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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM            TO
 COMMISSION FILE NUMBER 1-7521
 FRIEDMAN INDUSTRIES, INCORPORATED
  TEXAS
(State or other jurisdiction of
incorporation or organization)
    
    74-1504405
(I.R.S. Employer
Identification  Number)
 4001 HOMESTEAD ROAD, HOUSTON, TEXAS 77028-5585   (713) 672-9433
 
   þ o
  o þ
  o þ




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TABLE OF CONTENTS
 PART 1  FINANCIAL INFORMATIONItem 1. Financial StatementsCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS  UNAUDITEDCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDNOTES TO QUARTERLY
REPORT  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 INDEXLetter AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906




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Part I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
 CONDENSED CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2005
    
    
    MARCH 31, 2005UnauditedASSETSCURRENT
ASSETS:Cash and
cash equivalents
    
    $
    10,640,601
    
    
    $
    205,375Accounts
receivable. net of allowances
for bad debts and cash discounts of
$37,276 at December 31 and March
31, 2005
    
    
    14,314,678
    
    
    
    16,403,036Inventories
    
    
    20,128,157
    
    
    
    25,857,240Prepaid federal income taxes
    
    
    
    
    
    
    892,104Deferred debit for LIFO replacement
    
    
    130,748
    
    
    
    Other
    
    
    212,806
    
    
    
    141,004TOTAL CURRENT ASSETS
    
    
    45,426,990
    
    
    
    43,498,759PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    486,653
    
    
    
    478,618Building and yard improvements
    
    
    4,088,149
    
    
    
    4,088,149Machinery and equipment
    
    
    19,505,222
    
    
    
    18,896,907Less
accumulated depreciation
    
    
    (17,424,868
    )
    
    
    (16,725,869
    )6,655,156
    
    
    
    6,737,805OTHER ASSETS:Cash value of officers life insurance
    
    
    586,946
    
    
    
    559,778TOTAL ASSETS
    
    $
    52,669,092
    
    
    $
    50,796,342LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts
payable and accrued expenses
    
    $
    12,571,147
    
    
    $
    13,474,128Current
portion of long-term debt
    
    
    
    
    
    
    2,897Dividends payable
    
    
    577,431
    
    
    
    571,180Income taxes payable
    
    
    170,222
    
    
    
    Contribution to profit sharing plan
    
    
    216,000
    
    
    
    274,000Employee compensation and related expenses
    
    
    601,138
    
    
    
    637,311TOTAL CURRENT LIABILITIES
    
    
    14,135,938
    
    
    
    14,959,516DEFERRED INCOME TAXES
    
    
    
    
    
    
    86,856POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS
    
    
    429,398
    
    
    
    395,420STOCKHOLDERS EQUITY:Common stock, par value $1:Authorized
shares  10,000,000Issued
shares  7,794,815 and 7,764,215 at December 31, 2005 and March
31, 2005, respectively
    
    
    7,794,815
    
    
    
    7,764,215Additional
paid-in capital
    
    
    28,562,581
    
    
    
    28,492,619Treasury
stock at cost (624,468 shares at
December  31, 2005 and March 31, 2005)
    
    
    (2,768,785
    )
    
    
    (2,768,785
    )Retained
earnings
    
    
    4,515,145
    
    
    
    1,866,501TOTAL STOCKHOLDERS EQUITY
    
    
    38,103,756
    
    
    
    35,354,550TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    52,669,092
    
    
    $
    50,796,342
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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    44,527,263
    
    
    $
    43,434,081
    
    
    $
    133,314,893
    
    
    $
    137,370,026Costs and expensesCosts of goods sold
    
    
    40,692,809
    
    
    
    40,277,843
    
    
    
    122,627,975
    
    
    
    124,987,291General, selling
and administrative
costs
    
    
    1,288,419
    
    
    
    1,266,026
    
    
    
    3,883,104
    
    
    
    4,425,36341,981,228
    
    
    
    41,543,869
    
    
    
    126,511,079
    
    
    
    129,412,654Interest and other
income
    
    
    (97,053
    )
    
    
    (57,455
    )
    
    
    (191,960
    )
    
    
    (118,538
    )Earnings before
income taxes
    
    
    2,643,088
    
    
    
    1,947,667
    
    
    
    6,995,774
    
    
    
    8,075,910Provision (benefit)
for income taxes:Current
    
    
    1,038,901
    
    
    
    709,058
    
    
    
    2,714,069
    
    
    
    2,898,339Deferred
    
    
    (64,500
    )
    
    
    18,000
    
    
    
    (86,856
    )
    
    
    77,000974,401
    
    
    
    727,058
    
    
    
    2,627,213
    
    
    
    2,975,339Net income
    
    $
    1,668,687
    
    
    $
    1,220,609
    
    
    $
    4,368,561
    
    
    $
    5,100,571Average number of
common shares
outstanding:Basic
    
    
    7,151,014
    
    
    
    7,480,467
    
    
    
    7,143,503
    
    
    
    7,548,704Diluted
    
    
    7,258,567
    
    
    
    7,736,885
    
    
    
    7,261,022
    
    
    
    7,759,235Net income per share:Basic
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.61
    
    
    $
    0.68Diluted
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.60
    
    
    $
    0.66Cash dividends
declared per common
share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.24
    
    
    $
    0.21
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Nine Months EndedDecember 31,2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    4,368,561
    
