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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 JUNE 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)
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TEXAS 74-1504405
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
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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 June 30, 2000, the number of shares outstanding of the issuer's only
class of stock was 7,547,292 shares of Common Stock.
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PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
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<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
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CURRENT ASSETS
Cash and cash equivalents................................. $ 2,733 $ 443,818
Accounts receivable, less allowance for doubtful accounts
($7,276 at June 30, 2000 and March 31, 2000,
respectively).......................................... 12,000,921 13,533,550
Inventories -- Note B..................................... 25,834,823 22,910,509
Prepaid expenses and other current assets................. 145,218 57,501
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Total Current Assets.............................. 37,983,695 36,945,378
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 221,543 221,543
Buildings and improvements................................ 3,346,912 3,346,912
Machinery and equipment................................... 16,170,435 16,075,816
Less allowance for depreciation........................... (12,413,737) (12,170,191)
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7,325,153 7,474,080
OTHER ASSETS
Cash value of officers' life insurance.................... 883,197 687,332
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$ 46,192,045 $ 45,106,790
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 7,248,732 $ 6,447,538
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 301,950 287,522
Contribution to profit-sharing plan....................... 69,000 274,000
Income taxes payable...................................... 408,369 256,906
Employee compensation and related expenses................ 318,493 311,313
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Total Current Liabilities......................... 9,146,544 8,377,279
LONG-TERM DEBT, less current portion........................ 7,400,000 7,600,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 407,060 393,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 7,547,292 at June 30, 2000 and 7,188,213 at
March 31, 2000....................................... 7,547,292 7,188,213
Additional paid-in capital................................ 27,685,588 26,878,477
Retained earnings......................................... (6,107,439) (5,443,739)
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Total Stockholders' Equity........................ 29,125,441 28,622,951
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$ 46,192,045 $ 45,106,790
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
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THREE MONTHS ENDED JUNE 30,
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2000 1999
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Net sales................................................... $32,274,930 $26,664,262
Costs and expenses
Costs of goods sold....................................... 29,681,631 24,510,941
General, selling and administrative costs................. 1,267,811 1,150,970
Interest.................................................. 164,869 137,711
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31,114,311 25,799,622
Interest and other income................................... (59,862) (44,680)
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Earnings before federal income taxes........................ 1,220,481 909,320
Provision (benefit) for federal income taxes:
Current................................................... 401,463 293,169
Deferred.................................................. 13,500 16,000
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414,963 309,169
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Net earnings................................................ $ 805,518 $ 600,151
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Average number of common shares outstanding:
Basic..................................................... 7,547,292 7,543,895
Diluted................................................... 7,547,292 7,543,895
Net earnings per share:
Basic..................................................... $ 0.11 $ 0.08
Diluted................................................... $ 0.11 $ 0.08
Cash dividends declared per common share.................... $ 0.04 $ 0.05
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FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
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THREE MONTHS ENDED JUNE 30,
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2000 1999
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OPERATING ACTIVITIES
Net earnings.............................................. $ 805,518 $ 600,151
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation........................................... 259,725 259,200
Provision for deferred taxes........................... 13,500 16,000
Decrease (increase) in operating assets:
Accounts receivable.................................... 1,532,629 (1,086,576)
Inventories............................................ (2,924,314) 411,215
Other current assets................................... (87,717) (191,925)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. 801,194 346,992
Contribution to profit-sharing plan payable............ (205,000) (189,000)
Employee compensation and related expenses............. 7,180 (15,779)
Federal income taxes payable........................... 151,463 249,169
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ 354,178 399,447
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (110,797) (83,025)
Increase in cash surrender value of officers' life
insurance.............................................. (23,827) (6,879)
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NET CASH USED IN INVESTING ACTIVITIES............. (134,624) (89,904)
FINANCING ACTIVITIES
Cash dividends paid....................................... (288,601) (410,563)
Principal payments on long-term debt...................... (200,000) (2,200,000)
Payments on loans against life insurance.................. (172,038) (217,715)
Cash received from exercised stock options................ -- 50,068
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NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (660,639) (2,778,210)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (441,085) (2,468,667)
Cash and cash equivalents at beginning of period.......... 443,818 3,798,935
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CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,733 $ 1,330,268
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FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
THREE MONTHS ENDED JUNE 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 quarter ended June 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
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THREE MONTHS ENDED
JUNE 30,
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2000 1999
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IN THOUSANDS
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Net sales
Coil processing........................................... $19,911 $18,801
Tubular................................................... 12,364 7,863
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Total net sales................................... $32,275 $26,664
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Operating profit
Coil processing........................................... $ 317 $ 1,105
Tubular................................................... 1,717 541
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Total operating profit............................ 2,034 1,646
Corporate expenses........................................ 709 644
Interest expense.......................................... 165 138
Interest & other income................................... (60) (45)
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Total earnings before taxes....................... $ 1,220 $ 909
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Segment assets
Coil processing........................................... $26,987 $23,570
Tubular................................................... 18,174 14,047
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45,161 37,617
Corporate assets.......................................... 1,031 1,853
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Total assets...................................... $46,192 $39,470
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FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
During the quarter ended June 30, 2000, sales, costs of goods sold and
gross profit increased $5,610,668, $5,170,690 and $439,978, respectively, from
the comparable amounts recorded during the quarter ended June 30, 1999. The
increases in sales and costs of goods sold were primarily related to the
Company's tubular operations. During the 2000 quarter, tubular operations
benefited from improved demand for tubular and pipe products and recorded a 47%
increase in tons sold. Gross profit earned on coil sales declined significantly
during the 2000 quarter but was offset by an increase in gross profit earned on
tubular sales. Coil operations were adversely affected by soft market conditions
which produced intense competition for available sales. A decline in margins
earned on coil sales was offset by an increase in margins earned on tubular
sales. During each of the quarters, gross profit as a percentage of sales was
approximately 8%.
General, selling and administrative costs increased $116,841 from the
amount recorded during the 1999 quarter. This increase was primarily related to
variable expenses attributable to volume and/or earnings and to an increase in
bad debt expense.
Interest expense increased $27,158 from the amount recorded during the 1999
quarter. This increase was primarily related to an increase in debt associated
with working capital requirements.
Interest and other income increased $15,182 due primarily to increases in
the average invested cash positions during the 2000 quarter.
Federal income taxes during the 2000 quarter increased $105,794 from the
comparable amount recorded during the 1999 quarter. This increase was related to
the increase in earnings before taxes as the effective tax rates were the same
for both quarters.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at June 30, 2000. Current
ratios were 4.2 and 4.4 at June 30, 2000 and March 31, 2000, respectively.
Working capital was $28,837,151 at June 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 June 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 remain in effect
for the entire term of the term facility. As of June 30, 2000, the principal
amount of indebtedness outstanding under the term facility was $2.2 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
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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 and 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.
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FRIEDMAN INDUSTRIES, INCORPORATED
QUARTER ENDED JUNE 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
None
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
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27.1 -- Financial Data Schedule
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b). Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN INDUSTRIES, INCORPORATED
Date August 11, 2000 By /s/ BEN HARPER
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Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date August 11, 2000 By /s/ HAROLD FRIEDMAN
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Harold Friedman, Vice Chairman of
the Board
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INDEX TO EXHIBITS
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EXHIBITS DESCRIPTION
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27.1 -- Financial Data Schedule.
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