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 JUNE 30, 1996 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, of 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, 1996, the number of shares outstanding of the issuer's only class of stock was 6,125,512 shares of Common Stock. ===============================================================================
2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS <TABLE> <CAPTION> JUNE 30, 1996 MARCH 31, 1996 ----------- -------------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents...................................... $ 26,025 $ 595,216 Accounts receivable, less allowance for doubtful accounts ($5,794 at June 30, 1996 and March 31, 1996, respectively)............................................... 9,824,112 9,423,204 Inventories -- Note B.......................................... 18,702,116 17,391,625 Prepaid expenses and other current assets...................... 195,694 114,625 ----------- ------------ Total Current Assets................................... 28,747,947 27,524,670 PROPERTY, PLANT AND EQUIPMENT Land........................................................... 198,021 198,021 Buildings and improvements..................................... 2,687,730 2,687,730 Machinery and equipment........................................ 11,702,925 11,699,234 Less allowance for depreciation................................ (9,474,582) (9,316,572) ----------- ------------ 5,114,094 5,268,413 OTHER ASSETS Cash value of officers' life insurance......................... 43,731 19,903 ----------- ------------ $33,905,772 $ 32,812,986 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses.................... $ 5,470,147 $ 4,739,206 Current portion of long-term debt.............................. 800,000 800,000 Dividends payable.............................................. 306,274 291,709 Contribution to profit-sharing plan............................ 54,000 216,000 Federal income taxes payable................................... 95,056 53,047 Employee compensation and related expenses..................... 367,392 310,565 ----------- ------------ Total Current Liabilities.............................. 7,092,869 6,410,527 LONG-TERM DEBT, less current portion............................. 5,200,000 5,400,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS..................... 113,000 113,000 DEFERRED INCOME TAXES............................................ 448,023 460,523 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 6,125,512 at June 30, 1996 and 5,834,195 at March 31, 1996............................................ 6,125,512 5,834,195 Additional paid-in capital..................................... 22,336,518 21,444,360 Retained earnings.............................................. (7,410,150) (6,849,619) ----------- ------------ Total Stockholders' Equity............................. 21,051,880 20,428,936 ----------- ------------ $33,905,772 $ 32,812,986 =========== ============ </TABLE> 1
3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENT OF EARNINGS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30 --------------------------- 1996 1995 ----------- ----------- <S> <C> <C> Net sales......................................................... $28,751,479 $28,752,665 Costs and expenses Costs of goods sold............................................. 26,128,966 26,486,198 General, selling and administrative costs....................... 1,106,965 923,789 Interest........................................................ 134,223 166,692 ----------- ----------- 27,370,154 27,576,679 Interest and other income......................................... (28,996) (10,703) ----------- ----------- Earnings before federal income taxes.............................. 1,410,321 1,186,689 Provision (benefit) for federal income taxes: Current......................................................... 492,009 415,975 Deferred........................................................ (12,500) (12,500) ----------- ----------- 479,509 403,475 ----------- ----------- Net earnings...................................................... $ 930,812 $ 783,214 =========== =========== Net earnings per share -- Note C.................................. $ 0.15 $ 0.13 =========== =========== Dividends Common Stock -- per share dividend declared during periods (shares outstanding at record dates: 6,125,512 in 1996 and 5,832,195 in 1995)........................................... $ 0.05 $ 0.05 =========== =========== </TABLE> 2
