Item 1. Business
Friedman Industries, Incorporated (the "Company"), a Texas corporation incorporated in 1965, is in the steel processing and distribution business. The Company has two product groups: coil processing (steel sheet and plate) and tubular products.
Significant financial information relating to the Company's product and service groups for the last three years is contained in Note 6 of the Company's Consolidated Financial Statements appearing on page 10 and 11 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1996, which is incorporated herein by reference elsewhere in this report.
Coil Processing
The Company purchases domestic and foreign hot-rolled steel coils, processes the coils into steel 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. The Company has coil processing plants located at Lone Star, Texas, Houston, Texas and Hickman, Arkansas. At each plant the steel coils are processed through a cut-to-length line which levels the steel and cuts it to prescribed lengths. At the Houston facility, the steel is passed through a 2-Hi rolling mill which, in a cold process, improves surface quality and imparts a higher degree of flatness. The Company's Lone Star facility operates a coil-to-coil, 2-Hi rolling mill, which is designed to uncoil material, pass the material through the rolling mill and recoil the material so that it may be stored in coil form. The Company's processing machinery is heavy, mill-type equipment capable of processing steel coils weighing up to 25 tons. Coils are processed to the specifications required for a particular order. Shipments are made via unaffiliated truckers or by rail and, in times of normal supply and market conditions, can generally be made within 48 hours of receipt of the customer's order.
At its Lone Star facility, the Company receives hot-rolled steel coils primarily from Lone Star Steel Company ("LSS"), which is located approximately four miles from the Company's plant. The Lone Star plant receives its supply of steel from LSS and other suppliers at competitive prices determined at the time of purchase. During fiscal 1996 and 1995, the Company received approximately 90% and 80%, respectively, of its tonnage for the Lone Star facility from LSS and was able to purchase sufficient tonnage at competitive prices from other suppliers to meet the requirements of this facility. Loss of LSS as a source of coil supply could have a material adverse effect on the Company's business.
At its Houston facility, the Company warehouses and processes hot-rolled steel coils, which are generally purchased on the open market at competitive prices from importers, trading companies and domestic steel mills. The Houston facility has primarily relied on domestic steel mills as a significant source of steel coils in recent years.
At the Company's Hickman facility, the Company warehouses and processes steel coils which are purchased primarily from Nucor Steel Company ("NSC"). NSC is located approximately one-half mile from the Hickman facility. Loss of NSC as a source of coil supply could have a material adverse effect on the Company's business.
At the Lone Star facility, the Company maintains three cut-to-length lines and a coil-to-coil 2-Hi rolling mill. This equipment is capable of processing steel up to 84 inches wide and up to one-half inch thick. At the Houston facility, the Company has a cut-to-length line and a rolling mill
that are capable of processing steel up to 90 inches wide and up to one-half inch thick. The Hickman facility operates a cut to length line which has 84 inch wide and one-half inch thick capacity.
Tubular Products
Through its Texas Tubular operation in Lone Star, Texas, the Company purchases, markets, processes (e.g., sorting, end-beveling, threading, etc.) and manufactures tubular products.
The Company processes its own tubular products and processes pipe on a fee basis for one major customer, LSS. Pipe processing equipment employed by this operation includes nine threading machines, six cutoff and beveling machines, pipe handling equipment and other related machinery. This machinery can process pipe up to 13-3/8 inches in outside diameter.
In May 1990, the Company purchased a pipe mill and related equipment, which was installed at the Company's Texas Tubular operation, and, in April 1991, began manufacturing pipe. The pipe mill is capable of producing pipe from 2-3/8 inches to 8-5/8 inches in outside diameter. In March 1992, the pipe mill was API-licensed to manufacture line and oil country pipe. The pipe mill also manufactures pipe for structural and piling purposes that meets recognized industry standards. The Company currently manufactures and sells substantially all of its line and oil country pipe to LSS pursuant to orders received from LSS, and in exchange therefor LSS sells to the Company pipe for structural applications for some sizes of pipe that are beyond the capability of the pipe mill.
In June 1990, the Company and LSS entered into an informal arrangement for the supply of pipe to the tubular operation. The Company can make no assurances, however, as to the amounts of pipe and steel coils that will be available from LSS in the future or amounts of tubular products that it will be able to process for LSS in the future. Loss of LSS as a source of supply or as a customer could have a material adverse effect on the Company's business. A summary of tubular operations is provided in Note 6 of the Company's Consolidated Financial Statements incorporated herein by reference.
