EXHIBIT 13.1

 

THE COMPANY’S ANNUAL

REPORT TO SHAREHOLDERS FOR

THE FISCAL YEAR ENDED MARCH 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

ANNUAL REPORT

 

 

FINANCIAL HIGHLIGHTS
			2018				2017
	Net sales		$	121,157,278			$	77,756,055
	Net earnings (loss)		$	2,759,404			$	(2,678,684	)
	Net earnings (loss) per share (Basic)		$	0.39			$	(0.39	)
	Cash dividends per share		$	0.05			$	0.04
	Stockholders’ equity		$	63,054,315			$	60,356,425
	Working capital		$	48,948,669			$	43,076,246

 

 

TO OUR SHAREHOLDERS:

 

Having survived one of the most severe downturns in the energy markets in recent years, the Company emerged from a challenging year in fiscal 2017 and rebounded to produce earnings of $2,759,404 on sales of $121,157,278 for fiscal year 2018. This compares to fiscal year 2017 which produced sales of $77,756,055 and a net loss of $2,678,684.

 

The Company’s coil segment experienced increased demand for its products throughout fiscal 2018 with a more notable increase during the fourth quarter driven by reactions to the Section 232 steel trade actions. Coil segment sales volume increased 19% in fiscal 2018 compared to fiscal 2017 and the segment’s operating results improved from an operating loss of $770,091 for fiscal 2017 to an operating profit of $4,026,329 for fiscal 2018.

 

The Company’s tubular segment experienced significant demand improvements during fiscal 2018 driven by sustained recovery of the U.S. energy industry and reactions to the Section 232 steel trade actions. The tubular segment was able to participate in the improved energy market through the completion of our pipe-finishing facility and entry into the API line pipe business during fiscal 2018. Tubular segment sales volume increased 98% in fiscal 2018 compared to fiscal 2017 and the segment’s operating results improved from an operating loss of $1,438,088 for fiscal 2017 to an operating profit of $2,024,035 for fiscal 2018.

 

The Company’s strong working capital position along with management’s focus on managing operational requirements in changing market conditions should allow the Company to thrive if the market remains healthy.

 

You are invited to attend the Annual Meeting of Shareholders scheduled to start at 10:00 a.m. (Central Time) on Thursday, August 30, 2018, in the offices of Norton Rose Fulbright US LLP, 1301 McKinney, 51^st Floor, Houston, Texas 77010.

 

Sincerely,

 

Robert Sparkman

President and Chief Executive Officer

 

 

OFFICERS

 

Robert Sparkman

President and Chief Executive Officer

 

Howard Henderson

Vice President of Operations — Texas Tubular Division

 

Jonathan Holcomb

Vice President of Sales — Coil Divisions

 

Alex LaRue

Chief Financial Officer — Secretary and Treasurer

 

Robert McCain

Vice President — Decatur Facility

 

Dale Ray

Vice President

 

Steve Teeter

Vice President — Hickman Facility

 

Michael Thompson 

Vice President of Sales — Tubular Division

 

Charles W. Hall

Assistant Secretary

 

COMPANY OFFICES AND WEB SITES

 

    CORPORATE OFFICE & COIL PRODUCTS SALES OFFICE

    1121 Judson Road, Suite 124

    Longview, Texas 75601

    903-758-3431

 

    TUBULAR PRODUCTS SALES OFFICE

    3681 FM 250

    Lone Star, Texas 75668

    903-639-2511

 

    WEB SITES

    www.friedmanindustries.com

    www.texastubular.com 

 

COUNSEL

Norton Rose Fulbright US LLP

1301 McKinney, Suite 5100

Houston, Texas 77010

 

AUDITORS

Moss Adams LLP

500 Dallas Street, Suite 2500

Houston, TX 77002

 

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

 

 

DIRECTORS 

 

Durga D. Agrawal

President, Piping Technology & Products, Inc. (pipe fabrication)

Houston, Texas

 

Charles W. Hall

Norton Rose Fulbright US LLP (law firm)

Houston, Texas

 

Max Reichenthal

President, Texas Iron and Metal (steel product sales)

Houston, Texas

 

Robert Sparkman

President and Chief Executive Officer of the Company

Longview, Texas

 

Joel Spira

Private investor; formerly, Partner, Weinstein Spira & Company (accounting firm)

Houston, Texas

 

Mike Taylor, Chairman of the Board

Retired; formerly, President, Cargill Metals Supply Chain (steel processing and distribution)

Houston, Texas 

 

Joe L. Williams

Partner, PozmantierWilliams Insurance Consultants, 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, 2018 as filed with the U.S. Securities and Exchange Commission. Written requests should be addressed to: Alex LaRue, Chief Financial Officer — Secretary and Treasurer, Friedman Industries, Incorporated, P.O. Box 2192, Longview, Texas 75606.

 

 

DESCRIPTION OF BUSINESS

 

Friedman Industries, Incorporated (the “Company”) is a manufacturer and processor of steel products and operates in two product segments: coil products and tubular products.

 

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”). Each facility operates 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. Combined, the facilities are capable of cutting sheet and plate with thicknesses ranging from 14 gauge to ½” thick. 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 machinery, equipment and 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 product 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.

 

The Company sells coil products and processing services to approximately 165 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.

 

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 a pipe finishing facility that threads and couples oil country tubular goods and performs other services that are customary in the pipe finishing process. The pipe finishing facility is API licensed and focuses on threading semi-premium connections. 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.

 

The Company sells its tubular products nationally to approximately 125 customers. The Company’s principal customers for these products are steel and pipe distributors.

 

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.

 

Significant financial information relating to the Company’s two product groups, coil and tubular products, is contained in Note 8 of the Notes to the Company’s Consolidated Financial Statements appearing herein.

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RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK

 

		Fiscal 2018								Fiscal 2017
		High				Low				High				Low
First Quarter		$	6.80			$	5.05			$	6.24			$	5.33
Second Quarter			6.15				5.18				5.93				5.22
Third Quarter			6.22				5.15				6.78				4.99
Fourth Quarter			6.79				5.24				7.27				6.11

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CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

 

		Fiscal 2018				Fiscal 2017
First Quarter		$	.01			$	.01
Second Quarter			.01				.01
Third Quarter			.01				.01
Fourth Quarter			.02				.01

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

 

The approximate number of shareholders of record of Common Stock of the Company as of May 25, 2018 was 205. 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. 

 

 

CONSOLIDATED BALANCE SHEETS

 

ASSETS

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY  

 

See accompanying notes.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

 

See accompanying notes.

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

 

See accompanying notes.

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and the Board of Directors of

Friedman Industries, Incorporated

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Friedman Industries, Incorporated and subsidiary (the “Company”) as of March 31, 2018, the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2018, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/S/ Moss Adams LLP

 

Houston, Texas

June 28, 2018

 

We have served as the Company’s auditor since November 2017.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

Friedman Industries, Incorporated

 

We have audited the accompanying consolidated balance sheet of Friedman Industries, Incorporated and its subsidiary (collectively, the “Company”) as of March 31, 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. Our audit also included the financial statement schedule of Friedman Industries, Incorporated listed in Item 15(a) for the year ended March 31, 2017. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

 

We conducted our audit 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Friedman Industries, Incorporated and its subsidiary as of March 31, 2017, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended March 31, 2017, 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.

 

 

/S/ HEIN & ASSOCIATES LLP

 

Houston, Texas

June 29, 2017

 

 

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, as amended. 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 U.S. generally accepted accounting principles.

 

Because of its inherent limitations, our 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 (2013). Based on such assessment, management concluded that, as of March 31, 2018, our internal control over financial reporting is effective based on that criteria.

 

This annual report does not include an attestation report of our registered, independent 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 rules of the U.S. Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

 

OVERVIEW

 

Friedman Industries, Incorporated is a manufacturer and processor of steel products and operates in two reportable segments; coil products and tubular products.

