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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2002

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

4001 Homestead Road, Houston, Texas 77028-5585

Registrant’s telephone number, including area code (713) 672-9433

      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 such filing requirements for the past 90 days.

Yes  ü     No        

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126b-2 of the Exchange Act).

Yes            No  ü 

      At December 31, 2002, the number of shares outstanding of the issuer’s only class of stock was 7,573,239 shares of Common Stock.

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PART I — FINANCIAL INFORMATION

FRIEDMAN INDUSTRIES, INCORPORATED

ASSETS

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FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED

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FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

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FRIEDMAN INDUSTRIES, INCORPORATED

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 accounting principles generally accepted in the United States 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, 2002.

NOTE B — INVENTORIES

      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. Prime inventory is valued using the last-in, first-out (“LIFO”) method and non-standard coil and tubular inventories are valued using the first-in, first-out method.

      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 the combination. This combination did not significantly affect earnings for the quarter or the nine months ended December 31, 2002.

      During the nine months ended December 31, 2001, a liquidation of the base period LIFO inventories was experienced and a portion of this liquidation was replaced by fiscal year end. Accordingly, costs of goods sold was charged and a deferred credit was established for the difference ($625,106) between the estimated replacement cost and the liquidated LIFO base. LIFO inventories that were not replaced resulted in a liquidation of LIFO inventories carried at costs prevailing in preceding years as compared to current costs, the effect of which increased costs of goods sold and decreased earnings before taxes by approximately $230,000.

NOTE C — SEGMENT INFORMATION — UNAUDITED

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NOTE D — ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

      Effective April 1, 2002, the Company adopted FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations, for a disposal of a segment or a business.

      In November 2001, the Company ceased operations at its Houston coil facility (the “facility”). To the extent possible, sales and production were transferred to other Company locations. Machinery and equipment associated with the facility other than the overhead cranes attached to the buildings will be deployed at other Company locations. Land and buildings and improvements with carrying values of $35,942 and $69,969, respectively, are expected to be sold in the next 12 months. Estimated proceeds are expected to exceed the net book value.

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FRIEDMAN INDUSTRIES, INCORPORATED

RESULTS OF OPERATIONS

Nine Months Ended December 31, 2002 Compared To Nine Months Ended December 31, 2001

     During the nine months ended December 31, 2002, sales and costs of goods sold increased $5,411,492 and $5,243,216, respectively, and related gross profit increased $168,276 from the comparable amounts recorded during the nine months ended December 31, 2001. During the 2002 period, an increase of $8,357,201 in sales of coil products was offset by a decrease of $2,945,709 in sales of tubular products. Tons of coil products sold increased approximately 14% and the average per ton selling price increased approximately 7% from the levels recorded during the 2001 period. A decline in coil sales associated with the closure of the Houston coil facility in November 2001 was more that offset by an increase in sales attributable to the XSCP Division that began operations in December 2001. During the 2002 period, tubular tons sold and the average selling price per ton declined approximately 3% and 5%, respectively. Coil operations benefited from somewhat stronger market conditions while tubular operations were adversely impacted by soft market conditions during the 2002 period. Management believes that the soft market conditions for tubular products were related to the overall weakness in the energy sector of the United States economy. An increase in gross profit of $568,964 related to coil operations was offset by a decline in gross profit of $400,688 associated with tubular operations. Gross profits as a percentage of sales were approximately 5.7% and 5.9% during the 2002 and 2001 periods, respectively.

     Interest expense decreased $196,240 from the amount recorded during the 2001 period. This decrease was primarily related to reductions in both short-term and long-term debt and lower interest rates associated with such borrowings.

     Interest and other income increased $29,750 from the 2001 period amount primarily as a result of an increase in invested cash positions during the 2002 period.

     Federal income taxes increased $156,175 from the comparable amount recorded during the 2001 period. This increase was primarily related to the increase in earnings before taxes as the effective tax rates were the same for both periods.

Three Months Ended December 31, 2002 Compared To Three Months Ended December 31, 2001

     During the quarter ended December 31, 2002, sales, costs of goods sold and gross profit increased $4,935,369, $4,471,538 and $463,831, respectively, from the comparable amounts recorded during the quarter ended December 31, 2001. The increases in sales and costs of goods sold were related primarily to coil operations. Sales of coil products and related costs of goods sold increased $4,213,475 and $4,333,028, respectively, the effect of which decreased gross profit by $119,553. This decrease was related primarily to losses incurred on sales of non-standard coils. Decreased gross profit earned on coil products was offset by an increase of in gross profit earned on tubular products of $583,384. During the 2002 quarter, the Company’s tubular operation benefited from somewhat stronger market conditions as compared to market conditions in the 2001 quarter. Gross profits as a percentage of sales were approximately 4.9% and 3.8% during the 2002 and 2001 quarters, respectively. This improvement was related primarily to improved results associated with the tubular operation.

     Interest expense decreased $49,839 from the amount recorded during the 2001 quarter. This decrease was related primarily to a decrease in both short and long-term debt.

     Federal income taxes increased $203,166 from the comparable amount recorded during the 2001 quarter. This increase was primarily related to the increase in earnings before taxes as the effective tax rates were the same for both quarters.

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