Friedman Industries (FRD) 10-Q/A 2005 Q2 Quarterly report (amended)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 2

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FROM THE TRANSITION PERIOD FROM                                                TO

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)

TEXAS
(State or other jurisdiction of
incorporation or organization) 74-1504405
(I.R.S. Employer Identification
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         

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes          No     X

     At September 30, 2004, the number of shares outstanding of the issuer’s only class of stock was 7,595,239 shares of Common Stock.

TABLE OF CONTENTS

EXPLANATORY NOTE
PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
		CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED
Part II — OTHER INFORMATION
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
Certification Pursuant to Section 302, signed by Jack Friedman
Certification Pursuant to Section 302, signed by Ben Harper
Certification Pursuant to Section 906, signed by Jack Friedman
Certification Pursuant to Section 906, signed by Ben Harper

EXPLANATORY NOTE

     This quarterly report on Form 10-Q/A (“Form 10-Q/A”) is being filed to amend our quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the “Original Form 10-Q”) filed with the Securities and Exchange Commission (“SEC”) on November 15, 2004, as amended by Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) filed with the SEC on February 14, 2005. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Form 10-Q/A contains complete text of Item 1 of Part 1 and Item 6 of Part II as amended, as well as currently dated certifications.

      By letter dated April 13, 2005, the SEC’s Staff provided comments to the Company relating to Item 4.02 of the Company’s Form 8-K filed with the SEC on February 11, 2005. In response thereto, the Company has added Note F to the Condensed Notes to Quarterly Report Unaudited included herein in Item 1. Financial Statements.

      We have not updated the information contained herein for events occurring subsequent to November 15, 2004, the filing date of the Original Form 10-Q, except as previously modified in Amendment No. 1 to reflect the restatement of the Company’s consolidated financial statements for the three and six months ended September 30, 2004. We recommend that this report be read in conjunction with our reports filed subsequent to November 15, 2004.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

				SEPTEMBER 30, 2004			MARCH 31, 2004
				Unaudited (Restated)
CURRENT ASSETS:
	Cash and cash equivalents			$	7,099,433		$	1,984,763
	Accounts receivable, net of allowances for bad debts and cash discounts of $37,276 and $44,776 at September 30, 2004 and March 31, 2004, respectively				15,817,403			14,688,702
	Inventories				19,933,110			21,043,992
	Other				322,404			112,244
			TOTAL CURRENT ASSETS		43,172,350			37,829,701
PROPERTY, PLANT AND EQUIPMENT:
	Land				437,793			437,793
	Buildings and yard improvements				4,088,149			4,088,149
	Machinery and equipment				18,497,977			18,013,461
	Less accumulated depreciation				(16,276,518	)		(15,846,288	)
					6,747,401			6,693,115
OTHER ASSETS:
	Cash value of officers’ life insurance				528,590			1,302,613
	Deferred income taxes				143,694			202,694
			TOTAL ASSETS	$	50,592,035		$	46,028,123
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses			$	12,100,552		$	10,204,653
	Current portion of long-term debt				23,081			63,037
	Dividends payable				607,759			151,500
	Income taxes payable				223,714			1,134,433
	Contribution to profit sharing plan				134,000			280,000
	Employee compensation and related expenses				983,706			806,140
	Deferred credit for LIFO replacement				157,520			—
			TOTAL CURRENT LIABILITIES		14,230,332			12,639,763
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS					389,904			356,756
STOCKHOLDERS’ EQUITY:
	Common stock, par value $1:
		Authorized shares — 10,000,000
		Issued and outstanding shares — 7,595,239 and 7,575,239 at September 30, 2004 and March 31, 2004, respectively			7,595,239			7,575,239
	Additional paid-in capital				27,742,409			27,714,669
	Retained earnings(deficit)				634,151			(2,258,304	)
			TOTAL STOCKHOLDERS’ EQUITY		35,971,799			33,031,604
			TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	50,592,035		$	46,028,123

2

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED

		Three Months Ended September 30,						Six Months Ended September 30,
		(Restated) 2004			2003			(Restated) 2004			2003
Net sales		$	49,020,241		$	25,410,689		$	93,935,945		$	50,614,859
Costs and expenses
	Costs of goods sold		43,994,292			23,910,932			84,709,449			47,166,445
	General, selling and administrative costs		1,506,856			1,045,949			3,159,337			2,280,044
	Interest		—			14,374			—			23,106
			45,501,148			24,971,255			87,868,786			49,469,595
Interest and other income			(51,120	)		(1,873	)		(61,083	)		(4,021	)
Earnings before income taxes			3,570,213			441,307			6,128,242			1,149,285
Provision (benefit) for income taxes:
	Current		1,274,080			159,045			2,189,280			408,758
	Deferred		35,000			(9,000	)		59,000			(18,000	)
			1,309,080			150,045			2,248,280			390,758
Net earnings		$	2,261,133		$	291,262		$	3,879,962		$	758,527
Average number of common shares outstanding:
	Basic		7,581,906			7,573,239			7,578,572			7,573,239
	Diluted		7,785,196			7,632,571			7,756,424			7,615,163
Net earnings per share:
	Basic	$	0.30		$	0.04		$	0.51		$	0.10
	Diluted	$	0.29		$	0.04		$	0.50		$	0.10
Cash dividends declared per common share		$	0.08		$	0.03		$	0.13		$	0.06

3

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

				Six Months Ended September 30,
				(Restated) 2004			2003
OPERATING ACTIVITIES
	Net earnings			$	3,879,962		$	758,527
	Adjustments to reconcile net income to cash provided by operating activities:
		Depreciation			441,600			465,000
		Provision for deferred taxes			59,000			(18,000	)
		Provision for postretirement benefits			33,148			—
	Decrease (increase) in operating assets:
		Accounts receivable			(1,128,701	)		690,350
		Inventories			1,110,882			1,650,910
		Other			(210,160	)		(324,339	)
	Increase (decrease) in operating liabilities:
		Accounts payable and accrued expenses			1,895,899			(4,075,317	)
		Contribution to profit-sharing plan payable			(146,000	)		(128,000	)
		Employee compensation and related expenses			177,566			(6,534	)
		Federal income taxes payable			(910,719	)		(251,242	)
		Deferred credit for LIFO replacement			157,520			—
			NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		5,359,997			(1,238,645	)
INVESTING ACTIVITIES
	Purchase of property, plant and equipment				(496,427	)		(277,850	)
	(Increase) decrease in cash value of officers’ life insurance				774,023			(6,919	)
Proceeds from sale of asset					542			—
			NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES		278,138			(284,769	)
FINANCING ACTIVITIES
	Cash dividends paid				(531,249	)		(378,649	)
	Principal payments on notes payable				(39,956	)		(31,721	)
	Increase in notes payable				—			2,000,000
	Exercise of stock options				47,740			—
			NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES		(523,465	)		1,589,630
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					5,114,670			66,216
	Cash and cash equivalents at beginning of period				1,984,763			673,127
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	7,099,433		$	739,343

4

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED
SIX MONTHS ENDED SEPTEMBER 30, 2004

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, 2004.

NOTE B — INVENTORIES

     Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of finished goods and tubular inventory consists of both raw materials and finished goods. Inventories are valued at the lower of cost or replacement market value. Cost for prime coil inventory is determined under the last-in, first-out (“LIFO”) method. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the weighted average method.

     During the quarter ended September 30,2004, LIFO inventories were reduced but are expected to be replaced by March 31, 2005. Accordingly, a deferred credit for LIFO replacement of $157,520 to reflect the expected cost of such replacement was recorded at September 30, 2004.

     A summary of inventory values follows:

	September 30,		March 31,
	2004		2004
Prime Coil Inventory	$	7,661,637	$	4,976,300
Non-Standard Coil Inventory		939,742		4,181,815
Tubular Raw Material		3,557,822		3,515,060
Tubular Finished Goods		7,773,909		8,370,817
	$	19,933,110	$	21,043,992

NOTE C — LONG-TERM DEBT

     The following summary reflects long-term debt including the current portion thereon:

	September 30, 2004		March 31, 2004
Notes payable on equipment purchases	$	23,081	$	63,037

     The Company has a $6 million revolving credit facility which expires April 1, 2006. There were no amounts outstanding pursuant to the facility at September 30, 2004 or March 31, 2004.

NOTE D — STOCK BASED COMPENSATION

     The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), for its employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

     The following schedule reflects the impact on net income and earnings per common share if the Company had applied the fair value recognition provisions of Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock based employee compensation for each period indicated:

	Three Months Ended September 30,				Six Months Ended September 30,
	(Restated) 2004		2003		(Restated) 2004		2003
Reported net income	$	2,261,133	$	291,262	$	3,879,962	$	758,527
Less: compensation expenses per SFAS No. 123, net of tax		.00		.00		.00		31,582
Pro forma net income	$	2,261,133	$	291,262	$	3,879,962	$	726,945
BASIC EARNINGS PER COMMON SHARE:
Reported net income		.30		.04		.51		.10
Less: compensation expense per SFAS No. 123, net of tax		.00		.00		.00		.00
Pro forma net income		.30		.04		.51		.10
DILUTED EARNINGS PER COMMON SHARE:
Reported net income		.29		.04		.50		.10
Less: compensation expense per SFAS No. 123, net of tax		.00		.00		.00		.00
Pro forma net income		.29		.04		.50		.10

     During the six months ended September 30, 2004, options for 20,000 shares Common Stock were exercised which resulted in proceeds of $47,740 to the Company. In the 2004 period, no options were granted.

