Note H - Derivative Financial Instruments

9 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE H — DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, we expect to utilize hot-rolled coil futures or options to reduce our exposure to commodity price risk that is inherent in our business. For the nine months ended December 31, 2024, all of the Company's hedging activities were classified as economic hedges of risk with mark-to-market ("MTM") accounting treatment. For the nine months ended December 31, 2023, the Company had hedging activities classified as cash flow hedges with hedge accounting treatment according to the requirements of ASC 815– Derivatives and Hedging and hedging activities classified as economic hedges of  risk with MTM accounting treatment. By using derivatives, the Company is exposed to credit and market risk. The Company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The Company attempts to minimize its credit risk by entering into transactions with high quality counterparties and uses exchange-traded derivatives when available. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices. The Company manages market risk by continually monitoring exposure within its risk management strategy and portfolio. For any transactions designated as hedging instruments for accounting purposes, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items.

The Company has forward physical purchase supply agreements in place with some of its suppliers for a portion of its monthly physical steel needs. These supply agreements are not subject to mark-to-market accounting due to the Company electing the normal purchase normal sale exclusion provided in ASC 815. 

At December 31, 2024 and  March 31, 2024, the Company did not have any hot-rolled coil futures contracts designated as hedging instruments and classified as cash flow or fair value hedges. 

The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of December 31, 2024 (in thousands):

	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
Derivatives not designated as hedging instruments:	Location	Fair Value		Location	Fair Value
Hot-rolled coil steel contracts	Current portion of derivative assets	$	38	Current portion of derivative liability	$	10

The following table summarizes the fair value of the Company’s derivative financial instruments and the respective line in which they were recorded in the Consolidated Balance Sheet as of March 31, 2024 (in thousands):

	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
Derivatives not designated as hedging instruments:	Location	Fair Value		Location	Fair Value
Hot-rolled coil steel contracts	Current portion of derivative assets	$	74	Current portion of derivative liability	$	1,686

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

During the nine months ended December 31, 2024 and 2023, the Company entered into hot-rolled coil futures contracts that were not designated as hedging instruments for accounting purposes. Accordingly, the change in fair value related to these instruments was immediately recognized in earnings for these periods. During the nine months ended December 31, 2024 and 2023, the Company did not designate any transactions as hedging instruments for accounting purposes. During the nine months ended December 31, 2023, the Company reclassified the loss associated with previously designated cash flow hedges into earnings during the period.

The following table summarizes the pre-tax gain (loss) recognized in other comprehensive income and the loss reclassified from accumulated other comprehensive income into earnings for derivative financial instruments designated as cash flow hedges for the nine months ended December 31, 2023 (in thousands):

		Pre-Tax Gain (Loss) Recognized in OCI	Location of Loss Reclassified from AOCI into Net Earnings		Pre- Tax Loss Reclassified from AOCI into Net Earnings
For the nine months ended December 31, 2023:
Hot-rolled coil steel contracts	$	—	Sales	$	(418	)
Total	$	—		$	(418	)

The following table summarizes the gain recognized in earnings for derivative instruments not designated as hedging instruments during the three and nine months ended December 31, 2024 (in thousands):

		Gain Recognized in Earnings
	Location of Gain	for the Three Months Ended
	Recognized in Earnings	December 31, 2024
Hot-rolled coil steel contracts	Gain (loss) on economic hedges of risk	$	264

		Gain Recognized in Earnings
	Location of Gain	for the Nine Months Ended
	Recognized in Earnings	December 31, 2024
Hot-rolled coil steel contracts	Gain (loss) on economic hedges of risk	$	5,833

The following table summarizes the gain (loss) recognized in earnings for derivative instruments not designated as hedging instruments during the three and nine months ended December 31, 2023 (in thousands):

		Loss Recognized in Earnings
	Location of Loss	for the Three Months Ended
	Recognized in Earnings	December 31, 2023
Hot-rolled coil steel contracts	Gain (loss) on economic hedges of risk	$	(4,126	)

		Gain Recognized in Earnings
	Location of Gain	for the Nine Months Ended
	Recognized in Earnings	December 31, 2023
Hot-rolled coil steel contracts	Gain (loss) on economic hedges of risk	$	706

The notional amount (quantity) of our derivative instruments not designated as hedging instruments at December 31, 2024 consisted of 4,020 tons of long positions with maturity dates of  January 2025 to  February 2025 and 180 tons of short positions with maturity dates ranging from March 2025 to September 2025.

The following tables reflect the change in accumulated other comprehensive income (loss), net of tax, for the nine months ended December 31, 2023 (in thousands):

	Gain (Loss) on
	Derivatives
Balance at March 31, 2023	$	(317	)
Other comprehensive income, net of loss, before reclassification		—
Total loss reclassified from AOCI (1)		317
Net current period other comprehensive income		317
Balance at December 31, 2023	$	—

(1) The loss reclassified from AOCI is presented net of tax benefits of approximately $0.1 million which are included in the provision for (benefit from) income taxes on the Company's Consolidated Statement of Operations for the nine months ended December 31, 2023.

At December 31, 2024 and  March 31, 2024, cash of approximately $0.1 million and $3.0 million, respectively, was held by our clearing agent to collateralize our open derivative positions. These cash requirements are included in "Other current assets" on the Company's Consolidated Balance Sheets at December 31, 2024 and  March 31, 2024.