EXHIBIT 13.1
THE COMPANY'S ANNUAL
REPORT TO SHAREHOLDERS FOR
THE FISCAL YEAR ENDED MARCH 31, 2004
FRIEDMAN
INDUSTRIES
INCORPORATED
2004
ANNUAL REPORT
FRIEDMAN INDUSTRIES, INCORPORATED
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
2004 2003
------------ ------------
Net sales................................ $116,158,567 $106,082,738
Net earnings............................. $2,535,991 $1,432,017
Net earnings per share (Basic)........... $0.33 $0.19
Cash dividends per share................. $0.10 $0.09
Stockholders' equity..................... $33,031,604 $31,246,751
Stockholders' equity per share........... $4.36 $4.13
Working capital.......................... $25,189,938 $23,734,112
</Table>
TO OUR SHAREHOLDERS:
In the fourth quarter of fiscal 2004, the Company benefited from stronger
market conditions for its products and from inventory reductions which resulted
in substantially improved earnings. Steel costs in this quarter increased at a
rate not experienced before but strong demand allowed the Company to pass along
these increased costs.
Currently, the costs for material remain high and demand appears to be
holding. Since we do not know how long this market will last, the Company
continues to closely monitor its inventory positions.
You are cordially invited to attend the Annual Meeting of Shareholders to
be held on September 9, 2004. The meeting will be held at 11:00 a.m. in the
offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston,
Texas.
Sincerely,
-s- JACK FRIEDMAN
Jack Friedman
Chairman of the Board
and Chief Executive Officer
1
FRIEDMAN INDUSTRIES, INCORPORATED
OFFICERS
Jack Friedman
Chairman of the Board and
Chief Executive Officer
Harold Friedman
Vice Chairman of the Board
William E. Crow
President and Chief Operating Officer
Benny B. Harper
Senior Vice President -- Finance
and Secretary/Treasurer
Thomas N. Thompson
Senior Vice President -- Sales and Marketing
Ronald L. Burgerson
Vice President
Dale Ray
Vice President
Howard Henderson
Vice President of Operations -- Texas Tubular Division
Robert Sparkman
Vice President of Sales -- Coil Divisions
Dan Vivian
Vice President of Operations -- Hickman Coil Facility
Charles W. Hall
Assistant Secretary
COMPANY OFFICES AND WEB SITE
CORPORATE OFFICE
4001 Homestead Road
Houston, Texas 77028
713-672-9433
SALES OFFICE -- COIL PRODUCTS
1121 Judson Road
Longview, Texas 75606
903-758-3431
SALES OFFICE -- TUBULAR PRODUCTS
P.O. Box 0388
Lone Star, Texas 75668
903-639-2511
WEB SITE
www.friedmanindustries.com
COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
AUDITORS
Ernst & Young LLP
1401 McKinney, Suite 1200
Houston, Texas 77010
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10007
DIRECTORS
Jack Friedman
Chairman of the Board and
Chief Executive Officer
Harold Friedman
Vice Chairman of the Board
William E. Crow
President and Chief Operating Officer
Charles W. Hall
Fulbright & Jaworski L.L.P. (law firm)
Houston, Texas
Alan M. Rauch
President, Ener-Tex
International, Inc.
(oilfield equipment sales)
Houston, Texas
Hershel M. Rich
Private investor and
business consultant
Houston, Texas
Kirk K. Weaver
Business advisor
Houston, Texas
Joe L. Williams
Managing Director,
Acordia of Texas, Inc.
(insurance and risk management)
Houston, Texas
ANNUAL REPORT ON FORM 10-K
SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED MARCH 31, 2004 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. WRITTEN REQUESTS SHOULD BE ADDRESSED TO: BENNY B. HARPER,
SENIOR VICE PRESIDENT, FRIEDMAN INDUSTRIES, INCORPORATED, P.O. BOX 21147,
HOUSTON, TEXAS 77226.
2
FRIEDMAN INDUSTRIES, INCORPORATED
DESCRIPTION OF BUSINESS
Friedman Industries, Incorporated is engaged in pipe manufacturing and
processing, steel processing and steel and pipe distribution.
At its facilities in Lone Star, Texas, and Hickman, Arkansas, the Company
processes hot-rolled steel coils into flat, finished sheet and plate and sells
these products on a wholesale, rapid-delivery basis in competition with steel
mills, importers and steel service centers. The Company also processes
customer-owned coils on a fee basis. In addition, through its XSCP Division
located in Hickman, Arkansas, the Company purchases and markets non-standard
hot-rolled coils received from Nucor Steel Company ("NSC"). The Company
purchases a substantial amount of its annual coil tonnage from Lone Star Steel
Company ("LSS") and NSC. Loss of LSS or NSC as a source of coil supply could
have a material adverse effect on the Company's business.
The Company sells its coil products and processing services directly
through the Company's own sales force to approximately 280 customers located
primarily in the midwestern, southwestern and southeastern sections of the
United States. These products and services are sold principally to steel
distributors and to customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products.
The Company, through its Texas Tubular Products Division located in Lone
Star, Texas, manufactures, purchases, processes and markets tubular products
("pipe"). The Company sells pipe nationally to approximately 330 customers and
sells a substantial amount of manufactured pipe to LSS. The Company purchases a
substantial portion of its annual supply of pipe and coil material used in pipe
production from LSS. Loss of LSS as a source of such pipe and coil material
supply or as a customer of manufactured pipe could have a material adverse
effect on the Company's business.
Significant financial information relating to the Company's two product
groups, coil and tubular products, is contained in Note 7 of Notes to the
Company's Consolidated Financial Statements appearing herein.
