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 DECEMBER 31, 1995 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 (I.R.S. Employer of incorporation or organization) Identification No.) </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, 1995, the number of shares outstanding of the issuer's only class of stock was 5,834,195 shares of Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED <TABLE> <CAPTION> DECEMBER 31, MARCH 31, 1995 1995 ----------- ----------- <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents....................................... $ 891,433 $ 664,527 Accounts receivable, less allowance for doubtful accounts ($5,720 at December 31, 1995 and $5,970 at March 31, 1995)... 8,223,380 8,670,636 Inventories -- Note B........................................... 17,186,521 16,558,774 Prepaid expenses & other current assets......................... 160,581 62,618 ----------- ----------- TOTAL CURRENT ASSETS.................................... 26,461,915 25,956,555 PROPERTY, PLANT & EQUIPMENT Land............................................................ 198,021 198,021 Buildings and improvements...................................... 2,689,895 2,595,826 Machinery & equipment........................................... 11,635,757 11,320,928 ----------- ----------- 14,523,673 14,114,775 Less allowance for depreciation................................. (9,152,656) (8,699,581) ----------- ----------- 5,371,017 5,415,194 OTHER ASSETS Cash value of officers' life insurance -- Note C................ 15,577 703,113 ----------- ----------- $31,848,509 $32,074,862 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses..................... $ 4,367,169 $ 4,270,809 Current portion of long-term debt............................... 800,000 800,000 Dividends payable............................................... 262,538 277,742 Contribution to profit-sharing plan............................. 150,003 200,000 Federal income taxes payable.................................... 28,434 14,658 Employee compensation and related expenses...................... 236,552 253,125 ----------- ----------- TOTAL CURRENT LIABILITIES............................... 5,844,696 5,816,334 LONG-TERM DEBT, less current portion.............................. 5,600,000 7,000,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS...................... 113,000 113,000 DEFERRED INCOME TAXES............................................. 385,247 422,747 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share; authorized 10,000,000 shares issued and outstanding shares -- 5,834,195 at December 31, 1995 and 5,554,858 at March 31, 1995................................. 5,834,195 5,554,858 Additional paid-in capital...................................... 21,444,360 20,571,057 Retained earnings............................................... (7,372,989) (7,403,134) ----------- ----------- 19,905,566 18,722,781 ----------- ----------- $31,848,509 $32,074,862 =========== =========== </TABLE> 1
3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS NINE MONTHS ENDED DECEMBER 31 ENDED DECEMBER 31 ------------------------- ------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net sales............................. $25,559,420 $24,228,187 $80,520,472 $71,878,040 Costs and expenses: Costs of goods sold................. 23,526,339 22,286,794 74,445,656 66,624,245 General, selling and administrative costs............................ 869,800 754,056 2,583,171 2,376,448 Interest............................ 144,520 104,715 478,769 251,408 ----------- ----------- ----------- ----------- 24,540,659 23,145,565 77,507,596 69,252,101 Interest and other income............. (18,293) (8,043) (50,287) (34,733) ----------- ----------- ----------- ----------- Earnings before federal income taxes............................... 1,037,054 1,090,665 3,063,163 2,660,672 Provision (benefit) for federal income taxes: Current............................. 365,098 376,825 1,078,975 922,628 Deferred............................ (12,500) (6,000) (37,500) (18,000) ----------- ----------- ----------- ----------- 352,598 370,825 1,041,475 904,628 ----------- ----------- ----------- ----------- Net earnings.......................... $ 684,456 $ 719,840 $2,021,688 $1,756,044 =========== =========== =========== =========== Net earnings per share -- Note D...... $0.12 $0.12 $0.35 $0.30 ===== ===== ===== ===== Cash Dividends: Common Stock -- per share dividend declared during periods (shares outstanding at record date: 5,832,195 and 5,834,195 in 1995 and 5,553,642 in 1994).................. $0.045 $0.06 $0.145 $0.16 ====== ===== ====== ===== </TABLE> 2
4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOW -- UNAUDITED <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 31 ------------------------- 1995 1994 ---------- ---------- <S> <C> <C> OPERATING ACTIVITIES Net earnings.................................................... $2,021,688 $1,756,044 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation................................................. 453,077 432,599 Provision for nonpension retirement benefits................. -- 27,000 Provision for deferred taxes................................. (37,500) (18,000) Decrease (increase) in operating assets: Accounts receivable.......................................... 447,256 113,051 Inventories.................................................. (627,747) (4,502,701) Other........................................................ (97,963) 18,391 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses........................ 96,360 945,107 Contribution to profit sharing plan.......................... (49,997) (45,000) Employee compensation and related expenses................... (16,573) 79,452 Federal income taxes......................................... 13,776 155,820 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................ 2,202,377 (1,038,237) INVESTING ACTIVITIES Purchase of property, plant, and equipment...................... (408,896) (373,722) Decrease (increase) in cash value of officers' life insurance -- Note C.......................................... 687,536 (27,118) ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES................ 278,640 (400,840) FINANCING ACTIVITIES Cash dividends paid............................................. (862,734) (768,857) Proceeds from borrowings of long-term debt...................... 1,000,000 2,000,000 Principal payments of long-term debt............................ (2,400,000) Exercise of stock options....................................... 8,623 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES................ (2,254,111) 1,231,143 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................................. 226,906 (207,934) Cash and cash equivalents at beginning of period................ 664,527 330,289 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 891,433 $ 122,355 =========== =========== </TABLE> 3
5 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED 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 December 31, 1995 and December 31, 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 effect of stock options exercised..................... 667 -- --------- --------- Weighted average number of common and common equivalent shares....................................................... 5,832,862 5,831,324 ========= ========= </TABLE> Earnings per share assuming full dilution for the quarters and nine months ended December 31, 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. 4
6 FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1994 During the nine month period ended December 31, 1995, sales, costs of goods sold and gross profit increased $8,642,432, $7,821,411 and $821,021, respectively, from the comparable amounts recorded during the nine month period ended December 31, 1994. The sales increase was primarily related to the Company's tubular operations which benefited from stronger market conditions for its products, and accordingly, reflected a substantial increase in volume. The increases in costs of goods sold and gross profit were primarily related to the sales increase noted above. Gross profit rates were 7.5% in 1995 compared to 7.3% in 1994. This improvement was primarily related to improved margins on pipe piling and other structural tubular products. Interest expense increased $227,361 from the amount recorded in 1994. This increase was primarily related to interest paid on additional borrowings under the Company's bank line of credit which were used to support working capital. Federal income taxes increased $136,847 as a result of the increase in earnings before taxes. The effective tax rates were the same for both periods. THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1994 During the three months ended December 31, 1995, sales, costs of goods sold and gross profit did not significantly change from the respective amounts recorded during the three months ended December 31, 1994. In addition, gross profit rates for each quarter were approximately 8%. General, selling and administrative costs increased $115,744 from the amount recorded during the quarter ended December 31, 1994. This increase was primarily related to an increase in property rental expense, to increases in executive compensation relative to promotions, to an increase in ad valorem and franchise taxes and to an increase in selling expenses associated with tubular products. Interest expense in the 1995 quarter increased $39,805 from the 1994 amount. This increase was primarily associated with interest paid on additional borrowings under the Company's bank line of credit arrangement. These borrowings were used to support working capital. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at December 31, 1995. Current ratios were 4.53 and 4.46 at December 31, 1995, and March 31, 1995, respectively. Working capital was $20,617,219 at December 31, 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 December 31, 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. 5
7 FRIEDMAN INDUSTRIES, INCORPORATED QUARTER ENDED DECEMBER 31, 1995 PART II -- OTHER INFORMATION <TABLE> <S> <C> <C> 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 None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a). EXHIBIT 23 Consent Ernst & Young LLP b). None </TABLE> 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 <TABLE> <S> <C> Date By /s/ BEN HARPER --------------- -------------------------------- Ben Harper, Senior Vice President -- Finance (Chief Accounting Officer) Date By /s/ HAROLD FRIEDMAN --------------- ---------------------------------- Harold Friedman, Vice Chairman </TABLE> 6
8 INDEX TO EXHIBITS EX-23 Consent of Independent Accountants (Ernst & Young LLP) EX-27 Financial Data Schedule