FRIEDMAN INDUSTRIES INC

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 a loss related to futures designated for hedge accounting of approximately $0.4 million for fiscal 2024 with all of this recognition occurring during the first fiscal quarter ended June 30, 2023. The Company recognized gains related to economic hedges of risk of approximately $7.6 million and $1.8 million during fiscal 2025 and fiscal 2024, respectively. 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 6 for additional information related to the Company's hedging activities.