    
    $
    5,100,571Adjustments to reconcile net income to cash
provided by operating activities:Depreciation
    
    
    699,000
    
    
    
    678,900Provision
(benefit) for deferred taxes
    
    
    (86,856
    )
    
    
    77,000Provision for postretirement benefits
    
    
    33,978
    
    
    
    40,647Stock awards
    
    
    9,792
    
    
    
    11,800Decrease (increase) in operating assets:Accounts receivable
    
    
    2,088,358
    
    
    
    2,945,211Inventories
    
    
    5,729,083
    
    
    
    (4,462,952
    )Deferred debit for LIFO replacement
    
    
    (130,748
    )
    
    
    Prepaid federal income taxes
    
    
    892,104
    
    
    
    Other
    
    
    (71,802
    )
    
    
    (136,649
    )Increase (decrease) in operating liabilities:Accounts payable and accrued expenses
    
    
    (902,981
    )
    
    
    4,127,973Contribution to profit-sharing plan
    
    
    (58,000
    )
    
    
    (74,000
    )Employee compensation and related expenses
    
    
    (36,173
    )
    
    
    (243,154
    )Federal income taxes
    
    
    170,222
    
    
    
    (1,033,662
    )NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
    
    
    12,704,538
    
    
    
    7,031,685INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    
    (616,350
    )
    
    
    (617,387
    )(Increase) decrease in cash value of officers
life insurance
    
    
    (27,168
    )
    
    
    755,023Proceeds from sale of asset
    
    
    
    
    
    
    542NET CASH PROVIDED (USED) IN INVESTING
ACTIVITIES
    
    
    (643,518
    )
    
    
    138,178FINANCING ACTIVITIESCash dividends paid
    
    
    (1,713,667
    )
    
    
    (1,139,007
    )Principal payments on notes payable and
revolving credit facility
    
    
    (2,897
    )
    
    
    (51,599
    )Purchase of treasury stock
    
    
    
    
    
    
    (2,767,734
    )Options exercised
    
    
    90,770
    
    
    
    54,729NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES
    
    
    (1,625,794
    )
    
    
    (3,903,611
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    10,435,226
    
    
    
    3,266,252Cash and cash equivalents at beginning of period
    
    
    205,375
    
    
    
    1,984,763CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    10,640,601
    
    
    $
    5,251,015
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December 31,
    
    
    March 31,2005
    
    
    2005Prime Coil Inventory
    
    $
    4,908,169
    
    
    $
    7,497,674Non-Standard Coil Inventory
    
    
    1,197,428
    
    
    
    530,084Tubular Raw Material
    
    
    4,614,995
    
    
    
    4,341,204Tubular Finished Goods
    
    
    9,407,565
    
    
    
    13,488,278$
    20,128,157
    
    
    $
    25,857,240
    Accounting for Stock Issued to
Employees
  Share-Based
Payment
 5




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net SalesCoil
    
    $
    23,740
    
    
    $
    21,617
    
    
    $
    68,339
    
    
    $
    76,310Tubular
    
    
    20,787
    
    
    
    21,817
    
    
    
    64,976
    
    
    
    61,060Total net sales
    
    $
    44,527
    
    
    $
    43,434
    
    
    $
    133,315
    
    
    $
    137,370Operating profit
(loss)Coil
    
    $
    919
    
    
    $
    576
    
    
    $
    3,306
    
    
    $
    3,800Tubular
    
    
    2,239
    
    
    
    1,891
    
    
    
    5,623
    
    
    
    6,765Total operating
profit
    
    
    3,158
    
    
    
    2,467
    
    
    
    8,929
    
    
    
    10,565General corporate
expenses
    
    
    612
    
    
    
    576
    
    
    
    2,125
    
    
    
    2,607Interest & other
income
    
    
    (97
    )
    
    
    (57
    )
    
    
    (192
    )
    
    
    (118
    )Total earnings
before taxes
    
    $
    2,643
    
    
    $
    1,948
    
    
    $
    6,996
    
    
    $
    8,076
 December 31,
    
    
    March 31,2005
    
    
    2005Segment assetsCoil
    
    $
    16,879
    
    
    $
    20,724Tubular
    
    
    24,443
    
    
    
    28,30141,322
    
    
    
    49,025Corporate assets
    
    
    11,347
    
    
    
    1,771Total assets
    
    $
    52,669
    
    
    $
    50,796
      6




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Item 2.
Managements Discussion and Analysis of Financial Condition and
Results of Operations
 Results of
Operations
 Nine Months Ended December 31, 2005 Compared to Nine Months Ended December 31, 2004
           Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004
      7




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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
       RECENT EVENTS
    CRITICAL ACCOUNTING POLICIES
  FORWARD-LOOKING STATEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Control and Procedures
  8




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9




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FRIEDMAN INDUSTRIES, INCORPORATED
Three Months Ended December 31, 2005
 
 Part
II  OTHER INFORMATION
 
 Item1. 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
       10




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SIGNATURES
  Date February 14, 2006
    FRIEDMAN INDUSTRIES, INCORPORATEDBy
    /s/ BEN HARPERBen Harper. Senior Vice
President-Finance
(Principal Financial and Accounting Officer) 11




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EXHIBIT INDEX
 Exhibit No
    
    DescriptionExhibit 10.1
    
    Letter Agreement dated February 8, 2006, between Jack
Friedman and Friedman Industries, Incorporated (incorporated by
reference from Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on February
 9, 2006)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 ot 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