- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2001 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, 2001, the number of shares outstanding of the issuer's only class of stock was 7,571,239 shares of Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <Table> <Caption> DECEMBER 31, 2001 MARCH 31, 2001 ------------------ -------------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents................................. $ 926,481 $ 669,076 Accounts receivable....................................... 5,984,216 10,584,735 Inventories -- Note B..................................... 26,361,805 28,817,375 Prepaid expenses and other current assets................. 197,141 160,143 ----------- ------------ Total Current Assets.............................. 33,469,643 40,231,329 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 221,543 221,543 Buildings and improvements................................ 3,898,461 3,346,912 Machinery and equipment................................... 16,899,016 16,458,899 Less allowance for depreciation........................... (13,861,491) (13,201,590) ----------- ------------ 7,157,529 6,825,764 OTHER ASSETS Cash value of officers' life insurance.................... 976,387 953,419 ----------- ------------ $41,603,559 $ 48,010,512 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses............... $ 6,518,650 $ 10,443,848 Current portion of long-term debt......................... 833,750 800,000 Dividends payable......................................... 227,131 302,746 Contribution to profit-sharing plan....................... 193,660 288,000 Income taxes payable...................................... -- 127,209 Deferred Credit for LIFO replacement -- Note B............ 625,106 -- Employee compensation and related expenses................ 87,077 309,999 ----------- ------------ Total Current Liabilities......................... 8,485,374 12,271,802 LONG-TERM DEBT, less current portion........................ 2,261,875 4,800,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000 DEFERRED INCOME TAXES....................................... 473,060 447,560 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 7,571,239 and 7,568,839 at December 31, 2001 and March 31, 2001, respectively................ 7,571,239 7,568,839 Additional paid-in capital................................ 27,706,403 27,703,829 Retained deficit.......................................... (5,007,392) (4,894,518) ----------- ------------ Total Stockholders' Equity........................ 30,270,250 30,378,150 ----------- ------------ $41,603,559 $ 48,010,512 =========== ============ </Table> 1
FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <Table> <Caption> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales................................ $20,483,410 $27,834,551 $73,344,634 $91,174,308 Costs and expenses: Costs of goods sold.................... 19,701,739 25,658,263 68,992,763 83,925,772 General, selling and administrative costs............................... 1,025,887 1,062,502 3,153,330 3,461,459 Interest............................... 54,309 153,841 243,258 477,397 ----------- ----------- ----------- ----------- 20,781,935 26,874,606 72,389,351 87,864,628 Interest and other income................ (4,302) (18,223) (19,304) (108,179) ----------- ----------- ----------- ----------- Earnings (loss) before federal income taxes.................................. (294,223) 978,168 974,587 3,417,859 Provision (benefit) for federal income taxes: Current................................ (108,534) 319,078 305,860 1,121,572 Deferred............................... 8,500 13,500 25,500 40,500 ----------- ----------- ----------- ----------- (100,034) 332,578 331,360 1,162,072 ----------- ----------- ----------- ----------- Net earnings (loss)...................... $ (194,189) $ 645,590 $ 643,227 $ 2,255,787 =========== =========== =========== =========== Average number of common shares outstanding: Basic.................................. 7,571,239 7,566,839 7,571,239 7,566,839 Diluted................................ 7,571,239 7,566,839 7,571,239 7,566,839 Net earnings (loss) per share: Basic.................................. $ (0.03) $ 0.09 $ 0.08 $ 0.30 Diluted................................ $ (0.03) $ 0.09 $ 0.08 $ 0.30 Cash dividends declared per common share.................................. $ 0.03 $ 0.04 $ 0.10 $ 0.12 </Table> 2
FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <Table> <Caption> NINE MONTHS ENDED DECEMBER 31, -------------------------- 2001 2000 ----------- ----------- <S> <C> <C> OPERATING ACTIVITIES Net earnings.............................................. $ 643,227 $ 2,255,787 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation........................................... 672,601 784,875 Provision for deferred taxes........................... 25,500 40,500 Decrease (increase) in operating assets: Accounts receivable.................................... 4,600,519 4,034,720 Inventories............................................ 2,455,570 (2,993,419) Other.................................................. (36,998) (200,840) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses.................. (3,925,198) (2,063,158) Current portion of long term debt...................... 33,750 -- Contribution to profit-sharing plan.................... (94,340) (67,000) Employee compensation and related expenses............. (222,922) 46,781 Deferred credit for LIFO replacement................... 625,106 -- Federal income taxes................................... (127,209) (137,274) ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES..................................... 4,649,606 1,700,972 INVESTING ACTIVITIES Purchase of property, plant and equipment................. (1,004,364) (296,052) Decrease (increase) in cash value of officers' life insurance.............................................. (22,968) (197,702) ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES..................................... (1,027,332) (493,754) FINANCING ACTIVITIES Cash dividends paid....................................... (832,622) (893,295) Principal payments on long-term debt...................... (2,605,625) (600,000) Proceeds from borrowings of long term debt................ 67,500 -- Exercise of stock options................................. 5,878 31,387 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (3,364,869) (1,461,908) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 257,405 (254,690) Cash and cash equivalents at beginning of period.......... 669,076 443,818 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 926,481 $ 189,128 =========== =========== </Table> 3
FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED NINE MONTHS ENDED DECEMBER 31, 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 Inventories consist of tubular and coil inventories. Tubular inventory is comprised of both raw materials and finished goods and is valued at the lower of cost (on a first-in, first-out (FIFO) method) or market. Coil inventories consist primarily of raw materials and are valued at the lower of cost (on the last-in, first-out (LIFO) method) or market. During the nine months ended December 31, 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 ($625,106) 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 increased costs of goods sold and decreased earnings before taxes by approximately $230,000. NOTE C -- SEGMENT INFORMATION <Table> <Caption> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ----------------- 2001 2000 2001 2000 -------- -------- ------- ------- (IN THOUSANDS) (IN THOUSANDS) <S> <C> <C> <C> <C> Net sales Coil processing...................................... $10,854 $14,953 $37,116 $52,220 Tubular.............................................. 9,629 12,882 36,229 38,954 ------- ------- ------- ------- Total net sales.............................. $20,483 $27,835 $73,345 $91,174 ======= ======= ======= ======= Operating profit Coil processing...................................... 130 $ 477 $ 326 $ 1,272 Tubular.............................................. 32 1,082 2,319 4,191 ------- ------- ------- ------- Total operating profit....................... 162 1,559 2,645 5,463 Corporate expenses................................... 406 446 1,446 1,676 Interest expense..................................... 54 153 243 477 Interest & other income.............................. (4) (18) (19) (108) ------- ------- ------- ------- Total earnings (loss) before taxes........... $ (294) $ 978 $ 975 $ 3,418 ======= ======= ======= ======= </Table> <Table> <Caption> DECEMBER 31, ----------------- 2001 2000 ------- ------- (IN THOUSANDS) <S> <C> <C> Segment assets Coil processing........................................... $18,847 $21,947 Tubular................................................... 20,582 20,442 ------- ------- 39,429 42,389 Corporate assets.......................................... 2,175 1,332 ------- ------- Total assets...................................... $41,604 $43,721 ======= ======= </Table> 4
FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 2000 During the nine months ended December 31, 2001, sales, costs of goods sold and gross profit decreased $17,829,674, $14,933,009 and $2,896,665, respectively, from the comparable amounts recorded during the nine months ended December 31, 2000. Both coil and tubular operations reflected decreased sales during the 2001 period. Sales of coil products and services declined approximately $15,104,000 due to a decline in tons sold of approximately 14% and a decrease in the average selling price per ton of approximately 17%. Sales of tubular products declined approximately $2,725,000 due principally to a decline in the average selling price per ton of approximately 10%. During the 2001 period, soft market conditions and related lack of demand continued to have the effect of generating intense competition for available sales and adversely affected coil and tubular operations. Gross profit earned on sales of coil products and services and tubular goods declined approximately 44% and 38%, respectively. Management believes the soft market conditions for the Company's products and services are related to the overall weakness in the economy. General, selling and administrative costs decreased $308,129 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 $234,139 from the amount recorded during the 2000 period. This decrease was related primarily to decreases in interest rates and debt associated with working capital requirements. Interest and other income declined $88,875 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 $830,712 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 DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000 During the quarter ended December 31, 2001, sales, costs of goods sold and gross profit decreased $7,351,141, $5,956,524 and $1,394,617, respectively, from the comparable amounts recorded during the quarter ended December 31, 2000. These declines were related to both coil and tubular operations. Coil operations were adversely affected by decreases in tons sold and average selling price per ton of approximately 14% and 16%, respectively. Also, tubular operations reflected decreases in tons sold and average selling price per ton of approximately 12% and 15%, respectively. During the 2001 quarter, soft market conditions and related lack of demand resulted in intense competition for available sales and adversely affected coil and tubular operations. Gross profit earned on sales of coil products and services and tubular goods decreased 41% and 80%, respectively. Management believes the soft market conditions for the Company's products and services are related to the overall weakness in the economy. Interest expense decreased $99,532 from the amount recorded during the 2000 quarter. This decrease was related primarily to decreases in interest rates and debt associated with working capital requirements. Interest and other income decreased $13,921 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 $432,612 from the comparable amount recorded during the 2000 quarter due to the pretax loss of $294,223 during the 2001 quarter. As a result, the Company recorded a benefit of $100,034 as federal income taxes were reduced. The effective tax rates were the same for both quarters. 5
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at December 31, 2001. Current ratios were 3.9 and 3.3 at December 31, 2001 and March 31, 2001, respectively. Working capital was $24,984,269 at December 31, 2001 and $27,959,527 at March 31, 2001. During the 2001 period, the Company adjusted assets and liabilities to a level more commensurate with operations which experienced a decrease in sales of $17,829,674. As a result, accounts receivable, inventories, trade accounts payable and long-term debt were reduced $4,600,519, $2,455,570, $3,925,198 and $2,538,125, respectively. The Company expects to continue to monitor and evaluate these adjustments depending on changes in market conditions and the Company's operations. 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 December 31, 2001, the Company had borrowings outstanding under the revolving facility of $2 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, 2001, the principal amount of indebtedness outstanding under the term facility was $1 million. During the nine months ended December 31, 2001, the Company invested approximately $900,000 in capital asset additions related to new coil product offerings. Notwithstanding the current market conditions, the Company believes its cash flows from operations and borrowing capability under its line of credit facility are adequate to fund its expected cash requirements for the next twenty-four months. 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 NINE MONTHS ENDED DECEMBER 31, 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 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 February 14, 2002 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date February 14, 2002 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman of the Board 8