30) (33) (90) (78)
------- ------- ------- -------
Total earnings before taxes................. $ 1,219 $ 1,120 $ 2,440 $ 2,029
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Segment assets
Coil processing........................................... $26,182 $28,159
Tubular................................................... 20,628 15,013
------- -------
46,810 43,172
Corporate assets.......................................... 1,215 1,398
------- -------
Total assets...................................... $48,025 $44,570
======= =======
</TABLE>
4
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FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999
During the six months ended September 30, 2000, sales, costs of goods sold
and gross profit increased $7,278,377, $6,638,724 and $639,653, respectively,
from the comparable amounts recorded during the six months ended September 30,
1999. The increases in sales and costs of goods sold were primarily related to
the Company's tubular operations which generated an approximate 39% increase in
tons sold during the 2000 period. Tubular operations benefited from improved
market conditions for pipe and tubular products when compared to market
conditions during the 1999 period. Gross profit earned on tubular sales
increased $1,926,084 and gross profit earned on coil products declined
$1,286,431. Coil operations were adversely affected by soft market conditions
during the 2000 period that produced intense competition for available sales and
decreased gross profit earned on coil product sales. Consolidated gross profit
as a percentage of sales was approximately 8% in each period.
Interest expense increased $88,500 from the amount recorded during the 1999
period. This increase was primarily related to an increase in debt associated
with working capital requirements.
Interest and other income increased $11,843 from the 1999 period amount.
The Company benefited from higher interest rates paid on its invested cash
positions during the 2000 period.
Federal income taxes increased $139,468 from the comparable amount recorded
during the 1999 period. This increase was primarily related to the increase in
earnings before taxes as the effective tax rate was the same for both periods.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
During the quarter ended September 30, 2000, sales, costs of goods sold and
gross profit increased $1,667,709, $1,468,034 and $199,675, respectively, from
the comparable amounts recorded during the quarter ended September 30, 1999.
During the 2000 quarter, the Company's tubular segment reflected substantial
increases in operational results that were partially offset by a decline in the
results from the coil segment. The Company benefited from stronger market
conditions for pipe and tubular products during the 2000 quarter and recorded an
approximate 32% increase in tons sold. Conversely, coil operations were
adversely affected by soft market conditions and recorded an approximate 20%
decrease in tons sold. Consolidated gross profit as a percentage of sales was
approximately 8% and 7.8% in the 2000 quarter and 1999 quarter, respectively.
Interest expense increased $61,342 from the amount recorded during the 1999
quarter. This increase was primarily related to an increase in debt associated
with working capital requirements.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at September 30, 2000.
Current ratios were 3.7 and 4.4 at September 30, 2000 and March 31, 2000,
respectively. Working capital was $29,307,784 at September 30, 2000 and
$28,568,099 at March 31, 2000.
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, 2002, the Company may borrow up to $8 million at an interest rate no
greater than the bank's prime rate. At September 30, 2000, the Company had
borrowings outstanding under the revolving facility of $6 million. 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
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remain in effect for the entire term of the term facility. As of September 30,
2000, the principal amount of indebtedness outstanding under the term facility
was $2 million.
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 changes in the
demand and prices for the Company's products, changes in the demand for steel
and steel products in general and the Company's success in executing its
internal operations plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not material.
6
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FRIEDMAN INDUSTRIES, INCORPORATED
SIX MONTHS ENDED SEPTEMBER 30, 2000
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
At the Annual Meeting of Shareholders held on August 25, 2000, the
Company's shareholders elected eight directors to the Company's Board of
Directors. The number of shares voted for and withheld with respect to the
election of each director was as follows:
<TABLE>
<CAPTION>
NAME SHARES VOTED FOR SHARES WITHHELD
---- ---------------- ---------------
<S> <C> <C>
Jack Friedman......................................... 6,358,717 110,191
Harold Friedman....................................... 6,358,717 110,191
William E. Crow....................................... 6,358,717 110,191
Charles W. Hall....................................... 6,358,717 110,191
Alan M. Rauch......................................... 6,353,101 115,807
Hershel M. Rich....................................... 6,358,717 110,191
Henry Spira........................................... 6,358,717 110,191
Kirk K. Weaver........................................ 6,358,717 110,191
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
<TABLE>
<C> <S>
10.1 -- Friedman Industries, Incorporated 2000 Non-Employee
Director Stock Plan (incorporated by reference to an
exhibit to the Company's Registration Statement on Form
S-8, Reg. No. 333-47262).
27.1 -- Financial Data Schedule
</TABLE>
b). Reports on Form 8-K
None
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
Date November 13, 2000 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date November 13, 2000 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman
of the Board
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
------- ------------
<C> <S>
10.1 -- Friedman Industries, Incorporated 2000 Non-Employee
Director Stock Plan (incorporated by reference to an
exhibit to the Company's Registration Statement on Form
S-8, Reg. No. 333-47262).
27.1 -- Financial Data Schedule
</TABLE>
