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FRIEDMAN INDUSTRIES, INCORPORATED

FINANCIAL HIGHLIGHTS


	2009		2008

Net sales		$208,779,750		$178,785,110
Net earnings		$13,673,406		$4,465,127
Net earnings per share (Basic)		$2.01		$0.66
Cash dividends per share		$0.37		$0.27
Stockholders’ equity		$56,114,352		$44,956,741
Working capital		$39,320,364		$34,638,228

TO OUR SHAREHOLDERS:

The Company experienced record sales and earnings for the year. In management’s opinion, the Company reaped the benefits of a strong oil and gas market during the year.

Currently, the Company is experiencing the full brunt of the severe economic downturn in the U.S. economy. The Company’s top management, with over 100 years of cumulative experience, continues to focus on the markets in its efforts to maintain assets and liabilities at levels commensurate with current operations.

You are invited to attend the Annual Meeting of Shareholders scheduled to start at 11 a.m. (central time) on Thursday, September 3, 2009, 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

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

DIRECTORS

Harold Friedman

Chairman of the Board;

former Vice Chairman of the Board

Houston, Texas

Jack Friedman

Chairman Emeritus; former

Chairman of the Board and

Chief Executive Officer

Houston, Texas

William E. Crow

Chief Executive Officer and

President

Longview, Texas

Durga D. Agrawal

President, Piping Technology & Products, Inc.
(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, Pozmantier Insurance Consulting
Services, LLC

(insurance and risk management consultants)

Houston, Texas

ANNUAL REPORT ON FORM 10-K

Shareholders may obtain without charge a copy of the Company’s Annual Report on Form 10-K for the year ended March 31, 2009 as filed with the Securities and Exchange Commission. Written requests should be addressed to: Benny B. Harper, Senior Vice President, Friedman Industries, Incorporated, P.O. Box 21147, Houston, Texas 77226.

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 Company’s business.

The Company sells its coil products and processing services directly through the Company’s own sales force to approximately 170 customers located primarily in the midwestern, southwestern and southeastern sections of the United States. These products and services are sold principally to steel distributors and to customers fabricating steel products such as storage tanks, steel buildings, farm machinery and equipment, construction equipment, transportation equipment, conveyors and other similar products.

The Company, through its Texas Tubular Products Division located in Lone Star, Texas, manufactures, purchases, processes and markets tubular products (“pipe”). The Company sells pipe nationally to approximately 180 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. Since February 2009, the Company has received few orders from USS and a significantly reduced supply of pipe and coils from USS. The Company expects these circumstances will continue until market conditions improve. 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 Company’s 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 Company’s tubular business. As a result, the Company downsized its TTP division to a level more commensurate with operations.

Significant financial information relating to the Company’s two product groups, coil and tubular products, is contained in Note 7 of Notes to the Company’s Consolidated Financial Statements appearing herein.

RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK


	Fiscal 2009						Fiscal 2008
	High			Low			High			Low

First Quarter	$	8	.10		$4	.86	$	10	.30	$	8	.68
Second Quarter		10	.32		6	.45		9	.76		7	.06
Third Quarter		7	.29		4	.25		9	.50		5	.87
Fourth Quarter		9	.90		3	.82		6	.43		4	.90

CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK


	Fiscal 2009			Fiscal 2008

First Quarter		$	.08		$	.08
Second Quarter			.12			.08
Third Quarter			.12			.06
Fourth Quarter			.05			.05

The Company’s Common Stock is traded principally on the American Stock Exchange (trading symbol FRD).

The approximate number of shareholders of record of the Company as of May 22, 2009 was 310.

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

ASSETS


	March 31
	2009			2008
CURRENT ASSETS:
Cash and cash equivalents	$	16,880,110		$	2,643,922
Accounts receivable, net of allowances for bad debts and cash discounts of $27,276 and $37,276 at March 31, 2009 and 2008, respectively		4,991,239			16,742,000
Inventories		19,402,701			29,900,327
Prepaid income taxes		1,299,796			—
Other		99,531			136,345

TOTAL CURRENT ASSETS		42,673,377			49,422,594
PROPERTY, PLANT AND EQUIPMENT:
Land		1,082,331			1,082,331
Construction in progress		—			8,706,172
Buildings and yard improvements		7,000,839			3,494,294
Machinery and equipment		29,080,476			21,879,259
Less accumulated depreciation		(20,152,959	)		(18,389,983	)

		17,010,687			16,772,073
OTHER ASSETS:
Cash value of officers’ life insurance and other assets		776,000			720,001
Deferred income taxes		—			43,724

TOTAL ASSETS	$	60,460,064		$	66,958,392

LIABILITIES AND STOCKHOLDERS’ EQUITY


	March 31
	2009			2008
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	2,662,209		$	13,499,314
Dividends payable		339,972			339,972
Current portion of long-term debt		54,028			54,028
Income taxes payable		—			70,069
Contribution to profit sharing plan		40,000			259,500
Employee compensation and related expenses		256,804			561,483

TOTAL CURRENT LIABILITIES		3,353,013			14,784,366
LONG-TERM DEBT, less current portion		13,507			6,667,536
DEFERRED INCOME TAXES		363,864			—
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS		615,328			549,749
STOCKHOLDERS’ EQUITY:
Common stock, par value $1:
Authorized shares — 10,000,000
Issued shares — 7,975,160 at March 31, 2009 and 2008, 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, 2009 and 2008, respectively)		(5,475,964	)		(5,475,964	)
Retained earnings		24,611,482			13,453,871

TOTAL STOCKHOLDERS’ EQUITY		56,114,352			44,956,741

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	60,460,064		$	66,958,392

See accompanying notes.

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS


	Year Ended March 31
	2009		2008

Net sales	$	208,779,750	$	178,785,110
Costs and expenses:
Cost of products sold		182,050,042		167,279,743
Selling, general and administrative		6,028,370		4,830,921
Interest expense		23,310		89,964

		188,101,722		172,200,628

		20,678,028		6,584,482
Interest and other income		144,777		201,365

EARNINGS BEFORE INCOME TAXES		20,822,805		6,785,847
Income taxes:
Current		6,741,811		2,366,378
Deferred		407,588		(45,658	)

		7,149,399		2,320,720

NET EARNINGS	$	13,673,406	$	4,465,127

Weighted average number of common shares outstanding:
Basic		6,799,444		6,733,942
Diluted		6,799,444		6,782,023
Net earnings per share:
Basic	$	2.01	$	.66
Diluted	$	2.01	$	.66

CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY


			Additional
	Common		Paid-In		Treasury			Retained
	Stock		Capital		Stock			Earnings

BALANCE AT MARCH 31, 2007	$	7,887,824	$	28,887,517	$	(5,475,964	)	$	10,810,621
Net earnings		—		—		—			4,465,127
Exercise of stock options		87,336		116,157		—			—
Cash dividends ($0.27)		—		—		—			(1,821,877	)

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

See accompanying notes.

FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended March 31
	2009			2008
OPERATING ACTIVITIES
Net earnings	$	13,673,406		$	4,465,127
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,762,976			1,138,418
Deferred taxes		407,588			(45,658	)
Change in post-retirement benefits other than pensions		65,579			56,558
Disposal of fixed assets		—			1,096
Changes in operating assets and liabilities:
Accounts receivable		11,750,761			519,553
Inventories		10,497,626			3,372,496
Prepaid federal income taxes		(1,299,796	)		—
Other assets		36,814			21,618
Accounts payable and accrued expenses		(10,837,105	)		(8,376,202	)
Contribution to profit sharing plan		(219,500	)		3,500
Employee compensation and related expenses		(304,679	)		10,127
Income taxes payable		(70,069	)		23,327

Net cash provided by operating activities		25,463,601			1,189,960
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,001,591	)		(4,439,051	)
Increase in cash value of officers’ life insurance		(55,999	)		(52,201	)

Net cash used in investing activities		(2,057,590	)		(4,491,252	)
FINANCING ACTIVITIES
Cash dividends paid		(2,515,794	)		(2,018,872	)
Proceeds from borrowings of long-term debt		—			10,762,084
Principal payments on long-term debt		(6,654,029	)		(4,040,521	)
Stock awards and options exercised		—			203,493

Net cash (used in) provided by financing activities		(9,169,823	)	$	4,906,184

Increase in cash and cash equivalents		14,236,188			1,604,892
Cash and cash equivalents at beginning of year		2,643,922			1,039,030

Cash and cash equivalents at end of year	$	16,880,110		$	2,643,922

See accompanying notes.

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 Company’s receivables are recorded when billed, advanced or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for doubtful accounts 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 Company’s internal collection efforts have been unsuccessful in collecting the amount due.

CASH AND CASH EQUIVALENTS: Cash and cash equivalents is composed of cash and 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, 2009 and March 31, 2008, replacement cost exceeded LIFO cost by approximately $5,300,000 and $7,000,000, respectively. In fiscal 2009, LIFO inventories were partially liquidated. Since the replacement cost and liquidation cost of material were approximately equal, no significant gain or loss from this liquidation was recorded in fiscal 2009. 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 Company’s review of inventories. Accordingly, no allowance has been provided for such items.

The following is a summary of inventory by product group:


	March 31
	2009		2008

Prime coil inventory	$	6,504,540	$	8,121,728
Non-standard coil inventory		141,097		918,334
Tubular raw material		1,783,130		7,444,805
Tubular finished goods		10,973,934		13,415,460

	$	19,402,701		29,900,327

FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are 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 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, 2009 or 2008.

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 interest of approximately $34,000 in 2009 and $79,000 in 2008. The Company paid income taxes, net of refunds, of $7,997,724 in 2009 and $2,584,731 in 2008.

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 Company’s 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.

STOCK-BASED COMPENSATION:

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company adopted the Prospective Method of SFAS 123(R) effective April 1, 2006. With the Prospective Method costs are recognized beginning with the effective date based on the requirements of SFAS 123(R) for (i) all share-based payments granted after the effective date of SFAS 123(R), and (ii) all awards granted to employees prior to

FRIEDMAN INDUSTRIES, INCORPORATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the effective date of SFAS 123(R) that remain unvested on the effective date. With the adoption of the Prospective Method on April 1, 2006, there was no impact on the financial statements as all of the options were vested as of April 1, 2006.

There were no options granted in fiscal 2009 and 2008.

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. Total sales to USS were approximately 30% and 17% of total Company sales in fiscal 2009 and 2008, respectively. Loss of USS as a customer could have a material adverse effect on the Company’s business. Other than USS, no customer accounted for 10% of total sales in the two years ended March 31, 2009, except Trinity Industries, Inc., a coil product customer, which accounted for approximately 11% of total sales in fiscal 2008.

In February 2009, USS idled its plant in Lone Star, Texas, due to weak market conditions. USS indicated that this idling is temporary. Since February 2009, the Company has received few orders from USS and a significantly reduced supply of pipe and coils from USS. The Company expects these conditions will continue until market conditions improve.

The Company’s sales are concentrated primarily in the midwestern, southwestern, and southeastern sections of the United States, and are primarily to customers in the steel distributing and fabricating industries. The Company performs periodic credit evaluations of the financial conditions of its customers and generally does not require collateral. Generally, receivables are due within 30 days.

NEW ACCOUNTING PRONOUNCEMENTS:

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 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. SFAS No. 157 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. SFAS No. 157 was effective for the Company beginning the first quarter of fiscal year 2009. For certain types of financial instruments, SFAS No. 157 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 SFAS No. 157 were applied prospectively beginning in the first quarter of fiscal year 2009. The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements in fiscal 2009.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”. This Interpretation 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 this Interpretation effective April 1, 2007. The adoption did not have a material impact on our consolidated financial statements.

2. STOCK OPTIONS AND CAPITAL STOCK

Under the Company’s 1989 and 1996 Stock Option Plans, options were granted to certain officers and key employees to purchase common stock of the Company. Pursuant to the terms of the plans, no further options may be granted. All options have ten-year terms and become fully exercisable at the end of six

FRIEDMAN INDUSTRIES, INCORPORATED

2. STOCK OPTIONS AND CAPITAL STOCK (Continued)

months of continued employment. The following is a summary of activity relative to options outstanding during the years ended March 31:


	2009				2008
			Weighted				Weighted
			Average				Average
			Exercise				Exercise
	Shares		Price		Shares		Price
Outstanding at beginning of year		—		—		88,836	$	2.33
Granted		—		—		—		—
Exercised		—		—		(87,336)	$	2.33
Canceled		—		—		(1,500)	$	2.33

Outstanding at end of year		—		—		—		—

Exercisable at end of year		—		—		—		—
Weighted average fair value of options granted during the 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 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, 2009 and March 31, 2008.

3. LONG-TERM DEBT AND COMMITMENTS AND CONTINGENCIES

Effective May 18, 2007, the Company renewed a credit arrangement with a bank which provides for a revolving line of credit facility (the “revolving facility”). Pursuant to the revolving facility which expires April 1, 2010, the Company may borrow up to $10 million at the bank’s prime rate or at 1.5% over LIBOR. The revolving facility requires that the Company maintain a tangible net worth as adjusted of $36,628,000, maintain a working capital ratio of 2 to 1 and maintain a debt to equity ratio of 1.1 to 1. At March 31, 2009, the Company maintained a tangible net worth of $56,114,000, a working capital ratio of 13 to 1 and a debt to equity ratio of .07 to 1. No collateral is 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. The Company does not pay a commitment fee relative to this facility.

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, 2009, respectively. The following is a schedule of future minimum annual rental payments required under these operating leases as of March 31, 2009:


2010	$	37,084
2011		30,084
2012		30,084
2013		30,084
2014		2,507

Total	$	129,843

Rental expenses for leased properties were $46,649 and $44,064 during fiscal 2009 and 2008, respectively.

FRIEDMAN INDUSTRIES, INCORPORATED

4. EARNINGS PER SHARE

Basic and dilutive net earnings per share is computed based on the following information:


	Year Ended March 31
	2009		2008

Basic
Net earnings	$	13,673,406	$	4,465,127

Weighted average common shares		6,799,444		6,733,942

Dilutive
Net earnings	$	13,673,406		4,465,127

Weighted average common shares		6,799,444		6,733,942
Common share equivalents:
Options		—		48,081

Total common share equivalents		—		48,081

Weighted average common shares and common share equivalents		6,799,444		6,782,023

5. INCOME TAXES

Components of tax expense (benefit) are as follows:


	Year Ended March 31
	2009		2008

Federal
Current	$	6,015,135	$	2,140,327
Deferred		407,588		(45,658	)

		6,422,723		2,094,669
State
Current		726,676		226,051

		726,676		226,051

Total	$	7,149,399	$	2,320,720

The U.S. federal statutory income tax is reconciled to the effective rate as follows:


	Year Ended March 31
	2009			2008

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		2.3			2.2

Provision for income taxes		34.3	%		34.2	%

The Company’s tax returns may be subject to examination by the Internal Revenue Service for the fiscal years ending March 31, 2006 through March 31, 2008. State and local returns may subject to examination for fiscal years ended March 31, 2006 through March 31, 2008.

FRIEDMAN INDUSTRIES, INCORPORATED

5. INCOME TAXES (Continued)

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 Company’s consolidated deferred tax assets (liabilities) are as follows:


	March 31
	2009			2008

Deferred tax liabilities:
Depreciation	$	(1,623,343	)	$	(1,125,365	)

Total deferred tax liabilities		(1,623,343	)		(1,125,365	)
Deferred tax assets:
Inventory capitalization		98,679			85,715
LIFO Inventory		885,296			834,314
Postretirement benefits other than pensions		209,212			186,915
Other		66,292			62,145

Total deferred tax assets		1,259,479			1,169,089

Net deferred tax (liability) asset	$	(363,864	)	$	43,724

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. Company 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 $223,000 for the year ended March 31, 2009, and $255,000 for the year ended March 31, 2008. 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 $56,000 and $44,000 for the years ended March 31, 2009 and 2008, 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

FRIEDMAN INDUSTRIES, INCORPORATED

7. INDUSTRY SEGMENT DATA (Continued)

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
	2009			2008

NET SALES:
Coil	$	73,243,704		$	83,088,686
Tubular		135,536,046			95,696,424

TOTAL NET SALES	$	208,779,750		$	178,785,110

OPERATING PROFIT:
Coil	$	482,938		$	2,782,079
Tubular		23,118,512			6,284,240

TOTAL OPERATING PROFIT		23,601,450			9,066,319
General corporate expenses		(2,900,112	)		(2,391,873	)
Interest expense		(23,310	)		(89,964	)
Interest and other income		144,777			201,365

TOTAL EARNINGS BEFORE INCOME TAXES	$	20,822,805		$	6,785,847

IDENTIFIABLE ASSETS:
Coil	$	22,791,442		$	29,469,277
Tubular		18,702,930			34,040,679

		41,494,372			63,509,956
General corporate assets		18,965,692			3,448,436

TOTAL ASSETS	$	60,460,064		$	66,958,392

DEPRECIATION:
Coil	$	1,103,046		$	573,629
Tubular		628,966			533,825
Corporate and other		30,964			30,964

	$	1,762,976		$	1,138,418

CAPITAL EXPENDITURES:
Coil	$	1,639,585		$	3,862,434
Tubular		362,006			576,617

	$	2,001,591		$	4,439,051

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.

FRIEDMAN INDUSTRIES, INCORPORATED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Friedman Industries, Incorporated

Houston, Texas

We have audited the consolidated balance sheets of Friedman Industries, Incorporated (the “Company”) as of March 31, 2009 and 2008, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2009. 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 Company’s 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, 2009 and 2008, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2009, 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 management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of March 31, 2009 included in the accompanying management’s report on internal control over financial reporting and, accordingly, we do not express an opinion thereon.

/s/ Hein & Associates LLP

Houston, Texas

June 26, 2009

FRIEDMAN INDUSTRIES, INCORPORATED

MANAGEMENT’S 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, 2009, our internal control over financial reporting is effective based on that criteria.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s 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 management’s report in this annual report.

FRIEDMAN INDUSTRIES, INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

RESULTS OF OPERATIONS

Year ended March 31, 2009 compared to March 31, 2008

During the year ended March 31, 2009, sales, costs of goods sold and gross profit increased $29,994,640, $14,770,299 and $15,224,341, respectively, from the comparable amounts recorded during the year ended March 31, 2008. The increase in sales was related primarily to an increase in average selling prices. The average per ton selling price increased from approximately $629 per ton in fiscal 2008 to approximately $924 per ton in fiscal 2009. Total tons shipped declined from approximately 284,000 tons in fiscal 2008 to 226,000 tons in fiscal 2009. The increase in costs of goods sold was primarily related to an increase in the average per ton cost of goods which increased from approximately $588 per ton in fiscal 2008 to $806 per ton in fiscal 2009. The increase in gross profit in the 2009 period was related to substantially improved margins earned on pipe sales. Gross profit as a percentage of sales increased from approximately 6.4% in fiscal 2008 to 12.8% in fiscal 2009. During most of fiscal 2009, the Company experienced strong demand for its pipe products and margins improved significantly. In addition, the Company benefited from lower cost tubular inventories sold at substantially improved selling prices.

Coil product segment sales decreased $9,844,982 during fiscal 2009. An increase in the average per ton selling price was more than offset by a reduction in tons sold. The average per ton selling price increased from approximately $654 per ton in fiscal 2008 to $915 per ton in fiscal 2009. However, tons sold declined from approximately 127,000 tons in fiscal 2008 to approximately 80,000 tons in fiscal 2009. In fiscal 2009, the coil segment of the Company recorded an operating profit of approximately $483,000 compared to an operating profit of approximately $2,782,000 in fiscal 2008. Coil products are used primarily in durable goods and demand for such products was depressed in fiscal 2009. In addition, the Company incurred a significant increase in cost of coil products during fiscal 2009. Average per ton cost increased from approximately $621 per ton in fiscal 2008 to $886 per ton in fiscal 2009. The Company was unable to pass all of this increased cost to its customers in fiscal 2009. The Company believes that market conditions for coil products will remain soft until the U.S. economy improves and generates improved demand for durable goods.

In August 2008, the Company began operating its new coil facility located in Decatur, Alabama. This operation produced an operating loss of approximately $1,020,000 during fiscal 2009. 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. NSC continues to supply the Company with steel coils in amounts that are 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 $39,839,622 during fiscal 2009. This increase primarily resulted from an increase in average selling prices. The average selling price per ton increased from approximately $609 per ton in fiscal 2008 to $930 per ton in fiscal 2009. The Company sold approximately 157,000 tons of pipe in fiscal 2008 compared to approximately 146,000 tons in fiscal 2009. Tubular product segment operating profits as a percentage of segment sales improved from 6.6% in fiscal 2008 to 17.1% in fiscal 2009. The Company experienced strong market conditions for its pipe products during most of fiscal 2009 and margins improved significantly. In addition, the Company benefited from lower cost tubular inventories sold at substantially improved selling prices during fiscal 2009.

In the four months ended March 31, 2009, the Company experienced a significant decline in average selling prices for finished tubular products. As a result, the Company experienced a “lower of cost or market” issue regarding the value of finished tubular products inventories. Accordingly, the Company recorded an adjustment of approximately $4,160,000 to reduce the inventory value of finished tubular

FRIEDMAN INDUSTRIES, INCORPORATED

products in fiscal 2009. This adjustment had the effect of increasing the cost of tubular products sold and reducing earnings before income taxes by $4,160,000 in fiscal 2009. The Company believes that the decline in average selling prices is related to a lack of demand for tubular products due to a weak U.S. economy.

In recent years, U.S. Steel Tubular Products, Inc. (“USS”), an affiliate of United States Steel Corporation, has been the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and is a major customer of finished tubular products. Certain finished tubular products are used in the energy business and are manufactured by the Company and sold to USS. Beginning in December 2008, USS reduced orders for these finished tubular products. Also, in February 2009, USS announced that it was temporarily idling its plant in Lone Star, Texas, due to weak market conditions. Since February 2009, the Company has received few orders from USS and a significantly reduced supply of pipe and coil material from USS. The Company believes that reduced orders for 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 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.

During fiscal 2009, general, selling and administrative costs increased $1,197,449 from the amount recorded during fiscal 2008. This increase was related primarily to increases in commissions and bonuses associated with the increase in earnings.

Income taxes increased $4,828,679 from the comparable amount recorded during fiscal 2008. This increase was primarily related to the increase in earnings before taxes. Effective tax rates were 34.3% and 34.2% in fiscal 2009 and 2008, respectively.

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

The Company remained in a strong, liquid position at March 31, 2009. Current ratios were 12.7 and 3.3 at March 31, 2009 and March 31, 2008, respectively. Working capital was $39,320,364 at March 31, 2009 and $34,638,228 at March 31, 2008.

During the year ended March 31, 2009, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts primarily occurred in the ordinary course of business. Cash increased primarily as a result of an increase in net earnings and decreases in accounts receivable and inventories. Accounts receivable declined due to a substantial decrease in sales in March 2009. Management reduced inventories to a level more commensurate with sales which had the effect of reducing accounts payable. 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 year ended March 31, 2009, the Company purchased approximately $2,000,000 in fixed assets. These assets were related primarily to buildings and equipment associated with the new coil operation located in Decatur, Alabama, which began operations in August 2008. The Decatur processing facility operates a steel temper mill and a cut-to-length line, including a leveling line. The Company invested approximately $11,500,000 in fixed assets at the Decatur facility.

The Company has a credit arrangement with a bank which provides for a revolving line of credit facility (the “revolving facility”). Pursuant to the revolving facility, which expires April 1, 2010, the Company may borrow up to $10 million at an interest rate of the bank’s prime rate or 1.5% over LIBOR. The revolving facility requires that the Company maintain a tangible net worth as adjusted of $36,628,000, maintain a working capital ratio of 2 to 1 and maintain a debt to equity ratio of 1.1 to 1. At March 31, 2009, the Company maintained a tangible net worth of $56,114,000, a working capital ratio of 13 to 1 and a debt to equity ratio of .07 to 1. No collateral is required pursuant to the revolving facility. The Company uses the

FRIEDMAN INDUSTRIES, INCORPORATED

revolving facility to support cash flows and borrows and repays funds as working capital is 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, 2009.

Historically, the Company has renewed the revolving facility approximately one year before its expiration date. As a result of the current lending environment, the Company may not be able to amend or extend the revolving facility or enter into a new credit arrangement on terms as favorable to the Company as the current revolving facility. As a result, the Company has chosen not to renew its revolving facility at the present time.

The Company has in the past and may in the future borrow funds on a term basis to build or improve facilities. The Company currently has no plans to borrow 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 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 Company’s quarterly reporting. The Company’s quarterly valuation of inventory requires estimates of the year end quantities, which is inherently difficult. Historically, these estimates have been materially correct.

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company’s filings with the Securities and Exchange Commission under the Securities Act of 1933 and the Securities Exchange Act of 1934. Actual results and trends in the future may differ materially depending on a variety of factors, including but not limited to, changes in the demand and prices for the Company’s products, changes in the demand for steel and steel products in general, and the Company’s success in executing its internal operating plans, including any proposed expansion plans.

FRIEDMAN INDUSTRIES, INCORPORATED

TEN YEAR FINANCIAL SUMMARY


	Year Ended March 31
	2009		2008		2007			2006		2005		2004		2003		2002		2001		2000

Net sales	$	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	$	120,267,809
Net earnings	$	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	$	2,506,801
Current assets	$	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	$	36,945,378
Current liabilities	$	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	$	8,377,279
Working capital	$	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	$	28,568,099
Total assets	$	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	$	45,106,790
Stockholders’ equity	$	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	$	28,622,951
Net earnings as a percent of
Net sales		6.5		2.5		3.5			3.5		3.3		2.2		1.3		1.0		2.4		2.1
Stockholders’ equity		24.4		9.9		16.7			17.4		17.7		7.7		4.6		3.1		9.6		8.8
Weighted average number of common shares outstanding: Basic(2)		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		7,547,624
Per share
Net earnings per share:
Basic	$	2,01	$	0.66	$	1.05	(1)	$	0.91	$	0.84	$	0.33	$	0.19	$	0.12	$	0.39	$	0.33
Stockholders’ equity(2)	$	8.25	$	6.68	$	6.30		$	5.25	$	4.77	$	4.36	$	4.13	$	4.03	$	4.01	$	3.79
Cash dividends per common share	$	0.37	$	0.27	$	0.34		$	0.32	$	0.29	$	0.10	$	0.09	$	0.11	$	0.16	$	0.18
Stock dividend declared		—		—		—			—		—		—		—		—		—		5%


(1)	Includes an after tax gain of $866,474 ($.13 per share basic) related to a gain on the sale of assets.

(2)	Adjusted for stock dividends.


	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	)


	Quarter Ended
	June 30,		September 30,		December 31,		March 31,
	2007		2007		2007		2008

Net sales	$	50,530,510	$	41,154,571	$	38,062,240	$	49,037,789
Gross profit		3,769,618		2,432,362		1,969,812		3,333,575
Net earnings		1,552,451		920,886		660,207		1,331,583
Basic		.23		.14		.10		.20
Diluted		.23		.14		.10		.20