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