EXHIBIT 13

FRIEDMAN
INDUSTRIES,
INCORPORATED

1995
ANNUAL REPORT
2

[RECYCLE LOGO] printed on recycled paper

FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

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

FINANCIAL HIGHLIGHTS

1995 1994
------------ ------------

Net sales.................................. $ 97,968,805 $ 70,908,065
Net earnings............................... $ 2,458,132 $ 1,691,075
Net earnings per share*.................... $ 0.42 $ 0.29
Cash dividends per share*.................. $ 0.20 $ 0.14
Stock dividends per share.................. 5% 5%
Stockholders' equity....................... $ 18,722,781 $ 17,430,337
Stockholders' equity per share*............ $ 3.21 $ 2.99
Working capital............................ $ 20,140,221 $ 15,480,138
* Adjusted for stock dividends.

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

TO OUR SHAREHOLDERS:

Fiscal 1995 results were substantially better than the results recorded
during fiscal 1994. Most of the sales increase was generated by our new Arkansas
coil facility which became operational in January 1994. In addition, the results
from our other coil divisions and from our tubular products division improved
during fiscal 1995. In management's opinion, a stronger U.S. economy produced
improved market conditions for the Company's products and services although
intense competition continued to exert pressure on margins, which were
approximately the same, year to year.

During fiscal 1995 the Company completed several capital improvements and
commenced others. The Arkansas coil facility warehouse was enlarged and other
improvements were made to increase the productive capacity of this operation. In
addition, the Company began construction of a coil slitter line at the tubular
products division. This line will be capable of slitting large steel coils from
any mill source and is expected to increase efficiency and decrease waste
associated with pipe production. A total of $470,612 was invested in capital
improvements during fiscal 1995. While none of these investments were considered
substantial, they emphasize the Company's commitment to improve its operations
in order to remain competitive in a very competitive industry.

You are invited to attend the Annual Meeting of Shareholders scheduled to
start at 11:00 a.m. (local time) on August 25, 1995, in the offices of Fulbright
and Jaworski L.L.P., 1301 McKinney, Houston, Texas.

Sincerely,

/s/ JACK FRIEDMAN
Jack Friedman
Chairman of the Board
and Chief Executive Officer

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

OFFICERS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
President and Chief Operating Officer

Ronald L. Burgerson
Vice President -- Coil Products
(Lone Star, Texas)

William Crow
Vice President and President of Texas
Tubular Products Division

Benny Harper
Vice President and Secretary -- Treasurer

Ted Henderson
Vice President -- Tubular Products

Dale Ray
Vice President -- Coil Products
(Hickman, Arkansas)

Thomas Thompson
Vice President -- Sales

Charles W. Hall
Assistant Secretary

DIRECTORS

Jack Friedman
Chairman of the Board and
Chief Executive Officer

Harold Friedman
President and Chief Operating Officer

Charles W. Hall
Partner, 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

Henry Spira
Retired; Former Vice President,
Friedman Industries, Incorporated
Houston, Texas

Kirk K. Weaver
Chairman of the Board and
Chief Executive Officer,
LTI Technologies, Inc.
(technical services)
Houston, Texas

COMPANY OFFICES
MAIN OFFICE
4001 Homestead Road
Houston, Texas 77028
713-672-9433

SALES OFFICE
1121 Judson Road
Longview, Texas 75606
903-758-3431

COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, 51st Floor
Houston, Texas 77010

AUDITORS
Ernst & Young LLP
1221 McKinney, Suite 2400
Houston, Texas 77010

TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005

STOCK EXCHANGE LISTING
American Stock Exchange
(Trading symbol: FRD)

APPROXIMATE NUMBER OF
SHAREHOLDERS OF RECORD
800 at May 19, 1995

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, 1995 as filed with the Securities and
Exchange Commission. Written requests should be addressed to: Benny Harper, Vice
President, Friedman Industries, Incorporated, P.O. Box 21147, Houston, Texas
77226.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

DESCRIPTION OF BUSINESS

Friedman Industries, Incorporated is in the steel processing and
distribution business. The Company has two product classifications: coil
processing (steel sheet and plate) and tubular products.

At its facilities in Lone Star, Texas, Houston, Texas, and Hickman,
Arkansas, the Company processes semi-finished, 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.
The Company purchases a substantial amount of its annual coil tonnage from Lone
Star Steel Company ("LSS") and Nucor Steel Company ("NSC"). Loss of LSS or NSC
as a source of coil supply could have a material adverse effect on the Company's
business.

Steel sheet and plate and coil processing services are sold directly
through the Company's own sales force to approximately 330 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 operation located in Lone
Star, Texas, markets and processes pipe. In addition, this division manufactures
pipe of which a substantial amount is sold to LSS. Pipe is sold nationally to
approximately 240 customers. The Company processes its own tubular products and
processes pipe for LSS on a fee basis. Pursuant to an informal arrangement with
LSS, the Company purchases a substantial portion of its pipe from LSS. Loss of
LSS as a source of pipe supply or as a customer of manufactured pipe could have
a material adverse effect on the Company's business.

During fiscal 1994, the Company discontinued the operations of its wholly
owned subsidiary, Royal Fasteners Corporation, which was engaged in the
marketing of fastener products.

Significant financial information relating to the Company's product groups
is contained in Note 8 of Notes to the Company's Consolidated Financial
Statements appearing herein.

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

RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK

FISCAL YEAR 1995 FISCAL YEAR 1994
------------------ ------------------
HIGH LOW HIGH LOW
---- ----- ---- -----

First Quarter........................................................ 4 5/8 4 4 3/8 2 7/8
Second Quarter....................................................... 4 5/8 3 7/8 4 9/16 3 5/8
Third Quarter........................................................ 4 1/8 3 1/2 4 5/8 3 3/4
Fourth Quarter....................................................... 4 3/4 4 4 3/4 4 1/8

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

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

FISCAL YEAR 1995 FISCAL YEAR 1994
------------------ ------------------
CASH STOCK CASH STOCK
---- ----- ---- -----

First Quarter........................................................ $.05 - $.03 -
Second Quarter....................................................... $.05 - $.04 -
Third Quarter........................................................ $.06 - $.04 -
Fourth Quarter....................................................... $.05 5% $.04 5%

(Per share amounts above have not been adjusted to reflect stock dividends.)

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

ASSETS

MARCH 31
-------------------------
1995 1994
---------- ----------

CURRENT ASSETS
Cash and cash equivalents................................... $ 664,527 $ 330,289
Accounts receivable, less allowance for doubtful accounts of
$5,970 in 1995 and $5,900 in 1994.......................... 8,670,636 7,690,282
Inventories -- Note 7....................................... 16,558,774 12,859,186
Other....................................................... 62,618 134,524
----------- -----------
TOTAL CURRENT ASSETS................................... 25,956,555 21,014,281

PROPERTY, PLANT AND EQUIPMENT
Land........................................................ 198,021 198,021
Buildings and yard improvements............................. 2,595,826 2,390,090
Machinery and equipment..................................... 11,320,928 11,127,460
Less accumulated depreciation............................... (8,699,581) (8,179,338)
----------- -----------
5,415,194 5,536,233

OTHER ASSETS
Cash value of officers' life insurance...................... 703,113 633,907
----------- -----------
TOTAL ASSETS........................................... $32,074,862 $27,184,421
=========== ===========

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

LIABILITIES AND STOCKHOLDERS' EQUITY

MARCH 31
--------------------------
1995 1994
----------- -----------

CURRENT LIABILITIES
Accounts payable and accrued expenses....................... $ 4,270,809 $ 4,749,810
Current portion of long-term debt -- Note 3................. 800,000 200,000
Dividends payable........................................... 277,742 211,584
Income taxes payable........................................ 14,658 --
Contribution to profit-sharing plan -- Note 6............... 200,000 180,000
Employee compensation and related expenses.................. 253,125 192,749
----------- -----------
TOTAL CURRENT LIABILITIES.............................. 5,816,334 5,534,143
LONG-TERM DEBT, less current portion -- Notes 3 and 4............ 7,000,000 3,800,000
DEFERRED INCOME TAXES............................................ 422,747 342,941
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS --
Note 6......................................................... 113,000 77,000
STOCKHOLDERS' EQUITY -- Note 2
Common Stock, par value $1 per share:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 5,554,858 in 1995;
and 5,289,598 in 1994.................................. 5,554,858 5,289,598
Additional paid-in capital.................................. 20,571,057 19,678,497
Retained earnings........................................... (7,403,134) (7,537,758)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY............................. 18,722,781 17,430,337
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $32,074,862 $27,184,421
=========== ===========

See accompanying notes.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS

YEAR ENDED MARCH 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------

Sales........................................................... $97,968,805 $70,908,065 $56,230,967
Costs and expenses:
Cost of products sold....................................... 90,701,372 65,739,495 52,472,711
Selling, general and administrative......................... 3,227,646 2,693,918 2,513,993
Interest.................................................... 399,098 94,719 41,475
----------- ---------- ----------
94,328,116 68,528,132 55,028,179
----------- ---------- ----------
3,640,689 2,379,933 1,202,788
Interest and other income....................................... 83,753 65,629 19,483
----------- ---------- ----------
EARNINGS BEFORE FEDERAL INCOME TAXES AND ACCOUNTING
CHANGES.............................................. 3,724,442 2,445,562 1,222,271
Federal income taxes:
Current..................................................... 1,186,466 774,949 215,042
Deferred.................................................... 79,844 56,538 200,957
----------- ---------- ----------
1,266,310 831,487 415,999
----------- ---------- ----------
EARNINGS BEFORE ACCOUNTING CHANGES..................... 2,458,132 1,614,075 806,272
Cumulative effect of accounting changes -- Notes 5 and 6........ -- 77,000 --
----------- ---------- ----------
NET EARNINGS........................................... $ 2,458,132 $1,691,075 $ 806,272
=========== ========== ==========
Average number of common shares outstanding..................... 5,832,601 5,830,131 5,829,691
=========== ========== ==========
Earnings per share:
Before accounting changes................................... $ .42 $ .28 $ .14
Cumulative effect of accounting changes..................... -- .01 --
----------- ---------- ----------
NET EARNINGS PER SHARE................................. $ .42 $ .29 $ .14
=========== ========== ==========

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY

ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ----------- -----------

Balance at March 31, 1992....................................... $4,796,502 $18,514,441 $(7,033,151)
Net earnings.................................................... -- -- 806,272
Stock dividend (5%)............................................. 239,405 658,364 (899,341)
Cash dividends ($.10 per share)................................. -- -- (553,949)
---------- ----------- -----------
BALANCE AT MARCH 31, 1993.............................. 5,035,907 19,172,805 (7,680,169)
Net earnings.................................................... -- -- 1,691,075
Exercise of stock options....................................... 2,315 2,940 --
Stock dividend (5%)............................................. 251,376 502,752 (755,441)
Cash dividends -- ($.14 per share).............................. -- -- (793,223)
---------- ----------- -----------
BALANCE AT MARCH 31, 1994.............................. 5,289,598 19,678,497 (7,537,758)
Net earnings.................................................... -- -- 2,458,132
Exercise of stock options....................................... 1,216 1,411 --
Stock dividend (5%)............................................. 264,044 891,149 (1,157,100)
Cash dividends -- ($.20 per share).............................. -- -- (1,166,408)
---------- ----------- -----------
BALANCE AT MARCH 31, 1995.............................. $5,554,858 $20,571,057 $(7,403,134)
========== ============ ============

See accompanying notes.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED MARCH 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

OPERATING ACTIVITIES
Net earnings..................................... $ 2,458,132 $ 1,691,075 $ 806,272
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Depreciation................................ 575,336 362,715 322,095
Disposals of property, plant and
equipment................................. 16,315 -- --
Provision for losses on accounts
receivable................................ 13,645 1,812 38,903
Provision for deferred taxes................ 79,844 56,538 200,957
Cumulative effect of accounting changes..... -- (77,000) --
Decrease (increase) in operating assets:
Accounts receivable......................... (993,999) (2,190,801) (2,170,868)
Inventories................................. (3,699,588) (3,278,681) 449,795
Other....................................... 71,906 183,164 (108,018)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses....... (479,001) 1,890,870 648,680
Contribution to profit-sharing plan......... 20,000 28,000 (8,000)
Employee compensation and related
expenses.................................. 60,376 85,271 4,033
Postretirement benefit other than
pensions.................................. 36,000 27,000 --
Income taxes payable........................ 14,658 -- --
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................ (1,826,376) (1,220,037) 183,849

INVESTING ACTIVITIES
Purchase of property, plant and equipment........ (470,612) (2,529,888) (166,373)
Increase in cash value of officers' life
insurance...................................... (69,206) (54,295) (32,124)
Other............................................ -- -- 10,402
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES............ (539,818) (2,584,183) (188,095)

FINANCING ACTIVITIES
Cash dividends paid.............................. (1,097,661) (732,716) (498,804)
Proceeds from borrowings of long-term debt....... 4,000,000 4,000,000 --
Principal payments on long-term debt............. (200,000) (280,000) (280,000)
Cash paid on fractional shares from stock
dividend....................................... (1,907) (1,313) (1,572)
Proceeds from issuing stock under employee
plans.......................................... -- 5,255 --
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................ 2,700,432 2,991,226 (780,376)
----------- ------------ -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 334,238 (812,994) (784,622)
Cash and cash equivalents at beginning of year... 330,289 1,143,283 1,927,905
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.... $ 664,527 $ 330,289 $ 1,143,283
=========== =========== ===========

See accompanying notes.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

March 31, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated and its subsidiary (which are
collectively referred to herein as the "Company"). All material intercompany
amounts and transactions have been eliminated.

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: The following is a summary of inventory by product group:

MARCH 31
-----------------------------
1995 1994
------------ ------------

Coil................................................... $ 5,870,349 $ 5,406,424
Tubular................................................ 10,688,425 7,452,762
------------ ------------
$ 16,558,774 $ 12,859,186
============ ============

Coil inventory consists primarily of raw materials. Tubular inventory
consists of both raw materials and finished goods. Inventories are valued at the
lower of cost or replacement market. Cost for the Company's coil inventory is
determined under the last-in, first-out (LIFO) method. Cost for all other
inventories is determined using the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on
the basis of cost. Depreciation is calculated principally by the straight-line
method over the estimated useful lives of the various classes of assets.
Interest costs incurred during construction projects are capitalized as part of
the cost of such assets.

EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common shares outstanding. Stock options are not included in the
computation of the weighted average number of common shares outstanding since
their effect is not significant. Fully diluted earnings per share are not
presented because they are not materially dilutive.

In addition, all applicable per share amounts herein have been
retroactively adjusted to give effect to a 5% stock dividend distributed May 19,
1995.

SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $373,000 in 1995, $81,000 in 1994 and $48,000 in 1993. The Company
paid income taxes, net of refunds, of $1,130,000 in 1995, $660,000 in 1994 and
$255,000 in 1993.

ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company ("NSC") 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 and by providing
tubular processing services for LSS. Total sales to LSS were approximately $10.4
million in 1995. Loss of this mill as a customer could have a material adverse
effect on the Company's business.

2. CAPITAL STOCK AND STOCK OPTIONS

Under the Company's Stock Option Plan of 1974, as amended through March 24,
1982, and the 1989 Incentive Stock Option Plan, incentive options were granted
to certain officers and key

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

2. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)

employees to purchase Common Stock of the Company. The following is a summary of
activity relative to options outstanding during the years ended March 31
(adjusted for stock dividends):

1995 1994 1993
------------------ ------------------- -----------------------
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------ -------- ------ -------- ------

Outstanding at beginning of year.............. 79,129 $ 2.06 82,958 $ 2.06 94,112 $2.06-3.41
Granted....................................... -- -- -- -- -- --
Cancelled..................................... -- -- (1,277) 2.06 (11,154) 2.06-3.41
Exercised..................................... (1,277) 2.06 (2,552) 2.06 -- --
------ ------ -------
Outstanding at end of year (all of which are
exercisable)................................ 77,852 $ 2.06 79,129 $ 2.06 82,958 $2.06
====== ====== =======

Under the terms of the 1974 plan, no additional options may be granted.
Pursuant to the terms of the 1989 plan, 109,760 additional options may be
granted. The exercise price of all previously granted options equaled or
exceeded the fair market price of the Common Stock on the date of grant. No
charges to earnings have been made as a result of granting or exercising
options.

The Company has 1,000,000 authorized shares of Cumulative Convertible
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

The Company's long-term debt includes a $3,800,000 note payable at an
interest rate equal to the lending bank's prime rate. Principal payments in the
amount of $200,000 plus interest are made quarterly through December 1, 1999.
The annual principal payments required on long-term debt during the next five
years are as follows: 1996 -- $800,000; 1997 -- $800,000; 1998 -- $800,000; and
1999 -- $800,000 and 1999 -- $600,000.

4. LINE OF CREDIT

The Company has a line of credit arrangement with a bank which is
unsecured, bears interest at a maximum of the bank's prime rate, expires
December 31, 1995 and is reviewed annually for renewal. There are no commitment
fees or compensating balance requirements under this arrangement. At March 31,
1995, the unused portion of this credit line was $1,000,000. Subsequent to
year-end, the Company negotiated to increase the line of credit arrangement from
$5,000,000 to $8,000,000 and to extend its expiration to April 1, 1998.
Accordingly, the $4,000,000 outstanding balance under this line of credit has
been classified as long-term debt at March 31, 1995.

5. INCOME TAXES

Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards 109 (SFAS 109), "Accounting for Income Taxes." The adoption
of SFAS 109 changed the Company's method of accounting for income taxes from the
deferred approach to an asset and liability approach. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities. The cumulative effect
of adopting SFAS 109 as of April 1, 1993 increased net earnings by $110,000 or
$.02 per share.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

5. INCOME TAXES (CONTINUED)

Significant components of the Company's consolidated deferred tax assets
and liabilities are as follows:

MARCH 31
----------------------
1995 1994
--------- ---------

DEFERRED TAX LIABILITIES:
Depreciation........................................ $ 520,490 $ 426,627
DEFERRED TAX ASSETS:
Inventory capitalization............................ 53,738 37,854
Postretirement benefits other than pensions......... 38,420 26,180
Other............................................... 5,585 19,652
--------- ---------
Total deferred tax assets............................. 97,743 83,686
--------- ---------
Net deferred tax liability............................ $ 422,747 $ 342,941
========= =========

6. PROFIT-SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS

The Company has a defined-contribution plan ("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 $200,000 for
the year ended March 31, 1995, $180,000 for the year ended March 31, 1994 and
$152,000 for the year ended March 31, 1993. 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 employer.

In addition, certain health care benefits are provided for retired
employees. Employees with a minimum of 20 years of employment with the Company
who retire at 65 or older are eligible. Effective April 1, 1993, the Company
adopted Statement of Financial Accounting Standards 106, "Employer's Accounting
for Postretirement Benefits Other than Pensions," which provides that the
Company follow an accrual method of accounting for the postretirement benefits
other than pensions. Such benefits, in prior years, were accounted for on a
pay-as-you-go basis. The Company elected to immediately recognize as a charge to
1994 earnings the cumulative effect of the change in accounting for
postretirement benefits of $33,000 ($50,000 liability net of a deferred tax
asset of $17,000). The $50,000 liability represents the accumulated
postretirement benefit obligation existing at adoption. The Company has not
funded the cost of the postretirement health care plan.

7. INVENTORIES

Inventories consist of:

LIFO FIFO TOTAL
METHOD METHOD INVENTORIES
----------- ------------ ------------

March 31, 1995.................... $ 5,870,349 $ 10,688,425 $ 16,558,774
March 31, 1994.................... $ 5,406,424 $ 7,452,762 $ 12,859,186

At March 31, 1995 and 1994, the current replacement cost of inventories exceeded
their LIFO value by approximately $4,123,000 and $3,353,000, respectively.

8. INDUSTRY SEGMENT DATA

The Company is engaged in the steel processing and distribution business.
Within the Company, there are two product groups: coil processing (steel sheet
and plate) and tubular products. Coil processing converts steel coils into flat
sheet and plate steel cut to customer

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

8. INDUSTRY SEGMENT DATA (CONTINUED)

specifications. Through its Texas Tubular operation, the Company purchases,
processes, manufactures and markets tubular products. This operation processes
its own tubular products and processes pipe on a fee basis for LSS. In fiscal
1994, the Company ceased the operations of its wholly owned subsidiary, Royal
Fasteners Corporation.

The following is a summary of significant financial information relating to
the product groups:

YEAR ENDED MARCH 31
----------------------------------------------
1995 1994 1993
------------ ------------ ------------

NET SALES
Coil processing................................ $ 64,138,520 $ 42,921,520 $ 35,844,546
Tubular products............................... 33,830,285 27,986,545 19,892,823
Fastener products.............................. -- -- 493,598
------------ ------------ ------------
TOTAL NET SALES........................ $ 97,968,805 $ 70,908,065 $ 56,230,967
============ ============ ============
OPERATING PROFIT (LOSS):
Coil processing................................ $ 1,975,775 $ 1,069,349 $ 1,324,366
Tubular products............................... 3,147,319 2,315,254 1,016,666
Fastener products.............................. -- -- (312,335)
------------ ------------ ------------
TOTAL OPERATING PROFIT................. 5,123,094 3,384,603 2,028,697
============ ============ ============
Corporate expenses............................. (1,083,307) (909,951) (784,434)
Interest expense............................... (399,098) (94,719) (41,475)
Interest and other income...................... 83,753 65,629 19,483
------------ ------------ ------------
TOTAL EARNINGS BEFORE TAXES............ $ 3,724,442 $ 2,445,562 $ 1,222,271
============ ============ ============
IDENTIFIABLE ASSETS:
Coil processing................................ $ 14,312,010 $ 13,290,525 $ 7,225,950
Tubular products............................... 16,309,266 12,749,723 10,843,358
Fastener products.............................. -- -- 367,107
------------ ------------ ------------
30,621,276 26,040,248 18,436,415
General corporate assets....................... 1,453,586 1,144,173 2,055,026
------------ ------------ ------------
TOTAL ASSETS........................... $ 32,074,862 $ 27,184,421 $ 20,491,441
============ ============ ============
DEPRECIATION:
Coil processing................................ $ 287,308 $ 108,823 $ 49,302
Tubular products............................... 280,982 250,131 262,141
Fastener products.............................. -- -- 6,881
Corporate and other............................ 7,046 3,761 3,771
------------ ------------ ------------
$ 575,336 $ 362,715 $ 322,095
============ ============ ============
CAPITAL EXPENDITURES:
Coil processing................................ $ 298,832 $ 2,336,292 $ 107,579
Tubular products............................... 167,293 169,468 57,580
Corporate assets............................... 4,487 24,128 1,866
------------ ------------ ------------
$ 470,612 $ 2,529,888 $ 167,025
============ ============ ============

Operating profit is total revenue less operating expenses, excluding
general corporate expenses, interest expense and interest and other income.
Corporate assets consist primarily of cash and cash equivalents and the cash
value of officers' life insurance. There are no sales between product groups.

11
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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 1995 and 1994 (per share amounts have been adjusted
for subsequent stock dividends):

Quarter Ended
---------------------------------------------------------------
June 30 September 30 December 31 March 31
1994 1994 1994 1995
------------ ------------ ------------ ------------

Net sales................... $ 22,998,712 $24,651,141 $24,228,187 $ 26,090,765
Gross profit................ 1,514,769 1,797,633 1,941,393 2,013,638
Net earnings................ 423,618 612,586 719,840 702,088
Net earnings per share...... .07 .11 .12 .12

Quarter Ended
---------------------------------------------------------------
June 30 September 30 December 31 March 31
1993 1993 1993 1994
------------ ------------ ------------ ------------

Net sales................... $ 17,425,770 $16,563,233 $16,758,720 $ 20,160,342
Gross profit................ 1,160,079 1,172,617 1,258,794 1,577,080
Earnings before accounting
changes................... 349,911 328,001 427,686 508,477
Cumulative effect of
accounting changes........ 77,000 -- -- --
Net earnings................ 426,911 328,001 427,686 508,477
Earnings per share before
accounting changes........ .06 .06 .07 .09
Cumulative effect of
accounting changes per
share..................... .01 -- -- --
Net earnings per share...... .07 .06 .07 .09

10. CONCENTRATION OF RECEIVABLES

The Company's coil processing operations include a concentration of sales
primarily in the southwestern and southeastern sections of the United States,
which are principally to customers in the steel distributing and fabricating
industries. The Company performs periodic credit evaluations of its customers'
financial conditions and generally does not require collateral. Receivables
generally are due within 30 days.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Friedman Industries, Incorporated

We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995. 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 generally accepted auditing
standards. 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, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1995, in conformity with generally accepted accounting
principles.

(ERNST & YOUNG LOGO)

May 26, 1995
Houston, Texas

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

SELECTED FINANCIAL DATA

YEAR ENDED MARCH 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------

Net sales.............................. $ 97,968,805 $ 70,908,065 $ 56,230,967 $ 42,609,330 $ 50,264,851
Net earnings........................... 2,458,132 1,691,075(A) 806,272 483,720 866,259
Total assets........................... 32,074,862 27,184,421 20,491,441 19,619,875 20,936,487
Long-term debt......................... 7,000,000 3,800,000 -- 280,000 1,960,000
Stockholders' equity................... 18,722,781 17,430,337 16,528,543 16,277,792 16,274,914
Net earnings per share................. 0.42 0.29(A) 0.14 0.08 0.15
Cash dividends declared per share
adjusted for stock dividends......... 0.20 0.14 0.10 0.08 0.13

(A) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

See also Note 1 of Notes to the Company's Financial Statements herein which
describes the Company's relationship with its primary suppliers of steel
products.

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FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

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

Year ended March 31, 1995 compared to year ended March 31, 1994

During the year ended March 31, 1995, sales, cost of products sold and
gross profit increased $27,060,740, $24,961,877 and $2,098,863 from each of the
respective amounts recorded during the year ended March 31, 1994. Approximately
78% of the sales increase was related to the coil products group. This increase
in coil sales was primarily due to the Company's Arkansas coil facility which
became operational in January 1994, and accordingly, operated twelve months in
fiscal 1995 compared to three months in fiscal 1994. In addition, coil sales
benefited from an increase in the average selling price of these products and
from an increase in volume. The tubular products group also reflected an
increase in sales which was primarily related to an increase in sales of pipe
piling and structural products. The increases in cost of products sold and gross
profit were primarily related to the sales increase discussed above. Gross
profit rates were 7.4% and 7.3% in fiscal 1995 and fiscal 1994, respectively.

Selling, general and administrative expenses increased $533,728 from the
amount recorded during fiscal 1994. This increase was primarily related to
direct expenses associated with the Arkansas coil facility. In addition,
variable expenses which were principally related to volume and earnings
contributed to the overall increase in selling, general and administrative
costs.

Interest expense during fiscal 1995 increased $304,379 from the comparable
amount in fiscal 1994. In December 1993, the Company borrowed $4,000,000 to
support the construction and operation of the Arkansas coil facility. In
addition, beginning in December 1994, the Company made borrowings under its bank
line of credit which were utilized to support working capital.

Interest and other income increased $18,124 from the amount recorded in
fiscal 1994. This increase was primarily related to an increase in interest
rates paid on invested cash and an increase in the cash surrender value of
officers' life insurance policies.

Federal income taxes increased $434,823 from the amount recorded during
fiscal 1994. This increase was related to increased earnings before taxes as the
effective tax rates were the same for both years.

During fiscal 1994, the Company was required to adopt Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and No.
106, "Employer's Accounting for Post-retirement Benefits Other Than Pensions".
The cumulative effect of these accounting changes, net of tax, was to increase
net income $77,000. See also Notes 5 and 6 to the financial statements appearing
herein.

Year ended March 31, 1994 compared to year ended March 31, 1993

During the year ended March 31, 1994, sales, cost of products sold and
gross profit increased $14,677,098, $13,266,784 and $1,410,314, from the
respective amounts recorded during the year ended March 31, 1993. Market
conditions for the Company's products and services improved in fiscal 1994 and
resulted in increased sales of both coil and tubular products. Coil product
sales increased primarily as a result of an increase in the average selling
price per ton and from the opening of the new Arkansas coil facility which
operated three months in fiscal 1994. Sales of tubular products increased
primarily as a result of an increase in pipe manufactured to API standards and
sold to Lone Star Steel Company ("LSS"). In addition, tubular sales reflected an
increase in pipe sold primarily to tubular distributors. The increase in cost of
products sold was primarily related to the increase in sales described above.
Both increased sales and improved gross

14
17

FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED

profit margins contributed to the overall increase in gross profit. The average
gross profit percentage increased from 6.7% in fiscal 1993 to 7.3% in fiscal
1994. This improvement was principally associated with tubular operations which
benefited from efficiencies resulting primarily from increased production.

Interest expense increased $53,244 from the comparable amount recorded in
fiscal 1993. This increase was primarily related to $4,000,000 borrowed to
support the construction and operation of the new Arkansas coil facility.

Interest and other income increased $46,146 from the amount noted in fiscal
1993. This increase primarily resulted from the sale of machinery and equipment
and from an increase in the cash surrender value of officers' life insurance
policies.

Federal income taxes increased $415,488 from the respective amount recorded
during fiscal 1993 and was related to increased earnings before taxes. Effective
tax rates were the same, year to year.

