- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 September 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 September 30, 2001, the number of shares outstanding of the issuer's only class of stock was 7,568,839 shares of Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <Table> <Caption> SEPTEMBER 30, 2001 MARCH 31, 2001 ------------------ -------------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents................................. $ 989,148 $ 669,076 Accounts receivable....................................... 8,977,300 10,584,735 Inventories -- Note B..................................... 25,385,628 28,817,375 Prepaid expenses and other current assets................. 282,416 160,143 ------------ ------------ Total Current Assets.............................. 35,634,492 40,231,329 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 221,543 221,543 Buildings and improvements................................ 3,621,121 3,346,912 Machinery and equipment................................... 16,477,700 16,458,899 Less allowance for depreciation........................... (13,647,991) (13,201,590) ------------ ------------ 6,672,373 6,825,764 OTHER ASSETS Cash value of officers' life insurance.................... 974,603 953,419 ------------ ------------ $ 43,281,468 $ 48,010,512 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses............... $ 5,489,621 $ 10,443,848 Current portion of long-term debt......................... 800,000 800,000 Dividends payable......................................... 227,131 302,746 Contribution to profit-sharing plan....................... 144,000 288,000 Income taxes payable...................................... 51,603 127,209 Deferred Credit for LIFO replacement -- Note B............ 572,396 -- Employee compensation and related expenses................ 333,467 309,999 ------------ ------------ Total Current Liabilities......................... 7,618,218 12,271,802 LONG-TERM DEBT, less current portion........................ 4,400,000 4,800,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000 DEFERRED INCOME TAXES....................................... 464,560 447,560 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 7,568,839 at September 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.......................................... (4,586,978) (4,894,518) ------------ ------------ Total Stockholders' Equity........................ 30,685,690 30,378,150 ------------ ------------ $ 43,281,468 $ 48,010,512 ============ ============ </Table> 1
FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <Table> <Caption> THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales................................ $24,975,561 $31,064,827 $52,861,224 $63,339,757 Costs and expenses Costs of goods sold.................... 23,276,854 28,585,878 49,291,024 58,267,509 General, selling and administrative costs............................... 1,026,197 1,131,146 2,127,443 2,398,957 Interest............................... 79,867 158,687 188,949 323,556 ----------- ----------- ----------- ----------- 24,382,918 29,875,711 51,607,416 60,990,022 Interest and other income................ (9,354) (30,094) (15,002) (89,956) ----------- ----------- ----------- ----------- Earnings before federal income taxes..... 601,997 1,219,210 1,268,810 2,439,691 Provision (benefit) for federal income taxes: Current................................ 196,178 401,031 414,394 802,494 Deferred............................... 8,500 13,500 17,000 27,000 ----------- ----------- ----------- ----------- 204,678 414,531 431,394 829,494 ----------- ----------- ----------- ----------- Net earnings............................. $ 397,319 $ 804,679 $ 837,416 $ 1,610,197 =========== =========== =========== =========== Average number of common shares outstanding: Basic.................................. 7,568,839 7,548,921 7,568,839 7,548,921 Diluted................................ 7,568,839 7,548,921 7,568,839 7,548,921 Net earnings per share: Basic.................................. $ 0.05 $ 0.11 $ 0.11 $ 0.21 Diluted................................ $ 0.05 $ 0.11 $ 0.11 $ 0.21 Cash dividends declared per common share.................................. $ 0.03 $ 0.04 $ 0.07 $ 0.08 </Table> 2
FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <Table> <Caption> SIX MONTHS ENDED SEPTEMBER 30, -------------------------- 2001 2000 ----------- ----------- <S> <C> <C> OPERATING ACTIVITIES Net earnings.............................................. $ 837,416 $ 1,610,197 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation........................................... 446,400 520,875 Provision for deferred taxes........................... 17,000 27,000 Decrease (increase) in operating assets: Accounts receivable.................................... 1,607,435 3,015,777 Inventories............................................ 3,431,747 (6,209,234) Other.................................................. (122,273) (258,536) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses.................. (4,954,227) 2,492,305 Contribution to profit-sharing plan.................... (144,000) (136,000) Employee compensation and related expenses............. 23,468 35,604 Federal income taxes payable........................... (75,606) (122,506) Deferred credit for LIFO replacement................... 572,396 -- ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES..................................... 1,639,756 975,482 INVESTING ACTIVITIES Purchase of property, plant and equipment................. (293,009) (219,371) (Increase) decrease in cash value of officers' life insurance.............................................. (21,184) (195,865) ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES..................................... (314,193) (415,236) FINANCING ACTIVITIES Cash dividends paid....................................... (605,491) (590,550) Principal payments on long-term debt...................... (400,000) (400,000) Exercise of stock options................................. -- 2,623 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (1,005,491) (987,927) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 320,072 (427,681) Cash and cash equivalents at beginning of period.......... 669,076 443,818 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 989,148 $ 16,137 =========== =========== </Table> 3
FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED SIX MONTHS ENDED SEPTEMBER 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. Coil inventories are valued at the lower of cost (on the last-in, first-out (LIFO) method) or market. During the quarter ended September 30, 2001, a liquidation of the base period inventories was experienced and a portion of this liquidation is expected to be replaced by fiscal year end. Accordingly, costs of goods sold was charged and a deferred credit was established for the difference ($572,396) between the estimated replacement cost and the liquidated LIFO base. LIFO inventories that are not expected to be replaced resulted in a liquidation of LIFO inventories carried at costs prevailing in preceding years as compared to current costs, the effect of which decreased costs of goods sold and increased earnings before taxes by approximately $131,000. NOTE C -- SEGMENT INFORMATION <Table> <Caption> THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2001 2000 2001 2000 ------- ------- ------- ------- (IN THOUSANDS) (IN THOUSANDS) <S> <C> <C> <C> <C> Net sales Coil processing..................................... $12,251 $17,356 $26,261 $37,267 Tubular............................................. 12,725 13,709 26,600 26,073 ------- ------- ------- ------- Total net sales............................. $24,976 $31,065 $52,861 $63,340 ======= ======= ======= ======= Operating profit Coil processing..................................... $ 260 $ 478 $ 196 $ 795 Tubular............................................. 887 1,392 2,287 3,109 ------- ------- ------- ------- Total operating profit...................... 1,147 1,870 2,483 3,904 Corporate expenses.................................. 474 522 1,040 1,230 Interest expense.................................... 80 159 189 324 Interest & other income............................. (9) (30) (15) (90) ------- ------- ------- ------- Total earnings before taxes................. $ 602 $ 1,219 $ 1,269 $ 2,440 ======= ======= ======= ======= </Table> <Table> <Caption> SEPTEMBER 30, ------------------ 2001 2000 ------- ------- (IN THOUSANDS) <S> <C> <C> Segment assets Coil processing........................................... $18,250 $26,182 Tubular................................................... 22,993 20,628 ------- ------- 41,243 46,810 Corporate assets.......................................... 2,038 1,215 ------- ------- Total assets...................................... $43,281 $48,025 ======= ======= </Table> 4
FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2000 During the six months ended September 30, 2001, sales, costs of goods sold and gross profit decreased $10,478,533, $8,976,485 and $1,502,048, respectively, from the comparable amounts recorded during the six months ended September 30, 2000. The decreases in sales and costs of goods sold were primarily related to the Company's coil operations which reflected a decline in tons sold of approximately 14% and a decrease in the average selling price per ton of approximately 18%. During the 2001 period, soft market conditions continued to have the effect of generating intense competition for available sales that adversely affected coil product sales and related gross profit. Gross profit earned on tubular products also decreased from the comparable amount recorded during the 2000 period. Even though tubular operations recorded an increase in tons sold of approximately 11%, softer market conditions for tubular products generated reduced margins. General, selling and administrative costs decreased $271,514 from the amount recorded during the 2000 period. This decline was related primarily to variable expenses associated with volume and/or earnings. Interest expense decreased $134,607 from the amount recorded during the 2000 period. This decrease was primarily related to a decline in debt associated with working capital requirements. Interest and other income declined $74,954 primarily as the result of a decrease in average invested cash positions and a substantial decrease in interest rates paid on such positions in the 2001 period. Federal income taxes decreased $398,100 from the comparable amount recorded during the 2000 period. This decrease was primarily related to the decrease in earnings before taxes as the effective tax rates were the same for both periods. THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 During the quarter ended September 30, 2001, sales, costs of goods sold and gross profit decreased $6,089,266, $5,309,024 and $780,242, respectively, from the comparable amounts recorded during the quarter ended September 30, 2000. These declines were related to both coil and tubular operations. Coil operations were adversely affected by an approximate 16% decrease in tons sold and a reduction of approximately 16% in the average selling price per ton. Tubular operations maintained volume but the average per ton selling price of these products declined approximately 9%. These declines contributed to the decrease in gross profit of 31.5%. Management believes soft market conditions for the Company's products and services are related to the overall weakness in the economy. Interest expense decreased $78,820 from the amount recorded during the 2000 quarter. This decrease was related primarily to a decrease in debt associated with working capital requirements. Interest and other income decreased $20,740 primarily as a result of a decrease in average invested cash positions and a substantial decrease in interest rates paid on such positions in the 2001 quarter. Federal income taxes decreased $209,853 from the comparable amount recorded during the 2000 quarter. This decrease was primarily related to the decrease 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 September 30, 2001. Current ratios were 4.7 and 3.3 at September 30, 2001 and March 31, 2001, respectively. Working capital was $28,016,274 at September 30, 2001 and $27,959,527 at March 31, 2001. Inventories and trade accounts payable declined $3,431,747 and $4,954,227, respectively. The Company reduced coil inventories during the six months ended Septem- 5
ber 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 September 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 September 30, 2001, the principal amount of indebtedness outstanding under the term facility was $1.2 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 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. 6
FRIEDMAN INDUSTRIES, INCORPORATED SIX MONTHS ENDED SEPTEMBER 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 At the Annual Meeting of Shareholders held on August 30, 2001, the Company's shareholders elected nine directors to the Company's Board of Directors. The number of shares voted for and withheld with respect to the election of each director was as follows: <Table> <Caption> NAME SHARES VOTED FOR SHARES WITHHELD ---- ---------------- --------------- <S> <C> <C> Jack Friedman......................................... 6,998,609 93,781 Harold Friedman....................................... 6,998,790 93,600 William E. Crow....................................... 6,998,790 93,600 Charles W. Hall....................................... 6,999,154 93,236 Alan M. Rauch......................................... 7,013,287 79,103 Hershel M. Rich....................................... 7,012,306 80,084 Henry Spira........................................... 7,012,567 79,823 Kirk K. Weaver........................................ 7,008,640 83,750 Joe L. Williams....................................... 6,967,107 125,283 </Table> ITEM 5. OTHER INFORMATION On September 28, 2001, the Company announced the closing of its Houston coil processing facility effective November 6, 2001. The Houston facility had been a marginal producer in recent years and management believed that the capital required to run the operation could be more efficiently deployed in other Company business. The Company did not incur and does not expect to incur a loss relative to the liquidation of the assets of this facility. Nonrecurring charges associated with the closing were not significant. Corporate headquarters of the Company will remain in Houston, Texas. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a). Exhibits None b). Reports on Form 8-K None 7
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 November 13, 2001 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date November 13, 2001 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman of the Board 8