FRIEDMAN INDUSTRIES INC 10-Q

Item 1. Financial Statements FRIEDMAN INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED (In thousands, except for share data) DECEMBER 31, 2023 MARCH 31, 2023 ASSETS CURRENT ASSETS: Cash $ 4,009 $ 2,992 Accounts receivable, net of allowances for bad debts of $ 138 and $ 183 at December 31, and March 31, 2023, respectively 44,422 49,367 Inventories 113,901 86,246 Current portion of derivative assets 26 536 Other current assets 8,539 4,515 TOTAL CURRENT ASSETS 170,897 143,656 PROPERTY, PLANT AND EQUIPMENT: Land 1,670 1,670 Buildings and yard improvements 29,266 28,550 Machinery and equipment 52,021 51,001 Construction in process 4,174 1,167 Less accumulated depreciation ( 30,643 ) ( 28,455 ) 56,488 53,933 OTHER ASSETS: Cash value of officers’ life insurance and other assets 377 453 Operating lease right-of-use asset 1,193 1,270 TOTAL ASSETS $ 228,955 $ 199,312 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 47,870 $ 36,847 Income taxes payable 2,174 774 Dividends payable 139 148 Contribution to retirement plan — 350 Employee compensation and related expenses 3,529 4,650 Current portion of financing lease 81 107 Current portion of derivative liability 808 2,212 TOTAL CURRENT LIABILITIES 54,601 45,088 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 103 96 DEFERRED INCOME TAX LIABILITY 4,418 4,357 OTHER NON-CURRENT LIABILITIES 1,127 1,222 ASSET BASED LENDING FACILITY 45,963 33,117 TOTAL LIABILITIES 106,212 83,880 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Common stock, par value $ 1 : Authorized shares — 10,000,000 ; Issued shares — 8,868,716 shares at December 31, and March 31, 2023 8,869 8,869 Additional paid-in capital 35,198 35,005 Accumulated other comprehensive loss — ( 317 ) Treasury stock at cost ( 1,896,892 shares and 1,493,128 shares at December 31, and March 31, 2023, respectively) ( 12,929 ) ( 7,778 ) Retained earnings 91,605 79,653 TOTAL STOCKHOLDERS’ EQUITY 122,743 115,432 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 228,955 $ 199,312 The accompanying notes are an integral part of these financial statements. 3 Table of Contents FRIEDMAN INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED (In thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2023 2022 2023 2022 Net Sales $ 115,973 $ 111,860 $ 384,019 $ 423,356 Costs and expenses: Costs of products sold 105,531 105,730 351,427 393,876 Selling, general and administrative 4,269 4,701 15,007 15,662 109,800 110,431 366,434 409,538 EARNINGS FROM OPERATIONS 6,173 1,429 17,585 13,818 Gain (loss) on economic hedges of risk ( 4,126 ) 822 706 7,326 Interest expense ( 790 ) ( 448 ) ( 2,135 ) ( 1,498 ) Other income 1 4 17 24 EARNINGS BEFORE INCOME TAXES 1,258 1,807 16,173 19,670 Provision for (benefit from) income taxes: Current 82 448 3,827 4,686 Deferred ( 8 ) ( 17 ) ( 41 ) ( 47 ) 74 431 3,786 4,639 NET EARNINGS $ 1,184 $ 1,376 $ 12,387 $ 15,031 Net earnings per share: Basic $ 0.16 $ 0.19 $ 1.69 $ 2.06 Diluted $ 0.16 $ 0.19 $ 1.69 $ 2.06 Cash dividends declared per common share $ 0.02 $ 0.02 $ 0.06 $ 0.06 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED (In thousands) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2023 2022 2023 2022 Net earnings $ 1,184 $ 1,376 $ 12,387 $ 15,031 Other comprehensive income: Cash flow hedges, net of tax — 669 317 9,422 — 669 317 9,422 Comprehensive income $ 1,184 $ 2,045 $ 12,704 $ 24,453 The accompanying notes are an integral part of these financial statements. 4 Table of Contents FRIEDMAN INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED (In thousands) NINE MONTHS ENDED DECEMBER 31, 2023 2022 OPERATING ACTIVITIES Net earnings $ 12,387 $ 15,031 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization 2,293 1,879 Deferred taxes ( 41 ) ( 47 ) Compensation expense for restricted stock 193 224 Change in postretirement benefits 6 8 Gain recognized on open derivatives not designated for hedge accounting ( 894 ) ( 1,353 ) Deferred realized gain on derivatives 418 3,156 Decrease (increase) in operating assets, net of amounts acquired in business combination: Accounts receivable 4,945 ( 7,402 ) Inventories ( 27,656 ) 47,659 Federal income taxes recoverable — 1,403 Other current assets ( 1,621 ) 428 Increase (decrease) in operating liabilities, net of amounts assumed in business combination: Accounts payable and accrued expenses 11,058 ( 20,791 ) Income taxes payable 1,400 2,631 Contribution to retirement plan ( 350 ) 100 Employee compensation and related expenses ( 1,121 ) 1,173 NET CASH PROVIDED BY OPERATING ACTIVITIES 1,017 44,099 INVESTING ACTIVITIES Plateplus business combination — ( 71,720 ) Purchase of property, plant and equipment ( 4,774 ) ( 8,279 ) Increase in cash surrender value of officers’ life insurance ( 10 ) ( 10 ) NET CASH USED IN INVESTING ACTIVITIES ( 4,784 ) ( 80,009 ) FINANCING ACTIVITIES Debt issuance cost — ( 329 ) Cash dividends paid ( 443 ) ( 442 ) Cash paid for principal portion of finance lease ( 80 ) ( 79 ) Cash paid for share repurchases ( 5,151 ) ( 37 ) Asset based lending facility proceeds 12,847 26,075 NET CASH PROVIDED BY FINANCING ACTIVITIES 7,173 25,188 INCREASE (DECREASE) IN CASH AND RESTRICTED CASH 3,406 ( 10,722 ) CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD 5,386 16,122 CASH AND RESTRICTED CASH AT END OF PERIOD $ 8,792 $ 5,400 Cash and restricted cash at December 31, 2023 and March 31, 2023 included approximately $4.8 million and $2.4 million, respectively, of cash required to collateralize open derivative positions. These amounts are reported in "Other current assets" on the Company's consolidated balance sheets at December 31, 2023 and March 31, 2023. The Company had approximately $1.9 million in restricted cash at December 31, 2022 . The accompanying notes are an integral part of these financial statements. 5 Table of Contents FRIEDMAN INDUSTRIES, INCORPORATED CONDENSED NOTES TO QUARTERLY REPORT — UNAUDITED NOTE A — BASIS OF PRESENTATION The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10 -Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes of Friedman Industries, Incorporated (the “Company”) included in its annual report on Form 10 -K for the year ended March 31, 2023 . Business Combinations The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition. The Company allocates the purchase price to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to make significant judgments and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. Acquisition-related transaction costs are expensed in the period in which the costs are incurred. Reclassifications The unaudited condensed consolidated financial statements for the previous year may include certain reclassifications to conform to the current presentation. To conform with the current year presentation, “ Interest expense ” on the unaudited condensed consolidated statements of operations was moved below the calculation of " Earnings From Operations ". To conform with the current year presentation, gains of approximately $ 0.8 million and $ 7.3 million for the three and nine months ended December 31, 2022 periods, respectively, reported in the prior year as components of " Other income (loss), net " on the unaudited condensed consolidated statement of operations were moved to the line item " Gain (loss) on economic hedges of risk ". These reclassifications had no impact on previously reported net earnings or stockholders' equity. NOTE B — BUSINESS COMBINATIONS On April 30, 2022, ( the “Acquisition Date”), the Company acquired certain assets and liabilities of Plateplus, Inc. (“Plateplus”), a wholly owned subsidiary of Metal One, Inc. (“Metal One” or “Seller”), whereby the Company acquired the real estate, buildings, equipment, inventory, and other assets of Plateplus’ East Chicago, IN and Granite City, IL facilities and certain steel inventory at Plateplus’ Loudon, TN and Houston, TX facilities (the “Transaction”). The East Chicago and Granite City facilities are steel coil processing facilities that produce the same type of products as the Company's facilities in Hickman, AR; Decatur, AL and Sinton, TX. As a result of the Transaction, the Company expanded its footprint and distribution capabilities in the mid-western United States. The Transaction resulted in the Company acquiring the assets noted above, for a total consideration of $ 76.5 million, of which $ 71.7 million was cash consideration and $ 4.8 million related to 516,041 shares of the Company's common stock issued to the Seller. The fair value of the 516,041 shares issued was determined based on the closing market price of the Company’s common stock on April 29, 2022, the last trading day prior to the Acquisition Date. The Transaction was funded with net borrowings of $ 71.9 million made under the Company's asset-based lending facility ("ABL Facility") provided by JPMorgan Chase Bank. The Transaction was accounted for using the acquisition method of accounting, in accordance with Topic 805, Business Combinations , whereby the consideration transferred and the acquired identifiable assets and liabilities assumed are recorded at their respective fair values. The excess of the consideration transferred over the fair values of these identifiable net assets is recorded as goodwill. The Transaction resulted in no residual goodwill. Fair value of assets acquired and liabilities assumed (in thousands) Inventory $ 77,546 Property, plant and equipment 18,022 Operating lease right of use asset 1,237 Accounts payable ( 19,065 ) Operating lease liability ( 1,237 ) Total $ 76,503 The Company recorded one -time transaction specific costs of approximately $ 1.2 million in the nine months ended December 31, 2022, as a component of “Selling, general and administrative” expenses on the condensed consolidated statement of operations. 6 Table of Contents NOTE C — INVENTORIES Inventories consist of prime coil, non-standard coil and tubular materials. Prime coil inventory consists primarily of raw materials, non-standard coil inventory consists primarily of raw materials and tubular inventory consists of both raw materials and finished goods. Cost for prime coil inventory is determined using the average cost method. Cost for non-standard coil inventory is determined using the specific identification method. Cost for tubular inventory is determined using the average cost method. All inventories are valued at the lower of cost or net realizable value. A summary of inventory values by product group follows (in thousands): December 31, 2023 March 31, 2023 Prime Coil Inventory $ 97,646 $ 75,917 Non-Standard Coil Inventory 739 278 Tubular Raw Material 8,187 5,193 Tubular Finished Goods 7,329 4,858 $ 113,901 $ 86,246 Tubular raw material inventory consists of hot-rolled steel coils that the Company will manufacture into pipe. Tubular finished goods inventory consists of pipe the Company has manufactured. NOTE D – DEBT 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. The ABL Facility 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 December 31, 2023 , the Company had a balance of approximately $ 46.0 million under the ABL Facility with an applicable interest rate of 7.5 %. At December 31, 2023 , the Company's applicable borrowing base calculation supported access to approximately $ 106.1 million of the ABL Facility. The Company incurred debt issuance costs of approximately $ 0.4 million in connection with the ABL Facility. The Company recorded these debt issuance costs as non-current other assets and is amortizing these costs on an equal monthly basis over the remaining term of the ABL facility. 7 Table of Contents NOTE E — LEASES The Company was assigned an operating lease associated with the real property and leasehold improvements for the Granite City, IL facility acquired from Plateplus pursuant to the transaction disclosed in Note B. The lease called for quarterly rental payments of approximately $ 19,000 . The Company recognized an initial right-of-use (“ROU”) asset and lease liability of approximately $ 1.2 million during the June 30, 2022 quarter related to this lease. The Company renewed this lease in January 2024 through August 31, 2028, with extension provisions that include four additional five year terms. The ROU asset and lease liability will be updated during the quarter ending March 31, 2024. The Company’s lease of its office space in Longview, Texas is the only other operating lease included in the Company's ROU assets and lease liabilities. The lease calls for monthly rent payments of approximately $ 5,000 and expires on April 30, 2024. The Company’s other operating leases for items such as IT equipment and storage space are either short-term in nature or immaterial. In October 2019, the Company acquired a new heavy-duty forklift under a 5 -year finance lease arrangement with a financed amount of approximately $ 0.5 million and a monthly payment of approximately $ 9,000 . The components of expense related to leases for the three and nine months ended December 31, 2023 and 2022 are as follows (in thousands): Three Months Ended Nine Months Ended December 31, December 31, 2023 2022 2023 2022 Finance lease – amortization of ROU asset $ 26 $ 26 $ 78 $ 78 Finance lease – interest on lease liability 1 1 3 3 Operating lease expense 34 34 102 94 $ 61 $ 61 $ 183 $ 175 The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of December 31, 2023 and March 31, 2023 (in thousands): December 31, 2023 March 31, 2023 Balance Sheet Classification Assets Operating lease right-of-use asset $ 1,193 $ 1,270 Operating lease right-of-use asset Finance lease right-of-use asset 411 430 Property, plant & equipment Total right-of-use assets $ 1,604 $ 1,700 Liabilities Operating lease liability, current $ 66 $ 101 Accrued expenses Finance lease liability, current 81 107 Current portion of finance lease Operating lease liability, non-current 1,127 1,168 Other non-current liabilities Finance lease liability, non-current — 54 Other non-current liabilities Total lease liabilities $ 1,274 $ 1,430 As of December 31, 2023 , the weighted-average remaining lease term was 19.4 years for operating leases and 0.8 years for finance leases. The weighted average discount rate was 2.6 % for operating leases and 1.9 % for finance leases. Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands): Operating Leases Finance Leases Fiscal 2024 (remainder of fiscal year) 34 27 Fiscal 2025 80 55 Fiscal 2026 75 — Fiscal 2027 75 — Fiscal 2028 and beyond 1,237 — Total undiscounted lease payments $ 1,501 $ 82 Less: imputed interest ( 308 ) ( 1 ) Present value of lease liability $ 1,193 $ 81 8 Table of Contents NOTE F — PROPERTY, PLANT AND EQUIPMENT In October 2022, the Company completed its new facility in Sinton, Texas, which is part of the flat-roll product segment (previously referred to as the coil product segment) at a total completed cost of approximately $ 22.2 million. The new facility is on the campus of Steel Dynamics, Inc.'s (“SDI”) new flat roll steel mill in Sinton, Texas and consists of an approximately 70,000 square foot building located on approximately 26.5 acres leased from SDI under a 99 -year agreement with an annual rental payment of $ 1 . The facility is equipped with a stretcher leveler cut-to-length line that is capable of handling material up to 1” thick, widths up to 96” and yields exceeding 100,000 psi. At December 31, 2023 , the Company's construction in process balance of approximately $ 4.2 million consisted primarily of projects at the Decatur, AL facility which include approximately $ 1.5 million associated with a building expansion and $ 1.8 million associated with upgrading a component of the processing line. The total estimated cost of these projects is $ 3.8 million with completion of the building expansion expected during the March 31, 2024 quarter and completion of the processing line upgrade expected during the June 30, 2024 quarter. The remaining construction in process balance is comprised of several smaller projects. NOTE G — STOCK BASED COMPENSATION The Company maintains the Friedman Industries, Incorporated 2016 Restricted Stock Plan (the “Plan”). The Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) and continues indefinitely until terminated by the Board or until all shares allowed by the Plan have been awarded and earned. The aggregate number of shares of the Company’s Common Stock eligible for award under the Plan is 500,000 shares. Subject to the terms and provisions of the Plan, the Committee may, from time to time, select the employees, directors or consultants to whom awards will be granted and shall determine the amount and applicable restrictions of each award. Restricted awards entitle recipients to vote and receive non-forfeitable dividends during the restriction period. Because dividends are non-forfeitable, they are reflected in retained earnings. Forfeitures are accounted for upon their occurrence. Because the Company accounts for forfeitures as they occur, the non-forfeitable dividends are reclassified from retained earnings to additional stock compensation for the actual forfeitures that occurred. The following table summarizes the activity related to restricted stock units (“RSUs”) for the nine months ended December 31, 2023 : Weighted Average Number of Shares Grant Date Fair Value Per Share Unvested at March 31, 2023 100,366 $ 6.08 Granted — — Vested ( 40,366 ) 6.27 Unvested at December 31, 2023 60,000 $ 5.95 The Company measures compensation expense for RSUs at the market price of the common stock as of the grant date. Compensation expense is recognized over the requisite service period applicable to each award. The Company recorded compensation expen se of approximately $ 0.2 million and $ 0.2 million in the nine months ended December 31, 2023 and 2022 , respectively, relating to the RSUs issued under the Plan. As of December 31, 2023 , unrecognized compensation expense related to unvested RSUs was appr oximately $ 0.1 million which is expected to be recognized over a weighted average period of approximately 1.0 ye ars. As of December 31, 2023 , a total of 122,485 shares were still available to be issued under the Plan. NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS 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 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 attempts to minimize 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. The Company manages market risk by continually monitoring exposure within its risk management strategy and portfolio. For those transactions designated as hedging instruments for accounting purposes, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. 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. From time to time, derivatives designated for hedge accounting may be closed prior to contract expiration. The accounting treatment of closed positions depends on whether the closure occurred due to the hedged transaction occurring early or if the hedged transaction is still expected to occur as originally forecasted. For hedged transactions that occur early, the closure results in the realized gain or loss from closure being recognized in the same period the accelerated hedged transaction affects earnings. For hedged transactions that are still expected to occur as originally forecasted, the closure results in the realized gain or loss being deferred until the hedged transaction affects earnings. If it is determined that hedged transactions associated with cash flow hedges are no longer probable of occurring, the gain or loss associated with the instrument is recognized immediately into earnings. From time to time, we may have derivative financial instruments for which we do not elect hedge accounting. The Company has forward physical purchase supply agreements in place with some of its suppliers for a portion of its monthly physical steel needs. These supply agreements are not subject to mark-to-market accounting due to the Company electing the normal purchase normal sale exclusion provided in ASC 815. 9 Table of Contents At December 31, 2023 , the Company did not have any hot-rolled coil futures contracts designated as hedging instruments and classified as cash flow hedges. At March 31, 2023 , the Company held hot-rolled coil futures contracts which were designated as hedging instruments and classified as cash flow hedges, as hedges of variable sales prices. Accordingly, realized and unrealized gains and losses associated with the instruments were reported as a component of other comprehensive income and reclassified into earnings during the period in which the hedged transaction affects earnings. During the nine months ended December 31, 2023 and 2022 , the Company entered into hot-rolled coil futures contracts that were not designated as hedging instruments for accounting purposes. Accordingly, the change in fair value related to these instruments was immediately recognized in earnings for these periods. 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, 2023 (in thousands): Asset Derivatives Liability Derivatives Balance Sheet Balance Sheet Derivatives not designated as hedging instruments: Location Fair Value Location Fair Value Hot-rolled coil steel contracts Current portion of derivative assets $ 26 Current portion of derivative liability $ 808 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 March 31, 2023 (in thousands): Asset Derivatives Liability Derivatives Balance Sheet Balance Sheet Derivatives not designated as hedging instruments: Location Fair Value Location Fair Value Hot-rolled coil steel contracts Current portion of derivative assets $ 536 Current portion of derivative liability $ 2,212 All derivatives are presented on a gross basis on the Consolidated Balance Sheets. At December 31, 2023 , the Company reported approximately $ 3.0 million in “Accounts payable and accrued expenses ” on its Consolidated Balance Sheet related to futures contracts which were closed but were pending cash settlement. At March 31, 2023 , the Company reported approximately $ 1.6 million in “Other current assets ” on its Consolidated Balance Sheet related to futures contracts which were closed but were pending cash settlement. The following table summarizes the pre-tax gain recognized in other comprehensive income and the loss reclassified from accumulated other comprehensive loss into earnings for derivative financial instruments designated as cash flow hedges for the periods presented (in thousands): Pre-Tax Gain Recognized in OCI Location of Loss Reclassified from AOCI into Net Earnings Pre- Tax Loss Reclassified from AOCI into Net Earnings For the three months ended December 31, 2023: Hot-rolled coil steel contracts $ — Sales $ — Total $ — $ — For the three months ended December 31, 2022: Hot-rolled coil steel contracts $ 22 Sales $ ( 861 ) Total $ 22 $ ( 861 ) For the nine months ended December 31, 2023: Hot-rolled coil steel contracts $ — Sales $ ( 418 ) Total $ — $ ( 418 ) For the nine months ended December 31, 2022: Hot-rolled coil steel contracts $ 9,446 Sales $ ( 2,977 ) Total $ 9,446 $ ( 2,977 ) 10 Table of Contents The following table summarizes the gain (loss) recognized in earnings for derivative