FRIEDMAN INDUSTRIES INC

Previous wording

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.

Current wording

The tubular product segment consists of the Company’s Friedman Tubular division located in Lone Star, Texas. The segment 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.

Previous wording

Our operating results are influenced by changes in the market prices of the metals we purchase. The majority of the Company's revenue is generated from processing hot-rolled steel coil ("HRC") and products derived from HRC. Entering the 2026 quarter, HRC prices were in a sustained upward trend, increasing approximately 28% during the preceding quarter and an additional 10% throughout the 2026 quarter. This favorable pricing environment contributed to margin expansion during the quarter. By comparison, entering the 2025 quarter, HRC prices had reached the peak of a pricing cycle and remained relatively stable before declining modestly toward the end of the quarter. As a result, the Company also experienced favorable margins during the 2025 quarter, although the margin expansion was less pronounced than in the 2026 quarter. The Company utilizes HRC futures, options and swaps to partially manage exposure to commodity price risk. The Company recognized hedging related losses of approximately $2.8 million in the 2026 quarter compared to hedging related gains of approximately $0.3 million in the 2025 quarter.

Current wording

The Company's operating results are influenced by fluctuations in market prices for metals, particularly hot-rolled steel coil ("HRC"), as the majority of the Company's revenue is generated from processing HRC and products derived from HRC. During the 2026 period, the Company benefited from a sustained upward trend in HRC prices. Market prices increased approximately 28% between the end of the 2025 period and the beginning of the 2026 period, followed by an additional increase of approximately 22% during the 2026 period. This upward pricing trend, combined with solid demand and constrained supply, contributed to substantial margin expansion during the 2026 period. In contrast, HRC prices were near a cyclical peak at the beginning of the 2025 period and remained relatively stable before declining modestly toward the end of the period. These market conditions supported favorable margins early in the 2025 period, followed by margin compression as the period progressed. The benefit of the favorable pricing environment during the 2026 period was partially offset by hedging-related charges, including approximately $10.5 million of unrealized mark-to-market charges associated with open derivative positions intended to mitigate the Company's exposure to future fluctuations in metals prices.

Previous wording

During the three months ended June 30, 2026 (the “2026 quarter”), sales, cost of materials sold and adjusted gross profit increased approximately $105.2 million, $78.5 million and $26.7 million, respectively, compared to the amounts recorded during the three months ended June 30, 2025 (the “2025 quarter”). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was due to an increase in the average selling price per ton and an increase in sales volume. Sales volume for the 2026 quarter consisted of approximately 188,500 tons from inventory and another 17,500 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 141,500 tons from inventory and 19,000 tons of toll processing. Same facility year-over-year growth accounted for approximately 33,500 tons of the sales volume increase and the acquisition of Century Metals & Supplies contributed approximately 12,000 tons. Adjusted gross profit was approximately $55.8 million for the 2026 quarter compared to approximately $29.1 million for the 2025 quarter. Adjusted gross profit as a percentage of sales was approximately 23.2% for the 2026 quarter compared to approximately 21.6% for the 2025 quarter.

Current wording

During the three months ended September 30, 2026 (the “2026 quarter”), sales, cost of materials sold and adjusted gross profit increased approximately $134.4 million, $85.7 million and $48.7 million, respectively, compared to the amounts recorded during the three months ended September 30, 2025 (the “2025 quarter”). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was due to an increase in the average selling price per ton and an increase in sales volume. Sales volume for the 2026 quarter consisted of approximately 199,500 tons from inventory and another 20,000 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 154,500 tons from inventory and 24,500 tons of toll processing. The Company's legacy facilities generated approximately 31,000 additional tons of sales volume, accounting for approximately 77% of the year-over-year increase. This growth was complemented by approximately 9,000 tons of incremental volume attributable to Century Metals & Supplies, which contributed three months of operations in the 2026 quarter compared to only one month in the 2025 quarter. Adjusted gross profit was approximately $75.0 million for the 2026 quarter compared to approximately $26.3 million for the 2025 quarter. Adjusted gross profit as a percentage of sales was approximately 26.1% for the 2026 quarter compared to approximately 17.3% for the 2025 quarter.

Previous wording

Flat-roll product segment sales for the 2026 quarter totaled approximately $221.8 million compared to approximately $124.1 million for the 2025 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 both the 2026 quarter and the 2025 quarter. Sales generated from flat-roll segment inventory totaled approximately $220.6 million for the 2026 quarter compared to approximately $122.9 million for the 2025 quarter. The average per ton selling price related to these shipments increased from approximately $926 per ton in the 2025 quarter to approximately $1,262 per ton in the 2026 quarter. Sales volume for the 2026 quarter consisted of approxi mately 175,000 tons from inventory and another 17,500 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 132,500 tons from inventory and 19,000 tons of toll processing. The increase in sales volume for the 2026 quarter was related to a combination of stronger demand among some customers, successful commercial efforts to increase capacity utilization and the acquisition of Century. Flat-roll segment operations recorded earnings from operations of approximately $24.7 million and $8.8 million for the 2026 quarter and 2025 quarter, respectively.

Current wording

Flat-roll product segment sales for the 2026 quarter totaled approximately $266.6 million compared to approximately $143.3 million for the 2025 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 $1.5 million for the 2026 quarter and approximately $1.6 million for the 2025 quarter. Sales generated from flat-roll segment inventory totaled approximately $265.1 million for the 2026 quarter compared to approximately $141.7 million for the 2025 quarter. The average per ton selling price related to these shipments increased from approximately $963 per ton in the 2025 quarter to approximately $1,430 per ton in the 2026 quarter. Sales volume for the 2026 quarter consisted of approxi mately 185,500 tons from inventory and another 20,000 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 147,000 tons from inventory and 24,500 tons of toll processing. The increase in sales volume for the 2026 quarter was related to a combination of stronger demand among some customers, successful commercial efforts to increase capacity utilization and the acquisition of Century. Flat-roll segment operations recorded earnings from operations of approximately $40.7 million and $5.7 million for the 2026 quarter and 2025 quarter, respectively.

