FRIEDMAN INDUSTRIES INC

Previous wording

During the three months ended June 30, 2024 (the “2024 quarter”), sales, costs of materials and gross margin decreased approximately $22.7 million, $11.8 million and $10.9 million, respectively, compared to the amounts recorded during the three months ended June 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 119,000 tons from inventory and another 24,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 129,000 tons from inventory and 24,000 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. Gross margin was approximately $18.1 million for the 2024 quarter compared to approximately $29.1 million for the 2023 quarter. Gross margin is calculated as net sales minus cost of materials sold. Gross margin as a percentage of sales was approximately 15.8% for the 2024 quarter compared to approximately 21.2% for the 2023 quarter.

Current wording

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.

Previous wording

Flat-roll product segment sales for the 2024 quarter totaled approximately $103.4 million compared to approximately $125.2 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 $1.6 million for the 2024 quarter compared to approximately $1.2 million for the 2023 quarter. Sales generated from flat-roll segment inventory totaled approximately $101.8 million for the 2024 quarter compared to approximately $124.0 million for the 2023 quarter. The average per ton selling price related to these shipments decreased from approximately $1,038 per ton in the 2023 quarter to approximately $932 per ton in the 2024 quarter. Sales volume for the 2024 quarter consisted of approximately 109,000 tons from inventory and another 24,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 120,000 tons from inventory and 24,000 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 $2.7 million and $11.8 million for the 2024 quarter and 2023 quarter, respectively.

Current wording

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.

Previous wording

Income taxes decreased from a provision for the 2023 quarter of approximately $2.6 million to a provision for the 2024 quarter of approximately$0.7 million. This decrease was primarily related to lower earnings before taxes for the 2024 quarter. The income tax provision as a percentage of earnings before tax was approximately 22.2% and 25.0% for the three months ended June 30, 2024 and 2023, respectively. For thethree months ended June 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 quarter. For thethree months ended June 30, 2023, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Current wording

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 thesix months ended September 30, 2024 and 2023, respectively. For thesix 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 thesix 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.

Previous wording

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC"). Entering the 2023 quarter, HRC prices had increased approximately 95% from November 2022 to April 2023. As a result, the Company experienced strong physical 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 end 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 $5.4 million in the 2024 quarter compared to hedging activities having a neutral impact on the 2023 quarter results.

Current wording

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.

Previous wording

Tubular product segment sales for the 2024 quarter totaled approximately $11.2 million compared to approximately $12.1 million for the 2023 quarter. Sales decreased due primarily to a decrease in the average selling price per ton from approximately $1,358 per ton for the 2023 quarter to approximately $1,140 per ton for the 2024 quarter. Sales volume was comparable between period with approximately 10,000 tons sold in the 2024 quarter compared to approximately 9,000 tons sold in the 2023 quarter. The tubular segment recorded an operating loss of approximately$1.2 million for the 2024 quarter compared to recording operating profit of approximately$2.3 million for the 2023 quarter.

Current wording

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.

Previous wording

During the 2024 quarter, selling, general and administrative costs decreased approximately $1.4 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.

Current wording

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.

Previous wording

The Company’s current ratio amounted to 4.2 at June 30, 2024 and 3.1 at March 31, 2024. Working capital was approximately $123.6 million at June 30, 2024 and $116.0 million at March 31, 2024.

Current wording

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.

Previous wording

During the three months ended June 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 in operating activities and investing activities exceeding cash provided by financing activities. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

Current wording

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.

Previous wording

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 June 30, 2024, the Company had a balance of approximately $46.1 million under the ABL Facility with an applicable interest rate of 7.5%. At June 30, 2024, the Company's applicable borrowing base calculation supported access to approximately $112.4 million of the ABL Facility. As of the filing date of this Form 10-Q, the Company had borrowings of approximately $50.6 million outstanding under the ABL Facility and the Company's most recent borrowing base calculation provided access to approximately $120.2 million of the ABL Facility.

Current wording

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.

Previous wording

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 a gain of approximately $5.4 million in the 2024 quarter related to it 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 G for additional information related to the Company's hedging activities.

Current wording

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.

Previous wording

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 and trends in the oil and natural gas industry. 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 othe…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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 alternativ…

Excerpt shortened here; the source contains the full paragraph.