FRIEDMAN INDUSTRIES INC

Previous wording

Friedman Industries, Incorporated is a manufacturer and processor of steel products and operates in two reportable segments: flat-roll products and tubular products.

Current wording

Friedman Industries, Incorporated is a manufacturer and processor of metals and operates in two reportable segments: flat-roll products and tubular products.

Previous wording

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 improves 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.

Current wording

The flat-roll product segment consists of flat-roll processing facilities located in Hickman, Arkansas; Decatur, Alabama; Miami, Florida; East Chicago, Indiana; Granite City, Illinois and Sinton, Texas and a flat-roll distribution facility located in Orlando, Florida. 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 Miami facility operates a corrective leveling cut-to-length line and a coil slitting line. The processing equipment improves the quality of the material and cuts the material into sheet, plate or slit coil. On a combined basis, the facilities are capable of cutting sheet and plate with thicknesses ranging from 30 gauge to 1” thick in widths ranging from 11” wide to 96” wide. The flat-roll segment is able to produce slit coil with thickness ranging from 32 gauge to 10 gauge in widths ranging from 1/2" wide to 60" 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 material on a fee basis.

Previous wording

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC"). Entering the 2025 quarter, HRC price had reached the top of a price cycle and remained relatively stable during the 2025 quarter, decreasing slightly towards the end of the quarter. As a result, the Company experienced increased margins during the 2025 quarter. Entering the 2024 quarter, HRC price was on a predominately declining trend which continued throughout the 2024 quarter resulting in compressed physical margins. The Company utilizes HRC futures to partially manage exposure to commodity price risk. The Company recognized hedging related gains of approximately $0.3 million in the 2025 quarter compared to hedging related losses of approximately $5.4 million in the 2024 quarter.

Current wording

Our operating results are significantly impacted by the market prices of the metals we purchase. Most of the Company's revenue is generated from the processing of hot-rolled steel coil ("HRC") or derivative products from HRC. Entering the 2025 period, HRC price had reached the top of a price cycle. Prices remained fairly stable for the first half of the 2025 period and then declined approximately 10% during the second half of the 2025 period. As a result, the Company experienced stronger margins at the start of the 2025 period which then tapered off during the remainder of the period. Entering the 2024 period, HRC price was 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, options and swaps to partially manage exposure to commodity price risk. The Company recognized hedging related gains of approximately $1.1 million in the 2025 period compared to hedging related gains of approximately $5.6 million in the 2024 period.

Previous wording

During the three months ended June 30, 2025 (the “2025 quarter”), sales, cost of materials sold and adjusted gross profit increased approximately $20.2 million, $9.3 million and $10.9 million, respectively, compared to the amounts recorded during the three months ended June 30, 2024 (the “2024 quarter”). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was primarily due to an increase in sales volume. Sales volume for the 2025 quarter consisted of approximately 141,500 tons from inventory and another 19,000 tons of toll processing customer owned material compared to the 2024 quarter volume consisting of approximately 119,000 tons from inventory and 24,000 tons of toll processing. The increase in sales volume for the 2025 quarter was related to a combination of stronger demand among some customers and successful commercial efforts to increase capacity utilization. Adjusted gross profit was approximately $29.1 million for the 2025 quarter compared to approximately $18.1 million for the 2024 quarter. Adjusted gross profit as a percentage of sales was approximately 21.6% for the 2025 quarter compared to approximately 15.8% for the 2024 quarter.

Current wording

During the three months ended September 30, 2025 (the “2025 quarter”), sales, cost of materials sold and adjusted gross profit increased approximately $45.6 million, $37.3 million and $8.3 million, respectively, compared to the amounts recorded during the three months ended September 30, 2024 (the “2024 quarter”). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was primarily due to an increase in sales volume. Sales volume for the 2025 quarter consisted of approximately 154,500 tons from inventory and another 24,500 tons of toll processing customer owned material compared to the 2024 quarter volume consisting of approximately 121,500 tons from inventory and 18,000 tons of toll processing. The increase in sales volume for the 2025 quarter was primarily related to a combination of stronger demand among some customers and successful commercial efforts to increase capacity utilization. Adjusted gross profit was approximately $26.3 million for the 2025 quarter compared to approximately $18.0 million for the 2024 quarter. Adjusted gross profit as a percentage of sales was approximately 17.3% for the 2025 quarter compared to approximately 16.9% for the 2024 quarter.

Previous wording

Flat-roll product segment sales for the 2025 quarter totaled approximately $124.1 million compared to approximately $103.4 million for the 2024 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 $1.2 million for the 2025 quarter and approximately $1.6 million for the 2024 quarter. Sales generated from flat-roll segment inventory totaled approximately $122.9 million for the 2025 quarter compared to approximately $101.8 million for the 2024 quarter. The average per ton selling price related to these shipments decreased from approximately $932 per ton in the 2024 quarter to approximately $926 per ton in the 2025 quarter. Sales volume for the 2025 quarter consisted of approximately 132,500 tons from inventory and another 19,000 tons of toll processing customer owned material compared to the 2024 quarter volume consisting of approximately 109,000 tons from inventory and 24,000 tons of toll processing. The increase in sales volume for the 2025 quarter was related to a combination of stronger demand among some customers and successful commercial efforts to increase capacity utilization. Flat-roll segment operations recorded earnings from operations of approximately $8.8 million and $2.7 million for the 2025 quarter and 2024 quarter, respectively.

Current wording

Flat-roll product segment sales for the 2025 quarter totaled approximately $143.3 million compared to approximately $97.4 million for the 2024 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 2025 quarter and approximately $1.1 million for the 2024 quarter. Sales generated from flat-roll segment inventory totaled approximately $141.7 million for the 2025 quarter compared to approximately $96.2 million for the 2024 quarter. The average per ton selling price related to these shipments increased from approximately $858 per ton in the 2024 quarter to approximately $963 per ton in the 2025 quarter. Sales volume for the 2025 quarter consisted of approxi mately 147,000 tons from inventory and another 24,500 tons of toll processing customer owned material compared to the 2024 quarter volume consisting of approximately 112,000 tons from inventory and 18,000 tons of toll processing. The increase in sales volume for the 2025 quarter was related to a combination of stronger demand among some customers and successful commercial efforts to increase capacity utilization. Flat-roll segment operations recorded earnings from operations of approximately $5.7 million and $2.7 million for the 2025 quarter and 2024 quarter, respectively.

Previous wording

Tubular product segment sales for the 2025 quarter totaled approximately $10.7 million compared to approximately $11.2 million for the 2024 quarter. Sales decreased primarily due to a decline in tons sold, offset by a slight increase in the average selling price per ton. Tons sold decreased from approximately 10,000 tons in the 2024 quarter to approximately 9,000 tons in 2025 quarter. The average per ton selling price increased from approximately $1,140 per ton for the 2024 quarter to approximately $1,206 per ton for the 2025 quarter. The tubular segment recorded earnings from operations of approximately$1.3 million for the 2025 quarter compared to a loss from operations of approximately $1.2 million for the 2024 quarter.

Current wording

Tubular product segment sales for the 2025 quarter totaled approximately $9.0 million compared to approximately $9.4 million for the 2024 quarter. Sales decreased primarily due to a decline in tons sold, offset by an increase in the average selling price per ton. Tons sold decreased from approximately 9,000 tons in the 2024 quarter to approximately 7,500 tons in 2025 quarter. The average per ton selling price increased from approximately $1,030 per ton for the 2024 quarter to approximately $1,185 per ton for the 2025 quarter. The tubular segment recorded earnings from operations of approxi mately $0.9 million for the 2025 quarter compared to a loss from operations of approximately $0.6 million for the 2024 quarter.

Previous wording

During the 2025 quarter, selling, general and administrative costs increased approximately $0.9 million compared to the 2024 quarter. This increase is primarily related to increased incentive compensation expense due to the higher earnings in the 2025 quarter compared to the 2024 quarter.

Current wording

During the 2025 quarter, selling, general and administrative costs increased approximately $2.3 million compared to the 2024 quarter. This increase is primarily related to increased incentive compensation expense due to the higher earnings in the 2025 quarter compared to the 2024 quarter and approximately $0.9 million of non-recurring transaction related expenses associated with the acquisition of Century Metals & Supplies..

Previous wording

Income taxes increased from a provision for the 2024 quarter of approximately $0.7 million to a provision for the 2025 quarter of approximately$1.6 million. This increase was primarily related to increased earnings before taxes for the 2025 quarter. The income tax provision as a percentage of earnings before tax was approximately 24.3% and 22.2% for the three months ended June 30, 2025 and 2024, respectively. For both quarters, 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 quarters.

Current wording

Income taxes increased from a benefit for the 2024 quarter of approximately $0.2 million to a provision for the 2025 quarter of approximately $0.7 million. This increase was primarily related to increased earnings before taxes for the 2025 quarter. The income tax provision or benefit as a percentage of earnings before tax was approximately 24.8% and 25.2% for the 2025 quarter and 2024 quarter, respectively. For both quarters, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Previous wording

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 purchased steel, inbound freight, transfer freight and certain external processing costs. 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 purchased steel.

Current wording

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 purchased metals, inbound freight, transfer freight and certain external processing costs. 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 purchased metals.

Previous wording

The Company’s current ratio was 3.9 at June 30, 2025 and 4.3 at March 31, 2025. Working capital was approximately $117.5 million at June 30, 2025 and $128.1 million at March 31, 2025.

Current wording

The Company’s current ratio was 3.2 at September 30, 2025 and 4.3 at March 31, 2025. Working capital was approx imately $159.9 million at September 30, 2025 and $128.1 million at March 31, 2025.

Previous wording

During the three months ended June 30, 2025, 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.

Current wording

During the six months ended September 30, 2025, 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 and due to the acquisition of Century Metals & Supplies resulting in notable increases to accounts receivable, inventory, fixed assets, accounts payable and ABL facility 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") in place with JPMorgan Chase Bank, N.A. as the arranging agent and BMO Harris Bank, N.A. as a one-third syndicated participant. On May 6, 2025, the Company executed the fourth amendment to the credit agreement which extended the maturity date of the ABL Facility to August 19, 2026. The ABL Facility 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 up to an aggregate of $25 million, in minimum increments of $5 million. At June 30, 2025, the Company had a balance of approximately $33.0 million under the ABL Facility with an applicable interest rate of 6.2%. At June 30, 2025, the Company's applicable borrowing base calculation supported access to approximately $103.7 million of the ABL Facility. As of the filing date of this Form 10-Q, the Company had borrowings of approximately $27.9 million outstanding under the ABL Facility and the Company's most recent borrowing base calculation provided access to approximately $104.3 million of the ABL Facility.

Current wording

On August 29, 2025, the Company renewed its asset-based lending facility ("ABL Facility") led by JPMorgan Chase Bank, N.A by executing the fifth amendment to the credit agreement. Wells Fargo Bank, N.A. became the only syndicated participant of the ABL facility with a 40% holding. The $125 million ABL Facility matures on August 29, 2030 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 1.45% per annum. Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable to the selected term plus 1.65% 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 10% of the revolving commitment or $12.5 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 1.00 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 up to an aggregate of $75 million, in minimum increments of $5 million. At September 30, 2025, the Company had a balance of approximately $83.5 million under the ABL Facility with an applicable interest rate of 5.8%. As of the filing date of this Form 10-Q, the Company had borrowings of approximately $84.2 million outstanding under the ABL Facility and the Company's most recent borrowing base calculation supported full access to the ABL Facility.

Previous wording

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. With maturity of the existing ABL facility approaching one year, the Company is in the process of renewing its credit arrangement.

Current wording

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.

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 gains of approximately $0.3 million and $5.4 million in the three months ended June 30, 2025 and 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 8 for additional information related to the Company's hedging activities.

Current wording

The Company utilizes hot-rolled coil futures, options and swaps 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 $1.1 million and $5.6 million in the six months ended September 30, 2025 and 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 9 for additional information related to the Company's hedging activities.

Previous wording

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.

Current wording

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. The determination of fair values related to the Century Metals & Supplies business combination accounting involves significant estimates and judgements in the valuation process. Actual results could differ from any estimates.