FRIEDMAN INDUSTRIES INC 10-Q

Item 1. Financial Statements FRIEDMAN INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED (In thousands, except for share data) SEPTEMBER 30, 2024 MARCH 31, 2024 ASSETS CURRENT ASSETS: Cash $ 2,473 $ 2,891 Accounts receivable, net of allowances for credit losses and cash discounts of $ 147 and $ 97 at September 30, and March 31, 2024, respectively 39,620 47,329 Inventories 105,051 115,804 Current portion of derivative assets 18 74 Other current assets 882 3,966 TOTAL CURRENT ASSETS 148,044 170,064 PROPERTY, PLANT AND EQUIPMENT: Land 1,670 1,670 Buildings and yard improvements 30,906 30,900 Machinery and equipment 56,359 53,607 Construction in process 805 1,977 Less accumulated depreciation ( 32,871 ) ( 31,396 ) TOTAL PROPERTY, PLANT AND EQUIPMENT 56,869 56,758 OTHER ASSETS: Cash value of officers’ life insurance and other assets 1,307 356 Operating lease right-of-use asset 2,947 2,841 TOTAL ASSETS $ 209,167 $ 230,019 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 34,642 $ 43,886 Income taxes payable 195 2,213 Dividends payable 279 279 Employee compensation and related expenses 1,249 5,989 Current portion of financing lease — 54 Current portion of derivative liability 1 1,686 TOTAL CURRENT LIABILITIES 36,366 54,107 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 113 105 DEFERRED INCOME TAX LIABILITY 5,239 5,257 NON-CURRENT LEASE LIABILITIES 2,828 2,782 ASSET BASED LENDING FACILITY 35,857 40,293 TOTAL LIABILITIES 80,403 102,544 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Common stock, par value $ 1 : Authorized shares — 10,000,000 ; Issued shares — 8,873,203 shares at September 30, and March 31, 2024 8,873 8,873 Additional paid-in capital 35,336 35,247 Treasury stock at cost ( 1,904,258 shares and 1,896,892 shares at September 30, and March 31, 2024, respectively) ( 13,063 ) ( 12,929 ) Retained earnings 97,618 96,284 TOTAL STOCKHOLDERS’ EQUITY 128,764 127,475 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 209,167 $ 230,019 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 SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2024 2023 2024 2023 Net Sales $ 106,759 $ 130,748 $ 221,310 $ 268,046 Costs and expenses: Cost of materials sold (excludes items shown separately below) 88,761 110,275 184,656 217,911 Processing and warehousing expense 7,861 7,409 16,558 14,582 Delivery expense 5,381 6,521 11,432 11,966 Selling, general and administrative 3,935 4,729 8,446 10,667 Depreciation and amortization 823 759 1,618 1,508 Loss on disposal of property, plant and equipment 222 — 222 — 106,983 129,693 222,932 256,634 EARNINGS (LOSS) FROM OPERATIONS ( 224 ) 1,055 ( 1,622 ) 11,412 Gain on economic hedges of risk 194 4,402 5,569 4,832 Interest expense ( 869 ) ( 805 ) ( 1,550 ) ( 1,345 ) Other income (expense) ( 3 ) 10 — 16 EARNINGS (LOSS) BEFORE INCOME TAXES ( 902 ) 4,662 2,397 14,915 Provision for (benefit from) income taxes: Current ( 219 ) 1,165 523 3,745 Deferred ( 8 ) ( 16 ) ( 18 ) ( 33 ) ( 227 ) 1,149 505 3,712 NET EARNINGS (LOSS) $ ( 675 ) $ 3,513 $ 1,892 $ 11,203 Net earnings (loss) per share: Basic $ ( 0.10 ) $ 0.48 $ 0.27 $ 1.52 Diluted $ ( 0.10 ) $ 0.48 $ 0.27 $ 1.52 Cash dividends declared per common share $ 0.04 $ 0.02 $ 0.08 $ 0.04 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED (In thousands) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2024 2023 2024 2023 Net earnings (loss) $ ( 675 ) $ 3,513 $ 1,892 $ 11,203 Other comprehensive income (loss): Cash flow hedges, net of tax — — — 317 — — — 317 Comprehensive income (loss) $ ( 675 ) $ 3,513 $ 1,892 $ 11,520 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) SIX MONTHS ENDED SEPTEMBER 30, 2024 2023 OPERATING ACTIVITIES Net earnings $ 1,892 $ 11,203 Adjustments to reconcile net earnings to cash provided by (used in) operating activities: Depreciation and amortization 1,618 1,531 Deferred taxes ( 18 ) ( 33 ) Compensation expense for restricted stock 89 156 Change in postretirement benefits 8 4 Gain recognized on open derivatives not designated for hedge accounting ( 1,629 ) ( 1,969 ) Deferred realized gain on derivatives — 418 Loss on disposal of property, plant and equipment 222 — Right-of-use asset ( 8 ) — Decrease (increase) in operating assets: Accounts receivable 7,709 ( 2,958 ) Inventories 10,753 ( 18,256 ) Other current assets 141 ( 2,369 ) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses ( 9,295 ) ( 7,411 ) Income taxes payable ( 2,018 ) 1,128 Contribution to retirement plan — ( 350 ) Employee compensation and related expenses ( 4,740 ) ( 1,330 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,724 ( 20,236 ) INVESTING ACTIVITIES Purchase of property, plant and equipment ( 1,900 ) ( 2,883 ) Deposit on steel processing equipment ( 1,000 ) — Increase in cash surrender value of officers’ life insurance ( 2 ) ( 7 ) NET CASH USED IN INVESTING ACTIVITIES ( 2,902 ) ( 2,890 ) FINANCING ACTIVITIES Cash dividends paid ( 557 ) ( 295 ) Cash paid for principal portion of finance lease ( 54 ) ( 53 ) Cash paid for share repurchases ( 134 ) ( 4 ) Borrowings on asset based lending facility 326,988 420,178 Repayments on asset based lending facility ( 331,424 ) ( 398,934 ) NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 5,181 ) 20,892 DECREASE IN CASH AND RESTRICTED CASH ( 3,359 ) ( 2,234 ) CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD 5,897 5,386 CASH AND RESTRICTED CASH AT END OF PERIOD $ 2,538 $ 3,152 Cash and restricted cash at September 30, 2024 and March 31, 2024 included approximately $0.1 million and $3.0 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 September 30, 2024 and March 31, 2024. The Company did not have any restricted cash as of September 30, 2023. 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, 2024 . Reclassifications The consolidated financial statements for the previous year may include certain reclassifications to conform to the current presentation. To conform with the current year presentation, “Cost of products sold” on the consolidated statements of operations was broken down into four separate line items: "Cost of materials sold", "Processing and warehousing expense", "Delivery expense" and "Depreciation and amortization". The Company believes this increased level of detail provides financial statement users with a better understanding of the Company's expenses. "Cost of materials sold" represent the costs associated with direct materials. "Processing and warehousing expense" represents the operating costs at our processing facilities. "Delivery expense" represents the costs of delivering products to customers. The amount the Company charged customers for delivery of products is reported within "Net sales" on the consolidated statements of operations. These reclassifications had no impact on previously reported net earnings or stockholders' equity. NOTE B — NEW ACCOUNTING PRONOUNCEMENTS In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2024 - 03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses (“ASU 2024 - 03” ). ASU 2024 - 03 will require more detailed information about the types of expenses in commonly presented income statement captions such as “Cost of sales” and “Selling, general and administrative expenses”. The new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027 with early adoption permitted. The Company is evaluating the impact that adoption of the provisions of ASU 2024 - 03 will have on its consolidated financial statements but does not expect a material impact. NOTE C — INVENTORIES The Company operates in two segments: the flat-roll segment and the tubular segment. Both flat-roll segment and tubular segment inventories consist of raw material and finished goods. Cost for substantially all of the Company's inventory is determined using the average cost method. All inventories are valued at the lower of cost or net realizable value. Flat-roll raw material inventory consists of steel coils the Company will process into sheet and plate. Flat-roll finished goods consists of processed sheet and plate inventory. 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. Inventory costs include the costs of the purchased metals, inbound freight, transfer freight, certain external processing, internal processing, direct labor and applicable overhead costs. On the Consolidated Statements of Operations, "Cost of materials sold (excludes items shown separately below)" consists of the cost of purchased metals, inbound freight, transfer freight and certain external processing costs. A summary of inventory values by product group follows (in thousands): September 30, 2024 March 31, 2024 Flat-Roll raw material $ 78,789 $ 85,483 Flat-Roll finished goods 15,724 17,030 Tubular raw material 4,126 4,185 Tubular finished goods 6,412 9,106 $ 105,051 $ 115,804 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 September 30, 2024 , the Company had a balance of approximately $ 35.9 million under the ABL Facility with an applicable interest rate of 7.0 %. At September 30, 2024 , the Company's applicable borrowing base calculation supported access to approximately $ 104.7 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. 6 Table of Contents NOTE E — LEASES The Company has an operating lease for the Granite City, IL facility with an expiration date of August 31, 2028 and optional renewal provisions for up to 4 renewal terms of five years each. The lease calls for monthly rental payments that adjust on an annual basis. The monthly rental payment in place at September 30, 2024 and remaining in place until adjustment in September 2025 is approximately $ 13,000 per month. The anticipated execution of renewal options for this lease is included in the ROU asset and lease liability calculation. The Company has an operating lease for administrative office space in The Woodlands, TX with an expiration date of February 28, 2029 and a renewal option for one additional 60 month term. The lease calls for monthly rental payments that adjust on an annual basis. The monthly rental payment in place at September 30, 2024 and remaining in place until adjustment in March 2025 is approximately $ 11,000 per month. 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. This lease expires on April 30, 2027 and calls for monthly rental payments of approximately $ 5,000 . 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 equipment 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 last payment under this lease was made in October 2024. The components of expense related to leases for the three and six months ended September 30, 2024 and 2023 are as follows (in thousands): Three Months Ended Six Months Ended September 30, September 30, 2024 2023 2024 2023 Finance lease – amortization of ROU asset $ 27 $ 26 $ 54 $ 52 Finance lease – interest on lease liability — 1 — 2 Operating lease expense 108 34 168 68 $ 135 $ 61 $ 222 $ 122 The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of September 30, 2024 and March 31, 2024 (in thousands): September 30, 2024 March 31, 2024 Balance Sheet Classification Assets Operating lease right-of-use asset $ 2,947 $ 2,841 Operating lease right-of-use asset Finance lease right-of-use asset 391 404 Property, plant & equipment Total right-of-use assets $ 3,338 $ 3,245 Liabilities Operating lease liability, current $ 153 $ 101 Accrued expenses Finance lease liability, current — 54 Current portion of finance lease Operating lease liability, non-current 2,828 2,782 Non-current lease liabilities Total lease liabilities $ 2,981 $ 2,937 As of September 30, 2024 , the weighted-average remaining lease term was 19.4 years for operating leases. The weighted average discount rate was 7.5 % for operating leases . Maturities of lease liabilities as of September 30, 2024 were as follows (in thousands): Operating Leases Finance Leases Fiscal 2025 (remainder of fiscal year) 179 — Fiscal 2026 363 — Fiscal 2027 371 — Fiscal 2028 324 — Fiscal 2029 and beyond 5,043 — Total undiscounted lease payments $ 6,280 $ — Less: imputed interest ( 3,299 ) — Present value of lease liability $ 2,981 $ — 7 Table of Contents NOTE F — PROPERTY, PLANT AND EQUIPMENT At September 30, 2024 , the Company's construction in process balance of approximately $ 0.8 million consisted of several smaller projects among our facilities. In August 2024, a processing line upgrade at the Decatur, AL facility was placed into service at a cost of approximately $ 1.9 million and a loss of approximately $ 0.2 million was recognized for disposal of the replaced equipment. 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 six months ended September 30, 2024 : Weighted Average Number of Shares Grant Date Fair Value Per Share Unvested at March 31, 2024 64,487 $ 6.62 Cancelled or forfeited — — Granted — — Vested ( 36,000 ) 6.64 Unvested at September 30, 2024 28,487 $ 6.61 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 $ 0.1 million and $ 0.2 million in the six months ended September 30, 2024 and 2023 , respectively, relating to the RSUs issued under the Plan. As of September 30, 2024 , unrecognized compensation expense related to unvested RSUs was appr oximat ely $ 48,000 which is expected to be recognized over a weighted average period of approximately 0.4 years. As of September 30, 2024 , a total of 117,998 shares were still available to be issued under the Plan. NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS From time to time, we expect to utilize hot-rolled coil futures or options to reduce our exposure to commodity price risk that is inherent in our business. For the six months ended September 30, 2024 , all of the Company's hedging activities were classified as economic hedges of risk with mark-to-market ("MTM") accounting treatment. For the six months ended September 30, 2023 , the Company had hedging activities classified as cash flow hedges with hedge accounting treatment according to the requirements of ASC 815– Derivatives and Hedging and hedging activities classified as economic hedges of risk with MTM accounting treatment. 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 any 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. 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. 8 Table of Contents At September 30, 2024 and March 31, 2024 , the Company did not have any hot-rolled coil futures contracts designated as hedging instruments and classified 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 September 30, 2024 (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 $ 18 Current portion of derivative liability $ 1 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, 2024 (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 $ 74 Current portion of derivative liability $ 1,686 All derivatives are presented on a gross basis on the Consolidated Balance Sheets. During the six months ended September 30, 2024 and 2023 , 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. During the six months ended September 30, 2024 and 2023 , the Company did not designate any transactions as hedging instruments for accounting purposes. During the six months ended September 30, 2023 , the Company reclassified the loss associated with previously designated cash flow hedges into earnings during the period. The following table summarizes the pre-tax gain (loss) recognized in other comprehensive income and the loss reclassified from accumulated other comprehensive income into earnings for derivative financial instruments designated as cash flow hedges for the six months ended September 30, 2023 (in thousands): Pre-Tax Loss Reclassified from Pre-Tax Gain (Loss) Location of Loss Reclassified AOCI into Net Recognized in OCI from AOCI into Net Earnings Earnings For the six months ended September 30, 2023: Hot-rolled coil steel contracts $ — Sales $ ( 418 ) Total $ — $ ( 418 ) 9 Table of Contents The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during the three and six months ended September 30, 2024 (in thousands): Gain Recognized in Earnings Location of Gain for the Three Months Ended Recognized in Earnings September 30, 2024 Hot-rolled coil steel contracts Gain on economic hedges of risk $ 194 Gain Recognized in Earnings Location of Gain for the Six Months Ended Recognized in Earnings September 30, 2024 Hot-rolled coil steel contracts Gain on economic hedges of risk $ 5,569 The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during the three and six months ended September 30, 2023 (in thousands): Gain Recognized in Earnings Location of Gain for the Three Months Ended Recognized in Earnings September 30, 2023 Hot-rolled coil steel contracts Gain on economic hedges of risk $ 4,402 Gain Recognized in Earnings Location of Gain for the Six Months Ended Recognized in Earnings September 30, 2023 Hot-rolled coil steel contracts Gain on economic hedges of risk $ 4,832 The notional amount (quantity) of our derivative instruments not designated as hedging instruments at September 30, 2024 consisted of 1,820 tons of short positions with maturity dates ranging from October 2024 to June 2025 and 100 tons of long positions with maturity dates of November 2024 and January 2025. The following tables reflect the change in accumulated other comprehensive income (loss), net of tax, for the six months ended September 30, 2023 (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 September 30, 2023 $ — ( 1 ) The loss reclassified from AOCI is presented net of tax benefits of approximately $ 0.1 million which are included in the provision for (benefit from) income taxes on the Company's Consolidated Statement of Operations for the six months ended September 30, 2023 . At September 30, 2024 and March 31, 2024 , cash of approximately $ 0.1 million and $ 3.0 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 September 30, 2024 and March 31, 2024 . 10 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 September 30, 2024 , our financial assets, 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 assets, net $ 17 $ — $ — $ 17 Total $ 17 $ — $ — $ 17 At March 31, 2024 , 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 $ ( 1,612 ) $ — $ — $ ( 1,612 ) Total $ ( 1,612 ) $ — $ — $ ( 1,612 ) At September 30, 2024 and March 31, 2024 , the Company did not have any fair value measurements on a non-recurring basis. 