UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~September 30,~~December 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FROM THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-7521

FRIEDMAN INDUSTRIES, INCORPORATED

(Exact name of registrant as specified in its charter)

TEXAS

74-1504405

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1121 JUDSON ROAD, SUITE 124, LONGVIEW, TEXAS 75601

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (903)758-3431

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, $1 Par Value		FRD		NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (Check one): Yes ☐ No ☒

At ~~November~~February 16, ~~2020,~~2021, the number of shares outstanding of the issuer’s only class of stock was ~~7,043,934~~6,905,849 shares of Common Stock.

	SEPTEMBER 30, 2020			MARCH 31, 2020			DECEMBER 31, 2020			MARCH 31, 2020
ASSETS
CURRENT ASSETS:
Cash	$	18,778,569		$	17,057,751		$	16,485,797		$	17,057,751
Accounts receivable, net of allowances for bad debts and cash discounts of $82,417 at September 30, and March 31, 2020		11,279,027			11,705,344
Accounts receivable, net of allowances for bad debts and cash discounts of $82,417 at December 31, and March 31, 2020								12,133,375			11,705,344
Inventories		26,499,508			35,668,243			30,130,320			35,668,243
Other current assets		1,887,054			780,179			5,488,176			780,179
TOTAL CURRENT ASSETS		58,444,158			65,211,517			64,237,668			65,211,517
PROPERTY, PLANT AND EQUIPMENT:
Land		1,179,831			1,179,831			1,179,831			1,179,831
Buildings and yard improvements		9,180,304			9,008,869			9,180,304			9,008,869
Machinery and equipment		27,783,814			29,339,893			28,027,039			29,339,893
Construction in process		5,427,263			3,797,364			6,478,594			3,797,364
Less accumulated depreciation		(29,698,945	)		(31,825,401	)		(29,898,231	)		(31,825,401	)
		13,872,267			11,500,556			14,967,537			11,500,556
OTHER ASSETS:
Cash value of officers’ life insurance and other assets		173,825			183,350			164,016			183,350
Income taxes recoverable		557,895			448,665			—			448,665
TOTAL ASSETS	$	73,048,145		$	77,344,088		$	79,369,221		$	77,344,088
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	4,730,683		$	8,944,614		$	6,081,444		$	8,944,614
Dividends payable		143,181			139,989			139,485			139,989
Contribution to retirement plan		150,750			50,250			200,000			50,250
Employee compensation and related expenses		383,295			409,778			581,796			409,778
Income taxes payable								88,541			—
Current portion of financing lease		101,704			100,728			102,196			100,728
Current portion of Paycheck Protection Program loan		987,061			—			1,338,114			—
TOTAL CURRENT LIABILITIES		6,496,674			9,645,359			8,531,576			9,645,359
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS		105,797			99,864			108,764			99,864
DEFERRED INCOME TAX LIABILITY		143,703			361,146			732,295			361,146
OTHER NON-CURRENT LIABILITIES		317,151			372,352			291,417			372,352
LONG TERM PORTION OF PAYCHECK PROTECTION PROGRAM LOAN		703,324			—			352,271			—
TOTAL LIABILITIES		7,766,649			10,478,721			10,016,323			10,478,721
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
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		8,306,160			8,295,160
Common stock, par value $1: Authorized shares — 10,000,000 Issued shares — 8,334,785 shares and 8,295,160 shares at December 31, and March 31, 2020, respectively								8,334,785			8,295,160
Additional paid-in capital		29,776,043			29,565,416			29,852,154			29,565,416
Treasury stock at cost (1,292,997 shares and 1,225,716 shares at September 30, and March 31, 2020, respectively)		(5,936,185	)		(5,525,964	)
Accumulated other comprehensive income								2,657,923			—
Treasury stock at cost (1,355,916 shares and 1,225,716 shares at December 31, and March 31, 2020, respectively)								(6,619,320	)		(5,525,964	)
Retained earnings		33,135,478			34,530,755			35,127,356			34,530,755
TOTAL STOCKHOLDERS’ EQUITY		65,281,496			66,865,367			69,352,898			66,865,367
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	73,048,145		$	77,344,088		$	79,369,221		$	77,344,088

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

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, 2020.

NOTE B — NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 establishes a new lease accounting standard that requires lessees to recognize a right of use asset and related lease liability for most leases having lease terms of more than 12 months. Leases with a term of 12 months or less will be accounted for similar to prior guidance for operating leases. In July 2018, the FASB issued Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new standard. In July 2018, the FASB also issued Accounting Standards Update No. 2018-11, Leases (Topic 842): Targeted Improvements, to give entities another option for transition and to provide practical expedients to reduce the cost and complexity of implementing the new standard. ASU 2016-02 and all subsequently issued amendments, collectively "ASC 842," is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company adopted ASC 842 on April 1, 2019 using the optional transition method under which the new standard is applied only to the most current period presented and the cumulative effect of applying the new standard to existing lease agreements is recognized at the date of initial application. The adoption of ASC 842 resulted in the recording of initial right-of-use lease assets and lease liabilities of approximately $63,000. The Company elected the package of transition practical expedients related to lease identification, lease classification, and initial direct costs. In addition, the Company made the following accounting policy elections: (1) the Company will not separate lease and non-lease components by class of underlying asset and (2) the Company will apply the short-term lease exemption by class of underlying asset. The adoption of this standard did not have a material impact on the Company’s consolidated statement of operations or cash flows and did not result in a cumulative adjustment to retained earnings. See Note E – Leases for additional information.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is intended to simplify and clarify the accounting and disclosure requirements for hedging activities by more closely aligning the results of cash flow and fair value hedge accounting with the underlying risk management activities. We adopted ASU 2017-12 on June 18, 2020 when we entered into our first derivative financial instruments. See Note H – Derivative Financial Instruments for additional information.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires, among other things, the use of a new current expected credit loss ("CECL") model to determine the allowance for doubtful accounts with respect to accounts receivable. The CECL model requires estimation of lifetime expected credit loss with respect to receivables and recognition of allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. Subsequently, in November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (ASC 326), which clarifies that impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. ASU 2016-13 called for an effective date for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. In November 2019, the FASB issued Accounting Standards Update 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). ASU 2019-10 defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, private companies, not-for-profit organizations and employee benefit plans to annual periods beginning after December 15, 2022, including interim periods within those annual periods. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies accounting for income taxes by revising or clarifying existing guidance in ASC 740, as well as removing certain exceptions within ASC 740. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.