     The fair value of options was estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 3.0%, a dividend yield of 3.4%, volatility factor of the expected market price of the Company’s common stock of 0.42, and a weighted average expected life of the option of four years.

5

NOTE E — SEGMENT INFORMATION

			Three Months Ended September 30						Six Months Ended September 30
			(Restated) 2004			2003			(Restated) 2004			2003
Net sales
	Coil		$	28,157		$	13,157		$	54,693		$	26,552
	Tubular			20,863			12,254			39,243			24,063
		Total net sales	$	49,020		$	25,411		$	93,936		$	50,615
Operating profit
	Coil		$	1,849		$	299		$	3,224		$	1,009
	Tubular			2,564			660			4,874			1,429
		Total operating profit		4,413			959			8,098			2,438
	Corporate expenses			894			506			2,031			1,270
	Interest expense			—			14			—			23
	Interest & other income			(51	)		(2	)		(61	)		(4	)
		Total earnings before taxes	$	3,570		$	441		$	6,128		$	1,149

		September 30, 2004		March 31, 2004
Segment assets
	Coil	$	20,572	$	21,770
	Tubular		22,112		20,624
			42,684		42,394
	Corporate assets		7,908		3,634
			50,592		46,028

     Segment amounts reflected above are stated in thousands. General corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, accrued profit sharing expense, corporate insurance expenses and office supplies. Corporate assets consists primarily of cash and cash equivalents and the cash value of officers’ life insurance.

NOTE F — RESTATEMENT:

      In connection with the Company’s review of its accrual for accounts payable at December 31, 2004, the Company discovered that it had over accrued accounts payable at September 30, 2004. The error occurred as the result of double booking a liability for materials received. During the quarter ended September 30, 2004, the Company received steel coils and recorded a liability for this purchase. Subsequently, these same coils were shipped to other companies for processing into slit coils or pipe. After processing, the Company received the material and incorrectly recorded a liability for the entire receipt instead of only the processing and shipping charges. Accordingly, our consolidated financial statements for the three and six months ended September 30, 2004 are being restated to correct the accrual for accounts payable.

      Set forth below are the originally reported and as restated amounts:

Balance Sheets

		September 30, 2004 as Reported		September 30, 2004 as Restated
Accounts payable and accrued expenses		$	12,592,548	$	12,100,552
Income Taxes payable			78,685		223,714
Employee compensation and related expenses			918,270		983,706
	Retained earnings		352,620		634,151

Income Statements

		Three Months Ended September 30, 2004					Six Months Ended September 30, 2004
		as Reported			as Restated		as Reported		as Restated
Costs of goods sold		$	44,486,288	$	43,994,292	$	85,201,445	$	84,709,449
General selling and administrative costs			1,441,420		1,506,856		3,093,901		3,159,337
Current income taxes			1,129,051		1,274,080		2,044,251		2,189,280
Net earnings			1,979,602		2,261,133		3,598,431		3,879,962
Net earnings per share
	Basic	$	0.26	$	0.30	$	0.47	$	0.51
	Diluted	$	0.25	$	0.29	$	0.46	$	0.50

Statements of Cash Flows

	Six Months Ended September 30, 2004
	as Reported			as Restated
Net earnings		3,598,431			3,879,962
Accounts Payable and accrued expense		2,387,895			1,895,899
Employee compensation and restated expenses		112,130			177,566
Federal income taxes payable		(1,055,748	)		(910,719	)

6

FRIEDMAN INDUSTRIES, INCORPORATED

Three Months Ended September 30, 2004

Part II — OTHER INFORMATION

Item 6. Exhibits

31.1 —	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
31.2 —	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
32.1 —	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
32.2 —	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper

9

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 April 19, 2005
	By	/s/  BEN HARPER
	Ben Harper, Senior Vice President-Finance
	(Principal Financial and Accounting Officer)

10

EXHIBIT INDEX

Exhibit No.	Description
Exhibit 31.1	— Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
Exhibit 31.2	— Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
Exhibit 32.1	— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Jack Friedman
Exhibit 32.2	— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Ben Harper