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目錄



美國

證券交易委員會

華盛頓特區20549

 


 

表格 10-Q


 

根据1934年证券交易法第13或15(d)条款的季度报告

 

截至季度結束 2024年9月30日

 

 

根据1934年证券交易法第13或15(d)条款的过渡报告

 

從過渡期起                                         

 

委員會檔案編號 1-7521

 


friedman industries, incorporated

(依憑章程所載的完整登記名稱)


 

德克薩斯

74-1504405

(依據所在地或其他管轄區)

的註冊地或組織地點)

(國稅局雇主

識別號碼)

 

1121 Judson Road, 124號套房, Longview, 德克薩斯 75601

(公司總部地址) (郵遞區號)

 

註冊人電話號碼,包括區號(903)758-3431

 

如有更改,請填寫前名、前地址和前財政年度

 

根據法案第12(b)條規定註冊的證券:

 

每種類別的名稱

 

交易符號

 

註冊的每個交易所的名稱:
在哪個註冊所

普通股,每股面值1美元

 

FRD

 

紐交所美國

 


 

請用勾劃標示出是否公司:(1)過去12個月內已提交證券交易法 1934 年第 13條或 15(d)條要求提交的所有報告(或對於公司需要提交該報告的較短期間),以及(2)過去90天公司一直受到該提交要求的影響。Yes  ☒    不是  ☐

 

請勾選以下選項,指示在上述12個月(或該註冊者需要提交此類文件的較短期間)是否已經以電子方式提交了根據S-t法規(本章第232.405條)需要提交的互動式數據文件。Yes  ☒    不是  ☐

 

請打勾表示,申請人是否為大快速歸檔者、快速歸檔者、非快速歸檔者、較小的報告公司或新興成長公司。請參閱《交易所法》第120億2條對“大快速歸檔者”、“快速歸檔者”、“較小的報告公司”和“新興成長公司”的定義。

 

大型加速文件提交者

加速檔案提交者

    

非加速歸檔人

較小報告公司

    
  

新興成長型企業

 

如果是新興成長型企業,在符合任何依據證券交易法第13(a)條所提供的任何新的或修改的財務會計準則的遵循的延伸過渡期方面,是否選擇不使用核准記號進行指示。☐

 

請勾選表示公司是否為殼公司(交易所法案第120億2條定義)。 (選擇一項): 是所有板塊都不應該包含任何空格☒

 

截至 2024年11月12日,發行人唯一類別的股票流通股份數目是 6,966,510股份普通股。

 



 

 

 
 

目錄

 

第一部分 — 財務資訊

3

項目1.基本報表

3

項目 2. 管理層對財務狀況和業績的討論與分析

16

第三項。關於市場風險的定量和定性披露

20

第四項。控制與程序。

20

第二部分 — 其他資料

21

第5項。其他資訊

21

展品第六項。

21

簽名

22

  

2

 

 

 

第一部分 — 財務信息

 

項目1. 基本報表

 

FRIEDMAN INDUSTRIES公司

 

總體資產負債表總表 - 未經審核

(以千為單位,股份數據除外)

 

  

2024年9月30日

  

2024年3月31日

 

資產

        

流動資產:

        

現金

 $2,473  $2,891 

應收賬款,扣除信貸損失和現金折扣的$14797 截至2024年9月30日和3月31日,分別為

  39,620   47,329 

存貨

  105,051   115,804 

衍生資產的當前部分

  18   74 

其他流動資產

  882   3,966 

總流動資產

  148,044   170,064 

物業、廠房和設備:

        

土地

  1,670   1,670 

建築物及場地改善

  30,906   30,900 

機械及設備

  56,359   53,607 

施工進行中

  805   1,977 

減少已提折舊

  (32,871)  (31,396)
總資產、計劃及設備  56,869   56,758 

其他資產:

        

高層人員壽險及其他資產的現金價值

  1,307   356 

經營租賃權使用資產

  2,947   2,841 

總資產

 $209,167  $230,019 

負債及股東權益

        

流動負債:

        

應付帳款及應計費用

 $34,642  $43,886 

應付所得稅

  195   2,213 

分紅派息應付款

  279   279 

員工薪酬及相關費用

  1,249   5,989 

融資租賃的當前部分

     54 

衍生負債的當前部分

  1   1,686 

流動負債總額

  36,366   54,107 

退休後福利其他非退休金

  113   105 

遞延所得稅負債

  5,239   5,257 

非流動租賃負債

  2,828   2,782 

資產基礎貸款設施

  35,857   40,293 

负债合计

  80,403   102,544 

承諾事項與可能負擔之事項

          

股东权益:

        

普通股,面額 $1: 授權股份 — 10,000,000; 已發行股份 — 8,873,203 截至2024年9月30日及3月31日的股份

  8,873   8,873 

資本公積額額外增資

  35,336   35,247 

按成本衡量的庫藏股1,904,258 股份和 1,896,892 截至2024年9月30日及3月31日,分別為)

  (13,063)  (12,929)

保留盈餘

  97,618   96,284 

股東權益總額

  128,764   127,475 

總負債及股東權益

 $209,167  $230,019 

 

The accompanying notes are an integral part of these financial statements.

 

3

 

 

FRIEDMAN INDUSTRIES, INCORPORATED

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

(In thousands, except per share data)

 

  

THREE MONTHS ENDED

  

SIX MONTHS ENDED

 
  

SEPTEMBER 30,

  

SEPTEMBER 30,

 
  

2024

  

2023

  

2024

  

2023

 

Net Sales

 $106,759  $130,748  $221,310  $268,046 

Costs and expenses:

                

Cost of materials sold (excludes items shown separately below)

  88,761   110,275   184,656   217,911 

Processing and warehousing expense

  7,861   7,409   16,558   14,582 

Delivery expense

  5,381   6,521   11,432   11,966 

Selling, general and administrative

  3,935   4,729   8,446   10,667 

Depreciation and amortization

  823   759   1,618   1,508 
Loss on disposal of property, plant and equipment  222      222    
   106,983   129,693   222,932   256,634 

EARNINGS (LOSS) FROM OPERATIONS

  (224)  1,055   (1,622)  11,412 

Gain on economic hedges of risk

  194   4,402   5,569   4,832 

Interest expense

  (869)  (805)  (1,550)  (1,345)

Other income (expense)

  (3)  10      16 

EARNINGS (LOSS) BEFORE INCOME TAXES

  (902)  4,662   2,397   14,915 

Provision for (benefit from) income taxes:

                

Current

  (219)  1,165   523   3,745 

Deferred

  (8)  (16)  (18)  (33)
   (227)  1,149   505   3,712 

NET EARNINGS (LOSS)

 $(675) $3,513  $1,892  $11,203 

Net earnings (loss) per share:

                

Basic

 $(0.10) $0.48  $0.27  $1.52 

Diluted

 $(0.10) $0.48  $0.27  $1.52 

Cash dividends declared per common share

 $0.04  $0.02  $0.08  $0.04 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

(In thousands)

 

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

 
   

SEPTEMBER 30,

   

SEPTEMBER 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net earnings (loss)

  $ (675 )   $ 3,513     $ 1,892     $ 11,203  

Other comprehensive income (loss):

                               

Cash flow hedges, net of tax

                      317  
                        317  

Comprehensive income (loss)

  $ (675 )   $ 3,513     $ 1,892     $ 11,520  

 

The accompanying notes are an integral part of these financial statements.

 

4

 

 

FRIEDMAN INDUSTRIES, INCORPORATED

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(In thousands)

 

  

SIX MONTHS ENDED SEPTEMBER 30,

 
  

2024

  

2023

 

OPERATING ACTIVITIES

        

Net earnings

 $1,892  $11,203 

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:

        

Depreciation and amortization

  1,618   1,531 

Deferred taxes

  (18)  (33)

Compensation expense for restricted stock

  89   156 

Change in postretirement benefits

  8   4 

Gain recognized on open derivatives not designated for hedge accounting

  (1,629)  (1,969)

Deferred realized gain on derivatives

     418 
Loss on disposal of property, plant and equipment  222    

Right-of-use asset

  (8)   

Decrease (increase) in operating assets:

        

Accounts receivable

  7,709   (2,958)

Inventories

  10,753   (18,256)

Other current assets

  141   (2,369)

Increase (decrease) in operating liabilities:

        

Accounts payable and accrued expenses

  (9,295)  (7,411)

Income taxes payable

  (2,018)  1,128 

Contribution to retirement plan

     (350)

Employee compensation and related expenses

  (4,740)  (1,330)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  4,724   (20,236)

INVESTING ACTIVITIES

        

Purchase of property, plant and equipment

  (1,900)  (2,883)
Deposit on steel processing equipment  (1,000)   

Increase in cash surrender value of officers’ life insurance

  (2)  (7)

NET CASH USED IN INVESTING ACTIVITIES

  (2,902)  (2,890)

FINANCING ACTIVITIES

        

Cash dividends paid

  (557)  (295)

Cash paid for principal portion of finance lease

  (54)  (53)

Cash paid for share repurchases

  (134)  (4)

Borrowings on asset based lending facility

  326,988   420,178 

Repayments on asset based lending facility

  (331,424)  (398,934)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

  (5,181)  20,892 

DECREASE IN CASH AND RESTRICTED CASH

  (3,359)  (2,234)

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

  5,897   5,386 

CASH AND RESTRICTED CASH AT END OF PERIOD

 $2,538  $3,152 

 

Cash and restricted cash at September 30, 2024 and March 31, 2024 included approximately $0.1 million and $3.0 million, respectively, of cash required to collateralize open derivative positions. These amounts are reported in "Other current assets" on the Company's consolidated balance sheets at September 30, 2024 and March 31, 2024. The Company did not have any restricted cash as of September 30, 2023.

 

The accompanying notes are an integral part of these financial statements.

 

 

5

 

FRIEDMAN INDUSTRIES, INCORPORATED

 

CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED

 

 

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 U.S. 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 consolidated financial statements and footnotes of Friedman Industries, Incorporated (the “Company”) included in its annual report on Form 10-K for the year ended March 31, 2024.

 

Reclassifications

 

The consolidated financial statements for the previous year may include certain reclassifications to conform to the current presentation. To conform with the current year presentation, “Cost of products sold” on the consolidated statements of operations was broken down into four separate line items: "Cost of materials sold", "Processing and warehousing expense", "Delivery expense" and "Depreciation and amortization". The Company believes this increased level of detail provides financial statement users with a better understanding of the Company's expenses. "Cost of materials sold" represent the costs associated with direct materials. "Processing and warehousing expense" represents the operating costs at our processing facilities. "Delivery expense" represents the costs of delivering products to customers. The amount the Company charged customers for delivery of products is reported within "Net sales" on the consolidated statements of operations. These reclassifications had no impact on previously reported net earnings or stockholders' equity.

 

NOTE B — NEW ACCOUNTING PRONOUNCEMENTS

 

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU 2024-03 will require more detailed information about the types of expenses in commonly presented income statement captions such as “Cost of sales” and “Selling, general and administrative expenses”. The new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 with early adoption permitted. The Company is evaluating the impact that adoption of the provisions of ASU 2024-03 will have on its consolidated financial statements but does not expect a material impact.

 

 

NOTE C — INVENTORIES

 

The Company operates in two segments: the flat-roll segment and the tubular segment. Both flat-roll segment and tubular segment inventories consist of raw material and finished goods. Cost for substantially all of the Company's inventory is determined using the average cost method. All inventories are valued at the lower of cost or net realizable value. Flat-roll raw material inventory consists of steel coils the Company will process into sheet and plate. Flat-roll finished goods consists of processed sheet and plate inventory. Tubular raw material inventory consists of hot-rolled steel coils that the Company will manufacture into pipe. Tubular finished goods inventory consists of pipe the Company has manufactured. Inventory costs include the costs of the purchased metals, inbound freight, transfer freight, certain external processing, internal processing, direct labor and applicable overhead costs. On the Consolidated Statements of Operations, "Cost of materials sold (excludes items shown separately below)" consists of the cost of purchased metals, inbound freight, transfer freight and certain external processing costs.

 

A summary of inventory values by product group follows (in thousands):

 

  

September 30, 2024

  

March 31, 2024

 

Flat-Roll raw material

 $78,789  $85,483 

Flat-Roll finished goods

  15,724   17,030 

Tubular raw material

  4,126   4,185 

Tubular finished goods

  6,412   9,106 
  $105,051  $115,804 

     

 

NOTE D — DEBT

         

         The Company has a $150 million asset-based lending facility ("ABL Facility") in place with JPMorgan Chase Bank, N.A. as the arranging agent and BMO Harris Bank, N.A. as a one-third syndicated participant. The ABL Facility matures on May 19, 2026 and is secured by substantially all of the assets of the Company. The Company can elect borrowings on a floating rate basis or a term basis. Floating rate borrowings accrue interest at a rate equal to the prime rate minus 1% per annum. Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable to the selected term plus 1.8% per annum. Availability of funds under the ABL Facility is subject to a borrowing base calculation determined as the sum of (a) 90% of eligible accounts receivable, plus (b) the product of 85% multiplied by the net orderly liquidating value percentage identified in the most recent inventory appraisal multiplied by eligible inventory. The ABL Facility contains a springing financial covenant whereby the financial covenant is only tested when availability falls below the greater of 15% of the revolving commitment or $22.5 million. The financial covenant restricts the Company from allowing its fixed charge coverage ratio to be, as of the end of any calendar month, less than 1.10 to 1.00 for the trailing twelve-month period then ending. The fixed charge coverage ratio is calculated as the ratio of (a) EBITDA, as defined in the ABL Facility, minus unfinanced capital expenditures to (b) cash interest expense plus scheduled principal payments on indebtedness plus taxes paid in cash plus restricted payments paid in cash plus capital lease obligation payments plus cash contributions to any employee pension benefit plans. The ABL Facility contains other representations and warranties and affirmative and negative covenants that are usual and customary. If certain conditions precedent are satisfied, the ABL facility may be increased by up to an aggregate of $25 million, in minimum increments of $5 million. At  September 30, 2024, the Company had a balance of approximately $35.9 million under the ABL Facility with an applicable interest rate of 7.0%. At  September 30, 2024, the Company's applicable borrowing base calculation supported access to approximately $104.7 million of the ABL Facility.

 

The Company incurred debt issuance costs of approximately $0.4 million in connection with the ABL Facility. The Company recorded these debt issuance costs as non-current other assets and is amortizing these costs on an equal monthly basis over the remaining term of the ABL facility.

  

6

   

 

 

 NOTE E — LEASES

 

The Company has an operating lease for the Granite City, IL facility with an expiration date of August 31, 2028 and optional renewal provisions for up to 4 renewal terms of five years each. The lease calls for monthly rental payments that adjust on an annual basis. The monthly rental payment in place at September 30, 2024 and remaining in place until adjustment in September 2025 is approximately $13,000 per month. The anticipated execution of renewal options for this lease is included in the ROU asset and lease liability calculation. The Company has an operating lease for administrative office space in The Woodlands, TX with an expiration date of February 28, 2029 and a renewal option for one additional 60 month term. The lease calls for monthly rental payments that adjust on an annual basis. The monthly rental payment in place at September 30, 2024 and remaining in place until adjustment in March 2025 is approximately $11,000 per month. The Company’s lease of its office space in Longview, Texas is the only other operating lease included in the Company's ROU assets and lease liabilities. This lease expires on April 30, 2027 and calls for monthly rental payments of approximately $5,000. The Company’s other operating leases for items such as IT equipment and storage space are either short-term in nature or immaterial.

 

In October 2019, the Company acquired equipment under a 5-year finance lease arrangement with a financed amount of approximately $0.5 million and a monthly payment of approximately $9,000. The last payment under this lease was made in October 2024. 

 

The components of expense related to leases for the three and six months ended September 30, 2024 and 2023 are as follows (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Finance lease – amortization of ROU asset

 $27  $26  $54  $52 

Finance lease – interest on lease liability

     1      2 

Operating lease expense

  108   34   168   68 
  $135  $61  $222  $122 

 

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of September 30, 2024 and March 31, 2024 (in thousands):

 

  

September 30, 2024

  

March 31, 2024

 

Balance Sheet Classification

Assets

         

Operating lease right-of-use asset

 $2,947  $2,841 

Operating lease right-of-use asset

Finance lease right-of-use asset

  391   404 

Property, plant & equipment

Total right-of-use assets

 $3,338  $3,245  

Liabilities

         

Operating lease liability, current

 $153  $101 

Accrued expenses

Finance lease liability, current

     54 

Current portion of finance lease

Operating lease liability, non-current

  2,828   2,782 

Non-current lease liabilities

Total lease liabilities

 $2,981  $2,937  

 

As of September 30, 2024, the weighted-average remaining lease term was 19.4 years for operating leases. The weighted average discount rate was 7.5% for operating leases.

 

Maturities of lease liabilities as of September 30, 2024 were as follows (in thousands):

 

  

Operating Leases

  

Finance Leases

 

Fiscal 2025 (remainder of fiscal year)

  179    

Fiscal 2026

  363    

Fiscal 2027

  371    

Fiscal 2028

  324    

Fiscal 2029 and beyond

  5,043    

Total undiscounted lease payments

 $6,280  $ 

Less: imputed interest

  (3,299)   

Present value of lease liability

 $2,981  $ 

 

7

 
 

NOTE F — PROPERTY, PLANT AND EQUIPMENT

 

At September 30, 2024, the Company's construction in process balance of approximately $0.8 million consisted of several smaller projects among our facilities. In August 2024, a processing line upgrade at the Decatur, AL facility was placed into service at a cost of approximately $1.9 million and a loss of approximately $0.2 million was recognized for disposal of the replaced equipment. 

 

 

NOTE G — STOCK BASED COMPENSATION

 

The Company maintains the Friedman Industries, Incorporated 2016 Restricted Stock Plan (the “Plan”). The Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) and continues indefinitely until terminated by the Board or until all shares allowed by the Plan have been awarded and earned. The aggregate number of shares of the Company’s Common Stock eligible for award under the Plan is 500,000 shares. Subject to the terms and provisions of the Plan, the Committee may, from time to time, select the employees, directors or consultants to whom awards will be granted and shall determine the amount and applicable restrictions of each award. Restricted awards entitle recipients to vote and receive non-forfeitable dividends during the restriction period. Because dividends are non-forfeitable, they are reflected in retained earnings. Forfeitures are accounted for upon their occurrence. Because the Company accounts for forfeitures as they occur, the non-forfeitable dividends are reclassified from retained earnings to additional stock compensation for the actual forfeitures that occurred.

 

The following table summarizes the activity related to restricted stock units (“RSUs”) for the six months ended September 30, 2024:

 

      

Weighted Average

 
  

Number of Shares

  

Grant Date Fair Value Per Share

 

Unvested at March 31, 2024

  64,487  $6.62 

Cancelled or forfeited

      

Granted

      

Vested

  (36,000)  6.64 

Unvested at September 30, 2024

  28,487  $6.61 

 

The Company measures compensation expense for RSUs at the market price of the common stock as of the grant date. Compensation expense is recognized over the requisite service period applicable to each award. The Company recorded compensation expense of approximately $0.1 million and $0.2 million in the six months ended September 30, 2024 and 2023, respectively, relating to the RSUs issued under the Plan. As of September 30, 2024, unrecognized compensation expense related to unvested RSUs was approximately $48,000 which is expected to be recognized over a weighted average period of approximately 0.4 years. As of September 30, 2024, a total of 117,998 shares were still available to be issued under the Plan.

 

 

NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS

 

From time to time, we expect to utilize hot-rolled coil futures or options to reduce our exposure to commodity price risk that is inherent in our business. For the six months ended September 30, 2024, all of the Company's hedging activities were classified as economic hedges of risk with mark-to-market ("MTM") accounting treatment. For the six months ended September 30, 2023, the Company had hedging activities classified as cash flow hedges with hedge accounting treatment according to the requirements of ASC 815– Derivatives and Hedging and hedging activities classified as economic hedges of  risk with MTM accounting treatment. By using derivatives, the Company is exposed to credit and market risk. The Company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The Company attempts to minimize its credit risk by entering into transactions with high quality counterparties and uses exchange-traded derivatives when available. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices. The Company manages market risk by continually monitoring exposure within its risk management strategy and portfolio. For any transactions designated as hedging instruments for accounting purposes, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items.

 

The Company has forward physical purchase supply agreements in place with some of its suppliers for a portion of its monthly physical steel needs. These supply agreements are not subject to mark-to-market accounting due to the Company electing the normal purchase normal sale exclusion provided in ASC 815. 

 

8

 

At September 30, 2024 and  March 31, 2024, the Company did not have any hot-rolled coil futures contracts designated as hedging instruments and classified as cash flow or fair value hedges. 

 

The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of September 30, 2024 (in thousands):

 

 

Asset Derivatives

 

Liability Derivatives

 
 

Balance Sheet

    

Balance Sheet

    

Derivatives not designated as hedging instruments:

Location

 

Fair Value

 

Location

 

Fair Value

 

Hot-rolled coil steel contracts

Current portion of derivative assets

 $18 

Current portion of derivative liability

 $1 

 

The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of March 31, 2024 (in thousands):

 

 

Asset Derivatives

 

Liability Derivatives

 
 

Balance Sheet

    

Balance Sheet

    

Derivatives not designated as hedging instruments:

Location

 

Fair Value

 

Location

 

Fair Value

 

Hot-rolled coil steel contracts

Current portion of derivative assets

 $74 

Current portion of derivative liability

 $1,686 

 

All derivatives are presented on a gross basis on the Consolidated Balance Sheets.

 

During the six months ended September 30, 2024 and 2023, the Company entered into hot-rolled coil futures contracts that were not designated as hedging instruments for accounting purposes. Accordingly, the change in fair value related to these instruments was immediately recognized in earnings for these periods. During the six months ended September 30, 2024 and 2023, the Company did not designate any transactions as hedging instruments for accounting purposes. During the six months ended September 30, 2023, the Company reclassified the loss associated with previously designated cash flow hedges into earnings during the period.

 

The following table summarizes the pre-tax gain (loss) recognized in other comprehensive income and the loss reclassified from accumulated other comprehensive income into earnings for derivative financial instruments designated as cash flow hedges for the six months ended September 30, 2023 (in thousands):

 

        Pre-Tax 
        Loss Reclassified from 
   Pre-Tax Gain (Loss) Location of Loss Reclassified  AOCI into Net 
   Recognized in OCI from AOCI into Net Earnings  Earnings 

For the six months ended September 30, 2023:

         

Hot-rolled coil steel contracts

 $ 

Sales

 $(418)

Total

 $   $(418)

 

9

 

The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during the three and six months ended September 30, 2024 (in thousands):

 

   

Gain Recognized in Earnings

 
 

Location of Gain

 

for the Three Months Ended

 
 

Recognized in Earnings

 September 30, 2024 

Hot-rolled coil steel contracts

Gain on economic hedges of risk

 $194 

 

   

Gain Recognized in Earnings

 
 

Location of Gain

 

for the Six Months Ended

 
 

Recognized in Earnings

 

September 30, 2024

 

Hot-rolled coil steel contracts

Gain on economic hedges of risk

 $5,569 

 

The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during the three and six months ended September 30, 2023 (in thousands):

 

   

Gain Recognized in Earnings

 
 

Location of Gain

 

for the Three Months Ended

 
 

Recognized in Earnings

 

September 30, 2023

 

Hot-rolled coil steel contracts

Gain on economic hedges of risk

 $4,402 

 

   

Gain Recognized in Earnings

 
 

Location of Gain

 

for the Six Months Ended

 
 

Recognized in Earnings

 

September 30, 2023

 

Hot-rolled coil steel contracts

Gain on economic hedges of risk

 $4,832 

 

The notional amount (quantity) of our derivative instruments not designated as hedging instruments at September 30, 2024 consisted of 1,820 tons of short positions with maturity dates ranging from October 2024 to June 2025 and 100 tons of long positions with maturity dates of  November 2024 and January 2025.

 

The following tables reflect the change in accumulated other comprehensive income (loss), net of tax, for the six months ended September 30, 2023 (in thousands):

 

 

  

Gain (Loss) on

 
  

Derivatives

 

Balance at March 31, 2023

 $(317)

Other comprehensive income, net of loss, before reclassification

   

Total loss reclassified from AOCI (1)

  317 

Net current period other comprehensive income

  317 

Balance at September 30, 2023

 $ 

 

(1) The loss reclassified from AOCI is presented net of tax benefits of approximately $0.1 million which are included in the provision for (benefit from) income taxes on the Company's Consolidated Statement of Operations for the six months ended September 30, 2023.

 

At September 30, 2024 and  March 31, 2024, cash of approximately $0.1 million and $3.0 million, respectively, was held by our clearing agent to collateralize our open derivative positions. These cash requirements are included in "Other current assets" on the Company's Consolidated Balance Sheets at September 30, 2024 and   March 31, 2024.

 

10

 
 

NOTE I — FAIR VALUE MEASUREMENTS

 

Accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. Levels within the hierarchy are defined as follows:

 

 

Level 1 – Quoted prices for identical assets and liabilities in active markets.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

Recurring Fair Value Measurements

 

At  September 30, 2024, our financial assets, net, measured at fair value on a recurring basis were as follows (in thousands):

 

  

Quoted Prices

             
  

in Active

  

Significant

         
  

Markets for

  

Other

  

Significant

     
  

Identical

  

Observable

  

Unobservable

     
  

Assets

  

Inputs

  

Inputs

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Commodity futures – financial assets, net

 $17  $  $  $17 

Total

 $17  $  $  $17 

 

At  March 31, 2024, our financial liabilities, net, measured at fair value on a recurring basis were as follows (in thousands):

 

  

Quoted Prices

             
  

in Active

  

Significant

         
  

Markets for

  

Other

  

Significant

     
  

Identical

  

Observable

  

Unobservable

     
  

Assets

  

Inputs

  

Inputs

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Commodity futures – financial liabilities, net

 $(1,612) $  $  $(1,612)

Total

 $(1,612) $  $  $(1,612)

 

At  September 30, 2024 and  March 31, 2024, the Company did not have any fair value measurements on a non-recurring basis.

 

11

 

 

NOTE J — SEGMENT INFORMATION (in thousands)

 

The Company is engaged in the steel processing, pipe manufacturing and processing and steel and pipe distribution business. Within the Company, there are two product groups: flat-roll and tubular. The Company’s flat-roll operations consists primarily of converting steel coils into flat sheet and plate steel cut to customer specifications. Through its tubular operations, the Company purchases, processes, manufactures and markets tubular products. The following is a summary of significant financial information relating to the product groups (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

NET SALES:

                

Flat-Roll

 $97,379  $120,527  $200,766  $245,724 

Tubular

  9,380   10,221   20,544   22,322 

TOTAL NET SALES

 $106,759  $130,748  $221,310  $268,046 

OPERATING PROFIT (LOSS):

                

Flat-Roll

 $2,669  $3,142  $5,335  $14,956 

Tubular

  (582)  16   (1,767)  2,280 

TOTAL OPERATING PROFIT

  2,087   3,158   3,568   17,236 

General corporate expenses

  (2,311)  (2,103)  (5,190)  (5,824)

Gain on economic hedges of risk

  194   4,402   5,569   4,832 

Interest expense

  (869)  (805)  (1,550)  (1,345)

Other income (loss)

  (3)  10      16 

TOTAL EARNINGS (LOSS) BEFORE INCOME TAXES

 $(902) $4,662  $2,397  $14,915 

 

  

September 30, 2024

  

March 31, 2024

 

IDENTIFIABLE ASSETS:

        

Flat-Roll

 $189,601  $205,797 

Tubular

  15,271   19,589 
   204,872   225,386 

General corporate assets

  4,295   4,633 
  $209,167  $230,019 

 

Operating profit (loss) is total net sales less operating expenses, excluding general corporate expenses, gain on economic hedges of risk, interest expense and other income (loss). General corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate and accounting salaries, professional fees and services, bad debts, retirement plan contribution expense, corporate insurance expenses, restricted stock plan compensation expense and office supplies. At September 30, 2024 and March 31, 2024, corporate assets consist primarily of cash, restricted cash, leased administrative office right-of-use assets, unamortized debt issuance costs and the cash value of officers’ life insurance. Although inventory is transferred at cost between product groups, there are no sales between product groups.

 

12

 

 

NOTE K — REVENUE

 

Revenue is generated primarily from contracts to manufacture or process steel products. Most of the Company’s revenue is generated by sales of material out of the Company’s inventory but a portion of the Company’s revenue is derived from processing or storage of customer owned material. Generally, the Company’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or when services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and expensed when incurred. Because customers are invoiced at the time title transfers and the Company’s rights to consideration are unconditional at that time, the Company does not maintain contract asset balances. Additionally, the Company does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. The Company offers industry standard payment terms.

 

The Company has two reportable segments: Flat-Roll and Tubular. Flat-roll primarily generates revenue from cutting to length hot-rolled steel coils. Flat-roll segment revenue consists of two product types: Company Owned Flat-Roll Products and Processing or Storage of Customer Owned Coil. Tubular primarily generates revenue from selling steel pipe it has manufactured resulting in a single product type: Manufactured Pipe.

 

The following table disaggregates our revenue by product for each of our reportable business segments for the three and six months ended September 30, 2024 and 2023, respectively (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Flat-Roll Segment:

                

Company Owned Flat-Roll Products

  96,232   119,195   198,066   243,168 

Processing or Storage of Customer Owned Coil

  1,147   1,332   2,700   2,556 
   97,379   120,527   200,766   245,724 

Tubular Segment:

                

Manufactured Pipe

  9,380   10,221   20,544   22,322 
   9,380   10,221   20,544   22,322 

 

 

   

NOTE L — STOCKHOLDERS’ EQUITY

 

The following tables reflect the changes in stockholders’ equity for each of the six months ended September 30, 2024 and September 30, 2023 (in thousands):

 

      

Accumulated

                 
      

Other

                 
      

Comprehensive

  

Additional

             
  

Common

  

Income,

  

Paid-In

  

Treasury

  

Retained

     
  

Stock

  

Net of Tax

  

Capital

  

Stock

  

Earnings

  

Total

 

BALANCE AT MARCH 31, 2024

 $8,873     $35,247  $(12,929) $96,284  $127,475 

Net earnings

              2,567   2,567 

Paid in capital – restricted stock units

        47         47 

Repurchase of shares

           (123)     (123)

Cash dividends ($0.04 per share)

              (279)  (279)

BALANCE AT JUNE 30, 2024

 $8,873  $  $35,294  $(13,052) $98,572  $129,687 

Net loss

              (675)  (675)

Paid in capital – restricted stock units

        42         42 

Repurchase of shares

           (11)     (11)

Cash dividends ($0.04 per share)

              (279)  (279)

BALANCE AT SEPTEMBER 30, 2024

 $8,873  $  $35,336  $(13,063) $97,618  $128,764 

 

13

 
      

Accumulated

                 
      Other                 
      

Comprehensive

  

Additional

             
  

Common

  

Income,

  

Paid-In

  

Treasury

  

Retained

     
  

Stock

  

Net of Tax

  

Capital

  

Stock

  

Earnings

  

Total

 

BALANCE AT MARCH 31, 2023

 $8,869   (317) $35,005  $(7,778) $79,653  $115,432 

Net earnings

              7,690   7,690 

Other comprehensive income

     317            317 

Paid in capital – restricted stock units

        78         78 

Cash dividends ($0.02 per share)

              (148)  (148)

BALANCE AT JUNE 30, 2023

 $8,869  $  $35,083  $(7,778) $87,195  $123,369 

Net earnings

              3,513   3,513 

Paid in capital – restricted stock units

        78         78 

Repurchase of shares

           (3)     (3)

