1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000JUNE 30, 2001

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FORFROM THE TRANSITION PERIOD FROM                   TO

                         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 December 31, 2000,June 30, 2001, the number of shares outstanding of the issuer's only class of stock was 7,566,8397,568,839 shares of Common Stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION FRIEDMAN INDUSTRIES, INCORPORATED ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS -- UNAUDITED ASSETS
DECEMBER 31, 2000JUNE 30, 2001 MARCH 31, 2000 -----------------2001 ------------- -------------- CURRENT ASSETS Cash and cash equivalents................................. $ 189,128321,395 $ 443,818669,076 Accounts receivable, less allowance for doubtful accounts ($7,276 at December 31, 2000 and March 31, 2000, respectively).......................................... 9,498,830 13,533,550 Inventories............................................... 25,903,928 22,910,509receivable....................................... 9,820,174 10,584,735 Inventories -- Note B..................................... 25,351,878 28,817,375 Prepaid expenses and other current assets................. 258,341 57,501 ------------ ------------219,856 160,143 ------------- -------------- Total Current Assets.............................. 35,850,227 36,945,37835,713,303 40,231,329 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 221,543 221,543 Buildings and improvements................................ 3,346,912 3,346,912 Machinery and equipment................................... 16,355,689 16,075,81616,472,700 16,458,899 Less allowance for depreciation........................... (12,938,887) (12,170,191) ------------ ------------ 6,985,257 7,474,080(13,424,791) (13,201,590) ------------- -------------- 6,616,364 6,825,764 OTHER ASSETS Cash value of officers' life insurance.................... 885,034 687,332 ------------ ------------960,338 953,419 ------------- -------------- $ 43,720,51843,290,005 $ 45,106,790 ============ ============48,010,512 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable and accrued expenses............... $ 4,384,3805,955,872 $ 6,447,53810,443,848 Current portion of long-term debt......................... 800,000 800,000 Dividends payable......................................... 302,745 287,522302,746 Contribution to profit-sharing plan....................... 207,000 274,00072,000 288,000 Income taxes payable...................................... 119,632 256,906220,425 127,209 Employee compensation and related expenses................ 358,094 311,313 ------------ ------------254,401 309,999 ------------- -------------- Total Current Liabilities......................... 6,171,851 8,377,2797,605,443 12,271,802 LONG-TERM DEBT, less current portion........................ 7,000,000 7,600,0004,600,000 4,800,000 PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000 DEFERRED INCOME TAXES....................................... 434,060 393,560456,060 447,560 STOCKHOLDERS' EQUITY Common stock: Par value $1 per share: Authorized 10,000,000 shares; Issued and outstanding shares -- 7,566,8397,568,839 at December 31, 2000June 30, 2001 and 7,188,213 at March 31, 2000....................................... 7,566,839 7,188,2132001, respectively................................... 7,568,839 7,568,839 Additional paid-in capital................................ 27,697,429 26,878,47727,703,829 27,703,829 Retained earnings......................................... (5,262,661) (5,443,739) ------------ ------------deficit.......................................... (4,757,166) (4,894,518) ------------- -------------- Total Stockholders' Equity........................ 30,001,607 28,622,951 ------------ ------------30,515,502 30,378,150 ------------- -------------- $ 43,720,51843,290,005 $ 45,106,790 ============ ============48,010,512 ============= ==============
1 3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- -------------------------JUNE 30, ---------------------------- 2001 2000 1999 2000 1999 ----------- ----------- ----------- ----------------------- ------------ Net sales................................ $27,834,551 $29,894,914 $91,174,308 $85,956,294sales................................................... $27,885,663 $32,274,930 Costs and expenses:expenses Costs of goods sold.................... 25,658,263 28,010,830 83,925,772 79,639,615sold....................................... 26,014,170 29,681,631 General, selling and administrative costs............................... 1,062,502 1,059,057 3,461,459 3,305,224 Interest............................... 153,841 119,814 477,397 354,870costs................. 1,101,246 1,267,811 Interest.................................................. 