Previous wording

Tubular product segment sales for the 2026 quarter totaled approximately $18.2 million compared to approximately $10.7 million for the 2025 quarter. Sales increased due to a combination of sales volume growth and an increase in the average selling price per ton. Tons sold increased from approximately 9,000 tons in the 2025 quarter to approximately 13,500 tons in the 2026 quarter. The average per ton selling price increased from approximately $1,206 per ton for the 2025 quarter to approximately $1,341 per ton for the 2026 quarter. The tubular segment recorded earnings from operations of approximately $2.1 million and $1.3 million for the 2026 quarter and 2025 quarter, respectively.

Current wording

Tubular product segment sales for the 2026 quarter totaled approximately $20.2 million compared to approximately $9.0 million for the 2025 quarter. Sales increased due to a combination of sales volume growth and an increase in the average selling price per ton. Tons sold increased from approximately 7,500 tons in the 2025 quarter to approximately 14,000 tons in the 2026 quarter. The average per ton selling price increased from approximately $1,185 per ton for the 2025 quarter to approximately $1,454 per ton for the 2026 quarter. The tubular segment recorded earnings from operations of approximately $2.3 million and $0.9 million for the 2026 quarter and 2025 quarter, respectively.

Previous wording

During the 2026 quarter, selling, general and administrative costs increased approximately $5.4 million compared to the 2025 quarter. This increase was primarily driven by profit-based and volume-based incentive compensation being approximately $3.1 million higher for the 2026 quarter combined with approximately $1.7 million of additional ongoing expenses related to the operation of Century. The remaining increase was primarily attributable to an increase in personnel to support sales growth and execution of our strategic initiatives.

Current wording

During the 2026 quarter, selling, general and administrative costs increased approximately $5.3 million compared to the 2025 quarter. This increase was primarily driven by profit-based and volume-based incentive compensation being approximately $3.7 million higher for the 2026 quarter combined with approximately $1.4 million of additional ongoing expenses related to the operation of Century. The remaining increase was primarily attributable to an increase in personnel to support sales growth and execution of our strategic initiatives.

Previous wording

Income taxes increased from a provision for the 2025 quarter of approximately $1.6 million to a provision for the 2026 quarter of approximately $4.2 million. This increase was primarily related to increased earnings before taxes for the 2026 quarter. The income tax provision as a percentage of earnings before tax was approximately 24.7% and 24.3% for the 2026 quarter and 2025 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.

Current wording

Income taxes increased from a provision for the 2025 quarter of approximately $0.7 million to a provision for the 2026 quarter of approximately $5.0 million. This increase was primarily related to increased earnings before taxes for the 2026 quarter. The income tax provision as a percentage of earnings before tax was approximately 24.3% and 24.8% for the 2026 quarter and 2025 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 Company’s current ratio was 2.9 at June 30, 2026 and 3.4 at March 31, 2026. Working capital was approx imately $190.8 million at June 30, 2026 and $180.9 million at March 31, 2026.

Current wording

The Company’s current ratio was 2.7 at September 30, 2026 and 3.4 at March 31, 2026. Working capital was approx imately $213.5 million at September 30, 2026 and $180.9 million at March 31, 2026.

Previous wording

During the three months ended June 30, 2026, 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. 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, 2026, 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. Accounts receivable, inventories and accounts payable increased primarily due to a combination of sales volume growth and higher metals prices. Cash and restricted cash increased due to cash provided by operating and financing activities, partially offset by cash used in investing activities, primarily for capital expenditures. 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 $140 million asset-based lending facility ("ABL Facility") led by JPMorgan Chase Bank, N.A. with Wells Fargo Bank, N.A. as a 40% syndicated participant. The 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 $14 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 $60 million, in minimum increments of $5 million. At June 30, 2026, the Company had a balance of approximately $91.5 million under the ABL Facility with an applicable interest rate of 5.3% and the Company's borrowing base calculation supported full access to the ABL Facility.

Current wording

The Company has a $200 million asset-based lending facility ("ABL Facility") led by JPMorgan Chase Bank, N.A. with Wells Fargo Bank, N.A. as a 40% syndicated participant. The 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 $20 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, 2026, the Company had a balance of approximately $101.7 million under the ABL Facility with an applicable interest rate of 5.55% and the Company's borrowing base supported full access to the ABL Facility.

Previous 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 a loss of approximately $2.8 million during the three months ended June 30, 2026 and a gain of $0.3 million during the three months ended June 30, 2025 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.

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 a hedging related charge of approximately $17.4 million during the six months ended September 30, 2026 which includes approximately $10.5 million of unrealized mark-to-market charges associated with open derivative positions intended to manage future metals price exposure. In comparison, the Company recognized a gain of approximately $1.1 million during the six months ended September 30,2025 related to hedging activities. For the three months ended September 30, 2026, the Company recognized a hedging related charge of approximately $14.6 million, including approximately $9.8 million of unrealized mark-to-market charges. In comparison, the Company recognized a hedging-related gain of approximately $0.9 million for the three months ended September 30, 2025. Because changes in the fair value of these derivative positions are recognized in current earnings, hedging-related gains and charges may be recognized in different reporting periods than the corresponding effects of metals price movements on the Company's physical margins. See Note 9 for additional information related to the Company's hedging activities.