What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-09-03 compared with 2020-05-05 · 182 added, 110 removed, 408 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except par value and share data)

March 31, 2020

June 30, 2020

December 31, 2019

12 unchanged sentences

Accounts payable

Accrued expenses

Accrued expenses and other current liabilities

Current portion of long-term debt

4 unchanged sentences

Long-term portion of earn-out liability

Deferred income taxes

Long-term portion of operating lease liabilities

Long-term portion of finance lease liabilities

Deferred income taxes

Other long-term liabilities

15 unchanged sentences

(in thousands, except per share data)

Three months ended March 31,

Three Months Ended June 30,

Six Months Ended

Cost of sales

1 unchanged sentence

Acquisition costs and other

Proxy contest costs

Earn-out adjustments

Operating loss

Asset impairments

Operating (loss) income

Other expense (income)

5 unchanged sentences

Weighted average shares outstanding:

Dilutive effect from stock options and grants

See accompanying notes to condensed consolidated financial statements

2 unchanged sentences

(in thousands)

Three months ended March 31,

Six Months Ended June 30,

Operating activities

2 unchanged sentences

Amortization expense

Asset impairments

Amortization of debt issuance costs

Unrealized loss on equity securities

Unrealized (gain) loss on equity securities

Deferred income taxes

Proceeds from business interruption insurance

Gain on sale of equity securities

3 unchanged sentences

Provision for losses on inventories

Loss on sale of property, plant and equipment

Non-cash lease expense

1 unchanged sentence

Change in fair value of interest rate swap

Issuance of treasury stock for director fees

Stock-based compensation expense

8 unchanged sentences

Purchases of property, plant and equipment

Proceeds from sale of property, plant and equipment

Proceeds from sale of equity securities

1 unchanged sentence

Acquisition of ASTI

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing activities

7 unchanged sentences

Net cash provided by financing activities

Decrease in cash and cash equivalents

Increase (Decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

6 unchanged sentences

(in thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Capital in Excess of

1 unchanged sentence

Cost of Common Stock in Treasury

Balance at March 31, 2020

Stock-based compensation

Balance at June 30, 2020

Six Months Ended June 30, 2020

Capital in Excess of

Retained Earnings

Cost of Common Stock in Treasury

Balance at December 31, 2019

3 unchanged sentences

Purchase of common stock

Balance at June 30, 2020

See accompanying notes to condensed consolidated financial statements.

Synalloy Corporation

Condensed Consolidated Statement of Shareholders' Equity (Unaudited)

Three Months Ended June 30, 2019

Capital in Excess of

Retained Earnings

Cost of Common Stock in Treasury

Balance at March 31, 2019

Three Months Ended March 31, 2019

Issuance of 29,276 shares of common stock from treasury

Stock-based compensation

Balance at June 30, 2019

Six Months Ended June 30, 2019

Capital in Excess of

5 unchanged sentences

Stock-based compensation

Balance at March 31, 2019

Balance at June 30, 2019

See accompanying notes to condensed consolidated financial statements.

7 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included as required by Regulation S-X, Rule 10-01.

These interim condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto in the Synalloy Corporation (the Company) Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the Annual Report).

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Synalloy Corporation (the Company) Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the Annual Report).

The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

6 unchanged sentences

The guidance also adds disclosure requirements for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The adoption of this standard by the Company did not have a material impact on the Condensed Consolidated Financial Statements or footnote disclosures.

The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated financial statements or footnote disclosures.

See Note 2 for further discussion on the Company's fair value measurements.

4 unchanged sentences

Additionally, the amount of goodwill allocated to a reporting unit with a zero or negative carrying amount of net assets should be disclosed.

The adoption of this standard by the Company did not have a material impact on the Condensed Consolidated Financial Statements.

The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated financial statements.

On January 1, 2020, the Company adopted ASU No.

4 unchanged sentences

The Company evaluated its financial instruments and determined that its trade accounts receivable are subject to the new current expected credit loss model.

Based upon the application of the new current expected credit loss model, we recorded a cumulative effect adjustment of $0.4 million to Retained Earnings.

The adoption of this standard by the Company did not have a material impact on the Condensed Consolidated Statement of Operations or Cash Flows.

Based upon the application of the new current expected credit loss model, on January 1, 2020, we recorded a cumulative effect adjustment of $ 0.4 million to Retained Earnings.