Cash dividends ($0.02 per share)

              (148)  (148)

BALANCE AT SEPTEMBER 30, 2023

 $8,869  $  $35,161  $(7,781) $90,560  $126,809 

    

 

 

NOTE M — OTHER COMPREHENSIVE INCOME

 

The following table summarizes the tax effects on each component of Other Comprehensive Income for the six months ended September 30, 2023 (in thousands):

 

  

Six Months Ended September 30, 2023

 
  

Before-Tax

  

Tax

  

Net-of-Tax

 
            

Cash flow hedges

 $418  $(101) $317 

Other comprehensive income

 $418  $(101) $317 

  

14

  
 

NOTE N — EARNINGS PER SHARE

 

Basic and dilutive net earnings per share is computed based on the following information (in thousands, except for share data):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Numerator (basic and diluted)

                

Net earnings (loss)

 $(675) $3,513  $1,892  $11,203 

Less: Allocation to unvested restricted stock units

  1   41   8   131 

Net earnings (loss) attributable to common shareholders

 $(676) $3,472  $1,884  $11,072 
                 

Denominator (basic and diluted)

                

Weighted average common shares outstanding

  6,939,416   7,288,906   6,939,312   7,288,906 

 

For the six months ended September 30, 2024 and 2023, the Company allocated dividends and undistributed earnings to the unvested restricted stock units. 

 

As the restricted stock qualifies as participating securities, the following restricted stock units were not accounted in the computation of weighted average diluted common shares outstanding under the two-class method:

 

  

Three Months Ended

  

Six Months Ended

 
  

September 30,

  

September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Restricted Stock Units

  24,049   72,910   22,997   67,712 

 

 

NOTE O — SUPPLEMENTAL CASH FLOW INFORMATION

 

The Company paid interest of approximately $1.6 million and $1.2 million during the six months ended September 30, 2024 and 2023, respectively. Additionally, the Company paid income taxes of approximately $2.9 million and $2.7 million during the six months ended September 30, 2024 and 2023, respectively.

 

 

NOTE P — INCOME TAXES

 

For the six months ended September 30, 2024 and six months ended September 30, 2023, the Company recorded income tax provisions of approximately $0.5 million and $3.7 million, respectively. For the six months ended September 30, 2024, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision with this impact partially reduced by the tax effect of restricted stock vesting during the period. For the six months ended September 30, 2023, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

 

15

 
 

Item 2. 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: flat-roll products and tubular products.

 

The flat-roll product segment consists of the operation of five hot-rolled coil processing facilities located in Hickman, Arkansas; Decatur, Alabama; East Chicago, Indiana; Granite City, Illinois and Sinton, Texas. The Hickman, Granite City and East Chicago facilities operate temper mills and cut-to-length lines. The Decatur and Sinton facilities operate stretcher leveler cut-to-length lines. The equipment at all locations improve the flatness and surface quality of the coils and cut the coils into sheet and plate of prescribed lengths. On a combined basis, the facilities are capable of cutting sheet and plate with thicknesses ranging from 16 gauge to 1” thick in widths ranging from 36” wide to 96” wide. The vast majority of flat-roll product segment revenue is generated from sales of Company owned inventory but the segment also generates revenue from the processing or storage of 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. All of the tubular segment's revenue is generated from sales of Company owned inventory.

 

16

 

Results of Operations

 

Six Months Ended September 30, 2024 Compared to Six Months Ended September 30, 2023

 

During the six months ended September 30, 2024 (the “2024 period”), sales, cost of materials sold and adjusted gross profit decreased approximately $46.7 million, $33.3 million and $13.4 million, respectively, compared to the amounts recorded during the six months ended September 30, 2023 (the “2023 period”). The decrease in sales was associated with both a decline in sales volume and a decrease in the average selling price per ton. Sales volume for the 2024 period consisted of approximately 240,000 tons from inventory and another 42,000 tons of toll processing customer owned material compared to the 2023 period volume consisting of approximately 258,000 tons from inventory and 50,000 tons of toll processing. The decline in sales volume for the 2024 period was related to a combination of challenging conditions for some of our customers and extended planned downtime for equipment upgrades and maintenance at the Company's Sinton and Decatur facilities. Adjusted gross profit was approximately $36.7 million for the 2024 period compared to approximately $50.1 million for the 2023 period. Adjusted gross profit as a percentage of sales was approximately 16.6% for the 2024 period compared to approximately 18.7% for the 2023 period.

 

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC"). Entering the 2023 period, HRC prices had increased approximately 95% from November 2022 to April 2023. HRC prices then declined approximately 18% by the end of the 2023 period. As a result, the 2023 period benefitted from strong physical margins during the first half of the period and then experienced margin compression during the second half of the period. Entering the 2024 period, HRC prices were on a predominately declining trend dropping approximately 40% from January 2024 through the middle of August 2024. As a result, the Company experienced compressed physical margins throughout the 2024 period. The Company utilizes HRC futures to partially manage exposure to commodity price risk. The Company recognized hedging related gains of approximately $5.6 million and $4.8 million in the 2024 and 2023 periods, respectively.

 

Flat-roll Segment

 

Flat-roll product segment sales for the 2024 period totaled approximately $200.8 million compared to approximately $245.7 million for the 2023 period. For a more complete understanding of the average selling prices of goods sold, it is helpful to exclude any sales generated from processing or storage of customer owned material. Sales generated from processing or storage of customer owned material totaled approximately $2.7 million for the 2024 period compared to approximately $2.6 million for the 2023 period. Sales generated from flat-roll segment inventory totaled approximately $198.1 million for the 2024 period compared to approximately $243.1 million for the 2023 period. The average per ton selling price related to these shipments decreased from approximately $1,011 per ton in the 2023 period to approximately $895 per ton in the 2024 period. Sales volume for the 2024 period consisted of approximately 221,500 tons from inventory and another 42,000 tons of toll processing customer owned material compared to the 2023 period volume consisting of approximately 241,000 tons from inventory and 50,000 tons of toll processing. The decline in sales volume for the 2024 quarter was related to a combination of challenging conditions for some of our customers and extended planned downtime for equipment upgrades and maintenance at the Company's Sinton and Decatur facilities. Flat-roll segment operations recorded operating profits of approximately $5.3 million and $15.0 million for the 2024 period and 2023 period, respectively.

 

The Company’s flat-roll 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 Segment

 

Tubular product segment sales for the 2024 period totaled approximately $20.5 million compared to approximately $22.3 million for the 2023 period. Sales decreased primarily due to a decrease in the average selling price per ton from approximately $1,290 per ton for the 2023 period to approximately $1,087 per ton for the 2024 quarter. Tons sold increased from approximately 17,500 tons in the 2023 period to approximately 19,000 tons in the 2024 period. The tubular segment recorded an operating loss of approximately $1.8 million for the 2024 period compared to recording operating profit of approximately $2.3 million for the 2023 period.

 

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. 

 

General, Selling and Administrative Costs
 
During the 2024 period, selling, general and administrative costs decreased approximately $2.2 million compared to the 2023 period. This decrease is primarily related to lower incentive compensation expense due to the lower earnings in the 2024 period.
 

Income Taxes

 

Income taxes decreased from a provision for the 2023 period of approximately $3.7 million to a provision for the 2024 period of approximately $0.5 million. This decrease was primarily related to lower earnings before taxes for the 2024 period. The income tax provision as a percentage of earnings before tax was approximately 21.1% and 24.9% for the six months ended September 30, 2024 and 2023, respectively. For the six months ended September 30, 2024, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision with this impact partially reduced by the tax effect of restricted stock vesting during the period. For the six months ended September 30, 2023, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

 

17

 

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

 

During the three months ended September 30, 2024 (the “2024 quarter”), sales, cost of materials sold and adjusted gross profit decreased approximately $24.0 million, $21.5 million and $2.5 million, respectively, compared to the amounts recorded during the three months ended September 30, 2023 (the “2023 quarter”). The decrease in sales was associated with both a decline in sales volume and a decrease in the average selling price per ton. Sales volume for the 2024 quarter consisted of approximately 121,500 tons from inventory and another 18,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 129,500 tons from inventory and 26,000 tons of toll processing. The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given the political uncertainty at the time. Adjusted gross profit was approximately $18.0 million for the 2024 quarter compared to approximately $20.5 million for the 2023 quarter. Adjusted gross profit as a percentage of sales was approximately 16.9% for the 2024 quarter compared to approximately 15.7% for the 2023 quarter.

 

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC"). HRC price declined approximately 25% during the 2023 quarter with this decline being part of a downward price cycle which commenced in April 2023. From April 2023 and to the end of the 2023 quarter, HRC price declined approximately 45%. As a result, the Company experienced compressed margins during the 2023 quarter. Entering the 2024 quarter, HRC prices were on a predominately declining trend dropping approximately 40% from January 2024 through the middle of the 2024 quarter. As a result, the Company experienced compressed physical margins during the 2024 quarter. The Company utilizes HRC futures to partially manage exposure to commodity price risk. The Company recognized hedging related gains of approximately $0.2 million and $4.4 million in the 2024 and 2023 quarters, respectively.

 

Flat-roll Segment

 

Flat-roll product segment sales for the 2024 quarter totaled approximately $97.4 million compared to approximately $120.5 million for the 2023 quarter. For a more complete understanding of the average selling prices of goods sold, it is helpful to exclude any sales generated from processing or storage of customer owned material. Sales generated from processing or storage of customer owned material totaled approximately $1.1 million for the 2024 quarter compared to approximately $1.3 million for the 2023 quarter. Sales generated from flat-roll segment inventory totaled approximately $96.2 million for the 2024 quarter compared to approximately $119.2 million for the 2023 quarter. The average per ton selling price related to these shipments decreased from approximately $983 per ton in the 2023 quarter to approximately $858 per ton in the 2024 quarter. Sales volume for the 2024 quarter consisted of approximately 112,000 tons from inventory and another 18,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 121,000 tons from inventory and 26,000 tons of toll processing. The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given the political uncertainty at the time. Flat-roll segment operations recorded operating profits of approximately $2.7 million and $3.1 million for the 2024 quarter and 2023 quarter, respectively.

 

The Company’s flat-roll 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 Segment

 

Tubular product segment sales for the 2024 quarter totaled approximately $9.4 million compared to approximately $10.2 million for the 2023 quarter. Sales decreased due primarily to a decrease in the average selling price per ton from approximately $1,217 per ton for the 2023 quarter to approximately $1,030 per ton for the 2024 quarter. Sales volume was comparable between the periods with approximately 9,000 tons sold in the 2024 quarter compared to approximately 8,500 tons sold in the 2023 quarter. The tubular segment recorded an operating loss of approximately $0.6 million for the 2024 quarter compared to a break even operating profit for the 2023 quarter.

 

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. 

 

General, Selling and Administrative Costs
 
During the 2024 quarter, selling, general and administrative costs decreased approximately $0.8 million compared to the 2023 quarter. This decrease is primarily related to lower incentive compensation expense due to the lower earnings in the 2024 quarter.
 

Income Taxes

 

Income taxes decreased from a provision for the 2023 quarter of approximately $1.1 million to a benefit for the 2024 quarter of approximately $0.2 million. This decrease was primarily related to lower earnings before taxes for the 2024 quarter. The income tax provision or benefit as a percentage of earnings or loss before tax was approximately 25.2% and 24.6% for the three months ended September 30, 2024 and 2023, respectively. For both periods, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

 

 

Non-GAAP Information

 

The non-GAAP measure adjusted gross profit is used in this Management's Discussion and Analysis. Adjusted gross profit is calculated as sales minus cost of materials sold. Cost of materials sold is a discrete line on our statements of operations and represents the cost associated with direct materials. To provide financial statement users with a better understanding of the Company's expenses, cost of sales is disaggregated on our statements of operations into the line items cost of materials sold, processing and warehousing expense, delivery expense and depreciation and amortization. The Company believes adjusted gross profit is a meaningful measure because our cost structure and operating results are significantly impacted by the fluctuating costs associated with direct materials.

 

The following table reconciles the GAAP measure for gross profit to the non-GAAP measure adjusted gross profit (in thousands):

 

 

   

THREE MONTHS ENDED

 

SIX MONTHS ENDED

   

SEPTEMBER 30,

 

SEPTEMBER 30,

   

2024

 

2023

 

2024

 

2023

Gross profit (GAAP measure)

 

$                            3,933

 

$                     5,784

 

$                          7,046

 

$                      22,079

Processing and warehousing expense

 

 7,861

 

 7,409

 

 16,558

 

 14,582

Delivery expense

 

 5,381

 

 6,521

 

 11,432

 

 11,966

Depreciation and amortization

 

 823

 

 759

 

 1,618

 

 1,508

Adjusted gross profit (non-GAAP measure presented)

 

$                          17,998

 

$                   20,473

 

$                        36,654

 

$                      50,135

 

 

18

 

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s current ratio amounted to 4.1 at September 30, 2024 and 3.1 at March 31, 2024. Working capital was approximately $111.7 million at September 30, 2024 and $116.0 million at March 31, 2024.

 

During the six months ended September 30, 2024, 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 and restricted cash decreased due primarily to cash used for the purchase of property, plant and equipment and the reduction of debt. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

 

The Company has a $150 million asset-based lending facility ("ABL Facility") which matures on May 19, 2026 and is secured by substantially all of the assets of the Company. The Company can elect borrowings on a floating rate basis or a term basis. Floating rate borrowings accrue interest at a rate equal to the prime rate minus 1% per annum. Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable to the selected term plus 1.8% per annum. Availability of funds under the ABL Facility is subject to a borrowing base calculation determined as the sum of (a) 90% of eligible accounts receivable, plus (b) the product of 85% multiplied by the net orderly liquidating value percentage identified in the most recent inventory appraisal multiplied by eligible inventory. The ABL Facility contains a springing financial covenant whereby the financial covenant is only tested when availability falls below the greater of 15% of the revolving commitment or $22.5 million. The financial covenant restricts the Company from allowing its fixed charge coverage ratio to be, as of the end of any calendar month, less than 1.10 to 1.00 for the trailing twelve month period then ending. The fixed charge coverage ratio is calculated as the ratio of (a) EBITDA, as defined in the ABL Facility, minus unfinanced capital expenditures to (b) cash interest expense plus scheduled principal payments on indebtedness plus taxes paid in cash plus restricted payments paid in cash plus capital lease obligation payments plus cash contributions to any employee pension benefit plans. The ABL Facility contains other representations and warranties and affirmative and negative covenants that are usual and customary. If certain conditions precedent are satisfied, the ABL facility may be increased by up to an aggregate of $25 million, in minimum increments of $5 million. At September 30, 2024, the Company had a balance of approximately $35.9 million under the ABL Facility with an applicable interest rate of 7.0%. At September 30, 2024, the Company's applicable borrowing base calculation supported access to approximately $104.7 million of the ABL Facility. As of the filing date of this Form 10-Q, the Company had borrowings of approximately $33.1 million outstanding under the ABL Facility and the Company's most recent borrowing base calculation provided access to approximately $98.8 million of the ABL Facility.

 

The Company believes that its current cash position along with cash flows from operations and borrowing capability due to its financial position are adequate to fund its expected cash requirements for the next 12 months.

 

HEDGING ACTIVITIES

 

The Company utilizes hot-rolled coil futures to manage price risk on unsold inventory and longer-term fixed price sales agreements. The Company has elected hedge accounting for some of its hedging activities previously but most recently the Company has classified its hedging activities as economic hedges of risk with mark-to-market ("MTM") accounting treatment. Hedging decisions are intended to protect the value of the Company's inventory and produce more consistent financial results over price cycles. The Company recognized gains of approximately $0.2 million and $5.6 million in the three month and six month periods ended September 30, 2024, respectively, related to hedging activities with all of this being classified as economic hedges of risk. With MTM accounting treatment it is possible that hedging related gains or losses might be recognized in a different fiscal quarter or fiscal year than the corresponding improvement or contraction in our physical margins. See Note H for additional information related to the Company's hedging activities.

 

OUTLOOK

 

The Company expects sales volume for the third quarter of fiscal 2025 to be slightly lower than the second quarter volume due primarily to the seasonal impact of holidays. HRC price remained stable to start the third quarter resulting in minimal change to the Company’s sales prices and margins. As a result, the Company may experience a generally challenging margin environment in the third quarter.

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles may require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from any estimates. The Company did not identify any significant estimates or judgements related to the consolidated financial statements and accompanying notes presented in this Form 10-Q filing.

 

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CAUTIONARY NOTE REGARDING 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. Such statements may include those risks disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report, including the adequacy of cash and expectations as to future sales, prices and margins. These forward-looking statements may include, but are not limited to, future changes in the Company’s financial condition or 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 (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the Company’s Annual Report on Form 10-K and its other Quarterly Reports on Form 10-Q. Forward-looking statements include those preceded by, followed by or including the words “will,” “expect,” “intended,” “anticipated,” “believe,” “project,” “forecast,” “propose,” “plan,” “estimate,” “enable,” and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity. These forward-looking statements are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Although forward-looking statements reflect our current beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. 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 for and prices of the Company’s products, changes in government policy regarding steel, changes in the demand for steel and steel products in general and the Company’s success in executing its internal operating plans, changes in and availability of raw materials, unplanned shutdowns of our production facilities due to equipment failures or other issues, increased competition from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements. Accordingly, undue reliance should not be placed on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, as amended). We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and that any material information relating to us is recorded, processed, summarized and reported to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s CEO and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended September 30, 2024 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 (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

   

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FRIEDMAN INDUSTRIES, INCORPORATED

Six Months Ended September 30, 2024

 

Part II — OTHER INFORMATION   

 

Item 5. Other Information

 

During the six months ended September 30, 2024, none of our officers or directors adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) and (c), respectively, of Regulation S-K, for the purchase or sale of our securities.

 

Item 6. Exhibits

 

Exhibits

 

 

     

  3.1

Articles of Incorporation of the Company, as amended (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).

     

  3.2

Articles of Amendment to the Articles of Incorporation of the Company, as filed with the Texas Secretary of State on September 22, 1987 (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).

     

  3.3

Amended and Restated Bylaws of the Company, as amended on November 8, 2021. (incorporated by reference from Exhibit 3.3 to the Company's Form 10-Q filed on November 19, 2021).

     
  10.1 Friedman Industries, Incorporated Key Employee Change In Control Severance Plan.
     

  31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Michael J. Taylor.

     

  31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Alex LaRue.

     

  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 Michael J. Taylor.

     

  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 Alex LaRue.

     

101.INS

Inline XBRL Instance Document.

     

101.SCH

Inline XBRL Taxonomy Schema Document.

     

101.CAL

Inline XBRL Calculation Linkbase Document.

     

101.DEF

Inline XBRL Definition Linkbase Document.

     

101.LAB

Inline XBRL Label Linkbase Document.

     

101.PRE

Inline XBRL Presentation Linkbase Document.

     
104 Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)

 

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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 12, 2024

 

By

/s/    ALEX LARUE        

 

 

 

Alex LaRue, Chief Financial Officer – Secretary and

Treasurer (Principal Financial Officer)

 

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