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:

	September 30, 2020		March 31, 2020		December 31, 2020		March 31, 2020
Prime Coil Inventory	$	11,619,275	$	17,190,435	$	15,459,864	$	17,190,435
Non-Standard Coil Inventory		933,318		1,550,734		2,178,029		1,550,734
Tubular Raw Material		1,806,531		4,888,542		2,671,140		4,888,542
Tubular Finished Goods		12,140,384		12,038,532		9,821,287		12,038,532
	$	26,499,508	$	35,668,243	$	30,130,320	$	35,668,243

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 and new mill reject pipe the Company has purchased from U.S. Steel Tubular Products, Inc.

NOTE E — LEASES

The Company adopted ASU 2016-02, Leases (“ASC 842”) on April 1, 2019 using the optional transition method under which the new standard is applied only to the most current period presented and the cumulative effect of applying the new standard to existing lease agreements is recognized at the date of initial application. Under this adoption method, reporting periods beginning after April 1, 2019 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC 842 resulted in the recording of initial ROU asset and lease liabilities of approximately $63,000 at April 1, 2019.

The Company’s lease of its office space in Longview, Texas is the only operating lease included in the ROU asset and lease liability. The lease calls for monthly rent payments of $4,878 and expires on April 30, 2021. 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 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~~nine months ended ~~September 30,~~December 31, 2020 and 2019 are as follows:

	THREE MONTHS ENDED SEPTEMBER 30,				SIX MONTHS ENDED SEPTEMBER 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019		2020		2019		2020		2019
Finance lease – amortization of ROU asset	$	25,121	$	—	$	50,121	$	—	$	25,243	$	8,644	$	75,364	$	8,644
Finance lease – interest on lease liability		2,102		—		4,325		—		1,981		2,463		6,306		2,463
Operating lease expense		14,634		8,184		27,018		16,368		14,634		8,184		41,652		24,552
	$	41,857	$	8,184	$	81,464	$	16,368	$	41,858	$	19,291	$	123,322	$	35,659

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of ~~September 30,~~December 31, 2020:

As of ~~September 30,~~December 31, 2020, the weighted-average remaining lease term was ~~0.6~~0.3 year for operating leases and 43.7 years for finance leases. The weighted average discount rate was 7% for operating leases and 1.9% for finance leases.

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 to whom awards will be granted and shall determine the amount and applicable restrictions of each award. Forfeitures are accounted for upon their occurrence.

The following table summarizes the activity related to restricted stock awards for the ~~six~~nine months ended ~~September 30,~~December 31, 2020:

			Weighted Average				Weighted Average
	Number of Shares		Grant Date Fair Value Per Share		Number of Shares		Grant Date Fair Value Per Share
Unvested at March 31, 2020		270,000	$	6.37		270,000	$	6.37
Cancelled or forfeited		—		—		—		—
Granted		11,000		4.53		89,625		5.64
Vested		—		—		—		—
Unvested at September 30, 2020		281,000	$	6.30
Unvested at December 31, 2020						359,625	$	6.19

~~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. Compensation expense is recognized over the requisite service period applicable to each award. The Company recorded compensation expense of ~~$221,627~~$376,363 and ~~$166,472~~$249,708 in the ~~six~~nine months ended ~~September 30,~~December 31, 2020 and 2019, respectively, relating to the stock awards issued under the Plan. As of ~~September 30,~~December 31, 2020, unrecognized compensation expense related to stock awards was approximately ~~$688,000,~~$1,014,541, which is expected to be recognized over a weighted average period of approximately ~~2.9~~2.8 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.~~

NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS

In June 2020, the Company implemented its first commodity price risk management activities by transacting hot-rolled coil futures. 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”). 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.~~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, 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.

During the three months ended ~~September 30,~~December 31, 2020,, the Company ~~recognized gains from~~entered into hot-rolled coil futures contracts which were designated as hedging instruments and classified as cash flow hedges, either as hedges of ~~$4,000.~~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’s~~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 ~~statement of operations for~~balance sheet at December 31, 2020. For the three months and ~~six~~nine months ended ~~September 30,~~December 31, 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~~derivative instruments not designated as cash flow or fair value hedges.

The following table summarizes the fair value of ~~$118,125 that~~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			Balance Sheet
Derivatives designated as cash flow hedges:	Location	Fair Value		Location	Fair Value
Hot-rolled coil steel contracts hedging purchases	Other current assets	$	2,862,580
Hot-rolled coil steel contracts hedging sales				Other current assets	$	1,422,460

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
	in OCI		AOCI into Net Earnings	AOCI into Net Earnings
Hot-rolled coil steel contracts	$	3,364,460	Costs of goods sold	$	396,720

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 ~~included in “Other current assets” on~~$3,533,120. This amount was computed using the ~~consolidated balance sheet at~~ ~~September 30,~~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

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

	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	$	1,440,120	$	—	$	—	$	1,440,120
Total	$	1,440,120	$	—	$	—	$	1,440,120

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

At March 31, 2020, our assets measured at fair value on a non-recurring basis were categorized as follows:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Long-lived assets held and used (1)	$	—	$	—	$	1,771,450	$	1,771,450
Total	$	—	$	—	$	1,771,450	$	1,771,450

(1)

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,~~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,						SEPTEMBER 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2020			2019			2020			2019			2020			2019			2020			2019
Net sales
Coil	$	18,456		$	28,421		$	33,889		$	56,602		$	21,672		$	21,001		$	55,561		$	77,604
Tubular		6,406			11,575			14,497			24,369			6,830			7,150			21,327			31,518
Total net sales	$	24,862		$	39,996		$	48,386		$	80,971		$	28,502		$	28,151		$	76,888		$	109,122

Operating profit (loss)
Coil	$	751		$	324		$	291		$	668		$	3,238		$	(93	)	$	3,529		$	575
Tubular		(344	)		(1,746	)		(285	)		(1,201	)		269			(468	)		(16	)		(1,670	)
Total operating profit (loss)		407			(1,422	)		6			(533	)		3,507			(561	)		3,513			(1,095	)
Corporate expenses		718			614			1,452			1,241			736			587			2,188			1,826
Interest expense		6			—			12			—
Interest expenses														6			2			18			2
Interest and other income		(4	)		(4	)		(9	)		(11	)		(4	)		(4	)		(13	)		(15	)
Total earnings (loss) before taxes	$	(313	)	$	(2,032	)	$	(1,449	)	$	(1,763	)	$	2,769		$	(1,146	)	$	1,320		$	(2,908	)

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 and the cash value of officers’ life ~~insurance and income taxes recoverable.~~insurance.

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 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: Coil and Tubular. Coil primarily generates revenue from temper passing and cutting to length hot-rolled steel coils. Coil segment revenue consists of three main product types: Prime Coil, Non-Standard Coil and Customer Owned Coil. Tubular primarily generates revenue from the manufacture, distribution and processing of steel pipe. Tubular segment revenue consists of three main product or service types: 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~~nine month periods ended ~~September 30,~~December 31, 2020 or ~~September 30, 2019.~~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~~nine months ended ~~September 30,~~December 31, 2020 and 2019, respectively:

	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019		2020		2019		2020		2019
Coil Segment:
Prime Coil		17,049,230		24,936,635		30,356,698		49,165,088		19,541,188		18,662,211		49,897,886		67,827,299
Non-standard Coil		1,201,135		3,271,453		3,142,138		7,043,968		1,886,099		2,153,277		5,028,237		9,197,245
Customer Owned Coil		205,721		212,521		390,034		393,021		244,860		185,870		634,894		578,891
		18,456,086		28,420,609		33,888,870		56,602,077		21,672,147		21,001,358		55,561,017		77,603,435
Tubular Segment:
Manufactured Pipe		5,296,334		9,744,189		12,458,184		20,476,676		5,082,314		5,748,647		17,540,498		26,225,323
Mill Reject Pipe		1,109,260		1,830,782		2,039,226		3,892,147		1,747,588		1,400,812		3,786,814		5,292,959
		6,405,594		11,574,971		14,497,410		24,368,823		6,829,902		7,149,459		21,327,312		31,518,282

NOTE L — STOCKHOLDERS’ EQUITY

The following tables reflect the changes in stockholders’ equity for each of the ~~six months~~quarters during the nine month periods ended ~~September 30,~~December 31, 2020 and ~~September 30,~~December 31, 2019:

													Accumulated
													Other
			Additional										Comprehensive		Additional
	Common		Paid-In		Treasury			Retained			Common		Income,		Paid-In		Treasury			Retained
	Stock		Capital		Stock			Earnings			Stock		Net of Tax		Capital		Stock			Earnings
BALANCE AT MARCH 31, 2020	$	8,295,160	$	29,565,416	$	(5,525,964	)	$	34,530,755		$	8,295,160		—	$	29,565,416	$	(5,525,964	)	$	34,530,755
Net loss		—		—		—			(858,862	)		—		—		—		—			(858,862	)
Issuance of restricted stock		11,000		—		—			—			11,000		—		—		—			—
Paid in capital – restricted stock awards		—		99,814		—			—			—		—		99,814		—			—
Cash dividends ($0.02 per share)		—		—		—			(143,229	)		—		—		—		—			(143,229	)
BALANCE AT JUNE 30, 2020	$	8,306,160	$	29,665,230	$	(5,525,964	)	$	33,528,664		$	8,306,160	$	—	$	29,665,230	$	(5,525,964	)	$	33,528,664
Net loss		—		—		—			(250,005	)		—		—		—		—			(250,005	)
Paid in capital – restricted stock awards		—		110,813		—			—			—		—		110,813		—			—
Repurchase of shares		—		—		(410,221	)		—			—		—		—		(410,221	)		—
Cash dividends ($0.02 per share)		—		—		—			(143,181	)		—		—		—		—			(143,181	)
BALANCE AT SEPTEMBER 30, 2020	$	8,306,160	$	29,776,043	$	(5,936,185	)	$	33,135,478		$	8,306,160	$	—	$	29,776,043	$	(5,936,185	)	$	33,135,478
Net earnings												—		—		—		—			2,129,745
Other comprehensive income												—		2,657,923		—		—			—
Issuance of restricted stock												28,625		—		—		50,000			—
Paid in capital – restricted stock awards												—		—		76,111		—			—
Repurchase of shares												—		—		—		(733,135	)		—
Cash dividends ($0.02 per share)												—		—		—		—			(137,867	)
BALANCE AT DECEMBER 31, 2020											$	8,334,785	$	2,657,923	$	29,852,154	$	(6,619,320	)	$	35,127,356

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. Repurchases under the program may be made from time to time at the Company’s discretion and may be made in open market transactions, through block trades, in privately negotiated transactions and pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or otherwise. The timing and actual number of shares repurchased pursuant to the program will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. 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 has repurchased ~~67,281~~180,200 shares at a cost of ~~$410,221~~$1,143,356 under the program ~~during the three months ended~~as of ~~September 30,~~December 31, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Friedman Industries, Incorporated is a manufacturer and processor of steel products and operates in two reportable segments; coil products and tubular products.

The coil product segment includes the operation of two hot-roll coil processing facilities; one in Hickman, Arkansas and the other in Decatur, Alabama. The Hickman facility operates a temper mill and a cut-to-length line. The temper mill improves the flatness and surface qualities of the coils and the cut-to-length line levels the steel and cuts the coils into sheet and plate of prescribed lengths. The Hickman facility is capable of cutting sheet and plate with thicknesses ranging from 14 gauge to ½” thick in widths ranging from 36” wide to 72” wide. The Decatur facility previously operated a temper mill and a cut-to-length line but during the quarter ended June 30, 2020, the equipment was removed to allow the foundation to be prepared for a new stretcher leveler line that will be installed. Installation ~~is expected to begin~~commenced in December 2020 and commercial use is expected to start in ~~February~~March 2021. The estimated total cost of this project is $7,200,000 with approximately ~~$5,427,000~~$6,479,000 having been spent as of ~~September 30,~~December 31, 2020. 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. The new equipment will expand the coil segment’s processing capabilities to include material up to 96” wide and material of higher grades and will allow the Decatur facility to cut material that is up to ½” thick compared to the previous equipment’s capability of 5/16” thick. In addition, sheet and plate that has been stretcher leveled is preferable to some customers and applications compared to material that has been leveled through the temper mill process. The coil product segment sells its prime grade inventory under the Friedman Industries name but also maintains an inventory of non-standard coil products, consisting primarily of mill secondary and excess prime coils, which are sold through the Company’s XSCP division. The coil product segment also processes customer-owned coils on a fee basis.

The tubular product segment consists of the Company’s Texas Tubular Products division (“TTP”) located in Lone Star, Texas. TTP operates two electric resistance welded pipe mills with a combined outside diameter (“OD”) size range of 2 3/8” OD to 8 5/8” OD. Both pipe mills are American Petroleum Institute (“API”) licensed to manufacture line pipe and oil country pipe and also manufacture pipe for structural purposes that meets other recognized industry standards. TTP has an API licensed pipe finishing facility that threads and couples oil country tubular goods and performs other services that are customary in the pipe finishing process. The pipe finishing facility is currently idled due to market conditions. TTP’s inventory consists of raw materials and finished goods. Raw material inventory consists of hot-rolled steel coils that TTP will manufacture into pipe. Finished goods inventory consists of pipe that TTP has manufactured and new mill reject pipe that TTP purchased from U.S. Steel Tubular Products, Inc.

In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. In addition to the devastating effects on human life, this contagious virus has adversely affected economies globally. It has also disrupted the normal operations of many businesses, including ours and many of our customers. Our facilities have continued to operate during this crisis but we are operating with modifications to our facility practices, employee travel, employee work locations and virtualization or cancellation of company and customer events, among other modifications. We may take further actions that alter our business operations as the situation evolves. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations. ~~We have experienced a small number of cases within our workforce with each case being isolated with no spread to other employees.~~

During the ~~six~~nine months ended ~~September 30,~~December 31, 2020 (the “2020 period”), sales and costs of goods sold decreased ~~$32,584,620~~$32,233,388 and ~~$33,243,797,~~$37,335,481, respectively, and gross profit increased ~~$659,177~~$5,102,093 compared to the amounts recorded during the ~~six~~nine months ended ~~September 30,~~December 31, 2019 (the “2019 period”). The decrease in sales was related to both a decline in tons sold and a decrease in the average per ton selling price. Tons sold decreased from approximately ~~112,000~~157,500 tons in the 2019 period to approximately ~~81,500~~125,000 tons in the 2020 period. The drop in volume was primarily attributable to economic impacts of COVID-19. Discussion of the change in sales is expanded upon at the segment level in the following paragraphs. Gross profit as a percentage of sales increased from approximately ~~1.0%~~0.7% in the 2019 period to approximately ~~2.8%~~7.6% in the 2020 period. Our operating results are significantly impacted by the market price of hot-rolled steel coil. ~~Results~~The improved results for ~~both~~ the 2020 period ~~and~~were driven by increasing steel prices in the back half of the period while the 2019 period ~~were~~was negatively impacted by a declining steel ~~price.~~prices throughout the period. During August 2020 hot-rolled steel pricing started to rise and as of the end of the 2020 period, pricing had increased approximately 124%. The impact of this rise in steel prices on each of our segments is discussed further in the following paragraphs. Results for the 2020 period ~~experienced additional challenges~~also benefitted from gains on hot-rolled steel derivative contracts of approximately $401,000 that were reported as a reduction of costs of goods sold within the coil segment. The use of derivative instruments to manage the commodity price risk inherent in our business is a new practice for the 2020 period. Additional information related to our derivative instruments is provided in Note H. The company did not have any derivative instruments in the ~~COVID-19 pandemic.~~2019 period.

Coil product segment sales for the 2020 period totaled ~~$33,888,870~~$55,561,017 compared to ~~$56,602,077~~$77,603,435 for the 2019 period. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from processing of customer owned material and sales generated from coil segment inventory. Sales generated from processing of customer owned material totaled ~~$390,034~~$634,894 for the 2020 period compared to ~~$393,021~~$578,891 for the 2019 period. Sales generated from coil segment inventory totaled ~~$33,498,836~~$54,926,123 for the 2020 period compared to ~~$56,209,056~~$77,024,544 for the 2019 period. Inventory tons sold decreased from approximately ~~81,000~~115,500 tons in the 2019 period to approximately ~~60,000~~92,500 tons in the 2020 period. The average per ton selling price related to these shipments decreased from approximately ~~$695~~$667 per ton in the 2019 period to approximately ~~$556~~$594 per ton in the 2020 period. Coil segment operations recorded operating profits of approximately ~~$291,000~~$3,529,000 and ~~$668,000~~$575,000 for the 2020 and 2019 periods, respectively.

Operating results for ~~both~~ the 2020 ~~period and the~~ ~~2019~~ period were negatively impacted ~~by declining hot-rolled steel prices but~~during the ~~2020~~ ~~period was impacted additionally~~first six months by a decline in volume primarily related to the impacts of the COVID-19 ~~pandemic. Compared to~~pandemic and by declining steel prices. In the ~~average monthly sales volume for~~last three months of the ~~fiscal year ended~~ ~~March 31, 2020, April~~ 2020 volume was down approximately 51%, May 2020 volume was down approximately 33%, June 2020 volume was down approximately 3%, July 2020 volume was down approximately 6%, August 2020 volume was down approximately 19% and September 2020 volume was down approximately 12%.period, operating results benefitted from steady margin improvement associated with the rapidly increasing steel prices. The ~~coil segment sales volume has experienced a fairly rapid recovery during the~~ 2020 period benefitted additionally from the ~~initial volume drop~~gains on hot-rolled steel derivative contracts mentioned above. The 2019 period was negatively impacted by a general decline in ~~April 2020. We expect monthly volume for~~steel prices throughout the ~~third quarter of fiscal 2021 to remain slightly below the average monthly fiscal~~ ~~2020~~ ~~volume. Coil segment sales volume for October 2020 was down approximately 10% compared to the fiscal~~ ~~2020~~ ~~monthly average.~~period.

The Company’s coil segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

Tubular product segment sales for the 2020 period totaled ~~$14,497,410~~$21,327,312 compared to ~~$24,368,823~~$31,518,282 for the 2019 period. Sales declined due to both a reduction in the volume sold and a decrease in the average selling price per ton. Tons sold decreased from approximately ~~31,000~~42,000 tons in the 2019 period to approximately ~~21,000~~32,500 tons in the 2020 period. The average per ton selling price related to these shipments decreased from approximately ~~$787~~$750 per ton in the 2019 period to approximately ~~$680~~$658 per ton in the 2020 period. The tubular segment operations recorded operating losses of approximately ~~$285,000~~$16,000 and ~~$1,201,000~~$1,670,000 for the 2020 and 2019 periods, respectively.

Operating results for ~~both~~ the 2020 ~~period and the~~ ~~2019~~ period were negatively impacted by the effect of declining ~~hot-rolled~~ steel prices, ~~but the~~ ~~2020~~ ~~period was impacted additionally by~~ a decline in volume primarily related to impacts of the COVID-19 pandemic and challenging conditions for the U.S. energy industry. ~~Compared~~Tubular segment margins do not respond as quickly to ~~the average monthly sales volume for the fiscal year ended~~ ~~March 31, 2020~~, April 2020 volume was down approximately 4%, May 2020 volume was down approximately 36%, June 2020 volume was down approximately 27%, July 2020 volume was down approximately 20%, August 2020 volume was down approximately 51% and September 2020 volume was down approximately 25%. The volume for April was supported by the segment fulfilling manufactured pipe orders that were received prior to the COVID-19 pandemic’s broad impact on the U.S. economy. The tubular segment volume has seen a challenging recovery with energy industry conditions being weak and,changes in ~~recent months, additional challenges from increased imported pipe competition. October 2020 volume was down approximately 18%~~steel price when compared to the ~~fiscal~~way coil segment margins respond. Tubular segment margins did not see significant improvement until December 2020 ~~monthly average.~~due to the longer manufacturing lead time associated with tubular products and soft energy industry demand. The 2019 period was negatively impacted by a general decline in steel prices throughout the period. Operating results for both the 2020 and 2019 periods were also negatively impacted by inventory write downs related to the segment's manufactured pipe inventory. In the 2020 period there was a write down of $274,093 at June 30, 2020 and in the 2019 period there was a write down of $955,605 at September 30, 2019.

The Company’s tubular segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business. In March 2020, U.S. Steel announced the idling of their Lone Star Tubular Operations which is our sole supplier of mill reject pipe. At ~~September 30,~~December 31, 2020, we had approximately ~~30,500~~26,000 tons of mill reject inventory which we believe to be approximately two years of inventory. We expect the idling to have a negative impact on our operations as we eventually sell out of inventory.

During the 2020 period, general, selling and administrative costs increased ~~$331,405~~$856,155 compared to the 2019 period. The increase was related primarily to increased payroll, professional fees and restricted stock plan compensation expense.

~~The income tax~~Income taxes increased from a benefit for the 2019 period of $678,043 to a provision for the 2020 period ~~decreased $73,009 from the benefit recorded in the~~ ~~2019~~ ~~period.~~of $298,668. This ~~decrease~~increase was related primarily to the ~~smaller~~shift from a loss before taxes for the ~~2020~~2019 period ~~compared~~ to having earnings before tax for the ~~2019~~2020 period.

During the three months ended ~~September 30,~~December 31, 2020 (the “2020 quarter”), sales ~~and~~increased $351,232, costs of goods sold decreased ~~$15,133,900, $17,007,647, respectively~~$4,091,684 and gross profit increased ~~$1,873,747~~$4,442,916 compared to the amounts recorded during the three months ended ~~September 30,~~December 31, 2019 (the “2019 quarter”). The ~~decrease~~increase in sales was primarily related to ~~both a decline in tons sold and a decrease~~an increase in the average ~~per ton~~ selling ~~price.~~price of the coil segment's products. This increase was partially offset by a lower average selling price for the tubular segment's products and a slight decline in overall tons sold. Tons sold decreased from approximately ~~58,500~~45,500 tons in the 2019 quarter to approximately ~~43,000~~43,500 tons in the 2020 quarter. ~~The drop in volume was primarily attributable to economic impacts of COVID-19.~~ Discussion of the change in sales is expanded upon at the segment level in the following paragraphs. Gross ~~margin~~profit as a percentage of sales increased from ~~a loss margin of~~ approximately ~~2.0%~~0.2% in the 2019 quarter to ~~a profit margin of~~ approximately ~~4.4%~~15.8% in the 2020 quarter. Our operating results are significantly impacted by the market price of hot-rolled steel coil. ~~Results~~The improved results for ~~both~~ the 2020 quarter were driven by increasing steel prices prior to and throughout the quarter while the 2019 quarter ~~were~~was negatively ~~affected~~impacted by declining steel prices preceding the quarter and during part of the quarter. During August 2020 hot-rolled steel pricing started to rise and as of the end of the 2020 quarter, pricing had increased approximately 124%. The impact of ~~declining steel prices. However,~~this rise in steel prices ~~started increasing~~on each of our segments is discussed further in the ~~middle of~~following paragraphs. Results for the 2020 quarter ~~which sparked margin improvement, especially for~~also benefitted from gains on hot-rolled steel derivative contracts of approximately $397,000 that were reported as a reduction of costs of goods sold within the coil ~~segment where margin typically responds quicker~~segment. Additional information related to ~~fluctuations~~our derivative instruments is provided in ~~steel prices.~~Note H. The company did not have any derivative instruments in the 2019 quarter.

Coil product segment sales for the 2020 quarter totaled ~~$18,456,086~~$21,672,147 compared to ~~$28,420,609~~$21,001,358 for the 2019 quarter. For a more complete understanding of the average selling prices of goods sold, it is helpful to isolate sales generated from processing of customer owned material and sales generated from coil segment inventory. Sales generated from processing of customer owned material totaled ~~$205,721~~$244,860 for the 2020 quarter compared to ~~$212,521~~$185,870 for the 2019 quarter. Sales generated from coil segment inventory totaled ~~$18,250,365~~$21,427,287 for the 2020 quarter compared to ~~$28,208,088~~$20,815,488 for the 2019 quarter. Inventory tons sold decreased from approximately ~~43,000~~34,500 tons in the 2019 quarter to approximately ~~33,000~~32,000 tons in the 2020 quarter. The average per ton selling price related to these shipments ~~decreased~~increased from approximately ~~$653~~$600 per ton in the 2019 quarter to approximately ~~$548~~$665 per ton in the 2020 quarter. Coil segment operations recorded an operating ~~profits~~profit of approximately ~~$751,000 and $324,000~~$3,238,000 for the 2020 ~~and~~quarter compared to an operating loss of approximately $93,000 for the 2019 ~~quarters, respectively.~~quarter. Operating results for ~~both~~ the 2020 quarter benefitted from a significant increase in steel prices and associated improvement in our margins. The 2020 quarter benefitted additionally from the gains on hot-rolled steel derivative contracts mentioned above. The 2019 quarter ~~were~~was negatively impacted by low margins associated with declines in hot-rolled steel prices. ~~However, margins did start to improve at the end of the~~ ~~2020~~ ~~quarter when hot-rolled steel pricing increased. The~~ ~~2020~~ ~~quarter was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic.~~

The Company’s coil segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company’s business.