Marketing
The following table sets forth the approximate percentage of total sales contributed by each group of steel products during each of the Company's last three fiscal years:
Coil Processing (Steel Sheet and Plate). The Company's products and processing services are sold to approximately 370 customers located primarily in the midwestern, southwestern and southeastern sections of the United States. The Company's coil processing 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. During each of the fiscal years ended March 31, 1996, 1995 and 1994, seven, four and four customers, respectively, accounted for approximately 25% of the Company's sales of these products. No sheet and plate customer accounted for as much as 10% of the Company's total sales during those years. Sales by the Company to any one industry did not exceed 40% of total sales in fiscal 1996.
The Company sells substantially all of its steel coil products through its own sales force. At March 31, 1996, the sales force consisted of a senior vice president of sales and marketing and six inside salesmen. The senior vice president of sales and marketing supervises the sales department and performs the duties of an inside salesman. The inside sales force handles mostly telephone orders from customers. Salesmen are paid on a salary and commission basis with the rate of commission depending upon the tonnage shipped to the salesman's customers in a particular month.
Shipments of particular products are made from the facility offering the product desired. If the product is available at more than one facility, other factors such as location of the customer, productive capacity of the facility and activity of the facility enter into the decision regarding shipments. The Company regularly contracts on a quarterly basis with many of its larger customers to supply minimum quantities of steel.
Tubular Products. Tubular products are sold nationally to approximately 280 customers. Sales of tubular products were made primarily to steel and pipe distributors, to piling contractors and to LSS. Sales of pipe to LSS accounted for approximately 14% of the Company's total sales in fiscal 1996.
The Company sells its tubular products through its own sales force, which includes three inside salesmen and one manager. Salesmen are paid on a salary and commission basis.
The Company processes its own tubular products and processes pipe for one major customer, LSS, on a fee basis.
Employees
At March 31, 1996, the Company had approximately 127 full-time employees of whom eight were executive officers, nine were salespersons, nine were administrative and clerical workers, 12 were supervisors and approximately 89 were skilled and semi-skilled operators. None of the Company's employees are represented by a union.
Competition
The Company is normally engaged in a non-seasonal, highly competitive business. The Company competes with steel mills, importers and steel service centers. The steel industry, in general, is characterized by a small number of extremely large companies dominating the bulk of the market and a large number of relatively small companies, such as the Company, competing for a limited share of such market. The large companies and many of the small companies possess resources substantially greater than those of the Company.
In the opinion of management, the competitive position of the Company in times of normal supply and market conditions is dependent upon its ability to offer steel products at prices competitive with or below those of other steel suppliers, as well as its ability to provide products to customer specifications on a rapid delivery basis.
Executive Officers of the Company
The following table sets forth the name, age, officer positions and family relations, if any, of each executive officer of the Company and period during which each officer has served in such capacity:
Dale Ray was elected a vice president in March 1994. Prior thereto, Mr. Ray was a plant manager at the Company's Lone Star facility for more than five years.
Item 2.

Item 2. Properties
The principal properties of the Company are described in the following table:
______________________
(1) All of the Company's owned real estate, plants and offices are held in fee and are not subject to any mortgage or deed of trust.
(2) The real estate lease is with LSS and its affiliate, Texas & Northern Railway, Inc., and expires August 31, 2010. The lease provides for monthly payments of $1,667 adjusted each January 1 for changes in the Consumer Price Index. The Company has an exclusive option to purchase this property during a 60-day period beginning May 1, 1998 for $214,238.
(3) The office lease is with a nonaffiliated party, expires April 30, 2001, and provides for an annual rental of $24,672.
All of the Company's facilities are in good condition and adequate for the Company's present operations.
Item 3.

Item 3. Legal Proceedings
The Company is not a party to, nor is its property the subject of, any material pending legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's Common Stock is traded principally on the American Stock Exchange (Symbol: FRD).
Reference is hereby made to the sections of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1996, entitled "Description of Business--Range of High and Low Sales Prices of Common Stock" and "Description of Business--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 May 24, 1996 was 800.
The Company intends to continue the payment of cash dividends although future dividends will depend on the Company's earnings, financial needs and other factors.
Item 6.

Item 6. Selected Financial Data
Information with respect to Item 6 is hereby incorporated herein by reference from the section of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1996, entitled "Selected Financial Data".
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, 1996, entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".
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, 1996, are hereby incorporated herein by reference:
Consolidated Balance Sheets--March 31, 1996 and 1995
Consolidated Statements of Earnings--Years ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows--Years ended March 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--March 31, 1996
Report of Independent Auditors
Information with respect to supplementary financial information relating to the Company appears in Note 7-- 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, 1996.
The following supplementary schedule for the Company for the year ended March 31, 1996, 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 Securities and Exchange Commission 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
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Information with respect to Item 10 is hereby incorporated herein by reference from the Company's proxy statement in respect of the 1996 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 1996 fiscal year.
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 1996 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 1996 fiscal year.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Item 12 is hereby incorporated herein by reference from the Company's proxy statement in respect of the 1996 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 1996 fiscal year.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information with respect to Item 13 is hereby incorporated herein by reference from the Company's proxy statement in respect of the 1996 Annual Meeting of Shareholders, definitive copies of which are expected to be filed with the Securities and Exchange Commission on or before 120 days after the end of the Company's 1996 fiscal year.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) -- The response to this portion of Item 14 appears elsewhere in this report as a separate section of this report.
(3) -- Exhibits
3(i)1 Articles of Incorporation of the Company, as amended, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1982, and hereby incorporated herein by reference.
3(i)2 Articles of Amendment to the Articles of Incorporation of the Company, as filed with the Texas Secretary of State on September 22, 1987, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1988, and hereby incorporated herein by reference.
3(ii) Bylaws of the Company, amended as of March 27, 1992, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1992, and incorporated herein by reference.
4.1 Promissory Note of the Company to Texas Commerce Bank National Association, dated December 1, 1993, in the amount of $4,000,000, filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1993, and hereby incorporated herein by reference.
4.2 Letter Agreement dated March 22, 1993, as amended by the First Amendment dated December 31, 1993, by and between the Company and Texas Commerce Bank National Association regarding a $5,000,000 revolving credit line, filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1993, and hereby incorporated herein by reference.
4.3 Amended and Restated Letter Agreement dated April 1, 1995, between the Company and Texas Commerce Bank National Association regarding an $8,000,000 revolving line of credit, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1995, and hereby incorporated herein by reference.
10.1 Lease Agreement between NCNB Texas National Bank, as Trustee, and the Company dated September 10, 1990, and Addendum No. 1 thereto dated November 11, 1991, filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended March 31, 1992, and incorporated herein by reference.
*10.2 1974 Stock Option Plan, as amended through March 24, 1982, as further amended on January 21, 1987 and February 25, 1988, filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1988, and hereby incorporated herein by reference.
10.3 Lease, effective September 1, 1990, by and between Lone Star Steel Company, Texas & Northern Railway, Inc., a Texas corporation, and the Company, filed as an exhibit to the Company's Current Report on Form 8-K dated August 1, 1990, and hereby incorporated herein by reference.
*10.4 Friedman Industries, Incorporated 1989 Incentive Stock Option Plan, filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, and hereby incorporated herein by reference.
10.5 Promissory Note of the Company to Texas Commerce Bank National Association, dated December 1, 1993, in the amount of $4,000,000 (included as Exhibit 4.1 hereto).
10.6 Letter Agreement dated March 22, 1993, as amended by the First Amendment dated December 31, 1993, by and between the Company and Texas Commerce Bank National Association regarding a $5,000,000 revolving credit line (included as Exhibit 4.2 hereto).
10.7 Amended and Restated Letter Agreement dated April 1, 1995, between the Company and Texas Commerce Bank National Association regarding an $8,000,000 revolving line of credit (included as Exhibit 4.3 hereto).
10.8 Lease Agreement between Judson Plaza, Inc. and the Company dated March 16, 1996, regarding the lease of office space.
13.1 The Company's Annual Report to Shareholders for the fiscal year ended March 31, 1996.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors. _______________ * Management contract or compensation plan.
Copies of exhibits filed as a part of this Annual Report on Form 10-K may be obtained by shareholders of record at a charge of $.10 per page. Direct inquiries to: Benny Harper, Senior Vice President - Finance, Friedman Industries, Incorporated, P. O. Box 21147, Houston, Texas 77226.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1996:
None
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, in the City of Houston, and State of Texas, this 21st day of June, 1996.
FRIEDMAN INDUSTRIES, INCORPORATED
By: /s/ Harold Friedman -------------------------------- Harold Friedman Vice Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated on behalf of Friedman Industries, Incorporated in the City of Houston, and State of Texas.
FRIEDMAN INDUSTRIES, INCORPORATED
HOUSTON, TEXAS
ANNUAL REPORT FORM 10-K
YEAR ENDED MARCH 31, 1996
ITEM 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K
ITEM 14(a)(1) and (2)
FRIEDMAN INDUSTRIES, INCORPORATED
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of the Company are set forth herewith in response to Item 14(a)(1) and (2) of this report.
Consolidated Balance Sheets--March 31, 1996 and 1995
Consolidated Statements of Earnings--Years ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity--Years end March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows--Years ended March 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--March 31, 1996
Report of Independent Auditors
The following financial statement schedule of the Company are included in this report.
S-1-Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and, therefore, have been omitted.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FRIEDMAN INDUSTRIES, INCORPORATED
- ---------------- (A) Accounts and notes receivable written off.
S-1 EXHIBIT INDEX