EX-13.1 2 d516930dex131.htm EX-13.1 EX-13.1

EXHIBIT 13.1

THE COMPANY’S ANNUAL

REPORT TO SHAREHOLDERS FOR

THE FISCAL YEAR ENDED MARCH 31, 2013


FRIEDMAN

INDUSTRIES,

INCORPORATED

2013

ANNUAL REPORT


FRIEDMAN INDUSTRIES, INCORPORATED

 

 

FINANCIAL HIGHLIGHTS

 

     2013      2012  

Net sales

   $ 136,448,786       $ 161,521,993   

Net earnings

   $ 6,135,812       $ 8,150,464   

Net earnings per share (Basic)

   $ 0.90       $ 1.20   

Cash dividends per share

   $ 0.97       $ 0.52   

Stockholders’ equity

   $ 62,957,619       $ 63,417,268   

Working capital

   $ 51,971,475       $ 51,154,503   

TO OUR SHAREHOLDERS:

The Company once again experienced positive earnings in fiscal 2013. The Company earned $6,135,812 ($0.90 per share diluted) on sales of $136,448,786 in fiscal 2013 compared to earnings of $8,150,464 ($1.20 per share diluted) on sales of $161,521,993 in fiscal 2012. Earnings were primarily attributable to the Company’s tubular product segment, which benefited from the energy sector of the U.S. economy.

The steel industry, as a whole, is cyclical. Currently, the Company is experiencing volatility in the market for its products and services as a result of oversupply, foreign competition and the slow recovery of the U.S. economy. As always, management is focused on balancing operational requirements with changing market conditions.

You are invited to attend the Annual Meeting of Shareholders scheduled to start at 11:00 a.m. (Central Time) on Thursday, August 29, 2013, in the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, 51st Floor, Houston, Texas.

Sincerely,

 

LOGO

William E. Crow

Chief Executive Officer and President

 

 

1


FRIEDMAN INDUSTRIES, INCORPORATED

 

OFFICERS

William E. Crow

Chief Executive Officer and

President

Benny B. Harper

Senior Vice President — Finance

and Secretary/Treasurer

Thomas N. Thompson

Senior Vice President — Sales and Marketing

Ronald L. Burgerson

Vice President

Howard Henderson

Vice President of Operations — Texas Tubular Division

Robert McCain

Vice President — Decatur Facility

Dale Ray

Vice President

Robert Sparkman

Vice President of Sales — Coil Divisions

Steve Teeter

Vice President — Hickman Facility

Charles W. Hall

Assistant Secretary

COMPANY OFFICES AND WEB SITE

    CORPORATE OFFICE

    P.O. Box 62388

    Houston, Texas 77205

    713-672-9433

    SALES OFFICE — COIL PRODUCTS

    1121 Judson Road, Suite 124

    Longview, Texas 75601

    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.

Fulbright Tower

1301 McKinney, Suite 5100

Houston, Texas 77010

AUDITORS

Hein & Associates LLP

500 Dallas Street, Suite 2500

Houston, TX 77002

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

DIRECTORS

William E. Crow

Chief Executive Officer and

President

Longview, Texas

Durga D. Agrawal

President, Piping Technology & Products, Inc. (pipe fabrication)

Houston, Texas

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

Max Reichenthal

President, Texas Iron and Metal

(steel product sales)

Houston, Texas

Joel Spira

Private investor; formerly, Partner, Weinstein Spira & Company (accounting firm)

Houston, Texas

Joe L. Williams

Partner, PozmantierWilliams Insurance Consultants, LLC

(insurance and risk management consultants)

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, 2013 as filed with the U.S. Securities and Exchange Commission. Written requests should be addressed to: Ben Harper, Senior Vice President — Finance, Friedman Industries, Incorporated, P.O. Box 62388, Houston, Texas 77205.

 

 

2


FRIEDMAN INDUSTRIES, INCORPORATED

 

DESCRIPTION OF BUSINESS

Friedman Industries, Incorporated (the “Company”) is engaged in steel processing, pipe manufacturing and processing and steel and pipe distribution.