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

At March 31, 1995, the Company maintained a strong, liquid position as
evidenced by a debt to equity ratio of .37 and by a current ratio of 4.5. In
December 1993, the Company borrowed $4,000,000 from a bank to support the
construction and operation of its new steel processing facility located in
Hickman, Arkansas. The note is an advance promissory note which converted to a
five year term note in December 1994. This note, which bears interest at the
bank's floating prime rate, requires quarterly payments of interest and
principal through December 1, 1999. The Company has available a line of credit
arrangement with a bank whereby it may borrow up to $5,000,000 on a short-term
basis. On April 1, 1995, the line of credit was increased to $8,000,000 and its
expiration date extended to April 1, 1998. At March 31, 1995, the Company had
borrowed $4,000,000 under this line of credit to support working capital. The
Company believes that its cash flow from operations and borrowing capability
under its line of credit arrangement are adequate to fund its expected cash
requirements for the year ending March 31, 1996.

15
18

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY

YEAR ENDED MARCH 31
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------

Net sales........................... $ 97,968,805 $ 70,908,065 $ 56,230,967 $ 42,609,330 $ 50,264,851 $ 50,043,949
Earnings............................ $ 2,458,132 $ 1,691,075(1) $ 806,272 $ 483,720 $ 866,259 $ 1,560,701
Current assets...................... $ 25,956,555 $ 21,014,281 $ 16,542,769 $ 15,537,203 $ 16,826,544 $ 16,731,964
Current liabilities................. $ 5,816,334 $ 5,534,143 $ 3,549,495 $ 2,849,637 $ 2,501,178 $ 1,783,375
Net working capital................. $ 20,140,221 $ 15,480,138 $ 12,993,274 $ 12,687,566 $ 14,325,366 $ 14,948,589
Total assets........................ $ 32,074,862 $ 27,184,421 $ 20,491,441 $ 19,619,875 $ 20,936,487 $ 19,042,527
Stockholders' equity................ $ 18,722,781 $ 17,430,337 $ 16,528,543 $ 16,277,792 $ 16,274,914 $ 16,186,557
Earnings as a percent of
Net sales....................... 2.5 2.4 1.4 1.1 1.7 3.1
Stockholders' equity............ 13.1 9.7 4.9 3.0 5.3 9.6
Average number of common and
common equivalent shares(3)....... 5,832,601 5,830,131 5,829,691 5,829,691 5,829,691 5,829,691
Per share
Earnings from operations(3)....... $0.42 $ 0.29(1) $ 0.14 $ 0.08 $ 0.15 $ 0.27
Stockholders' equity(3)........... $3.21 $ 2.99 $ 2.84 $ 2.79 $ 2.79 $ 2.78
Cash dividends per common
share(3).......................... $0.20 $ 0.14 $ 0.10 $ 0.08 $ 0.13 $ 0.19
Stock dividend declared............. 5% 5% 5% 5% 5% 5%

1989 1988 1987 1986
------------ ------------ ------------ ------------

Net sales........................... $ 53,499,476 $ 59,255,966 $ 46,984,967 $ 48,809,898
Earnings............................ $ 1,830,861(2) $ 3,449,368 $ 1,924,726 $ 2,786,352
Current assets...................... $ 19,592,919 $ 18,110,425 $ 36,043,350 $ 35,210,807
Current liabilities................. $ 4,695,397 $ 3,514,402 $ 2,980,992 $ 2,891,111
Net working capital................. $ 14,897,522 $ 14,596,023 $ 33,062,358 $ 32,319,696
Total assets........................ $ 21,803,286 $ 20,498,322 $ 38,519,625 $ 37,851,051
Stockholders' equity................ $ 15,715,223 $ 15,288,709 $ 33,529,670 $ 32,632,731
Earnings as a percent of
Net sales....................... 3.4 5.8 4.1 5.7
Stockholders' equity............ 11.7 22.6 5.7 8.5
Average number of common and
common equivalent shares(3)....... 5,742,141 5,703,003 5,677,440 5,677,440
Per share
Earnings from operations(3)....... $ 0.32(2) $ 0.60 $ 0.34 $ 0.49
Stockholders' equity(3)........... $ 2.74 $ 2.68 $ 5.91 $ 5.75
Cash dividends per common
share(3).......................... $ 0.28 $ 3.82 $ 0.18 $ 0.17
Stock dividend declared............. 5% 10% -- 5%

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

(1) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).

(2) Includes an after tax loss of $544,500 ($0.09 per share) due to an
extraordinary item.

(3) Adjusted for stock dividends.
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