1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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) <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, 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <TABLE> <CAPTION> JUNE 30, 2000 MARCH 31, 2000 ------------- -------------- <S> <C> <C> 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 ------------- -------------- 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) ------------- -------------- 7,325,153 7,474,080 OTHER ASSETS Cash value of officers' life insurance.................... 883,197 687,332 ------------- -------------- $ 46,192,045 $ 45,106,790 ============= ============== 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 ------------- -------------- 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) ------------- -------------- Total Stockholders' Equity........................ 29,125,441 28,622,951 ------------- -------------- $ 46,192,045 $ 45,106,790 ============= ============== </TABLE> 1
3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> 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 ----------- ----------- 31,114,311 25,799,622 Interest and other income................................... (59,862) (44,680) ----------- ----------- 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 ----------- ----------- 414,963 309,169 ----------- ----------- Net earnings................................................ $ 805,518 $ 600,151 =========== =========== 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 </TABLE> 2
4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> 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 ----------- ----------- 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) ----------- ----------- 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 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (660,639) (2,778,210) ----------- ----------- 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 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,733 $ 1,330,268 =========== =========== </TABLE> 3
5 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 <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, ------------------ 2000 1999 ------- ------- IN THOUSANDS <S> <C> <C> Net sales Coil processing........................................... $19,911 $18,801 Tubular................................................... 12,364 7,863 ------- ------- Total net sales................................... $32,275 $26,664 ======= ======= Operating profit Coil processing........................................... $ 317 $ 1,105 Tubular................................................... 1,717 541 ------- ------- Total operating profit............................ 2,034 1,646 Corporate expenses........................................ 709 644 Interest expense.......................................... 165 138 Interest & other income................................... (60) (45) ------- ------- Total earnings before taxes....................... $ 1,220 $ 909 ======= ======= Segment assets Coil processing........................................... $26,987 $23,570 Tubular................................................... 18,174 14,047 ------- ------- 45,161 37,617 Corporate assets.......................................... 1,031 1,853 ------- ------- Total assets...................................... $46,192 $39,470 ======= ======= </TABLE> 4
6 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 5
7 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. 6
8 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 <TABLE> <C> <S> 27.1 -- Financial Data Schedule </TABLE> b). Reports on Form 8-K None 7
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 August 11, 2000 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date August 11, 2000 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman of the Board 8
10 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBITS DESCRIPTION -------- ----------- <C> <S> 27.1 -- Financial Data Schedule. </TABLE>