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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

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

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)

<Table>

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, 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, 2001, the number of shares outstanding of the issuer's only
class of stock was 7,571,239 shares of Common Stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART I -- FINANCIAL INFORMATION

FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS -- UNAUDITED

ASSETS

<Table>
<Caption>
DECEMBER 31, 2001 MARCH 31, 2001
------------------ --------------

CURRENT ASSETS
Cash and cash equivalents................................. $ 926,481 $ 669,076
Accounts receivable....................................... 5,984,216 10,584,735
Inventories -- Note B..................................... 26,361,805 28,817,375
Prepaid expenses and other current assets................. 197,141 160,143
----------- ------------
Total Current Assets.............................. 33,469,643 40,231,329
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 221,543 221,543
Buildings and improvements................................ 3,898,461 3,346,912
Machinery and equipment................................... 16,899,016 16,458,899
Less allowance for depreciation........................... (13,861,491) (13,201,590)
----------- ------------
7,157,529 6,825,764
OTHER ASSETS
Cash value of officers' life insurance.................... 976,387 953,419
----------- ------------
$41,603,559 $ 48,010,512
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Trade accounts payable and accrued expenses............... $ 6,518,650 $ 10,443,848
Current portion of long-term debt......................... 833,750 800,000
Dividends payable......................................... 227,131 302,746
Contribution to profit-sharing plan....................... 193,660 288,000
Income taxes payable...................................... -- 127,209
Deferred Credit for LIFO replacement -- Note B............ 625,106 --
Employee compensation and related expenses................ 87,077 309,999
----------- ------------
Total Current Liabilities......................... 8,485,374 12,271,802
LONG-TERM DEBT, less current portion........................ 2,261,875 4,800,000
PROVISION FOR NONPENSION RETIREMENT BENEFITS................ 113,000 113,000
DEFERRED INCOME TAXES....................................... 473,060 447,560
STOCKHOLDERS' EQUITY
Common stock:
Par value $1 per share:
Authorized 10,000,000 shares; Issued and outstanding
shares -- 7,571,239 and 7,568,839 at December 31,
2001 and March 31, 2001, respectively................ 7,571,239 7,568,839
Additional paid-in capital................................ 27,706,403 27,703,829
Retained deficit.......................................... (5,007,392) (4,894,518)
----------- ------------
Total Stockholders' Equity........................ 30,270,250 30,378,150
----------- ------------
$41,603,559 $ 48,010,512
=========== ============
</Table>

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS -- UNAUDITED

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------

Net sales................................ $20,483,410 $27,834,551 $73,344,634 $91,174,308
Costs and expenses:
Costs of goods sold.................... 19,701,739 25,658,263 68,992,763 83,925,772
General, selling and administrative
costs............................... 1,025,887 1,062,502 3,153,330 3,461,459
Interest............................... 54,309 153,841 243,258 477,397
----------- ----------- ----------- -----------
20,781,935 26,874,606 72,389,351 87,864,628
Interest and other income................ (4,302) (18,223) (19,304) (108,179)
----------- ----------- ----------- -----------
Earnings (loss) before federal income
taxes.................................. (294,223) 978,168 974,587 3,417,859
Provision (benefit) for federal income
taxes:
Current................................ (108,534) 319,078 305,860 1,121,572
Deferred............................... 8,500 13,500 25,500 40,500
----------- ----------- ----------- -----------
(100,034) 332,578 331,360 1,162,072
----------- ----------- ----------- -----------
Net earnings (loss)...................... $ (194,189) $ 645,590 $ 643,227 $ 2,255,787
=========== =========== =========== ===========
Average number of common shares
outstanding:
Basic.................................. 7,571,239 7,566,839 7,571,239 7,566,839
Diluted................................ 7,571,239 7,566,839 7,571,239 7,566,839
Net earnings (loss) per share:
Basic.................................. $ (0.03) $ 0.09 $ 0.08 $ 0.30
Diluted................................ $ (0.03) $ 0.09 $ 0.08 $ 0.30

Cash dividends declared per common
share.................................. $ 0.03 $ 0.04 $ 0.10 $ 0.12
</Table>

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED

<Table>
<Caption>
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
2001 2000
----------- -----------

OPERATING ACTIVITIES
Net earnings.............................................. $ 643,227 $ 2,255,787
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation........................................... 672,601 784,875
Provision for deferred taxes........................... 25,500 40,500
Decrease (increase) in operating assets:
Accounts receivable.................................... 4,600,519 4,034,720
Inventories............................................ 2,455,570 (2,993,419)
Other.................................................. (36,998) (200,840)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses.................. (3,925,198) (2,063,158)
Current portion of long term debt...................... 33,750 --
Contribution to profit-sharing plan.................... (94,340) (67,000)
Employee compensation and related expenses............. (222,922) 46,781
Deferred credit for LIFO replacement................... 625,106 --
Federal income taxes................................... (127,209) (137,274)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES..................................... 4,649,606 1,700,972
INVESTING ACTIVITIES
Purchase of property, plant and equipment................. (1,004,364) (296,052)
Decrease (increase) in cash value of officers' life
insurance.............................................. (22,968) (197,702)
----------- -----------
NET CASH PROVIDED (USED) IN INVESTING
ACTIVITIES..................................... (1,027,332) (493,754)
FINANCING ACTIVITIES
Cash dividends paid....................................... (832,622) (893,295)
Principal payments on long-term debt...................... (2,605,625) (600,000)
Proceeds from borrowings of long term debt................ 67,500 --
Exercise of stock options................................. 5,878 31,387
----------- -----------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES..................................... (3,364,869) (1,461,908)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 257,405 (254,690)
Cash and cash equivalents at beginning of period.......... 669,076 443,818
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 926,481 $ 189,128
=========== ===========
</Table>

FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO QUARTERLY REPORT -- UNAUDITED
NINE MONTHS ENDED DECEMBER 31, 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, 2001.

NOTE B -- INVENTORIES

Inventories consist of tubular and coil inventories. Tubular inventory is
comprised of both raw materials and finished goods and is valued at the lower of
cost (on a first-in, first-out (FIFO) method) or market. Coil inventories
consist primarily of raw materials and are valued at the lower of cost (on the
last-in, first-out (LIFO) method) or market. During the nine months ended
December 31, 2001, a liquidation of the base period inventories was experienced
and a portion of this liquidation is expected to be replaced by fiscal year end.
Accordingly, costs of goods sold was charged and a deferred credit was
established for the difference ($625,106) between the estimated replacement cost
and the liquidated LIFO base. LIFO inventories that are not expected to be
replaced resulted in a liquidation of LIFO inventories carried at costs
prevailing in preceding years as compared to current costs, the effect of which
increased costs of goods sold and decreased earnings before taxes by
approximately $230,000.

NOTE C -- SEGMENT INFORMATION

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- -----------------
2001 2000 2001 2000
-------- -------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)

Net sales
Coil processing...................................... $10,854 $14,953 $37,116 $52,220
Tubular.............................................. 9,629 12,882 36,229 38,954
------- ------- ------- -------
Total net sales.............................. $20,483 $27,835 $73,345 $91,174
======= ======= ======= =======
Operating profit
Coil processing...................................... 130 $ 477 $ 326 $ 1,272
Tubular.............................................. 32 1,082 2,319 4,191
------- ------- ------- -------
Total operating profit....................... 162 1,559 2,645 5,463
Corporate expenses................................... 406 446 1,446 1,676
Interest expense..................................... 54 153 243 477
Interest & other income.............................. (4) (18) (19) (108)
------- ------- ------- -------
Total earnings (loss) before taxes........... $ (294) $ 978 $ 975 $ 3,418
======= ======= ======= =======
</Table>

<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2000
------- -------
(IN THOUSANDS)

Segment assets
Coil processing........................................... $18,847 $21,947
Tubular................................................... 20,582 20,442
------- -------
39,429 42,389
Corporate assets.......................................... 2,175 1,332
------- -------
Total assets...................................... $41,604 $43,721
======= =======
</Table>

FRIEDMAN INDUSTRIES, INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2000

During the nine months ended December 31, 2001, sales, costs of goods sold
and gross profit decreased $17,829,674, $14,933,009 and $2,896,665,
respectively, from the comparable amounts recorded during the nine months ended
December 31, 2000. Both coil and tubular operations reflected decreased sales
during the 2001 period. Sales of coil products and services declined
approximately $15,104,000 due to a decline in tons sold of approximately 14% and
a decrease in the average selling price per ton of approximately 17%. Sales of
tubular products declined approximately $2,725,000 due principally to a decline
in the average selling price per ton of approximately 10%. During the 2001
period, soft market conditions and related lack of demand continued to have the
effect of generating intense competition for available sales and adversely
affected coil and tubular operations. Gross profit earned on sales of coil
products and services and tubular goods declined approximately 44% and 38%,
respectively. Management believes the soft market conditions for the Company's
products and services are related to the overall weakness in the economy.

General, selling and administrative costs decreased $308,129 from the
amount recorded during the 2000 period. This decline was related primarily to
variable expenses associated with volume and/or earnings.

Interest expense decreased $234,139 from the amount recorded during the
2000 period. This decrease was related primarily to decreases in interest rates
and debt associated with working capital requirements.

Interest and other income declined $88,875 primarily as the result of a
decrease in average invested cash positions and a substantial decrease in
interest rates paid on such positions in the 2001 period.

Federal income taxes decreased $830,712 from the comparable amount recorded
during the 2000 period. This decrease was primarily related to the decrease in
earnings before taxes as the effective tax rates were the same for both periods.

THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2000

During the quarter ended December 31, 2001, sales, costs of goods sold and
gross profit decreased $7,351,141, $5,956,524 and $1,394,617, respectively, from
the comparable amounts recorded during the quarter ended December 31, 2000.
These declines were related to both coil and tubular operations. Coil operations
were adversely affected by decreases in tons sold and average selling price per
ton of approximately 14% and 16%, respectively. Also, tubular operations
reflected decreases in tons sold and average selling price per ton of
approximately 12% and 15%, respectively. During the 2001 quarter, soft market
conditions and related lack of demand resulted in intense competition for
available sales and adversely affected coil and tubular operations. Gross profit
earned on sales of coil products and services and tubular goods decreased 41%
and 80%, respectively. Management believes the soft market conditions for the
Company's products and services are related to the overall weakness in the
economy.

Interest expense decreased $99,532 from the amount recorded during the 2000
quarter. This decrease was related primarily to decreases in interest rates and
debt associated with working capital requirements.

Interest and other income decreased $13,921 primarily as a result of a
decrease in average invested cash positions and a substantial decrease in
interest rates paid on such positions in the 2001 quarter.

Federal income taxes decreased $432,612 from the comparable amount recorded
during the 2000 quarter due to the pretax loss of $294,223 during the 2001
quarter. As a result, the Company recorded a benefit of $100,034 as federal
income taxes were reduced. The effective tax rates were the same for both
quarters.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

The Company remained in a strong, liquid position at December 31, 2001.
Current ratios were 3.9 and 3.3 at December 31, 2001 and March 31, 2001,
respectively. Working capital was $24,984,269 at December 31, 2001 and
$27,959,527 at March 31, 2001. During the 2001 period, the Company adjusted
assets and liabilities to a level more commensurate with operations which
experienced a decrease in sales of $17,829,674. As a result, accounts
receivable, inventories, trade accounts payable and long-term debt were reduced
$4,600,519, $2,455,570, $3,925,198 and $2,538,125, respectively. The Company
expects to continue to monitor and evaluate these adjustments depending on
changes in market conditions and the Company's operations.

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, 2004, the Company may borrow up to $10 million at an interest rate no
greater than the bank's prime rate. At December 31, 2001, the Company had
borrowings outstanding under the revolving facility of $2 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,
2001, the principal amount of indebtedness outstanding under the term facility
was $1 million.

During the nine months ended December 31, 2001, the Company invested
approximately $900,000 in capital asset additions related to new coil product
offerings.

Notwithstanding the current market conditions, the Company believes its
cash flows from operations and borrowing capability under its line of credit
facility are adequate to fund its expected cash requirements for the next
twenty-four months.

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 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, 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.

FRIEDMAN INDUSTRIES, INCORPORATED
NINE MONTHS ENDED DECEMBER 31, 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

b). Reports on Form 8-K

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 February 14, 2002 By /s/ BEN HARPER
------------------------------------
Ben Harper, Senior Vice
President-Finance
(Chief Accounting Officer)

Date February 14, 2002 By /s/ HAROLD FRIEDMAN
------------------------------------
Harold Friedman, Vice Chairman
of the Board