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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED

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

     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.

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

     At September 30, 2003, the number of shares outstanding of the issuer’s only class of stock was 7,573,239 shares of Common Stock.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS — UNAUDITED

ASSETS

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FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS — UNAUDITED

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FRIEDMAN INDUSTRIES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

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FRIEDMAN INDUSTRIES, INCORPORATED

NOTES TO QUARTERLY REPORT — UNAUDITED
THREE MONTHS ENDED SEPTEMBER 30, 2003

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, 2003.

NOTE B — INVENTORIES

     Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory (“prime 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 inventory is determined under the last-in, first-out (“LIFO”) method. Cost for tubular inventory is determined using the weighted average method. Cost for non-standard inventory is determined using the specific identification method.

NOTE C — NEW ACCOUNTING PRONOUNCEMENT

     In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”). FIN 46 requires that unconsolidated variable interest entities must be consolidated by their primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entity’s expected losses or residual benefits. FIN 46 applies immediately to variable interest entities created after January 31, 2003. On October 9, 2003, the FASB issued staff position 46-6 and deferred the application of FIN 46 to variable interest entities existing prior to February 1, 2003. No variable interest entities have been created after January 31, 2003. Management is currently evaluating the effect of variable interest entities, if any, created prior to January 31, 2003.

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 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.

     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 the three and six months ended September 30:

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     NOTE E — SEGMENT INFORMATION — UNAUDITED

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     Six Months Ended September 30, 2003 Compared To Six Months Ended September 30, 2002

     During the six months ended September 30, 2003, sales and costs of goods sold decreased $2,722,488 and $2,896,257, respectively, while gross profit increased $173,769 from the comparable amounts recorded during the six months ended September 30, 2002. During the 2003 period, a decrease of $3,853,330 in sales of coil products was partially offset by an increase of $1,130,842 in sales of tubular products. The resulting $2,722,488 decrease in sales was related primarily to an 11% decrease in total tons sold that was partially offset by a 6% increase in the average selling prices per ton. Gross profit was affected adversely by the decrease in sales noted above but benefited from improved margins. Gross profit as a percentage of sales increased from 6.1% to 6.8%, period to period.

     Interest expense decreased $19,442 from the amount recorded during the 2002 period. This decrease was related to decreased average debt and lower interest rates during the 2003 period.

     Interest and other income decreased $36,238 from the 2002 period as a result of a decrease in average invested cash positions and lower interest rates paid on such positions.

     Three Months Ended September 30, 2003 Compared To Three Months Ended September 30, 2002

     During the quarter ended September 30, 2003, sales, costs of good sold and gross profit decreased $2,365,360, $2,058,990 and $306,370, respectively, from the comparable amounts recorded during the quarter ended September 30, 2002. These decreases were related primarily to the Company’s coil operations which experienced an approximate 17% decrease in tons sold during the 2003 quarter. This decrease in tons sold was related primarily to the Company’s Lone Star, Texas coil operations that were adversely impacted by a reduction in steel coils received from this location’s primary coil supplier. Continued lack of supply of steel coils at this location could have an adverse impact on the Company’s coil operations. Gross profits as a percentage of sales were approximately 6.5% and 5.9% during the 2002 and 2003 quarters, respectively.

     Federal income taxes decreased $91,581 from the comparable amount recorded during the 2002 quarter. This decrease was primarily related to the decrease in earnings before taxes as the effective tax rates were the same for both quarters.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

     The Company remained in a strong, liquid position at September 30, 2003. Current ratios were 4.9 and 3.2 at September 30, 2003 and March 31, 2003, respectively. Working capital was $26,168,711 at September 30, 2003 and $23,734,112 at March 31, 2003. During the six months ended September 30, 2003, the Company maintained assets and liabilities at levels it believed were commensurate with operations. During the six months ended September 30, 2003, the Company paid down accounts payable by using the cash flow generated from reducing inventories and borrowing funds pursuant to the revolving facility described below. The Company expects to continue to monitor and evaluate these balance sheet components depending on changes in market conditions and the Company's operations.

     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, 2006, the Company may borrow up to $6 million at an interest rate no greater than the bank's prime rate. At September 30, 2003, the Company had borrowings of $2,000,000 outstanding under the revolving facility.

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     Notwithstanding the current market conditions, the Company believes its cash flows from operations and borrowing capability under its revolving facility are adequate to fund its expected cash requirements for the next twenty-four months.

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. In addition, the Company maintains an allowance for doubtful accounts receivable by providing for specifically identified accounts where collectibility is doubtful and a general allowance based on the aging of the receivables compared to past experience and current trends. On an on-going basis, the Company evaluates estimates and judgements. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances.

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 and product quality. 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 of the Company products, changes in the demand for steel and steel products in general, and the Company’s success in executing its internal operating plans.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not material

Item 4. Controls and Procedures

      The Company's management, with the participation of the Company's principal executive officer (CEO) and principal financial officer (CFO), 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 fiscal quarter ended September 30, 2003. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended September 30, 2003 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 recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

      There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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FRIEDMAN INDUSTRIES, INCORPORATED

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

      Not applicable

Item 2. Changes in securities and use of proceeds

	a). Not applicable
	b). Not applicable
	c). Not applicable
	d). Not applicable

Item 3. Defaults upon senior securities

	a). Not applicable
	b). Not applicable

Item 4. Submission of matters to a vote of security holders

     At the Annual Meeting of Shareholders held on September 10, 2003, the Company’s shareholders elected eight directors to the Company’s Board of Directors. The number of shares voted for and withheld with respect to the election of each director was as follows:

Item 5. Other Information

      Not applicable

Item 6. Exhibits and Reports on Form 8-K

	a). 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

	b). Reports on Form 8-K

	None

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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 November 14, 2003
	By		/s/  BEN HARPER
	Ben Harper, Senior Vice President-Finance
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX