1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.  BUSINESS COMBINATIONS

On August 29, 2025, (the “Acquisition Date”), the Company acquired certain assets and liabilities of Century Metals & Supplies Inc. based in Miami, Florida. The Company acquired the working capital, buildings, processing and other equipment, and the related real estate of Century (the “Transaction”). In addition to the owned facilities in Miami, the Transaction also includes leased distribution and warehouse facilities in Orlando, Florida and Tampa, Florida. The operations continue as Century Metals and Supplies LLC (“Century”), a wholly owned subsidiary of the Company. Century is a metals processing company with cut-to-length and coil slitting capabilities which operates as part of the Company's flat-roll business segment. As a result of the Transaction, the Company expanded its presence in the southeastern U.S. and Latin American markets and broadened the Company's product offerings to include cold-rolled, coated, and stainless steels, as well as non-ferrous materials such as aluminum, copper, and brass.

The Transaction resulted in the Company acquiring all the ownership interests in the assets noted above, for a total consideration of approximately $51.6 million, after final net working capital adjustments. The total consideration consists of (i) approximately $45.6 million of cash at close, (ii) a five-year seller's note with a fair value of approximately $3.5 million, (iii) contingent consideration possible through earn-out provisions with an initial fair value of approximately $3.6 million and a post-closing final working capital adjustment in favor of the Company of approximately $1.1 million. The contingent consideration allows for up to $10 million in additional consideration over a four-year period based on certain performance metrics and is not contingent on the sellers employment with Century at the time of the payout and, as such, the fair value of such contingent consideration was recognized as consideration transferred.

The seller’s note was fair valued using a discounted cash flow analysis of the expected future payments, for which the significant inputs included the rate of return based on a reference rate plus a spread and the expected cash flows associated with the seller’s note over the remaining time to maturity. The contingent consideration was fair valued using a Monte Carlo simulation of the potential cash payments to the sellers utilizing an estimate of the average future EBITDA, which was discounted to present value. The significant inputs to the Monte Carlo simulation included projected future EBITDA, a discount rate, EBITDA targets, maximum payout and EBITDA volatility. Such contingent consideration is required to be measured at fair value at inception and at each reporting period. The Company performed a fair value analysis at March 31, 2026 and concluded the fair value was approximately $2.2 million. There were no changes to the valuation methodology during the subsequent reporting period. The contingent consideration liability is reported on the consolidated balance sheet under non-current contingent consideration liability and the change in fair value since initial measurement is recognized as a gain on the statement of operations.

The Transaction was accounted for using the acquisition method of accounting, in accordance with Topic 805, Business Combinations, whereby the consideration transferred and the acquired identifiable assets and liabilities assumed are recorded at their respective fair values. The excess of the consideration transferred over the fair values of these identifiable net assets is recorded as goodwill. The Transaction resulted in no residual goodwill.

The following unaudited pro forma consolidated operating results give effect to the Transaction as if it had been completed as of April 1, 2024 (in thousands). These pro forma amounts are not necessarily indicative of the operating results that would have occurred if the Transaction had occurred on such date. The pro forma adjustments are based on certain assumptions that we believe are reasonable.

The Company's consolidated statement of operations for fiscal 2026 includes net sales of approximately $61.5 million and net earnings of approximately $2.2 million attributable to Century's operations. During fiscal 2026, the Company recorded one-time acquisition specific costs of approximately $1.3 million as a component of "Selling, general and administrative" expenses on the Consolidated Statement of Operation. Information about the debt issuance costs associated with the acquisition financing is provided in Note 4.

3.  EQUITY COMPENSATION PLANS AND CAPITAL STOCK

The Company maintains two stock based compensation plans: the Friedman Industries, Incorporated 2016 Restricted Stock Plan (the “2016 Plan”) and the Friedman Industries, Incorporated 2025 Long-Term Incentive Plan (the "2025 Plan" and together with the 2016 Plan, the "Plans"). The Plans are administered by the Compensation Committee of the Board of Directors and continue indefinitely until terminated by the Board of Directors (the "Board") or until all shares allowed by the plans have been awarded and earned. All shares authorized under the 2016 Plan have been awarded with some of those shares still under vesting restrictions at  March 31, 2026. Under the 2025 Plan, the Company may award stock-based compensation to employees, non-employee directors and third-party service providers. The 2025 Plan permits the award of stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards for up to 550,000 shares of the Company's common stock. As of  March 31, 2026, all stock based compensation issued under the 2025 Plan was in the form of restricted stock awards and a total of 521,696 shares were still available to be issued under the 2025 Plan. 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 awards for the two years ended March 31, 2026:

The Company measures compensation expense for restricted stock awards at the market price of the common stock as of the grant date. Compensation expense for awards with time based restrictions is recognized over the requisite service period applicable to each award. Compensation expense for awards with performance based restrictions is recognized once it is probable the performance conditions will be satisfied with a cumulative effect adjustment and the remaining expense recognized over the remaining service period. The stock awards granted during fiscal 2026 consist of 53,221 time restricted shares with annual ratable vesting over a three year period, 50,000 time restricted shares with annual ratable vesting over a two year period, 2,742 time restricted shares with one year cliff vesting, and 36,313 performance restricted shares with vesting thresholds dependent on the percentage of average earnings before tax to average accounts receivable, inventory and net PP&E over a three year period. The Company recorded compensation expense of approximately $0.7 million and $0.2 million in fiscal 2026 and fiscal 2025, respectively, related to the restricted stock issued under the Plans.

At  March 31, 2026 and 2025, unrecognized compensation expense related to unvested restricted stock awards was approximately $1.6 million and $0.1 million, respectively, which is expected to be recognized over a weighted average period of approximately 1.8 years and 0.8 years, respectively.

The Company has 1,000,000 authorized shares of Cumulative Preferred Stock with a par value of $1 per share. The stock may be issued in one or more series, and the Board of Directors is authorized to fix the designations, preferences, rights, qualifications, limitations and restrictions of each series, except that any series must provide for cumulative dividends and must be convertible into Common Stock. There were no shares of Cumulative Preferred Stock issued as of March 31, 2026 or March 31, 2025.

On  December 13, 2023, the Board of Directors authorized the repurchase, for retirement, of up to 1,045,774 additional shares of our common stock in open-market transactions or otherwise with the authorization expiring December 13, 2026. The Company did not repurchase any shares through the open market during fiscal 2026 or fiscal 2025 but did acquire 630 shares and 9,801 shares during fiscal 2026 and fiscal 2025, respectively, as employee withholding taxes paid on vested restricted stock. 

4.   DEBT

The Company has a $140 million asset-based lending facility ("ABL Facility") led by JPMorgan Chase Bank, N.A with Wells Fargo Bank, N.A. as a 40% syndicated participant. The ABL Facility matures on  August 29, 2030 and is secured by substantially all of the assets of the Company. The Company can elect borrowings on a floating rate basis or a term basis. Floating rate borrowings accrue interest at a rate equal to the prime rate minus 1.45% per annum. Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable to the selected term plus 1.65% per annum. Availability of funds under the ABL Facility is subject to a borrowing base calculation determined as the sum of (a) 90% of eligible accounts receivable, plus (b) the product of 85% multiplied by the net orderly liquidating value percentage identified in the most recent inventory appraisal multiplied by eligible inventory. The ABL Facility contains a springing financial covenant whereby the financial covenant is only tested when availability falls below the greater of 10% of the revolving commitment or $14.0 million. The financial covenant restricts the Company from allowing its fixed charge coverage ratio to be, as of the end of any calendar month, less than 1.00 to 1.00 for the trailing twelve-month period then ending. The fixed charge coverage ratio is calculated as the ratio of (a) EBITDA, as defined in the ABL Facility, minus unfinanced capital expenditures to (b) cash interest expense plus scheduled principal payments on indebtedness plus taxes paid in cash plus restricted payments paid in cash plus capital lease obligation payments plus cash contributions to any employee pension benefit plans. The ABL Facility contains other representations and warranties and affirmative and negative covenants that are usual and customary. If certain conditions precedent are satisfied, the ABL facility  may be increased up to an aggregate of $60 million, in minimum increments of $5 million. At March 31, 2026, the Company had a balance of approximately $92.6 million under the ABL Facility with an applicable interest rate of 5.3%. At March 31, 2026, the Company's borrowing base supported full access to the ABL Facility.

The Company incurred debt issuance costs of approximately $0.4 million related to the renewal of the ABL Facility during fiscal 2026 with these costs recorded as a non-current other asset which will be amortized on an equal monthly basis over the term of the ABL facility.

The Company issued a seller's note of $3.5 million related to the acquisition of Century described in Note 2. The promissory note has a maturity date of  August 29, 2030 and accrues interest at a rate of 6.5% per annum, payable quarterly in arrears on the last date of each quarter, commencing  September 30, 2025.

5.   LEASES

In  August 2025, the Company was assigned operating leases for distribution and warehouse facilities in Orlando, FL and Tampa, FL and certain transportation equipment related to the acquisition of Century. The Orlando lease expires  July 31, 2029 and calls for monthly rental payments of approximately $25,000. The Tampa lease expires  November 30, 2029 but contains a 6 month extension option and calls for monthly rental payments of approximately $21,000. The Company recognized initial right-of-use ("ROU") assets and lease liabilities of approximately $2.4 million related to the assumed Century leases. The Company's other ROU assets and lease liabilities consist primarily of operating leases for the Granite City, IL operating facility and administrative office spaces in The Woodlands, TX and Longview, TX. The Company’s other operating leases for items such as operations equipment, IT equipment and storage space are either short-term in nature or immaterial. The Company does not have any finance leases in place.

The Company determines if an arrangement contains a lease at inception based on if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration and allows the Company to obtain substantially all of the economic benefit from the use of the identified asset. Certain lease agreements contain rent escalation clauses and one or more options to extend the lease. The Company considers these provisions when calculating operating lease obligations. The Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments.

The components of expense related to leases were as follows for the fiscal years ended March 31, 2026 and 2025 (in thousands):

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of March 31, 2026 and 2025 (in thousands):

As of March 31, 2026, the weighted-average remaining lease term was 12.5 years for operating leases. The weighted average discount rate was 7.0% for operating leases.

Maturities of lease liabilities as of March 31, 2026 were as follows (in thousands):

6.   PROPERTY, PLANT AND EQUIPMENT

At March 31, 2026, the Company's construction in process balance of approximately $0.9 million consisted primarily of $0.6 million associated with a building expansion at the Sinton, TX facility. The remaining balance consists of smaller projects among our facilities. 

Depreciation expense was approximately $3.7 million and $3.2 million for fiscal 2026 and fiscal 2025, respectively.

7.   DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, we expect to utilize futures, options or swaps to manage our exposure to metals price risk that is inherent in our business. During fiscal 2026 and fiscal 2025, all of the Company's hedging activities were classified as economic hedges of risk with mark-to-market ("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, 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 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. 

At March 31, 2026 and 2025, the Company did not have any derivatives 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 March 31, 2026 (in thousands):

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, 2025 (in thousands):

All derivatives are presented on a gross basis on the Consolidated Balance Sheet.

During fiscal 2026 and fiscal 2025, the Company entered into hot-rolled coil futures and swap 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 fiscal 2026 and fiscal 2025, the Company did not designate any transactions as hedging instruments for accounting purposes.

The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during fiscal 2026 (in thousands):

The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during fiscal 2025 (in thousands):

The following table summarizes the Company's economic (non-designated) derivative instruments outstanding at  March 31, 2026 (in thousands):

The following table summarizes the Company's economic (non-designated) derivative instruments outstanding at  March 31, 2025 (in thousands):

At  March 31, 2026 and 2025, cash of approximately $0.8 million and $0.5 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  March 31, 2026 and 2025.

8.   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:

Recurring Fair Value Measurements

At  March 31, 2026, our financial assets and liabilities, measured at fair value on a recurring basis were as follows (in thousands):

At  March 31, 2025, our financial assets and liabilities, measured at fair value on a recurring basis were as follows (in thousands):

At  March 31, 2026 and 2025, the Company did not have any fair value measurements on a non-recurring basis.

9. EARNINGS PER SHARE

Basic and dilutive net earnings per share is computed based on the following information (in thousands, except for share data):

For fiscal 2026 and fiscal 2025, the Company allocated dividends and undistributed earnings to the unvested restricted stock awards. 

As the restricted stock qualifies as participating securities, the following restricted stock awards were not accounted in the computation of weighted average diluted common shares outstanding under the two-class method:

10.   INCOME TAXES

Components of tax expense are as follows (in thousands):

Reconciliations of the statutory rates to the actual effective tax rates for fiscal years 2026 and 2025 are as follows (in thousands, except percentages):

Note: Certain percentages may not sum to totals due to rounding.

(1) State taxes in Alabama, Arkansas, Florida, Illinois, Indiana and Texas made up the majority (greater than 50 percent) of the tax effect in this category. 

The following table presents income taxes paid (in thousands):

(1) All other domestic state and local jurisdictions individually represented less than 5% and are aggregated into "Other"

The Company’s tax returns may be subject to examination by the Internal Revenue Service for the fiscal years ended March 31, 2023 through March 31, 2025. State and local returns may be subject to examination for fiscal years ended March 31, 2022 through March 31, 2025.

Deferred income taxes are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s consolidated deferred tax assets (liabilities) are as follows (in thousands):

11.   RETIREMENT PLAN

The Company maintains the Friedman Industries, Inc. Employees’ Retirement and 401(k) Plan (the “Plan”). Employees fully vest in the Plan upon six years of service.

Employees may elect to participate in the 401(k) portion of the Plan. Employees are eligible to participate in the Plan when the employee has completed sixty calendar days of service. Under the Plan, participating employees may defer a portion of their earnings up to certain limits prescribed by the Internal Revenue Service. The Company provides matching contributions under the provisions of the Plan. Contribution expense related to the 401(k) portion of the Plan was approximately $0.7 million and $0.5 million for the years ended  March 31, 2026 and 2025, respectively.

The retirement portion of the Plan covers substantially all employees, including officers. Any contributions are determined at the discretion of the Board of Directors in an amount not to exceed 15% of the total compensation paid during the year to all eligible employees. The Company did not make a contribution to the retirement portion of the Plan in fiscal 2026 or fiscal 2025.  Contributions, plan earnings and forfeitures of non-vested accounts of terminated participants are allocated to the remaining individual accounts determined by a point schedule based on years of employment with the Company.

12.   INDUSTRY SEGMENT DATA

The Company is engaged in the metals processing, pipe manufacturing, and metals and pipe distribution business. Within the Company, there are two product groups: flat-roll and tubular. The Company’s flat-roll operations consist primarily of converting carbon steel, stainless steel and aluminum flat-roll products into sheet, plate or slit coil. Through its tubular operations, the Company purchases, processes, manufactures and markets tubular products. An immaterial amount of flat-roll segment revenue is generated by sales to foreign countries. All of the tubular segment's revenue is generated by sales within the United States.

Segment results are reviewed regularly by the Company’s Chief Operating Decision Makers (“CODMs”). The Company’s CODMs are comprised of the Chief Executive Officer and the Chief Financial Officer. The CODMs assess segment performance and allocate resources based on a number of factors with the most emphasis placed on earnings from operations.

The following is a summary of significant financial information relating to the product groups (in thousands):