Overview
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 five hot-rolled coil
processing facilities located in Hickman, AR; Decatur, AL; Granite City,
IL; East Chicago, IN and Sinton, TX. The facilities in Granite City and East
Chicago were acquired on April 30, 2022 from Plateplus, Inc ("Plateplus"). More
information about the Plateplus transaction can be found in Note B to the
Company's Financial Statements. The facility in Sinton is a newly constructed
facility that commenced operations during October 2022. The Hickman, Granite
City and East Chicago facilities operate temper mills and cut-to-length lines.
The Decatur and Sinton facilities operate stretcher leveler cut-to-length
lines. The equipment at all locations improves the flatness and surface quality
of the coils and cuts the coils into sheet and plate of prescribed lengths. On a
combined basis, the facilities are capable of cutting sheet and plate with
thicknesses ranging from 16 gauge to 1" thick in widths ranging from 36" wide to
96" wide. 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.
As discussed above, the Company commenced operations at its new facility in
Sinton, Texas in October 2022 which is part of the coil product segment. The new
facility is on the campus of Steel Dynamics, Inc.'s ("SDI") new flat roll steel
mill in Sinton, Texas. The Company's new location consists of an approximately
70,000 square foot building located on approximately 26.5 acres leased from SDI
under a 99-year agreement. The facility is equipped with one of the world's
largest stretcher leveler cut-to-length lines, capable of handling material up
to 1" thick, widths up to 96" and yields exceeding 100,000 psi. The total cost
of the project is estimated to be approximately $22.3 million. At December 31,
2022, the Company had paid approximately $14,826,000 related to the project and
accrued approximately $7,448,000 to be paid during the three months ended March
31, 2023. The Company expects to fund the remainder of the Sinton capital
expenditure through a combination of cash generated from operations and funds
drawn under the ABL Facility. The Company expects the remainder of fiscal 2023
to be a ramp up period for the facility and then expects the facility's annual
shipments could be in the range of 110,000 tons to 140,000 tons for fiscal 2024.
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 a pipe finishing facility capable of applying threads and
couplings to oil country tubular goods and performing other services that are
customary in the pipe finishing process. The pipe finishing facility is
currently idled. 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 TTP has
manufactured.
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Results of Operations
Nine Months Ended December 31, 2022 Compared to Nine Months Ended December 31,
2021
During the nine months ended December 31, 2022 (the "2022 period"), sales and
costs of goods sold increased $213,212,315 and $227,153,057, respectively, and
gross profit decreased $13,940,742 compared to the amounts recorded during the
nine months ended December 31, 2021 (the "2021 period"). The increase in sales
was primarily related to an increase in tons sold. Tons sold increased from
approximately 147,500 tons in the 2021 period to approximately 335,000 tons in
the 2022 period. The significant growth in sales volume was primarily related to
the acquisition of facilities and inventory from Plateplus, Inc. which is
discussed in more detail in Note B to the Company's Financial Statements.
Discussion of the change in sales is expanded upon at the segment level in the
following paragraphs. Gross profit decreased from $43,420,896 for the 2021
period to $29,480,154 for the 2022 period. Gross profit as a percentage of sales
decreased from approximately 20.7% for the 2021 period to approximately 7.0% for
the 2022 period. Gross profit for the 2022 period included $2,977,160 in
recognized losses related to hedging activities while gross profit for the 2021
period included $12,317,960 in recognized net losses related to hedging
activities. Excluding the recognized hedging losses, gross profit related to
physical material as a percentage of sales was approximately 7.6% for the 2022
period compared to approximately 23.9% for the 2021 period.
Our operating results are significantly impacted by the market price of
hot-rolled steel coil ("HRC"). The Company experienced significant volatility in
steel price during both the 2022 period and the 2021 period. HRC prices were on
a historic rise entering the 2021 period that continued until reaching an
all-time high of approximately $1,950 per ton at the end of August 2021. These
circumstances created a high margin environment during the 2021 period in a
period of historically high steel prices. From September 2021 to February 2022,
HRC prices declined approximately 52% until the Russian invasion of Ukraine
triggered a sharp and abrupt increase. HRC prices increased approximately 60%
from the beginning of March 2022 to the end of April 2022 and then declined
approximately 60% until the middle of December 2022. In late November 2022 and
December 2022, domestic steel producers announced price increases which caused
HRC prices to increase at the end of the 2022 period. These circumstances
created strong margins to start the 2022 period and then margin compression for
the remainder of the 2022 period due to the prevailing downward trend in HRC
price.
Coil Segment
Coil product segment sales for the 2022 period totaled $372,830,186 compared to
$172,814,243 for the 2021 period. For a more complete understanding of the
average selling prices of goods sold, it is helpful to exclude any hedging
related gains or losses that are captured in sales and any sales generated from
processing of customer owned material. Coil segment sales for the 2022 period
were reduced by $2,977,160 for the recognition of hedging related losses. Coil
segment sales for the 2021 period were reduced by $20,920,640 for the
recognition of hedging related losses. Sales generated from processing of
customer owned material totaled $1,028,037 for the 2022 period compared to
$1,013,801 for the 2021 period. Sales generated from coil segment inventory,
excluding the impact of any hedging related gains or losses, totaled
$374,779,309 for the 2022 period compared to $192,721,082 for the 2021 period.
The average per ton selling price related to these shipments decreased from
approximately $1,737 per ton in the 2021 period to approximately $1,222 per ton
in the 2022 period. Inventory tons sold increased from approximately 111,000
tons in the 2021 period to approximately 306,500 tons in the 2022 period. The
significant increase in sales volume was primarily attributable to
the facilities and inventory acquired from Plateplus which account for
approximately 170,000 tons of the 306,500 tons sold in the 2022 period. Coil
segment operations recorded operating profits of approximately $15,684,000 and
$33,497,000 for the 2022 period and 2021 period, respectively. The operating
profit for the 2022 period includes recognized net losses on hedging
activities of $2,977,160 while the 2021 period operating profit included
recognized net losses on hedging activities of $10,511,300.
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 Segment
Tubular product segment sales for the 2022 period totaled $50,525,406 compared
to $37,329,034 for the 2021 period. Sales increased due to an increase in the
average selling price per ton, partially offset by a decline in the volume
sold. For a more complete understanding of the average selling prices of goods
sold, it is helpful to exclude any hedging related gains or losses that are
captured in sales. Tubular segment sales for the 2022 period were not impacted
by any hedging related gains or losses. Tubular segment sales for
the 2021 period were reduced by $2,030,220 for the recognition of hedging
related losses. Sales generated from tubular segment inventory, excluding the
impact of any hedging related gains or losses, totaled $50,525,406 for the 2022
period compared to $39,359,254 for the 2021 period. The average per ton selling
price related to these shipments increased from approximately $1,074 per ton in
the 2021 period to approximately $1,785 per ton in the 2022 period. Tons sold
decreased from approximately 36,500 tons in the 2021 period to approximately
28,500 tons in the 2022 period. The decline in sales volume was primarily
related to a decline in mill reject pipe sales partially offset by an increase
in manufactured pipe sales. U.S. Steel's Lone Star Tubular Operations was the
Company's sole source of supply for mill reject pipe. With U.S. Steel's idling
of their Lone Star Operations, the Company's receipts of mill reject pipe ceased
in August 2020 and the inventory balance started to decline steadily each
quarter. The Company sold out of mill reject pipe during the quarter ended June
30, 2022. Mill reject pipe sales volume was approximately 1,000 tons for the
2022 period compared to approximately 19,500 tons for the 2021 period.
Manufactured pipe sales volume was approximately 27,500 tons for the 2022
period compared to approximately 17,000 tons for the 2021 period. The average
selling price increase was also primarily related to this shift in sales mix
between manufactured pipe and mill reject pipe. The selling price associated
with manufactured pipe is typically much higher than the selling prices
associated with mill reject pipe. The Company will continue to focus on the
expansion of its manufactured pipe operations to counteract the impact of mill
reject pipe sales ending. The tubular segment recorded operating profits of
approximately $6,136,000 and $3,951,000 for the 2022 period and 2021 period,
respectively. The operating profit for the 2021 period included recognized net
losses on hedging activities of $1,806,660 while the Company did not have any
hedging related gains or losses affecting operating results for the 2022 period.
The 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.
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General, Selling and Administrative Costs
During the 2022 period, general, selling and administrative costs increased
$5,027,069 compared to the 2021 period. This increase is primarily associated
with costs associated with the Plateplus transaction and increased personnel but
partially offset by less incentive based compensation expense for the 2022
period. Cost for the 2022 period includes approximately $1.2 million of one-time
expenses related to the Plateplus transaction. Cost for the 2022 period includes
approximately $2.9 million of general, selling and administrative costs
associated with the East Chicago and Granite City locations acquired from
Plateplus and approximately $1.4 million in personnel costs for additional
sales, accounting, IT and corporate employees hired during the 2022 period.
Other Income
For the 2022 period, the Company reported other income of $7,349,916. This
income consists primarily of a $7,325,860 gain on derivative instruments not
designated for hedge accounting. For the 2021 period, the Company reported other
loss of $4,801,121. This loss consists primarily of a loss of $6,498,040 on
derivative instruments not designated for hedge accounting partially offset by a
$1,706,614 gain associated with the forgiveness of the Company's Paycheck
Protection Program loan.
Income Taxes
Income taxes decreased from a provision for the 2021 period of $6,303,899 to a
provision for the 2022 period of $4,639,272. This decrease was primarily related
to the lower earnings before income tax for the 2022 period but partially offset
by the non-taxable treatment of the Paycheck Protection Program loan forgiveness
which was recognized as part of earnings before income taxes for the 2021
period.
Three Months Ended December 31, 2022 Compared to Three Months Ended December 31,
2021
During the three months ended December 31, 2022 (the "2022 quarter"), sales,
costs of goods sold and gross profit increased $60,204,150, $50,470,295 and
$9,733,855, respectively, compared to the amounts recorded during the three
months ended December 31, 2021 (the "2021 quarter"). The increase in sales was
primarily related to an increase in tons sold. Tons sold increased from
approximately 39,000 tons in the 2021 quarter to approximately 113,000 tons in
the 2022 quarter. The significant growth in sales volume was related to the
acquisition of facilities and inventory from Plateplus, Inc. which is discussed
in more detail in Note B to the Company's Financial Statements. Discussion of
the change in sales is expanded upon at the segment level in the following
paragraphs. Gross margin improved from a loss of $3,604,021 for the 2021 quarter
to a profit of $6,129,834 for the 2022 quarter. Gross margin as a percentage of
sales improved from a negative margin of approximately 7.0% for the 2021 quarter
to a positive margin of approximately 5.5% for the 2022 quarter. Gross margin
for the 2022 quarter included $860,620 in recognized losses related to hedging
activities while gross margin for the 2021 quarter included $14,716,860 in
recognized net losses related to hedging activities. Excluding the recognized
hedging gains and losses, gross profit related to physical material as a
percentage of sales was approximately 6.2% for the 2022 quarter compared to
approximately 16.7% for the 2021 quarter.
Our operating results are significantly impacted by the market price of
hot-rolled steel coil ("HRC"). Entering the 2022 quarter, HRC prices had seen an
overall declining trend since April 2022. The downward trend continued until
December 2022 when HRC prices stabilized and started increasing in response to
price increase announcements from various domestic steel producers. The Company
experienced lower physical margins during the 2022 quarter due to the declining
HRC price environment. Physical margins for the 2021 quarter were declining
after HRC prices reached an all-time high in August 2021 but were still at a
historically higher level because margins declined from all-time high levels.
Coil Segment
Coil product segment sales for the 2022 quarter totaled $100,231,001 compared to
$41,795,586 for the 2021 quarter. For a more complete understanding of the
average selling prices of goods sold, it is helpful to exclude any hedging
related gains or losses that are captured in sales and any sales generated from
processing of customer owned material. Coil segment sales for the 2022 quarter
were reduced by $860,620 for the recognition of hedging related losses. Coil
segment sales for the 2021 quarter were reduced by $13,169,420 for the
recognition of hedging related losses. Sales generated from processing of
customer owned material totaled $334,870 for the 2022 quarter compared to
$354,876 for the 2021 quarter. Sales generated from coil segment inventory,
excluding the impact of any hedging related gains or losses, totaled
$100,756,751 for the 2022 quarter compared to $54,610,130 for the 2021 quarter.
The average per ton selling price related to these shipments decreased from
approximately $1,899 per ton in the 2021 quarter to approximately $949 per ton
in the 2022 quarter. Inventory tons sold increased from approximately 29,000
tons in the 2021 quarter to approximately 106,000 tons in the 2022 quarter. The
significant increase in sales volume was primarily attributable to
the facilities acquired from Plateplus which account for approximately 51,500
tons of the 106,000 tons sold in the 2022 quarter. Coil segment operations
recorded an operating profit of approximately $3,259,000 for the 2022 quarter
compared to an operating loss of approximately $4,032,000 for the 2021
quarter. The operating profit for the 2022 quarter includes recognized net
losses on hedging activities of $860,620 while the 2021 quarter operating loss
included recognized net losses on hedging activities of $13,120,220.
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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 Segment
Tubular product segment sales for the 2022 quarter totaled $11,629,092 compared
to $9,860,357 for the 2021 quarter. Sales increased due to an increase in
the average selling price per ton, offset by a decrease in tons sold. For a more
complete understanding of the average selling prices of goods sold, it is
helpful to exclude any hedging related gains or losses that are captured in
sales. Tubular segment sales for the 2022 quarter were not impacted by any
hedging related gains or losses. Tubular segment sales for the 2021 quarter were
reduced by $1,596,640 for the recognition of hedging related losses. Sales
generated from tubular segment inventory, excluding the impact of any hedging
related gains or losses, totaled $11,629,092 for the 2022 quarter compared to
$11,456,997 for the 2021 quarter. The average per ton selling price related to
these shipments increased from approximately $1,111 per ton in the 2021 quarter
to approximately $1,648 per ton in the 2022 quarter. Tons sold decreased from
approximately 10,500 tons in the 2021 quarter to approximately 7,000 tons in
the 2022 quarter. The decline in sales volume was primarily related to a decline
in mill reject pipe sales partially offset by an increase in manufactured pipe
sales. U.S. Steel's Lone Star Tubular Operations was the Company's sole source
of supply for mill reject pipe. With U.S. Steel's idling of their Lone Star
Operations, the Company's receipts of mill reject pipe ceased in August 2020 and
the inventory balance started to decline steadily each quarter. The Company sold
out of mill reject pipe during the quarter ended June 30, 2022. Mill reject pipe
sales were approximately 6,000 tons for the 2021 quarter. All of the 2022
quarter's sales volume of approximately 7,000 tons was from manufactured pipe
sales compared to approximately 4,500 tons for the 2021 period. The average
selling price increase was also primarily related to this shift in sales mix
between manufactured pipe and mill reject pipe. The selling price associated
with manufactured pipe is typically much higher than the selling prices
associated with mill reject pipe. The Company will continue to focus on the
expansion of its manufactured pipe operations to counteract the impact of mill
reject pipe sales ending. The tubular segment recorded operating profit of
approximately $692,000 for the 2022 quarter compared to an operating loss of
approximately $647,000 for the 2021 quarter. The operating loss for the
2021 quarter included recognized net losses on hedging activities of $1,596,640
while the Company did not have any hedging related gains or losses affecting
operating results for the 2022 quarter.
The 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.
General, Selling and Administrative Costs
During the 2022 quarter, general, selling and administrative costs increased
$2,706,608 compared to the 2021 quarter. This increase is due primarily to
increased payroll expenses associated with the additional sales, purchasing and
administrative personnel that converted to Friedman employment after the
Plateplus transaction, increased professional fees, increased insurance
expenses, increased IT expenses and increased incentive related compensation.
Approximately $600,000 of the increase is associated with the East Chicago and
Granite City locations acquired from Plateplus and approximately $900,000 of the
increase is associated with other additional sales, accounting, IT and corporate
personnel employed during the 2022 quarter. In addition to these amounts,
accrued incentive based compensation was approximately $400,000 higher for the
2022 quarter compared to the 2021 quarter.
Other Income
For the 2022 quarter, the Company reported other income of $826,039. This
income consists primarily of a $822,200 gain on derivative instruments not
designated for hedge accounting. For the 2021 quarter, the Company reported
other income of $1,727,134. This income consists primarily of a $1,721,700 gain
on derivative instruments not designated for hedge accounting.
Income Taxes
Income taxes increased from a benefit for the 2021 quarter of $967,681 to a
provision for the 2022 quarter of $431,579. The increase in the provision for
income taxes is primarily associated with the higher earnings before income
taxes for the 2022 quarter.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 3.1 at December 31, 2022 and 2.1 at March 31,
2022. Working capital was $99,834,426 at December 31, 2022 and $64,551,208 at
March 31, 2022.
During the nine months ended December 31, 2022, 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 and due to
the transaction with Plateplus described in Note B. Accounts receivable and
inventories increased significantly due primarily to the Plateplus
transaction. Cash and restricted cash decreased primarily due to the Plateplus
acquisition investing activities partially offset by cash generated from the
Company's operating activities and by cash provided from the Company's credit
facility. 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 June 2021, the Small Business Administration authorized full forgiveness of
the Company's Paycheck Protection Program loan.
On April 29, 2022, the Company entered into a Second Amendment to its
asset-based lending facility ("ABL Facility") provided by JPMorgan Chase Bank,
N.A. The Second Amendment increased the revolving loans available under the ABL
facility from an aggregate principal amount of up to $75 million to an aggregate
principal amount of up to $150 million. The ABL Facility matures on May 19, 2026
and is secured by substantially all of the assets of the Company. The Company
can elect borrowings on a floating rate basis or a term basis. Floating rate
borrowings accrue interest at a rate equal to the prime rate minus 1% per annum.
Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable
to the selected term plus 1.8% per annum. Availability of funds under the ABL
Facility is subject to a borrowing base calculation determined as the sum of (a)
90% of eligible accounts receivable, plus (b) the product of 85% multiplied by
the net orderly liquidating value percentage identified in the most recent
inventory appraisal multiplied by eligible inventory. The ABL Facility contains
a springing financial covenant whereby the financial covenant is only tested
when availability falls below the greater of 15% of the revolving commitment or
$22.5 million. The financial covenant restricts the Company from allowing its
fixed charge coverage ratio to be, as of the end of any calendar month, less
than 1.10 to 1.00 for the trailing twelve month period then ending. The fixed
charge coverage ratio is calculated as the ratio of (a) EBITDA, as defined in
the ABL Facility, minus unfinanced capital expenditures to (b) cash interest
expense plus scheduled principal payments on indebtedness plus taxes paid in
cash plus restricted payments paid in cash plus capital lease obligation
payments plus cash contributions to any employee pension benefit plans. The ABL
Facility contains other representations and warranties and affirmative and
negative covenants that are usual and customary. If certain conditions precedent
are satisfied, the ABL facility may be increased by up to an aggregate of $25
million, in minimum increments of $5 million. On July 6, 2022, the Company
entered into a Third Amendment to the ABL Facility. The Third Amendment to the
ABL Facility provides for the syndication of the asset based revolving loans
available thereunder with BMO Harris Bank, N.A. ("BMO") with JPMorgan Chase Bank
serving as the arranging agent (the "Agent"). The Third Amendment also amends
provisions of the ABL Facility authorizing the Agent to make protective advances
under the ABL Facility and adds a covenant requiring each of the Company and its
subsidiaries to maintain the Agent as its principal depository bank. In
connection with the Third Amendment, the Company also entered into a Revolving
Note payable to BMO in a principal amount of up to $50 million establishing BMO
as a one-third syndicated participant in the Company's ABL facility. At December
31, 2022, the Company had a balance of $44,510,967 under the ABL Facility with
an applicable interest rate of 6.5%. At December 31, 2022, the Company's
applicable borrowing base calculation supported access to approximately $99
million of the ABL Facility. As of the filing date of this Form 10-Q, the
Company had borrowings of approximately $44 million outstanding under the ABL
Facility and the Company's most recent borrowing base calculation provided
access to approximately $100 million of the ABL Facility.
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.
DERIVATIVE CONTRACTS
From time to time, the Company may use futures contracts to partially manage
exposure to commodity price risk. The Company elects hedge accounting for some
of its derivatives and classifies the transactions as either cash flow hedges or
fair value hedges. From time to time, the Company may also transact futures
contracts where hedge accounting is not elected. The Company recognized losses
related to derivatives designated for hedge accounting of $860,620 and
$2,977,160 for the three month and nine month periods ended December 31, 2022.
For derivatives not designated for hedge accounting, the Company recognized
gains of $822,200 and $7,325,860 for the three month and nine month periods
ended December 31, 2022. See Note H for further information.
OUTLOOK
The Company expects sales volume of approximately 115,000 tons to 125,000 tons
for its fourth quarter of fiscal 2023. The fourth quarter volume expectation is
higher than the third quarter due primarily to increasing sales volume at the
new Sinton, Texas facility and the third quarter volume being impacted by
holidays and fewer shipping days. The Company expects margin improvement during
the fourth quarter. From November 2022 to February 2023, four rounds of
hot-rolled coil price increases were announced by multiple domestic steel
producers. The Company expects margin improvement during the fourth quarter due
to the rising price environment.
CRITICAL ACCOUNTING ESTIMATES
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. The more significant estimates and judgements
include forecasted purchases of hot-rolled coil and forecasted sales of prime
coil inventory and manufactured pipe inventory in relation to hedging activities
and the fair value of the pipe-finishing facility, when impaired. From time to
time, the Company hedges these forecasted purchases and sales and may designate
those transactions for hedge accounting. If the original forecasts are
subsequently reduced, it could result in the Company's hedged positions
exceeding revised forecasts, thus warranting immediate recognition in earnings
of previously deferred hedge income or losses associated with excess hedges. A
pattern of missed forecasts could call into question the Company's ability to
accurately predict forecasted transactions and the propriety of using hedge
accounting in the future for similar forecasted transactions. To mitigate
against the negative consequences of missing forecasts we have set an internal
policy to designate hedging instruments for accounting purposes only up to 75%
of forecasted sales or purchases. Determination of forecasted purchases of
hot-rolled coil and forecasted sales of prime coil inventory and manufactured
pipe inventory require the Company to make assumptions related to customer
demand and the volume and timing of inventory purchases. The
pipe-finishing facility impairment analysis requires assumptions related to
future operations of the facility and estimates related to the replacement cost
and value in exchange for the assets. Actual results could differ from these
estimates.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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, including the adequacy of cash and expectations as to future sales,
prices and margins and our expectations for the construction and performance of
our new Sinton, TX facility. 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.
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