Attached files
file | filename |
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10-K - FORM 10-K - FRIEDMAN INDUSTRIES INC | h73755e10vk.htm |
EX-21.1 - EX-21.1 - FRIEDMAN INDUSTRIES INC | h73755exv21w1.htm |
EX-31.2 - EX-31.2 - FRIEDMAN INDUSTRIES INC | h73755exv31w2.htm |
EX-14.1 - EX-14.1 - FRIEDMAN INDUSTRIES INC | h73755exv14w1.htm |
EX-31.1 - EX-31.1 - FRIEDMAN INDUSTRIES INC | h73755exv31w1.htm |
EX-32.2 - EX-32.2 - FRIEDMAN INDUSTRIES INC | h73755exv32w2.htm |
EX-32.1 - EX-32.1 - FRIEDMAN INDUSTRIES INC | h73755exv32w1.htm |
EXHIBIT
13.1
THE
COMPANYS ANNUAL
REPORT TO SHAREHOLDERS FOR
THE FISCAL YEAR ENDED MARCH 31, 2010
FRIEDMAN
INDUSTRIES,
INCORPORATED
2010
ANNUAL REPORT
FRIEDMAN INDUSTRIES, INCORPORATED
FINANCIAL HIGHLIGHTS
2010 | 2009 | |||||||
Net sales
|
$65,132,170 | $208,779,750 | ||||||
Net earnings
|
$652,024 | $13,673,406 | ||||||
Net earnings per share (Basic)
|
$0.10 | $2.01 | ||||||
Cash dividends per share
|
$0.06 | $0.37 | ||||||
Stockholders equity
|
$56,358,410 | $56,114,352 | ||||||
Working capital
|
$41,126,841 | $39,320,364 |
TO OUR SHAREHOLDERS:
The Company, and the economy in general, experienced a very
difficult year. Despite this downturn, the Company managed a
profit for the fiscal year.
Through this difficult period, the Company continued to upgrade
and improve its operations. The Company ended the fiscal year in
a sound financial position going forward.
We regret to report the death of Jack Friedman, Chairman of the
Board and Chief Executive Officer from 1972 until his retirement
in 2006 and a director of the Company since 1965.
Mr. Friedman died on April 4, 2010, at the age of 88.
Mr. Friedman had been associated with the Company since 1939.
Those who knew him appreciated his honesty, integrity and good
judgment. He will be greatly missed.
You are invited to attend the Annual Meeting of Shareholders
scheduled to start at 11 a.m. (central time) on Thursday,
September 2, 2010, in the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, Houston, Texas.
Sincerely,
Harold Friedman Chairman of the Board of Directors |
William E. Crow Chief Executive Officer and President |
1
FRIEDMAN INDUSTRIES, INCORPORATED
OFFICERS
William E. Crow
Chief Executive Officer and
President
Benny B. Harper
Senior Vice President Finance
and Secretary/Treasurer
Thomas N. Thompson
Senior Vice President Sales and Marketing
Ronald L. Burgerson
Vice President
Dale Ray
Vice President
Howard Henderson
Vice President of Operations Texas Tubular
Division
Robert McCain
Vice President Decatur Division
Robert Sparkman
Vice President of Sales Coil Divisions
Charles W. Hall
Assistant Secretary
COMPANY OFFICES AND WEB SITE
CORPORATE OFFICE
P.O. Box 21147
Houston, Texas 77226
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.
Fulbright Tower
1301 McKinney, Suite 5100
Houston, Texas 77010
AUDITORS
Hein & Associates LLP
500 Dallas Street, Suite 2900
Houston, TX 77002
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10007
Harold Friedman
Chairman of the Board;
former Vice Chairman of the Board
Houston, Texas
William E. Crow
Chief Executive Officer and
President
Longview, Texas
Durga D. Agrawal
President, Piping Technology & Products, Inc.
(pipe fabrication)
(pipe fabrication)
Houston, Texas
Charles W. Hall
Fulbright & Jaworski L.L.P. (law firm)
Houston, Texas
Alan M. Rauch
President, Ener-Tex
International, Inc.
(oilfield equipment sales)
Houston, Texas
Max Reichenthal
President, Texas Iron and Metal
(steel product sales)
Houston, Texas
Hershel M. Rich
Private investor and
business consultant
Houston, Texas
Joel Spira
Private investor; formerly, Partner, Weinstein
Spira & Company (accounting firm)
Houston, Texas
Joe L. Williams
Partner, PozmantierWilliams Insurance
Consultants, LLC
Consultants, LLC
(insurance and risk management consultants)
Houston, Texas
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain without charge a copy of the
Companys Annual Report on
Form 10-K
for the year ended March 31, 2010 as filed with the
Securities and Exchange Commission. Written requests should be
addressed to: Ben Harper, Senior Vice President, Friedman
Industries, Incorporated, P.O. Box 21147, Houston,
Texas 77226.
2
FRIEDMAN INDUSTRIES, INCORPORATED
DESCRIPTION OF BUSINESS
Friedman Industries, Incorporated (the Company) is
engaged in steel processing, pipe manufacturing and processing
and steel and pipe distribution.
At its facilities in Hickman, Arkansas and Decatur, Alabama, 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. Through its XSCP Division
located in Hickman, Arkansas, the Company purchases and markets
non-standard hot-rolled coils. The Company purchases a
substantial amount of its annual coil tonnage from Nucor Steel
Company (NSC). Loss of NSC as a source of coil
supply could have a material adverse effect on the
Companys business.
The Company sells its coil products and processing services
directly through the Companys own sales force to
approximately 160 customers located primarily in the
midwestern, southwestern and southeastern sections of the United
States. These products and services are sold principally to
steel distributors and to customers fabricating steel products
such as storage tanks, steel buildings, farm machinery and
equipment, construction equipment, transportation equipment,
conveyors and other similar products.
