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, 2001 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, 2001, the number of shares outstanding of the issuer's only class of stock was 7,568,839 shares of Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <Table> <Caption> JUNE 30, 2001 MARCH 31, 2001 ------------- -------------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents................................. $ 321,395 $ 669,076 Accounts receivable....................................... 9,820,174 10,584,735 Inventories -- Note B..................................... 25,351,878 28,817,375 Prepaid expenses and other current assets................. 219,856 160,143 ------------- -------------- Total Current Assets.............................. 35,713,303 40,231,329 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 221,543 221,543 Buildings and improvements................................ 3,346,912 3,346,912 Machinery and equipment................................... 16,472,700 16,458,899 Less allowance for depreciation........................... (13,424,791) (13,201,590) ------------- -------------- 6,616,364 6,825,764 OTHER ASSETS Cash value of officers' life insurance.................... 960,338 953,419 ------------- -------------- $ 43,290,005 $ 48,010,512 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses............... $ 5,955,872 $ 10,443,848 Current portion of long-term debt......................... 800,000 800,000 Dividends payable......................................... 302,745 302,746 Contribution to profit-sharing plan....................... 72,000 288,000 Income taxes payable...................................... 220,425 127,209 Employee compensation and related expenses................ 254,401 309,999 ------------- -------------- Total Current Liabilities......................... 7,605,443 12,271,802 LONG-TERM DEBT, less current portion........................ 4,600,000 4,800,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000 DEFERRED INCOME TAXES....................................... 456,060 447,560 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 7,568,839 at June 30, 2001 and March 31, 2001, respectively................................... 7,568,839 7,568,839 Additional paid-in capital................................ 27,703,829 27,703,829 Retained deficit.......................................... (4,757,166) (4,894,518) ------------- -------------- Total Stockholders' Equity........................ 30,515,502 30,378,150 ------------- -------------- $ 43,290,005 $ 48,010,512 ============= ============== </Table> 1
3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <Table> <Caption> THREE MONTHS ENDED JUNE 30, ---------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Net sales................................................... $27,885,663 $32,274,930 Costs and expenses Costs of goods sold....................................... 26,014,170 29,681,631 General, selling and administrative costs................. 1,101,246 1,267,811 Interest.................................................. 109,082 164,869 ----------- ----------- 27,224,498 31,114,311 Interest and other income................................... (5,648) (59,862) ----------- ----------- Earnings before federal income taxes........................ 666,813 1,220,481 Provision (benefit) for federal income taxes: Current................................................... 218,216 401,463 Deferred.................................................. 8,500 13,500 ----------- ----------- 226,716 414,963 ----------- ----------- Net earnings................................................ $ 440,097 $ 805,518 =========== =========== Average number of common shares outstanding: Basic..................................................... 7,568,839 7,547,292 Diluted................................................... 7,568,839 7,547,292 Net earnings per share: Basic..................................................... $ 0.06 $ 0.11 Diluted................................................... $ 0.06 $ 0.11 Cash dividends declared per common share.................... $ 0.04 $ 0.04 </Table> 2
4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <Table> <Caption> THREE MONTHS ENDED JUNE 30, ---------------------------- 2001 2000 ------------ ------------ <S> <C> <C> OPERATING ACTIVITIES Net earnings.............................................. $ 440,097 $ 805,518 Adjustments to reconcile net income to cash provided by operating activities: Depreciation........................................... 223,200 259,725 Provision for deferred taxes........................... 8,500 13,500 Decrease (increase) in operating assets: Accounts receivable.................................... 764,561 1,532,629 Inventories............................................ 3,465,497 (2,924,314) Other current assets................................... (59,713) (87,717) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses.................. (4,487,976) 801,194 Contribution to profit-sharing plan payable............ (216,000) (205,000) Employee compensation and related expenses............. (55,598) 7,180 Federal income taxes payable........................... 93,216 151,463 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES............ 175,784 354,178 INVESTING ACTIVITIES Purchase of property, plant and equipment................. (13,800) (110,797) Increase in cash surrender value of officers' life insurance.............................................. (6,919) (23,827) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES............. (20,719) (134,624) FINANCING ACTIVITIES Cash dividends paid....................................... (302,746) (288,601) Principal payments on long-term debt...................... (200,000) (200,000) Payments on loans against life insurance.................. -- (172,038) ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (502,746) (660,639) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (347,681) (441,085) Cash and cash equivalents at beginning of period.......... 669,076 443,818 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 321,395 $ 2,733 =========== =========== </Table> 3
