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 DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR 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 December 31, 2000, the number of shares outstanding of the issuer's only class of stock was 7,566,839 shares of Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <TABLE> <CAPTION> DECEMBER 31, 2000 MARCH 31, 2000 ----------------- -------------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents................................. $ 189,128 $ 443,818 Accounts receivable, less allowance for doubtful accounts ($7,276 at December 31, 2000 and March 31, 2000, respectively).......................................... 9,498,830 13,533,550 Inventories............................................... 25,903,928 22,910,509 Prepaid expenses and other current assets................. 258,341 57,501 ------------ ------------ Total Current Assets.............................. 35,850,227 36,945,378 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 221,543 221,543 Buildings and improvements................................ 3,346,912 3,346,912 Machinery and equipment................................... 16,355,689 16,075,816 Less allowance for depreciation........................... (12,938,887) (12,170,191) ------------ ------------ 6,985,257 7,474,080 OTHER ASSETS Cash value of officers' life insurance.................... 885,034 687,332 ------------ ------------ $ 43,720,518 $ 45,106,790 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses............... $ 4,384,380 $ 6,447,538 Current portion of long-term debt......................... 800,000 800,000 Dividends payable......................................... 302,745 287,522 Contribution to profit-sharing plan....................... 207,000 274,000 Income taxes payable...................................... 119,632 256,906 Employee compensation and related expenses................ 358,094 311,313 ------------ ------------ Total Current Liabilities......................... 6,171,851 8,377,279 LONG-TERM DEBT, less current portion........................ 7,000,000 7,600,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000 DEFERRED INCOME TAXES....................................... 434,060 393,560 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 7,566,839 at December 31, 2000 and 7,188,213 at March 31, 2000....................................... 7,566,839 7,188,213 Additional paid-in capital................................ 27,697,429 26,878,477 Retained earnings......................................... (5,262,661) (5,443,739) ------------ ------------ Total Stockholders' Equity........................ 30,001,607 28,622,951 ------------ ------------ $ 43,720,518 $ 45,106,790 ============ ============ </TABLE> 1
3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales................................ $27,834,551 $29,894,914 $91,174,308 $85,956,294 Costs and expenses: Costs of goods sold.................... 25,658,263 28,010,830 83,925,772 79,639,615 General, selling and administrative costs............................... 1,062,502 1,059,057 3,461,459 3,305,224 Interest............................... 153,841 119,814 477,397 354,870 ----------- ----------- ----------- ----------- 26,874,606 29,189,701 87,864,628 83,299,709 Interest and other income................ (18,223) (52,698) (108,179) (130,811) ----------- ----------- ----------- ----------- Earnings before federal income taxes..... 978,168 757,911 3,417,859 2,787,396 Provision (benefit) for federal income taxes: Current................................ 319,078 241,690 1,121,572 899,716 Deferred............................... 13,500 16,000 40,500 48,000 ----------- ----------- ----------- ----------- 332,578 257,690 1,162,072 947,716 ----------- ----------- ----------- ----------- Net earnings............................. $ 645,590 $ 500,221 $ 2,255,787 $ 1,839,680 =========== =========== =========== =========== Average number of common shares outstanding: Basic.................................. 7,566,839 7,547,624 7,566,839 7,547,624 Diluted................................ 7,566,839 7,547,624 7,566,839 7,547,624 Net earnings per share: Basic.................................. $ 0.09 $ 0.07 $ 0.30 $ 0.24 Diluted................................ $ 0.09 $ 0.07 $ 0.30 $ 0.24 Cash dividends declared per common share.................................. $ 0.04 $ 0.05 $ 0.12 $ 0.15 </TABLE> 2
4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 31, -------------------------- 2000 1999 ----------- ----------- <S> <C> <C> OPERATING ACTIVITIES Net earnings.............................................. $ 2,255,787 $ 1,839,680 Adjustments to reconcile net earnings to cash provided by operating activities:.................................. Depreciation........................................... 784,875 781,600 Provision for deferred taxes........................... 40,500 48,000 Decrease (increase) in operating assets:.................. Accounts receivable.................................... 4,034,720 (1,682,675) Inventories............................................ (2,993,419) (6,789,246) Other.................................................. (200,840) (48,526) Increase (decrease) in operating liabilities:............. Accounts payable and accrued expenses.................. (2,063,158) 3,802,848 Contribution to profit-sharing plan.................... (67,000) (63,000) Employee compensation and related expenses............. 46,781 (204,137) Federal income taxes................................... (137,274) (68,522) ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES..................................... 1,700,972 (2,383,978) INVESTING ACTIVITIES........................................ Purchase of property, plant and equipment................. (296,052) (181,200) Decrease (increase) in cash value of officers' life insurance.............................................. (197,702) (427,089) ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES..................................... (493,754) (608,289) FINANCING ACTIVITIES........................................ Cash dividends paid....................................... (893,295) (1,130,628) Principal payments on long-term debt...................... (600,000) (2,600,000) Proceeds from borrowings of long term debt................ -- 3,000,000 Exercise of stock options................................. 31,387 60,438 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (1,461,908) (670,190) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (254,690) (3,662,457) Cash and cash equivalents at beginning of period.......... 443,818 3,798,935 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 189,128 $ 136,478 =========== =========== </TABLE> 3