The Company, through its Texas Tubular Products Division
(TTP) located in Lone Star, Texas, manufactures,
purchases, processes and markets tubular products
(pipe). The Company sells pipe nationally to
approximately 140 customers including, in recent years, a
substantial amount of manufactured pipe to U.S. Steel Tubular
Products, Inc. (USS), an affiliate of United States
Steel Corporation. In recent years, the Company has also
purchased a substantial portion of its annual supply of pipe and
coil material used in pipe production from USS.
In February 2009, USS announced that it was temporarily idling
its plant at 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. Since February 2010, the Company has
received modest increases in orders from USS. Also, the Company
has received modest increases in the supply of tubular products
and in coil material for pipe production 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. The Company can make no assurances as
to the amounts of tubular products that will be purchased by USS
in the future and the amounts of pipe and coil material that
will be available from USS in the future. Loss of USS as a
customer and as a source of supply for TTP could have a material
adverse effect on the Companys business.
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, in February 2009,
the Company downsized its TTP division to a level more
commensurate with operations.
Significant financial information relating to the Companys
two product groups, coil and tubular products, is contained in
Note 7 of Notes to the Companys Consolidated
Financial Statements appearing herein.
RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK
Fiscal 2010 | Fiscal 2009 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter
|
$ | 6 | .95 | $4 | .47 | $ | 8 | .10 | $ | 4 | .86 | |||||
Second Quarter
|
6 | .67 | 5 | .00 | 10 | .32 | 6 | .45 | ||||||||
Third Quarter
|
6 | .22 | 4 | .21 | 7 | .29 | 4 | .25 | ||||||||
Fourth Quarter
|
6 | .10 | 5 | .43 | 9 | .90 | 3 | .82 |
CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
Fiscal 2010 | Fiscal 2009 | |||||||
First Quarter
|
$ | .03 | $ | .08 | ||||
Second Quarter
|
.01 | .12 | ||||||
Third Quarter
|
.01 | .12 | ||||||
Fourth Quarter
|
.01 | .05 |
The Companys 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 May 21, 2010 was 320.
3
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 | ||||||||
2010 | 2009 | |||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 19,812,881 | $ | 16,880,110 | ||||
Accounts receivable, net of allowances for bad debts and cash
discounts of $37,276 and $27,276 at March 31, 2010 and
2009, respectively
|
8,686,151 | 4,991,239 | ||||||
Inventories
|
20,122,296 | 19,402,701 | ||||||
Prepaid income taxes
|
| 1,299,796 | ||||||
Other
|
81,791 | 99,531 | ||||||
TOTAL CURRENT ASSETS
|
48,703,119 | 42,673,377 | ||||||
PROPERTY, PLANT AND EQUIPMENT:
|
||||||||
Land
|
1,082,331 | 1,082,331 | ||||||
Buildings and yard improvements
|
7,000,839 | 7,000,839 | ||||||
Machinery and equipment
|
29,374,766 | 29,080,476 | ||||||
Less accumulated depreciation
|
(21,963,333 | ) | (20,152,959 | ) | ||||
15,494,603 | 17,010,687 | |||||||
OTHER ASSETS:
|
||||||||
Cash value of officers life insurance and other assets
|
834,000 | 776,000 | ||||||
TOTAL ASSETS
|
$ | 65,031,722 | $ | 60,460,064 | ||||
LIABILITIES AND
STOCKHOLDERS EQUITY
March 31 | ||||||||
2010 | 2009 | |||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$ | 6,912,741 | $ | 2,662,209 | ||||
Dividends payable
|
67,994 | 339,972 | ||||||
Current portion of long-term debt
|
13,507 | 54,028 | ||||||
Income taxes payable
|
94,563 | | ||||||
Contribution to profit sharing plan
|
44,000 | 40,000 | ||||||
Employee compensation and related expenses
|
443,473 | 256,804 | ||||||
TOTAL CURRENT LIABILITIES
|
7,576,278 | 3,353,013 | ||||||
LONG-TERM DEBT, less current portion
|
| 13,507 | ||||||
DEFERRED INCOME TAXES
|
414,403 | 363,864 | ||||||
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
|
682,631 | 615,328 | ||||||
COMMITMENTS AND CONTINGENCIES
|
| | ||||||
STOCKHOLDERS EQUITY:
|
||||||||
Common stock, par value $1:
|
||||||||
Authorized shares 10,000,000
|
||||||||
Issued shares 7,975,160 at March 31, 2010 and
2009, respectively
|
7,975,160 | 7,975,160 | ||||||
Additional paid-in capital
|
29,003,674 | 29,003,674 | ||||||
Treasury stock at cost (1,175,716 shares at March 31,
2010 and 2009, respectively)
|
(5,475,964 | ) | (5,475,964 | ) | ||||
Retained earnings
|
24,855,540 | 24,611,482 | ||||||
TOTAL STOCKHOLDERS EQUITY
|
56,358,410 | 56,114,352 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
$ | 65,031,722 | $ | 60,460,064 | ||||
See accompanying notes.
4
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
Net sales
|
$ | 65,132,170 | $ | 208,779,750 | ||||
Costs and expenses:
|
||||||||
Cost of products sold
|
60,206,969 | 182,050,042 | ||||||
Selling, general and administrative
|
3,840,619 | 6,028,370 | ||||||
Interest expense
|
| 23,310 | ||||||
64,047,588 | 188,101,722 | |||||||
1,084,582 | 20,678,028 | |||||||
Interest and other income
|
86,490 | 144,777 | ||||||
EARNINGS BEFORE INCOME TAXES
|
1,171,072 | 20,822,805 | ||||||
Income taxes:
|
||||||||
Current
|
468,509 | 6,741,811 | ||||||
Deferred
|
50,539 | 407,588 | ||||||
519,048 | 7,149,399 | |||||||
NET EARNINGS
|
$ | 652,024 | $ | 13,673,406 | ||||
Weighted average number of common shares outstanding:
|
||||||||
Basic
|
6,799,444 | 6,799,444 | ||||||
Diluted
|
6,799,444 | 6,799,444 | ||||||
Net earnings per share:
|
||||||||
Basic
|
$ | 0.10 | $ | 2.01 | ||||
Diluted
|
$ | 0.10 | $ | 2.01 |
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS
EQUITY
Additional |
||||||||||||||||
Common |
Paid-In |
Treasury |
Retained |
|||||||||||||
Stock | Capital | Stock | Earnings | |||||||||||||
BALANCE AT MARCH 31, 2008
|
$ | 7,975,160 | $ | 29,003,674 | $ | (5,475,964 | ) | $ | 13,453,871 | |||||||
Net earnings
|
| | | 13,673,406 | ||||||||||||
Cash dividends ($0.37)
|
| | | (2,515,795 | ) | |||||||||||
BALANCE AT MARCH 31, 2009
|
7,975,160 | 29,003,674 | (5,475,964 | ) | 24,611,482 | |||||||||||
Net earnings
|
| | | 652,024 | ||||||||||||
Cash dividends ($0.06)
|
| | | (407,966 | ) | |||||||||||
BALANCE AT MARCH 31, 2010
|
$ | 7,975,160 | $ | 29,003,674 | $ | (5,475,964 | ) | $ | 24,855,540 | |||||||
See accompanying notes.
5
FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
OPERATING ACTIVITIES
|
||||||||
Net earnings
|
$ | 652,024 | $ | 13,673,406 | ||||
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
||||||||
Depreciation
|
1,890,375 | 1,762,976 | ||||||
Deferred taxes
|
50,539 | 407,588 | ||||||
Change in post-retirement benefits other than pensions
|
67,303 | 65,579 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
(3,694,912 | ) | 11,750,761 | |||||
Inventories
|
(719,595 | ) | 10,497,626 | |||||
Prepaid income taxes
|
1,299,796 | (1,299,796 | ) | |||||
Other
|
17,740 | 36,814 | ||||||
Accounts payable and accrued expenses
|
4,250,532 | (10,837,105 | ) | |||||
Contribution to profit sharing plan
|
4,000 | (219,500 | ) | |||||
Employee compensation and related expenses
|
186,669 | (304,679 | ) | |||||
Income taxes payable
|
94,563 | (70,069 | ) | |||||
Net cash provided by operating activities
|
4,099,034 | 25,463,601 | ||||||
INVESTING ACTIVITIES
|
||||||||
Purchase of property, plant and equipment
|
(374,291 | ) | (2,001,591 | ) | ||||
Increase in cash value of officers life insurance
|
(58,000 | ) | (55,999 | ) | ||||
Net cash used in investing activities
|
(432,291 | ) | (2,057,590 | ) | ||||
FINANCING ACTIVITIES
|
||||||||
Cash dividends paid
|
(679,944 | ) | (2,515,794 | ) | ||||
Principal payments on long-term debt
|
(54,028 | ) | (6,654,029 | ) | ||||
Net cash used in financing activities
|
(733,972 | ) | (9,169,823 | ) | ||||
Increase in cash and cash equivalents
|
2,932,771 | 14,236,188 | ||||||
Cash and cash equivalents at beginning of year
|
16,880,110 | 2,643,922 | ||||||
Cash and cash equivalents at end of year
|
$ | 19,812,881 | $ | 16,880,110 | ||||
See accompanying notes.
6
FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial
statements include the accounts of Friedman Industries,
Incorporated and its subsidiary (collectively, the
Company). All material intercompany amounts and
transactions have been eliminated.
REVENUE RECOGNITION: Revenues are recognized upon
shipment of products. The terms of shipments made by the Company
are free on board shipping point.
TRADE RECEIVABLES: The Companys 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 Companys receivables, net of the allowance
for doubtful accounts and cash discounts allowed, represents
their estimated net realizable value. The Company estimates its
allowance for doubtful accounts based on historical collection
trends, the age of outstanding receivables and existing economic
conditions. Trade receivables are generally considered past due
after 30 days from invoice date. Past-due receivable
balances are written-off when the Companys internal
collection efforts have been unsuccessful in collecting the
amount due.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents
is composed of cash and, prior to its discontinuance in
September 2009, money fund investments pursuant to a bank sweep
arrangement.
INVENTORIES: Inventories consist of prime coil,
non-standard coil and tubular materials. Prime coil inventory
consists primarily of raw materials, non-standard coil inventory
consists primarily of finished goods and tubular inventory
consists of both raw materials and finished goods. Inventories
are valued at the lower of cost or replacement market. Cost for
prime coil inventory is determined under the
last-in,
first-out
(LIFO) method. At March 31, 2010 and
March 31, 2009, replacement cost exceeded LIFO cost by
approximately $7,430,000 and $5,300,000, respectively. In fiscal
2010 and 2009, LIFO inventories were partially liquidated. Since
the replacement costs and liquidation costs of material
associated with these liquidations were approximately equal in
both years, no meaningful gain or loss resulted from these
partial liquidations. 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 four months ended March 31, 2009,
average selling prices for finished tubular products declined
significantly. As a result, the Company recorded an adjustment
of approximately $4,160,000 to reduce the inventory value of
finished tubular goods to reflect the lower of cost or market
valuation at March 31, 2009. This adjustment had the effect
of increasing costs of products sold and reducing earnings
before taxes by approximately $4,160,000. Obsolete or
slow-moving inventories are not significant based on the
Companys review of inventories. Accordingly, no allowance
has been provided for such items.
The following is a summary of inventory by product group:
March 31 | ||||||||
2010 | 2009 | |||||||
Prime coil inventory
|
$ | 4,643,951 | $ | 6,504,540 | ||||
Non-standard coil inventory
|
504,351 | 141,097 | ||||||
Tubular raw material
|
3,698,531 | 1,783,130 | ||||||
Tubular finished goods
|
11,275,463 | 10,973,934 | ||||||
20,122,296 | $ | 19,402,701 | ||||||
7
FRIEDMAN INDUSTRIES, INCORPORATED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
PROPERTY, PLANT AND EQUIPMENT: Property, plant and
equipment is stated at cost. Depreciation is calculated
primarily by the straight-line method over the estimated useful
lives of the various classes of assets as follows:
Buildings
|
20 years | |||
Machinery and equipment
|
10 years | |||
Yard improvements
|
5 to 10 years | |||
Loaders and other rolling stock
|
5 to 10 years |
In August 2008, the Company began operations at the new coil
facility in Decatur, Alabama. Construction-in-progress at
March 31, 2008, was reclassified to buildings, yard
improvements and machinery and equipment during fiscal 2009.
Interest costs related to construction projects were not
capitalized as part of the cost of fixed assets for the years
presented. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. No
impairments were necessary at March 31, 2010 or 2009.
Maintenance and repairs are expensed as incurred.
SHIPPING COSTS: Sales are credited for freight billed
to customers and freight costs are charged to cost of products
sold.
SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid
no interest in 2010 and approximately $34,000 in 2009. In 2010,
the Company received tax refunds in excess of taxes paid of
approximately $909,000. The Company paid income taxes, net of
refunds, of approximately $7,998,000 in 2009.
INCOME TAXES: The Company accounts for income taxes
under the liability method, whereby the Company recognizes, on a
current and long-term basis, deferred tax assets and liabilities
which represent differences between the financial and income tax
reporting bases of its assets and liabilities. Deferred tax
assets and liabilities are determined based on temporary
differences between income and expenses reported for financial
reporting and tax reporting. The Company has assessed, using all
available positive and negative evidences, the likelihood that
the deferred tax assets will be recovered from future taxable
income.
USE OF ESTIMATES: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.
FINANCIAL INSTRUMENTS: Since the Companys
financial instruments are considered
short-term
in nature, their carrying values approximate fair value.
EARNINGS PER SHARE: Net income per basic common share
is computed using the weighted average number of common shares
outstanding during the period. Net income per diluted common
share is computed using the weighted average number of common
shares and potential common shares outstanding during the
period. Potential common shares result from the assumed exercise
of outstanding common stock options having a dilutive effect
using the treasury stock method.
ECONOMIC RELATIONSHIP: U.S. Steel Tubular Products,
Inc. (USS) and Nucor Steel Company supply a
significant amount of steel products to the Company. Loss of
either of these mills as a source of supply could have a
material adverse effect on the Company. Additionally, the
Company derives revenue by selling a substantial amount of its
manufactured pipe to USS. In February 2009, USS idled its plant
in Lone Star, Texas, due to weak market conditions. USS
indicated that this idling was temporary. From February 2009
until February 2010, the Company received few orders from USS
and a significantly reduced supply of materials from USS. Since
February 2010, the Company has received modest increases in
sales to and materials received from USS. Total sales to USS
were approximately 4%
8
FRIEDMAN INDUSTRIES, INCORPORATED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
and 30% of total Company sales in fiscal 2010 and 2009,
respectively. Loss of USS as a customer could have a material
adverse effect on the Companys business. Other than USS,
no customer accounted for 10% of total sales in the two years
ended March 31, 2010.
The Companys 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 PRONOUNCEMENTS:
Effective July 1, 2009, the Financial Accounting Standards
Board (FASB) 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.
In September 2006, the FASB issued ASC TOPIC 820 (ASC
820), Fair Value Measurements and
Disclosures (ASC 820). ASC 820
establishes a framework for measuring fair value in accordance
with generally accepted accounting principles, clarifies the
definition of fair value within that framework, and expands
disclosures about fair value measurements. ASC 820 applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value, except for the
measurement of share-based payments. The standard does not
expand the use of fair value in any new circumstances.
ASC 820 was effective for the Company beginning the first
quarter of fiscal year 2009. For certain types of financial
instruments, ASC 820 required a limited form of
retrospective transition, whereby the cumulative impact of the
change in principle is recognized in the opening balance of
retained earnings in the fiscal year of adoption. All other
provisions of ASC 820 were applied prospectively beginning
in the first quarter of fiscal year 2009. The adoption of
ASC 820 did not have a material impact on our consolidated
financial statements in fiscal 2009.
In June 2006, the FASB issued ASC TOPIC 740 (ASC
740), Income Taxes. ASC 740 provides
guidance on recognition, classification and disclosure
concerning uncertain tax liabilities. The evaluation of a tax
position requires recognition of a tax benefit if it is more
likely than not it will be sustained upon examination. We
adopted ASC 740 effective April 1, 2007. The adoption did
not have a material impact on our consolidated financial
statements.
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
June 25, 2010.
2. STOCK
OPTIONS AND CAPITAL STOCK
In fiscal 2010 and 2009, the Company maintained no stock option
plans. Accordingly, no options were outstanding and no options
were granted in either fiscal year.
The Company has 1,000,000 authorized shares of Cumulative
Preferred Stock with a par value of $1 per share. The stock
may be issued in one or more series, and the Board of Directors
is authorized to fix the designations, preferences, rights,
qualifications, limitations, and restrictions of each series,
except that
9
FRIEDMAN INDUSTRIES, INCORPORATED
2. STOCK OPTIONS AND CAPITAL STOCK (Continued)
any series must provide for cumulative dividends and must be
convertible into common stock. There were no shares of
Cumulative Preferred Stock issued as of March 31, 2010 and
March 31, 2009.
3. LONG-TERM
DEBT AND COMMITMENTS AND CONTINGENCIES
Effective May 18, 2007, the Company renewed a credit
arrangement with a bank which provided for a revolving line of
credit facility (the revolving facility). Pursuant
to the revolving facility which expired April 1, 2010, the
Company could borrow up to $10 million at the banks
prime rate or at 1.5% over LIBOR. The revolving facility
required that the Company maintain a tangible net worth as
adjusted of $36,724,000, maintain a working capital ratio of 2
to 1 and maintain a debt to equity ratio of 1.1 to 1. At
March 31, 2010, the Company maintained a tangible net worth
of approximately $56,358,000, a working capital ratio of
approximately 6 to 1 and a debt to equity ratio of approximately
.15 to 1. No collateral was required pursuant to the revolving
facility. At March 31, 2008, the Company owed $6,600,000
pursuant to the revolving facility at an average interest rate
of approximately 4.4%. Proceeds of these loans were used to
support cash flows related primarily to accounts payable. The
loans were paid in full in April 2008 and May 2008. There were
no amounts outstanding under the revolving facility at
March 31, 2009 or 2010. The Company did not pay a
commitment fee relative to this facility.
Historically, the revolving facility was renewed approximately
one year before its expiration date. As a result of the current
lending environment and the Companys strong cash position,
the Company chose not to renew the revolving facility in fiscal
2010.
The Company is obligated under noncancelable operating leases
for its Longview, Texas and Houston, Texas office buildings,
which expire April 30, 2013 and August 31, 2010,
respectively. The following is a schedule of future minimum
annual rental payments for the next five years required under
these operating leases as of March 31, 2010:
2011
|
$ | 37,084 | ||
2012
|
30,084 | |||
2013
|
30,084 | |||
2014
|
2,507 | |||
2015
|
| |||
Total
|
$ | 99,759 | ||
Rental expenses for leased properties were approximately $47,000
during fiscal 2010 and 2009, respectively.
4. EARNINGS
PER SHARE
Basic and dilutive net earnings per share is computed based on
the following information:
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
Basic
|
||||||||
Net earnings
|
$ | 652,024 | $ | 13,673,406 | ||||
Weighted average common shares
|
6,799,444 | 6,799,444 | ||||||
Dilutive
|
||||||||
Net earnings
|
$ | 652,024 | $ | 13,673,406 | ||||
Weighted average common shares and common share equivalents
|
6,799,444 | 6,799,444 | ||||||
10
FRIEDMAN INDUSTRIES, INCORPORATED
5. INCOME
TAXES
Components of tax expense (benefit) are as follows:
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
Federal
|
||||||||
Current
|
$ | 536,886 | $ | 6,015,135 | ||||
Deferred
|
50,539 | 407,588 | ||||||
587,425 | 6,422,723 | |||||||
State
|
||||||||
Current
|
(68,377 | ) | 726,676 | |||||
(68,377 | ) | 726,676 | ||||||
Total
|
$ | 519,048 | $ | 7,149,399 | ||||
The U.S. federal statutory income tax rate is reconciled to the
effective rate as follows:
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
Income Tax Expense at
U.S. federal statutory rate |
34.0 | % | 34.0 | % | ||||
Benefit of tax deduction allowed to manufacturing companies
|
(2.0 | ) | (2.0) | |||||
State and local income tax rates net of federal income tax
benefit
|
1.3 | 2.3 | ||||||
True up of income taxes on prior year filings
|
11.0 | | ||||||
Provision for income taxes
|
44.3 | % | 34.3 | % | ||||
In fiscal 2010, the effective tax rate of 44.3% was unusually
high due primarily to true up adjustments on prior year filings
that were applied to substantially reduced earnings before
income taxes in fiscal 2010.
The Companys tax returns may be subject to examination by
the Internal Revenue Service for the fiscal years ending
March 31, 2007 through March 31, 2009. State and local
returns may be subject to examination for fiscal years ended
March 31, 2007 through March 31, 2009.
Deferred income taxes are provided for temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys
consolidated deferred tax assets (liabilities) are as follows:
March 31 | ||||||||
2010 | 2009 | |||||||
Deferred tax liabilities:
|
||||||||
Depreciation
|
$ | (1,654,379 | ) | $ | (1,623,343 | ) | ||
Total deferred tax liabilities
|
(1,654,379 | ) | (1,623,343 | ) | ||||
Deferred tax assets:
|
||||||||
Inventory capitalization
|
172,438 | 98,679 | ||||||
LIFO Inventory
|
783,611 | 885,296 | ||||||
Postretirement benefits other than pensions
|
232,095 | 209,212 | ||||||
Other
|
51,832 | 66,292 | ||||||
Total deferred tax assets
|
1,239,976 | 1,259,479 | ||||||
Net deferred tax liability
|
$ | (414,403 | ) | $ | (363,864 | ) | ||
11
FRIEDMAN INDUSTRIES, INCORPORATED
6. PROFIT
SHARING PLAN
Effective May 1, 2007, the Company merged its defined
contribution retirement plan and its 401(k) plan into the
Friedman Industries, Inc. Employees Retirement and 401(k)
Plan (the Plan). In addition, the Plan year end was
changed to December 31. Employees fully vest in the Plan
upon 6 years of service.
The retirement portion of the Plan covers substantially all
employees, including officers. The Companys contribution
expenses, which are determined 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 $160,000 for the year ended March 31, 2010, and
$223,000 for the year ended March 31, 2009. Contributions,
Plan earnings and forfeitures of nonvested accounts of
terminated participants are allocated to the remaining
individual accounts determined by a point schedule based on
years of employment with the Company.
Employees may participate in the 401(k) portion of the Plan.
Employees are eligible to participate in the Plan when the
employee has completed one year of service. Under the Plan,
participating employees may defer a portion of their pretax
earnings up to certain limits prescribed by the Internal Revenue
Service. The Company provides matching contributions under the
provisions of the Plan. Contribution expense related to the
401(k) portion of the Plan was approximately $26,000 and $56,000
for the years ended March 31, 2010 and 2009, respectively.
7. INDUSTRY
SEGMENT DATA
The Company is engaged in the steel processing, pipe
manufacturing and processing and steel and pipe distribution
business. Within the Company, there are two product groups: coil
and tubular. Coil product involves converting steel coils into
flat sheet and plate steel cut to customer specifications and
reselling steel coils. Through its tubular operation, the
Company purchases, processes, manufactures and markets tubular
products. The following is a summary of significant financial
information relating to the product groups:
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
NET SALES:
|
||||||||
Coil
|
$ | 36,359,462 | $ | 73,243,704 | ||||
Tubular
|
28,772,708 | 135,536,046 | ||||||
TOTAL NET SALES
|
$ | 65,132,170 | $ | 208,779,750 | ||||
OPERATING PROFIT (LOSS):
|
||||||||
Coil
|
$ | (841,082 | ) | $ | 482,938 | |||
Tubular
|
3,728,236 | 23,118,512 | ||||||
TOTAL OPERATING PROFIT
|
2,887,154 | 23,601,450 | ||||||
General corporate expenses
|
(1,802,572 | ) | (2,900,112 | ) | ||||
Interest expense
|
| (23,310 | ) | |||||
Interest and other income
|
86,490 | 144,777 | ||||||
TOTAL EARNINGS BEFORE INCOME TAXES
|
$ | 1,171,072 | $ | 20,822,805 | ||||
IDENTIFIABLE ASSETS:
|
||||||||
Coil
|
$ | 20,376,579 | $ | 22,791,442 | ||||
Tubular
|
24,005,953 | 18,702,930 | ||||||
44,382,532 | 41,494,372 | |||||||
General corporate assets
|
20,649,190 | 18,965,692 | ||||||
TOTAL ASSETS
|
$ | 65,031,722 | $ | 60,460,064 | ||||
12
FRIEDMAN INDUSTRIES, INCORPORATED
7. INDUSTRY SEGMENT DATA (Continued)
Year Ended March 31 | ||||||||
2010 | 2009 | |||||||
DEPRECIATION:
|
||||||||
Coil
|
$ | 1,239,764 | $ | 1,103,046 | ||||
Tubular
|
643,135 | 628,966 | ||||||
Corporate and other
|
7,476 | 30,964 | ||||||
$ | 1,890,375 | $ | 1,762,976 | |||||
CAPITAL EXPENDITURES:
|
||||||||
Coil
|
$ | 188,002 | $ | 1,639,585 | ||||
Tubular
|
186,289 | 362,006 | ||||||
$ | 374,291 | $ | 2,001,591 | |||||
Operating profit is total net sales less operating expenses,
excluding general corporate expenses, interest expense and
interest and other income. General corporate expenses reflect
general and administrative expenses not directly associated with
segment operations and consist primarily of corporate and
accounting salaries, professional fees and services, bad debts,
accrued profit sharing expense, accrued quarterly incentive
bonuses, corporate insurance expenses and office supplies.
Corporate assets consist primarily of cash and cash equivalents,
prepaid federal income taxes and the cash value of
officers life insurance. Although inventory is transferred
at cost between product groups, there are no sales between
product groups.
8. SUMMARY
OF QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of unaudited quarterly results of
operations for the years ended March 31, 2010 and 2009:
Quarter Ended | ||||||||||||||||
June 30, |
September 30, |
December 31, |
March 31, |
|||||||||||||
2009 | 2009 | 2009 | 2010 | |||||||||||||
Net sales
|
$ | 12,246,219 | $ | 16,086,330 | $ | 13,470,721 | $ | 23,328,900 | ||||||||
Gross profit
|
587,580 | 625,958 | 866,022 | 2,845,641 | ||||||||||||
Net earnings (loss)
|
(162,748 | ) | (206,247 | ) | (41,239 | ) | 1,062,258 | |||||||||
Basic
|
(.02 | ) | (.03 | ) | (.01 | ) | .16 | |||||||||
Diluted
|
(.02 | ) | (.03 | ) | (.01 | ) | .16 |
Quarter Ended | ||||||||||||||||
June 30, |
September 30, |
December 31, |
March 31, |
|||||||||||||
2008 | 2008 | 2008 | 2009 | |||||||||||||
Net sales
|
$ | 59,598,697 | $ | 71,074,139 | $ | 56,182,665 | $ | 21,924,249 | ||||||||
Gross profit
|
8,064,743 | 10,146,346 | 8,407,343 | 111,276 | ||||||||||||
Net earnings (loss)
|
3,975,660 | 5,444,435 | 4,554,165 | (300,854 | ) | |||||||||||
Basic
|
.58 | .80 | .67 | (.04 | ) | |||||||||||
Diluted
|
.58 | .80 | .67 | (.04 | ) |
13
FRIEDMAN INDUSTRIES, INCORPORATED
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Friedman Industries, Incorporated
Friedman Industries, Incorporated
Houston, Texas
We have audited the consolidated balance sheets of Friedman
Industries, Incorporated (the Company) as of
March 31, 2010 and 2009, and the related consolidated
statements of earnings, stockholders equity, and cash
flows for each of the two years in the period ended
March 31, 2010. Our audits also included the financial
statement schedule of Friedman Industries, Incorporated listed
in Item 15(a). These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the 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 consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Friedman Industries,
Incorporated as of March 31, 2010 and 2009, and the results
of their operations and their cash flows for each of the two
years in the period ended March 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We were not engaged to examine managements assertion about
the effectiveness of the Companys internal control over
financial reporting as of March 31, 2010 included in the
accompanying managements report on internal control over
financial reporting and, accordingly, we do not express an
opinion thereon.
/s/ Hein
& Associates LLP
Houston, Texas
June 25, 2010
14
FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule
13a-15(f)
under the Securities Exchange Act of 1934. Our internal control
over financial reporting is a process designed under the
supervision of our principal executive and principal financial
officers, and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of
compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of the end of our most
recent fiscal year. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal
Control Integrated Framework. Based on such
assessment, management concluded that, as of March 31,
2010, our internal control over financial reporting is effective
based on that criteria.
This annual report does not include an attestation report of our
registered, independent public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit us to provide
only managements report in this annual report.
15
FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENTS DISCUSSION
AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Year ended
March 31, 2010 compared to year ended March 31,
2009
During the year ended March 31, 2010, sales, costs of goods
sold and gross profit decreased $143,647,580, $121,843,073 and
$21,804,507, respectively, from the comparable amounts recorded
during the year ended March 31, 2009. The decrease in sales
was related to substantial decreases in tons sold and average
selling prices. Tons sold declined from approximately 226,000
tons in fiscal 2009 to approximately 107,000 tons in fiscal
2010. The average per ton selling price decreased from
approximately $924 per ton in fiscal 2009 to $606 per ton in
fiscal 2010. The decrease in costs of goods sold was related
primarily to the decline in tons sold and in average per ton
cost which declined from approximately $806 per ton in fiscal
2009 to $560 in fiscal 2010. 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 12.8% in fiscal 2009 to approximately 7.6% in
fiscal 2010. During fiscal 2009, the Company experienced strong
market conditions for its tubular products and recorded one of
the most profitable years in Company history. During fiscal
2010, 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 $36,884,000
in fiscal 2010. This decrease resulted from decreases in tons
sold and average selling prices. Tons sold declined from
approximately 80,000 tons in fiscal 2009 to approximately 63,000
tons in fiscal 2010. The average per ton selling price declined
from approximately $915 per ton in fiscal 2009 to $580 in fiscal
2010. The Company experienced a coil operating profit (0.7% of
segment sales) in fiscal 2009 compared to a coil operating loss
(2.3% of segment sales) in fiscal 2010. Market conditions for
coil products and services are related generally to durable
goods. Market conditions for coil products were soft in both
fiscal 2009 and 2010. 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 a new coil facility
in Decatur, Alabama. This operation produced operating losses of
approximately $1,614,000 and $1,022,000 in fiscal 2010 and 2009,
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 fiscal
2010, 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
$106,763,000 in fiscal 2010. This decrease primarily resulted
from a decrease in tons sold which declined from approximately
146,000 tons in fiscal 2009 to approximately 45,000 tons sold in
fiscal 2010. The average per ton selling price of tubular
products decreased from approximately $930 per ton in fiscal
2009 to $642 per ton in fiscal 2010. Tubular product segment
operating profits as a percentage of segment sales were
approximately 17.1% and 13.0% in fiscal 2009 and 2010,
respectively. During much of fiscal 2009, market conditions for
tubular products were strong and the Company recorded one of the
most profitable years in Company history. In contrast, extremely
soft market conditions were experienced in fiscal 2010. The
Company believes that market conditions will remain soft until
the U.S. economy recovers and generates improved demand for
tubular products.
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
16
FRIEDMAN INDUSTRIES, INCORPORATED
pipe manufacturing and has been 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. 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.
Since February 2010, the Company has received modest increases
in orders from USS. Also, the Company has received modest
increases in the supply of tubular products and in coil material
for pipe production 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 in February 2009 to a level more
commensurate with operations.
During fiscal 2010, general, selling and administrative costs
decreased $2,187,751 from the amount recorded in fiscal 2009.
This decrease was related primarily to reductions in bonuses and
commissions associated with reduced earnings and volume.
Interest and other income declined $58,287 in fiscal 2010. This
decrease was related primarily to a significant reduction in
interest paid on invested cash positions in fiscal 2010.
Income taxes declined $6,630,351 from the amount recorded in
fiscal 2009. This decrease was related primarily to the decline
in earnings before income taxes. Effective tax rates were 44.3%
in fiscal 2010 compared to 34.3% in fiscal 2009. The effective
rate for fiscal 2010 was unusually high due to true up
adjustments on prior year filings that were applied to
substantially reduced earnings before income taxes in fiscal
2010.
FINANCIAL
CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
The Company remained in a strong, liquid position at
March 31, 2010. Current ratios were 6.4 and 12.7 at
March 31, 2010 and March 31, 2009, respectively.
Working capital was $41,126,841 at March 31, 2010 and
$39,320,364 at March 31, 2009.
During the year ended March 31, 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. Cash
increased primarily as a result of tax refunds and depreciation.
Increases in accounts payable and accounts receivable were
related primarily to increased business activity in March 2010.
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 had a credit arrangement with a bank which provided
for a revolving line of credit facility (the revolving
facility). Pursuant to the revolving facility, which
expired April 1, 2010, the Company could borrow up to
$10 million at an interest rate of the banks prime
rate or 1.5% over LIBOR. The revolving facility required that
the Company maintain a tangible net worth as adjusted of
$36,724,000, maintain a working capital ratio of 2 to 1 and
maintain a debt to equity ratio of 1.1 to 1. At March 31,
2010, the Company maintained a tangible net worth of
approximately $56,358,000, a working capital ratio of
approximately 6 to 1 and a debt to equity ratio of approximately
.15 to 1. No collateral was required pursuant to the revolving
facility. The Company used the revolving facility to support
cash flows and borrowed and repaid funds as working capital was
required. At March 31, 2008, the Company owed $6,600,000
pursuant to the revolving facility. Proceeds of these loans were
used to support cash flows related primarily to accounts
payable. The loans were subsequently paid in full in April 2008
and May 2008. There were no amounts outstanding under the
revolving facility at March 31, 2010.
Historically, the Company renewed the revolving facility
approximately one year before its expiration date. As a result
of the current lending environment and the Companys strong
cash position, the Company
17
FRIEDMAN INDUSTRIES, INCORPORATED
chose not to renew its revolving facility in fiscal 2010. The
Company may in the future seek to reinstate a similar credit
facility although it currently has no plans to do so.
The Company has in the past and may in the future borrow funds
on a term basis to build or improve facilities. The Company
currently has no plans to borrow funds on a term basis.
Notwithstanding the current market conditions, the Company
believes that its current cash position along with cash flows
from operations and borrowing capability due to its strong
balance sheet are adequate to fund its expected cash
requirements for the next 24 months.
OFF-BALANCE SHEET
ARRANGEMENTS
The Company has no off-balance sheet arrangements.
INFLATION
During fiscal 2010 and 2009, the Company believes that the
general level of inflation had little effect on its operations.
CRITICAL
ACCOUNTING POLICIES
The preparation of consolidated financial statements requires
the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses.
One such accounting policy which requires significant estimates
and judgments is the valuation of LIFO inventories in the
Companys quarterly reporting. The Companys quarterly
valuation of inventory requires estimates of the year end
quantities, which is inherently difficult. Historically, these
estimates have been materially correct.
During the four months ended March 31, 2009, average
selling prices for finished tubular products declined
significantly. Management believes that March 2009 average
selling prices for finished tubular goods were indicative of
current market conditions and served as a basis for reducing the
inventory value of finished tubular products at March 31,
2009. Accordingly, the Company recorded an adjustment of
approximately $4,160,000 to reduce the inventory value of
finished tubular products to reflect the lower of cost or market
valuation at March 31, 2009. This adjustment had the effect
of increasing cost of products sold and reducing earnings before
taxes by approximately $4,160,000.
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 and prices
for 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.
18
FRIEDMAN INDUSTRIES, INCORPORATED
TEN YEAR FINANCIAL
SUMMARY
Year Ended March 31 | ||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 65,132,170 | $ | 208,779,750 | $ | 178,785,110 | $ | 199,726,619 | $ | 181,900,351 | $ | 188,022,253 | $ | 116,158,567 | $ | 106,082,738 | $ | 97,817,956 | $ | 120,395,583 | ||||||||||||||||||||
Net earnings
|
$ | 652,024 | $ | 13,673,406 | $ | 4,465,127 | $ | 7,018,318 | (1) | $ | 6,453,888 | $ | 6,246,043 | $ | 2,535,991 | $ | 1,432,017 | $ | 940,039 | $ | 2,927,582 | |||||||||||||||||||
Current assets
|
$ | 48,703,119 | $ | 42,673,377 | $ | 49,422,594 | $ | 51,731,369 | $ | 47,551,003 | $ | 43,498,759 | $ | 37,829,701 | $ | 34,769,500 | $ | 35,806,988 | $ | 40,231,329 | ||||||||||||||||||||
Current liabilities
|
$ | 7,576,278 | $ | 3,353,013 | $ | 14,784,366 | $ | 23,266,583 | $ | 18,383,193 | $ | 14,959,516 | $ | 12,639,763 | $ | 11,035,388 | $ | 10,797,106 | $ | 12,271,802 | ||||||||||||||||||||
Working capital
|
$ | 41,126,841 | $ | 39,320,364 | $ | 34,638,228 | $ | 28,464,786 | $ | 29,167,810 | $ | 28,539,243 | $ | 25,189,938 | $ | 23,734,112 | $ | 25,009,882 | $ | 27,959,527 | ||||||||||||||||||||
Total assets
|
$ | 65,031,722 | $ | 60,460,064 | $ | 66,958,392 | $ | 65,871,706 | $ | 55,930,889 | $ | 50,796,342 | $ | 46,028,123 | $ | 42,778,926 | $ | 43,986,455 | $ | 48,010,512 | ||||||||||||||||||||
Stockholders equity
|
$ | 56,358,410 | $ | 56,114,352 | $ | 44,956,741 | $ | 42,109,998 | $ | 37,097,335 | $ | 35,354,550 | $ | 33,031,604 | $ | 31,246,751 | $ | 30,491,351 | $ | 30,378,150 | ||||||||||||||||||||
Net earnings as a percent of
|
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Net sales
|
1.0 | 6.5 | 2.5 | 3.5 | 3.5 | 3.3 | 2.2 | 1.3 | 1.0 | 2.4 | ||||||||||||||||||||||||||||||
Stockholders equity
|
1.2 | 24.4 | 9.9 | 16.7 | 17.4 | 17.7 | 7.7 | 4.6 | 3.1 | 9.6 | ||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding: Basic
|
6,799,444 | 6,799,444 | 6,733,942 | 6,685,577 | 7,072,637 | 7,418,410 | 7,574,070 | 7,572,239 | 7,571,239 | 7,568,839 | ||||||||||||||||||||||||||||||
Per share
|
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Net earnings per share:
|
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Basic
|
$ | 0.10 | $ | 2,01 | $ | 0.66 | $ | 1.05 | (1) | $ | 0.91 | $ | 0.84 | $ | 0.33 | $ | 0.19 | $ | 0.12 | $ | 0.39 | |||||||||||||||||||
Stockholders equity
|
$ | 8.29 | $ | 8.25 | $ | 6.68 | $ | 6.30 | $ | 5.25 | $ | 4.77 | $ | 4.36 | $ | 4.13 | $ | 4.03 | $ | 4.01 | ||||||||||||||||||||
Cash dividends per common
share |
$ | 0.06 | $ | 0.37 | $ | 0.27 | $ | 0.34 | $ | 0.32 | $ | 0.29 | $ | 0.10 | $ | 0.09 | $ | 0.11 | $ | 0.16 |
(1) | Includes an after tax gain of $866,474 ($.13 per share basic) related to a gain on the sale of assets. |