The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated statement of operations or cash flows.

Recently Issued Accounting Standards - Not Yet Adopted

4 unchanged sentences

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted.

The Company is currently assessing the impact that adopting this new standard will have on its Condensed Consolidated Financial Statements and footnote disclosures.

The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements and footnote disclosures.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Recent accounting pronouncements pending adoption, other than those stated above, are not expected to have a material impact on the Company.

Fair Value of Financial Instruments

15 unchanged sentences

Equity securities

During the three months ended March 31, 2020 , the Company sold no shares of its equity securities investments.

For the three months ended March 31, 2020 , the Company also recorded a net unrealized loss of $0.9 million on the investments in equity securities held, which is included in "Other expense (income)" on the accompanying Condensed Consolidated Statements of Operations.

The fair value of equity securities held by the Company as of March 31, 2020 and December 31, 2019 was $3.4 million and $4.3 million , respectively, and is included in “Prepaid expenses and other current assets” on the accompanying Consolidated Balance Sheets.

During the three and six months ended June 30, 2020 , the Company sold 705,926 shares of its equity securities investments, resulting in a realized gain of $ 31,421 .

For the three and six months ended June 30, 2020 , the Company also recorded net unrealized gains of $ 1.1 million and $ 0.2 million , respectively, on the investments in equity securities held, which is included in "Other expense (income)" on the accompanying unaudited condensed consolidated statements of operations.

The fair value of equity securities held by the Company as of June 30, 2020 and December 31, 2019 was $ 1.8 million and $ 4.3 million , respectively, and is included in “Prepaid expenses and other current assets” on the accompanying condensed consolidated balance sheets.

Derivative Instruments

The Company has one interest rate swap contract, which is classified as a Level 2 financial instrument as it is not actively traded and is valued using pricing models that use observable market inputs.

The fair value of the contract was a liability of $0.1 million at March 31, 2020 and an asset of $6,088 at December 31, 2019 , respectively.

The fair value of the contract was a liability of $ 0.1 million at June 30, 2020 and an asset of $ 6,088 at December 31, 2019 , respectively.

The interest rate swap was priced using discounted cash flow techniques.

9 unchanged sentences

The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration (earn-out) liabilities are the discount rate, timing of the estimated payouts, and future revenue projections.

Significant increases (decreases) in any of those inputs would not have resulted in a material difference in the fair value measurement of the earn-out liabilities for the three months ended March 31, 2020.

The following table presents a summary of changes in fair value of the Company's Level 3 earn-out liabilities measured on a recurring basis for the three months ended March 31, 2020 :

The following table presents a summary of changes in fair value of the Company's Level 3 earn-out liabilities measured on a recurring basis for the six months ended June 30, 2020 :

(in thousands)

5 unchanged sentences

Changes in fair value during the period

Balance at March 31, 2020

For the three months ended March 31, 2020 , the Company had no unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value instruments.

Balance at June 30, 2020

For the three and six months ended June 30, 2020 , the Company had no unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value instruments.

Quantitative Information about Significant Unobservable Inputs Used in Level 3 Fair Value Measurements

The following table summarizes the significant unobservable inputs in the fair value measurement of our contingent consideration (earn-out) liabilities as of March 31, 2020 :

March 31, 2020

The following table summarizes the significant unobservable inputs in the fair value measurement of our contingent consideration (earn-out) liabilities as of June 30, 2020 :

June 30, 2020

Principal Valuation Technique

9 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

During the three months ended March 31, 2020 , the Company had no significant measurements of assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition.

Fair Value of Financial Instruments

For short-term instruments, other than those required to be reported at fair value on a recurring and non-recurring basis and for which additional disclosures are included above, management concluded the historical carrying value is a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization.

Therefore, as of March 31, 2020 and December 31, 2019 , the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, the Company's revolving line of credit, which is based on a variable interest rate, and term loan approximate their fair value.

During the three and six months ended June 30, 2020 , the Company's only significant assets or liabilities measured at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets.

The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable.

With input from executive management, the Company's accounting and finance personnel that organizationally report to the chief financial officer, assess performance quarterly against historical patterns, projections of future profitability, and whether it is more likely than not that the assets will be disposed of significantly prior to the end of their estimated useful life for evidence of possible impairment.

An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds fair value.