5 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED THREE MONTHS ENDED JUNE 30, 2001 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, 2001. NOTE B -- INVENTORIES Coil inventory consists primarily of raw materials. Tubular inventory is comprised of both raw materials and finished goods. NOTE C -- SEGMENT INFORMATION <Table> <Caption> THREE MONTHS ENDED JUNE 30, ------------------ 2001 2000 ------- ------- IN THOUSANDS <S> <C> <C> Net sales Coil processing........................................... $14,011 $19,911 Tubular................................................... 13,875 12,364 ------- ------- Total net sales................................... $27,886 $32,275 ======= ======= Operating profit Coil processing (loss).................................... $ (64) $ 317 Tubular................................................... 1,400 1,717 ------- ------- Total operating profit............................ 1,336 2,034 Corporate expenses........................................ 566 709 Interest expense.......................................... 109 165 Interest & other income................................... (6) (60) ------- ------- Total earnings before taxes....................... $ 667 $ 1,220 ======= ======= Segment assets Coil processing........................................... $18,543 $26,987 Tubular................................................... 23,169 18,174 ------- ------- 41,712 45,161 Corporate assets.......................................... 1,578 1,031 ------- ------- Total assets...................................... $43,290 $46,192 ======= ======= </Table> 4
6 FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 During the quarter ended June 30, 2001, sales, costs of goods sold and gross profit decreased $4,389,267, $3,667,461 and $721,806, respectively, from the comparable amounts recorded during the quarter ended June 30, 2000. The decreases in sales and costs of goods sold were related primarily to the Company's coil operations. During the 2001 quarter, soft market conditions for coil products continued to have the effect of generating intense competition for available sales which adversely affected coil product sales and related gross profit during the 2001 quarter. Tons of coil products sold declined 12.1% and the average selling price of such products declined 20.9% from the respective amounts recorded during the 2000 quarter. Gross profit earned on tubular products also decreased from the comparable amount recorded during the 2000 quarter. Even though tubular operations recorded an increase of 20.5% in tons sold, market conditions for tubular products were more competitive in the 2001 quarter and resulted in the decrease noted above. General, selling and administrative costs declined $166,565 from the amount recorded during the 2000 quarter. This decline was associated primarily with variable expenses related to volume and/or earnings. Interest expense decreased $55,787 from the comparable amount recorded during the 2000 quarter. This decrease was related principally to a reduction in debt associated with working capital requirements. Interest and other income decreased $54,214 primarily as a result of a decline in invested cash positions and interest rates paid on such positions during the 2001 quarter. Federal income taxes during the 2001 quarter decreased $188,247 from the comparable amount recorded during the 2000 quarter. This decrease was related to the decline 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, 2001. Current ratios were 4.7 and 3.3 at June 30, 2001 and March 31, 2001, respectively. Working capital was $28,107,860 at June 30, 2001 and $27,959,527 at March 31, 2001. Inventories and trade accounts payable declined $3,465,497 and $4,487,976, respectively. The Company reduced coil inventories during the quarter ended June 30, 2001 to a level more commensurate with operations. This reduction was the principal factor in the decrease in trade accounts payable. 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, 2004, the Company may borrow up to $10 million at an interest rate no greater than the bank's prime rate. At June 30, 2001, the Company had borrowings outstanding under the revolving facility of $4 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, 2001, the principal amount of indebtedness outstanding under the term facility was $1.4 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 5
7 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 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, 2001 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> 10.1 -- Fourth Amendment to Amended and Restated Letter Agreement Between the Company and The Chase Manhattan Bank 10.2 -- Revolving Promissory Note Between the Company and The Chase Manhattan Bank 10.3 -- Addendum to Lease Agreement by and Between the Company and Robledo Investments, Ltd. dba Judson Plaza </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 13, 2001 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date August 13, 2001 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman of the Board 8
10 INDEX TO EXHIBITS <Table> <Caption> EXHIBITS DESCRIPTION -------- ----------- <C> <S> 10.1 -- Fourth Amendment to Amended and Restated Letter Agreement Between the Company and The Chase Manhattan Bank 10.2 -- Revolving Promissory Note Between the Company and The Chase Manhattan Bank 10.3 -- Addendum to Lease Agreement by and Between the Company and Robledo Investments, Ltd. dba Judson Plaza </Table>