10-Q/A 1 h24381a2e10vqza.htm FRIEDMAN INDUSTRIES, INCORPORATED - SEPTEMBER 30, 2004 e10vqza
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 2

     
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
     
OR
     
[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FROM THE TRANSITION PERIOD FROM                                                TO                                                

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)
     
TEXAS
(State or other jurisdiction of
incorporation or organization)
  74-1504405
(I.R.S. Employer Identification
Number)

4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585
(Address of principal executive office) (zip code)
Registrant’s telephone number, including area code (713) 672-9433


Former name, former address and former fiscal year, if changed since last report

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

           
  Yes     X     No          

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

           
  Yes               No     X

     At September 30, 2004, the number of shares outstanding of the issuer’s only class of stock was 7,595,239 shares of Common Stock.



 


EXPLANATORY NOTE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED
Part II — OTHER INFORMATION
Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
Certification Pursuant to Section 302, signed by Jack Friedman
Certification Pursuant to Section 302, signed by Ben Harper
Certification Pursuant to Section 906, signed by Jack Friedman
Certification Pursuant to Section 906, signed by Ben Harper


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EXPLANATORY NOTE

     This quarterly report on Form 10-Q/A (“Form 10-Q/A”) is being filed to amend our quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the “Original Form 10-Q”) filed with the Securities and Exchange Commission (“SEC”) on November 15, 2004, as amended by Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) filed with the SEC on February 14, 2005. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Form 10-Q/A contains complete text of Item 1 of Part 1 and Item 6 of Part II as amended, as well as currently dated certifications.

      By letter dated April 13, 2005, the SEC’s Staff provided comments to the Company relating to Item 4.02 of the Company’s Form 8-K filed with the SEC on February 11, 2005. In response thereto, the Company has added Note F to the Condensed Notes to Quarterly Report Unaudited included herein in Item 1. Financial Statements.

      We have not updated the information contained herein for events occurring subsequent to November 15, 2004, the filing date of the Original Form 10-Q, except as previously modified in Amendment No. 1 to reflect the restatement of the Company’s consolidated financial statements for the three and six months ended September 30, 2004. We recommend that this report be read in conjunction with our reports filed subsequent to November 15, 2004.


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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FRIEDMAN INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

                       
          SEPTEMBER 30, 2004   MARCH 31, 2004
         
Unaudited
(Restated)
 
CURRENT ASSETS:
               
 
Cash and cash equivalents
  $ 7,099,433     $ 1,984,763  
 
Accounts receivable, net of allowances for bad debts and cash discounts of $37,276 and $44,776 at September 30, 2004 and March 31, 2004, respectively
    15,817,403       14,688,702  
 
Inventories
    19,933,110       21,043,992  
 
Other
    322,404       112,244  
 
   
     
 
     
TOTAL CURRENT ASSETS
    43,172,350       37,829,701  
PROPERTY, PLANT AND EQUIPMENT:
               
 
Land
    437,793       437,793  
 
Buildings and yard improvements
    4,088,149       4,088,149  
 
Machinery and equipment
    18,497,977       18,013,461  
 
Less accumulated depreciation
    (16,276,518 )     (15,846,288 )
 
   
     
 
 
    6,747,401       6,693,115  
OTHER ASSETS:
               
 
Cash value of officers’ life insurance
    528,590       1,302,613  
 
Deferred income taxes
    143,694       202,694  
 
   
     
 
     
TOTAL ASSETS
  $ 50,592,035     $ 46,028,123  
 
   
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
               
 
Accounts payable and accrued expenses
  $ 12,100,552     $ 10,204,653  
 
Current portion of long-term debt
    23,081       63,037  
 
Dividends payable
    607,759       151,500  
 
Income taxes payable
    223,714       1,134,433  
 
Contribution to profit sharing plan
    134,000       280,000  
 
Employee compensation and related expenses
    983,706       806,140  
 
Deferred credit for LIFO replacement
    157,520        
 
   
     
 
     
TOTAL CURRENT LIABILITIES
    14,230,332       12,639,763  
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    389,904       356,756  
STOCKHOLDERS’ EQUITY:
               
 
Common stock, par value $1:
               
   
Authorized shares — 10,000,000
               
   
Issued and outstanding shares — 7,595,239 and 7,575,239 at September 30, 2004 and March 31, 2004, respectively
    7,595,239       7,575,239  
 
Additional paid-in capital
    27,742,409       27,714,669  
 
Retained earnings(deficit)
    634,151     (2,258,304 )
 
   
     
 
     
TOTAL STOCKHOLDERS’ EQUITY
    35,971,799       33,031,604  
 
   
     
 
     
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 50,592,035     $ 46,028,123  
 
   
     
 

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FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED

                                     
      Three Months Ended
September 30,
  Six Months Ended
September 30,
 
     
 
 
      (Restated)
2004
  2003   (Restated)
2004
  2003  
     
 
 
 
 
Net sales
  $ 49,020,241     $ 25,410,689     $ 93,935,945     $ 50,614,859    
Costs and expenses
                                 
 
Costs of goods sold
  43,994,292     23,910,932     84,709,449     47,166,445    
 
General, selling and administrative costs
  1,506,856     1,045,949     3,159,337     2,280,044    
 
Interest
      14,374         23,106    
 
   
     
     
     
   
 
  45,501,148     24,971,255     87,868,786     49,469,595    
Interest and other income
  (51,120 )   (1,873 )   (61,083 )   (4,021 )  
 
   
     
     
     
   
Earnings before income taxes
  3,570,213     441,307     6,128,242     1,149,285    
Provision (benefit) for income taxes:
                               
 
Current
  1,274,080     159,045     2,189,280     408,758    
 
Deferred
  35,000     (9,000 )   59,000     (18,000 )  
 
   
     
     
     
   
 
  1,309,080     150,045     2,248,280     390,758    
 
   
     
     
     
   
Net earnings
  $ 2,261,133     $ 291,262     $ 3,879,962     $ 758,527    
 
   
     
     
     
   
Average number of common shares outstanding:
                               
 
Basic
  7,581,906     7,573,239     7,578,572     7,573,239    
 
Diluted
  7,785,196     7,632,571     7,756,424     7,615,163    
Net earnings per share:
                               
 
Basic
  $ 0.30     $ 0.04     $ 0.51     $ 0.10    
 
Diluted
  $ 0.29     $ 0.04     $ 0.50     $ 0.10    
Cash dividends declared per common share
  $ 0.08     $ 0.03     $ 0.13     $ 0.06    

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FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

                       
          Six Months Ended
September 30,
         
          (Restated)
2004
  2003
         
 
OPERATING ACTIVITIES
               
 
Net earnings
  $ 3,879,962     $ 758,527  
 
Adjustments to reconcile net income to cash provided by operating activities:
               
   
Depreciation
    441,600       465,000  
   
Provision for deferred taxes
    59,000       (18,000 )
   
Provision for postretirement benefits
    33,148        
 
Decrease (increase) in operating assets:
               
   
Accounts receivable
    (1,128,701 )     690,350  
   
Inventories
    1,110,882     1,650,910  
   
Other
    (210,160 )     (324,339 )
 
Increase (decrease) in operating liabilities:
               
   
Accounts payable and accrued expenses
    1,895,899       (4,075,317 )
   
Contribution to profit-sharing plan payable
    (146,000 )     (128,000 )
   
Employee compensation and related expenses
    177,566       (6,534 )
   
Federal income taxes payable
    (910,719 )     (251,242 )
   
Deferred credit for LIFO replacement
    157,520        
 
   
     
 
     
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
    5,359,997       (1,238,645 )
INVESTING ACTIVITIES
               
 
Purchase of property, plant and equipment
    (496,427 )     (277,850 )
 
(Increase) decrease in cash value of officers’ life insurance
    774,023     (6,919 )
Proceeds from sale of asset
    542      
 
   
     
 
     
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES
    278,138       (284,769 )
FINANCING ACTIVITIES
               
 
Cash dividends paid
    (531,249 )     (378,649 )
 
Principal payments on notes payable
    (39,956 )     (31,721 )
 
Increase in notes payable
          2,000,000  
 
Exercise of stock options
    47,740        
 
   
     
 
     
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES
    (523,465 )     1,589,630  
 
   
     
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    5,114,670     66,216  
 
Cash and cash equivalents at beginning of period
    1,984,763       673,127  
 
   
     
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 7,099,433     $ 739,343  
 
   
     
 

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FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED
SIX MONTHS ENDED SEPTEMBER 30, 2004

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited condensed, consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended March 31, 2004.

