e10vq
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FROM THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 1-7521
FRIEDMAN INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
|
|
|
TEXAS
(State or other jurisdiction of
incorporation or organization)
|
|
74-1504405
(I.R.S. Employer Identification
Number) |
4001
HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office) (zip code)
Registrants telephone number, including area code (713) 672-9433
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
At
September 30, 2009, the number of shares outstanding of the issuers only class of stock was
6,799,444 shares of Common Stock.
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER
30, 2009 |
|
|
MARCH
31, 2009 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21,089,469 |
|
|
$ |
16,880,110 |
|
Accounts receivable,
net of allowances for bad debts and cash discounts of
$22,276 and $37,276 at September 30
and March 31, 2009, respectively
|
|
|
3,634,288 |
|
|
|
4,991,239 |
|
Inventories
|
|
|
17,581,049 |
|
|
|
19,402,701 |
|
Prepaid income taxes
|
|
|
1,520,668 |
|
|
|
1,299,796 |
|
Other
|
|
|
184,394 |
|
|
|
99,531 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
44,009,868 |
|
|
|
42,673,377 |
|
PROPERTY, PLANT AND
EQUIPMENT:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,082,331 |
|
|
|
1,082,331 |
|
Buildings and yard
improvements
|
|
|
7,001,389 |
|
|
|
7,000,839 |
|
Machinery and equipment
|
|
|
29,383,963 |
|
|
|
29,080,476 |
|
Less accumulated depreciation
|
|
|
(21,105,158) |
|
|
|
(20,152,959) |
|
|
|
|
|
|
|
|
|
|
|
16,362,525 |
|
|
|
17,010,687 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Cash value of officers
life insurance and other assets
|
|
|
805,000 |
|
|
|
776,000 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
61,177,393 |
|
|
$ |
60,460,064 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued expenses
|
|
$ |
3,970,924 |
|
|
$ |
2,662,209 |
|
Current portion of
long-term debt
|
|
|
40,521 |
|
|
|
54,028 |
|
Deferred credit for
LIFO inventory replacement
|
|
|
111,052 |
|
|
|
|
|
Dividends payable
|
|
|
67,994 |
|
|
|
339,972 |
|
Contribution to profit
sharing plan
|
|
|
124,000 |
|
|
|
40,000 |
|
Employee compensation
and related expenses
|
|
|
312,004 |
|
|
|
256,804 |
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
4,626,495 |
|
|
|
3,353,013 |
|
LONG-TERM DEBT LESS
CURRENT PORTION
|
|
|
|
|
|
|
13,507 |
|
DEFERRED INCOME TAXES
|
|
|
428,539 |
|
|
|
363,864 |
|
POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
|
|
|
648,980 |
|
|
|
615,328 |
|
STOCKHOLDERS
EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, par value
$1:
|
|
|
|
|
|
|
|
|
Authorized shares
10,000,000
|
|
|
|
|
|
|
|
|
Issued shares
7,975,160 at September 30 and March 31, 2009
|
|
|
7,975,160 |
|
|
|
7,975,160 |
|
Additional paid-in
capital
|
|
|
29,003,674 |
|
|
|
29,003,674 |
|
Treasury stock at cost
(1,175,716 shares at September 30 and March 31, 2009)
|
|
|
(5,475,964 |
) |
|
|
(5,475,964 |
) |
Retained earnings
|
|
|
23,970,509 |
|
|
|
24,611,482 |
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS
EQUITY
|
|
|
55,473,379 |
|
|
|
56,114,352 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
$ |
61,177,393 |
|
|
$ |
60,460,064 |
|
|
|
|
|
|
|
|
2
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30, |
|
|
Six
months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
$ |
16,086,330 |
|
|
$ |
71,074,140 |
|
|
$ |
28,332,549 |
|
|
$ |
130,672,836 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold |
|
|
|
15,460,372 |
|
|
|
60,927,793 |
|
|
|
27,119,011 |
|
|
|
112,461,746 |
|
|
General, selling and administrative costs |
|
|
|
926,315 |
|
|
|
1,866,785 |
|
|
|
1,849,202 |
|
|
|
3,847,808 |
|
|
Interest
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,386,687 |
|
|
|
62,794,578 |
|
|
|
28,968,213 |
|
|
|
116,332,864 |
|
Interest and other income |
|
|
|
(14,500 |
) |
|
|
(62,759 |
) |
|
|
(29,000 |
) |
|
|
(104,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before income taxes |
|
|
|
(285,857 |
) |
|
|
8,342,321 |
|
|
|
(606,664 |
) |
|
|
14,444,149 |
|
Provision for (benefit from) income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
(122,110 |
) |
|
|
2,795,989 |
|
|
|
(302,344 |
) |
|
|
4,820,260 |
|
|
Deferred |
|
|
|
42,500 |
|
|
|
101,897 |
|
|
|
64,675 |
|
|
|
203,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,610 |
) |
|
|
2,897,886 |
|
|
|
(237,669 |
) |
|
|
5,024,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) |
|
|
$ |
(206,247 |
) |
|
$ |
5,444,435 |
|
|
$ |
(368,995 |
) |
|
$ |
9,420,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
|
Diluted |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
|
|
6,799,444 |
|
Net
earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
$ |
(0.03 |
) |
|
$ |
0.80 |
|
|
$ |
(0.05 |
) |
|
$ |
1.39 |
|
|
Diluted |
|
|
$ |
(0.03 |
) |
|
$ |
0.80 |
|
|
$ |
(0.05 |
) |
|
$ |
1.39 |
|
Cash dividends declared per common share |
|
|
$ |
0.01 |
|
|
$ |
0.12 |
|
|
$ |
0.04 |
|
|
$ |
0.20 |
|
3
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
September 30 |
|
|
|
|
|
2009 |
|
2008 |
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(368,995 |
) |
|
$ |
9,420,095 |
|
|
Adjustments to reconcile net earnings (loss) to cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
952,200 |
|
|
|
607,200 |
|
|
|
Provision for deferred taxes |
|
|
64,675 |
|
|
|
203,794 |
|
|
|
Provision for postretirement benefits |
|
|
33,652 |
|
|
|
32,789 |
|
|
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net |
|
|
1,356,951 |
|
|
|
(5,282,581 |
) |
|
|
Prepaid income taxes |
|
|
(220,872 |
) |
|
|
|
|
|
|
Inventories |
|
|
1,821,652 |
|
|
|
(5,515,605 |
) |
|
|
Other |
|
|
(84,863 |
) |
|
|
(130,522 |
) |
|
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
1,308,715 |
|
|
|
11,682,799 |
|
|
|
Contribution to profit-sharing plan |
|
|
84,000 |
|
|
|
(47,000 |
) |
|
|
Employee compensation and related expenses |
|
|
55,200 |
|
|
|
963,297 |
|
|
|
Income taxes payable |
|
|
|
|
|
|
312,822 |
|
|
|
Deferred credit for LIFO inventory replacement |
|
|
111,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
|
|
5,113,367 |
|
|
|
12,247,088 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(304,039 |
) |
|
|
(1,686,455 |
) |
|
Increase in cash surrender value of officers life
insurance |
|
|
(29,000 |
) |
|
|
(27,999 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(333,039 |
) |
|
|
(1,714,454 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(543,956 |
) |
|
|
(883,928 |
) |
|
Principal payments on notes payable |
|
|
(27,013 |
) |
|
|
(6,627,014 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING
ACTIVITIES |
|
|
(570,969 |
) |
|
|
(7,510,942 |
) |
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
4,209,359 |
|
|
|
3,021,692 |
|
|
Cash and cash equivalents at beginning of period |
|
|
16,880,110 |
|
|
|
2,643,922 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
21,089,469 |
|
|
$ |
5,665,614 |
|
|
|
|
|
|
|
|
4
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED NOTES TO QUARTERLY REPORT UNAUDITED
NOTE A
BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the
information and footnotes required
by generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. For further information, refer
to the consolidated financial statements and
footnotes included in the Companys annual report on Form 10-K for the year ended March 31, 2009.
NOTE B
INVENTORIES
Inventories consist of prime coil,
non-standard coil and tubular materials. Prime coil inventory
consists primarily of raw materials, non-standard coil inventory consists primarily of finished
goods and tubular inventory consists of both raw materials and
finished goods. Inventories are valued at the lower of cost or
replacement market. Cost for prime coil inventory is determined under
the last-in, first-out (LIFO) method. Cost
for non-standard coil inventory is determined using the specific identification method. Cost for
tubular inventory is determined using the weighted average method.
During
the six months ended September 30, 2009, LIFO inventories were reduced but are expected to be
replaced by March 31, 2010. A deferred credit of $111,052 was
recorded at September 30, 2009 to reflect
replacement cost in excess of LIFO cost.
A
summary of inventory values by product group follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
Prime Coil Inventory |
|
$ |
4,602,672 |
|
|
$ |
6,504,540 |
|
Non-Standard Coil Inventory |
|
|
458,622 |
|
|
|
141,097 |
|
Tubular Raw Material |
|
|
2,215,107 |
|
|
|
1,783,130 |
|
Tubular
Finished Goods |
|
|
10,304,648 |
|
|
|
10,973,934 |
|
|
|
|
|
|
|
|
|
|
$ |
17,581,049 |
|
|
$ |
19,402,701 |
|
|
|
|
|
|
|
|
NOTE C LONG-TERM DEBT
The Company has a $10 million revolving credit facility (the revolver) which expires April
1, 2010. There were no amounts outstanding pursuant to the revolver
at September 30 and March
31, 2009, respectively. At March 31, 2008, the Company owed $6,600,000 pursuant to the revolver at an average interest rate of
approximately 4.4%. These loans were paid off in April and May 2008.
In June 2007, the Company
incurred an interest free, long-term liability of $162,084 related to
the purchase of pipe loading equipment which is payable in 36 equal
monthly payments. Regarding this liability, the Company owed $40,521 and $67,535 at September 30 and March 31, 2009, respectively.
NOTE D STOCK BASED COMPENSATION
In
the six months ended September 30, 2009 and the fiscal year ended March 31, 2009, the Company had no stock-based compensation. There were no unexercised options
at September 30, 2009, and no options were exercised or granted nor stock vested during those
periods.
5
NOTE E SEGMENT INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Six Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
(in thousands) |
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coil |
|
$ |
10,406 |
|
|
$ |
22,880 |
|
|
$ |
17,417 |
|
|
$ |
48,887 |
|
|
Tubular |
|
|
5,680 |
|
|
|
48,194 |
|
|
|
10,916 |
|
|
|
81,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
16,086 |
|
|
$ |
71,074 |
|
|
$ |
28,333 |
|
|
$ |
130,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coil |
|
$ |
(377 |
) |
|
$ |
(2,332 |
) |
|
$ |
(334 |
) |
|
$ |
(1,747 |
) |
|
Tubular |
|
|
488 |
|
|
|
11,664 |
|
|
|
577 |
|
|
|
18,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
|
111 |
|
|
|
9,332 |
|
|
|
243 |
|
|
|
16,801 |
|
|
Corporate expenses |
|
|
411 |
|
|
|
1,053 |
|
|
|
879 |
|
|
|
2,438 |
|
|
Interest
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
Interest & other income |
|
|
(14 |
) |
|
|
(63 |
) |
|
|
(29 |
) |
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earnings (loss) before taxes |
|
$ |
(286 |
) |
|
$ |
8,342 |
|
|
$ |
(607 |
) |
|
$ |
14,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(in thousands) |
Segment assets |
|
|
|
|
|
|
|
|
Coil |
|
$ |
19,678 |
|
|
$ |
22,791 |
|
Tubular |
|
|
18,079 |
|
|
|
18,703 |
|
|
|
|
|
|
|
|
|
|
|
37,757 |
|
|
|
41,494 |
|
Corporate assets |
|
|
23,420 |
|
|
|
18,966 |
|
|
|
|
|
|
|
|
|
|
$ |
61,177 |
|
|
$ |
60,460 |
|
|
|
|
|
|
|
|
Corporate expenses reflect general and administrative expenses not directly associated with segment
operations and consist primarily of corporate
executive and accounting salaries, professional fees and services, bad debts, accrued profit
sharing expense, corporate insurance expenses and
office supplies. Corporate assets consist primarily of cash and cash equivalents and the cash value
of officers life insurance.
NOTE F
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income
taxes of approximately $0
and $4,243,000 in the six months
ended September 30, 2009 and 2008, respectively. Interest paid
in the six months ended September 30, 2009 and
2008 was approximately $0 and $34,000, respectively.
NOTE G NEW ACCOUNTING PRONOUNCEMENTS
Effective July 1, 2009, the Financial Accounting Standards Board issued Accounting
Standards Codification (ASC) that codifies generally
accepted accounting principles in the United States (GAAP). Although ASC did not change GAAP, it did change the way
the Company references authoritative literature. Effective July 1, 2009, the Company
adopted ASC.
ASC
Topic 855, Subsequent Events (ASC 855) establishes general
standards of accounting for and disclosure of events that occur after
the balance sheet date but before the financial statements are issued
or are available to be issued.
ASC 855 provides guidance on the period after the balance sheet
date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which
an entity
should recognize events or transactions occurring after the balance
sheet date in its financial statements and the disclosures that an
entity should
make about events or transactions that occurred after the balance
sheet date. The Company adopted ASC 855 during the quarter ended
June 30, 2009, and its application had no impact on the
Companys consolidated condensed financial statements. The
Company evaluated
subsequent events through the date the accompanying financial
statements were issued, which was November 13, 2009.
6
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Six
Months Ended September 30, 2009
Compared to Six Months Ended September 30, 2008
During the six months ended September 30, 2009, sales, costs of goods sold and gross profit
decreased $102,340,287, $85,342,735 and $16,997,552, respectively, from the comparable amounts
recorded during the six months ended September 30, 2008. The decrease in sales was related
primarily to a substantial decrease in tons sold. Tons sold declined from approximately 144,000
tons in the 2008 period to approximately 50,000 tons in the 2009 period. Average per ton selling
prices declined as well. The average per ton selling price decreased from approximately $909 per
ton in the 2008 period to $571 per ton in the 2009 period. The decrease in costs of goods sold was
related primarily to the decline in tons sold and a decrease in average per ton cost which declined
from approximately $782 per ton in the 2008 period to $547 in the 2009 period. Gross profit was
adversely affected by the decrease in tons sold and a substantial reduction in margins. Gross
profit as a percentage of sales decreased from approximately 13.9% in the 2008 period to
approximately 4.3% in the 2009 period. During the 2008 period, the Company experienced strong
market conditions for its tubular products and recorded one of the most profitable periods in
Company history. During the 2009 period, the Companys operations continued to be adversely
affected by extremely soft market conditions for durable goods and energy related products
resulting from the significant downturn in the U.S. economy.
Coil product segment sales decreased approximately $31,470,000 during the 2009 period. This
decrease resulted primarily from a decrease in tons sold which declined from approximately 51,000
tons in the 2008 period to approximately 32,000 tons in the 2009 period. Also, the average per
ton selling price declined from approximately $949 per ton in the
2008 period to $542 in the 2009
period. The Company experienced coil operating losses in both the 2008 and 2009 periods. Coil
operating losses as a percentage of coil segment sales were
approximately 3.6% and 1.9% in the 2008 and
2009 periods, respectively. Market conditions for coil products and services are related generally to durable
goods. The Company believes that market conditions for coil products will remain soft until the
U.S. economy improves and generates improved demand for durable goods.
In August 2008, the Company began operating its new coil facility in Decatur, Alabama. This
operation produced an operating loss of approximately $850,000 in the 2009 period. The Company
expects that this facility will continue to produce a loss until demand for coil products improves.
The Company is primarily dependent on Nucor Steel Company (NSC) for its supply of coil inventory.
In the 2009 period, NSC continued to supply the Company with steel coils in amounts that were
adequate for the Companys purposes. The Company does not currently anticipate any significant
change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on
the Companys business.
Tubular product segment sales decreased approximately $70,870,000 during the 2009 period. This
decrease primarily resulted from a decrease in tons sold which declined from approximately 92,000
tons in the 2008 period to approximately 17,000 tons sold in the 2009 period. The average per ton
selling price of tubular products decreased from approximately $887 per ton in the 2008 period to
$625 per ton in the 2009 period. Tubular product segment operating profits as a percentage of
segment sales were approximately 22.7% and 5.3% in the 2008 and 2009 periods, respectively. During
the 2008 period, market conditions for tubular products were strong, and the Company recorded one of
the most profitable periods in Company history. In contrast, extremely soft market conditions were
experienced in the 2009 period. The Company believes that market conditions will remain soft until
the U.S. economy recovers and generates improved demand for tubular products.
7
In recent years, U.S. Steel Tubular Products Inc. (USS), an affiliate of United States Steel
Corporation, has been the Companys primary supplier of tubular products and coil material used in
pipe manufacturing and is a major customer of the Companys finished tubular products. Certain finished tubular
products are used in the energy business and are manufactured by the Company and sold to USS.
Beginning in December 2008, USS reduced orders for these finished tubular products. Also, in
February 2009, USS announced that it was temporarily idling its plant in Lone Star, Texas, due to
weak market conditions. Since February 2009, the Company has received few orders from USS and a
significantly reduced supply of pipe and coil material from USS. The Company believes that reduced
orders for finished tubular products will continue until the U.S. economy recovers and generates
improved demand for these products. Loss of USS as a supplier or customer could have an adverse
effect on the Companys business. The Company can make no assurances as to orders from USS or the
amounts of pipe and coil material that will be available from USS in the future.
The recently-depressed market conditions during the downturn of the U. S. economy, along with the
significant decrease in orders from USS and the reduction in the supply of pipe and coil material
from USS, have had an adverse effect on the Companys tubular business. As a result, the Company
downsized its tubular division to a level more commensurate with
current operations.
During the 2009 period, general, selling and administrative costs decreased $1,998,606 from the
amount recorded during the 2008 period. This decrease was related primarily to a reduction in
bonuses and commissions associated with reduced earnings and volume.
Income taxes declined $5,261,723 from the amount recorded in the 2008 period. This decrease was
related primarily to the decrease in earnings (loss) before taxes. Effective tax rates were 35%
and 39% in the periods ended 2008 and 2009, respectively. In the 2009 period, the Company
benefited from recoverable income taxes associated with both federal and state income taxes.
8
Three
Months Ended September 30, 2009
Compared to Three Months Ended September 30, 2008
During the three months ended September 30, 2009, sales, costs of goods sold and gross profit
decreased $54,987,810, $45,467,421 and $9,520,389, respectively, from the comparable amounts
recorded during the three months ended September 30, 2008. The decrease in sales was related
primarily to a substantial decrease in tons sold. Tons sold declined from approximately 67,000
tons in the 2008 quarter to approximately 28,000 tons in the 2009 quarter. Average per ton selling
prices declined as well. The average per ton selling price decreased from approximately $1,055 per
ton in the 2008 quarter to $577 per ton in the 2009 quarter. The decrease in costs of goods sold
was related primarily to the decline in tons sold and a decrease in average per ton cost which
declined from approximately $904 per ton in the 2008 quarter to $554 in the 2009 quarter. Gross
profit was adversely affected by the decrease in tons sold and a substantial reduction in margins.
Gross profit as a percentage of sales decreased from approximately 14.3% in the 2008 quarter to
approximately 3.9% in the 2009 quarter. During the 2008 quarter, the Company experienced strong
market conditions for its tubular products and recorded one of the most profitable quarters in
Company history. During the 2009 quarter, the Companys operations continued to be adversely
affected by extremely soft market conditions for durable goods and energy related products
resulting from the significant downturn in the U.S. economy.
Coil product segment sales decreased approximately $12,474,000 during the 2009 quarter. This
decrease resulted primarily from a decrease in average selling prices as well as in tons sold.
Tons of coil products shipped declined from approximately 21,000 tons in the 2008 quarter to
approximately 19,000 tons in the 2009 quarter. The average per ton selling price declined from
approximately $1,112 per ton in the 2008 quarter to $554 in the 2009 quarter. The Company
experienced coil operating losses in both the 2008 and 2009 quarters. Coil operating losses as a
percentage of coil segment sales were approximately 10.2% and 3.6% in the 2008 and 2009 quarters,
respectively. Market conditions for coil products and services are related generally to durable
goods. The Company believes that market conditions for coil products will remain soft until the
U.S. economy improves and generates improved demand for durable goods.
In August 2008, the Company began operating its new coil facility in Decatur, Alabama. This
operation produced an operating loss of approximately $425,000 in the 2009 quarter. The Company
expects that this facility will continue to produce a loss until demand for coil products improves.
The Company is primarily dependent on
NSC for its supply of coil inventory.
In the 2009 quarter, NSC continued to supply the Company with steel coils in amounts that were
adequate for the Companys purposes. The Company does not currently anticipate any significant
change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on
the Companys business.
Tubular product segment sales decreased approximately $42,514,000 during the 2009 quarter. This
decrease primarily resulted from a decrease in tons sold which declined from approximately 47,000
tons in the 2008 quarter to approximately 9,000 tons sold in the 2009 quarter. The average per ton
selling price of tubular products decreased from $1,030 per ton in the 2008 quarter to $624 per ton
in the 2009 quarter. Tubular product segment operating profits as a percentage of segment sales
were approximately 24.2% and 8.6% in the 2008 and 2009 quarters, respectively. During the 2008
quarter, market conditions for tubular products were strong, and the Company recorded one of its
most profitable quarters in Company history. In contrast, extremely soft market conditions were
experienced in the 2009 quarter. The Company believes that market conditions will remain soft
until the U.S. economy recovers and generates improved demand for tubular products.
9
In recent years, USS has been the Companys primary supplier of tubular products and coil material used in
pipe manufacturing and is a major customer of finished tubular products. Certain finished tubular
products are used in the energy business and are manufactured by the Company and sold to USS.
Beginning in December 2008, USS reduced orders for these finished tubular products. Also, in
February 2009, USS announced that it was temporarily idling its plant in Lone Star, Texas, due to
weak market conditions. Since February 2009, the Company has received few orders from USS and a
significantly reduced supply of pipe and coil material from USS. The Company believes that reduced
orders for the Companys finished tubular products will continue until the U.S. economy recovers and generates
improved demand for these products. Loss of USS as a supplier or customer could have an adverse
effect on the Companys business. The Company can make no assurances as to orders from USS or the
amounts of pipe and coil material that will be available from USS in the future.
The recently-depressed market conditions during the downturn of the U. S. economy, along with the
significant decrease in orders from USS and the reduction in the supply of pipe and coil material
from USS, have had an adverse effect on the Companys tubular business. As a result, the Company
downsized its tubular division to a level more commensurate with
current operations.
During the 2009 quarter, general, selling and administrative costs decreased $940,470 from the
amount recorded during the 2008 quarter. This decrease was related primarily to a reduction in
bonuses and commissions associated with reduced earnings and volume.
Income taxes declined $2,977,496 from the amount recorded in the 2008 quarter. This decrease was
related primarily to the decrease in earnings (loss) before taxes.
10
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company remained in a strong, liquid position at September 30, 2009. Current ratios were 9.5
and 12.7 at September 30, 2009 and March 31, 2009, respectively.
Working capital was $39,383,373 at September
30, 2009, and $39,320,364 at March 31, 2009.
During the quarter ended September 30,
2009, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in
balance sheet amounts primarily occurred in the ordinary course of
business. Cash increased primarily as a result of
decreases in accounts receivable and inventories and an increase in
accounts payable. Accounts receivable declined due to a substantial decrease in
sales in September 2009. Management reduced inventories to a level more commensurate with sales. The Company expects
to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions
and the Companys operations.
The Company has an
arrangement with a bank which provides for a revolving line of credit
facility (the revolver). Pursuant to the revolver, which expires April 1, 2010, the Company may
borrow up to $10 million at an interest rate of the banks prime rate or 1.5% over LIBOR. The Company uses the revolver
to support cash flow and will borrow and repay the note as working
capital is required. At March 31, 2009 and September 30, 2009, the Company had no borrowings outstanding under the revolver. At March 31, 2008, the
Company owed $6,600,000 pursuant to the revolver at an average interest rate of approximately
4.4%. These loans were paid off in April and May 2008.
Historically,
the Company has renewed the revolver approximately one year
before its expiration date. As a result of the current lending environment, the Company
may not be able to amend or extend the revolver or enter into a new credit
arrangement on terms as favorable to the Company as the current revolver. As a
result, the Company has chosen not to renew the revolver at the present time.
The Company has in the past and may in the future borrow funds on a term basis to build or
improve facilities. The Company currently has no plans to borrow any significant amount of funds on
a term basis.
Notwithstanding the current market conditions, the Company believes its cash flows from
operations and borrowing capability due to its strong balance sheet are adequate to fund its expected
cash requirements for the next twenty-four months.
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 Companys quarterly reporting. The quarterly valuation of inventory requires
estimates of the year end quantities which is inherently difficult. Historically, these estimates
have been materially correct. In the quarter ended September 30, 2009, LIFO inventories were reduced and are
expected to be replaced
by March 31, 2010. A deferred credit of $111,052 was recorded at September 30, 2009, to reflect the replacement cost in excess of the LIFO cost.
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, product quality and proposed expansion plans.
Forward-looking statements may be made by management orally or in writing including, but not
limited to, this Managements Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Companys 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 for and prices of the Companys products, changes in the demand for steel and steel
products in general and the Companys success in executing its internal operating plans, including
any proposed expansion plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not
Required
11
Item 4. Controls and Procedures
The
Companys management, with the participation of the Companys principal executive officer
(CEO) and principal financial officer (CFO), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(the Exchange Act)), as of the end of the fiscal quarter ended September 30, 2009. Based on this
evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures
were effective as of the end of the fiscal quarter ended September 30, 2009 to ensure that information
that is required to be disclosed by the Company in the reports it files or submits under the
Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms and (ii) accumulated and communicated to the Companys management,
including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended September 30, 2009 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
12
FRIEDMAN INDUSTRIES, INCORPORATED
Three Months Ended September 30, 2009
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Risk Factors
Not applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
a). Not applicable |
|
|
b). Not applicable |
|
|
c). Not applicable |
Item 3. Defaults Upon Senior Securities
|
|
|
a). Not applicable |
|
|
b). Not applicable |
Item 4. Submission of Matters to a Vote of Security
Holders
At the Annual Meeting of
Shareholders held on September 3, 2009, the Companys
shareholders elected ten directors to the Companys Board of
Directors. The number of shares voted for and withheld with
respect to the election of each director was as follows:
|
|
|
|
|
|
Name |
|
Shares
Voted For |
|
Shares
Withheld |
William E. Crow |
|
4,142,909 |
|
1,975,560 |
|
Harold Friedman |
|
4,278,645 |
|
1,839,824 |
|
Jack Friedman |
|
4,278,080 |
|
1,840,389 |
|
Durga D. Agrawal |
|
4,220,043 |
|
1,898,426 |
|
Charles W. Hall |
|
4,194,292 |
|
1,924,177 |
|
Alan M. Rauch |
|
5,478,474 |
|
639,995 |
|
Max Reichenthal |
|
4,197,633 |
|
1,920,836 |
|
Hershel M. Rich |
|
5,482,953 |
|
635,516 |
|
Joel Spira |
|
5,331,460 |
|
787,009 |
|
Joe L. Williams |
|
4,199,097 |
|
1,919,372 |
|
Item 5. Other Information
Not applicable
Item 6. Exhibits
|
|
|
|
31.1
|
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by William E. Crow
|
|
|
31.2
|
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Ben Harper
|
|
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed by William E. Crow |
|
|
32.2 |
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 |
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
FRIEDMAN INDUSTRIES, INCORPORATED |
Dated: November 13, 2009 |
|
|
|
|
By |
|
/s/ BEN HARPER |
|
|
|
|
|
Ben Harper, Senior Vice President-Finance |
|
(Principal Financial and Accounting Officer) |
|
|
|
|
14
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
Exhibit 31.1
|
|
Certification Pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002, signed by William E. Crow |
Exhibit 31.2
|
|
Certification Pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Ben Harper |
Exhibit 32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002, signed by William E. Crow |
Exhibit 32.2
|
|
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 |