instruments not designated as hedging instruments during the three and nine months ended December 31, 2023 (in thousands): Loss Recognized in Earnings Location of Loss for the Three Months Ended Recognized in Earnings December 31, 2023 Hot-rolled coil steel contracts Gain (loss) on economic hedges of risk $ ( 4,126 ) Gain Recognized in Earnings Location of Gain for the Nine Months Ended Recognized in Earnings December 31, 2023 Hot-rolled coil steel contracts Gain (loss) on economic hedges of risk $ 706 The following table summarizes the gains recognized in earnings for derivative instruments not designated as hedging instruments during the three and nine months ended December 31, 2022 (in thousands): Gain Recognized in Earnings Location of Gain for the Three Months Ended Recognized in Earnings December 31, 2022 Hot-rolled coil steel contracts Gain (loss) on economic hedges of risk $ 822 Gain Recognized in Earnings Location of Gain for the Nine Months Ended Recognized in Earnings December 31, 2022 Hot-rolled coil steel contracts Gain (loss) on economic hedges of risk $ 7,326 The notional amount (quantity) of our derivative instruments not designated as hedging instruments at December 31, 2023 consisted of 21,140 tons of short positions with maturity dates ranging from January 2024 to June 2024. The following tables reflect the change in accumulated other comprehensive income (loss), net of tax, for the periods presented (in thousands): Gain (Loss) on Derivatives Balance at March 31, 2023 $ ( 317 ) Other comprehensive income, net of loss, before reclassification — Total loss reclassified from AOCI (1) 317 Net current period other comprehensive income 317 Balance at December 31, 2023 $ — ( 1 ) The loss reclassified from AOCI is presented net of tax benefit s of approximately $ 0.1 million which are included in the provision for income taxes on the Company's Consolidated Statement of Operations for the nine months ended December 31, 2023 . Gain (Loss) on Derivatives Balance at March 31, 2022 $ ( 10,269 ) Other comprehensive income, net of loss, before reclassification 7,164 Total loss reclassified from AOCI (1) 2,258 Net current period other comprehensive income 9,422 Balance at December 31, 2022 $ ( 847 ) ( 1 ) The loss reclassified from AOCI is presented net of tax benefits of approximately $ 0.7 million which are included in the provision for income taxes on the Company's Consolidated Statement of Operations for the nine months ended December 31, 2022 . At December 31, 2023 and March 31, 2023 , cash of approximately $ 4.8 million and $ 2.4 million, respectively, was held by our clearing agent to collateralize our open derivative positions. These cash requirements are included in "Other current assets" on the Company's Consolidated Balance Sheets at December 31, 2023 and March 31, 2023 . 11 Table of Contents NOTE I — FAIR VALUE MEASUREMENTS Accounting standards provide a comprehensive framework for measuring fair value and sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. Levels within the hierarchy are defined as follows: ● Level 1 – Quoted prices for identical assets and liabilities in active markets. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly. ● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Recurring Fair Value Measurements At December 31, 2023 , our financial liabilities, net, measured at fair value on a recurring basis were as follows (in thousands): Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Commodity futures – financial liabilities, net $ ( 782 ) $ — $ — $ ( 782 ) Total $ ( 782 ) $ — $ — $ ( 782 ) At March 31, 2023 , our financial liabilities, net, measured at fair value on a recurring basis were as follows (in thousands): Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Commodity futures – financial liabilities, net $ ( 1,676 ) $ — $ — $ ( 1,676 ) Total $ ( 1,676 ) $ — $ — $ ( 1,676 ) At December 31, 2023 and March 31, 2023 , the Company did not have any fair value measurements on a non-recurring basis. 12 Table of Contents NOTE J — SEGMENT INFORMATION (in thousands) The Flat-roll segment was previously referred to as the Coil segment. The Company is now using Flat-roll to describe the segment due to it being a more common term used in the Company's industry. Three Months Ended Nine Months Ended December 31, December 31, 2023 2022 2023 2022 Net sales Flat-roll $ 106,424 $ 100,231 $ 352,148 $ 372,830 Tubular 9,549 11,629 31,871 50,526 Total net sales $ 115,973 $ 111,860 $ 384,019 $ 423,356 Operating profit (loss) Flat-roll $ 8,694 $ 3,259 $ 23,650 $ 15,684 Tubular ( 116 ) 692 2,164 6,136 Total operating profit 8,578 3,951 25,814 21,820 General corporate expenses ( 2,405 ) ( 2,522 ) ( 8,229 ) ( 8,002 ) Gain (loss) on economic hedges of risk ( 4,126 ) 822 706 7,326 Interest expense ( 790 ) ( 448 ) ( 2,135 ) ( 1,498 ) Other income 1 4 17 24 Total earnings before income taxes $ 1,258 $ 1,807 $ 16,173 $ 19,670 December 31, 2023 March 31, 2023 Segment assets Flat-roll $ 202,900 $ 179,780 Tubular 20,419 15,858 223,319 195,638 Corporate assets 5,636 3,674 $ 228,955 $ 199,312 Operating profit is total net sales less operating expenses, excluding general corporate expenses, gain (loss) on economic hedges of risk, interest expense and other income. General corporate expenses reflect general and administrative expenses not directly associated with segment operations and consist primarily of corporate and accounting salaries, professional fees and services, bad debts, retirement plan contribution expense, corporate insurance expenses, restricted stock plan compensation expense and office supplies. At December 31, 2023 and March 31, 2023 , Corporate assets consist primarily of cash, restricted cash, unamortized debt issuance costs and the cash value of officers’ life insurance. Although inventory is transferred at cost between product groups, there are no sales between product groups. 13 Table of Contents NOTE K — REVENUE Revenue is generated primarily from contracts to manufacture or process steel products. Most of the Company’s revenue is generated by sales of material out of the Company’s inventory, but a portion of the Company’s revenue is derived from processing or storage of customer owned material. Generally, the Company’s performance obligations are satisfied, control of our products is transferred, and revenue is recognized at a single point in time, when title transfers to our customer for product shipped or when services are provided. Revenues are recorded net of any sales incentives. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and expensed when incurred. Because customers are invoiced at the time title transfers and the Company’s rights to consideration are unconditional at that time, the Company does not maintain contract asset balances. Additionally, the Company does not maintain contract liability balances, as performance obligations are satisfied prior to customer payment for product. The Company offers industry standard payment terms. The Company has two reportable segments: Flat-roll and Tubular. Flat-roll primarily generates revenue from cutting to length hot-rolled steel coils. Flat-roll segment revenue consists of three main product types: Prime Coil, Non-Standard Coil and Customer Owned Coil. Tubular primarily generates revenue from selling steel pipe it has manufactured resulting in a single product type: Manufactured Pipe. The following table disaggregates our revenue by product for each of our reportable business segments for the three and nine months ended December 31, 2023 and 2022 , respectively (in thousands): Three Months Ended Nine Months Ended December 31, December 31, 2023 2022 2023 2022 Flat-roll Segment: Prime Coil $ 103,748 $ 99,100 $ 346,405 $ 368,583 Non-standard Coil 1,629 796 2,140 3,219 Processing or Storage of Customer Owned Coil 1,047 335 3,603 1,028 $ 106,424 $ 100,231 $ 352,148 $ 372,830 Tubular Segment: Manufactured Pipe $ 9,549 $ 11,629 $ 31,871 $ 50,526 $ 9,549 $ 11,629 $ 31,871 $ 50,526 NOTE L — STOCKHOLDERS’ EQUITY During the three months ended December 31, 2023, the Company repurchased 400,041 shares of the Company's common stock from Metal One Corporation for an aggregate purchase price of approximately $ 5.1 million. In addition, the Board of Directors of the Company authorized a share repurchase program on December 13, 2023 under which the Company may repurchase up to 1,045,774 shares of the Company's outstanding common stock through December 13, 2026, which equates to 15 % of the Company's outstanding shares of common stock after the repurchase of shares from Metal One Corporation. The Company did not make any repurchases under this authorization during the quarter ended December 31, 2023. The following tables reflect the changes in stockholders’ equity for each of the nine months ended December 31, 2023 and December 31, 2022 (in thousands): Accumulated Other Comprehensive Additional Common Income, Paid-In Treasury Retained Stock Net of Tax Capital Stock Earnings Total BALANCE AT MARCH 31, 2023 $ 8,869 ( 317 ) $ 35,005 $ ( 7,778 ) $ 79,653 $ 115,432 Net earnings — — — — 7,690 7,690 Other comprehensive income — 317 — — — 317 Paid in capital – restricted stock units — — 78 — — 78 Cash dividends ($0.02 per share) — — — — ( 148 ) ( 148 ) BALANCE AT JUNE 30, 2023 $ 8,869 $ — $ 35,083 $ ( 7,778 ) $ 87,195 $ 123,369 Net earnings — — — — 3,513 3,513 Paid in capital – restricted stock units — — 78 — — 78 Repurchase of shares — — — ( 3 ) — ( 3 ) Cash dividends ($0.02 per share) — — — — ( 148 ) ( 148 ) BALANCE AT SEPTEMBER 30, 2023 $ 8,869 $ — $ 35,161 $ ( 7,781 ) $ 90,560 $ 126,809 Net earnings — — — — 1,184 1,184 Paid in capital – restricted stock units — — 37 — — 37 Repurchase of shares — — — ( 5,148 ) — ( 5,148 ) Cash dividends ($0.02 per share) — — — — ( 139 ) ( 139 ) BALANCE AT DECEMBER 31, 2023 $ 8,869 $ — $ 35,198 $ ( 12,929 ) $ 91,605 $ 122,743 14 Table of Contents Accumulated Other Comprehensive Additional Common Income, Paid-In Treasury Retained Stock Net of Tax Capital Stock Earnings Total BALANCE AT MARCH 31, 2022 $ 8,345 ( 10,268 ) $ 30,442 $ ( 7,741 ) $ 58,909 $ 79,687 Net earnings — — — — 11,184 11,184 Other comprehensive income — 7,174 — — — 7,174 Paid in capital – restricted stock units — — 73 — — 73 Shares issued - Plateplus business combination 516 — 4,268 — — 4,784 Repurchase of shares — — — ( 29 ) — ( 29 ) Cash dividends ($0.02 per share) — — — — ( 158 ) ( 158 ) BALANCE AT JUNE 30, 2022 $ 8,861 $ ( 3,094 ) $ 34,783 $ ( 7,770 ) $ 69,935 $ 102,715 Net earnings — — — — 2,471 2,471 Other comprehensive income — 1,578 — — — 1,578 Paid in capital – restricted stock units — — 73 — — 73 Cash dividends ($0.02 per share) — — — — ( 147 ) ( 147 ) BALANCE AT SEPTEMBER 30, 2022 $ 8,861 $ ( 1,516 ) $ 34,856 $ ( 7,770 ) $ 72,259 $ 106,690 Net earnings — — — — 1,376 1,376 Other comprehensive income — 669 — — — 669 Issuance of restricted stock 8 — ( 8 ) — — — Paid in capital – restricted stock units — — 78 — — 78 Repurchase of shares — — — ( 7 ) — ( 7 ) Cash dividends ($0.02 per share) — — — — ( 148 ) ( 148 ) BALANCE AT DECEMBER 31, 2022 $ 8,869 $ ( 847 ) $ 34,926 $ ( 7,777 ) $ 73,487 $ 108,658 NOTE M — OTHER COMPREHENSIVE INCOME The following table summarizes the tax effects on each component of Other Comprehensive Income for the periods presented (in thousands): Three Months Ended December 31, 2023 Before-Tax Tax Net-of-Tax Cash flow hedges $ — $ — $ — Other comprehensive income $ — $ — $ — Three Months Ended December 31, 2022 Before-Tax Tax Net-of-Tax Cash flow hedges $ 883 $ ( 213 ) $ 670 Other comprehensive income $ 883 $ ( 213 ) $ 670 Nine Months Ended December 31, 2023 Before-Tax Tax Net-of-Tax Cash flow hedges $ 418 $ ( 101 ) $ 317 Other comprehensive income $ 418 $ ( 101 ) $ 317 Nine Months Ended December 31, 2022 Before-Tax Tax Net-of-Tax Cash flow hedges $ 12,423 $ ( 3,001 ) $ 9,422 Other comprehensive income $ 12,423 $ ( 3,001 ) $ 9,422 15 Table of Contents NOTE N — EARNINGS PER SHARE Basic and dilutive net earnings per share is computed based on the following information (in thousands, except for share data): Three Months Ended Nine Months Ended December 31, December 31, 2023 2022 2023 2022 Numerator (basic and diluted) Net earnings $ 1,184 $ 1,376 $ 12,387 $ 15,031 Less: Allocation to unvested restricted stock units 10 19 131 240 Net earnings attributable to common shareholders $ 1,174 $ 1,357 $ 12,256 $ 14,791 Denominator (basic and diluted) Weighted average common shares outstanding 7,245,183 7,275,212 7,274,332 7,196,452 For the nine months ended December 31, 2023 and 2022 , the Company allocated dividends and undistributed earnings to the unvested restricted stock units. As the restricted stock qualifies as participating securities, the following restricted stock units were not accounted in the computation of weighted average diluted common shares outstanding under the two -class method: Three Months Ended Nine Months Ended December 31, December 31, 2023 2022 2023 2022 Restricted Stock Units 48,840 56,621 42,709 48,510 NOTE O — SUPPLEMENTAL CASH FLOW INFORMATION The Company paid interest o f approximately $ 2.1 million and $ 1.3 million during the nine months ended December 31, 2023 and 2022, respectively. Additionally, the Company paid income taxes of approximately $ 2.8 million and $ 0.4 million during the nine months ended December 31, 2023 and 2022, respectively. During the nine months ended December 31, 2022 , the Company issued 516,041 shares of common stock as part of the Plateplus business combination resulting in non-cash investing activity of approximately $ 4.8 million. NOTE P — INCOME TAXES For the nine months ended December 31, 2023 and 2022 , the Company recorded an income tax provision of approximately $ 3.8 million and $ 4.6 million, respectively. For the nine months ended December 31, 2023 and 2022 , the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision. 16 Table of Contents