NOTE B — INVENTORIES

     Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of finished goods and tubular inventory consists of both raw materials and finished goods. Inventories are valued at the lower of cost or replacement market value. Cost for prime coil inventory is determined under the last-in, first-out (“LIFO”) method. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the weighted average method.

     During the quarter ended September 30,2004, LIFO inventories were reduced but are expected to be replaced by March 31, 2005. Accordingly, a deferred credit for LIFO replacement of $157,520 to reflect the expected cost of such replacement was recorded at September 30, 2004.

     A summary of inventory values follows:

                 
    September 30,   March 31,
    2004   2004
   
 
Prime Coil Inventory
  $ 7,661,637     $ 4,976,300  
Non-Standard Coil Inventory
    939,742       4,181,815  
Tubular Raw Material
    3,557,822       3,515,060  
Tubular Finished Goods
    7,773,909       8,370,817  
 
   
     
 
 
  $ 19,933,110     $ 21,043,992  
 
   
     
 

NOTE C — LONG-TERM DEBT

     The following summary reflects long-term debt including the current portion thereon:

                 
    September 30, 2004   March 31, 2004
   
 
Notes payable on equipment purchases
  $ 23,081     $ 63,037  

     The Company has a $6 million revolving credit facility which expires April 1, 2006. There were no amounts outstanding pursuant to the facility at September 30, 2004 or March 31, 2004.

NOTE D — STOCK BASED COMPENSATION

     The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), for its employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

     The following schedule reflects the impact on net income and earnings per common share if the Company had applied the fair value recognition provisions of Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock based employee compensation for each period indicated:

                                     
        Three Months Ended
September 30,

  Six Months Ended
September 30,

        (Restated)
2004

  2003
  (Restated)
2004

  2003
Reported net income
  $ 2,261,133     $ 291,262     $ 3,879,962     $ 758,527  
Less: compensation expenses per SFAS No. 123, net of tax
    .00       .00       .00       31,582  
 
   
     
     
     
 
Pro forma net income
  $ 2,261,133     $ 291,262     $ 3,879,962     $ 726,945  
 
   
     
     
     
 
BASIC EARNINGS PER COMMON SHARE:
                               
Reported net income
    .30       .04       .51       .10  
Less: compensation expense per SFAS No. 123, net of tax
    .00       .00       .00       .00  
 
   
     
     
     
 
Pro forma net income
    .30       .04       .51       .10  
 
   
     
     
     
 
DILUTED EARNINGS PER COMMON SHARE:
                               
Reported net income
    .29       .04       .50       .10  
Less: compensation expense per SFAS No. 123, net of tax
    .00       .00       .00       .00  
 
   
     
     
     
 
Pro forma net income
    .29       .04       .50       .10  
 
   
     
     
     
 

     During the six months ended September 30, 2004, options for 20,000 shares Common Stock were exercised which resulted in proceeds of $47,740 to the Company. In the 2004 period, no options were granted.

     The fair value of options was estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 3.0%, a dividend yield of 3.4%, volatility factor of the expected market price of the Company’s common stock of 0.42, and a weighted average expected life of the option of four years.

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NOTE E — SEGMENT INFORMATION

                                     
        Three Months Ended
September 30 

  Six Months Ended
September 30

        (Restated)
2004

  2003
  (Restated)
2004

  2003
Net sales
                               
 
Coil
  $ 28,157     $ 13,157     $ 54,693     $ 26,552  
 
Tubular
    20,863       12,254       39,243       24,063  
 
   
     
     
     
 
   
Total net sales
  $ 49,020     $ 25,411     $ 93,936     $ 50,615  
 
   
     
     
     
 
Operating profit
                               
 
Coil
  $ 1,849     $ 299     $ 3,224     $ 1,009  
 
Tubular
    2,564       660       4,874       1,429  
 
   
     
     
     
 
   
Total operating profit
    4,413       959       8,098       2,438  
 
Corporate expenses
    894       506       2,031       1,270  
 
Interest expense
          14             23  
 
Interest & other income
    (51 )     (2 )     (61 )     (4 )
 
   
     
     
     
 
   
Total earnings before taxes
  $ 3,570     $ 441     $ 6,128     $ 1,149  
 
   
     
     
     
 
                     
        September 30,
2004
  March 31,
2004
       
 
Segment assets
               
 
Coil
   $ 20,572      $  21,770  
 
Tubular
     22,112       20,624  
 
   
     
 
 
 
     42,684        42,394  
  Corporate assets      7,908       3,634  
 
   
     
 
   
 
     50,592       46,028  
 
   
     
 

     Segment amounts reflected above are stated in thousands. General corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, accrued profit sharing expense, corporate insurance expenses and office supplies. Corporate assets consists primarily of cash and cash equivalents and the cash value of officers’ life insurance.

NOTE F — RESTATEMENT:

      In connection with the Company’s review of its accrual for accounts payable at December 31, 2004, the Company discovered that it had over accrued accounts payable at September 30, 2004. The error occurred as the result of double booking a liability for materials received. During the quarter ended September 30, 2004, the Company received steel coils and recorded a liability for this purchase. Subsequently, these same coils were shipped to other companies for processing into slit coils or pipe. After processing, the Company received the material and incorrectly recorded a liability for the entire receipt instead of only the processing and shipping charges. Accordingly, our consolidated financial statements for the three and six months ended September 30, 2004 are being restated to correct the accrual for accounts payable.

      Set forth below are the originally reported and as restated amounts:

Balance Sheets

                     
        September 30, 2004
as Reported
  September 30, 2004
as Restated
       
 
Accounts payable and accrued expenses
   $ 12,592,548       $ 12,100,552   
Income Taxes payable
    78,685       223,714  
Employee compensation and related expenses
     918,270       983,706  
 
 
                 
  Retained earnings      352,620        634,151  
 
               

Income Statements
                                     
        Three Months Ended
September 30, 2004

    Six Months Ended
September 30, 2004

 
        as Reported

  as Restated

  as Reported

  as Restated
 
Costs of goods sold
   44,486,288    $  43,994,292      $   85,201,445      $  84,709,449     
 
General selling and administrative costs
    1,441,420     1,506,856       3,093,901       3,159,337    
Current income taxes
    1,129,051      1,274,080       2,044,251        2,189,280    
 Net earnings
    1,979,602      2,261,133       3,598,431        3,879,962    
Net earnings per share
                               
 
 Basic
0.26   0.30     $ 0.47     0.51    
 
Diluted
0.25   0.29     $ 0.46     0.50    

Statements of Cash Flows

                     
        Six Months Ended
September 30, 2004  
       
        as Reported   as Restated
       
 
                 
Net earnings
     3,598,431        3,879,962  
Accounts Payable and accrued expense
    2,387,895        1,895,899  
Employee compensation and restated expenses
    112,130       177,566  
 Federal income taxes payable
     (1,055,748 )      (910,719 )

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FRIEDMAN INDUSTRIES, INCORPORATED

Three Months Ended September 30, 2004

Part II — OTHER INFORMATION

Item 6. Exhibits

  31.1 — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
 
  31.2 — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
 
  32.1 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
 
  32.2 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  FRIEDMAN INDUSTRIES, INCORPORATED
Date April 19, 2005      
  By   /s/  BEN HARPER
     
  Ben Harper, Senior Vice President-Finance
  (Principal Financial and Accounting Officer)
       

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EXHIBIT INDEX

     
Exhibit No. Description


 
Exhibit 31.1
  — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Jack Friedman
 
Exhibit 31.2
  — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Ben Harper
 
Exhibit 32.1
  — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Jack Friedman
 
Exhibit 32.2
  — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Ben Harper