------------------
RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK
<Table>
<Caption>
FISCAL 2004 FISCAL 2003
---------------- ----------------
HIGH LOW HIGH LOW
---- ---- ---- ----
First Quarter............................................... 2.75 2.30 3.09 2.55
Second Quarter.............................................. 3.64 2.53 2.88 2.37
Third Quarter............................................... 3.50 2.88 2.53 2.30
Fourth Quarter.............................................. 4.45 3.15 2.55 2.34
</Table>
------------------
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
<Table>
<Caption>
FISCAL 2004 FISCAL 2003
----------- -----------
First Quarter............................................... $.03 $.02
Second Quarter.............................................. $.03 $.02
Third Quarter............................................... $.02 $.03
Fourth Quarter.............................................. $.02 $.02
</Table>
------------------
The Company's Common Stock is traded principally on the American Stock
Exchange (trading symbol FRD).
The approximate number of shareholders of record of the Company as of April
30, 2004 was 460.
3
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<Table>
<Caption>
MARCH 31
----------------------------
2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,984,763 $ 673,127
Accounts receivable, net of allowances for bad debts
and cash discounts of $44,776 and $7,276 in 2004 and
2003, respectively................................... 14,688,702 9,966,061
Inventories............................................ 21,043,992 24,032,268
Other.................................................. 112,244 98,044
------------ ------------
TOTAL CURRENT ASSETS.............................. 37,829,701 34,769,500
PROPERTY, PLANT, AND EQUIPMENT:
Land................................................... 437,793 437,793
Buildings and yard improvements........................ 4,088,149 4,063,579
Machinery and equipment................................ 18,013,461 17,216,823
Less accumulated depreciation.......................... (15,846,288) (14,930,027)
------------ ------------
6,693,115 6,788,168
OTHER ASSET:
Cash value of officers' life insurance................. 1,302,613 1,221,258
Deferred income taxes.................................. 202,694 --
------------ ------------
TOTAL ASSETS...................................... $ 46,028,123 $ 42,778,926
============ ============
</Table>
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
MARCH 31
----------------------------
2004 2003
------------ ------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 10,204,653 $ 9,870,888
Current portion of long-term debt...................... 63,037 68,496
Dividends payable...................................... 151,500 151,460
Income taxes payable................................... 1,134,433 406,620
Contribution to profit sharing plan.................... 280,000 260,000
Employee compensation and related expenses............. 806,140 277,924
------------ ------------
TOTAL CURRENT LIABILITIES......................... 12,639,763 11,035,388
LONG-TERM DEBT, less current portion........................ -- 57,329
DEFERRED INCOME TAXES....................................... -- 283,458
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 356,756 156,000
STOCKHOLDERS' EQUITY:
Common stock, par value $1:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 7,575,239 in 2004
and 7,573,239 in 2003............................. 7,575,239 7,573,239
Additional paid-in capital............................. 27,714,669 27,710,369
Retained deficit....................................... (2,258,304) (4,036,857)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................ 33,031,604 31,246,751
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 46,028,123 $ 42,778,926
============ ============
</Table>
See accompanying notes.
4
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
<Table>
<Caption>
YEAR ENDED MARCH 31
-----------------------------------------
2004 2003 2002
------------ ------------ -----------
Sales........................................... $116,158,567 $106,082,738 $97,817,956
Costs and expenses:
Cost of products sold...................... 107,316,507 99,667,017 91,890,596
Selling, general, and administrative....... 5,020,993 4,283,973 4,317,313
Interest expense........................... 35,253 71,700 278,719
------------ ------------ -----------
112,372,753 104,022,690 96,486,628
------------ ------------ -----------
3,785,814 2,060,048 1,331,328
Interest and other income....................... 56,595 109,674 92,974
------------ ------------ -----------
EARNINGS BEFORE FEDERAL INCOME
TAXES............................... 3,842,409 2,169,722 1,424,302
Federal income taxes:
Current.................................... 1,792,570 935,807 450,263
Deferred................................... (486,152) (198,102) 34,000
------------ ------------ -----------
1,306,418 737,705 484,263
------------ ------------ -----------
NET EARNINGS.......................... $ 2,535,991 $ 1,432,017 $ 940,039
============ ============ ===========
Average number of common shares outstanding:
Basic......................................... 7,574,070 7,572,239 7,571,239
Diluted....................................... 7,640,546 7,589,900 7,571,239
Net earnings per share:
Basic......................................... $ .33 $ .19 $ .12
Diluted....................................... $ .33 $ .19 $ .12
</Table>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<Table>
<Caption>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT)
---------- ----------- -----------
BALANCE AT MARCH 31, 2001............... $7,568,839 $27,703,829 $(4,894,518)
Net earnings...................................... -- -- 940,039
Issuance of Directors' shares..................... 2,400 3,480 --
Cash dividends ($0.11 per share).................. -- -- (832,718)
---------- ----------- -----------
BALANCE AT MARCH 31, 2002............... 7,571,239 27,707,309 (4,787,197)
Net earnings...................................... -- -- 1,432,017
Issuance of Directors' shares..................... 2,000 3,060 --
Cash dividends ($0.09 per share).................. -- -- (681,677)
---------- ----------- -----------
BALANCE AT MARCH 31, 2003............... 7,573,239 27,710,369 (4,036,857)
Net earnings...................................... -- -- 2,535,991
Issuance of Directors' shares..................... 2,000 4,300 --
Cash dividends ($0.10 per share).................. -- -- (757,438)
---------- ----------- -----------
BALANCE AT MARCH 31, 2004............... $7,575,239 $27,714,669 $(2,258,304)
========== =========== ===========
</Table>
See accompanying notes.
5
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED MARCH 31
---------------------------------------
2004 2003 2002
----------- ----------- -----------
OPERATING ACTIVITIES
Net earnings....................... $ 2,535,991 $ 1,432,017 $ 940,039
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Depreciation.................. 916,260 967,003 903,050
Directors' shares issued...... 6,300 5,060 5,830
Deferred taxes................ (486,152) (198,102) 34,000
Change in post retirement
benefits.................... 200,756 (7,000) --
Gain on disposal of property,
plant, and equipment........ -- -- (24,660)
Changes in operating assets and
liabilities:
Accounts receivable........... (4,722,641) (2,480,844) 3,099,518
Inventories................... 2,988,276 (530,067) 5,315,174
Other assets.................. (14,200) 37,632 24,467
Accounts payable and accrued
expenses.................... 333,765 517,502 (1,090,462)
Contribution to profit sharing
plan........................ 20,000 -- (28,000)
Employee compensation and
related expenses............ 528,216 91,136 (73,211)
Federal income taxes
payable..................... 727,813 319,148 (39,737)
----------- ----------- -----------
Net cash provided by operating
activities.................. 3,034,384 153,485 9,066,008
INVESTING ACTIVITIES
Purchase of property, plant, and
equipment........................ (821,209) (604,735) (1,245,180)
Proceeds from sale of asset........ -- -- 42,118
Increase in cash value of officers'
life insurance................... (81,354) (81,184) (75,612)
----------- ----------- -----------
Net cash used in investing
activities.................. (902,563) (685,919) (1,278,674)
FINANCING ACTIVITIES
Cash dividends paid................ (757,398) (605,782) (1,059,704)
Proceeds from borrowings of
long-term debt................... 2,000,000 104,239 101,250
Principal payments on long-term
debt............................. (2,062,787) (2,865,747) (2,814,062)
Payments on loans against life
insurance........................ -- (111,043) --
----------- ----------- -----------
Net cash used in financing
activities.................. (820,185) (3,478,333) (3,772,516)
----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents........ 1,311,636 (4,010,767) 4,014,818
Cash and cash equivalents at
beginning of year................ 673,127 4,683,894 669,076
----------- ----------- -----------
Cash and cash equivalents at
end of year................. $ 1,984,763 $ 673,127 $ 4,683,894
=========== =========== ===========
</Table>
See accompanying notes.
6
FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated, and its subsidiary (collectively,
the "Company"). All material intercompany amounts and transactions have been
eliminated.
REVENUE RECOGNITION: Revenues are recognized upon shipment of products.
The terms of shipments made by the Company are free on board shipping point.
TRADE RECEIVABLES: The Company's receivables are recorded when billed,
advanced or accrued and represent claims against third parties that will be
settled in cash. The carrying value of the Company's receivables, net of the
allowance for doubtful accounts, represents their estimated net realizable
value. The Company estimates its allowance for doubtful accounts based on
historical collection trends, the age of outstanding receivables and existing
economic conditions. Past-due receivable balances are written-off when the
Company's internal collection efforts have been unsuccessful in collecting the
amount due.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash
equivalents.
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. Cost for prime coil inventory
is determined under the last-in, first-out ("LIFO") method. During the years
ended March 31, 2004 and March 31, 2003, earnings before federal income taxes
include a benefit of approximately $950,000 and $106,000, respectively, from the
liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared to respective current costs of purchases. At March 31,
2004, March 31, 2003 and March 31, 2002, replacement cost exceeded LIFO cost by
approximately $4,320,000, $990,000 and $0, respectively. Cost for non-standard
coil inventory is determined using the specific identification method. Cost for
tubular inventory is determined using the weighted average method.
The following is a summary of inventory by product group:
<Table>
<Caption>
MARCH 31
-------------------------
2004 2003
----------- -----------
Prime coil inventory.................................... $ 4,976,300 $ 6,743,001
Non-standard coil inventory............................. 4,181,815 1,725,581
Tubular raw material.................................... 3,515,060 2,736,602
Tubular finished goods.................................. 8,370,817 12,827,084
----------- -----------
$21,043,992 $24,032,268
=========== ===========
</Table>
PROPERTY, PLANT, AND EQUIPMENT: On April 1, 2002, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). That statement
requires that assets held-for-sale be recorded at the lower of their carrying
amount or their fair value less cost to sell. Held-for-sale assets are not
depreciated. Assets are classified as held-for-sale only if (i) management
commits to a plan to sell the asset, (ii) the asset is available for immediate
sale, (iii) the asset is actively being marketed for sale at a price that is
reasonable in relation to its current fair value and (iv) management believes
the sale of the asset is probable and expects transfer within one year. No
assets met the definition of held-for-sale at March 31, 2004. Property, plant,
and equipment are stated at cost. Depreciation is
7
FRIEDMAN INDUSTRIES, INCORPORATED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculated primarily by the straight-line method over the estimated useful lives
of the various classes of assets as follows:
<Table>
<Caption>
Buildings................................................... 20 years
Machinery and equipment..................................... 10 years
Improvements................................................ 5 years
Loaders and other rolling stock............................. 5 years
</Table>
Interest costs incurred during construction projects are capitalized as
part of the cost of such assets. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. No impairments were necessary at March
31, 2004 or 2003.
SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $35,253 in 2004, $87,307 in 2003, and $278,700 in 2002. The
Company paid income taxes, net of refunds, of $1,065,000 in 2004, $617,000 in
2003, and $408,900 in 2002.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
FINANCIAL INSTRUMENTS: The carrying value of the Company's financial
instruments approximates fair value.