The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company's own judgments about the assumptions market participants would use in pricing the assets and observable market data, when available.

The Company classifies these fair value measurements as Level 3.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the quarter ended June 30, 2020 , due to the continued curtailment of operations related to the COVID-19 pandemic, inventory of Palmer was written down to its net realizable value of $ 2.1 million and certain long-lived assets of Palmer, including tangible and intangible assets, were written down to their estimated fair value of $ 1.7 million , resulting in asset impairment charges of $ 6.1 million .

Fair Value of Financial Instruments

Therefore, as of June 30, 2020 and December 31, 2019 , the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, the Company's revolving line of credit, which is based on a variable interest rate, and term loan approximate their fair value.

Inventories are stated at the lower of cost or net realizable value.

2 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

7 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

7 unchanged sentences

Goodwill and Intangible Assets

The gross carrying amounts of goodwill at March 31, 2020 and December 31, 2019 are as follows:

During the second quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment, with an associated goodwill balance of $ 16.2 million , existed.

Continued deterioration in macroeconomic conditions, continued risks within the stainless steel industrial business, reporting unit operating losses and a decline in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event.

As a result, the Company quantitatively evaluated the Welded Pipe & Tube reporting unit for impairment.

Fair value of the reporting unit was determined using an income approach.

Determining the fair value of the reporting unit and allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

These estimates and assumptions include the discount rate, terminal growth rate, tax rate, projected capital expenditures, and overall operational forecasts, including sales growth, gross margins, and operating margins.

Any changes in the judgments, estimates, or assumptions could produce significantly different results.

As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was greater than its carrying value by 1.7 % and, as such, no goodwill impairment was necessary in the quarter ended June 30, 2020.

During the second quarter of 2020, due to the continued curtailment of operations related to the COVID-19 pandemic and managements decision to pursue a sale and exit of the Palmer business, the intangible customer list related to Palmer was written down to its estimated fair market value of zero , resulting in an impairment charge of $ 1.3 million , which is included in "Asset impairments" on the accompanying unaudited condensed consolidated statements of operations.

The gross carrying amounts of goodwill are as follows:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Specialty Chemicals Segment

The balance of intangible assets subject to amortization at March 31, 2020 and December 31, 2019 are as follows:

The balance of intangible assets subject to amortization are as follows:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

4 unchanged sentences

Remainder of 2020

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Long-term Debt

1 unchanged sentence

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

9 unchanged sentences

Borrowings under the Line are limited to an amount equal to a Borrowing Base calculation that includes eligible accounts receivable and inventory.

As of March 31, 2020 , the Company had $18.8 million of remaining available capacity under its line of credit.

Pursuant to the Credit Agreement, the Company is subject to certain covenants including maintaining a minimum fixed charge coverage ratio, maintaining a minimum tangible net worth, and a limitation on the Company’s maximum amount of capital expenditures per year, which is in line with currently projected needs.

At March 31, 2020 , the Company was in compliance with all debt covenants.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2020 , the Company had $ 7.2 million of remaining available capacity under the Line.

Pursuant to the Credit Agreement, the Company is subject to certain covenants including maintaining a minimum fixed charge coverage ratio of not less than 1.25 , maintaining a minimum tangible net worth of not less than $ 60.0 million , and a limitation on the Company’s maximum amount of capital expenditures per year, which is in line with currently projected needs.

The Company notified its bank of a technical default of the fixed charge coverage ratio in its Credit Agreement at the quarter ended June 30, 2020.

To address the technical default, the Company entered into two amendments to its Credit Agreement with its bank subsequent to the end of the quarter.

On July 31, 2020 , the Company entered into the Third Amendment to the Third Amended and Restated Loan Agreement (the "Third Amendment") with its bank.

The Third Amendment amended the definition of the fixed charge coverage ratio to include the proxy contest costs in the numerator of the ratio calculation.

The amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020.

Additionally, on August 13, 2020 , the Company entered into the Fourth Amendment to the Third Amended and Restated Loan Agreement (the "Fourth Amendment") with its bank.

The Fourth Amendment amended the definition of the fixed charge coverage ratio to include the lesser of the actual non-cash asset impairment charge related to Palmer, or $ 6.0 million in the numerator of the ratio calculation.

Th e amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020 .

At June 30, 2020 , the Company had a minimum fixed charge coverage ratio of 1.39 and a minimum tangible net worth of $ 67.4 million .

Stock-Based Compensation

Stock-based compensation expense for the three months ended March 31, 2020 and March 31, 2019 was $0.3 million and $0.6 million , respectively.

Stock-based compensation expense for the three and six months ended June 30, 2020 was $ 0.4 million and $ 0.8 million , respectively.

Stock-based compensation expense for the three and six months ended June 30, 2019 was $ 0.2 million and $ 0.9 million , respectively.

Stock Options

During the three months ended March 31, 2020 and March 31, 2019 , no stock options were exercised by officers or employees of the Company.

During the three and six months ended June 30, 2020 and June 30, 2019 , no stock options were exercised by officers or employees of the Company.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

2011 Long-Term Incentive Stock Option Plan

9 unchanged sentences

The Black-Scholes model for this grant was based on a risk-free interest rate of 1.66 percent , an expected life of ten years , an expected volatility of 35.1 percent and a dividend yield of 1.79 percent .

On June 30, 2020 the Compensation Committee approved stock option grants under the 2011 Plan.

Options for a total of 20,000 shares, with an exercise price of $ 7.329 per share, were granted under the 2011 Plan to certain management employees of the Company.

The stock options will vest in 33 percent increments annually on a cumulative basis, beginning one year after the date of grant.

In order for the options to vest, the employee must be in the continuous employment of the Company since the date of the grant.

Except for death, disability, or qualifying retirement, any portion of the grant that has not vested will be forfeited upon termination of employment.

The Company may terminate any portion of the grant that has not vested upon an employee's failure to comply with all conditions of the award or the 2011 Plan.

Shares representing grants that have not yet vested will be held in escrow by the Company.

An employee will not be entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable.

The per share weighted-average fair value of this stock option grant was $ 2.59 .

The Black-Scholes model for this grant was based on a risk-free interest rate of 0.64 percent , an expected life of ten years , an expected volatility of 38.7 percent and a dividend yield of 1.89 percent .

Restricted Stock Awards

4 unchanged sentences

Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment.

The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the 2015 Stock Awards Plan.

The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the Plan.

An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable.

7 unchanged sentences

The fair value of the performance-based restricted stock awards are determined based on the closing market price of our stock on the date of grant.

In general, 0% to 150% of the Company's performance-based restricted stock awards vest at the end of a three year service period from the date of grant based upon achievement of the performance condition specified.

In general, 0 percent to 150 percent of the Company's performance-based restricted stock awards vest at the end of a three year service period from the date of grant based upon achievement of the performance condition specified.

Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment.

5 unchanged sentences

The following table sets forth the computation of basic and diluted loss per share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share data)

5 unchanged sentences

The diluted earnings per share calculations exclude the effect of potentially dilutive shares when the inclusion of those shares in the calculation would have an anti-dilutive effect.

The Company had 0.2 million and 33,313 shares of common stock that were anti-dilutive for the three months ended March 31, 2020 and March 31, 2019 , respectively.

The Company had 0.3 million and 0.2 million shares of common stock that were anti-dilutive for the three and six months ended June 30, 2020 , respectively.

The Company had no shares of common stock that were anti-dilutive for the three and six months ended June 30, 2019 , respectively.

The Company and its subsidiaries are subject to U.S.

1 unchanged sentence

The Company is no longer subject to U.S.

federal examinations for years before 2014 or state income tax examinations for years before 2014.

During the first three months of 2020 and 2019, the Company did not identify nor reserve for any unrecognized tax benefits.

The effective tax rate was 54.0% and 30.5% for the three months ended March 31, 2020 and March 31, 2019 , respectively.

The March 31, 2020 effective tax rate was higher than the statutory rate of 21.0% due to discrete tax benefits on our stock compensation plan and estimated tax benefits associated with the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020.

federal or state examinations for years before 2014.

During the first six months of 2020 and 2019, the Company did not identify nor reserve for any unrecognized tax benefits.

Our income tax provision and overall effective tax rates for the periods presented are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Income tax benefit

Effective income tax rate

The three and six months ended June 30, 2020 effective tax rate were higher than the statutory rate of 21.0% due to discrete tax benefits over the costs associated with our public proxy contest, additional benefits on asset impairment of our Palmer business, and benefits from our stock compensation plan.

Additionally, we recognized estimated tax benefits associated with the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020.

