-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, THNuG20inhXYqqbuvARwhNDcZdmzB4Jrcdsw2V0p6ZLLizWEh5TOiuC2N8U1C4UG z/mneU4GgVe2hEH7z5tgwQ== 0000950129-03-003454.txt : 20030630 0000950129-03-003454.hdr.sgml : 20030630 20030630160917 ACCESSION NUMBER: 0000950129-03-003454 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRIEDMAN INDUSTRIES INC CENTRAL INDEX KEY: 0000039092 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 741504405 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07521 FILM NUMBER: 03764524 BUSINESS ADDRESS: STREET 1: 4001 HOMESTEAD RD CITY: HOUSTON STATE: TX ZIP: 77028 BUSINESS PHONE: 7136729433 MAIL ADDRESS: STREET 2: PO BOX 21147 CITY: HOUSTON STATE: TX ZIP: 77226 10-K 1 h06893e10vk.txt FRIEDMAN INDUSTRIES, INC. - YEAR ENDED 03/31/2003 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2003 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______ Commission File No. 1-7521 FRIEDMAN INDUSTRIES, INCORPORATED (Exact name of registrant as specified in its charter) TEXAS 74-1504405 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 672-9433 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X ----- ----- The aggregate market value of the Common Stock held by non-affiliates of the registrant as of September 30, 2002 (computed by reference to the closing price on the American Stock Exchange on such date), was approximately $11,718,000. The number of shares of the registrant's Common Stock outstanding at June 17, 2003 was 7,573,239 shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders of Friedman Industries, Incorporated for the fiscal year ended March 31, 2003 -- Part II. Proxy Statement for the 2003 Annual Meeting of Shareholders -- Part III. PART I ITEM 1. BUSINESS Friedman Industries, Incorporated (the "Company"), a Texas corporation incorporated in 1965, is engaged in pipe manufacturing and processing, steel processing and steel and pipe distribution. The Company has two product and service groups: coil and tubular products. Significant financial information relating to the Company's product and service groups for the last three years is contained in Note 7 of the Consolidated Financial Statements of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003, which financial statements are incorporated herein by reference in Item 8 hereof. Coil Products The Company purchases hot-rolled steel coils, processes the 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 has coil processing plants located at Lone Star, Texas and Hickman, Arkansas. At each plant, the steel coils are processed through a cut-to-length line which levels the steel and cuts it to prescribed lengths. The Company's processing machinery is heavy, mill-type equipment capable of processing steel coils weighing up to 25 tons. Coils are processed to the specifications required for a particular order. Shipments are made via unaffiliated truckers or by rail and, in times of normal supply and market conditions, can generally be made within 48 hours of receipt of the customer's order. At its Lone Star facility, the Company purchases hot-rolled steel coils primarily from Lone Star Steel Company ("LSS"), which is located approximately four miles from the Company's Lone Star plant. The Lone Star plant purchases its supply of steel from LSS and other suppliers at competitive prices determined at the time of purchase. Loss of LSS as a source of coil supply could have a material adverse effect on the Company's business. At the Company's Hickman facility, the Company warehouses and processes hot-rolled steel coils which are purchased primarily from Nucor Steel Company ("NSC"), which is located approximately one-half mile from the Hickman facility. In addition, the Company's XSCP Division located in Hickman purchases and markets non-standard hot-rolled coils received from NSC. Loss of NSC as a source of coil supply could have a material adverse effect on the Company's business. At the Lone Star facility, the Company maintains three cut-to-length lines and a coil-to-coil 2-Hi temper pass mill. This equipment is capable of processing steel up to 72 inches wide and up to one-half inch thick. The Hickman facility operates a cut-to-length line which has 72 inch wide and one-half inch thick capability. The Company also operates a 2-Hi temper pass mill at the Hickman facility that is capable of processing steel up to 72 inches wide and one-half inch thick in a coil-to-coil mode or directly from coil to cut-to-length processing. Tubular Products Through its Texas Tubular Products Division ("TTP") in Lone Star, Texas, the Company manufactures, purchases, processes and markets tubular products. TTP operates a pipe mill that is capable of producing pipe from 2 3/8 inches to 8 5/8 inches in outside diameter. The pipe mill is API-licensed to manufacture line and oil country pipe and also manufactures pipe for structural and piling purposes that meets recognized industry standards. TTP employs various pipe processing equipment including threading and beveling machines, pipe 2 handling equipment and other related machinery. This machinery can process pipe up to 13 3/8 inches in outside diameter. The Company currently manufactures and sells substantially all of its line and oil country pipe to LSS pursuant to orders received from LSS. In addition, LSS sells pipe to the Company for structural applications for some sizes of pipe that exceed the capability of the pipe mill. The Company also purchases a substantial portion of its annual supply of pipe and coil material used in pipe production from LSS. The Company can make no assurances as to the amounts of pipe and coil material that will be available from LSS in the future. Loss of LSS as a source of supply or as a customer could have a material adverse effect on the Company's business. Marketing The following table sets forth the approximate percentage of total sales contributed by each group of products and services during each of the Company's last three fiscal years:
PRODUCT AND SERVICE GROUPS 2003 2002 2001 -------------------------- ---- ---- ---- Coil Products............................................... 57% 53% 57% Tubular Products............................................ 43% 47% 43%
Coil Products. The Company's coil products are sold to approximately 310 customers located primarily in the midwestern, southwestern and southeastern sections of the United States. The Company's principal customers for these products and services are steel distributors and customers fabricating steel products such as storage tanks, steel buildings, farm machinery and equipment, construction equipment, transportation equipment, conveyors and other similar products. During each of the fiscal years ended March 31, 2003, 2002 and 2001, six, six and seven customers, respectively, accounted for approximately 25% of the Company's sales of coil products. No coil product customer accounted for as much as 10% of the Company's total sales during those years. The Company sells substantially all of its coil products through its own sales force. At March 31, 2003, the sales force was comprised of a vice president and four professional sales personnel under the direction of the senior vice president of sales and marketing. Salesmen are paid on a salary and commission basis. Shipments of particular products are made from the facility offering the product desired. If the product is available at more than one facility, other factors such as location of the customer, productive capacity of the facility and activity of the facility enter into the decision regarding shipments. The Company regularly contracts on a quarterly basis with many of its larger customers to supply minimum quantities of steel. Tubular Products. Tubular products are sold nationally to approximately 320 customers. The Company's principal customers of these products are steel and pipe distributors, piling contractors and LSS. Sales of pipe to LSS accounted for approximately 12% of the Company's total sales in fiscal 2003. The Company sells its tubular products through its own sales force comprised of four professional sales personnel under the direction of the senior vice president of sales and marketing. Salesmen are paid on a salary and commission basis. Competition The Company is engaged in a non-seasonal, highly-competitive business. The Company competes with steel mills, importers and steel service centers. The steel industry, in general, is characterized by a small number of extremely large companies dominating the bulk of the market and a large number of relatively small companies, such as the Company, competing for a limited share of such market. The Company believes that in times of normal supply and market conditions its ability to compete is dependent upon its ability to offer products at prices competitive with or below those of other steel suppliers, as well as its ability to provide products meeting customer specifications on a rapid-delivery basis. 3 Employees At March 31, 2003, the Company had approximately 140 full-time employees. Executive Officers of the Company The following table sets forth the name, age, officer positions and family relationships, if any, of each executive officer of the Company and period during which each officer has served in such capacity:
POSITION, OFFICES WITH THE COMPANY NAME AGE AND FAMILY RELATIONSHIPS, IF ANY ---- --- ---------------------------------- Jack Friedman..... 82 Chairman of the Board of Directors and Chief Executive Officer since 1970, Director since 1965, brother of Harold Friedman Harold Friedman... 73 Vice Chairman since 1995, formerly President and Chief Operating Officer since 1975, Executive Vice President from 1973 to 1975, Director since 1965, brother of Jack Friedman William E. Crow... 56 President and Chief Operating Officer since 1995, formerly Vice President since 1981 and formerly President of Texas Tubular Products Division since August 1990 Benny Harper...... 57 Senior Vice President -- Finance since 1995 (formerly Vice President since 1990), Treasurer since 1980 and Secretary since May 1992 Thomas Thompson... 52 Senior Vice President -- Sales and Marketing since 1995, formerly Vice President -- Sales since 1990
ITEM 2. PROPERTIES The principal properties of the Company are described in the following table:
APPROXIMATE TYPE OF LOCATION SIZE OWNERSHIP CONSTRUCTION -------- ----------- --------- ------------ Lone Star, Texas Plant -- Coil Products...... 42,260 sq. feet Owned(1) Steel frame/siding Plant -- Texas Tubular Products................. 76,000 sq. feet Owned(1) Steel frame/siding Offices -- Coil Products.... 1,200 sq. feet Owned(1) Steel building Offices -- Texas Tubular Products................. 5,000 sq. feet Owned(1) Cinder block Land -- Coil Products....... 13.93 acres Owned(1) -- Land -- Texas Tubular Products................. 67.77 acres Owned(1) -- Longview, Texas Offices....... 2,600 sq. feet Leased(2) Office Building Houston, Texas Plant and Warehouse......... 70,000 sq. feet Owned(1)(3) Rigid steel frame and steel siding Offices..................... 4,000 sq. feet Owned(1)(3) Brick veneer; steel building Land........................ 12 acres Owned(1)(3) -- Hickman, Arkansas Plant and Warehouse -- Coil Products................. 42,600 sq. feet Owned(1) Steelframe/siding Offices -- Coil Products.... 2,500 sq. feet Owned(1) Cinder block/wood frame Land -- Coil Products....... 26.19 acres Owned(1) --
- --------------- 4 (1) All of the Company's owned real estate, plants and offices are held in fee and are not subject to any mortgage or deed of trust. (2) The office lease is with a nonaffiliated party, expires April 30, 2008, and provides for an annual rental of $27,264. (3) In November 2001, the Company closed its coil products facility in Houston, Texas. The Company intends to sell these assets. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to, nor is its property the subject of, any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is traded principally on the American Stock Exchange (Symbol: FRD). Reference is hereby made to the sections of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003, entitled "Description of Business -- Range of High and Low Sales Prices of Common Stock" and "Description of Business -- Cash Dividends Declared Per Share of Common Stock", which sections are hereby incorporated herein by reference. The information required by Item 201(d) of Regulation S-K is hereby incorporated herein by reference from Item 12 of this report. The approximate number of shareholders of record of Common Stock of the Company as of April 25, 2003 was 530. ITEM 6. SELECTED FINANCIAL DATA Information with respect to Item 6 is hereby incorporated herein by reference from the section of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003, entitled "Selected Financial Data". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information with respect to Item 7 is hereby incorporated herein by reference from the section of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations". ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not material ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and notes thereto of the Company included in the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003, are hereby incorporated herein by reference: Consolidated Balance Sheets -- March 31, 2003 and 2002 Consolidated Statements of Earnings -- Years ended March 31, 2003, 2002 and 2001 Consolidated Statements of Stockholders' Equity -- Years ended March 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows -- Years ended March 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements -- March 31, 2003 Report of Independent Auditors Information with respect to supplementary financial information relating to the Company appears in Note 8 -- Summary of Quarterly Results of Operations (Unaudited) of the Notes to Consolidated Financial Statements incorporated herein by reference above in this Item 8 from the Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003. The following supplementary schedule for the Company for the year ended March 31, 2003, is included elsewhere in this report. Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 6 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Item 10 regarding directors of the Company is hereby incorporated herein by reference from the Company's proxy statement in respect of the 2003 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 2003 fiscal year. Information with respect to Item 10 regarding executive officers is hereby incorporated by reference from the information set forth under the caption "Executive Officers of the Company" in Item 1 of this report. ITEM 11. EXECUTIVE COMPENSATION Information with respect to Item 11 is hereby incorporated herein by reference from the Company's proxy statement in respect of the 2003 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 2003 fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information The following table sets forth certain equity compensation plan information for the Company as of March 31, 2003: EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE NUMBER OF SECURITIES WEIGHTED-AVERAGE UNDER EQUITY TO BE ISSUED UPON EXERCISE PRICE OF COMPENSATION PLANS EXERCISE OF OUTSTANDING (EXCLUDING OUTSTANDING OPTIONS, OPTIONS, WARRANTS SECURITIES REFLECTED PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS IN COLUMN(A)) ------------- -------------------- ------------------- -------------------- (A) (B) (C) Equity compensation plans approved by security holders................... 411,694 $ 2.58 16,314 Equity compensation plans not approved by security holders(1)................ N/A N/A 5,200
- --------------- (1) The 2000 Non-Employee Director Stock Plan (the "Director Plan") was approved by the Company's Board of Directors in September 2000. The Director Plan provides that, on October 15th of each year in which the Director Plan is in effect and shares are available for the grant of awards under the Director Plan, each member of the Company's Board of Directors who is not an employee of the Company ("Outside Directors") and who has served as a director of the Company for at least the twelve immediately preceding calendar months shall automatically be granted 400 shares of Common Stock. Such Outside Directors are not required to pay any cash consideration when they receive an award. If an employee director retires from employment with the Company, he shall become eligible to participate in the Director Plan upon his re-election as an Outside Director. Under the Director Plan, the total number of shares of Common Stock with respect to which awards may be granted shall not exceed 11,600 shares. The Board of Directors may terminate, amend or modify the Director Plan at any time. If the Company merges or consolidates with another entity and is not the surviving corporation or if the Company is liquidated or sells or otherwise disposes of substantially all of its assets, the Director Plan will terminate automatically on the effective date of such merger, consolidation, liquidation, sale or other disposition. 7 Security Ownership Information The additional information with respect to Item 12 regarding the security ownership of certain beneficial owners and management, and related matters, is hereby incorporated herein by reference from the Company's proxy statement in respect to the 2003 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 2003 fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to Item 13 is hereby incorporated herein by reference from the Company's proxy statement in respect of the 2003 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 2003 fiscal year. ITEM 14. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Within 90 days prior to the filing of this report, under the supervision and with the participation of the Company's management, including the Company's principal executive officer (CEO) and principal financial officer (CFO), an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended) was performed. Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company's disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder. Changes in Internal Controls There were no significant changes in the internal controls or in other factors that could significantly affect those controls subsequent to the date of the evaluation thereof. ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not required for the year ended March 31, 2003 8 PART IV ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents included in this report
EXHIBIT NO. DESCRIPTION ------- ----------- 1 and 2 -- The responses to this section of Item 16 appears in this report as a separate section of this report. 3 -- Exhibits 3.1 -- Articles of Incorporation of the Company, as amended, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1982, and incorporated herein by reference. 3.2 -- Articles of Amendment to the Articles of Incorporation of the Company, as filed with the Texas Secretary of State on September 22, 1987, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1988, and incorporated herein by reference. 3.3 -- Bylaws of the Company, amended as of March 27, 1992, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1992, and incorporated herein by reference. 4.1 -- Reference is made to Exhibits 10.2, 10.5, 10.6, 10.9, 10.11 and 10.12 described in this Item 16(a). *10.1 -- Friedman Industries, Incorporated 1989 Incentive Stock Option Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, and incorporated herein by reference. 10.2 -- Amended and Restated Letter Agreement dated April 1, 1995, between the Company and Texas Commerce Bank National Association ("TCB") regarding an $8,000,000 revolving line of credit filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 and incorporated herein by reference. 10.3 -- Lease Agreement between Judson Plaza, Inc. and the Company dated March 16, 1996, regarding the lease of office space (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1996). *10.4 -- Friedman Industries, Incorporated 1996 Stock Option Plan (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.5 -- First Amendment to Amended and Restated Letter Agreement between the Company and TCB dated April 1, 1997 (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.6 -- Second Amendment to Amended and Restated Letter Agreement between the Company and TCB dated July 21, 1997 (filed as an exhibit to and incorporated by reference from the Company's Report on Form 10-Q for the three months ended June 30, 1997). *10.7 -- First Amendment to the Friedman Industries, Incorporated 1989 Incentive Stock Option Plan (filed as an exhibit to and incorporated by reference from the Company's Report on Form 10-Q for the three months ended September 30, 1997). *10.8 -- Friedman Industries, Incorporated 2000 Non-Employee Director Stock Plan (filed as an exhibit to and incorporated by reference from the Company's Registration Statement on Form S-8 (Registration No. 333-47262)). 10.9 -- Third Amendment to the Amended and Restated Letter Agreement dated April 1, 1999 between the Company and Chase Bank of Texas (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 1999).
9
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10 -- Addendum to Lease Agreement between Judson Plaza, Inc. and the Company dated April 12, 2001 (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001). 10.11 -- Fourth Amendment to the Amended and Restated Letter Agreement dated June 1, 2001 between The Chase Manhattan Bank and the Company (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001). 10.12 -- Revolving Promissory Note dated June 1, 2001 between the Company and The Chase Manhattan Bank (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001). **13.1 -- The Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003. **21.1 -- List of Subsidiaries. **23.1 -- Consent of Independent Auditors. **99.1 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman. **99.2 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper.
- --------------- * Management contract or compensation plan. ** Filed herewith. Copies of exhibits filed as a part of this Annual Report on Form 10-K may be obtained by shareholders of record at a charge of $.10 per page. Direct inquiries to: Benny Harper, Senior Vice President -- Finance, Friedman Industries, Incorporated, P. O. Box 21147, Houston, Texas 77226. (b) Reports on Form 8-K filed in the fourth quarter of fiscal 2003: None 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Friedman Industries, Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, and State of Texas, this 27th day of June, 2003. FRIEDMAN INDUSTRIES, INCORPORATED By: /s/ JACK FRIEDMAN ---------------------------------- Jack Friedman Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated on behalf of Friedman Industries, Incorporated in the City of Houston, and State of Texas.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JACK FRIEDMAN Chairman of the Board, Chief June 27, 2003 - ----------------------------------------------------- Executive Officer and Jack Friedman Director (Principal Executive Officer) /s/ HAROLD FRIEDMAN Vice Chairman of the Board and June 27, 2003 - ----------------------------------------------------- Director Harold Friedman /s/ WILLIAM E. CROW President, Chief Operating June 27, 2003 - ----------------------------------------------------- Officer and Director William E. Crow /s/ BENNY B. HARPER Senior Vice June 27, 2003 - ----------------------------------------------------- President -- Finance Benny B. Harper Secretary/Treasurer (Principal Financial and Accounting Officer) /s/ CHARLES W. HALL Director June 27, 2003 - ----------------------------------------------------- Charles W. Hall /s/ ALAN M. RAUCH Director June 27, 2003 - ----------------------------------------------------- Alan M. Rauch /s/ HERSHEL M. RICH Director June 27, 2003 - ----------------------------------------------------- Hershel M. Rich /s/ KIRK K. WEAVER Director June 27, 2003 - ----------------------------------------------------- Kirk K. Weaver /s/ JOE L. WILLIAMS Director June 27, 2003 - ----------------------------------------------------- Joe L. Williams
11 I, Jack Friedman, Chairman of the Board and Chief Executive Officer of Friedman Industries, Incorporated, a Texas corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Friedman Industries, Incorporated; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ JACK FRIEDMAN ------------------------------------ Jack Friedman Chairman of the Board and Chief Executive Officer Dated: June 27, 2003 12 I, Ben Harper, Senior Vice President -- Finance and Secretary/Treasurer of Friedman Industries, Incorporated, a Texas corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Friedman Industries, Incorporated; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ BEN HARPER ------------------------------------ Ben Harper Senior Vice President -- Finance and Secretary/Treasurer Dated: June 27, 2003 13 FRIEDMAN INDUSTRIES, INCORPORATED HOUSTON, TEXAS ANNUAL REPORT ON FORM 10-K YEAR ENDED MARCH 31, 2003 ITEM 16(a)1 AND 2 LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 14 FORM 10-K ITEM 16(a)1 AND 2 FRIEDMAN INDUSTRIES, INCORPORATED LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following financial statements of the Company are set forth herewith in response to Item 16(a)1 and 2 of this report. Consolidated Balance Sheets -- March 31, 2003 and 2002 Consolidated Statements of Earnings -- Years ended March 31, 2003, 2002 and 2001 Consolidated Statements of Stockholders' Equity -- Years end March 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows -- Years ended March 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements -- March 31, 2003 Report of Independent Auditors The following financial statement schedule of the Company is included in this report. S-1-Schedule II -- Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 15 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FRIEDMAN INDUSTRIES, INCORPORATED
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- ------------------------------ ------------- ------------- ADDITIONS ------------------------------ BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(A) END OF PERIOD ----------- ---------- ---------- ----------------- ------------- ------------- Year ended March 31, 2003 Allowance for doubtful accounts receivable (deducted from related asset account).......... $7,276 $ 80,275 -- $ 80,275 $7,276 ====== ======== ====== ======== ====== Year ended March 31, 2002 Allowance for doubtful accounts receivable (deducted from related asset account).......... $7,276 $128,095 -- $128,095 $7,276 ====== ======== ====== ======== ====== Year ended March 31, 2001 Allowance for doubtful accounts receivable (deducted from related asset account).......... $7,276 $ 83,862 -- $ 83,862 $7,276 ====== ======== ====== ======== ======
- --------------- (A) Accounts and notes receivable written off. S-1 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 1 and 2 -- The responses to this section of Item 16 appears in this report as a separate section of this report. 3 -- Exhibits 3.1 -- Articles of Incorporation of the Company, as amended, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1982, and incorporated herein by reference. 3.2 -- Articles of Amendment to the Articles of Incorporation of the Company, as filed with the Texas Secretary of State on September 22, 1987, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1988, and incorporated herein by reference. 3.3 -- Bylaws of the Company, amended as of March 27, 1992, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1992, and incorporated herein by reference. 4.1 -- Reference is made to Exhibits 10.2, 10.5, 10.6, 10.9, 10.11 and 10.12 described in this Item 16(a). *10.1 -- Friedman Industries, Incorporated 1989 Incentive Stock Option Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, and incorporated herein by reference. 10.2 -- Amended and Restated Letter Agreement dated April 1, 1995, between the Company and Texas Commerce Bank National Association ("TCB") regarding an $8,000,000 revolving line of credit filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 and incorporated herein by reference. 10.3 -- Lease Agreement between Judson Plaza, Inc. and the Company dated March 16, 1996, regarding the lease of office space (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1996). *10.4 -- Friedman Industries, Incorporated 1996 Stock Option Plan (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.5 -- First Amendment to Amended and Restated Letter Agreement between the Company and TCB dated April 1, 1997 (filed as an exhibit to and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1997). 10.6 -- Second Amendment to Amended and Restated Letter Agreement between the Company and TCB dated July 21, 1997 (filed as an exhibit to and incorporated by reference from the Company's Report on Form 10-Q for the three months ended June 30, 1997). *10.7 -- First Amendment to the Friedman Industries, Incorporated 1989 Incentive Stock Option Plan (filed as an exhibit to and incorporated by reference from the Company's Report on Form 10-Q for the three months ended September 30, 1997). *10.8 -- Friedman Industries, Incorporated 2000 Non-Employee Director Stock Plan (filed as an exhibit to and incorporated by reference from the Company's Registration Statement on Form S-8 (Registration No. 333-47262)). 10.9 -- Third Amendment to the Amended and Restated Letter Agreement dated April 1, 1999 between the Company and Chase Bank of Texas (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 1999). 10.10 -- Addendum to Lease Agreement between Judson Plaza, Inc. and the Company dated April 12, 2001 (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001).
EXHIBIT NO. DESCRIPTION ------- ----------- 10.11 -- Fourth Amendment to the Amended and Restated Letter Agreement dated June 1, 2001 between The Chase Manhattan Bank and the Company (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001). 10.12 -- Revolving Promissory Note dated June 1, 2001 between the Company and The Chase Manhattan Bank (filed as an exhibit to and incorporated by reference from the Company's report on Form 10-Q for the three months ended June 30, 2001). **13.1 -- The Company's Annual Report to Shareholders for the fiscal year ended March 31, 2003. **21.1 -- List of Subsidiaries. **23.1 -- Consent of Independent Auditors. **99.1 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman. **99.2 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper.
- --------------- * Management contract or compensation plan. ** Filed herewith. Copies of exhibits filed as a part of this Annual Report on Form 10-K may be obtained by shareholders of record at a charge of $.10 per page. Direct inquiries to: Benny Harper, Senior Vice President -- Finance, Friedman Industries, Incorporated, P. O. Box 21147, Houston, Texas 77226. (b) Reports on Form 8-K filed in the fourth quarter of fiscal 2003: None EX-13.1 3 h06893exv13w1.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13.1 THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 2003 FRIEDMAN INDUSTRIES INCORPORATED 2003 ANNUAL REPORT FRIEDMAN INDUSTRIES, INCORPORATED FINANCIAL HIGHLIGHTS
2003 2002 ------------ ----------- Net sales................................. $106,082,738 $97,817,956 Net earnings.............................. $1,432,017 $940,039 Net earnings per share (Basic)............ $0.19 $0.12 Cash dividends per share.................. $0.09 $0.11 Stockholders' equity...................... $31,246,751 $30,491,351 Stockholders' equity per share (Basic).... $4.13 $4.03 Working capital........................... $23,734,112 $25,009,882
TO OUR SHAREHOLDERS: During fiscal 2003, the steel industry suffered from soft market conditions and related lack of demand. Soft market conditions have characterized the industry for more than two years. Through this period, your Company has remained profitable, which has allowed continued payment of cash dividends. The Company has been public for 31 years and has declared 124 consecutive quarterly cash dividends. The steel industry continues to struggle. The consolidation of the industry is a "work in progress" as we enter fiscal 2004. You are cordially invited to attend the Annual Meeting of Shareholders to be held on September 10, 2003. The meeting will be held at 11:00 a.m. in the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas. Sincerely, -s- JACK FRIEDMAN Jack Friedman Chairman of the Board and Chief Executive Officer 1 FRIEDMAN INDUSTRIES, INCORPORATED OFFICERS Jack Friedman Chairman of the Board and Chief Executive Officer Harold Friedman Vice Chairman of the Board William E. Crow President and Chief Operating Officer Benny B. Harper Senior Vice President -- Finance and Secretary/Treasurer Thomas N. Thompson Senior Vice President -- Sales and Marketing Ronald L. Burgerson Vice President Dale Ray Vice President Howard Henderson Vice President of Operations -- Texas Tubular Division Robert Sparkman Vice President of Sales -- Coil Divisions Dan Vivian Vice President of Operations -- Hickman Coil Facility Charles W. Hall Assistant Secretary COMPANY OFFICES AND WEB SITE CORPORATE OFFICE 4001 Homestead Road Houston, Texas 77028 713-672-9433 SALES OFFICE -- COIL PRODUCTS 1121 Judson Road Longview, Texas 75606 903-758-3431 SALES OFFICE -- TUBULAR PRODUCTS P.O. Box 0388 Lone Star, Texas 75668 903-639-2511 WEB SITE www.friedmanindustries.com COUNSEL Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010 AUDITORS Ernst & Young LLP 1401 McKinney, Suite 1200 Houston, Texas 77010 TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company 59 Maiden Lane New York, New York 10007 DIRECTORS Jack Friedman Chairman of the Board and Chief Executive Officer Harold Friedman Vice Chairman of the Board William E. Crow President and Chief Operating Officer Charles W. Hall Fulbright & Jaworski L.L.P. (law firm) Houston, Texas Alan M. Rauch President, Ener-Tex International, Inc. (oilfield equipment sales) Houston, Texas Hershel M. Rich Private investor and business consultant Houston, Texas Kirk K. Weaver Business advisor Houston, Texas Joe L. Williams Chairman and Chief Executive Officer, Wisenberg Insurance + Risk Management (insurance and risk management) Houston, Texas ANNUAL REPORT ON FORM 10-K SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2003 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN REQUESTS SHOULD BE ADDRESSED TO: BENNY B. HARPER, SENIOR VICE PRESIDENT, FRIEDMAN INDUSTRIES, INCORPORATED, P.O. BOX 21147, HOUSTON, TEXAS 77226. 2 FRIEDMAN INDUSTRIES, INCORPORATED DESCRIPTION OF BUSINESS Friedman Industries, Incorporated is engaged in pipe manufacturing and processing, steel processing and steel and pipe distribution. At its facilities in Lone Star, Texas, and Hickman, Arkansas, the Company processes hot-rolled steel coils into flat, finished sheet and plate and sells these products on a wholesale, rapid-delivery basis in competition with steel mills, importers and steel service centers. The Company also processes customer-owned coils on a fee basis. In addition, through its XSCP Division located in Hickman, Arkansas, the Company purchases and markets non-standard hot-rolled coils received from Nucor Steel Company ("NSC"). The Company purchases a substantial amount of its annual coil tonnage from Lone Star Steel Company ("LSS") and NSC. Loss of LSS or NSC as a source of coil supply could have a material adverse effect on the Company's business. The Company sells its coil products and processing services directly through the Company's own sales force to approximately 310 customers located primarily in the midwestern, southwestern and southeastern sections of the United States. These products and services are sold principally to steel distributors and to customers fabricating steel products such as storage tanks, steel buildings, farm machinery and equipment, construction equipment, transportation equipment, conveyors and other similar products. The Company, through its Texas Tubular Products Division located in Lone Star, Texas, manufactures, purchases, processes and markets tubular products ("pipe"). The Company sells pipe nationally to approximately 320 customers and sells a substantial amount of manufactured pipe to LSS. The Company purchases a substantial portion of its annual supply of pipe and coil material used in pipe production from LSS. Loss of LSS as a source of such pipe and coil material supply or as a customer of manufactured pipe could have a material adverse effect on the Company's business. Significant financial information relating to the Company's two product and service groups, coil and tubular products, is contained in Note 7 of Notes to the Company's Consolidated Financial Statements appearing herein. ------------------ RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK
FISCAL 2003 FISCAL 2002 ---------------- ---------------- HIGH LOW HIGH LOW ---- ---- ---- ---- First Quarter............................................... 3.09 2.55 3.49 2.66 Second Quarter.............................................. 2.88 2.37 3.32 2.21 Third Quarter............................................... 2.53 2.30 2.75 2.30 Fourth Quarter.............................................. 2.55 2.34 2.75 2.35
------------------ CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
FISCAL 2003 FISCAL 2002 ----------- ----------- First Quarter............................................... $.02 $.04 Second Quarter.............................................. $.02 $.03 Third Quarter............................................... $.03 $.03 Fourth Quarter.............................................. $.02 $.01
------------------ The Company's Common Stock is traded principally on the American Stock Exchange (trading symbol FRD). The approximate number of shareholders of record of the Company as of April 25, 2003 was 530. 3 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS
MARCH 31 ---------------------------- 2003 2002 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents.............................. $ 673,127 $ 4,683,894 Accounts receivable, net of allowance of $7,276 in both years................................................ 9,966,061 7,485,217 Inventories............................................ 24,032,268 23,502,201 Other.................................................. 98,044 135,676 ------------ ------------ TOTAL CURRENT ASSETS.............................. 34,769,500 35,806,988 PROPERTY, PLANT, AND EQUIPMENT: Land................................................... 437,793 221,543 Buildings and yard improvements........................ 4,063,579 3,981,154 Machinery and equipment................................ 17,216,823 16,910,763 Less accumulated depreciation.......................... (14,930,027) (13,963,024) ------------ ------------ 6,788,168 7,150,436 OTHER ASSET: Cash value of officers' life insurance................. 1,221,258 1,029,031 ------------ ------------ TOTAL ASSETS...................................... $ 42,778,926 $ 43,986,455 ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31 ---------------------------- 2003 2002 ------------ ------------ CURRENT LIABILITIES: Accounts payable and accrued expenses.................. $ 9,870,888 $ 9,353,386 Current portion of long-term debt...................... 68,496 833,750 Dividends payable...................................... 151,460 75,710 Income taxes payable................................... 406,620 87,472 Contribution to profit sharing plan.................... 260,000 260,000 Employee compensation and related expenses............. 277,924 186,788 ------------ ------------ TOTAL CURRENT LIABILITIES......................... 11,035,388 10,797,106 LONG-TERM DEBT, less current portion........................ 57,329 2,053,438 DEFERRED INCOME TAXES....................................... 283,458 481,560 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 156,000 163,000 STOCKHOLDERS' EQUITY: Common stock, par value $1: Authorized shares -- 10,000,000 Issued and outstanding shares -- 7,573,239 in 2003 and 7,571,239 in 2002............................. 7,573,239 7,571,239 Additional paid-in capital............................. 27,710,369 27,707,309 Retained deficit....................................... (4,036,857) (4,787,197) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY........................ 31,246,751 30,491,351 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 42,778,926 $ 43,986,455 ============ ============
See accompanying notes. 4 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED MARCH 31 ----------------------------------------- 2003 2002 2001 ------------ ----------- ------------ Sales........................................... $106,082,738 $97,817,956 $120,395,583 Costs and expenses: Cost of products sold...................... 99,667,017 91,890,596 110,855,198 Selling, general, and administrative....... 4,283,973 4,317,313 4,686,085 Interest expense........................... 71,700 278,719 624,431 ------------ ----------- ------------ 104,022,690 96,486,628 116,165,714 ------------ ----------- ------------ 2,060,048 1,331,328 4,229,869 Interest and other income....................... 109,674 92,974 205,862 ------------ ----------- ------------ EARNINGS BEFORE FEDERAL INCOME TAXES............................... 2,169,722 1,424,302 4,435,731 Federal income taxes: Current.................................... 935,807 450,263 1,454,149 Deferred................................... (198,102) 34,000 54,000 ------------ ----------- ------------ 737,705 484,263 1,508,149 ------------ ----------- ------------ NET EARNINGS.......................... $ 1,432,017 $ 940,039 $ 2,927,582 ============ =========== ============ Average number of common shares outstanding: Basic......................................... 7,572,239 7,571,239 7,568,839 Diluted....................................... 7,589,900 7,571,239 7,568,839 Net earnings per share: Basic......................................... $ .19 $ .12 $ .39 Diluted....................................... $ .19 $ .12 $ .39
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) ---------- ----------- ----------- BALANCE AT MARCH 31, 2000............... $7,188,213 $26,878,477 $(5,443,739) Net earnings...................................... -- -- 2,927,582 Exercise of stock options......................... 19,547 11,924 -- Issuance of Directors' shares..................... 2,000 5,500 -- Stock dividend (5%)............................... 359,079 807,928 (1,167,007) Cash dividends ($0.16 per share).................. -- -- (1,211,354) ---------- ----------- ----------- BALANCE AT MARCH 31, 2001............... 7,568,839 27,703,829 (4,894,518) Net earnings...................................... -- -- 940,039 Issuance of Directors' shares..................... 2,400 3,480 -- Cash dividends ($0.11 per share).................. -- -- (832,718) ---------- ----------- ----------- BALANCE AT MARCH 31, 2002............... 7,571,239 27,707,309 (4,787,197) Net earnings...................................... -- -- 1,432,017 Issuance of Directors' shares..................... 2,000 3,060 -- Cash dividends ($0.09 per share).................. -- -- (681,677) ---------- ----------- ----------- BALANCE AT MARCH 31, 2003............... $7,573,239 $27,710,369 $(4,036,857) ========== =========== ===========
See accompanying notes. 5 FRIEDMAN INDUSTRIES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31 --------------------------------------- 2003 2002 2001 ----------- ----------- ----------- OPERATING ACTIVITIES Net earnings....................... $ 1,432,017 $ 940,039 $ 2,927,582 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation.................. 967,003 903,050 1,047,579 Directors' shares issued...... 5,060 5,830 7,500 Deferred taxes................ (198,102) 34,000 54,000 Change post retirement benefits.................... (7,000) -- -- Gain on disposal of property, plant, and equipment........ -- (24,660) -- Changes in operating assets and liabilities: Accounts receivable........... (2,480,844) 3,099,518 2,948,815 Inventories................... (530,067) 5,315,174 (5,906,866) Other assets.................. 37,632 24,467 (102,642) Accounts payable and accrued expenses.................... 517,502 (1,090,462) 3,996,310 Contribution to profit sharing plan........................ -- (28,000) 14,000 Employee compensation and related expenses............ 91,136 (73,211) (1,314) Federal income taxes payable..................... 319,148 (39,737) (129,697) ----------- ----------- ----------- Net cash provided by operating activities.................. 153,485 9,066,008 4,855,267 INVESTING ACTIVITIES Purchase of property, plant, and equipment........................ (604,735) (1,245,180) (399,263) Proceeds from sale of asset........ -- 42,118 -- Increase in cash value of officers' life insurance................... (81,184) (75,612) (98,500) ----------- ----------- ----------- Net cash used in investing activities.................. (685,919) (1,278,674) (497,763) FINANCING ACTIVITIES Cash dividends paid................ (605,782) (1,059,704) (1,195,051) Proceeds from borrowings of long-term debt................... 104,239 101,250 -- Principal payments on debt......... (2,865,747) (2,814,062) (2,800,000) Payments on loans against life insurance........................ (111,043) -- (167,587) Cash paid on fractional shares from stock dividend................... -- -- (1,079) Cash received from exercised stock options.......................... -- -- 31,471 ----------- ----------- ----------- Net cash used in financing activities.................. (3,478,333) (3,772,516) (4,132,246) ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents........ (4,010,767) 4,014,818 225,258 Cash and cash equivalents at beginning of year................ 4,683,894 669,076 443,818 ----------- ----------- ----------- Cash and cash equivalents at end of year................. $ 673,127 $ 4,683,894 $ 669,076 =========== =========== ===========
See accompanying notes. 6 FRIEDMAN INDUSTRIES, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION: The consolidated financial statements include the accounts of Friedman Industries, Incorporated, and its subsidiary (collectively, the "Company"). All material intercompany amounts and transactions have been eliminated. REVENUE RECOGNITION: Revenues are recognized upon shipment of products. The terms of all shipments made by the Company is free on board shipping point. Costs associated with shipping and handling of products are included in cost of products sold. TRADE RECEIVABLES: The Company's receivables are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company's receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates its allowance for doubtful accounts based on historical collection trends, the age of outstanding receivables and existing economic conditions. Past-due receivable balances are written-off when the Company's internal collection efforts have been unsuccessful in collecting the amount due. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents. INVENTORIES: The following is a summary of inventory by product group:
YEAR ENDED MARCH 31 ------------------------- 2003 2002 ----------- ----------- Coil.................................................... $ 8,468,582 $ 7,883,776 Tubular................................................. 15,563,686 15,618,425 ----------- ----------- $24,032,268 $23,502,201 =========== ===========
Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory ("prime 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 inventory is determined under the last-in, first-out ("LIFO") method. Cost for tubular inventory is determined using the weighted average method. Cost for non-standard inventory is determined using the specific identification method. At March 31, 2003, LIFO replacement cost exceeded LIFO cost by approximately $990,000. At March 31, 2002, replacement and LIFO costs were approximately the same. Beginning April 1, 2002, the Company combined two prime inventory LIFO pools into one LIFO pool to consolidate inventories of similar characteristics. There was no cumulative effect and no material impact on income during each of the last five fiscal years resulting from this combination. During the year ended March 31, 2003, prime inventory quantities were reduced. This reduction resulted in liquidation of LIFO inventory quantities being carried at lower costs prevailing in prior years as compared with the costs of fiscal 2003 purchases, the effect of which increased net earnings by approximately $70,000. PROPERTY, PLANT, AND EQUIPMENT: On April 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). That statement requires that assets held-for-sale be recorded at the lower of their carrying amount or their fair value less cost to sell. Held-for-sale assets are not depreciated. Assets are classified as held-for-sale only if (i) management commits to a plan to sell the asset, (ii) the asset is available for immediate sale, (iii) the asset is actively being marketed for 7 FRIEDMAN INDUSTRIES, INCORPORATED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) sale at a price that is reasonable in relation to its current fair value and (iv) management believes the sale of the asset is probable and expects transfer within one year. No assets met the definition of held-for-sale at March 31, 2003. Property, plant, and equipment are stated at cost. Depreciation is calculated primarily by the straight-line method over 10 to 20 years for buildings and yard improvements and 5 to 10 years for machinery and equipment. Interest costs incurred during construction projects are capitalized as part of the cost of such assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. No impairments were necessary at March 31, 2003 or 2002. SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of approximately $87,307 in 2003, $278,700 in 2002, and $637,300 in 2001. The Company paid income taxes, net of refunds, of $445,000 in 2003, $408,900 in 2002, and $1,583,800 in 2001. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS: The carrying value of the Company's financial instruments approximates fair value. STOCK BASED COMPENSATION: The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The fair value of options was estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 3.0%, a dividend yield of 3.4%, volatility factor of the expected market price of the Company's common stock of 0.42, and a weighted average expected life of the option of four years. The following schedule reflects the impact on net income and earnings per common share if the Company had applied the fair value recognition provisions of Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation to stock based employee compensation for the years ended March 31:
2003 2002 2001 ---------- -------- ---------- Reported net income.................................... $1,432,017 $940,039 $2,927,582 Less: compensation expenses per SFAS No. 123, net of tax.................................................. 113,685 10,716 0 ---------- -------- ---------- Pro forma net income................................... $1,318,332 $929,323 $2,927,582 ---------- -------- ---------- BASIC EARNINGS PER COMMON SHARE: Reported net income.................................... .19 .12 .39 Less: compensation expense per SFAS No. 123, net of tax.................................................. .02 .00 .00 ---------- -------- ---------- Pro forma net income................................... .17 .12 .39 ---------- -------- ---------- DILUTED EARNINGS PER COMMON SHARE: Reported net income.................................... .19 .12 .39 Less: compensation expense per SFAS No. 123, net of tax.................................................. .02 .00 .00 ---------- -------- ---------- Pro forma net income................................... .17 .12 .39 ---------- -------- ----------
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 8 FRIEDMAN INDUSTRIES, INCORPORATED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) as a source of supply could have a material adverse effect on the Company. Additionally, the Company derives revenue by selling a substantial amount of its manufactured pipe to LSS. Total sales to LSS were approximately $12.4 million, $12.5 million, and $17.0 million in 2003, 2002, and 2001, respectively. Loss of the LSS mill 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. NEW ACCOUNTING PRONOUNCEMENT: In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"). FIN 46 requires that unconsolidated variable interest entities must be consolidated by their primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entity's expected losses or residual benefits. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the periods beginning after June 15, 2003. No variable interest entities have been created after January 31, 2003. Management is currently evaluating the effect of variable interest entities, if any, created prior to January 31, 2003. 2. STOCK OPTIONS AND CAPITAL STOCK Under the Company's 1989 and 1996 Incentive Stock Option Plans, incentive options were granted to certain officers and key employees to purchase common stock of the Company. Pursuant to the terms of the plans, 16,314 additional options may be granted. All options have ten-year terms and become fully exercisable at the end of six months of continued employment. The following is a summary of activity relative to options outstanding during the years ended March 31 (adjusted for stock dividends):
2003 2002 2001 ------------------- -------------------- ------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- -------- -------- ------- -------- Outstanding at beginning of year......... 154,293 $3.01 400,048 $4.14 419,593 $4.02 Granted.................................. 265,000 $2.33 27,959 $2.45 -- $ -- Exercised................................ -- -- -- -- (19,547) $1.62 Canceled................................. (7,599) $2.78 (273,714) $4.59 -- $ -- ------- ----- -------- ----- ------- ----- Outstanding at end of year............... 411,694 $2.58* 154,293 $3.01 400,046 $4.14 ======= ======== ======= Exercisable at end of year............... 146,694 $3.03 154,293 $3.01 400,046 $4.14 Weighted average fair value of options granted during the year................ $2.33 $2.45 N/A
* Range of $2.33 to $4.73 per share and a weighted average remaining life of 7.0 years. Outstanding and exercisable stock options and warrants at March 31, 2003, were as follows:
OUTSTANDING EXERCISABLE ------------------------ ------------------------ RANGE OF WEIGHTED AVERAGE WEIGHT AVERAGE WEIGHT AVERAGE EXERCISE PRICE REMAINING YEARS SHARES EXERCISE PRICE SHARES EXERCISE PRICE - -------------- ---------------- ------- -------------- ------- -------------- $2.33 - $2.94 8.6 299,222 $2.36 34,222 $2.63 $3.13 3.0 111,368 $3.13 111,368 $3.13 $4.73 6.0 1,104 $4.73 1,104 $4.73
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 9 FRIEDMAN INDUSTRIES, INCORPORATED 2. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED) each series, except that any series must provide for cumulative dividends and must be convertible into common stock. 3. LONG-TERM DEBT AND COMMITMENTS AND CONTINGENCIES The Company has a credit arrangement with a bank which provides for a revolving line of credit facility (the "revolving facility"). Pursuant to the revolving facility which expires April 1, 2004, the Company may borrow up to $10 million at an interest rate no greater than the bank's prime rate. At March 31, 2003, the Company did not have borrowings outstanding under the revolving facility. The debt outstanding at March 31, 2003 related to equipment purchased by the Company. The annual principal payments required on long-term debt are as follows: 2004........................................................ $ 68,496 2005........................................................ 54,433 2006........................................................ 2,896 2007........................................................ -- 2008........................................................ -- Thereafter.................................................. -- -------- Total.................................................. $125,825 ========
In July 1995, the Company borrowed against the cash surrender value of officers' life insurance policies (the "borrowings"). In fiscal 2003, the Company paid the remaining $111,043 balance due on the borrowings and accordingly, the borrowings were paid in full at March 31, 2003. The Company is obligated under an operating lease for its Longview, Texas office building that expires on April 30, 2008. The following is a schedule of future minimum annual rental payments required under this operating lease as of March 31, 2003: 2004........................................................ $ 27,264 2005........................................................ 27,264 2006........................................................ 27,264 2007........................................................ 27,264 2008........................................................ 2,272 Thereafter.................................................. -- -------- Total.................................................. $111,328
Rental expense for leased properties was $131,629, $27,264 and $26,728 during fiscal 2003, 2002 and 2001, respectively. Effective September 2001, the Company entered into an arrangement to purchase non-standard coils from NSC. Either the Company or NSC can terminate this arrangement upon 90 days' written notice. 10 FRIEDMAN INDUSTRIES, INCORPORATED 4. EARNINGS PER SHARE Basic and dilutive net income per share is computed based on the following information:
YEAR ENDED MARCH 31 ------------------------------------ 2003 2002 2001 ---------- ---------- ---------- BASIC Net income................................... $1,432,017 $ 940,039 $2,927,582 ========== ========== ========== Average common shares........................ 7,572,239 7,571,239 7,568,839 ========== ========== ========== DILUTIVE Net income................................... $1,432,017 $ 940,039 $2,927,582 ========== ========== ========== Average common shares........................ 7,572,239 7,571,239 7,568,839 Common share equivalents: Options.................................... 17,661 -- -- ---------- ---------- ---------- Total common share equivalents............... 17,661 -- -- ---------- ---------- ---------- Average common shares and common equivalents................................ 7,589,900 7,571,239 7,568,839 ========== ========== ==========
11 FRIEDMAN INDUSTRIES, INCORPORATED 5. INCOME TAXES Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for tax purposes. Significant components of the Company's consolidated deferred tax assets (liabilities) are as follows:
MARCH 31 --------------------- 2003 2002 --------- --------- DEFERRED TAX LIABILITIES: Depreciation...................................... $(699,092) $(633,650) --------- --------- Total deferred tax liabilities...................... (699,092) (633,650) DEFERRED TAX ASSETS: Inventory capitalization.......................... 90,047 90,264 Inventory reserve................................. 204,000 -- Postretirement benefits other than pensions....... 53,040 21,420 Other............................................. 68,547 40,406 --------- --------- Total deferred tax assets........................... 415,634 152,090 --------- --------- Net deferred tax liabilities........................ $(283,458) $(481,560) ========= =========
6. PROFIT SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS The Company has a defined contribution plan (the "Plan") covering substantially all employees, including officers. Company contributions, which are made at the discretion of the Board of Directors in an amount not to exceed 15% of the total compensation paid during the year to all eligible employees, were $260,000 for the year ended March 31, 2003, $260,000 for the year ended March 31, 2002, and $288,000 for the year ended March 31, 2001. Contributions, Plan earnings, and forfeitures of terminated participants' nonvested accounts are allocated to the individual accounts of participating employees based on compensation received during the Plan year and years of active service with the Company. 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 age 65 or older are eligible. Effective April 1, 2003, the Company discontinued this policy. The Company has not funded the cost of the postretirement health care plan of the grandfathered retirees. Employees of the Company may participate in a 401(k) retirement plan (the "401(k) plan"). Employees are eligible to participate in the 401(k) plan when the employee has completed one year of service. Under the 401(k) plan, participating employees may defer a portion of their pretax earnings up to certain limits prescribed by the Internal Revenue Service. The Company provides matching contributions under the provisions of the plan. Employees fully vest in the Company's matching contributions upon the completion of 7 years of service. Contribution expense related to the 401(k) plan was approximately $26,500, $30,500 and $39,000 for the years ended March 31, 2003, 2002 and 2001, respectively. 7. INDUSTRY SEGMENT DATA The Company is engaged in pipe manufacturing, steel processing and steel and pipe distribution. Within the Company, there are two product and service groups: coil and tubular products. Coil product involves converting steel coils into flat sheet and plate steel cut to customer specifications and reselling steel coils. Through its Texas Tubular operation, the Company purchases, processes, manufactures and markets tubular products. 12 FRIEDMAN INDUSTRIES, INCORPORATED 7. INDUSTRY SEGMENT DATA (CONTINUED) The following is a summary of significant financial information relating to the product groups:
YEAR ENDED MARCH 31 ----------------------------------------- 2003 2002 2001 ------------ ----------- ------------ NET SALES: Coil.......................................... $ 60,416,662 $51,880,290 $ 68,517,334 Tubular....................................... 45,666,076 45,937,666 51,878,249 ------------ ----------- ------------ TOTAL NET SALES....................... $106,082,738 $97,817,956 $120,395,583 ============ =========== ============ OPERATING PROFIT: Coil.......................................... $ 1,180,292 $ 416,998 $ 1,028,425 Tubular....................................... 2,130,523 2,285,873 5,034,620 ------------ ----------- ------------ TOTAL OPERATING PROFIT................ 3,310,815 2,702,871 6,063,045 Corporate expenses............................ (1,179,067) (1,092,824) (1,208,745) Interest expense.............................. (71,700) (278,719) (624,431) Interest and other income..................... 109,674 92,974 205,862 ------------ ----------- ------------ TOTAL EARNINGS BEFORE TAXES........... $ 2,169,722 $ 1,424,302 $ 4,435,731 ============ =========== ============ IDENTIFIABLE ASSETS: Coil.......................................... $ 18,967,495 $18,489,064 $ 23,914,639 Tubular....................................... 21,848,558 19,703,080 22,374,098 ------------ ----------- ------------ 40,816,053 38,192,144 46,288,737 General corporate assets...................... 1,962,873 5,794,311 1,721,775 ------------ ----------- ------------ TOTAL ASSETS.......................... $ 42,778,926 $43,986,455 $ 48,010,512 ============ =========== ============ DEPRECIATION: Coil.......................................... $ 804,463 $ 723,812 $ 685,126 Tubular....................................... 141,384 154,504 338,933 Corporate and other........................... 21,156 24,733 23,520 ------------ ----------- ------------ $ 967,003 $ 903,049 $ 1,047,579 ------------ ----------- ------------ CAPITAL EXPENDITURES: Coil.......................................... $ 56,494 $ 1,106,403 $ 117,205 Tubular....................................... 514,623 138,777 258,745 Corporate and other........................... 33,618 -- 23,313 ------------ ----------- ------------ $ 604,735 $ 1,245,180 $ 399,263 ============ =========== ============
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. 13 FRIEDMAN INDUSTRIES, INCORPORATED 8. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the years ended March 31, 2003 and 2002:
Quarter Ended ------------------------------------------------------ June 30 September 30 December 31 March 31 2002 2002 2002 2003 ----------- ------------ ----------- ----------- Net sales........................ $25,561,298 $27,776,049 $25,418,779 $27,326,612 Gross profit..................... 1,468,518 1,806,128 1,245,502 1,895,573 Net earnings..................... 277,155 469,042 200,197 485,623 Net earnings per share: Basic.......................... 0.04 0.06 0.03 0.06 Diluted........................ 0.04 0.06 0.03 0.06
Quarter Ended ------------------------------------------------------ June 30 September 30 December 31 March 31 2001 2001 2001 2002 ----------- ------------ ----------- ----------- Net sales........................ $27,885,663 $24,975,561 $20,483,410 $24,473,322 Gross profit..................... 1,871,493 1,698,707 781,671 1,575,489 Net earnings..................... 440,097 397,319 (194,189) 296,812 Net earnings per share: Basic.......................... 0.06 0.05 (0.03) 0.04 Diluted........................ 0.06 0.05 (0.03) 0.04
14 FRIEDMAN INDUSTRIES, INCORPORATED REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Friedman Industries, Incorporated We have audited the accompanying consolidated balance sheets of Friedman Industries, Incorporated as of March 31, 2003 and 2002, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2003. 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 auditing standards generally accepted in the United States. 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, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP May 16, 2003 ------------------------------------------ SELECTED FINANCIAL DATA
YEAR ENDED MARCH 31 -------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------ ------------- ------------- ------------- Net sales.......................... $ 106,082,738 $ 97,817,956 $ 120,395,583 $ 120,267,809 $ 124,719,640 Net earnings....................... 1,432,017 940,039 2,927,582 2,506,801 3,540,811 Total assets....................... 42,778,926 43,986,455 48,010,512 45,106,790 41,023,377 Long-term debt..................... 57,329 2,053,438 4,800,000 7,600,000 6,400,000 Stockholders' equity............... 31,246,751 30,491,351 30,378,150 28,622,951 27,422,779 Net earnings per share: Basic............................ 0.19 0.12 0.39 0.33 0.47 Diluted.......................... 0.19 0.12 0.39 0.33 0.47 Cash dividends declared per share adjusted for stock dividends..... 0.09 0.11 0.16 0.18 0.25
See also Note 1 of Notes to the Company's Consolidated Financial Statements herein which describes the Company's relationship with its primary suppliers of steel products. 15 FRIEDMAN INDUSTRIES, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Year ended March 31, 2003 compared to year ended March 31, 2002 During the year ended March 31, 2003, sales, costs of goods sold and gross profit increased $8,264,782, $7,776,421 and $488,361, respectively, from the comparable amounts recorded during the year ended March 31, 2002. These increases were related primarily to the Company's coil operations. During fiscal 2003, coil tons sold increased approximately 4% and the average selling price per ton increased approximately 14% from levels recorded in fiscal 2002. Gross profit as a percentage of sales was approximately the same for both years. Interest expense decreased $207,019 from the amount recorded in fiscal 2002. This decrease was related primarily to reductions in short and long term debt. Interest and other income increased $16,700 from the amount recorded in fiscal 2002 primarily as the result of an increase in average invested cash positions during fiscal 2003. Federal income taxes during fiscal 2003 increased $253,442 from the comparable amount recorded during fiscal 2002 as a result of the increase in earnings before taxes. The effective tax rates were the same for both years. Year ended March 31, 2002 compared to year ended March 31, 2001 During the year ended March 31, 2002, sales, cost of products sold and gross profit decreased $22,577,627, $18,964,602 and $3,613,025, respectively, from the comparable amounts recorded during the year ended March 31, 2001. Both coil and tubular operations experienced decreased sales during fiscal 2002. Sales of coil products and services declined approximately $16,637,000 due to a decrease in tons sold of approximately 8% and a decrease in the average selling price per ton of approximately 17%. Sales of tubular products declined approximately $5,941,000 due primarily to a decrease in the average selling price per ton of approximately 10%. During fiscal 2002, soft market conditions and related lack of demand continued to have the effect of generating intense competition for available sales which adversely affected coil and tubular operations. Gross profit earned on sales of coil products and services and tubular goods decreased approximately 28% and 43%, respectively. Management believes the soft market conditions for the Company's products and services were related to the overall weakness in the United States economy. Selling, general and administrative costs declined $368,772 from the amount recorded during fiscal 2001. This decline was associated primarily with variable expenses related to volume and/or earnings. Interest expense decreased $345,712 from the comparable amount recorded during fiscal 2001. This decrease was related principally to reductions in interest rates and debt associated with working capital requirements. Interest and other income decreased $112,888 primarily as the result of substantial decreases in interest rates paid on invested cash positions during fiscal 2002. Federal income taxes during fiscal 2002 decreased $1,023,886 from the comparable amount recorded during fiscal 2001. This decrease was related to the decline in earnings before taxes as the effective tax rates were the same for both years. 16 FRIEDMAN INDUSTRIES, INCORPORATED FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL The Company remained in a strong, liquid position at March 31, 2003. Current ratios were 3.15 and 3.32 at March 31, 2003 and March 31, 2002, respectively. Working capital was $23,734,112 at March 31, 2003 and $25,009,882 at March 31, 2002. Several balance sheet amounts reflected substantial changes from March 31, 2002 to March 31, 2003. A decrease in cash of $4,010,767 was related primarily to net cash used in financing activities which included payments totaling $2,976,790 to pay down both short and long term debt. Accounts receivable increased $2,480,844 and was primarily associated with the average days of sales in accounts receivable ("average days"). Average days increased from approximately 28 days at March 31, 2002 to 34 days at March 31, 2003. Average days of 34 days reflected a return to a more common collection pattern for the Company. The Company expects to continue to monitor and evaluate balance sheet components depending on changes in market conditions and the Company's operations. The Company has a credit arrangement with a bank which provides for a revolving line of credit facility (the "revolving facility"). Pursuant to the revolving facility, which expires April 1, 2004, the Company may borrow up to $10 million at an interest rate no greater than the bank's prime rate. At March 31, 2003, the Company had no borrowings outstanding under the revolving facility. During the year ended March 31, 2003, the Company paid off the remaining $800,000 balance due on its term note. In November 2001, the Company ceased operations at its coil facility in Houston, Texas. Management believed that the capital required to run the facility could be more efficiently deployed in other Company business. No loss was incurred as a result of this closure and the Company sold or relocated certain assets of the Houston facility. The remaining assets are expected to be sold or relocated to other operations as needed. During fiscal 2002, the Company invested approximately $1,100,000 in capital asset additions related to its XSCP Division. During the quarter ended December 31, 2002, the Company exercised its right under a lease agreement to purchase approximately 68 acres of land on which its tubular operations are located for $214,338. This land was previously leased from Lone Star Steel Company. Notwithstanding the current market conditions, the Company believes that its cash flow from operations and borrowing capability under its revolving line of credit facility are adequate to fund its expected cash requirements for the next 24 months. INFLATION During fiscal 2003, the Company believes that 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 which requires significant estimates and judgments is the valuation of LIFO inventories in the Company's quarterly reporting. The Company's quarterly valuation of inventory requires estimates of the year end quantities which is inherently difficult. Historically, these estimates have been materially correct. In addition, the Company maintains an allowance for doubtful accounts receivable by providing for specifically identified accounts where collectibility is doubtful and a general allowance based on the aging of the receivables compared to past experience and current trends. On an on-going basis, the Company evaluates estimates and judgments. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. 17 FRIEDMAN INDUSTRIES, INCORPORATED FORWARD-LOOKING STATEMENTS From time to time, the Company may make certain statements that contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1996) and that involve risk and uncertainty. These forward-looking statements may include, but are not limited to, future results of operations, future production capacity and product quality. Forward-looking statements may be made by management orally or in writing including, but not limited to, this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company's filings with the Securities and Exchange Commission under the Securities Act of 1933 and the Securities Exchange Act of 1934. Actual results and trends in the future may differ materially depending on a variety of factors including but not limited to changes in the demand and prices for the Company's products, changes in the demand for steel and steel products in general, and the Company's success in executing its internal operating plans. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not material 18 FRIEDMAN INDUSTRIES, INCORPORATED TEN YEAR FINANCIAL SUMMARY
YEAR ENDED MARCH 31 -------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ ----------- ------------ ------------ ------------ ------------ Net sales....................... $106,082,738 $97,817,956 $120,395,583 $120,267,809 $124,719,640 $148,840,724 Earnings........................ $ 1,432,017 $ 940,039 $ 2,927,582 $ 2,506,801 $ 3,540,811 $ 4,809,992 Current assets.................. $ 34,769,500 $35,806,988 $ 40,231,329 $ 36,945,378 $ 32,534,040 $ 39,347,548 Current liabilities............. $ 11,035,388 $10,797,106 $ 12,271,802 $ 8,377,279 $ 6,758,038 $ 13,437,178 Net working capital............. $ 23,734,112 $25,009,882 $ 27,959,527 $ 28,568,099 $ 25,776,002 $ 25,910,370 Total assets.................... $ 42,778,926 $43,986,455 $ 48,010,512 $ 45,106,790 $ 41,023,377 $ 46,039,361 Stockholders' equity............ $ 31,246,751 $30,491,351 $ 30,378,150 $ 28,622,951 $ 27,422,779 $ 25,732,957 Earnings as a percent of Net sales................... 1.3 1.0 2.4 2.1 2.8 3.2 Stockholders' equity........ 4.6 3.1 9.6 8.8 12.9 18.7 Average number of common shares outstanding: Basic(2)......... 7,572,239 7,571,239 7,568,839 7,547,624 7,528,702 7,512,901 Per share Net earnings per share: Basic(2).................... $ 0.19 $ 0.12 $ 0.39 $ 0.33 $ 0.47 $ 0.64 Stockholders' equity(2)....... $ 4.13 $ 4.03 $ 4.01 $ 3.79 $ 3.64 $ 3.43 Cash dividends per common share(2)...................... $ 0.09 $ 0.11 $ 0.16 $ 0.18 $ 0.25 $ 0.25 Stock dividend declared......... -- -- -- 5% 5% 5% YEAR ENDED MARCH 31 -------------------------------------------------------- 1997 1996 1995 1994 ------------ ------------ ----------- ----------- Net sales....................... $119,920,966 $106,849,181 $97,968,805 $70,908,065 Earnings........................ $ 3,630,071 $ 2,836,768 $ 2,458,132 $ 1,691,075(1) Current assets.................. $ 33,357,160 $ 27,524,670 $25,956,555 $21,014,281 Current liabilities............. $ 10,172,672 $ 6,410,527 $ 5,816,334 $ 5,534,143 Net working capital............. $ 23,184,488 $ 21,114,143 $20,140,221 $15,480,138 Total assets.................... $ 38,117,191 $ 32,812,986 $32,074,862 $27,184,421 Stockholders' equity............ $ 22,781,959 $ 20,428,936 $18,722,781 $17,430,337 Earnings as a percent of Net sales................... 3.0 2.7 2.5 2.4 Stockholders' equity........ 15.9 13.9 13.1 9.7 Average number of common shares outstanding: Basic(2)......... 7,489,943 7,446,076 7,444,041 7,440,888 Per share Net earnings per share: Basic(2).................... $ 0.48 $ 0.38 $ 0.33 $ 0.23(1) Stockholders' equity(2)....... $ 3.04 $ 2.74 $ 2.52 $ 2.34 Cash dividends per common share(2)...................... $ 0.18 $ 0.15 $ 0.16 $ 0.11 Stock dividend declared......... 5% 5% 5% 5%
- ------------ (1) Includes the cumulative effect of accounting changes which increased net earnings $77,000 ($.01 per share). (2) Adjusted for stock dividends. [FRIEDMAN INDUSTRIES INCORPORATED LOGO] EX-21.1 4 h06893exv21w1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES ROYAL FASTENERS CORPORATION Texas Corporation 100% owned EX-23.1 5 h06893exv23w1.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Friedman Industries, Incorporated of our report dated May 16, 2003, included in the 2003 Annual Report to Shareholders of Friedman Industries, Incorporated. Our audits also included the financial statement schedule of Friedman Industries, Incorporated listed in the response to Item 16(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-37887) pertaining to the 1996 Stock Option Plan, the 1995 Non-Employee Director Plan, as amended, the 1989 Incentive Stock Option Plan, as amended, and in the Registration Statement (Form S-8 No. 333-47262) pertaining to the 2000 Non-Employee Director Stock Plan of our report dated May 16, 2003, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) for the year ended March 31, 2003. Houston, Texas June 30, 2003 EX-99.1 6 h06893exv99w1.txt CERT.OF JACK FRIEDMAN PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Annual Report of Friedman Industries, Incorporated (the "Company") on Form 10-K for the fiscal year ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jack Friedman, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. By: /s/ JACK FRIEDMAN ------------------------------------ Chairman of the Board and Chief Executive Officer Dated: June 27, 2003 EX-99.2 7 h06893exv99w2.txt CERT.OF BEN HARPER PURSUANT TO SECTION 906 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 In connection with the Annual Report of Friedman Industries, Incorporated (the "Company") on Form 10-K for the fiscal year ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ben Harper, Senior Vice President-Finance and Secretary/Treasurer for the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. By: /s/ BEN HARPER ------------------------------------ Senior Vice President -- Finance and Secretary/Treasurer Dated: June 27, 2003 -----END PRIVACY-ENHANCED MESSAGE-----