What changed in this filing

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Item 1. Financial Statements

2021-02-22 compared with 2020-11-16 · 121 added, 62 removed, 280 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

SEPTEMBER 30, 2020

DECEMBER 31, 2020

MARCH 31, 2020

CURRENT ASSETS:

Accounts receivable, net of allowances for bad debts and cash discounts of $82,417 at September 30, and March 31, 2020

Accounts receivable, net of allowances for bad debts and cash discounts of $82,417 at December 31, and March 31, 2020

Other current assets

14 unchanged sentences

Employee compensation and related expenses

Income taxes payable

Current portion of financing lease

9 unchanged sentences

Common stock, par value $1:

Authorized shares — 10,000,000 Issued shares — 8,306,160 shares and 8,295,160 shares at September 30, and March 31, 2020, respectively

Authorized shares — 10,000,000 Issued shares — 8,334,785 shares and 8,295,160 shares at December 31, and March 31, 2020, respectively

Additional paid-in capital

Treasury stock at cost (1,292,997 shares and 1,225,716 shares at September 30, and March 31, 2020, respectively)

Accumulated other comprehensive income

Treasury stock at cost (1,355,916 shares and 1,225,716 shares at December 31, and March 31, 2020, respectively)

Retained earnings

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

THREE MONTHS ENDED SEPTEMBER 30,

SIX MONTHS ENDED SEPTEMBER 30,

THREE MONTHS ENDED DECEMBER 31,

NINE MONTHS ENDED DECEMBER 31,

Costs and expenses

11 unchanged sentences

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

THREE MONTHS ENDED DECEMBER 31,

NINE MONTHS ENDED DECEMBER 31,

Net earnings (loss)

Other comprehensive income (loss):

Cash flow hedges, net of tax

Other comprehensive income:

Comprehensive income (loss)

FRIEDMAN INDUSTRIES, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

SIX MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED DECEMBER 31,

OPERATING ACTIVITIES

Adjustments to reconcile net loss to cash provided by operating activities:

Net earnings (loss)

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

Deferred taxes

2 unchanged sentences

Lower of cost or net realizable value inventory adjustment

Deferred gain on derivatives

Decrease (increase) in operating assets:

7 unchanged sentences

Employee compensation and related expenses

Other non-current liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES

9 unchanged sentences

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

INCREASE IN CASH

CASH AT BEGINNING OF PERIOD

CASH AT END OF PERIOD

INCREASE IN CASH AND RESTRICTED CASH

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

CASH AND RESTRICTED CASH AT END OF PERIOD

Cash and restricted cash at the end of the nine month period ended December 31, 2020 includes $1,215,300 of cash margin required to collateralize our open derivative positions.

This amount is reported in "Other current assets" on the Company's consolidated balance sheet at December 31, 2020.

All of the cash and restricted cash at the end of the nine month period ended December 31, 2019 was reported in "Cash" on the Company's consolidated balance sheet at December 31, 2019.

FRIEDMAN INDUSTRIES, INCORPORATED

54 unchanged sentences

A summary of inventory values by product group follows:

September 30, 2020

December 31, 2020

March 31, 2020

24 unchanged sentences

In October 2019, the Company received a new heavy-duty forklift under a 5-year finance lease arrangement with a financed amount of $518,616 and a monthly payment of $9,074.

The components of expense related to leases for the three and six months ended September 30, 2020 are as follows:

THREE MONTHS ENDED SEPTEMBER 30,

SIX MONTHS ENDED SEPTEMBER 30,

The components of expense related to leases for the three and nine months ended December 31, 2020 and 2019 are as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

Finance lease – amortization of ROU asset

1 unchanged sentence

Operating lease expense

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of September 30, 2020 :

September 30, 2020

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of December 31, 2020 :

December 31, 2020

Balance Sheet Classification

10 unchanged sentences

Total lease liabilities

As of September 30, 2020 , the weighted-average remaining lease term was 0.6 year for operating leases and 4 years for finance leases.

As of December 31, 2020 , the weighted-average remaining lease term was 0.3 year for operating leases and 3.7 years for finance leases.

The weighted average discount rate was 7% for operating leases and 1.9% for finance leases.

Maturities of lease liabilities as of September 30, 2020 were as follows:

Maturities of lease liabilities as of December 31, 2020 were as follows:

Operating Leases

5 unchanged sentences

NOTE F — PROPERTY, PLANT AND EQUIPMENT

The Company continued the previously announced capital expenditure project at our Decatur, Alabama facility during the second quarter of fiscal 2021.