 

The coil product segment includes the operation of two hot-roll coil processing facilities; one in Hickman, Arkansas and the other in Decatur, Alabama. Each facility operates 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. Combined, the facilities are capable of cutting sheet and plate with thicknesses ranging from 14 gauge to ½” thick. 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 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 a pipe finishing facility that threads and couples oil country tubular goods and performs other services that are customary in the pipe finishing process. The pipe finishing facility is API licensed and focuses on threading semi-premium connections. 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. (“USS”).

 

RESULTS OF OPERATIONS

 

Year ended March 31, 2018 compared to year ended March 31, 2017

 

During the year ended March 31, 2018, sales, costs of goods sold and gross profit increased $43,401,223, $34,957,704 and $8,443,519, respectively, from the comparable amounts recorded during the year ended March 31, 2017. The increase in sales was related to both an increase in tons sold and an increase in the average per ton selling price. Tons sold increased approximately 32% from approximately 134,000 tons in fiscal 2017 to approximately 176,500 tons in fiscal 2018. Discussion of the sales improvement is expanded upon at the segment level in the following paragraphs. Gross margin as a percentage of sales increased from a gross loss of approximately 0.2% in fiscal 2017 to a gross profit of approximately 6.8% in fiscal 2018.

 

Coil product segment sales for fiscal 2018 totaled $90,132,804 compared to $64,641,805 for fiscal 2017, representing an increase during fiscal 2018 of $25,490,999 or approximately 39%. For average selling price disclosure, it is helpful to isolate sales generated from processing of customer owned material and sales generated from coil segment inventory. Sales generated from processing of customer owned material totaled $1,220,148 for fiscal 2018 compared to $1,113,987 for fiscal 2017. Sales generated from coil segment inventory totaled $88,912,656 for fiscal 2018 compared to $63,527,818 for fiscal 2017. The increase in coil segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Inventory tons sold increased from approximately 111,000 tons in fiscal 2017 to approximately 132,000 tons in fiscal 2018. The average per ton selling price related to these shipments increased from approximately $572 per ton in fiscal 2017 to approximately $674 per ton in fiscal 2018. The improved shipping volume for fiscal 2018 is attributable to increased demand among many of the segment’s customers, rather than to any specific industry or customer, and is also attributable to an increase in the number of customers sold. The coil product segment recorded an operating profit of $4,026,329 in fiscal 2018 and an operating loss of $770,091 in fiscal 2017. The coil segment’s profit margins are significantly impacted by the application of the LIFO method of inventory valuation. LIFO charges or credits are driven by relative changes in the cost and quantities of hot-rolled coils purchased. In fiscal 2018 and fiscal 2017, the coil segment experienced rising costs for hot-rolled coils and recorded LIFO charges of approximately $1,697,000 and $3,592,500, respectively. The Company continues to experience intense competition for sales due to the general availability of hot-rolled sheet and plate.

 

The Company’s 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 product segment sales for fiscal 2018 totaled $31,024,474 compared to $13,114,250 for fiscal 2017, representing an increase during fiscal 2018 of $17,910,224 or approximately 137%. Historically, all of the tubular segment’s revenues have been generated by sales of segment inventory but in May 2017 the Company put into service a pipe-finishing facility that provides pipe threading services for customer owned material. In fiscal 2018, the pipe-finishing facility generated revenue of $2,075,794. Sales generated from tubular segment inventory totaled $28,948,680 for fiscal 2018 compared to $13,114,250 for fiscal 2017. The increase in tubular segment sales was driven by an increase in tons shipped from inventory and an increase in the average selling price per ton for these shipments. Inventory tons sold increased from approximately 22,500 tons in fiscal 2017 to approximately 44,500 tons in fiscal 2018. The average per ton selling price related to these shipments increased from approximately $582 per ton in fiscal 2017 to approximately $651 per ton in fiscal 2018. The tubular segment recorded an operating profit of $2,024,035 in fiscal 2018 and an operating loss of $1,438,088 in fiscal 2017. Management believes tubular segment results for much of fiscal 2018 and all of fiscal 2017 were negatively impacted by the effects of the most recent recession in the U.S. energy business. In the fourth quarter of fiscal 2018, the tubular segment experienced a significant improvement in the demand for its products. Management believes this improved demand is primarily related to the sustained recovery in the U.S. energy industry and the segment’s new product offering of API line pipe. Historically, the tubular segment has produced and sold API line pipe through an exclusive customer arrangement. Late in the third quarter of fiscal 2018, TTP began actively producing, marketing and selling line pipe directly to distributors. In total the tubular segment shipped approximately 20,000 tons in the fourth quarter compared to 8,500 tons in the third quarter. Line pipe shipments in the fourth quarter accounted for approximately 7,000 tons, or approximately 61%, of the approximately 11,500 ton increase from the prior quarter. Management expects line pipe sales to be a significant component of total tubular segment sales moving forward and expects segment operating results to be positively impacted by the increased sales and mill production related to line pipe. Increasing market acceptance of the Company’s tubular products among both line pipe distributors and midstream companies is a key component of management’s strategy for long-term success in the small diameter line pipe market.

 

USS has been the primary supplier of new mill reject pipe to the Company. In March 2016, USS announced it was temporarily idling pipe production at its Lone Star Tubular Operations facility due to weak market conditions. In December 2016, USS announced plans to permanently idle its #1 pipe mill at the Lone Star facility. In May 2017, USS resumed production at its Lone Star facility’s #2 pipe mill. The Company expects the volume and size range of new mill reject pipe supply from USS to be reduced given the permanent idling of the Lone Star facility’s #1 pipe mill. At March 31, 2018, the Company carried quantities of mill reject pipe on hand that exceeded the fiscal 2018 sales volume. Based on the improved current market and overall economic conditions as well as recent sales trends, the Company reasonably expects the inventory to be either sold in its entirety or at least a substantial portion thereof during the ensuing fiscal year, hence current classification of this inventory on the Company’s balance sheet. Management’s projections are subject to a significant estimate which may be different from actual results. USS is also a significant customer of the tubular segment’s pipe-finishing facility. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amount of supply that will be available from USS in the future. In general, the tubular 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.

 

Income taxes for fiscal 2018 increased $2,780,022 from the amount recorded in fiscal 2017. This increase was related primarily to the increase in earnings before taxes in fiscal 2018 but partially offset due to effects of the Tax Cuts and Jobs Act (the “Tax Act”) that was enacted by the U.S. government on December 22, 2017. The Tax Act reduced the federal corporate tax rate applicable to the Company from 34% to 21% effective January 1, 2018. Pursuant to the Internal Revenue Code, the Company utilized a blended rate of approximately 30.8% to compute federal tax expense for fiscal 2018. In addition, the Company was required to re-measure its net deferred tax assets and liabilities using the tax rate that will apply when those amounts are expected to reverse. The re-measurement of deferred tax assets and liabilities at the new tax rate resulted in a provisional noncash tax benefit of approximately $77,000 in fiscal 2018.

 

FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL

 

The Company remained in a strong, liquid position at March 31, 2018. Current ratios were 5.4 and 19.3 at March 31, 2018 and March 31, 2017, respectively. Working capital was $48,948,669 at March 31, 2018 and $43,076,246 at March 31, 2017.

 

During the year ended March 31, 2018, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. Cash increased primarily as a result of operating activities partially offset by purchases of property, plant and equipment and the payment of cash dividends. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

 

In December 2017, the Company put into place a $7,500,000 revolving line of credit facility (the “Credit Facility”) that expires December 11, 2018. The Company advanced $3,750,000 under the credit facility in December 2017 and repaid the advance during the fourth quarter resulting in no borrowings outstanding under the credit facility as of March 31, 2018. The Company was not in violation of any terms or covenants related to the Credit Facility as of March 31, 2018.