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 the years ended March 31:
<Table>
<Caption>
2004 2003 2002
---------- ---------- --------
Reported net income.................................... $2,535,991 $1,432,017 $940,039
Less: compensation expenses per SFAS No. 123, net of
tax.................................................. 31,582 113,685 10,716
---------- ---------- --------
Pro forma net income................................... $2,504,409 $1,318,332 $929,323
---------- ---------- --------
BASIC EARNINGS PER COMMON SHARE:
Reported net income.................................... .33 .19 .12
Less: compensation expense per SFAS No. 123, net of
tax.................................................. .00 .02 .00
---------- ---------- --------
Pro forma net income................................... .33 .17 .12
---------- ---------- --------
DILUTED EARNINGS PER COMMON SHARE:
Reported net income.................................... .33 .19 .12
Less: compensation expense per SFAS No. 123, net of
tax.................................................. .00 .02 .00
---------- ---------- --------
Pro forma net income................................... .33 .17 .12
---------- ---------- --------
</Table>
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.
8
FRIEDMAN INDUSTRIES, INCORPORATED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company also grants stock awards to outside directors and records these
grants as expense.
ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company supply a significant amount of steel products to the Company. Loss of
either of these mills as a source of supply could have a material adverse effect
on the Company. Additionally, the Company derives revenue by selling a
substantial amount of its manufactured pipe to LSS. Total sales to LSS were
approximately $17 million, $12 million, and $13 million in 2004, 2003, and 2002,
respectively. Loss of LSS as a customer could have a material adverse effect on
the Company's business.
The Company's sales are concentrated primarily in the midwestern,
southwestern, and southeastern sections of the United States, and are primarily
to customers in the steel distributing and fabricating industries. The Company
performs periodic credit evaluations of the financial conditions of its
customers and generally does not require collateral. Generally, receivables are
due within 30 days.
2. STOCK OPTIONS AND CAPITAL STOCK
Under the Company's 1989 and 1996 Incentive Stock Option Plans, incentive
options were granted to certain officers and key employees to purchase common
stock of the Company. Pursuant to the terms of the plans, 16,314 additional
options may be granted. All options have ten-year terms and become fully
exercisable at the end of six months of continued employment. The following is a
summary of activity relative to options outstanding during the years ended March
31:
<Table>
<Caption>
2004 2003 2002
------------------- ------------------- --------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- -------- --------
Outstanding at beginning of year......... 411,694 $2.58 154,293 $3.01 400,048 $4.14
Granted.................................. -- -- 265,000 $2.33 27,959 $2.45
Exercised................................ -- -- -- -- -- --
Canceled................................. -- -- (7,599) $2.78 (273,714) $4.59
------- ----- ------- ----- -------- -----
Outstanding at end of year............... 411,694 $2.58 411,694 $2.58 154,293 $3.01
======= ======= ========
Exercisable at end of year............... 411,694 $2.58 146,694 $3.03 154,293 $3.01
Weighted average fair value of options
granted during the year................ -- $2.33 $2.45
</Table>
Outstanding and exercisable stock options and warrants at March 31, 2004,
were as follows:
<Table>
<Caption>
OUTSTANDING EXERCISABLE
------------------------ ------------------------
RANGE OF WEIGHTED AVERAGE WEIGHT AVERAGE WEIGHT AVERAGE
EXERCISE PRICE REMAINING YEARS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- ---------------- ------- -------------- ------- --------------
$2.33 - $2.94 8.2 299,222 $2.36 299,222 $2.36
$3.13 2.0 111,368 $3.13 111,368 $3.13
$4.73 4.8 1,104 $4.73 1,104 $4.73
--- ------- -------
6.5 411,694 411,694
</Table>
The Company has 1,000,000 authorized shares of Cumulative Preferred Stock
with a par value of $1 per share. The stock may be issued in one or more series,
and the Board of Directors is authorized to fix the designations, preferences,
rights, qualifications, limitations, and restrictions of each series, except
that any series must provide for cumulative dividends and must be convertible
into common stock.
3. LONG-TERM DEBT AND COMMITMENTS AND CONTINGENCIES
The Company has a credit arrangement with a bank which provides for a
revolving line of credit facility (the "revolving facility"). Pursuant to the
revolving facility which expires April 1, 2006, the Company may borrow up to $6
million at bank's prime rate or at 1.5% over LIBOR. At March 31,
9
FRIEDMAN INDUSTRIES, INCORPORATED
3. LONG-TERM DEBT AND COMMITMENTS AND CONTINGENCIES (CONTINUED)
2004, the Company did not have borrowings outstanding under the revolving
facility. The Company entered into certain notes payable related to the purchase
of certain pipe loading equipment. The annual principal payments required on
these notes payable including the current portion thereon during the next five
years are as follows:
<Table>
2005........................................................ $63,037
2006........................................................ --
2007........................................................ --
2008........................................................ --
2009........................................................ --
-------
Total.................................................. $63,037
=======
</Table>
The Company repaid $111,043 of loans borrowed against the cash surrender
value of officers' life insurance policies during the year ended March 31, 2003.
At March 31, 2003, all loans against the cash surrender value of officers' life
insurance policies were paid in full.
The Company is obligated under an operating lease for its Longview, Texas
office building that expires on April 30, 2008. The following is a schedule of
future minimum annual rental payments required under this operating lease as of
March 31, 2004:
<Table>
2005........................................................ $ 27,264
2006........................................................ 27,264
2007........................................................ 27,264
2008........................................................ 27,264
2009........................................................ 2,272
Thereafter.................................................. --
--------
Total.................................................. $111,328
========
</Table>
Rental expense for leased properties was $27,264, $131,629 and $27,264
during fiscal 2004, 2003 and 2002, respectively.
The Company was obligated to purchase approximately $8,400,000 in steel
coils at March 31, 2004.
Effective September 2001, the Company entered into an arrangement to
purchase non-standard coils from NSC. Either the Company or NSC can terminate
this arrangement upon 90 days written notice.