4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30 -------------------------- 1996 1995 ----------- ---------- <S> <C> <C> OPERATING ACTIVITIES Net earnings..................................................... $ 930,812 $ 783,214 Adjustments to reconcile net income to cash provided by operating activities: Depreciation.................................................. 158,010 147,405 Provision for deferred taxes.................................. (12,500) (12,500) Decrease (increase) in operating assets: Accounts receivable........................................... (400,908) (478,969) Inventories................................................... (1,310,491) 42,229 Other current assets.......................................... (81,069) (6,086) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses......................... 730,941 (201,800) Contribution to profit-sharing plan payable................... (162,000) (150,000) Employee compensation and related expenses.................... 56,827 46,108 Federal income taxes payable.................................. 42,009 415,977 ----------- ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................... (48,369) 585,578 INVESTING ACTIVITIES Purchase of property, plant and equipment........................ (3,691) (259,332) Increase in cash surrender value of officers' life insurance..... (23,828) (4,583) ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES.................... (27,519) (263,915) FINANCING ACTIVITIES Cash dividends paid.............................................. (293,303) (279,417) Proceeds from borrowings of long-term debt....................... 1,000,000 Principal payments on long-term debt............................. (200,000) (200,000) ----------- ---------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES......... (493,303) 520,583 ----------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (569,191) 842,246 Cash and cash equivalents at beginning of period................. 595,216 664,527 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 26,025 $1,506,773 =========== ========== </TABLE> 3
5 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED THREE MONTHS ENDED JUNE 30, 1996 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, 1996. NOTE B -- INVENTORIES Coil inventory consists primarily of raw materials. Tubular inventory is comprised of both raw materials and finished goods. NOTE C -- EARNINGS PER SHARE Earnings per common and common equivalent share for the periods ended June 30, 1996 and June 30, 1995 are based on the weighted average number of common and common equivalent (stock options) shares outstanding as follows: <TABLE> <CAPTION> 1996 1995 --------- --------- <S> <C> <C> Common Stock: Shares outstanding during the entire period................. 5,834,195 5,554,858 Retroactive effect of stock dividends declared.............. 291,317 568,947 --------- --------- Weighted average number of common and common equivalent shares................................. 6,125,512 6,123,805 ========= ========= </TABLE> Earnings per share assuming full dilution for the quarters ended June 30, 1996 and 1995, 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 THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995 During the quarter ended June 30, 1996, sales were approximately even with sales recorded during the quarter ended June 30, 1995. During the 1996 quarter, costs of goods sold declined 1.3% and generated an increase in gross profit of $356,046. This increase was primarily related to the Company's coil product operations. Market conditions for these products were somewhat stronger during the 1996 quarter when compared to the 1995 quarter and supported improved margins as well as increased volume. General, selling and administrative costs increased $183,176 from the amount recorded during the 1995 quarter. This increase was primarily related to expenses associated with increased volume and/or earnings. In addition, increases in rental expense and executive compensation were recorded in the 1996 quarter. Interest expense declined $32,469 from the amount recorded during the 1995 quarter. This decrease was primarily generated by a decrease in term debt and by lower interest rates incurred on a year to year basis. Interest income increased $18,293. This increase was primarily related to an increase in the average invested cash positions during the 1996 quarter. Federal income taxes increased $76,034 as a result of the increase in earnings before taxes. Tax rates were the same for both periods. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at June 30, 1996. Current ratios were 4.1 and 4.3 at June 30, 1996 and March 31, 1996, respectively. Working capital was $21,655,078 at June 30, 1996, and $21,114,143 at March 31, 1996. The Company has a line of credit arrangement with a bank whereby it may borrow up to $8,000,000. At June 30, 1996, borrowings of $4,000,000 had been made under this line of credit arrangement which expires April 1, 1998. 5
7 FRIEDMAN INDUSTRIES, INCORPORATED QUARTER ENDED JUNE 30, 1996 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 Not applicable ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a). Financial Data Schedule b). None 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, 1996 By ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date August 13, 1996 By ------------------------------------ Harold Friedman, Vice Chairman of the Board 6
8 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 June 30, 1996, and the related consolidated statements of earnings and cash flows for the three-month periods ended June 30, 1996 and 1995. 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, 1996, 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 28, 1996, 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, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP August 7, 1996
9 INDEX TO EXHIBITS 27 -- Financial Data Schedule