 

 

The Company believes that its current cash position along with cash flows from operations and borrowing capability 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 2018 and 2017, 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. Significant estimates that are subject to the Company’s assumptions include the valuation of LIFO inventories in the Company’s quarterly reporting, determination of useful lives for fixed assets and determination of the allowance for doubtful accounts. Valuation of LIFO inventories in the Company’s quarterly reporting requires estimates of the year end quantities, which is inherently difficult. The determination of useful lives for depreciation of fixed assets requires the Company to make assumptions regarding the future productivity of the Company’s fixed assets. The allowance for doubtful accounts requires the Company to draw conclusions on the future collectibility of the Company’s accounts receivable. Actual results could differ from these estimates.

 

Effective April 1, 2018, the Company will be changing from the LIFO method to the average cost method for valuation of prime coil inventory. The Company believes this change will result in financial reporting that more closely aligns with the substance of our business. The Company expects to report this change through retrospective application of the new accounting principle to all prior periods presented starting with the Form 10-Q to be filed for the quarter ended June 30, 2018. The Company has not yet fully quantified the impact of this accounting change but expects a material impact to the consolidated financial statements upon adoption and thereafter.

 

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, as amended) 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 U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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.

 

 

 

TEN YEAR FINANCIAL SUMMARY

 

		Year Ended March 31
		2018				2017				2016				2015				2014				2013				2012				2011				2010				2009
Net sales		$	121,157,278			$	77,756,055			$	81,631,382			$	108,322,780			$	116,149,022			$	136,448,786			$	161,521,993			$	131,709,492			$	65,132,170			$	208,779,750
Net earnings (loss)		$	2,759,404			$	(2,678,684	)		$	294,000			$	382,330			$	1,712,926			$	6,135,812			$	8,150,464			$	8,155,637			$	652,024			$	13,673,406
Current assets		$	59,979,304			$	45,432,836			$	49,701,656			$	50,117,355			$	59,846,668			$	64,283,557			$	65,007,891			$	54,562,344			$	48,703,119			$	42,673,377
Current liabilities		$	11,030,635			$	2,356,590			$	2,865,750			$	2,651,111			$	7,770,689			$	12,312,082			$	13,853,388			$	9,467,375			$	7,576,278			$	3,353,013
Working capital		$	48,948,669			$	43,076,246			$	46,835,906			$	47,466,244			$	52,075,979			$	51,971,475			$	51,154,503			$	45,094,969			$	41,126,841			$	39,320,364
Total assets		$	74,363,205			$	63,263,297			$	66,890,397			$	66,958,024			$	72,284,399			$	76,575,129			$	78,570,393			$	69,584,131			$	65,031,722			$	60,460,064
Stockholders’ equity		$	63,054,316			$	60,356,425			$	63,239,047			$	63,217,025			$	63,310,656			$	62,957,619			$	63,417,268			$	58,802,514			$	56,358,410			$	56,114,352
Net earnings (loss) as a percent of Net sales			2.3				(3.4	)			0.4				0.4				1.5				4.5				5.0				6.2				1.0				6.5
Stockholders’ equity			4.4				(4.4	)			0.5				0.6				2.7				9.7				12.9				13.9				1.2				24.4
Weighted average number of common shares outstanding:
Basic			7,009,444				6,851,944				6,799,444				6,799,444				6,799,444				6,799,444				6,799,444				6,799,444				6,799,444				6,799,444
Per share
Net earnings (loss) per share:
Basic		$	0.39			$	(0.39	)		$	0.04			$	0.06			$	0.25			$	0.90			$	1.20			$	1.20			$	0.10			$	2.01
Stockholders’ equity		$	9.00			$	8.81			$	9.30			$	9.30			$	9.31			$	9.26			$	9.33			$	8.65			$	8.29			$	8.25
Cash dividends per common share		$	0.05			$	0.04			$	0.04			$	0.07			$	0.20			$	0.97			$	0.52			$	0.84			$	0.06			$	0.37

 

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