1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1995 Commission file number 1-7521 FRIEDMAN INDUSTRIES, INCORPORATED (Exact name of registrant as specified in its charter) TEXAS 74-1504405 - ----------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 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, 1995, the number of shares outstanding of the issuer's only class of stock was 5,832,195 shares of Common Stock.
2 PART I -- FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS -- UNAUDITED FRIEDMAN INDUSTRIES, INCORPORATED <TABLE> <CAPTION> ASSETS SEPTEMBER 30, MARCH 31, 1995 1995 ------------ ------------ CURRENT ASSETS <C> <C> Cash and cash equivalents $ 425,897 $ 664,527 Accounts receivable, less allowance for doubtful accounts ($5,970 at September 30, 1995 and March 31, 1995) 8,380,271 8,670,636 Inventories -- Note B 17,886,602 16,558,774 Prepaid expenses & other current assets 243,018 62,618 ----------- ---------- TOTAL CURRENT ASSETS 26,935,788 25,956,555 PROPERTY, PLANT & EQUIPMENT Land 198,021 198,021 Buildings and improvements 2,689,895 2,595,826 Machinery & equipment 11,625,650 11,320,928 ----------- ----------- 14,513,566 14,114,775 Less allowance for depreciation (8,997,106) (8,699,581) ----------- ----------- 5,516,460 5,415,194 OTHER ASSETS Cash value of officers' life insurance Note C 13,793 703,113 ----------- ----------- $32,466,041 $32,074,862 =========== =========== </TABLE>
3 CONSOLIDATED BALANCE SHEETS - UNAUDITED FRIEDMAN INDUSTRIES, INCORPORATED <TABLE> <CAPTION> SEPTEMBER 30, MARCH 31, 1995 1995 -------------- -------------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses $ 5,221,497 $ 4,270,809 Current portion of long-term debt 800,000 800,000 Dividends payable 291,609 277,742 Contribution to profit-sharing plan 100,000 200,000 Federal income taxes payable -- 14,658 Employee compensation and related expenses 267,066 253,125 ----------- ----------- TOTAL CURRENT LIABILITIES 6,680,172 5,816,334 LONG-TERM DEBT, less current portion 5,800,000 7,000,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS 113,000 113,000 DEFERRED INCOME TAXES 397,747 422,747 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares Issued and outstanding shares - 5,832,195 at September 30, 1995 and 5,554,858 at March 31, 1995 5,832,195 5,554,858 Additional paid-in capital 21,437,734 20,571,057 Retained earnings (7,794,807) (7,403,134) ----------- ----------- 19,475,122 18,722,781 ----------- ----------- $32,466,041 $32,074,862 =========== =========== </TABLE>
4 CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED FRIEDMAN INDUSTRIES, INCORPORATED <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales $26,208,387 $24,651,141 $54,961,052 $47,649,853 Costs of goods sold 24,433,119 22,853,508 50,919,317 44,337,451 General, selling and administrative costs 789,582 811,432 1,713,371 1,622,392 Interest 167,557 77,500 334,249 146,693 ----------- ----------- ----------- ----------- 25,390,258 23,742,440 52,966,937 46,106,536 Interest and other income (21,291) (19,460) (31,994) (26,690) ----------- ----------- ----------- ----------- Earnings before federal income taxes 839,420 928,161 2,026,109 1,570,007 Provision (benefit) for federal income taxes: Current 297,902 321,575 713,877 545,803 Deferred (12,500) (6,000) (25,000) (12,000) ----------- ----------- ----------- ----------- 285,402 315,575 688,877 533,803 ----------- ----------- ----------- ----------- Net earnings $ 554,018 $ 612,586 $ 1,337,232 $ 1,036,204 =========== =========== =========== =========== Net earnings per share -- Note D $0.09 $0.11 $0.23 $0.18 ===== ===== ===== ===== Cash Dividends Common Stock -- per share dividend declared during periods (shares outstanding at record date: 5,832,195 in 1995 and 5,553,642 in 1994) $0.05 $0.05 $0.10 $0.10 ===== ===== ===== ===== </TABLE>
5 CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED FRIEDMAN INDUSTRIES, INCORPORATED <TABLE> <CAPTION> SIX MONTHS ENDED SEPTEMBER 30, -------------------------- 1995 1994 ----------- ----------- <S> <C> <C> OPERATING ACTIVITIES Net earnings $ 1,337,232 $ 1,036,204 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation 297,526 288,333 Provision for nonpension retirement benefits -- 18,000 Provision for deferred taxes (benefit) (25,000) (12,000) Decrease (increase) in operating assets: Accounts receivable 290,365 (386,246) Inventories (1,327,828) 221,494 Other (180,400) 51,838 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 950,688 (603,222) Contribution to profit sharing plan (100,000) (90,000) Employee compensation and related expenses 13,941 69,313 Federal income taxes payable (14,658) 63,995 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,241,866 657,709 INVESTING ACTIVIIES Purchase of property, plant and equipment (398,791) (278,456) (Increase) Decrease in cash value of officers' life insurance - Note C 689,320 (21,008) ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 290,529 (299,464) FINANCING ACTIVITIES Cash dividends paid (571,025) (491,175) Principal payments of long-term debt (2,200,000) Proceeds from borrowings of long term debt 1,000,000 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (1,771,025) (491,175) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (238,630) (132,930) Cash and cash equivalents at beginning of period 664,527 330,289 ----------- ----------- Cash and cash equivalents at end of period $ 425,897 $ 197,359 =========== =========== </TABLE>
6 NOTES TO QUARTERLY REPORT - UNAUDITED FRIEDMAN INDUSTRIES, INCORPORATED September 30, 1995 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, 1995. 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 In July 1995, the Company borrowed $708,168 against the cash surrender value of officers' life insurance policies (the "borrowings"). The borrowings do not require specific repayment terms except that in case of a death, that portion of the borrowings related to the death will be deducted from the proceeds of the life insurance policy. The average interest rate paid on the borrowings is lower than the bank's prime rate charged on the Company's term loan and the proceeds of the borrowings were used to reduce the term note. NOTE D - EARNINGS PER SHARE Earnings per common and common equivalent share for the periods ended September 30, 1995 and September 30, 1994, are based on the weighted average number of common and common equivalent (stock options) shares outstanding as follows: <TABLE> <CAPTION> 1995 1994 --------- --------- <S> <C> <C> Common Stock: Shares outstanding during the entire period 5,554,858 5,289,598 Retroactive effect of stock dividends declared 277,337 541,726 --------- --------- Weighted average number of common and common equivalent shares 5,832,195 5,831,324 ========= ========= </TABLE> Earnings per share assuming full dilution for the quarters and six months ended September 30, 1995 and 1994, are not presented because they are not materially dilutive. Stock options are not included in the above computations of common and common equivalent shares outstanding since their effect is not significant.
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FRIEDMAN INDUSTRIES, INCORPORATED Six Months Ended September 30, 1995 Compared To Six Months Ended September 30, 1994 During the six month period ended September 30, 1995, sales, costs of goods sold and gross profit increased $7,311,199, $6,581,866 and $729,333, respectively from the comparable amounts recorded during the six month period ended September 30, 1994. The sales increase was primarily related to the Company's tubular operations which reflected a substantial increase in tons sold. Tubular operations benefited from stronger market conditions for each of its product lines. The increases in costs of goods sold and gross profit were primarily related to the increase in tubular sales noted above. Gross profit rates were 7.4% and 7.0% during the 1995 and 1994 periods, respectively. This improvement was primarily related to improved margins on sales of structural tubular products and pipe piling. Interest expense during the 1995 period increased $187,556 from the amount recorded during the 1994 period. This increase was primarily related to interest paid on borrowings under the Company's bank line of credit which were used to support working capital. Federal income taxes increased $155,074 as a result of an increase in earnings before taxes. Tax rates were the same for both periods. Three Months Ended September 30, 1995 Compared To Three Months Ended September 30, 1994 During the quarter ended September 30, 1995, sales, costs of goods sold and gross profit were approximately even with the respective amounts recorded during the quarter ended September 30, 1994. An increase in sales of tubular products offset a decline in sales of coil products. Gross profit rates were 6.8% in 1995 and 7.3% in 1994. This decline was primarily related to the Company's coil operations. During the 1995 quarter, the cost of coil material declined, and the Company reduced selling prices to its customers to retain its market share. Since the Company did not immediately benefit from these cost reductions, the margins earned on coil sales declined. Interest expense during the 1995 quarter increased $90,057 from the amount recorded during the 1994 quarter. This increase was primarily related to interest paid on borrowings under the Company's bank line of credit which were used to support working capital. Federal income taxes during the 1995 quarter declined $30,173 due to the reduction in earnings before taxes. The effective tax rates were the same, quarter to quarter. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at September 30, 1995. Current ratios were 4.0 and 4.5 at September 30, 1995, and March 31, 1995, respectively. Working capital was $20,255,616 at September 30, 1995, and $20,140,221 at March 31, 1995. The Company has a line of credit arrangement with a bank whereby it may borrow up to $8,000,000. At September 30, 1995, borrowings of $4,000,000 had been made under this line of credit arrangement which expires April 1, 1998. In July 1995, the Company borrowed $708,168 against the cash surrender value of officers' life insurance policies and used such proceeds to reduce outstanding indebtedness under the Company's term note. See also Note C appearing herein.
8 FRIEDMAN INDUSTRIES, INCORPORATED QUARTER ENDED SEPTEMBER 30, 1995 Part II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in securities a). Not applicable b). Not applicable Item 3. Defaults upon senior securities a). None b). Not applicable Item 4. Submission of matters to a vote of security holders At the Annual Meeting of Shareholders held on August 25, 1995, the Company's shareholders elected seven directors to the Company's Board of Directors and approved the Friedman Industries, Incorporated 1995 Non-employee Director Plan. The number of shares voted for and withheld with respect to the election of each director was as follows: Name Shares Voted For Shares Withheld ---- ---------------- --------------- Jack Friedman 5,217,638 74,226 Harold Friedman 5,214,402 77,462 Charles W. Hall 5,218,461 73,403 Alan M. Rauch 5,218,755 73,109 Hershel M. Rich 5,215,504 76,360 Henry Spira 5,218,740 73,124 Kirk K. Weaver 5,221,489 70,375 The number of shares voted for, against and abstain with respect to the 1995 Non-employee Director plan was as follows: For 5,114,699 --------- Against 138,824 --------- Abstain 38,341 --------- Item 5. Other information None Item 6. Exhibits and reports on Form 8-K a). None b). None SIGNATURE 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 11/14/95 By /s/ BEN HARPER ------------------------ ------------------------------------ Ben Harper, Senior Vice President - Finance (Chief Accounting Officer) Date 11/14/95 By /s/ HAROLD FRIEDMAN ------------------------ ------------------------------------ Harold Friedman, Vice Chairman
9 [LETTERHEAD OF ERNST & YOUNG LLP] Independent Accountants' Review Report Board of Directors Friedman Industries, Incorporated We have reviewed the accompanying condensed consolidated balance sheet of Friedman Industries, Incorporated as of September 30, 1995, the related consolidated statements of earnings for the three-month and six-month periods ended September 30, 1995 and 1994, and the consolidated statement of cash flows for the six-month periods ended September 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Friedman Industries, Incorporated as of March 31, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended (not presented herein) and in our report dated May 26, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP November 9, 1995
10 Index to Exhibits Exhibit 27 Financial Data Schedule Ended September 30, 1995.