The Company continued the previously announced capital expenditure project at our Decatur, Alabama facility during the third quarter of fiscal 2021.

This project involves the purchase and installation of a stretcher leveler coil processing line.

1 unchanged sentence

The equipment was purchased from and is being constructed, fabricated and installed by Delta Steel Technologies.

The Company currently expects the installation of the new equipment to begin in December 2020 and expects commercial use of the equipment to begin in February 2021.

Installation of the equipment began in December 2020 and the Company expects commercial use of the equipment to begin in March 2021.

The Company currently estimates the cost of this project to be $7,200,000.

This estimated cost is greater than our previously disclosed cost of $5,800,000 due to additional components that have been added to the project to improve the efficiency and output of the equipment.

As of September 30, 2020 , expenditures related to the Decatur project totaled $5,427,263 with this amount reported as Construction in Process on the Company’s consolidated balance sheet.

As of December 31, 2020 , expenditures related to the Decatur project totaled $6,478,594 with this amount reported as Construction in Process on the Company’s consolidated balance sheet.

NOTE G — STOCK BASED COMPENSATION

4 unchanged sentences

Forfeitures are accounted for upon their occurrence.

The following table summarizes the activity related to restricted stock awards for the six months ended September 30, 2020 :

The following table summarizes the activity related to restricted stock awards for the nine months ended December 31, 2020 :

Weighted Average

3 unchanged sentences

Cancelled or forfeited

Unvested at September 30, 2020

Of the 281,000 unvested shares at September 30, 2020 , 160,000 shares have five year cliff vesting restrictions with vesting occurring on January 4, 2022, 20,000 shares have five year cliff vesting restrictions with vesting occurring on April 1, 2024, 20,000 shares have two year cliff vesting restrictions with vesting occurring on March 13, 2021, 11,000 shares have one year cliff vesting restrictions with vesting occurring on April 1, 2021 and 70,000 shares will vest in equal amounts each year for five years commencing on April 1, 2020.

Unvested at December 31, 2020

Compensation expense is recognized over the requisite service period applicable to each award.

The Company recorded compensation expense of $221,627 and $166,472 in the six months ended September 30, 2020 and 2019 , respectively, relating to the stock awards issued under the Plan.

As of September 30, 2020 , unrecognized compensation expense related to stock awards was approximately $688,000, which is expected to be recognized over a weighted average period of approximately 2.9 years.

Subsequent to September 30, 2020 , restricted stock awards of 78,625 shares were granted with a grant date fair value of $5.80 per share.

These shares have a range of vesting restrictions from one to four years.

The Company recorded compensation expense of $376,363 and $249,708 in the nine months ended December 31, 2020 and 2019 , respectively, relating to the stock awards issued under the Plan.

As of December 31, 2020 , unrecognized compensation expense related to stock awards was approximately $1,014,541, which is expected to be recognized over a weighted average period of approximately 2.8 years.

NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS

1 unchanged sentence

From time to time, we expect to use derivative financial instruments to minimize our exposure to commodity price risk that is inherent in our business.

At the time derivative contracts are entered into, we will assess whether the nature of the instrument qualifies for hedge accounting treatment according to the requirements of ASC 815 – Derivatives and Hedging (“ASC 815”).

At the time derivative contracts are entered into, we assess whether the nature of the instrument qualifies for hedge accounting treatment according to the requirements of ASC 815 – Derivatives and Hedging (“ASC 815”).

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 minimizes its credit risk by entering into transactions with high quality counterparties.

The Company minimizes 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.

2 unchanged sentences

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.

During the three months ended September 30, 2020 , the Company recognized gains from hedging instruments of $4,000.

The Company’s consolidated statement of operations for the three and six months ended September 30, 2020 included the $4,000 gain within costs of goods sold for the hedging activity.

As of September 30, 2020 the Company did not have any open future positions.

We reported a margin requirement of $118,125 that is included in “Other current assets” on the consolidated balance sheet at September 30, 2020 .

During the three months ended December 31, 2020, the Company entered into hot-rolled coil futures contracts which were designated as hedging instruments and classified as cash flow hedges, either as hedges of variable purchase prices or as hedges of variable sales prices.

Accordingly, realized and unrealized gains and losses associated with the instruments are reported as a component of other comprehensive income and reclassified into earnings during the period in which the hedged transaction affects earnings.

At December 31, 2020, the Company had a $1,215,300 cash margin requirement to collateralize our open hedging positions.

This margin requirement is included in "Other current assets" on the Company's consolidated balance sheet at December 31, 2020.

The Company recorded a receivable of $1,227,940 related to closed positions whose cash settlement occurred subsequent to quarter end with this amount included in "Other current assets" on the Company's consolidated balance sheet at December 31, 2020.

For the three months and nine months ended December 31, 2020, the Company did not have any derivative instruments not designated 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 December 31, 2020 :

Asset Derivatives

Liability Derivatives

Balance Sheet

Derivatives designated as cash flow hedges:

Hot-rolled coil steel contracts hedging purchases

Other current assets

Hot-rolled coil steel contracts hedging sales

Other current assets

The notional amounts (quantities) of our cash flow hedges outstanding at December 31, 2020 consisted of 16,080 tons hedging purchases and 32,120 tons hedging sales.

The following table summarizes the gain recognized in other comprehensive income and the gain reclassified from accumulated other comprehensive income into earnings for derivative financial instruments designated as cash flow hedges for both the three months and nine months ended December 31, 2020 :

Gain Recognized

Location of Gain Reclassified from

Gain Reclassified from

AOCI into Net Earnings

Hot-rolled coil steel contracts

Costs of goods sold

The estimated amount of gains recognized in AOCI at December 31, 2020 expected to be reclassified into net earnings (loss) within the succeeding twelve months is $3,533,120.

This amount was computed using the fair value of the cash flow hedges as of December 31, 2020, and will change before actual reclassification from OCI to net earnings (loss).

The maximum derivative contract duration for contracts hedging purchases is 2 months.

The maximum derivative contract duration for contracts hedging sales is 17 months.

Contracts with settlement dates beyond one year are not material.

The Company did not have any derivative financial instruments for the three months or nine months ended December 31, 2019.

NOTE I — FAIR VALUE MEASUREMENTS

5 unchanged sentences

Recurring Fair Value Measurements

At September 30, 2020 and March 31, 2020 , the Company did not have any financial instruments that required fair value measurement on a recurring basis.

At December 31, 2020 , our financial assets measured at fair value on a recurring basis were as follows:

Quoted Prices

Commodity futures – financial assets

At March 31, 2020 , the Company did not have any financial instruments that required fair value measurement on a recurring basis.

Non-Recurring Fair Value Measurements

3 unchanged sentences

At March 31, 2020 , the Company performed an impairment review of the tubular segment’s pipe finishing facility that resulted in the assets being written down to their estimated fair value of $1,771,450.

At September 30, 2020 , the Company did not have any fair value measurements on a non-recurring basis.

At December 31, 2020 , the Company did not have any fair value measurements on a non-recurring basis.

NOTE J — SEGMENT INFORMATION (in thousands)

THREE MONTHS ENDED

SIX MONTHS ENDED

SEPTEMBER 30,

Three Months Ended December 31,

Nine Months Ended December 31,

Total net sales

2 unchanged sentences

Corporate expenses

Interest expense

Interest expenses

Interest and other income

Total earnings (loss) before taxes

September 30, 2020

December 31, 2020

March 31, 2020

2 unchanged sentences

Corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate executive and accounting salaries, professional fees and services, bad debts, retirement plan contribution expense, corporate insurance expenses, restricted stock plan compensation expense and office supplies.

Corporate assets consist primarily of cash, the cash value of officers’ life insurance and income taxes recoverable.

Corporate assets consist primarily of cash and the cash value of officers’ life insurance.

NOTE K — REVENUE

16 unchanged sentences

Manufactured Pipe, Mill Reject Pipe and Pipe Finishing Services.

The Company did not generate any revenue from pipe finishing services during any of the three month or six month periods ended September 30, 2020 or September 30, 2019.

The Company did not generate any revenue from pipe finishing services during any of the three month or nine month periods ended December 31, 2020 or December 31, 2019 .

The pipe finishing facility is currently idled due to market conditions.

The following table disaggregates our revenue by product for each of our reportable business segments for the three and six months ended September 30, 2020 and 2019 , respectively:

Three Months Ended September 30,

Six Months Ended September 30,

The following table disaggregates our revenue by product for each of our reportable business segments for the three and nine months ended December 31, 2020 and 2019 , respectively:

Three Months Ended December 31,

Nine Months Ended December 31,

Coil Segment:

5 unchanged sentences

NOTE L — STOCKHOLDERS’ EQUITY

The following tables reflect the changes in stockholders’ equity for the six months ended September 30, 2020 and September 30, 2019 :

The following tables reflect the changes in stockholders’ equity for each of the quarters during the nine month periods ended December 31, 2020 and December 31, 2019 :

Comprehensive

BALANCE AT MARCH 31, 2020

7 unchanged sentences

BALANCE AT SEPTEMBER 30, 2020

Other comprehensive income

Issuance of restricted stock

Paid in capital – restricted stock awards

Repurchase of shares

Cash dividends ($0.02 per share)

BALANCE AT DECEMBER 31, 2020

Comprehensive

BALANCE AT MARCH 31, 2019

6 unchanged sentences

BALANCE AT SEPTEMBER 30, 2019

Paid in capital – restricted stock awards

Cash dividends ($0.02 per share)

BALANCE AT DECEMBER 31, 2019

On June 25, 2020, the Board of Directors of the Company authorized a share repurchase program under which the Company may repurchase up to 1,062,067 shares of the Company’s outstanding common stock through June 30, 2023, which equates to 15% of the Company’s outstanding shares of common stock as of June 25, 2020.

2 unchanged sentences

The repurchase program does not obligate the Company to acquire a specific dollar amount or number of shares and may be modified, suspended or discontinued at any time.

The Company repurchased 67,281 shares at a cost of $410,221 under the program during the three months ended September 30, 2020 .

NOTE M — SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid interest of approximately $12,000 during the six months ended September 30, 2020 and did not pay any interest during the six months ended September 30, 2019 .

The Company paid income taxes of approximately $10,000 and $245,000 during the six month periods ended September 30, 2020 and September 30, 2019 , respectively.

In the six months ended September 30, 2019, there were noncash transactions totaling approximately $121,000 for the transfer of ownership of life insurance policies from the Company to officers upon their retirement.

NOTE N — INCOME TAXES

For the six months ended September 30, 2020 , the Company recorded an income tax benefit of $340,484, or 23.5% of loss before income taxes, compared to a tax benefit of $413,493, or 23.5% of loss before income taxes, for the six months ended September 30, 2019 .

For both six month periods, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax benefits in the provision.

NOTE O – RELATED PARTY TRANSACTIONS

The Company has repurchased 180,200 shares at a cost of $1,143,356 under the program as of December 31, 2020 .

NOTE M — OTHER COMPREHENSIVE INCOME

The following table summarizes the tax effects on each component of OCI for the periods presented:

Three Months Ended December 31, 2020

Cash flow hedges

Other comprehensive income

Nine Months Ended December 31, 2020

Cash flow hedges

Other comprehensive income

For the three month and nine month periods ended December 31, 2019, the Company did not have transactions to report in comprehensive income.

NOTE N — SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid interest of approximately $6,000 during the nine months ended December 31, 2020 and $2,500 during the nine months ended December 31, 2019 .

The Company paid income taxes of approximately $10,000 and $259,000 during the nine months ended December 31, 2020 and nine months ended December 31, 2019 , respectively.

In the nine months ended December 31, 2019 , there were noncash transactions totaling approximately $121,000 for the transfer of ownership of life insurance policies from the Company to officers upon their retirement.

NOTE O — INCOME TAXES

For the nine months ended December 31, 2020 , the Company recorded an income tax provision of $298,668, or 22.6% of earnings before income taxes, compared to a tax benefit of $678,043, or 23.3% of loss before income taxes for the nine months ended December 31, 2019 .

For both nine month periods, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses or benefits in the provision.

NOTE P – RELATED PARTY TRANSACTIONS

The Company has engaged Metal Edge Partners, LLC (“Metal Edge”) to provide services that include strategic advisory services, risk management services, procurement advisory services, steel market analytics and macro-economic analytics.

Tim Stevenson serves as a member of our Board of Directors and serves as Chief Executive Officer of Metal Edge.

In the six months ended September 30, 2020 , we paid Metal Edge $87,500 related to these services.

In the nine months ended December 31, 2020 , we paid Metal Edge $136,000 related to these services.

Our agreement with Metal Edge may be terminated by either party, without cause, upon ninety days prior written notice.

The agreement calls for a minimum of $12,500 per month for these services.

There were no related party transactions to disclose for the nine months ended December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements