e10vq
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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, 2010
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)

(713) 672-9433
(Registrant’s telephone number, including area code)
 
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 oAccelerated 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, 2010, the number of shares outstanding of the issuer’s only class of stock was 6,799,444 shares of Common Stock.
 
 

 


TABLE OF CONTENTS

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. [Removed and Reserved]
Item 5. Other Information
Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
EX-31.1
EX-31.2
EX-32.1
EX-32.2


Table of Contents

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED
                 
    SEPTEMBER 30, 2010     MARCH 31, 2010  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 19,876,177     $ 19,812,881  
Accounts receivable, net of allowances for bad debts and cash discounts of $37,276 at September 30 and March 31, 2010
    8,234,074       8,686,151  
Inventories
    27,291,949       20,122,296  
Other
    218,391       81,791  
 
           
TOTAL CURRENT ASSETS
    55,620,591       48,703,119  
PROPERTY, PLANT AND EQUIPMENT:
               
Land
    1,082,331       1,082,331  
Buildings and yard improvements
    7,003,239       7,000,839  
Machinery and equipment
    29,836,770       29,374,766  
Less accumulated depreciation
    (22,895,733 )     (21,963,333 )
 
           
 
    15,026,607     15,494,603
 
               
OTHER ASSETS:
               
Cash value of officers’ life insurance and other assets
    862,000       834,000  
             
 
TOTAL ASSETS
  $ 71,509,198     $ 65,031,722  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 9,832,274     $ 6,912,741  
Current portion of long-term debt
          13,507  
Income taxes payable
    358,235       94,563  
Dividends payable
    543,956       67,994  
Contribution to profit sharing plan
    155,000       44,000  
Employee compensation and related expenses
    740,398       443,473  
 
           
 
TOTAL CURRENT LIABILITIES
    11,629,863       7,576,278  
DEFERRED INCOME TAXES
    387,203       414,403  
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    730,087       682,631  
STOCKHOLDERS’ EQUITY:
               
Common stock, par value $1:
               
Authorized shares — 10,000,000
               
Issued shares — 7,975,160 at September 30 and March 31, 2010
    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, 2010)
    (5,475,964 )     (5,475,964 )
Retained earnings
    27,259,175       24,855,540  
 
           
 
TOTAL STOCKHOLDERS’ EQUITY
    58,762,045       56,358,410  
 
           
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 71,509,198     $ 65,031,722  
 
           

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FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
                                 
    Three months ended     Six months ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Net sales
  $ 29,353,262     $ 16,086,330     $ 58,575,494     $ 28,332,549  
Costs and expenses
                               
Costs of goods sold
    25,465,549       15,460,372       51,249,843       27,119,011  
General, selling and administrative costs
    1,264,251       926,315       2,538,721       1,849,202  
 
                       
 
    26,729,800       16,386,687       53,788,564       28,968,213  
Interest and other income
    (14,000 )     (14,500 )     (28,027 )     (29,000 )
 
                       
Earnings (loss) before income taxes
    2,637,462       (285,857 )     4,814,957       (606,664 )
Provision for (benefit from) income taxes:
                               
Current
    866,631       (122,110 )     1,622,589       (302,344 )
Deferred
    (13,600 )     42,500       (27,200 )     64,675  
 
                       
 
    853,031       (79,610 )     1,595,389       (237,669 )
 
                       
Net earnings (loss)
  $ 1,784,431     $ (206,247 )   $ 3,219,568     $ (368,995 )
 
                       
 
                               
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
  $ 0.26     $ (0.03 )   $ 0.47     $ (0.05 )
Diluted
  $ 0.26     $ (0.03 )   $ 0.47     $ (0.05 )
Cash dividends declared per common share
  $ 0.08     $ 0.01     $ 0.12     $ 0.04  

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FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
                 
    Six Months Ended  
    September 30,  
    2010     2009  
OPERATING ACTIVITIES
               
Net earnings (loss)
  $ 3,219,568     $ (368,995 )
Adjustments to reconcile net earnings (loss) to cash provided by operating activities:
               
Depreciation
    932,401       952,200  
Provision for deferred taxes
    (27,200 )     64,675  
Provision for postretirement benefits
    47,456       33,652  
Decrease (increase) in operating assets:
               
Accounts receivable, net
    452,077       1,356,951  
Prepaid income taxes
          (220,872 )
Inventories
    (7,169,653 )     1,821,652  
Other
    (136,600 )     (84,863 )
Increase (decrease) in operating liabilities:
               
Accounts payable and accrued expenses
    2,919,533       1,308,715  
Contribution to profit-sharing plan
    111,000       84,000  
Employee compensation and related expenses
    296,925       55,200  
Income taxes payable
    263,672        
Deferred credit for LIFO inventory replacement
          111,052  
 
           
NET CASH PROVIDED BY OPERATING ACTIVITIES
    909,179       5,113,367  
INVESTING ACTIVITIES
               
Purchase of property, plant and equipment
    (464,404 )     (304,039 )
Increase in cash surrender value of officers’ life insurance
    (28,000 )     (29,000 )
 
           
NET CASH USED IN INVESTING ACTIVITIES
    (492,404 )     (333,039 )
FINANCING ACTIVITIES
               
Cash dividends paid
    (339,972 )     (543,956 )
Principal payments on notes payable
    (13,507 )     (27,013 )
 
           
NET CASH USED IN FINANCING ACTIVITIES
    (353,479 )     (570,969 )
 
           
INCREASE IN CASH AND CASH EQUIVALENTS
    63,296       4,209,359  
Cash and cash equivalents at beginning of period
    19,812,881       16,880,110  
 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 19,876,177     $ 21,089,469  
 
           

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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 financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended March 31, 2010.
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 quarter ended September 30, 2009, LIFO inventories were reduced and were partially 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,  
    2010     2010  
Prime Coil Inventory
  $ 6,252,575     $ 4,643,951  
Non-Standard Coil Inventory
    645,320       504,351  
Tubular Raw Material
    5,109,244       3,698,531  
Tubular Finished Goods
    15,284,810       11,275,463  
 
           
 
  $ 27,291,949     $ 20,122,296  
 
           
NOTE C — LONG-TERM DEBT
     In June 2007, the Company incurred an interest-free, long-term liability of $162,084 related to the purchase of pipe loading equipment which was payable in 36 equal monthly payments. The balance of this liability of $13,507 at March 31, 2010 was paid in the quarter ended June 30, 2010.

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NOTE D — SEGMENT INFORMATION (in thousands)
                                     
        Three Months Ended
September 30,
  Six Months Ended
September 30,
         
        2010   2009   2010   2009
                     
Net sales
                               
 
Coil
  $ 13,236     $ 10,406     $ 25,333     $ 17,417  
 
Tubular
    16,117       5,680       33,242       10,916  
 
                       
   
Total net sales
  $ 29,353     $ 16,086     $ 58,575     $       28,333  
 
                       
Operating profit (loss)
                               
 
Coil
  $ 218   $ (377 )   $ (106 )   $ (334 )
 
Tubular
    3,059       488       6,304       577  
 
                       
   
Total operating profit
    3,277       111       6,198       243  
 
Corporate expenses
    654       411       1,411       879  
 
Interest & other income
    (14 )     (14 )     (28 )     (29 )
 
                       
   
Total earnings (loss) before taxes
  $ 2,637     $ (286 )   $ 4,815     $ (607 )
 
                       
                 
    September 30,     March 31,  
    2010     2010  
Segment assets
               
Coil
  $ 22,283     $        20,377  
Tubular
    28,487       24,006  
 
           
 
    50,770       44,383  
Corporate assets
    20,739       20,649  
 
           
 
  $ 71,509     $ 65,032  
 
           
     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 E — SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes of approximately $1,491,000 and $62,000 in the six months ended September  30, 2010 and 2009, respectively. The Company paid no interest in the six months ended September 30, 2010 and 2009, respectively.
NOTE F — 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 Company’s consolidated condensed financial statements. The Company evaluated subsequent events through the date of this filing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
     Six Months Ended September 30, 2010 Compared to Six Months Ended September 30, 2009
     During the six months ended September 30, 2010, sales, costs of goods sold and gross profit increased $30,242,945, $24,130,832 and $6,112,113, respectively, from the comparable amounts recorded during the six months ended September 30, 2009. The increase in sales was related primarily to a substantial increase in tons sold which increased from approximately 50,000 tons in the 2009 period to approximately 79,000 tons in the 2010 period. Also, the average per ton selling price increased from approximately $571 per ton in the 2009 period to $740 per ton in the 2010 period. The increase in costs of goods sold was related primarily to the increase in tons sold and an increase in average per ton cost which rose from approximately $547 per ton in the 2009 period to $647 in the 2010 period. Gross profit benefited from the sales increase as well as a significant increase in gross margins. Gross profit as a percentage of sales increased from approximately 4.3% in the 2009 period to approximately 12.5% in the 2010 period. During the 2009 period, the Company experienced a significant economic downturn in the U.S. economy and the Company’s operations were adversely affected by extremely soft market conditions for durable goods and energy-related products. In the 2010 period, the Company experienced improved market conditions for its tubular products but market demand for coil products remained soft. Accordingly, the improvement in results of operations during the 2010 period was related primarily to the tubular product segment of the Company.
     Coil product segment sales increased approximately $7,916,000 during the 2010 period. This increase resulted primarily from an increase in tons sold and a significant increase in the average selling price. Coil tons shipped increased from approximately 32,000 tons in the 2009 period to approximately 35,000 tons in the 2010 period and the average per ton selling price increased from approximately $542 per ton in the 2009 period to $723 per ton in the 2010 period. Margins earned on sales of coil products were adversely impacted in both the 2009 and 2010 periods by soft demand. Also, the Company incurred significant increases in cost of coil material in the 2010 period that could not be readily passed on to its customers. Management believes that market conditions for coil products will not improve until the U.S. economy improves and generates significant improvement in demand for durable goods.
     In August 2008, the Company began operating its coil facility in Decatur, Alabama. This operation produced an operating loss of approximately $525,000 and $850,000 in the 2010 and 2009 periods, respectively. 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 2010 period, NSC continued to supply the Company with steel coils in amounts that were adequate for the Company’s purposes. The Company does not currently anticipate any significant change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on the Company’s business.
     Tubular product segment sales increased approximately $22,326,000 during the 2010 period. This increase primarily resulted from an increase in tons sold which increased from approximately 17,000 tons in the 2009 period to approximately 44,000 tons in the 2010 period. The average per ton selling price of tubular products increased from approximately $625 per ton in the 2009 period to $754 per ton in the 2010 period. Tubular product segment operating profits as a percentage of segment sales were approximately 5.3% and 19.0% in the 2009 and 2010 periods, respectively. Extremely soft market conditions were experienced in the 2009 period as compared to stronger market conditions in the 2010 period. Also, since February 2010, the Company has received an increase in orders for finished tubular products from U. S. Steel Tubular Products, Inc. (“USS”), an affiliate of United States Steel Corporation.
     In recent years, USS has been the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and has been a major customer of finished tubular products. Certain finished tubular products used in the energy business are manufactured by the Company and sold to USS. 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. From February 2009 until February 2010, the Company received few orders from USS and a significantly reduced supply of pipe and coil material from USS. During this period, USS reopened its Lone Star facility, and since February 2010, the Company has received from USS an increase in orders for finished tubular products and an increase in supply of tubular products and coil material used in the production of pipe. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.
     From February 2009 until February 2010, the Company downsized its tubular division to a level more commensurate with operations. Since February 2010, the Company increased the level of operations of the tubular division to support modest increases in production requirements.
     During the 2010 period, general, selling and administrative costs increased $689,519 from the amount recorded during the 2009 period. This increase was related primarily to increases in bonuses and commissions associated with increased earnings and volume.
     Income taxes increased $1,833,058 from the amount recorded in the 2009 period. This increase was related primarily to the recording of earnings before taxes in the 2010 period compared to a loss before taxes in the 2009 period. Effective tax rates were 33% and 39% in the periods ended 2010 and 2009, respectively. In 2009 quarter, the Company benefited from recoverable income taxes.
     Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
     During the three months ended September 30, 2010, sales, costs of goods sold and gross profit increased $13,266,932, $10,005,177 and $3,261,755, respectively, from the comparable amounts recorded during the three months ended September 30, 2009. The increase in sales was related primarily to a substantial increase in tons sold which increased from approximately 28,000 tons in the 2009 quarter to approximately 40,000 tons in the 2010 quarter. Also, the average per ton selling price increased from approximately $577 per ton in the 2009 quarter to $730 per ton in the 2010 quarter. The increase in costs of goods sold was related primarily to the increase in tons sold and an increase in average per ton cost which rose from approximately $554 per ton in the 2009 quarter to $633 per ton in the 2010 quarter. Gross profit benefited from the sales increase as well as a significant increase in gross margins. Gross profit as a percentage of sales increased from approximately 3.9% in the 2009 quarter to approximately 13.2% in the 2010 quarter. During the 2009 quarter, the Company experienced a significant economic downturn in the U.S. economy and the Company’s operations were adversely affected by extremely soft market conditions for durable goods and energy-related products. In the 2010 quarter, the Company experienced improved market conditions for its tubular products but market demand for coil products remained soft. Accordingly, the improvement in results of operations during the 2010 quarter was related primarily to the tubular product segment of the Company.
     Coil product segment sales increased approximately $2,830,000 during the 2010 quarter. This increase resulted primarily from a significant increase in the average selling price per ton which increased from approximately $554 per ton in the 2009 quarter to $710 in the 2010 quarter. The Company sold approximately 19,000 tons of coil product in both the 2009 and 2010 quarters. Even though the coil segment experienced a small operating profit in the 2010 quarter, margins earned on sales of coil products were adversely impacted in both the 2009 quarter and the 2010 quarter by soft demand. Management believes that market conditions for coil products will not improve until the U.S. economy improves and generates significant improvement in demand for durable goods.
     The Company is primarily dependent on NSC for its supply of coil inventory. In the 2010 quarter, NSC continued to supply the Company with steel coils in amounts that were adequate for the Company’s purposes. The Company does not currently anticipate any significant change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on the Company’s business.
     Tubular product segment sales increased approximately $10,437,000 during the 2010 quarter. This increase primarily resulted from an increase in tons sold which increased from approximately 9,000 tons in the 2009 quarter to approximately 22,000 tons in the 2010 quarter. The average per ton selling price of tubular products increased from approximately $624 per ton in the 2009 quarter to $748 in the 2010 quarter. Tubular product segment operating profits as a percentage of segment sales were approximately 8.6% and 19.0% in the 2009 and 2010 quarters, respectively. Extremely soft market conditions were experienced in the 2009 quarter as compared to stronger market conditions in the 2010 quarter. Also, since February 2010, the Company has received an increase in orders for finished tubular products from USS.
     In recent years, USS has been the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and has been a major customer of finished tubular products. Certain finished tubular products used in the energy business are manufactured by the Company and sold to USS. 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. From February 2009 until February 2010, the Company received few orders from USS and a significantly reduced supply of pipe and coil material from USS. During this period, USS reopened its Lone Star facility, and since February 2010, the Company has received from USS an increase in orders for finished tubular products and an increase in supply of tubular products and coil material used in the production of pipe. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.
     From February 2009 until February 2010, the Company downsized its tubular division to a level more commensurate with operations. Since February 2010, the Company increased the level of operations of the tubular division to support modest increases in production requirements.
     During the 2010 quarter, general, selling and administrative costs increased $337,936 from the amount recorded during the 2009 quarter. This increase was related primarily to increases in bonuses and commissions associated with increased earnings and volume.
     Income taxes increased $932,641 from the amount recorded in the 2009 quarter. This increase was related primarily to the recording of earnings before taxes in the 2010 quarter compared to a loss before taxes in the 2009 quarter. Effective tax rates were 32% and 28% in the quarters ended 2010 and 2009, respectively. In 2009 quarter, the Company benefited from recoverable income taxes.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
     The Company remained in a strong, liquid position at September 30, 2010. The current ratios were 4.8 and 6.4 at September 30, 2010 and March 31, 2010, respectively. Working capital was $43,990,728 at September 30, 2010 and $41,126,841 at March 31, 2010.
     During the quarter ended September 30, 2010, 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. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.
     During the six months ended September 30, 2010, the Company purchased approximately $464,000 in fixed assets. These assets were related primarily to improvements associated with the Company’s tubular operations.
     Previously, the Company had an arrangement with a bank which provided for a revolving line of credit facility (the “revolver”). The revolver expired April 1, 2010. Historically, the Company renewed the revolver approximately one year before its expiration date. As a result of the current lending environment, the Company was not able to amend or extend the revolver or enter into a new credit arrangement on terms as favorable to the Company as the expired revolver. As a result, the Company chose not to renew the revolver.
     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 24 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 Company’s 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 period ended September 30, 2009, LIFO inventories were reduced and were partially 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.
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 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 (the “Exchange Act”). 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 Company’s products, changes in the demand for steel and steel products in general and the Company’s success in executing its internal operating plans, including any proposed expansion plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     Not Required
Item 4. Controls and Procedures
     The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the fiscal quarter ended September 30, 2010. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended September 30, 2010 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 SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
     There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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FRIEDMAN INDUSTRIES, INCORPORATED
Three Months Ended September 30, 2010
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. [Removed and Reserved]
Item 5. Other Information
     Not applicable
Item 6. Exhibits
     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

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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

 
 
Date November 12, 2010        
  By   /s/ Ben Harper    
    Ben Harper, Senior Vice President-Finance   
    (Principal Financial and Accounting Officer)   
 

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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