5 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED NINE MONTHS ENDED DECEMBER 31, 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 nine months ended December 31, 2000, the Company repaid approximately $172,000 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 NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ----------------- 2000 1999 2000 1999 -------- -------- ------- ------- (IN THOUSANDS) (IN THOUSANDS) <S> <C> <C> <C> <C> Net sales Coil processing...................................... $14,953 $18,458 $52,220 $57,186 Tubular.............................................. 12,882 11,437 38,954 28,770 ------- ------- ------- ------- Total net sales.............................. $27,835 $29,895 $91,174 $85,956 ======= ======= ======= ======= Operating profit Coil processing...................................... $ 477 $ 233 $ 1,272 $ 2,345 Tubular.............................................. 1,082 1,030 4,191 2,278 ------- ------- ------- ------- Total operating profit....................... 1,559 1,263 5,463 4,623 Corporate expenses................................... 446 438 1,676 1,612 Interest expense..................................... 153 120 477 355 Interest & other income.............................. (18) (53) (108) (131) ------- ------- ------- ------- Total earnings before taxes.................. $ 978 $ 758 $ 3,418 $ 2,787 ======= ======= ======= ======= </TABLE> <TABLE> <CAPTION> DECEMBER 31, ----------------- 2000 1999 ------- ------- (IN THOUSANDS) <S> <C> <C> Segment assets Coil processing........................................... $21,947 $28,989 Tubular................................................... 20,442 15,858 ------- ------- 42,389 44,847 Corporate assets.......................................... 1,332 861 ------- ------- Total assets...................................... $43,721 $45,708 ======= ======= </TABLE> 4
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1999 During the nine months ended December 31, 2000, sales, costs of goods sold and gross profit increased $5,218,014, $4,286,157 and $931,857, respectively, from the comparable amounts recorded during the nine months ended December 31, 1999. These increases were primarily related to the Company's tubular operations which benefited from improved market conditions for pipe and tubular products during the 2000 period. Tubular operations experienced a 24% increase in tons sold that was partially offset by a decline in coil operations, which experienced a 16% decrease in tons sold. Gross profit earned on tubular sales increased $1,979,555 due primarily to stronger demand for tubular products during the 2000 period. Conversely, gross profit earned on coil products declined $1,047,698 due principally to softer market conditions which had the effect of generating intense competition for available sales and decreasing gross profit earned on coil product sales. Gross profit as a percentage of sales increased from approximately 7.3% in the 1999 period to 8.0% in the 2000 period primarily as the result of the improvement in tubular operations noted above. Interest expense increased $122,527 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 decreased $22,632 from the 1999 period amount. During the 1999 period, the Company recorded other income associated with the increase in the cash surrender value of officers' life insurance. Federal income taxes increased $214,356 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 DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 During the quarter ended December 31, 2000, both sales and costs of goods sold declined from the comparable amounts recorded during the quarter ended December 31, 1999, however, the decline in costs of goods sold was greater than the decline in sales which resulted in an increase in gross profit of $292,204. This increase in gross profit was primarily related to coil operations. During the 1999 quarter, the Company incurred substantial increases in costs of coil products that could not be passed along immediately to customers, which significantly reduced gross profit and margins earned on sales in such quarter. Gross profit as a percentage of sales was approximately 6.3% in the 1999 quarter and 7.8% in the 2000 quarter. Interest expense increased $34,027 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 decreased $34,475 from the amount recorded during the 1999 quarter. During the 1999 quarter, the Company recorded other income associated with the increase in the cash surrender value of officers' life insurance. Federal income taxes increased $74,888 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. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at December 31, 2000. Current ratios were 5.8 and 4.4 at December 31, 2000 and March 31, 2000, respectively. Working capital was $29,678,376 at December 31, 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 5
7 bank's prime rate. At December 31, 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 December 31, 2000, the principal amount of indebtedness outstanding under the term facility was $1.8 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. 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 None b). Reports on Form 8-K None 6
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 13, 2001 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date February 13, 2001 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman 7