10
FRIEDMAN INDUSTRIES, INCORPORATED
4. EARNINGS PER SHARE
Basic and dilutive net income per share is computed based on the following
information:
<Table>
<Caption>
YEAR ENDED MARCH 31
------------------------------------
2004 2003 2002
---------- ---------- ----------
BASIC
Net income................................... $2,535,991 $1,432,017 $ 940,039
========== ========== ==========
Average common shares........................ 7,574,070 7,572,239 7,571,239
========== ========== ==========
DILUTIVE
Net income................................... $2,535,991 $1,432,017 $ 940,039
========== ========== ==========
Average common shares........................ 7,574,070 7,572,239 7,571,239
Common share equivalents:
Warrants................................... -- -- --
Options.................................... 66,476 17,661 --
---------- ---------- ----------
Total common share equivalents............... 66,476 17,661 --
---------- ---------- ----------
Average common shares and common
equivalents................................ 7,640,546 7,589,900 7,571,239
========== ========== ==========
</Table>
5. INCOME TAXES
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for tax purposes. Significant components of the Company's
consolidated deferred tax assets (liabilities) are as follows:
<Table>
<Caption>
MARCH 31
---------------------
2004 2003
--------- ---------
DEFERRED TAX LIABILITIES:
Depreciation...................................... $(650,000) $(699,092)
Other............................................. -- --
--------- ---------
Total deferred tax liabilities...................... (650,000) (699,092)
DEFERRED TAX ASSETS:
Inventory capitalization.......................... 90,047 90,047
Inventory reserve................................. 570,000 204,000
Postretirement benefits other than pensions....... 124,100 53,040
Other............................................. 68,547 68,547
--------- ---------
Total deferred tax assets........................... 852,694 415,634
--------- ---------
Net deferred tax asset (liability).................. $ 202,694 $(283,458)
========= =========
</Table>
11
FRIEDMAN INDUSTRIES, INCORPORATED
6. PROFIT SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company has a defined contribution plan (the "Plan") covering
substantially all employees, including officers. Company contributions, which
are made at the discretion of the Board of Directors in an amount not to exceed
15% of the total compensation paid during the year to all eligible employees,
were $280,000 for the year ended March 31, 2004, $260,000 for the year ended
March 31, 2003, and $260,000 for the year ended March 31, 2002. The employees
fully vest in the Plan upon completion of 7 years of service. Contributions,
Plan earnings, and forfeitures of terminated participants' nonvested accounts
are allocated to the individual accounts of participating employees based on
compensation received during the plan year and years of active service with the
Company.
Employees of the Company may participate in a 401(k) retirement plan (the
"401(k) plan"). Employees are eligible to participate in the 401(k) plan when
the employee has completed one year of service. Under the 401(k) plan,
participating employees may defer a portion of their pretax earnings up to
certain limits prescribed by the Internal Revenue Service. The Company provides
matching contributions under the provisions of the plan. Employees fully vest in
the Company's matching contributions upon the completion of 7 years of service.
Contribution expense related to the 401(k) plan was approximately $28,000,
$27,000 and $30,000 for the years ended March 31, 2004, 2003 and 2002,
respectively.
12
FRIEDMAN INDUSTRIES, INCORPORATED
7. INDUSTRY SEGMENT DATA
The Company is engaged in pipe manufacturing and processing and steel and
pipe distribution business. Within the Company, there are two product groups:
coil and tubular. Coil product involves converting steel coils into flat sheet
and plate steel cut to customer specifications and reselling steel coils.
Through its Texas tubular operation, the Company purchases, processes,
manufactures, and markets tubular products. The following is a summary of
significant financial information relating to the product groups:
<Table>
<Caption>
YEAR ENDED MARCH 31
-----------------------------------------
2004 2003 2002
------------ ------------ -----------
NET SALES:
Coil.......................................... $ 62,372,496 $ 60,416,662 $51,880,290
Tubular....................................... 53,786,071 45,666,076 45,937,666
------------ ------------ -----------
TOTAL NET SALES....................... $116,158,567 $106,082,738 $97,817,956
============ ============ ===========
OPERATING PROFIT:
Coil.......................................... $ 3,026,372 $ 1,786,570 $ 954,741
Tubular....................................... 3,704,082 2,545,695 2,727,100
------------ ------------ -----------
TOTAL OPERATING PROFIT................ 6,730,454 4,332,265 3,681,841
General corporate expenses.................... (2,909,387) (2,200,517) (2,071,794)
Interest expense.............................. (35,253) (71,700) (278,719)
Interest and other income..................... 56,595 109,674 92,974
------------ ------------ -----------
TOTAL EARNINGS BEFORE TAXES........... $ 3,842,409 $ 2,169,722 $ 1,424,302
============ ============ ===========
IDENTIFIABLE ASSETS:
Coil.......................................... $ 21,770,013 $ 18,967,495 $18,489,064
Tubular....................................... 20,623,515 21,848,558 19,703,080
------------ ------------ -----------
42,393,528 40,816,053 38,192,144
General corporate assets...................... 3,634,595 1,962,873 5,794,311
------------ ------------ -----------
TOTAL ASSETS.......................... $ 46,028,123 $ 42,778,926 $43,986,455
============ ============ ===========
DEPRECIATION:
Coil.......................................... $ 744,759 $ 804,463 $ 723,812
Tubular....................................... 151,250 141,384 154,504
Corporate and other........................... 20,251 21,156 24,733
------------ ------------ -----------
$ 916,260 $ 967,003 $ 903,049
============ ============ ===========
CAPITAL EXPENDITURES:
Coil.......................................... $ 30,457 $ 56,494 $ 1,106,403
Tubular....................................... 715,426 514,623 138,777
Corporate and other........................... 75,326 33,618 --
------------ ------------ -----------
$ 821,209 $ 604,735 $ 1,245,180
============ ============ ===========
</Table>
Operating profit is total revenue less operating expenses, excluding
general corporate expenses, interest expense, and interest and other income.
General corporate expenses reflect general and administrative expenses not
directly associated with segment operations and consist primarily of corporate
and accounting salaries, professional fees and services, bad debts, accrued
profit sharing expense, accrued quarterly incentive bonuses, corporate insurance
expenses and office supplies. Corporate assets consist primarily of cash and
cash equivalents, deferred income taxes and the cash value of officers' life
insurance. There are no sales between product groups.
13
FRIEDMAN INDUSTRIES, INCORPORATED
8. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 2004 and 2003:
<Table>
<Caption>
Quarter Ended
------------------------------------------------------
June 30 September 30 December 31 March 31
2003 2003 2003 2004
----------- ------------ ----------- -----------
Net sales........................ $25,204,170 $25,410,689 $24,977,857 $40,565,851
Gross profit..................... 1,948,657 1,499,757 949,065 4,444,581
Net earnings..................... 467,265 291,262 10,117 1,767,347(1)
Net earnings per share:
Basic.......................... .06 .04 .00 .23
Diluted........................ .06 .04 .00 .23
</Table>
<Table>
<Caption>
Quarter Ended
------------------------------------------------------
June 30 September 30 December 31 March 31
2002 2002 2002 2003
----------- ------------ ----------- -----------
Net sales........................ $25,561,298 $27,776,049 $25,418,779 $27,326,612
Gross profit..................... 1,468,518 1,806,128 1,245,502 1,895,573
Net earnings..................... 277,155 469,042 200,197 485,623
Net earnings per share:
Basic.......................... .04 .06 .03 .06
Diluted........................ .04 .06 .03 .06
</Table>
- ---------------
(1) Includes the benefit of approximately $594,000 ($0.08 per share diluted) in
net earnings from the liquidation of LIFO inventories.
14
FRIEDMAN INDUSTRIES, INCORPORATED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Friedman Industries, Incorporated
We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 2004 and 2003, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman
Industries, Incorporated at March 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2004, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
May 21, 2004
------------------------------------------
SELECTED FINANCIAL DATA
<Table>
<Caption>
YEAR ENDED MARCH 31
--------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------- ------------- ------------ ------------- -------------
Net sales.......................... $ 116,158,567 $ 106,082,738 $ 97,817,956 $ 120,395,583 $ 120,267,809
Net earnings....................... 2,535,991 1,432,017 940,039 2,927,582 2,506,801
Total assets....................... 46,028,123 42,778,926 43,986,455 48,010,512 45,106,790
Long-term debt..................... -- 57,329 2,053,438 4,800,000 7,600,000
Stockholders' equity............... 33,031,604 31,246,751 30,491,351 30,378,150 28,622,951
Net earnings per share:
Basic............................ 0.33 0.19 0.12 0.39 0.33
Diluted.......................... 0.33 0.19 0.12 0.39 0.33
Cash dividends declared per share
adjusted for stock dividends..... 0.10 0.09 0.11 0.16 0.18
</Table>
See also Note 1 of Notes to the Company's Consolidated Financial Statements
herein which describes the Company's relationship with its primary suppliers of
steel products.
15
FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Year ended March 31, 2004 compared to year ended March 31, 2003
During the year ended March 31, 2004, sales, costs of goods sold and gross
profit increased $10,075,829, $7,649,490 and $2,426,339, from the respective
amounts recorded during the year ended March 31, 2003. The increases in sales
and costs of goods sold were related primarily to increases in the average per
ton selling price and the per ton cost of products of approximately 13% and 11%,
respectively. The increase in gross profit was related primarily to the increase
in sales and improved margins. Gross profits and costs of goods sold as a
percentage of sales were approximately 7.6% and 92.4%, respectively, in fiscal
2004 compared to 6.0% and 94.0%, respectively, in fiscal 2003. The increase in
gross margin was related primarily to the last quarter of fiscal 2004 in which
the Company's operations benefited from stronger demand for its products and
services and from the liquidation of LIFO inventories which generated a one-time
benefit of approximately $950,000 in gross profit.
Coil product segment sales increased approximately $1,956,000 during fiscal
2004. The average per ton selling price increased approximately 14% as tonnage
shipped declined from approximately 191,000 tons in fiscal 2003 to 173,000 tons
in fiscal 2004. Coil segment operating profits as a percentage of segment sales
were approximately 4.9% in fiscal 2004 and 3.0% in fiscal 2003. This segment
benefited from stronger demand for its products and services and from the
liquidation of LIFO inventories which contributed a one-time benefit to segment
operations of approximately $950,000. In fiscal 2004, the Company's Lone Star
coil facility experienced a lack of supply of coil products from its primary
coil supplier, Lone Star Steel Company ("LSS"), which resulted in decreased
sales. This facility's sales represented approximately 7% of the Company's total
sales in fiscal 2004. This facility has from time to time purchased steel coils
from other suppliers. However, the freight cost on such purchases diminishes the
Company's competitiveness in an extremely competitive industry. While the supply
of inventory in 2004 allowed this facility to operate at approximately a
break-even point, a further reduction in supply could have an adverse effect on
coil segment operations. Management confers with LSS regularly and continues to
monitor this situation closely. Subsequent to March 31, 2004, the Company's XSCP
division, which markets non-standard coils received from Nucor Steel Company
("NSC"), agreed with NSC to suspend the purchase of non-standard coils. XSCP
represented approximately 6% of the Company's total sales in fiscal 2004. Due to
the increased cost of this material, management did not believe that the
material could be resold at a profit. XSCP operating assets can be used in the
Hickman, Arkansas coil facility operation. Management continues to monitor this
situation closely and to confer regularly with NSC regarding this suspension. In
the near term, the Company expects this suspension in supply to continue. NSC
continues to supply the Hickman coil facility with steel coils in amounts that
are adequate for the Company's purposes. The company is dependent on LSS and NSC
for the supply of inventory. While current supply levels are adequate to sustain
the Company's coil operations at both the Hickman and Lone Star coil facilities,
a reduction in the supply of steel coils could have an adverse effect on the
Company's coil operations.
Tubular product segment sales increased approximately $8,120,000 during
fiscal 2004. This increase resulted primarily from both an increase in the
average per ton selling price of approximately 11% and an increase in tons sold
from approximately 140,000 tons in fiscal 2003 to 149,000 tons in fiscal 2004.
Tubular segment operating profits as a percentage of segment sales were
approximately 6.9% and 5.6% in fiscal 2004 and 2003, respectively. This
improvement was associated primarily with stronger demand for this segment's
products during the last quarter of
16
FRIEDMAN INDUSTRIES, INCORPORATED
fiscal 2004. During fiscal 2004, LSS, the Company's principal supplier of
tubular products and coil material used in pipe manufacturing, continued to
supply such products in amounts as were adequate for the Company's purposes. The
Company currently does not anticipate any significant change in such supply from
LSS.
General, selling and administrative costs increased $737,020 from the
amount recorded in fiscal 2003. This increase resulted primarily from increases
in incentive bonuses and other variable expenses related to increased earnings,
in bad debt expense, in legal and professional expenses and in insurance
expenses. During fiscal 2004, the Company experienced a bad debt related to one
of its larger customers, which resulted in the Company incurring a bad debt
expense of approximately $173,000. The Company monitors closely its customer
accounts receivable and believes that this expense was an isolated event that
does not represent a trend in this area.
Interest expense decreased $36,447 from the amount recorded in fiscal 2003.
This decrease was related primarily to reductions in short and long-term debt
during fiscal 2004.
Interest and other income declined $53,079 from the amount recorded during
fiscal 2003. This decline was related primarily to a decrease in average
invested cash positions and to lower interest rates paid on such positions.
Federal income taxes increased $568,713 from the comparable amount recorded
during fiscal 2003. This increase was primarily related to the increase in
earnings before taxes as the effective tax rates were the same for both years.
Year ended March 31, 2003 compared to year ended March 31, 2002
During the year ended March 31, 2003, sales, costs of goods sold and gross
profit increased $8,264,782, $7,776,421 and $488,361, from the respective
amounts recorded during the year ended March 31, 2002. These increases were
related primarily to the Company's coil operations which experienced increases
in both tons sold and in the average per ton selling price. Gross profits and
costs of goods sold as a percentage of sales were approximately 6.0% and 94.0%,
respectively, in both fiscal years.
Coil product segment sales increased approximately $8,500,000 during fiscal
2003. The average per ton selling price increased approximately 12% and tonnage
shipped increased from approximately 184,000 tons in fiscal 2002 to 191,000 tons
in fiscal 2003. Coil segment operating profits as a percentage of segment sales
were approximately 3.0% in fiscal 2003 and 1.8% in fiscal 2002. Demand for coil
products was somewhat stronger in fiscal 2003.
Tubular product segment sales were approximately the same for both fiscal
2003 and 2002. The average selling price per ton in both years was approximately
the same as were tons shipped which reflected a small increase from
approximately 139,000 tons in fiscal 2002 to 140,000 tons in fiscal 2003.
Tubular segment operating profits as a percentage of segment sales were
approximately 5.6% and 5.9% in fiscal 2003 and 2002, respectively.
Interest expense decreased $207,019 from the amount recorded in fiscal
2002. This decrease was related primarily to reductions in short-term and
long-term debt.
Interest income and expense increased $16,700 from the amount recorded in
fiscal 2002 primarily as the result of an increase in average invested cash
positions during fiscal 2003.
Federal income taxes increased $253,442 from the comparable amount recorded
during fiscal 2002. This increase was primarily related to the increase in
earnings before taxes as the effective tax rates were the same for both years.
17
FRIEDMAN INDUSTRIES, INCORPORATED
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
The Company remained in a strong, liquid position at March 31, 2004.
Current ratios were 2.99 and 3.15 at March 31, 2004 and March 31, 2003,
respectively. Working capital was $25,189,938 at March 31, 2004 and $23,734,112
at March 31, 2003.
During the year ended March 31, 2004, the Company maintained assets and
liabilities at levels it believed were commensurate with operations. At March
31, 2004, cash and accounts receivable increased as inventories declined. These
changes were related primarily to increased sales activity in March 2004 and
February 2004. The Company expects to continue to monitor, evaluate and manage
balance sheet components 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"). Pursuant to the
revolving facility, which expires April 1, 2006, the Company may borrow up to $6
million at an interest rate of the bank's prime rate or 1.5% over LIBOR. The
Company uses the revolving facility to support cash flow and borrows and repays
funds as working capital is required. At March 31, 2004 and 2003, the Company
had no borrowings outstanding under the revolving facility. The Company has in
the past and may in the future borrow funds on a term basis to build or improve
facilities. The Company currently has no plans to borrow funds on a term basis.
During the quarter ended December 31, 2002, the Company exercised its right
under a lease agreement to purchase approximately 68 acres of land on which its
tubular operations are located for $214,338. This land was previously leased
from LSS.
In fiscal 2004, the Company purchased approximately $821,000 in fixed
assets. The primary portion of this investment was related to the construction
of a small diameter pipe mill. This mill began producing pipe in April 2004.
Notwithstanding the current market conditions, the Company believes that
its cash flow from operations and borrowing capability under its revolving line
of credit facility are adequate to fund its expected cash requirements for the
next 24 months.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
<Table>
<Caption>
PAYMENT DUE BY PERIOD
-------------------------------------------------
LESS THAN 1-3 3-5 MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------------------- --------- --------- ------ ----- ---------
Long-term debt obligations............... 63,037 63,037 -- -- --
Capital lease obligations................ -- -- -- -- --
Operating lease obligations.............. 111,328 27,264 81,792 2,272 --
Purchase obligations..................... 8,400,000 8,400,000 -- -- --
Other long-term liabilities reflected on
the registrant's balance sheet under
GAAP................................... -- -- -- -- --
--------- --------- ------ ----- --
Total.................................... 8,574,365 8,490,301 81,792 2,272 --
========= ========= ====== ===== ==
</Table>
INFLATION
During fiscal 2004, the Company believes that the general level of
inflation had little effect on its operations.
18
FRIEDMAN INDUSTRIES, INCORPORATED
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. One such accounting policy which requires
significant estimates and judgments is the valuation of LIFO inventories in the
Company's quarterly reporting. The Company's quarterly valuation of inventory
requires estimates of the year end quantities which is inherently difficult.
Historically, these estimates have been materially correct. In addition, the
Company maintains an allowance for doubtful accounts receivable by providing for
specifically identified accounts where collectibility is doubtful and a general
allowance based on the aging of the receivables compared to past experience and
current trends. On an on-going basis, the Company evaluates estimates and
judgments. The Company bases its estimates on historical experience and on
various other assumptions that it believes to be reasonable under the
circumstances.
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 operating plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business the Company is exposed to market risks
primarily from changes in the cost of steel in inventory and in interest rates.
The Company closely monitors exposure to market risks and develops appropriate
strategies to manage risk. With respect to steel purchases, there is no
recognized market to purchase derivative financial instruments to reduce the
inventory exposure risk on changing commodity prices. The exposure to market
risk associated with interest rates relates primarily to debt. Recent debt
balances are minimal and, as a result, direct exposure to interest rates changes
is not significant.
19
FRIEDMAN INDUSTRIES, INCORPORATED
TEN YEAR FINANCIAL SUMMARY
<Table>
<Caption>
YEAR ENDED MARCH 31
--------------------------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
------------ ------------ ----------- ------------ ------------ ------------
Net sales....................... $116,158,567 $106,082,738 $97,817,956 $120,395,583 $120,267,809 $124,719,640
Earnings........................ $ 2,535,991 $ 1,432,017 $ 940,039 $ 2,927,582 $ 2,506,801 $ 3,540,811
Current assets.................. $ 37,829,701 $ 34,769,500 $35,806,988 $ 40,231,329 $ 36,945,378 $ 32,534,040
Current liabilities............. $ 12,639,763 $ 11,035,388 $10,797,106 $ 12,271,802 $ 8,377,279 $ 6,758,038
Net working capital............. $ 25,189,938 $ 23,734,112 $25,009,882 $ 27,959,527 $ 28,568,099 $ 25,776,002
Total assets.................... $ 46,028,123 $ 42,778,926 $43,986,455 $ 48,010,512 $ 45,106,790 $ 41,023,377
Stockholders' equity............ $ 33,031,604 $ 31,246,751 $30,491,351 $ 30,378,150 $ 28,622,951 $ 27,422,779
Earnings as a percent of
Net sales................... 2.2 1.3 1.0 2.4 2.1 2.8
Stockholders' equity........ 7.7 4.6 3.1 9.6 8.8 12.9
Average number of common shares
outstanding: Basic(1)......... 7,574,070 7,572,239 7,571,239 7,568,839 7,547,624 7,528,702
Per share
Net earnings per share:
Basic....................... $ 0.33 $ 0.19 $ 0.12 $ 0.39 $ 0.33 $ 0.47
Stockholders' equity(1)....... $ 4.36 $ 4.13 $ 4.03 $ 4.01 $ 3.79 $ 3.64
Cash dividends per common
share......................... $ 0.10 $ 0.09 $ 0.11 $ 0.16 $ 0.18 $ 0.25
Stock dividend declared......... -- -- -- -- 5% 5%
<Caption>
YEAR ENDED MARCH 31
--------------------------------------------------------
1998 1997 1996 1995
------------ ------------ ------------ -----------
Net sales....................... $148,840,724 $119,920,966 $106,849,181 $97,968,805
Earnings........................ $ 4,809,992 $ 3,630,071 $ 2,836,768 $ 2,458,132
Current assets.................. $ 39,347,548 $ 33,357,160 $ 27,524,670 $25,956,555
Current liabilities............. $ 13,437,178 $ 10,172,672 $ 6,410,527 $ 5,816,334
Net working capital............. $ 25,910,370 $ 23,184,488 $ 21,114,143 $20,140,221
Total assets.................... $ 46,039,361 $ 38,117,191 $ 32,812,986 $32,074,862
Stockholders' equity............ $ 25,732,957 $ 22,781,959 $ 20,428,936 $18,722,781
Earnings as a percent of
Net sales................... 3.2 3.0 2.7 2.5
Stockholders' equity........ 18.7 15.9 13.9 13.1
Average number of common shares
outstanding: Basic(1)......... 7,512,901 7,489,943 7,446,076 7,444,041
Per share
Net earnings per share:
Basic....................... $ 0.64 $ 0.48 $ 0.38 $ 0.33
Stockholders' equity(1)....... $ 3.43 $ 3.04 $ 2.74 $ 2.52
Cash dividends per common
share......................... $ 0.25 $ 0.18 $ 0.15 $ 0.16
Stock dividend declared......... 5% 5% 5% 5%
</Table>
- ------------
(1) Adjusted for stock dividends.
[FRIEDMAN INDUSTRIES INCORPORATED LOGO]