Tubular product segment sales for the 2020 quarter totaled ~~$6,405,594~~$6,829,902 compared to ~~$11,574,971~~$7,149,459 for the 2019 quarter. Sales declined due primarily to ~~both a reduction in the volume sold and~~ a decrease in the average selling price per ton. Tons sold ~~decreased from~~was approximately ~~15,500~~11,000 tons in both the 2020 quarter and the 2019 ~~quarter to approximately 10,000 tons in the~~ ~~2020~~ quarter. The average per ton selling price related to these shipments decreased from approximately ~~$755~~$646 per ton in the 2019 quarter to approximately ~~$634~~$616 per ton in the 2020 quarter. The tubular segment operations recorded an operating ~~losses~~profit of approximately ~~$344,000 and $1,746,000~~$269,000 for the 2020 quarter and an operating loss of approximately $468,000 for the 2019 ~~quarters, respectively.~~

~~Operating results for both~~quarter. Even though steel prices increased significantly throughout the 2020 quarter, tubular segment margins did not see significant improvement until December 2020 due to the longer manufacturing lead time associated with tubular products and soft energy industry demand. Operating results for the 2019 quarter were negatively impacted by ~~declines in hot-rolled~~compressed margins associated with declining steel prices ~~but the~~ ~~2020~~ ~~quarter was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic~~ and ~~challenging conditions for the U.S.~~weak energy ~~industry. Energy~~ industry ~~conditions remain challenging and, in recent months, we have seen increased competition from imported pipe. Operating results for the~~ ~~2019~~ ~~quarter were also negatively impacted by an inventory write down of $955,605 at September 30, 2019 related to the segment’s manufactured pipe inventory.~~conditions.

During the 2020 quarter, general, selling and administrative costs increased ~~$148,039~~$524,750 compared to the 2019 quarter. The increase was related primarily to increased payroll, professional fees and restricted stock plan compensation expense.

~~The income tax~~Income taxes increased from a benefit for the 2019 quarter of $264,550 to a provision for the 2020 quarter ~~decreased $425,276 from the benefit recorded in the~~ ~~2019~~ ~~quarter.~~of $639,152. This ~~decrease~~increase was related primarily to the ~~smaller~~shift from a loss before taxes for the ~~2020~~2019 quarter ~~compared~~ to having earnings before tax for the ~~2019~~2020 quarter.

During August 2020 hot-rolled steel pricing started to rise and has continued a significant increase of approximately ~~60%~~165% as of the filing date of this Form 10-Q. Our coil segment margins ~~started improving late in~~experienced improvement throughout the ~~second~~third quarter and we expect the fourth quarter to have ~~continued to improve during the third quarter.~~strong margins. Our tubular segment margins do not respond as quickly to the fluctuations in steel price but we ~~have started to~~did see ~~improved margins for our manufactured pipe sales during November 2020. In general,~~significant improvement in December 2020 and we expect ~~solid margins for~~that margin strength to continue during the ~~third~~fourth quarter. We expect both coil segment and tubular segment sales volumes for the ~~third~~fourth quarter to be ~~comparable to those of~~slightly higher than the ~~second~~third quarter ~~with the potential to be slightly less due to typical seasonality associated with the holidays and fewer shipping days.~~volumes.

During the ~~six~~nine months ended ~~September 30,~~December 31, 2020, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. Cash ~~increased~~decreased primarily from ~~operating activities and from Paycheck Protection Program loan proceeds with these increases being partially offset by~~ the purchase of property, plant and equipment, payment of cash dividends and the repurchase of common ~~stock.~~stock partially offset by cash provided by operating activities and from Paycheck Protection Program loan proceeds. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.

In April 2020, the Company received a $1,690,385 loan (the “PPP Loan”) from JPMorgan Chase Bank, N.A. (the “Bank”), under the Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as modified by the Paycheck Protection Flexibility Act of 2020 (the “PPP Flexibility Act”). The term of the PPP Loan is two years from the funding date of the PPP Loan. The interest rate on the PPP Loan is 0.98%. Under the terms of the PPP Loan, interest accrues from the funding date of the PPP Loan but ~~payment~~payments of both principal and interest ispayments are deferred for six months. Pursuant to the terms of the CARES Act, the Company can apply for and may be granted forgiveness for all or a portion of the PPP Loan, if and to the extent that the Company satisfies certain requirements. Such forgiveness is subject to use of the PPP Loan proceeds for qualifying purposes and is also subject to maintenance or achievement of certain employee and compensation levels. While the Company plans to apply for forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and the Small Business Administration ("SBA") regulations and requirements, no assurance can be given that all or any portion of the PPP Loan will be forgiven. Additional deferment of both principal and interest payments has been granted to provide ample time to submit a loan forgiveness application. As of the filing date of this Form 10-Q, the ~~Company was waiting~~Bank has paused their processing of forgiveness applications while they and the SBA make modifications to ~~receive an invitation from the Bank~~their systems and processes based on new provisions. We plan to submit ana forgiveness application ~~for forgiveness.~~as soon as allowed.

On June 25, 2020, our Board of Directors 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. ~~During the September 30,~~As of December 31, 2020, ~~quarter~~ we have repurchased ~~67,281~~180,200 shares at a total cost of ~~$410,221.~~$1,143,356. Repurchases under the program may be made from time to time at the Company’s discretion and may be made in open market transactions, through block trades, in privately negotiated transactions and pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or otherwise. The timing and actual number of shares repurchased pursuant to the program will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. 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 believes that its current cash position along with cash flows from operations and borrowing capability due to its financial position are adequate to fund its expected cash requirements for the next 12 months.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates that are subject to the Company’s assumptions include the fair value of the pipe-finishing facility, determination of useful lives for fixed assets, determination of the allowance for doubtful accounts and the determination of net realizable value relative to inventory. The fair value determination of the pipe-finishing facility requires assumptions related to future operations of the facility and estimates related to the replacement cost and value in exchange for the assets. The determination of useful lives for depreciation of fixed assets requires the Company to make assumptions regarding the future productivity of the Company’s fixed assets. The allowance for doubtful accounts requires the Company to draw conclusions on the future collectability of the Company’s accounts receivable. The determination of net realizable value when reviewing inventory value requires the Company to make assumptions concerning sales trends, customer demand and steel industry market conditions. Actual results could differ from these estimates.

From time to time, the Company may make certain statements that contain forward-looking information (as defined in the Private Securities Litigation Reform Act of 1996, as amended) and that involve risk and uncertainty. Such statements may include those risks disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report. These forward-looking statements may include, but are not limited to, future changes in the Company’s financial condition or results of operations, future production capacity, product quality and proposed expansion plans. Forward-looking statements may be made by management orally or in writing including, but not limited to, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the Company’s Annual Report on Form 10-K and its other Quarterly Reports on Form 10-Q. Forward-looking statements include those preceded by, followed by or including the words “will,” “expect,” “intended,” “anticipated,” “believe,” “project,” “forecast,” “propose,” “plan,” “estimate,” “enable,” and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oil and natural gas industry. These forward-looking statements are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Although forward-looking statements reflect our current beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, changes in the demand for and prices of the Company’s products, changes in government policy regarding steel, changes in the demand for steel and steel products in general and the Company’s success in executing its internal operating plans, changes in and availability of raw materials, unplanned shutdowns of our production facilities due to equipment failures or other issues, increased competition from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements. Accordingly, undue reliance should not be placed on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), as of the end of the fiscal quarter ended ~~September 30,~~December 31, 2020. Based on this evaluation, the Company’s CEO and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal quarter ended ~~September 30,~~December 31, 2020 to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended ~~September 30,~~December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

*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.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Part I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1214
Item 3. Quantitative and Qualitative Disclosures About Market Risk	1618
Item 4. Controls and Procedures	1618
Part II — OTHER INFORMATION	1719
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	1719
Item 6. Exhibits	1719
SIGNATURES	1820

	THREE MONTHS ENDED SEPTEMBER 30,						SIX MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED DECEMBER 31,						NINE MONTHS ENDED DECEMBER 31,
	2020			2019			2020			2019			2020			2019			2020			2019
Net Sales	$	24,861,680		$	39,995,580		$	48,386,280		$	80,970,900		$	28,502,049		$	28,150,817		$	76,888,329		$	109,121,717
Costs and expenses
Costs of goods sold		23,770,583			40,778,230			47,038,429			80,282,226			24,006,200			28,097,884			71,044,629			108,380,110
General, selling and administrative costs		1,401,888			1,253,849			2,793,642			2,462,237			1,725,143			1,200,393			4,518,785			3,662,630
Interest expense		6,255			—			12,208			—			6,148			2,463			18,356			2,463
		25,178,726			42,032,079			49,844,279			82,744,463			25,737,491			29,300,740			75,581,770			112,045,203
EARNINGS (LOSS) FROM OPERATIONS		(317,046	)		(2,036,499	)		(1,457,999	)		(1,773,563	)		2,764,558			(1,149,923	)		1,306,559			(2,923,486	)
Interest and other income		(4,325	)		(4,370	)		(8,648	)		(10,705	)		(4,339	)		(4,370	)		(12,987	)		(15,075	)
EARNINGS (LOSS) BEFORE INCOME TAXES		(312,721	)		(2,032,129	)		(1,449,351	)		(1,762,858	)		2,768,897			(1,145,553	)		1,319,546			(2,908,411	)
Provision for (benefit from) income taxes:
Current		46,005			(385,062	)		(123,041	)		(294,524	)		757,097			244,940			634,056			(49,584	)
Deferred		(108,721	)		(102,930	)		(217,443	)		(118,969	)		(117,945	)		(509,490	)		(335,388	)		(628,459	)
		(62,716	)		(487,992	)		(340,484	)		(413,493	)		639,152			(264,550	)		298,668			(678,043	)
NET EARNINGS (LOSS)	$	(250,005	)	$	(1,544,137	)	$	(1,108,867	)	$	(1,349,365	)	$	2,129,745		$	(881,003	)	$	1,020,878		$	(2,230,368	)

Weighted average number of common shares outstanding:
Basic		7,067,898			6,999,444			7,074,137			6,999,444			7,039,736			6,999,444			7,062,628			6,999,444
Diluted		7,067,898			6,999,444			7,074,137			6,999,444			7,039,736			6,999,444			7,062,628			6,999,444
Net earnings (loss) per share:
Basic	$	(0.04	)	$	(0.22	)	$	(0.16	)	$	(0.19	)	$	0.30		$	(0.13	)	$	0.14		$	(0.32	)
Diluted	$	(0.04	)	$	(0.22	)	$	(0.16	)	$	(0.19	)	$	0.30		$	(0.13	)	$	0.14		$	(0.32	)
Cash dividends declared per common share	$	0.02		$	0.02		$	0.04		$	0.06		$	0.02		$	0.02		$	0.06		$	0.08

	THREE MONTHS ENDED DECEMBER 31,					NINE MONTHS ENDED DECEMBER 31,
	2020		2019			2020		2019
Net earnings (loss)	$	2,129,745	$	(881,003	)	$	1,020,878	$	(2,230,368	)
Other comprehensive income (loss):
Cash flow hedges, net of tax		2,657,923		—			2,657,923		—
Other comprehensive income:		2,657,923		—			2,657,923		—
Comprehensive income (loss)	$	4,787,668	$	(881,003	)	$	3,678,801	$	(2,230,368	)

	SIX MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED DECEMBER 31,
	2020			2019			2020			2019
OPERATING ACTIVITIES
Net loss	$	(1,108,867	)	$	(1,349,365	)
Adjustments to reconcile net loss to cash provided by operating activities:
Net earnings (loss)							$	1,020,878		$	(2,230,368	)
Adjustments to reconcile net earnings (loss) to cash provided by operating activities:
Depreciation		530,968			614,373			730,254			923,966
Deferred taxes		(217,443	)		(118,969	)		(335,388	)		(628,459	)
Compensation expense for restricted stock		221,627			166,472			376,363			249,708
Change in postretirement benefits		5,933			5,477			8,900			8,215
Lower of cost or net realizable value inventory adjustment		274,093			955,605			274,093			955,605
Deferred gain on derivatives								696,400			—
Decrease (increase) in operating assets:
Accounts receivable		426,318			296,595			(428,031	)		3,337,785
Inventories		8,894,641			12,013,518			5,263,830			12,562,592
Federal income taxes recoverable		(109,230	)		(304,527	)		448,665			(40,639	)
Other current assets		(1,075,916	)		(513,442	)		(793,679	)		(1,025,125	)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses		(4,199,863	)		(2,730,307	)		(2,834,970	)		567,114
Income taxes payable		—			(159,694	)		88,541			(159,694	)
Contribution to retirement plan		100,500			100,500			149,750			149,750
Employee compensation and related expenses		(26,484	)		74,094			172,018			(42,617	)
Other non-current liabilities		—			18,658
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,716,277			9,068,988			4,837,624			14,627,833
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,933,637	)		(796,253	)		(4,228,193	)		(3,223,856	)
Increase in cash surrender value of officers’ life insurance		(8,647	)		(8,740	)		(12,970	)		(13,110	)
NET CASH USED IN INVESTING ACTIVITIES		(2,942,284	)		(804,993	)		(4,241,163	)		(3,236,966	)
FINANCING ACTIVITIES
Paycheck Protection Program loan proceeds		1,690,385			—			1,690,385			—
Cash dividends paid		(283,218	)		(559,956	)		(424,780	)		(699,945	)
Cash paid for principal portion of finance lease		(50,121	)		—			(75,364	)		(24,760	)
Cash paid for share repurchases		(410,221	)		—			(1,143,356	)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		946,825			(559,956	)		46,885			(724,705	)
INCREASE IN CASH		1,720,818			7,704,039
CASH AT BEGINNING OF PERIOD		17,057,751			11,667,161
CASH AT END OF PERIOD	$	18,778,569		$	19,371,200
INCREASE IN CASH AND RESTRICTED CASH								643,346			10,666,162
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD								17,057,751			11,667,161
CASH AND RESTRICTED CASH AT END OF PERIOD							$	17,701,097		$	22,333,323

	September 30, 2020		Balance Sheet Classification	December 31, 2020		Balance Sheet Classification
Assets
Operating lease right-of-use asset	$	33,363	Other assets	$	19,231	Other assets
Finance lease right-of-use asset		494,846	Property, plant & equipment		488,363	Property, plant & equipment
Total right-of-use assets	$	528,209		$	507,594
Liabilities
Operating lease liability, current	$	33,363	Accrued expenses	$	19,231	Accrued expenses
Finance lease liability, current		101,704	Current portion of finance lease		102,196	Current portion of finance lease
Finance lease liability, non-current		317,151	Other non-current liabilities		291,417	Other non-current liabilities
Total lease liabilities	$	452,218		$	412,844

	Operating Leases			Finance Leases			Operating Leases			Finance Leases
Fiscal 2021 (remainder of fiscal year)		29,268			54,444			14,634			27,222
Fiscal 2022		4,878			108,888			4,878			108,888
Fiscal 2023		—			108,888			—			108,888
Fiscal 2024		—			108,888			—			108,888
Fiscal 2025		—			54,444			—			54,444
Total undiscounted lease payments	$	34,146		$	435,552		$	19,512		$	408,330
Less: imputed interest		(783	)		(16,697	)		(281	)		(14,717	)
Present value of lease liability	$	33,363		$	418,855		$	19,231		$	393,613

	Three Months Ended December 31, 2020
	Before-Tax		Tax			Net-of-Tax

Cash flow hedges	$	3,364,460	$	(706,537	)	$	2,657,923
Other comprehensive income	$	3,364,460	$	(706,537	)	$	2,657,923

	Nine Months Ended December 31, 2020
	Before-Tax		Tax			Net-of-Tax

Cash flow hedges	$	3,364,460	$	(706,537	)	$	2,657,923
Other comprehensive income	$	3,364,460	$	(706,537	)	$	2,657,923

Q2 Periods	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs*		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs*
July 1-31, 2020		—		—		—
August 1-31, 2020		7,892	$	6.04		7,892
September 1-30, 2020		59,389	$	6.11		59,389
Total:		67,281						994,786

Q3 Periods	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs*		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs*
October 1-31, 2020		37,072	$	5.95		37,072
November 1-30, 2020		21,175	$	5.96		21,175
December 1-31, 2020		54,672	$	7.07		54,672
Total:		112,919						881,867

Exhibits

3.1	—	Articles of Incorporation of the Company, as amended (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).

3.2	—	Articles of Amendment to the Articles of Incorporation of the Company, as filed with the Texas Secretary of State on September 22, 1987 (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed on December 21, 2016).

3.3	—	Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company’s Form S-8 filed on December 21, 2016).

31.1	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Michael J. Taylor.

31.2	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Alex LaRue.

32.1	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Michael J. Taylor.

32.2	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Alex LaRue.

101.INS	—	XBRL Instance Document.

101.SCH	—	XBRL Taxonomy Schema Document.

101.CAL	—	XBRL Calculation Linkbase Document.

101.DEF	—	XBRL Definition Linkbase Document.

101.LAB	—	XBRL Label Linkbase Document.

101.PRE	—	XBRL Presentation Linkbase Document.

	FRIEDMAN INDUSTRIES, INCORPORATED

Date: ~~November 16, 2020~~February 22, 2021	By	/s/ ALEX LARUE
		Alex LaRue, Chief Financial Officer – Secretary and Treasurer (Principal Financial Officer)

	September 30, 2020		March 31, 2020		December 31, 2020		March 31, 2020
Segment assets
Coil	$	33,689	$	35,895	$	43,880	$	35,895
Tubular		19,656		23,659		17,563		23,659
		53,345		59,554		61,443		59,554
Corporate assets		19,703		17,790		17,926		17,790
	$	73,048	$	77,344	$	79,369	$	77,344