The CARES Act includes various income and payroll tax provisions, notably enabling the Company to carry back net operating losses and recover taxes paid in prior years.

The three and six months ended June 30, 2019 effective tax rates were higher than the statutory tax rate of 21% due to state taxes, net of federal benefit, and discrete benefits on our stock compensation plans.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Balance Sheet Presentation

Operating and finance lease amounts included in the Condensed Consolidated Balance Sheet are as follows (in thousands):

Operating and finance lease amounts included in the unaudited condensed consolidated balance sheet are as follows (in thousands):

Classification

Financial Statement Line Item

March 31, 2020

June 30, 2020

Right-of-use assets, operating leases

8 unchanged sentences

Non-current portion of lease liabilities, finance leases

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Total Lease Cost

1 unchanged sentence

(in thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Operating lease cost

4 unchanged sentences

Reduction in carrying amounts of right-of-use assets held under finance leases is included in depreciation expense.

Minimum rental payments under operating leases are recognized on a straight-line method over the term of the lease including any periods of free rent and are included in selling, general, and administrative expense on the Condensed Consolidated Statement of Operations.

Maturity of Leases

The amounts of undiscounted future minimum lease payments under leases as of March 31, 2020 are as follows:

The amounts of undiscounted future minimum lease payments under leases as of June 30, 2020 are as follows:

(in thousands)

3 unchanged sentences

Present value of lease liabilities

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Lease Term and Discount Rate

Weighted-average remaining lease term

March 31, 2020

June 30, 2020

Operating Leases

3 unchanged sentences

Finance Leases

During the three -month period ended March 31, 2020 , no right-of-use assets were recognized in exchange for new operating lease liabilities.

During the three and six months ended June 30, 2020 , no right-of-use assets were recognized in exchange for new operating lease liabilities.

Commitments and Contingencies

5 unchanged sentences

The following table summarizes certain information regarding segments of the Company's operations:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Specialty Chemicals Segment

Operating loss

Operating (loss) income

Metals Segment

2 unchanged sentences

Acquisition related costs and other

Proxy contest costs

Earn-out adjustments

Operating loss

Operating (loss) income

Interest expense

Change in fair value of interest rate swap

Other expense (income), net

Other (income) expense, net

Loss before income taxes

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Acquisition of the Assets and Operations of American Stainless Tubing, Inc.

On January 1, 2019, the Company's wholly-owned subsidiary, ASTI Acquisition, LLC.

(now American Stainless Tubing, LLC.) ("ASTI"), completed the acquisition of substantially all of the assets of American Stainless Tubing, Inc.

On January 1, 2019, the Company's wholly-owned subsidiary, ASTI Acquisition, LLC (now American Stainless Tubing, LLC) ("ASTI"), completed the acquisition of substantially all of the assets of American Stainless Tubing, Inc.

("American Stainless").

6 unchanged sentences

The excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets is reflected as goodwill.

Goodwill consists of manufacturing cost synergies expected from combining American Stainless' production capabilities with the Metals Segment current operations.

All of the goodwill recognized was assigned to the Company's Metals Segment and is expected to be deductible for income tax purposes.

Goodwill consists of manufacturing cost synergies expected from combining American Stainless' production capabilities

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

with the Metals Segment current operations.

All of the goodwill recognized was assigned to the Company's Metals Segment and is expected to be deductible for income tax purposes.

American Stainless will receive quarterly earn-out payments for a period of three years following closing.

13 unchanged sentences

Other liabilities

ASTI's results of operations are reflected in the Company's Condensed Consolidated Statements of Operations.

The amount of ASTI's net sales and income before income taxes included in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 was $7.6 million and $0.3 million , respectively.

The amount of ASTI's net sales and income before income taxes included in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 was $9.5 million and $0.1 million , respectively.

ASTI's results of operations are reflected in the Company's Condensed Consolidated Statements of Operations as follows:

Three Months Ended

Six Months Ended

(in thousands)

Income before taxes

Shareholders' Equity

4 unchanged sentences

There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted.

During the three months ended March 31, 2020 , the Company purchased 59,617 shares under the stock repurchase program at an average price of approximately $10.65 per share for an aggregate amount of $0.6 million .

During the three months ended March 31, 2019 , the Company purchased no shares under the stock repurchase program.

As of March 31, 2020 , the Company has 790,383 shares of its share repurchase authorization remaining.

During the three months ended June 30, 2020 , the Company purchased no shares under the stock repurchase program.

During the six months ended June 30, 2020 , the Company purchased 59,617 shares under the stock repurchase program at an average price of approximately $ 10.65 per share for an aggregate amount of $ 0.6 million .

During the three and six months ended June 30, 2019 , the Company purchased no shares under the stock repurchase program.

As of June 30, 2020 , the Company has 790,383 shares of its share repurchase authorization remaining.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Shareholder Rights Plan

1 unchanged sentence

In connection with the shareholder rights plan, the Board of Directors authorized and declared a dividend of one right (each, a "Right") for each outstanding share of the Company's common stock, par value $ 1.00 per share ("Common Stock") to stockholders of record at the close of business on April 10, 2020 (the "Record Date").

The complete terms of the Rights are set forth in a Rights Agreement dated as of March 31, 2020 (the "Rights Agreement"), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent.

The Rights will become exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's outstanding

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Common Stock or announces a tender or exchange offer that would result in beneficial ownership of 15% or more of the Company's Common Stock.

The complete terms of the Rights are set forth in a Rights Agreement dated March 31, 2020 (the "Rights Agreement"), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent.

The Rights will become exercisable only if a person or group acquires beneficial ownership of 15 % or more of the Company's outstanding Common Stock or announces a tender or exchange offer that would result in beneficial ownership of 15 % or more of the Company's Common Stock.

Each Right would entitle the holder to purchase from the Company one half of one share of Common Stock at a purchase price of $ 22.50 per right, subject to adjustments (equivalent to $ 45.00 for each whole share of Common Stock).

The plan also includes an exchange option.

If a person or group acquires beneficial ownership of 15% or more, but less than 50% , of the outstanding Common Stock, the Board of Directors may at its option exchange the rights in whole or in part for shares of the Company's Common Stock.

Under this option, the Company would exchange each Right in whole or in part, at an exchange ratio of one share of Common Stock per Right.

If the Company does not then have a sufficient number of shares of its Common Stock the Company will take all such action as necessary to authorize additional shares of Common Stock.

This exchange would not apply to shares held by the person or group that acquired beneficial ownership of 15% or more of the Company's Common Stock.

If, after the rights have become exercisable, the Company merges or otherwise combines with another entity, or sells assets constituting more than 50% of its assets or producing more than 50% of its earning power or cash flow, each right will entitle its holder to purchase for $22.50 , subject to adjustments, a number of the acquiring party's common shares having a market value of twice that amount.

In the event the Company receives a Qualifying Offer (as defined by the Rights Agreement) and the Company does not redeem the outstanding Rights, the Company may exempt such Qualifying Offer from the Rights Agreement, or call a special meeting of stockholders to vote on whether or not to exempt such Qualifying Offer from the Rights Agreement, in each case within 90 days of the commencement of the Qualifying Offer (the "Board Evaluation Period"), the holders of record of 10% or more of the outstanding Common Stock may submit a written demand directing the Board of Directors to propose a resolution by exempting the Qualifying Offer from the Rights Agreement to be voted upon at a special meeting to be convened within 90 days following the last day of the Board Evaluation Period (the "Special Meeting Period").

The Board of Directors must take the necessary actions to cause such resolution to be submitted to a vote of stockholders at a special meeting within the Special Meeting Period;

however, the Board of Directors may recommend in favor or against or take no action with respect to the adoption of the resolution, as it determines to be appropriate in the exercise of the Board of Directors' fiduciary duties.

If a shareholder beneficially owns 15% or more of the Company's Common Stock at the time of adoption of the plan, such shareholder's ownership will be grandfathered, but the rights will become exercisable if such shareholder subsequently increases its ownership by one share.

The Company's shareholder rights plan will not prevent, nor is it intended to prevent, a takeover of the Company.

Because the rights may be redeemed by the Board of Directors under certain circumstances, they should not interfere with any merger or other business combination approved by the Board of Directors.

The issuance of the rights plan has no dilutive effect, does not affect reported earnings per share and does not change the way the Company's Common Stock is currently traded.

On June 27, 2020, the Company entered into Amendment 1 to the Rights Agreement (the "Amendment").

The Amendment terminated the Rights Agreement by accelerating the expiration of the Rights to June 28, 2020.

At the time of the termination of the Rights Agreement, all of the Rights, which were distributed to holders of the Company's common stock, par value, $ 1.00 , pursuant to the Rights Agreement, expired.

Revenues are recognized when control of the promised goods is transferred to our customers or when a service is rendered, in an amount that reflects the consideration we are to receive in exchange for those goods or services.

1 unchanged sentence

Substantially all of the Company's revenues are derived from contracts with customers where performance obligations are satisfied at a point-in-time.

Three months ended March 31,

Three Months Ended

Six Months Ended

(in thousands)

7 unchanged sentences

For such arrangements, revenue for each performance obligation is based on its stand-alone selling price and revenue is recognized as each performance obligation is satisfied.

The Company generally determines stand-alone selling prices based on the prices charged to customers using the adjusted market assessment approach or expected cost plus margin.

Proxy Contest and Related Costs

During the six months ended June 30, 2020, the Company engaged in a proxy contest with Privet Fund Management, LLC ("Privet") and UPG Enterprises, LLC ("UPG"), which parties acted as a group during the proxy contest.

At the Company’s Annual Meeting of Shareholders held on June 30, 2020 (the “Annual Meeting”), the Company’s independent shareholders voted the Company’s proxy card, resulting in five (of eight) incumbent Board members being re-elected to the Board of Directors.

Due to cumulative voting, a unique voting method permitted by the Company’s Certificate of Incorporation, Privet and UPG were able to cumulate their group-owned shares to elect three (of eight) new directors at the Annual Meeting.

During the three and six months ended June 30, 2020, total costs incurred by the Company relating to the proxy contest were $ 2.7 million and $ 2.9 million , respectively.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Company generally determines stand-alone selling prices based on the prices charged to customers using the adjusted market assessment approach or expected cost plus margin.

Subsequent Events

On April 2, 2020, the Company announced it has decided to suspend manufacturing operations at its Palmer of Texas Tanks, Inc.

("Palmer") business, effective April 1, 2020, given the unprecedented impact the COVID-19 pandemic is having on the oil and gas industry, and particularly the Permian Basin.

The Company will maintain a small group of employees at the facility until further notice and hopes to resume manufacturing operations at Palmer when pricing and demand in the oil and gas industry and the Permian Basin normalize.

On April 2, 2020, the Board of Directors announced its commitment to engage a leading independent financial advisor to conduct a comprehensive review of strategic alternatives once there is stabilization from the current market volatility and macroeconomic disruption related to the global health pandemic caused by COVID-19.

The review of strategic alternatives will consider all options, including a sale of all or parts of the Company, as well as continued governance and Board of Directors composition enhancements, balance sheet and business optimization and management succession in the event that a liquidity event does not take place.

There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees and supply chain.

The ability of our employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19, and as a result, may impact our production throughout our supply chain and constrict sales channels.

Our customers may be directly impacted by business curtailments or weak market conditions and may not be able to fulfill their contractual obligations.

Our bank credit agreement requires that we maintain certain financial and other covenants.

Events resulting from the effects of the COVID-19 outbreak may negatively affect our ability to comply with these covenants, which could lead us to seek amendment or waivers from our lenders, limit access to or require accelerated repayment of our existing credit facilities, or require us to pursue alternative financing arrangements.

We are unable to predict the the impact that COVID-19 will have on the Company's financial position and operating results due to numerous uncertainties, however, the rapidly developing COVID-19 pandemic has generated significant uncertainty in the economy and the Company's outlook for the remainder of 2020 and could have a material adverse impact on our results of operations, financial condition, and liquidity.

The Company will continue to assess the evolving impact of the COVID-19 pandemic and intends to make appropriate adjustments to its responses accordingly.

The Company notified its bank of a technical default of the fixed charge coverage ratio in its Credit Agreement at the quarter ended June 30, 2020.

To address the technical default, the Company entered into two amendments to its Credit Agreement with its bank subsequent to the end of the quarter.

On July 31, 2020 , the Company entered into the Third Amendment to the Third Amended and Restated Loan Agreement (the "Third Amendment") with its bank.

The Third Amendment amended the definition of the fixed charge coverage ratio to include the proxy contest costs in the numerator of the ratio calculation.

The amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020.

Additionally, on August 13, 2020, the Company entered into the Fourth Amendment to the Third Amended and Restated Loan Agreement (the "Fourth Amendment") with its bank.

The amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements