Item 1. Business
Friedman Industries, Incorporated (the “Company”), a Texas corporation incorporated in 1965, is a manufacturer and processor of steel products and operates in two reportable segments: coil products and tubular products. Significant financial information relating to the Company’s business segments for the last two years is contained in Note 9 of the Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020, which financial statements are incorporated herein by reference in Item 8 hereof.
Coil Products
The coil product segment consists of the operation of two hot-roll coil processing facilities; one in Hickman, Arkansas (“Hickman”) and the other in Decatur, Alabama (“Decatur”). At March 31, 2020, each facility operated a temper mill and a cut-to-length line. The temper mill improves the flatness and surface qualities of the coils and the cut-to-length line levels the steel and cuts the coils into sheet and plate of prescribed lengths. At that time, the facilities combined were capable of cutting sheet and plate with thicknesses ranging from 14 gauge to ½” thick in widths ranging from 36” wide to 72” wide. In June 2020, the temper mill and cut-to-length line at the Decatur facility were removed to allow the foundation to be prepared for a new stretcher leveler line that will be installed. Installation is expected to start in October 2020 and commercial use is expected to start in February 2021. The new equipment will expand the coil segment’s processing capabilities to include material up to 96” wide and material of higher grades and allows the Decatur facility to cut material that is up to ½” thick compared to the previous equipment’s capability of 5/16” thick. In addition, sheet and plate that has been stretcher leveled is preferable to some customers and applications compared to material that has been leveled through the temper mill process. The coil product segment sells its prime grade inventory under the Friedman Industries name but also maintains an inventory of non-standard coil products, consisting primarily of mill secondary and excess prime coils, which are sold through the Company’s XSCP division. The coil product segment also processes customer-owned coils on a fee basis.
The Hickman and Decatur facilities are substantially similar with respect to products produced. The Company makes shipments of coil products based on which facility offers the desired product or, if the product is available at both facilities, based on other factors, such as customer location, freight conditions and the ability of the facility to fulfill the order on a timely basis. Coil products are sold on a wholesale, rapid-delivery basis in competition with other processors of hot-rolled steel coils. Shipments are made via unaffiliated truckers or by rail.
The coil segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.
Tubular Products
The tubular product segment consists of the Company’s Texas Tubular Products division (“TTP”) located in Lone Star, Texas. TTP operates two electric resistance welded pipe mills with a combined outside diameter (“OD”) size range of 2 3/8” OD to 8 5/8” OD. Both pipe mills are American Petroleum Institute (“API”) licensed to manufacture line pipe and oil country pipe and also manufacture pipe for structural purposes that meets other recognized industry standards. TTP has an API licensed pipe finishing facility that threads and couples oil country tubular goods and performs other services that are customary in the pipe finishing process. TTP’s inventory consists of raw materials and finished goods. Raw material inventory consists of hot-rolled steel coils that TTP will manufacture into pipe. Finished goods inventory consists of pipe TTP has manufactured and new mill reject pipe that TTP purchases from U.S. Steel Tubular Products, Inc.
TTP purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.
Marketing
The following table sets forth the approximate percentage of total sales contributed by each group of products and services during each of the Company’s last two fiscal years:
Coil Products. The Company sells coil products and processing services to approximately 185 customers located primarily in the midwestern, southwestern and southeastern regions of the United States. The Company’s principal customers for these products and services are steel distributors and customers manufacturing steel products such as steel buildings, railroad cars, barges, tanks and containers, trailers, component parts and other fabricated steel products. During the fiscal years ended March 31, 2020 and 2019, sales of coil products to Trinity Industries, Inc. accounted for approximately 18% and 21% of the Company’s total sales, respectively.
The Company sells substantially all of its coil products through its own sales force. At March 31, 2020, the sales force was comprised of the Vice President of Sales - Coil Divisions and five professional sales personnel. Sales personnel are paid on a salary and commission basis.
Tubular Products. The Company sells its tubular products nationally to approximately 125 customers. The Company’s principal customers for these products are steel and pipe distributors. In fiscal years 2020 and 2019, no individual tubular customer accounted for 10% or more of the Company’s total sales.
The Company sells substantially all of its tubular products through its own sales force. At March 31, 2020, the sales force was comprised of the Vice President of Sales - Tubular Division and three professional sales personnel. Sales personnel are paid on a salary and commission basis.
Competition
The Company is engaged in a non-seasonal, highly-competitive business. The Company competes with other processors of hot-rolled steel coils, tubular manufacturers, steel distributors and brokers.
The Company believes that, generally, its ability to compete is dependent upon its ability to offer products at prices competitive with or below those of other steel suppliers, as well as its ability to provide products meeting customer specifications on a rapid-delivery basis.
Employees
At March 31, 2020, the Company had 103 full-time employees and no part-time employees.
Executive Officers of the Company
The following table sets forth as of March 31, 2020, for each executive officer of the Company, the name, age, officer positions and arrangements with other persons regarding his selection as an officer, if any, and the period during which such officer has served in such capacity:
Item 1A.
Item 1A. Risk Factors
Not required.
Item 1B.
Item 1B. Unresolved Staff Comments
Not required.
Item 2.
Item 2. Properties
The principal real properties of the Company are described in the following table:
(1)
All of the Company’s owned real properties, plants and offices are held in fee and are not subject to any mortgage or deed of trust.
(2)
The office lease is with a non-affiliated party, expires on April 30, 2021, and requires a monthly rental payment by the Company of $4,128.
Item 3.
Item 3. Legal Proceedings
The Company is not, and during fiscal year 2020 was not, a party to, nor is its property the subject of, any material pending legal proceedings.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s Common Stock is traded principally on the NYSE - American (Symbol: FRD).
Reference is hereby made to the sections of the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020, entitled “Description of Business - Range of High and Low Sales Prices of Common Stock” and “Description of Business - Cash Dividends Declared Per Share of Common Stock”, which sections are hereby incorporated herein by reference.
The approximate number of shareholders of record of Common Stock of the Company as of April 24, 2020 was 190. Because many of the Company’s common shares are held by brokers and other institutions on behalf of shareholders, the Company is unable to estimate the total number of individual shareholders represented by these record holders.
Item 6.
Item 6. Selected Financial Data
Not required.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Information with respect to Item 7 is hereby incorporated herein by reference from the section of the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 8.
Item 8. Financial Statements and Supplementary Data
The following financial statements and notes thereto of the Company included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020, are hereby incorporated herein by reference:
Consolidated Balance Sheets - March 31, 2020 and 2019
Consolidated Statements of Operations - Years ended March 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity - Years ended March 31, 2020 and 2019
Consolidated Statements of Cash Flows - Years ended March 31, 2020 and 2019
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Information with respect to supplementary financial information relating to the Company appears in Note 11 - Summary of Quarterly Results of Operations (Unaudited) of the Notes to Consolidated Financial Statements incorporated herein by reference above in this Item 8 from the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020.
The following supplementary schedule for the Company for the years ended March 31, 2020 and 2019, is included elsewhere in this report:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the U.S. Securities and Exchange Commission (the “SEC”) are not required under the related instructions or are inapplicable and, therefore, have been omitted.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Management’s report on internal control over financial reporting appears on page 21 of the Company’s Annual Report to Shareholders for the year ended March 31, 2020, which is incorporated herein by reference. This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Except as otherwise set forth below, information with respect to Item 10 is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
Information with respect to Item 10 regarding executive officers is hereby incorporated by reference from the information set forth under the caption “Executive Officers of the Company” in Item 1 of this Annual Report on Form 10-K.
The Company has adopted the Friedman Industries, Incorporated Code of Conduct and Ethics (the “Code”), which applies to the Company’s employees, directors and officers, including its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code is filed as an exhibit hereto.
Item 11.
Item 11. Executive Compensation
Information with respect to Item 11 is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The disclosure required pursuant to Item 201(d) of Regulation S-K is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
Additional information with respect to Item 12 regarding equity compensation plan information relating to the Company is hereby incorporated herein by reference from Note 2 - Equity Compensation Plans and Capital Stock included in the Notes to Consolidated Financial Statements of the Company included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020.
Security Ownership Information
The additional information with respect to Item 12 regarding the security ownership of certain beneficial owners and management, and related matters, is hereby incorporated herein by reference from the Company’s proxy statement in respect to the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
Item 13.
Item 13. Certain Relationships, Related Transactions and Director Independence
Information with respect to Item 13 is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
Item 14.
Item 14. Principal Accountant Fees and Services
Information with respect to Item 14 is hereby incorporated herein by reference from the Company’s proxy statement in respect of the 2020 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the SEC on or before 120 days after the end of the Company’s 2020 fiscal year.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) Documents included in this report
1. Financial Statements
The following financial statements and notes thereto of the Company are included in the Company’s Annual Report to Shareholders for the fiscal year ended March 31, 2020, which is incorporated herein by reference:
Consolidated Balance Sheets - March 31, 2020 and 2019
Consolidated Statements of Operations - Years ended March 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity - Years ended March 31, 2020 and 2019
Consolidated Statements of Cash Flows - Years ended March 31, 2020 and 2019
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
The following financial statement schedule of the Company is included in this report at page S-1:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits
**
Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Friedman Industries, Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Friedman Industries, Incorporated in the capacities and on the dates indicated.
Signature
Title
Date
/S/ MICHAEL J. TAYLOR
President and Chief Executive Officer and
June 29, 2020
Michael J. Taylor
Director (Principal Executive Officer)
/S/ ALEX LARUE
Chief Financial Officer - Secretary and
June 29, 2020
Alex LaRue
Treasurer (Principal Financial Officer
and Principal Accounting Officer)
/S/ DURGA D. AGRAWAL
Director
June 29, 2020
Durga D. Agrawal
/S/ MAX REICHENTHAL
Director
June 29, 2020
Max Reichenthal
/S/ JOEL SPIRA
Director
June 29, 2020
Joel Spira
/S/ TIM STEVENSON
Director
June 29, 2020
Tim Stevenson
/S/ JOE L. WILLIAMS
Director
June 29, 2020
Joe L. Williams
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FRIEDMAN INDUSTRIES, INCORPORATED
(A)
Allowance for doubtful accounts charged to bad debt expense of $53,239 and $15,673 during fiscal years 2020 and 2019, respectively. Cash discounts allowed on sales and charged against revenue of $624,413 and $750,059 during fiscal years 2020 and 2019, respectively.
(B)
Accounts receivable written off of $0 and $7,547 and cash discounts taken on sales of $624,413 and $750,059 during fiscal years 2020 and 2019, respectively.