11 Table of Contents NOTE J — SEGMENT INFORMATION (in thousands) The Company is engaged in the steel processing, pipe manufacturing and processing and steel and pipe distribution business. Within the Company, there are two product groups: flat-roll and tubular. The Company’s flat-roll operations consists primarily of converting steel coils into flat sheet and plate steel cut to customer specifications. Through its tubular operations, the Company purchases, processes, manufactures and markets tubular products. The following is a summary of significant financial information relating to the product groups (in thousands): Three Months Ended Six Months Ended September 30, September 30, 2024 2023 2024 2023 NET SALES: Flat-Roll $ 97,379 $ 120,527 $ 200,766 $ 245,724 Tubular 9,380 10,221 20,544 22,322 TOTAL NET SALES $ 106,759 $ 130,748 $ 221,310 $ 268,046 OPERATING PROFIT (LOSS): Flat-Roll $ 2,669 $ 3,142 $ 5,335 $ 14,956 Tubular ( 582 ) 16 ( 1,767 ) 2,280 TOTAL OPERATING PROFIT 2,087 3,158 3,568 17,236 General corporate expenses ( 2,311 ) ( 2,103 ) ( 5,190 ) ( 5,824 ) Gain on economic hedges of risk 194 4,402 5,569 4,832 Interest expense ( 869 ) ( 805 ) ( 1,550 ) ( 1,345 ) Other income (loss) ( 3 ) 10 — 16 TOTAL EARNINGS (LOSS) BEFORE INCOME TAXES $ ( 902 ) $ 4,662 $ 2,397 $ 14,915 September 30, 2024 March 31, 2024 IDENTIFIABLE ASSETS: Flat-Roll $ 189,601 $ 205,797 Tubular 15,271 19,589 204,872 225,386 General corporate assets 4,295 4,633 $ 209,167 $ 230,019 Operating profit (loss) is total net sales less operating expenses, excluding general corporate expenses, gain on economic hedges of risk, interest expense and other income (loss). 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 September 30, 2024 and March 31, 2024 , corporate assets consist primarily of cash, restricted cash, leased administrative office right-of-use assets, 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. 12 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 two product types: Company Owned Flat-Roll Products and Processing or Storage of 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 six months ended September 30, 2024 and 2023 , respectively (in thousands): Three Months Ended Six Months Ended September 30, September 30, 2024 2023 2024 2023 Flat-Roll Segment: Company Owned Flat-Roll Products 96,232 119,195 198,066 243,168 Processing or Storage of Customer Owned Coil 1,147 1,332 2,700 2,556 97,379 120,527 200,766 245,724 Tubular Segment: Manufactured Pipe 9,380 10,221 20,544 22,322 9,380 10,221 20,544 22,322 NOTE L — STOCKHOLDERS’ EQUITY The following tables reflect the changes in stockholders’ equity for each of the six months ended September 30, 2024 and September 30, 2023 (in thousands): Accumulated Other Comprehensive Additional Common Income, Paid-In Treasury Retained Stock Net of Tax Capital Stock Earnings Total BALANCE AT MARCH 31, 2024 $ 8,873 — $ 35,247 $ ( 12,929 ) $ 96,284 $ 127,475 Net earnings — — — — 2,567 2,567 Paid in capital – restricted stock units — — 47 — — 47 Repurchase of shares — — — ( 123 ) — ( 123 ) Cash dividends ($ 0.04 per share) — — — — ( 279 ) ( 279 ) BALANCE AT JUNE 30, 2024 $ 8,873 $ — $ 35,294 $ ( 13,052 ) $ 98,572 $ 129,687 Net loss — — — — ( 675 ) ( 675 ) Paid in capital – restricted stock units — — 42 — — 42 Repurchase of shares — — — ( 11 ) — ( 11 ) Cash dividends ($ 0.04 per share) — — — — ( 279 ) ( 279 ) BALANCE AT SEPTEMBER 30, 2024 $ 8,873 $ — $ 35,336 $ ( 13,063 ) $ 97,618 $ 128,764 13 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, 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 NOTE M — OTHER COMPREHENSIVE INCOME The following table summarizes the tax effects on each component of Other Comprehensive Income for the six months ended September 30, 2023 (in thousands): Six Months Ended September 30, 2023 Before-Tax Tax Net-of-Tax Cash flow hedges $ 418 $ ( 101 ) $ 317 Other comprehensive income $ 418 $ ( 101 ) $ 317 14 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 Six Months Ended September 30, September 30, 2024 2023 2024 2023 Numerator (basic and diluted) Net earnings (loss) $ ( 675 ) $ 3,513 $ 1,892 $ 11,203 Less: Allocation to unvested restricted stock units 1 41 8 131 Net earnings (loss) attributable to common shareholders $ ( 676 ) $ 3,472 $ 1,884 $ 11,072 Denominator (basic and diluted) Weighted average common shares outstanding 6,939,416 7,288,906 6,939,312 7,288,906 For the six months ended September 30, 2024 and 2023 , 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 Six Months Ended September 30, September 30, 2024 2023 2024 2023 Restricted Stock Units 24,049 72,910 22,997 67,712 NOTE O — SUPPLEMENTAL CASH FLOW INFORMATION The Company paid interest o f approximately $ 1.6 million and $ 1.2 million during the six months ended September 30, 2024 and 2023 , respectively. Additionally, the Company paid income taxes of approximately $ 2.9 million and $ 2.7 million during the six months ended September 30, 2024 and 2023 , respectively. NOTE P — INCOME TAXES For the six months ended September 30, 2024 and six months ended September 30, 2023 , the Company recorded income tax provisions of approximately $ 0.5 million and $ 3.7 million, respectively. For the six months ended September 30, 2024 , 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 period. For the six months ended September 30, 2023 , the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision. 15 Table of Contents