At its coil processing facilities in Hickman, Arkansas (“Hickman”) and Decatur, Alabama (“Decatur”), 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’s XSCP Division (“XSCP”) purchases and markets non-standard hot-rolled coils. In recent years, XSCP has increasingly marketed non-standard coils that have been processed into flat, finished sheet and plate. XSCP operates at both Hickman and Decatur, which provide personnel, warehousing, processing and distribution services to XSCP. The Company purchases a substantial amount of its annual coil tonnage from Nucor Steel Company (“NSC”). Loss of NSC as a source of coil supply could have a material adverse effect on the Company’s business. The Company also processes customer-owned coils on a fee basis. Revenues generated from processing customer-owned coils are not material to the Company’s results of operations and financial condition.

The Company sells its coil products and processing services directly through the Company’s own sales force to approximately 150 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 (“TTP”) located in Lone Star, Texas, manufactures, purchases, processes and markets tubular products (“pipe”). The Company sells pipe nationally to approximately 170 customers including, in recent years, a substantial amount of manufactured pipe to U.S. Steel Tubular Products, Inc. (“USS”), an affiliate of United States Steel Corporation. In recent years, the Company has also purchased a substantial portion of its annual supply of pipe and coil material used in pipe production from USS.

Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.

Significant financial information relating to the Company’s two product groups, coil and tubular products, is contained in Note 7 of the Notes to the Company’s Consolidated Financial Statements appearing herein.

 

 

RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK

 

     Fiscal 2013        Fiscal 2012  
     High        Low        High        Low  

First Quarter

   $ 11.93         $ 9.81         $ 11.76         $ 9.10   

Second Quarter

     10.64           8.95           12.95           8.00   

Third Quarter

     10.94           9.26           11.45           7.80   

Fourth Quarter

     11.98           9.67           12.60           10.13   

 

 

CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

 

     Fiscal 2013        Fiscal 2012  

First Quarter

   $ .13         $ .13   

Second Quarter

     .13           .13   

Third Quarter

     .13           .13   

Special

     .50             

Fourth Quarter

     .08           .13   

 

 

The Company’s Common Stock is traded principally on the NYSE MKT (trading symbol FRD).

The approximate number of shareholders of record of the Company as of May 17, 2013 was 300.

 

3


FRIEDMAN INDUSTRIES, INCORPORATED

 

CONSOLIDATED BALANCE SHEETS

ASSETS

 

     March 31  
     2013     2012  

CURRENT ASSETS:

    

Cash

   $ 15,923,294      $ 11,881,548   

Accounts receivable, net of allowances for bad debts and cash discounts of $37,276 at March 31, 2013 and 2012, respectively

     9,037,548        16,284,377   

Inventories

     39,219,168        36,753,680   

Other

     103,547        88,286   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     64,283,557        65,007,891   

PROPERTY, PLANT AND EQUIPMENT:

    

Land

     1,082,331        1,082,331   

Buildings and yard improvements

     7,014,180        7,014,180   

Machinery and equipment

     30,293,590        29,839,104   

Less accumulated depreciation

     (27,111,529     (25,324,113
  

 

 

   

 

 

 
     11,278,572        12,611,502   

OTHER ASSETS:

    

Cash value of officers’ life insurance and other assets

     1,013,000        951,000   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 76,575,129      $ 78,570,393   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

     March 31  
     2013     2012  

CURRENT LIABILITIES:

    

Accounts payable and accrued expenses

   $ 11,181,804      $ 12,091,154   

Dividends payable

     543,956        883,928   

Income taxes payable

            98,464   

Contribution to profit sharing plan

     52,500        52,500   

Employee compensation and related expenses

     533,822        727,342   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     12,312,082        13,853,388   

DEFERRED INCOME TAXES

     362,279        445,999   

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     943,149        853,738   

STOCKHOLDERS’ EQUITY:

    

Common stock, par value $1:

    

Authorized shares — 10,000,000

    

Issued shares — 7,975,160 at March 31, 2013 and 2012, respectively

     7,975,160        7,975,160   

Additional paid-in capital

     29,003,674        29,003,674   

Treasury stock at cost (1,175,716 shares at March 31, 2013 and 2012, respectively)

     (5,475,964     (5,475,964

Retained earnings

     31,454,749        31,914,398   
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     62,957,619        63,417,268   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 76,575,129      $ 78,570,393   
  

 

 

   

 

 

 

See accompanying notes.

 

4


FRIEDMAN INDUSTRIES, INCORPORATED

 

CONSOLIDATED STATEMENTS OF EARNINGS

 

 

     Year Ended March 31  
     2013     2012  

Net sales

   $ 136,448,786      $ 161,521,993   

Costs and expenses:

    

Cost of products sold

     122,047,302        143,915,520   

Selling, general and administrative

     5,314,971        5,491,737   
  

 

 

   

 

 

 
     127,362,273        149,407,257   
  

 

 

   

 

 

 
     9,086,513        12,114,736   

Interest and other income

     58,764        91,824   
  

 

 

   

 

 

 

EARNINGS BEFORE INCOME TAXES

     9,145,277        12,206,560   

Income taxes:

    

Current

     3,093,185        4,146,796   

Deferred

     (83,720     (90,700
  

 

 

   

 

 

 
     3,009,465        4,056,096   
  

 

 

   

 

 

 

NET EARNINGS

   $ 6,135,812      $ 8,150,464   
  

 

 

   

 

 

 

Weighted average number of common shares outstanding:

    

Basic

     6,799,444        6,799,444   

Diluted

     6,799,444        6,799,444   

Net earnings per share:

    

Basic

   $ 0.90      $ 1.20   

Diluted

   $ 0.90      $
1.20
  

CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

 

     Common
Stock
     Additional
Paid-In
Capital
     Treasury
Stock
    Retained
Earnings
 

BALANCE AT MARCH 31, 2011

   $ 7,975,160       $ 29,003,674       $ (5,475,964   $ 27,299,644   

Net earnings

                            8,150,464   

Cash dividends ($0.52)

                            (3,535,710
  

 

 

    

 

 

    

 

 

   

 

 

 

BALANCE AT MARCH 31, 2012

     7,975,160         29,003,674         (5,475,964     31,914,398   

Net earnings

                            6,135,812   

Cash dividends ($0.97)

                            (6,595,461
  

 

 

    

 

 

    

 

 

   

 

 

 

BALANCE AT MARCH 31, 2013

   $ 7,975,160       $ 29,003,674       $ (5,475,964   $ 31,454,749   
  

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes.

 

5


FRIEDMAN INDUSTRIES, INCORPORATED

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year Ended March 31  
     2013     2012  

OPERATING ACTIVITIES

    

Net earnings

   $ 6,135,812      $ 8,150,464   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation

     1,790,041        1,839,890   

Deferred taxes

     (83,720     (90,700

Change in post-retirement benefits other than pensions

     89,411        76,195   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     7,246,829        (3,689,423

Inventories

     (2,465,488     (2,074,410

Other

     (15,261     (10,456

Accounts payable and accrued expenses

     (909,350     4,752,392   

Contribution to profit sharing plan

            2,500   

Employee compensation and related expenses

     (193,520     (252,371

Income taxes payable

     (98,464     (252,497
  

 

 

   

 

 

 

Net cash provided by operating activities

     11,496,290        8,451,584   

INVESTING ACTIVITIES

    

Purchase of property, plant and equipment

     (499,486     (321,403

Proceeds from sales of assets

     42,375        1,800   

Increase in cash value of officers’ life insurance

     (62,000     (61,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (519,111     (380,603

FINANCING ACTIVITIES

    

Cash dividends paid

     (6,935,433     (3,399,723
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,935,433     (3,399,723
  

 

 

   

 

 

 

Increase in cash

     4,041,746        4,671,258   

Cash at beginning of year

     11,881,548        7,210,290   
  

 

 

   

 

 

 

Cash at end of year

   $ 15,923,294      $ 11,881,548   
  

 

 

   

 

 

 

See accompanying notes.

 

6


FRIEDMAN INDUSTRIES, INCORPORATED

 

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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:    Revenue from sales of products is recognized at the time that title and the risks and rewards of ownership pass, which is on the date of shipment. This date is when the terms of customers’ arrangements are met, the sales price is fixed or determinable and collection is reasonably assured.

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 and cash discounts allowed, 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. Trade receivables are generally considered past due after 30 days from invoice date. Past-due receivable balances are written-off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.

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. At March 31, 2013 and March 31, 2012, replacement cost exceeded LIFO cost by approximately $6,504,000 and $8,880,000, 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. Obsolete or slow-moving inventories are not significant based on the Company’s review of inventories. Accordingly, no allowance has been provided for such items.

The following is a summary of inventory by product group:

 

     March 31  
     2013      2012  

Prime coil inventory  

   $ 10,981,835       $ 8,562,607   

Non-standard coil inventory  

     3,741,718         1,853,445   

Tubular raw material  

     3,308,419         6,859,871   

Tubular finished goods  

     21,187,196         19,477,757   
  

 

 

    

 

 

 
   $ 39,219,168       $ 36,753,680   
  

 

 

    

 

 

 

PROPERTY, PLANT AND EQUIPMENT:    Property, plant and equipment is stated at cost. Depreciation is calculated primarily by the straight-line method over the estimated useful lives of the various classes of assets as follows:

 

Buildings  

     20 years   

Machinery and equipment  

     10 years   

Yard improvements  

     5 to 10 years   

Loaders and other rolling stock  

     5 to 10 years   

Interest costs related to construction projects were not capitalized as part of the cost of fixed assets for the years presented. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The

 

7


FRIEDMAN INDUSTRIES, INCORPORATED

 

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Company assesses recoverability by comparing the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset’s carrying amount exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. No impairments were necessary at March 31, 2013 or 2012.

Maintenance and repairs are expensed as incurred.

SHIPPING COSTS:    Sales are credited for freight billed to customers and freight costs are charged to cost of products sold.

SUPPLEMENTAL CASH FLOW INFORMATION:    The Company paid no interest in fiscal 2013 or 2012. The Company paid income taxes of approximately $3,666,000 and $4,329,000 in fiscal 2013 and 2012, respectively. In fiscal 2013 and 2012, noncash financing activity consisted of accrued dividends of $543,956 and $883,928, respectively.

INCOME TAXES:    The Company accounts for income taxes under the liability method, whereby the Company recognizes, on a current and long-term basis, deferred tax assets and liabilities, which represent differences between the financial and income tax reporting bases of its assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company has assessed, using all available positive and negative evidences, the likelihood that the deferred tax assets will be recovered from future taxable income.

The Company has also analyzed tax positions taken on tax returns filed and does not believe that any are more likely than not to be overturned by the respective tax jurisdiction. Therefore, no liability for uncertain tax positions has been recognized.

USE OF ESTIMATES:    The preparation of financial statements in conformity with U.S. 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:    Since the Company’s financial instruments are considered short-term in nature, their carrying values approximate fair value.

EARNINGS PER SHARE:    Net income per basic common share is computed using the weighted average number of common shares outstanding during the period. Net income per diluted common share is computed using the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares result from the assumed exercise of outstanding common stock options having a dilutive effect using the treasury stock method.

ECONOMIC RELATIONSHIP:    U.S. Steel Tubular Products, Inc. (“USS”) 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 USS. Total sales to USS were approximately 14% and 24% of total Company sales in fiscal 2013 and 2012, respectively. In fiscal 2013, sales of coil products to Trinity Industries, Inc. (“Trinity”) accounted for approximately 11% of the Company’s total sales. No other customers accounted for 10% or more of total sales in the two years ended March 31, 2013. Loss of USS or Trinity 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.

 

8


FRIEDMAN INDUSTRIES, INCORPORATED

 

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

NEW ACCOUNTING PRONOUNCEMENTS:

There were no new accounting pronouncements that affected the financial statements and disclosures of the Company for the fiscal years ended March 31, 2013 or 2012.

2.  STOCK OPTIONS AND CAPITAL STOCK

In fiscal 2013 and 2012, the Company maintained no stock option plans. Accordingly, no options were outstanding and no options were granted in either fiscal year.

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. There were no shares of Cumulative Preferred Stock issued as of March 31, 2013 or March 31, 2012.

3.  COMMITMENTS AND CONTINGENCIES

The Company is obligated under noncancelable operating leases for its Longview, Texas and Humble, Texas office buildings, which expire April 30, 2013 and December 31, 2016, respectively. On March 27, 2013, the Company renewed its operating lease for its Longview, Texas office building. The renewed lease provides for an annual rental payment by the Company of $32,736 and runs from May 1, 2013 to April 30, 2018. The following is a schedule of future minimum annual rental payments for the next five years required under these operating leases as of March 31, 2013:

 

2014

   $ 70,341   

2015

     70,562   

2016

     70,562   

2017

     61,106   

2018

     32,736   
  

 

 

 

Total

   $ 305,307   
  

 

 

 

Rental expenses for leased properties were approximately $67,900 and $44,500 during fiscal 2013 and 2012, respectively.

4.  EARNINGS PER SHARE

Basic and dilutive net earnings per share is computed based on the following information:

 

     Year Ended March 31  
     2013      2012  

Basic

     

Net earnings

   $ 6,135,812       $ 8,150,464   
  

 

 

    

 

 

 

Weighted average common shares

     6,799,444         6,799,444   
  

 

 

    

 

 

 

Dilutive

     

Net earnings

   $ 6,135,812       $ 8,150,464   
  

 

 

    

 

 

 

Weighted average common shares and common share equivalents

     6,799,444         6,799,444   
  

 

 

    

 

 

 

 

9


FRIEDMAN INDUSTRIES, INCORPORATED

 

5.  INCOME TAXES

Components of tax expense (benefit) are as follows:

 

     Year Ended March 31  
     2013     2012  

Federal

    

Current

   $ 2,840,388      $ 3,752,504   

Deferred

     (83,720     (90,700
  

 

 

   

 

 

 
     2,756,668        3,661,804   

State

    

Current

     252,797        394,292   
  

 

 

   

 

 

 
     252,797        394,292   
  

 

 

   

 

 

 

Total

   $ 3,009,465      $ 4,056,096   
  

 

 

   

 

 

 

The U.S. federal statutory income tax rate is reconciled to the effective rate as follows:

 

     Year Ended
March 31
 
     2013     2012  

Income Tax Expense at U.S. federal statutory rate

     34.0     34.0

Benefit of tax deduction allowed to manufacturing companies

     (3.0     (3.0

State and local income tax rates net of federal income tax benefit

     1.9        2.2   
  

 

 

   

 

 

 

Provision for income taxes

     32.9     33.2
  

 

 

   

 

 

 

The Company’s tax returns may be subject to examination by the Internal Revenue Service for the fiscal years ending March 31, 2010 through March 31, 2012. State and local returns may be subject to examination for fiscal years ended March 31, 2010 through March 31, 2012.

Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s consolidated deferred tax assets (liabilities) are as follows:

 

 

     March 31  
     2013     2012  

Deferred tax liabilities:

    

Depreciation

   $ (1,700,000   $ (1,756,129
  

 

 

   

 

 

 

Total deferred tax liabilities

     (1,700,000     (1,756,129

Deferred tax assets:

    

Inventory capitalization

     170,000        173,990   

LIFO Inventory

     785,000        788,145   

Postretirement benefits other than pensions

     316,000        290,271   

Other

     66,721        57,724   
  

 

 

   

 

 

 

Total deferred tax assets

     1,337,721        1,310,130   
  

 

 

   

 

 

 

Net deferred tax liability

   $ (362,279   $ (445,999
  

 

 

   

 

 

 

6.  PROFIT SHARING PLAN

Effective May 1, 2007, the Company merged its defined contribution retirement plan and its 401(k) plan into the Friedman Industries, Inc. Employees’ Retirement and 401(k) Plan (the “Plan”). In addition, the Plan year end was changed to December 31. Employees fully vest in the Plan upon six years of service.

