<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, 1999
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 December 31, 1999, the number of shares outstanding of the issuer's only
class of stock was 7,188,213 shares of Common Stock.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
FRIEDMAN INDUSTRIES, INCORPORATED
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 136,478 $ 3,798,935
Accounts receivable, less allowance for doubtful accounts
($7,276 at December 31, 1999 and March 31, 1999,
respectively).......................................... 10,392,403 8,709,728
Inventories -- Note B..................................... 26,695,416 19,906,170
Prepaid expenses and other current assets................. 167,733 119,207
------------ ------------
Total Current Assets.............................. 37,392,030 32,534,040
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 221,543 221,543
Buildings and improvements................................ 3,346,911 3,317,088
Machinery and equipment................................... 16,031,180 15,879,803
Less allowance for depreciation........................... (11,908,688) (11,127,089)
------------ ------------
7,690,946 8,291,345
OTHER ASSETS
Cash value of officers' life insurance.................... 625,081 197,992
------------ ------------
$ 45,708,057 $ 41,023,377
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 8,642,408 $ 4,839,560
Current portion of long-term debt......................... 800,000 800,000
Dividends payable......................................... 359,403 410,563
Contribution to profit-sharing plan....................... 189,000 252,000
Income taxes payable...................................... -- 68,522
Employee compensation and related expenses................ 183,256 387,393
------------ ------------
Total Current Liabilities......................... 10,174,067 6,758,038
LONG-TERM DEBT, less current portion........................ 6,800,000 6,400,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 377,560 329,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 7,188,213 at December 31, 1999 and
6,828,387 at
March 31, 1999....................................... 7,188,213 6,828,387
Additional paid-in capital................................ 26,877,738 25,725,195
Retained deficit.......................................... (5,822,521) (5,130,803)
------------ ------------
Total Stockholders' Equity........................ 28,243,430 27,422,779
------------ ------------
$ 45,708,057 $ 41,023,377
============ ============
</TABLE>
1
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................ $29,894,914 $26,938,495 $85,956,294 $98,039,953
Costs and expenses:
Costs of goods sold.................... 28,010,830 24,806,991 79,639,615 90,119,844
General, selling and administrative
costs............................... 1,059,057 1,035,859 3,305,224 3,567,453
Interest............................... 119,814 112,042 354,870 367,755
----------- ----------- ----------- -----------
29,189,701 25,954,892 83,299,709 94,055,052
Interest and other income................ (52,698) (49,277) (130,811) (135,603)
----------- ----------- ----------- -----------
Earnings before federal income taxes..... 757,911 1,032,880 2,787,396 4,120,504
Provision (benefit) for federal income
taxes:
Current................................ 241,690 366,180 899,716 1,445,972
Deferred............................... 16,000 (15,000) 48,000 (45,000)
----------- ----------- ----------- -----------
257,690 351,180 947,716 1,400,972
----------- ----------- ----------- -----------
Net earnings............................. $ 500,221 $ 681,700 $ 1,839,680 $ 2,719,532
=========== =========== =========== ===========
Average number of common shares
outstanding:
Basic.................................. 7,188,213 7,167,706 7,188,213 7,167,706
Diluted................................ 7,188,213 7,207,145 7,188,213 7,207,145
Net earnings per share:
Basic.................................. $ 0.07 $ 0.10 $ 0.26 $ 0.38
Diluted................................ $ 0.07 $ 0.09 $ 0.26 $ 0.38
Cash dividends declared per common
share.................................. $ 0.05 $ 0.07 $ 0.15 $ 0.215
</TABLE>
2
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................................. $ 1,839,680 $ 2,719,532
Adjustments to reconcile net earnings to cash provided by
operating activities:..................................
Depreciation........................................... 781,600 517,428
Provision for deferred taxes........................... 48,000 (45,000)
Decrease (increase) in operating assets:..................
Accounts receivable.................................... (1,682,675) 4,967,821
Inventories............................................ (6,789,246) 1,016,823
Other.................................................. (48,526) (397,040)
Increase (decrease) in operating liabilities:.............
Accounts payable and accrued expenses.................. 3,802,848 (6,195,267)
Contribution to profit-sharing plan.................... (63,000) (69,400)
Employee compensation and related expenses............. (204,137) (376,837)
Federal income taxes................................... (68,522) (344,465)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES..................................... (2,383,978) 1,793,595
INVESTING ACTIVITIES........................................
Purchase of property, plant and equipment................. (181,200) (1,758,212)
Decrease (increase) in cash value of officers' life
insurance.............................................. (427,089) (112,812)
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING
ACTIVITIES..................................... (608,289) (1,871,024)
FINANCING ACTIVITIES........................................
Cash dividends paid....................................... (1,130,628) (1,478,674)
Principal payments on long-term debt...................... (2,600,000) (3,600,000)
Proceeds from borrowings of long term debt................ 3,000,000 3,833,333
Exercise of stock options................................. 60,438 18,413
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (670,190) (1,226,928)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (3,662,457) (1,304,357)
Cash and cash equivalents at beginning of period.......... 3,798,935 1,361,693
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 136,478 $ 57,336
=========== ===========
</TABLE>
3
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO QUARTERLY REPORT -- UNAUDITED
NINE MONTHS ENDED DECEMBER 31, 1999
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, 1999.
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 nine months ended December 31, 1999, the Company repaid
borrowings against the cash surrender value of officers' life insurance ("CSV").
A total of $364,619 was repaid which had the effect of increasing CSV by such
amount.
NOTE D -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales
Coil processing...................................... $18,458 $19,607 $57,186 $66,553
Tubular.............................................. 11,437 7,332 28,770 31,487
------- ------- ------- -------
Total net sales.............................. $29,895 $26,939 85,956 $98,040
======= ======= ======= =======
Operating profit
Coil processing...................................... $ 233 $ 1,466 2,345 $ 4,035
Tubular.............................................. 1,030 37 2,278 2,031
------- ------- ------- -------
Total operating profit....................... 1,263 1,503 4,623 6,066
Corporate expenses................................... 438 408 1,612 1,713
Interest expense..................................... 120 112 355 368
Interest & other income.............................. (53) (50) (131) (136)
------- ------- ------- -------
Total earnings before taxes.................. $ 758 $ 1,033 $ 2,787 $ 4,121
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Segment assets
Coil processing........................................... $28,989 $26,314
Tubular................................................... 15,858 13,886
------- -------
44,847 40,200
Corporate assets.......................................... 861 301
------- -------
Total assets...................................... $45,708 $40,501
======= =======
</TABLE>
4
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
During the nine months ended December 31,1999, sales, costs of goods sold
and gross profit declined $12,083,659, $10,480,229, and $1,603,430,
respectively, from the comparable amounts recorded during the nine months ended
December 31, 1998. The Company recorded decreased sales in both coil and tubular
product lines. Coil sales were affected by a decline in volume primarily
associated with softer demand for these products. In addition, coil and tubular
sales decreased as the result of an aggregate decline of approximately 11% in
the average selling price per ton. This reduction in average selling price was
primarily associated with reduced costs of coil and tubular products. The
decline in costs of goods sold was principally related to the sales decrease
experienced during the 1999 period. The decrease in gross profit was primarily
associated with the Company's coil operations which were adversely affected by
the decline in volume, softer market conditions and reduced margins earned on
sales. During the quarter ended December 31, 1999, the Company incurred
significant increases in costs of coil products and these costs could not be
immediately passed along to customers.
Federal income taxes declined $453,256 from the amount recorded during the
1998 period. This decrease was attributable to the decline in earnings before
taxes. Effective tax rates were the same for both periods.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
During the three months ended December 31, 1999, sales and costs of goods
sold increased $2,956,419 and $3,203,839, respectively, from the comparable
amounts recorded during the three months ended December 31, 1998, the effect of
which produced a decline in gross profit of $247,420. The increases in sales and
costs of goods sold were primarily related to increased sales of tubular
products. Market conditions for tubular products improved substantially during
the 1999 quarter. The net decline in gross profit of $247,420 resulted from an
increase in gross profit on tubular operations of $1,021,897 and a decrease in
gross profit on coil operations of $1,269,317. Coil operations were adversely
affected by reduced volume, softer market conditions and reduced margins earned
on sales. During the 1999 quarter, the Company incurred significant increases in
costs of coil products and these costs could not be immediately passed along to
customers.
Federal income taxes declined $93,490 from the amount recorded during the
1998 quarter. This decrease was attributable to the decline in earnings before
taxes. The effective tax rates were the same for both periods.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at December 31, 1999.
Current ratios were 3.7 and 4.8 at December 31, 1999 and March 31, 1999,
respectively. Working capital was $27,217,963 at December 31, 1999 and
$25,776,002 at March 31, 1999.
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 December 31, 1999, the Company had
borrowings outstanding under the revolving facility of $5 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 December 31,
1999, the principal amount of indebtedness outstanding under the term facility
was $2.6 million.
5
<PAGE> 7
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 operations plans.
EFFECT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of key vendors, payors and customers, that
have date sensitive logic may interpret a date using "00" as the year 1900
rather than 2000. This may cause inaccurate processing or possible system
failure and may potentially disrupt operations. This disruption may result in,
among other things, a temporary inability to process transactions, send bills
for services or engage in similar normal business activities. The Year 2000
issue did not result in significant operational or financial problems for the
Company. The Company is not aware of any significant problems experienced by its
suppliers, third-party payors or customers as a result of the Year 2000 issue,
but the Company will continue to communicate with such parties regarding any
possible problems. The foregoing statements are intended to be and hereby are
designated "Year 2000 Readiness Disclosure Statements" within the meaning of the
Year 2000 Information and Readiness Disclosure Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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
27.1 -- Financial Data Schedule
b). Reports on Form 8-K
None
6
<PAGE> 8
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 February 11, 2000 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)
Date February 11, 2000 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman
7
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 -- Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q -
QUARTER ENDED 12/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 136,478
<SECURITIES> 0
<RECEIVABLES> 10,392,403
<ALLOWANCES> 0
<INVENTORY> 26,695,416
<CURRENT-ASSETS> 37,392,030
<PP&E> 19,599,634
<DEPRECIATION> 11,908,688
<TOTAL-ASSETS> 45,708,057
<CURRENT-LIABILITIES> 10,174,067
<BONDS> 6,800,000
0
0
<COMMON> 7,188,213
<OTHER-SE> 21,055,217
<TOTAL-LIABILITY-AND-EQUITY> 45,708,057
<SALES> 29,894,914
<TOTAL-REVENUES> 29,947,612
<CGS> 28,010,830
<TOTAL-COSTS> 29,069,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,814
<INCOME-PRETAX> 757,911
<INCOME-TAX> 257,690
<INCOME-CONTINUING> 500,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 500,221
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