109,082 164,869 ----------- ----------- ----------- ----------- 26,874,606 29,189,701 87,864,628 83,299,70927,224,498 31,114,311 Interest and other income................ (18,223) (52,698) (108,179) (130,811) ----------- -----------income................................... (5,648) (59,862) ----------- ----------- Earnings before federal income taxes..... 978,168 757,911 3,417,859 2,787,396taxes........................ 666,813 1,220,481 Provision (benefit) for federal income taxes: Current................................ 319,078 241,690 1,121,572 899,716 Deferred...............................Current................................................... 218,216 401,463 Deferred.................................................. 8,500 13,500 16,000 40,500 48,000 ----------- ----------- ----------- ----------- 332,578 257,690 1,162,072 947,716 ----------- -----------226,716 414,963 ----------- ----------- Net earnings.............................earnings................................................ $ 645,590440,097 $ 500,221 $ 2,255,787 $ 1,839,680 =========== ===========805,518 =========== =========== Average number of common shares outstanding: Basic.................................. 7,566,839 7,547,624 7,566,839 7,547,624 Diluted................................ 7,566,839 7,547,624 7,566,839 7,547,624Basic..................................................... 7,568,839 7,547,292 Diluted................................................... 7,568,839 7,547,292 Net earnings per share: Basic..................................Basic..................................................... $ 0.090.06 $ 0.070.11 Diluted................................................... $ 0.300.06 $ 0.24 Diluted................................ $ 0.09 $ 0.07 $ 0.30 $ 0.240.11 Cash dividends declared per common share..................................share.................... $ 0.04 $ 0.05 $ 0.12 $ 0.150.04
2 4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINETHREE MONTHS ENDED DECEMBER 31, --------------------------JUNE 30, ---------------------------- 2001 2000 1999 ----------- ----------------------- ------------ OPERATING ACTIVITIES Net earnings.............................................. $ 2,255,787440,097 $ 1,839,680805,518 Adjustments to reconcile net earningsincome to cash provided by operating activities:.................................. Depreciation........................................... 784,875 781,600223,200 259,725 Provision for deferred taxes........................... 40,500 48,0008,500 13,500 Decrease (increase) in operating assets:.................. Accounts receivable.................................... 4,034,720 (1,682,675)764,561 1,532,629 Inventories............................................ (2,993,419) (6,789,246) Other.................................................. (200,840) (48,526)3,465,497 (2,924,314) Other current assets................................... (59,713) (87,717) Increase (decrease) in operating liabilities:............. Accounts payable and accrued expenses.................. (2,063,158) 3,802,848(4,487,976) 801,194 Contribution to profit-sharing plan.................... (67,000) (63,000)plan payable............ (216,000) (205,000) Employee compensation and related expenses............. 46,781 (204,137)(55,598) 7,180 Federal income taxes................................... (137,274) (68,522)taxes payable........................... 93,216 151,463 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES..................................... 1,700,972 (2,383,978)ACTIVITIES............ 175,784 354,178 INVESTING ACTIVITIES........................................ACTIVITIES Purchase of property, plant and equipment................. (296,052) (181,200) Decrease (increase)(13,800) (110,797) Increase in cash surrender value of officers' life insurance.............................................. (197,702) (427,089)(6,919) (23,827) ----------- ----------- NET CASH PROVIDED (USED)USED IN INVESTING ACTIVITIES..................................... (493,754) (608,289)ACTIVITIES............. (20,719) (134,624) FINANCING ACTIVITIES........................................ACTIVITIES Cash dividends paid....................................... (893,295) (1,130,628)(302,746) (288,601) Principal payments on long-term debt...................... (600,000) (2,600,000) Proceeds from borrowings of long term debt................(200,000) (200,000) Payments on loans against life insurance.................. -- 3,000,000 Exercise of stock options................................. 31,387 60,438(172,038) ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES..................................... (1,461,908) (670,190)(502,746) (660,639) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (254,690) (3,662,457)(347,681) (441,085) Cash and cash equivalents at beginning of period.......... 669,076 443,818 3,798,935 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 189,128321,395 $ 136,4782,733 =========== ===========