The retirement portion of the Plan covers substantially all employees, including officers. The Company’s contribution expenses, which are determined at the discretion of the Board of Directors in

 

10


FRIEDMAN INDUSTRIES, INCORPORATED

 

6.  PROFIT SHARING PLAN (Continued)

 

an amount not to exceed 15% of the total compensation paid during the year to all eligible employees, were $210,000 for the year ended March 31, 2013, and $208,500 for the year ended March 31, 2012. Contributions, Plan earnings and forfeitures of nonvested accounts of terminated participants are allocated to the remaining individual accounts determined by a point schedule based on years of employment with the Company.

Employees may participate in the 401(k) portion of the Plan. Employees are eligible to participate in the Plan when the employee has completed one year of service. Under the 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. Contribution expense related to the 401(k) portion of the Plan was approximately $59,000 and $60,000 for the years ended March 31, 2013 and 2012, respectively.

7.  INDUSTRY SEGMENT DATA

The Company is engaged in the steel processing, pipe manufacturing and processing and steel and pipe distribution business. Within the Company, there are two product groups: coil and tubular. The Company’s coil operations involve converting steel coils into flat sheet and plate steel cut to customer specifications and reselling steel coils. Through its tubular operations, the Company purchases, processes, manufactures and markets tubular products. The following is a summary of significant financial information relating to the product groups:

 

     Year Ended March 31  
     2013     2012  

NET SALES:

    

Coil

   $ 67,045,885      $ 69,198,001   

Tubular

     69,402,901        92,323,992   
  

 

 

   

 

 

 

TOTAL NET SALES

   $ 136,448,786      $ 161,521,993   
  

 

 

   

 

 

 

OPERATING PROFIT:

    

Coil

   $ 848,252      $ 185,558   

Tubular

     10,696,683        14,580,906   
  

 

 

   

 

 

 

TOTAL OPERATING PROFIT

     11,544,935        14,766,464   

General corporate expenses

     (2,458,422     (2,651,728

Interest and other income

     58,764        91,824   
  

 

 

   

 

 

 

TOTAL EARNINGS BEFORE INCOME TAXES

   $ 9,145,277      $ 12,206,560   
  

 

 

   

 

 

 

IDENTIFIABLE ASSETS:

    

Coil

   $ 29,779,697      $ 26,259,762   

Tubular

     29,834,246        39,446,078   
  

 

 

   

 

 

 
     59,613,943        65,705,840   

General corporate assets

     16,961,186        12,864,553   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 76,575,129      $ 78,570,393   
  

 

 

   

 

 

 

DEPRECIATION:

    

Coil

   $ 1,113,053      $ 1,166,077   

Tubular

     669,876        670,196   

Corporate and other

     7,112        3,617   
  

 

 

   

 

 

 
   $ 1,790,041      $ 1,839,890   
  

 

 

   

 

 

 

CAPITAL EXPENDITURES:

    

Coil

   $ 333,916      $ 249,710   

Tubular

     165,570        36,133   

Corporate and other

            35,560   
  

 

 

   

 

 

 
   $ 499,486      $ 321,403   
  

 

 

   

 

 

 

 

11


FRIEDMAN INDUSTRIES, INCORPORATED

 

7.  INDUSTRY SEGMENT DATA (Continued)

 

Operating profit is total net sales 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 the cash value of officers’ life insurance. Although inventory is transferred at cost between product groups, there are no sales between product groups.

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, 2013 and 2012:

 

     Quarter Ended  
     June 30,
2012
     September 30,
2012
     December 31,
2012
     March 31,
2013
 

Net sales

   $ 39,434,770       $ 33,334,070       $ 31,719,922       $ 31,960,024   

Gross profit

     4,647,758         3,776,798         2,884,278         3,092,650   

Net earnings

     2,091,854         1,644,329         1,150,058         1,249,571   

Basic

     .31         .24         .17         .18   

Diluted

     .31         .24         .17         .18   

 

     Quarter Ended  
     June 30,
2011
     September 30,
2011
     December 31,
2011
     March 31,
2012
 

Net sales

   $ 38,935,456       $ 42,039,282       $ 36,987,260       $ 43,559,995   

Gross profit

     4,156,825         4,886,403         3,932,881         4,630,364   

Net earnings

     1,831,411         2,314,908         1,799,249         2,204,896   

Basic(1)

     .27         .34         .26         .32   

Diluted(1)

     .27         .34         .26         .32   

 

(1) The sum of the quarterly earnings per share does not equal the annual amount reported because per share amounts were computed independently for each quarter.

 

12


FRIEDMAN INDUSTRIES, INCORPORATED

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Friedman Industries, Incorporated

Houston, Texas

We have audited the consolidated balance sheets of Friedman Industries, Incorporated (the “Company”) as of March 31, 2013 and 2012, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2013. Our audits also included the financial statement schedule of Friedman Industries, Incorporated listed in Item 15(a). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Friedman Industries, Incorporated as of March 31, 2013 and 2012, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013 included in the accompanying management’s report on internal control over financial reporting and, accordingly, we do not express an opinion thereon.

/s/    HEIN & ASSOCIATES LLP

Houston, Texas

June 13, 2013

 

13


FRIEDMAN INDUSTRIES, INCORPORATED

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on such assessment, management concluded that, as of March 31, 2013, our internal control over financial reporting is effective based on that criteria.

This annual report does not include an attestation report of our registered, independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the U.S. Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

14


FRIEDMAN INDUSTRIES, INCORPORATED

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

RESULTS OF OPERATIONS

Year ended March 31, 2013 compared to year ended March 31, 2012

During the year ended March 31, 2013, sales, costs of goods sold and gross profit decreased $25,073,207, $21,868,218 and $3,204,989, respectively, from the comparable amounts recorded during the year ended March 31, 2012. The decrease in sales was related to both a decline in tons sold and a decrease in the average per ton selling price. Tons sold decreased from approximately 197,000 tons in fiscal 2012 to approximately 184,000 tons in fiscal 2013. The average per ton selling price decreased from approximately $819 per ton in fiscal 2012 to $740 per ton in fiscal 2013. Sales were adversely affected by softer demand for the Company’s products and services. The decrease in costs of goods sold was related to the decline in tons sold and a decrease in the average per ton cost, which decreased from approximately $730 per ton in fiscal 2012 to $662 in fiscal 2013. The decrease in gross profit was related primarily to the decline in sales. Gross profit as a percentage of sales decreased from approximately 10.9% in fiscal 2012 to approximately 10.6% in fiscal 2013.

Coil product segment sales decreased $2,152,116 during fiscal 2013. This decrease resulted from a decrease in the average selling price partially offset by an increase in coil tons sold. The average per ton selling price decreased from approximately $807 per ton in fiscal 2012 to $727 per ton in fiscal 2013. Coil tons sold increased from approximately 86,000 tons in fiscal 2012 to approximately 92,000 tons in fiscal 2013. Operating profit as percentage of coil product sales increased from approximately 0.3% in fiscal 2012 to 1.3% in fiscal 2013. Management believes that the operations of this segment have been adversely impacted in both fiscal 2013 and 2012 by soft demand related primarily to a weak U.S. economy and that market conditions will remain soft until the U.S. economy experiences sustained, significant improvement.

The Company is primarily dependent on Nucor Steel Company (“NSC”) for its supply of coil inventory. In fiscal 2013, NSC continued to supply the Company with steel coils in amounts that were adequate for the Company’s purposes. The Company does not currently anticipate any significant change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on the Company’s business.

Tubular product segment sales decreased by $22,921,091 during fiscal 2013. This decrease resulted from a decline in tons sold and a decrease in the average selling price. Tubular tons sold decreased from approximately 111,500 tons in fiscal 2012 to approximately 92,000 tons in fiscal 2013. The average per ton selling price of tubular products decreased from approximately $828 per ton in fiscal 2012 to $754 per ton in fiscal 2013. Tubular product segment operating profit decreased $3,884,223 in fiscal 2013 due primarily to the decrease in sales. Segment operating profits as a percentage of segment sales were approximately 15.4% and 15.8% in fiscal 2013 and 2012, respectively. In fiscal 2013, the Company experienced softer demand for its tubular products.

In recent years, U.S. Steel Tubular Products, Inc. (“USS”) has been the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and has been a major customer of finished tubular products. Certain finished tubular products used in the energy business are manufactured by the Company and sold to USS. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.

Income taxes decreased $1,046,631 from the amount recorded in fiscal 2012. This decrease was related primarily to the decrease in earnings before taxes. Effective tax rates were 32.9% and 33.2% in fiscal 2013 and 2012, respectively.

 

15


FRIEDMAN INDUSTRIES, INCORPORATED

 

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

The Company remained in a strong, liquid position at March 31, 2013. Current ratios were 5.2 and 4.7 at March 31, 2013 and March 31, 2012, respectively. Working capital was $51,971,475 at March 31, 2013 and $51,154,503 at March 31, 2012.

During the year ended March 31, 2013, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. 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 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.

The Company believes that its current cash position along with cash flows from operations and borrowing capability due to its strong balance sheet 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.

INFLATION

During fiscal 2013 and 2012, the Company believes that the general level of inflation had little effect on its operations.

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 that 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.

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, as amended) and that involve risk and uncertainty. These forward-looking statements may include, but are not limited to, future results of operations, future production capacity, product quality and proposed expansion plans. 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 U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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, including any proposed expansion plans.

 

16


FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY

 

      Year Ended March 31  
      2013      2012      2011      2010      2009      2008      2007     2006      2005      2004  

Net sales

   $ 136,448,786       $ 161,521,993       $ 131,709,492       $ 65,132,170       $ 208,779,750       $ 178,785,110       $ 199,726,619      $ 181,900,351       $ 188,022,253       $ 116,158,567   

Net earnings

   $ 6,135,812       $ 8,150,464       $ 8,155,637       $ 652,024       $ 13,673,406       $ 4,465,127       $ 7,018,318 (1)    $ 6,453,888       $ 6,246,043       $ 2,535,991   

Current assets

   $ 64,283,557       $ 65,007,891       $ 54,562,344       $ 48,703,119       $ 42,673,377       $ 49,422,594       $ 51,731,369      $ 47,551,003       $ 43,498,759       $ 37,829,701   

Current liabilities

   $ 12,312,082       $ 13,853,388       $ 9,467,375       $ 7,576,278       $ 3,353,013       $ 14,784,366       $ 23,266,583      $ 18,383,193       $ 14,959,516       $ 12,639,763   

Working capital

   $ 51,971,475       $ 51,154,503       $ 45,094,969       $ 41,126,841       $ 39,320,364       $ 34,638,228       $ 28,464,786      $ 29,167,810       $ 28,539,243       $ 25,189,938   

Total assets

   $ 76,575,129       $ 78,570,393       $ 69,584,131       $ 65,031,722       $ 60,460,064       $ 66,958,392       $ 65,871,706      $ 55,930,889       $ 50,796,342       $ 46,028,123   

Stockholders’ equity

   $ 62,957,619       $ 63,417,268       $ 58,802,514       $ 56,358,410       $ 56,114,352       $ 44,956,741       $ 42,109,998      $ 37,097,335       $ 35,354,550       $ 33,031,604   

Net earnings as a percent of Net sales

     4.5         5.0         6.2         1.0         6.5         2.5         3.5        3.5         3.3         2.2   

Stockholders’ equity

     9.7         12.9         13.9         1.2         24.4         9.9         16.7        17.4         17.7         7.7   

Weighted average number of common shares outstanding:

                            

Basic

     6,799,444         6,799,444         6,799,444         6,799,444         6,799,444         6,733,942         6,685,577        7,072,637         7,418,410         7,574,070   

Per share

                            

Net earnings per share:

                            

Basic

   $ 0.90       $ 1.20       $ 1.20       $ 0.10       $ 2.01       $ 0.66       $ 1.05 (1)    $ 0.91       $ 0.84       $ 0.33   

Stockholders’ equity

   $ 9.26       $ 9.33       $ 8.65       $ 8.29       $ 8.25       $ 6.68       $ 6.30      $ 5.25       $ 4.77       $ 4.36   

Cash dividends per common share

   $ 0.97       $ 0.52       $ 0.84       $ 0.06       $ 0.37       $ 0.27       $ 0.34      $ 0.32       $ 0.29       $ 0.10   

 

 

(1) Includes an after tax gain of $866,474 ($.13 per share basic) related to a gain on the sale of assets.