##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|     |  |                                                                                                                                                                           
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[X]  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008                                  
|     |  |                                                                                                                                                                           
|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



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 þ |  |  |  | No o





Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer
o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)




| |       |  |  |  |     
| | ----- |  |  |  | ----
| | Yes o |  |  |  | No þ

At December 31, 2008, the number of shares outstanding of the issuers only
class of stock was 6,799,444 shares of Common Stock.



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TABLE OF CONTENTS  Part I  FINANCIAL INFORMATIONItem 1. Financial StatementsCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS-UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEXHIBIT INDEXEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 Part I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31, 2008
    
    
    March 31, 2008(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    9,489,475
    
    
    $
    2,643,922Accounts receivable, net of allowances for bad debts and cash discounts of
$37,276 at December 31 and March 31, 2008
    
    
    14,514,867
    
    
    
    16,742,000Inventories
    
    
    28,091,915
    
    
    
    29,900,327Other
    
    
    479,701
    
    
    
    136,345TOTAL CURRENT ASSETS
    
    
    52,575,958
    
    
    
    49,422,594PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    1,082,331
    
    
    
    1,082,331Construction in progress
    
    
    
    
    
    
    8,706,172Buildings and yard improvements
    
    
    7,000,838
    
    
    
    3,494,294Machinery and equipment
    
    
    29,082,540
    
    
    
    21,879,259Less accumulated depreciation
    
    
    (19,574,683
    )
    
    
    (18,389,983
    )17,591,026
    
    
    
    16,772,073OTHER ASSETS:Cash value of officers life insurance and other assets
    
    
    762,000
    
    
    
    720,001Deferred income taxes
    
    
    
    
    
    
    43,724TOTAL ASSETS
    
    $
    70,928,984
    
    
    $
    66,958,392LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    8,469,245
    
    
    $
    13,499,314Current portion of long-term debt
    
    
    54,028
    
    
    
    54,028Dividends payable
    
    
    815,933
    
    
    
    339,972Income taxes payable
    
    
    2,424,769
    
    
    
    70,069Contribution to profit sharing plan
    
    
    275,500
    
    
    
    259,500Employee compensation and related expenses
    
    
    1,246,416
    
    
    
    561,483TOTAL CURRENT LIABILITIES
    
    
    13,285,891
    
    
    
    14,784,366LONG-TERM DEBT LESS CURRENT PORTION
    
    
    27,014
    
    
    
    6,667,536DEFERRED INCOME TAXES
    
    
    261,967
    
    
    
    POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    
    
    598,933
    
    
    
    549,749STOCKHOLDERS EQUITY:Common stock, par value $1:Authorized shares  10,000,000Issued
shares  7,975,160 at December 31 and March 31, 2008
    
    
    7,975,160
    
    
    
    7,975,160Additional paid-in capital
    
    
    29,003,674
    
    
    
    29,003,674Treasury
stock at cost (1,175,716 shares at December 31 and March 31, 2008)
    
    
    (5,475,964
    )
    
    
    (5,475,964
    )Retained earnings
    
    
    25,252,309
    
    
    
    13,453,871TOTAL STOCKHOLDERS EQUITY
    
    
    56,755,179
    
    
    
    44,956,741TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    70,928,984
    
    
    $
    66,958,392
 2




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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS-UNAUDITED
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    

2007
    
    

2008
    
    

2007Net sales
    
    $
    56,182,665
    
    
    $
    38,062,240
    
    
    $
    186,855,501
    
    
    $
    129,747,321Costs and expensesCosts of goods sold
    
    
    47,775,322
    
    
    
    36,092,428
    
    
    
    160,237,068
    
    
    
    121,575,529General, selling and
administrative costs
    
    
    1,585,716
    
    
    
    1,024,178
    
    
    
    5,433,524
    
    
    
    3,530,341Interest
expense
    
    
    
    
    
    
    
    
    
    
    23,310
    
    
    
    47,74049,361,038
    
    
    
    37,116,606
    
    
    
    165,693,902
    
    
    
    125,153,610Interest and other income
    
    
    (26,584
    )
    
    
    (65,875
    )
    
    
    (130,761
    )
    
    
    (163,175
    )Earnings before income taxes
    
    
    6,848,211
    
    
    
    1,011,509
    
    
    
    21,292,360
    
    
    
    4,756,886Provision for income taxes:Current
    
    
    2,192,149
    
    
    
    317,913
    
    
    
    7,012,409
    
    
    
    1,523,175Deferred
    
    
    101,897
    
    
    
    33,389
    
    
    
    305,691
    
    
    
    100,1672,294,046
    
    
    
    351,302
    
    
    
    7,318,100
    
    
    
    1,623,342Net income
    
    $
    4,554,165
    
    
    $
    660,207
    
    
    $
    13,974,260
    
    
    $
    3,133,544Weighted average number of common shares outstanding:Basic
    
    
    6,799,444
    
    
    
    6,712,108
    
    
    
    6,799,444
    
    
    
    6,712,108Diluted
    
    
    6,799,444
    
    
    
    6,771,995
    
    
    
    6,799,444
    
    
    
    6,776,592Net income per share:Basic
    
    $
    0.67
    
    
    $
    0.10
    
    
    $
    2.06
    
    
    $
    0.47Diluted
    
    $
    0.67
    
    
    $
    0.10
    
    
    $
    2.06
    
    
    $
    0.46Cash dividends declared per common share
    
    $
    0.12
    
    
    $
    0.06
    
    
    $
    0.32
    
    
    $
    0.22
 3




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FRIEDMAN INDUSTRIES, INCORPORATED 
 
 CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS  UNAUDITED Nine Months EndedDecember
31,2008
    
    

2007OPERATING ACTIVITIESNet income
    
    $
    13,974,260
    
    
    $
    3,133,544Adjustments to reconcile net income to cash provided by operating activities:Depreciation
    
    
    1,184,701
    
    
    
    847,200Provision  for deferred taxes
    
    
    305,691
    
    
    
    100,167Provision for postretirement benefits
    
    
    49,184
    
    
    
    39,706Decrease (increase) in operating assets:Accounts receivable
    
    
    2,227,133
    
    
    
    5,563,741Inventories
    
    
    1,808,412
    
    
    
    5,967,870Prepaid federal income taxes
    
    
    
    
    
    
    (424,739
    )Other
    
    
    (343,356
    )
    
    
    (83,796
    )Increase (decrease) in operating liabilities:Accounts payable and accrued expenses
    
    
    (5,030,069
    )
    
    
    (9,049,723
    )Contribution to profit-sharing plan
    
    
    16,000
    
    
    
    (62,500
    )Employee compensation and related expenses
    
    
    684,933
    
    
    
    (168,507
    )Federal income taxes
    
    
    2,354,700
    
    
    
    (46,742
    )NET CASH PROVIDED  BY OPERATING ACTIVITIES
    
    
    17,231,589
    
    
    
    5,816,221INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (2,003,655
    )
    
    
    (3,921,132
    )Increase in cash value of officers life insurance and other assets
    
    
    (41,999
    )
    
    
    (35,400
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (2,045,654
    )
    
    
    (3,956,532
    )FINANCING ACTIVITIESCash dividends paid
    
    
    (1,699,861
    )
    
    
    (1,610,907
    )Principal payments on notes payable and revolving credit facility
    
    
    (6,640,521
    )
    
    
    (27,014
    )Long-term debt
    
    
    
    
    
    
    162,084NET CASH
USED IN FINANCING ACTIVITIES
    
    
    (8,340,382
    )
    
    
    (1,475,837
    )INCREASE  IN CASH AND CASH EQUIVALENTS
    
    
    6,845,553
    
    
    
    383,852Cash and cash equivalents at beginning of period
    
    
    2,643,922
    
    
    
    1,039,030CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    9,489,475
    
    
    $
    1,422,882
 4




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CONDENSED NOTES TO QUARTERLY REPORT  UNAUDITED
        December 31,
    
    
    March 31,2008
    
    
    2008Prime Coil Inventory
    
    $
    6,672,787
    
    
    $
    8,121,728Non-Standard Coil Inventory
    
    
    228,802
    
    
    
    918,334Tubular Raw Material
    
    
    8,130,543
    
    
    
    7,444,805Tubular
Finished Goods
    
    
    13,059,783
    
    
    
    13,415,460$
    28,091,915
    
    
    $
    29,900,327
      2008
    
    
    2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    

Shares
    
    
    PriceOutstanding at beginning of quarter
    
    
    
    
    
    
    
    
    
    
    88,836
    
    
    $
    2.33Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of quarter
    
    
    
    
    
    
    
    
    
    
    88,836
    
    
    $
    2.33
 5




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2008
    
    
    2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    

Shares
    
    
    PriceExercisable at the end of the quarter
    
    
    
    
    
    
    
    
    
    
    88,836
    
    
    $
    2.33Weighted average fair value of options granted during the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Three Months Ended 
December 31,
    
    Nine Months Ended December 31,2008
    
    2007
    
    2008
    
    2007(in thousands)
    
    (in thousands)Net SalesCoil
    
    $
    13,977
    
    
    $
    19,204
    
    
    $
    62,864
    
    
    $
    59,854Tubular
    
    
    42,206
    
    
    
    18,858
    
    
    
    123,992
    
    
    
    69,893Total net sales
    
    $
    56,183
    
    
    $
    38,062
    
    
    $
    186,856
    
    
    $
    129,747Operating profit (loss)Coil
    
    $
    1,188
    
    
    $
    458
    
    
    $
    (559
    )
    
    $
    1,938Tubular
    
    
    6,323
    
    
    
    887
    
    
    
    24,871
    
    
    
    4,412Total operating profit
    
    
    7,511
    
    
    
    1,345
    
    
    
    24,312
    
    
    
    6,350General corporate expenses
    
    
    690
    
    
    
    399
    
    
    
    3,128
    
    
    
    1,708Interest
Expense
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    48Interest & other income
    
    
    (27
    )
    
    
    (66
    )
    
    
    (131
    )
    
    
    (163
    )Total earnings before taxes
    
    $
    6,848
    
    
    $
    1,012
    
    
    $
    21,292
    
    
    $
    4,757 December 31,
    
    
    March 31,2008
    
    
    2008(in thousands)



    (in thousands)Segment assetsCoil
    
    $
    22,482
    
    
    $
    29,469Tubular
    
    
    38,178
    
    
    
    34,04160,660
    
    
    
    63,510Corporate assets
    
    
    10,269
    
    
    
    3,448$
    70,929
    
    
    $
    66,958
      6




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of OperationsNine Months Ended December 31, 2008
Compared to Nine Months Ended December 31, 2007           7




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Three Months Ended December 31, 2008 Compared to Three Months
Ended December 31, 2007



















8



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FINANCIAL POSITION, LIQUIDITY AND
CAPITAL RESOURCES
 The
Company remained in a strong, liquid position at December 31, 2008.
Current ratios were 4.0 and 3.3 at December 31, 2008 and
March 31, 2008, respectively. Working
capital was $39,290,067 at December 31, 2008 and $34,638,228 at
March 31, 2008.
 During
the nine months ended December 31, 2008, the Company maintained
assets and liabilities at levels it believed were commensurate with
operations. Changes in current assets and liabilities during the 2008
period  were related primarily to the ordinary course of business of the
Company. During the 2008 period, cash increased primarily as the
result of net income and a reduction in accounts receivable and inventories.  Cash was used primarily to reduce accounts payable, pay off long term debt, purchase property and equipment and pay 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.
 During
the nine months ended December 31, 2008, the Company purchased
approximately $2,000,000 in fixed assets.  These assets were related
primarily to equipment associated with the new coil operating
facility located in Decatur, Alabama which began operations in August 2008.
At the Decatur facility, the Company operates a steel temper mill and a steel cut-to-length line including a leveling line. At December 31,
2008, the Company had invested approximately $10,000,000 in this
facility.
 The Company has an arrangement with a bank which provides for a
revolving line of credit facility (the revolver).
Pursuant to the revolver, which expires April 1, 2010,
the Company may borrow up to $10 million at the banks
prime rate or 1.5% over LIBOR. The Company uses
the revolver to support cash flow and will borrow and repay
the note as working capital is required. At December 31, 2008, the Company had no borrowings
outstanding under the revolver.
At March 31, 2008, the Company owed $6,600,000 pursuant to the revolver at an average interest rate of 4.4%. These loans were paid off in April and May 2008.
 The Company has
in the past and may in the future borrow funds on a term basis to build or improve facilities. The Company
currently has no plans to borrow any significant amount of  funds on a term basis.
 Notwithstanding the current market conditions, the Company believes its
cash flows from operations and borrowing capability under its revolver
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 quarterly valuation of inventory
requires estimates of the year end quantities which is inherently difficult.
Historically, these estimates have been materially correct. On an ongoing basis, the Company evaluates estimates and
judgments. 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, 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 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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.
 9




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Item 3. Quantitative and Qualitative Disclosures About Market Risk In the normal course of
business the Company is exposed to market risks primarily from changes in the cost of steel in inventory and in interest rates. The Company closely monitors exposure to market risks and develops appropriate strategies to manage risk. With respect to steel purchases, there is no  recognized market to purchase derivative financial instruments to reduce the inventory
exposure risk on changing commodity prices.
The exposure to market risk associated with interest rates relates
primarily to debt.  Recent debt balances are minimal and, as a
result, direct exposure to interest rates changes is not significant. 
 
 Item 4. Controls and Procedures
   10




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FRIEDMAN INDUSTRIES, INCORPORATED
 Three
Months Ended December 31, 2008
 
 
 Part
II  OTHER INFORMATION
 
 
 Item 1.
Legal Proceedings
  
 
 Item 1A.
Risk Factors
  
 
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
 
 Item 3.
Defaults Upon Senior Securities
   
 
 Item 4.
Submission of Matters to a Vote of Security Holders
  
 
 Item 5.
Other Information
  
 
 Item 6.
Exhibits
        11




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|                       |                                   |                                              |  | 
|---------------------- | --------------------------------- | -------------------------------------------- |  | 
|Date February 13, 2009 | FRIEDMAN INDUSTRIES, INCORPORATED |                                             
|                       | By:                               | /s/ BEN HARPER                               | 
|                       |                                   | Ben Harper. Senior Vice President-Finance    | 
|                       |                                   | (Principal Financial and Accounting Officer) | 
|                      

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EXHIBIT INDEX Exhibit No.
    
    DescriptionExhibit 10.1
    
     Consulting agreement dated October 31, 2008, by and between
 Jack Friedman and Friedman Industries, Incorporated (incorporated
by reference from Exhibit 10.1 to the Companys current report
on Form 8-K filed with the Commission on November 6, 2008).Exhibit 31.1
    
     Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by William E. CrowExhibit 31.2
    
     Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Ben HarperExhibit 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 William E. CrowExhibit 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