3 5 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO QUARTERLY REPORT -- UNAUDITED NINETHREE MONTHS ENDED DECEMBER 31, 2000JUNE 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, 2000.2001. 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 During the nine months ended December 31, 2000, the Company repaid approximately $172,000 in borrowings against the cash surrender value of officers' life insurance ("CSV"), which had the effect of increasing CSV by such amount. NOTE D -- SEGMENT INFORMATION
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- -----------------JUNE 30, ------------------ 2001 2000 1999 2000 1999 -------- -------- ------- ------- (IN THOUSANDS) (IN THOUSANDS)IN THOUSANDS Net sales Coil processing...................................... $14,953 $18,458 $52,220 $57,186 Tubular.............................................. 12,882 11,437 38,954 28,770 ------- -------processing........................................... $14,011 $19,911 Tubular................................................... 13,875 12,364 ------- ------- Total net sales.............................. $27,835 $29,895 $91,174 $85,956 ======= =======sales................................... $27,886 $32,275 ======= ======= Operating profit Coil processing......................................processing (loss).................................... $ 477(64) $ 233 $ 1,272 $ 2,345 Tubular.............................................. 1,082 1,030 4,191 2,278 ------- -------317 Tubular................................................... 1,400 1,717 ------- ------- Total operating profit....................... 1,559 1,263 5,463 4,623profit............................ 1,336 2,034 Corporate expenses................................... 446 438 1,676 1,612expenses........................................ 566 709 Interest expense..................................... 153 120 477 355expense.......................................... 109 165 Interest & other income.............................. (18) (53) (108) (131) ------- -------income................................... (6) (60) ------- ------- Total earnings before taxes..................taxes....................... $ 978667 $ 758 $ 3,418 $ 2,7871,220 ======= ======= ======= =======
DECEMBER 31, ----------------- 2000 1999 ------- ------- (IN THOUSANDS) Segment assets Coil processing........................................... $21,947 $28,989$18,543 $26,987 Tubular................................................... 20,442 15,85823,169 18,174 ------- ------- 42,389 44,84741,712 45,161 Corporate assets.......................................... 1,332 8611,578 1,031 ------- ------- Total assets...................................... $43,721 $45,708$43,290 $46,192 ======= =======
4 6 ITEM 2.FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINETHREE MONTHS ENDED DECEMBER 31, 2000JUNE 30, 2001 COMPARED TO NINETHREE MONTHS ENDED DECEMBER 31, 1999JUNE 30, 2000 During the nine monthsquarter ended December 31, 2000,June 30, 2001, sales, costs of goods sold and gross profit increased $5,218,014, $4,286,157decreased $4,389,267, $3,667,461 and $931,857,$721,806, respectively, from the comparable amounts recorded during the nine monthsquarter ended December 31, 1999. These increasesJune 30, 2000. The decreases in sales and costs of goods sold were related primarily related to the Company's tubular operations which benefited from improvedcoil operations. During the 2001 quarter, soft market conditions for pipe and tubular products during the 2000 period. Tubular operations experienced a 24% increase in tons sold that was partially offset by a decline in coil operations, which experienced a 16% decrease in tons sold. Gross profit earned on tubular sales increased $1,979,555 due primarily to stronger demand for tubular products during the 2000 period. Conversely, gross profit earned on coil products declined $1,047,698 due principallycontinued to softer market conditions which hadhave the effect of generating intense competition for available sales which adversely affected coil product sales and decreasingrelated gross profit during the 2001 quarter. Tons of coil products sold declined 12.1% and the average selling price of such products declined 20.9% from the respective amounts recorded during the 2000 quarter. Gross profit earned on coil product sales. Gross profit as a percentagetubular products also decreased from the comparable amount recorded during the 2000 quarter. Even though tubular operations recorded an increase of sales increased from approximately 7.3%20.5% in tons sold, market conditions for tubular products were more competitive in the 1999 period to 8.0%2001 quarter and resulted in the 2000 period primarily as the result of the improvement in tubular operationsdecrease noted above. Interest expense increased $122,527General, selling and administrative costs declined $166,565 from the amount recorded during the 1999 period.2000 quarter. This increasedecline was associated primarily with variable expenses related to an increasevolume and/or earnings. Interest expense decreased $55,787 from the comparable amount recorded during the 2000 quarter. This decrease was related principally to a reduction in debt associated with working capital requirements. Interest and other income decreased $22,632 from$54,214 primarily as a result of a decline in invested cash positions and interest rates paid on such positions during the 1999 period amount. During the 1999 period, the Company recorded other income associated with the increase in the cash surrender value of officers' life insurance.2001 quarter. Federal income taxes increased $214,356during the 2001 quarter decreased $188,247 from the comparable amount recorded during the 1999 period.2000 quarter. This increasedecrease was primarily related to the increasedecline in earnings before taxes as the effective tax rate wasrates were the same for both periods. THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 During the quarter ended December 31, 2000, both sales and costs of goods sold declined from the comparable amounts recorded during the quarter ended December 31, 1999, however, the decline in costs of goods sold was greater than the decline in sales which resulted in an increase in gross profit of $292,204. This increase in gross profit was primarily related to coil operations. During the 1999 quarter, the Company incurred substantial increases in costs of coil products that could not be passed along immediately to customers, which significantly reduced gross profit and margins earned on sales in such quarter. Gross profit as a percentage of sales was approximately 6.3% in the 1999 quarter and 7.8% in the 2000 quarter. Interest expense increased $34,027 from the amount recorded during the 1999 quarter. This increase was primarily related to an increase in debt associated with working capital requirements. Interest and other income decreased $34,475 from the amount recorded during the 1999 quarter. During the 1999 quarter, the Company recorded other income associated with the increase in the cash surrender value of officers' life insurance. Federal income taxes increased $74,888 from the comparable amount recorded during the 1999 period. This increase was primarily related to the increase in earnings before taxes as the effective tax rate was the same for both periods.quarters. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company remained in a strong, liquid position at December 31, 2000.June 30, 2001. Current ratios were 5.84.7 and 4.43.3 at December 31, 2000June 30, 2001 and March 31, 2000,2001, respectively. Working capital was $29,678,376$28,107,860 at December 31, 2000June 30, 2001 and $28,568,099$27,959,527 at March 31, 2000.2001. Inventories and trade accounts payable declined $3,465,497 and $4,487,976, respectively. The Company reduced coil inventories during the quarter ended June 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, 2002,2004, the Company may borrow up to $8$10 million at an interest rate no greater than the 5 7 bank's prime rate. At December 31, 2000,June 30, 2001, the Company had borrowings outstanding under the revolving facility of $6$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 December 31, 2000,June 30, 2001, the principal amount of indebtedness outstanding under the term facility was $1.8$1.4 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 5 7 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 and 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 8 FRIEDMAN INDUSTRIES, INCORPORATED QUARTER ENDED JUNE 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 None ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a). Exhibits None 10.1 -- Fourth Amendment to Amended and Restated Letter Agreement Between the Company and The Chase Manhattan Bank 10.2 -- Revolving Promissory Note Between the Company and The Chase Manhattan Bank 10.3 -- Addendum to Lease Agreement by and Between the Company and Robledo Investments, Ltd. dba Judson Plaza
b). Reports on Form 8-K None 67 89 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 FebruaryAugust 13, 2001 By /s/ BEN HARPER ------------------------------------ Ben Harper, Senior Vice President-Finance (Chief Accounting Officer) Date FebruaryAugust 13, 2001 By /s/ HAROLD FRIEDMAN ------------------------------------ Harold Friedman, Vice Chairman 7of the Board 8 10 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION -------- ----------- 10.1 -- Fourth Amendment to Amended and Restated Letter Agreement Between the Company and The Chase Manhattan Bank 10.2 -- Revolving Promissory Note Between the Company and The Chase Manhattan Bank 10.3 -- Addendum to Lease Agreement by and Between the Company and Robledo Investments, Ltd. dba Judson Plaza