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Item 8. Financial Statements and Supplementary Data

2021-03-09 compared with 2020-03-06 · 571 added, 561 removed, 484 unchanged (70% of the section changed)

Item 8 Financial Statements and Supplementary Data

Financial Statements and Supplementary Data

Index to Financial Statements

Financial Statements

Financial Statements Page

Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

6 unchanged sentences

Accounts receivable, net

28,183 35,074

Inventories, net

7 unchanged sentences

Right-of-use assets, operating leases, net 31,769 35,772

Goodwill 1,355 17,558

Intangible assets, net 11,426 15,714

Deferred charges, net and other non-current assets

Deferred charges, net 455 348

Total assets $ 206,984 $ 257,197

Liabilities and Shareholders' equity

1 unchanged sentence

Accounts payable $ 19,732 $ 21,150

Accrued expenses

Accrued expenses and other current liabilities 6,123 6,037

Current portion of long-term debt 875 4,000

Current portion of earn-out liability 3,434 5,576

Current portion of operating lease liabilities 867 3,562

5 unchanged sentences

Long-term portion of finance lease liabilities 37 336

Long-term deferred sale-leaseback gain

Deferred income taxes 1,957 790

3 unchanged sentences

issued 10,300,000 shares

10,300 10,300

Capital in excess of par value 37,719 37,407

Retained earnings 42,835 70,552

Accumulated other comprehensive loss

90,854 118,259

Less cost of common stock in treasury - 1,123,319 and 1,257,784 shares, respectively

10,559 11,748

Total shareholders' equity 80,295 106,511

2 unchanged sentences

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

For the years ended December 31, 2020 and 2019

(in thousands, except per share data)

Net sales $ 256,000 $ 305,168

Cost of sales 233,348 274,395

Gross profit 22,652 30,773

Selling, general and administrative expense 28,718 32,627

Acquisition related costs 845 601

Proxy contest costs 3,105 —

Earn-out adjustments ( 1,195 ) ( 747 )

Gain on sale-leaseback

Operating (loss) income

Asset impairments 6,214 —

Goodwill impairment 16,203 —

Gain on lease modification ( 171 ) —

Operating loss ( 31,067 ) ( 1,708 )

Other (income) and expense

1 unchanged sentence

Change in fair value of interest rate swap 51 141

(Loss) Income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Other comprehensive (loss) income, net of tax:

Unrealized gains on available for sale securities, net

Reclassification adjustment for gains included in net income, net

Comprehensive (loss) income

Net (loss) income per common share:

Other, net ( 1,255 ) ( 1,904 )

Loss before income taxes ( 31,973 ) ( 3,763 )

Benefit from income taxes ( 4,706 ) ( 727 )

Net loss and comprehensive loss ( 27,267 ) ( 3,036 )

Net loss per common share:

Basic $ ( 3.00 ) $ ( 0.34 )

Diluted $ ( 3.00 ) $ ( 0.34 )

Weighted average number of common shares outstanding:

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Shareholders' Equity

For the years ended December 31, 2019, 2018 and 2017

(in thousands, except share and per share data)

Capital in Excess of

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Cost of Common Stock in Treasury

Balance at December 31, 2016

Other comprehensive loss

Payment of dividends, $0.13 per share

Stock options exercised for 5,389 shares, net

Issuance of 58,532 shares of common stock from the treasury

Stock-based compensation expense

Balance at December 31, 2017

Cumulative adjustment due to adoption of ASU 2016-01

Payment of dividends, $0.25 per share

Issuance of 66,632 shares of common stock from the treasury

Stock options exercised for 31,488 shares, net

Stock-based compensation expense

Issuance of 44,378 shares in connection with at-the-market offering

Balance at December 31, 2018

Cumulative-effect adjustment related to ASU 2016-02, net of tax

Issuance of 162,869 shares of common stock from the treasury

Stock options exercised for 3,628 shares, net

Stock-based compensation expense

Balance at December 31, 2019

Basic 9,099 8,983

Diluted 9,099 8,983

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Operating activities

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net loss $ ( 27,267 ) $ ( 3,036 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation expense 7,572 7,578

1 unchanged sentence

Amortization of debt issuance costs 177 160

Unrealized (gain) loss on equity securities

Asset impairments 6,214 —

Goodwill impairment 16,203 —

Unrealized gain on equity securities ( 208 ) ( 1,547 )

Deferred income taxes 1,167 ( 773 )

Gain on sale of available for sale securities

Proceeds from business interruption insurance 1,040 —

Loss (gain) on sale of equity securities 38 ( 326 )

Earn-out adjustments ( 1,195 ) ( 747 )

Payments of earn-out liabilities in excess of acquisition date fair value

(Reduction of) provision for losses on accounts receivable

( 292 ) ( 448 )

Provision for (reduction of) losses on accounts receivable 890 ( 171 )

Provision for losses on inventories 271 1,617

(Gain) loss on sale of property, plant and equipment

Amortization of deferred gain on sale-leaseback

Noncash lease expense

Loss (gain) on sale of property, plant and equipment 237 ( 50 )

Non-cash lease expense 510 560

Non-cash lease termination loss 24 —

Gain on lease modification ( 171 ) —

Change in fair value of interest rate swap 51 ( 141 )

3 unchanged sentences

Accounts receivable 5,552 9,696

Inventories 9,122 19,962

Other assets and liabilities ( 912 ) 179

2 unchanged sentences

Accrued income taxes ( 4,877 ) ( 1,114 )

Net cash provided by (used in) operating activities

Net cash provided by operating activities 17,978 28,640

Investing activities

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Purchases of equity securities — ( 544 )

Proceeds from sale of available for sale securities

Acquisition of the stainless pipe and tube assets of Marcegaglia USA, Inc.

Acquisition of the galvanized pipe and tube assets of MUSA

Acquisition of ASTI

Net cash (used in) provided by investing activities

Proceeds from sale of equity securities 4,430 1,092

Net cash provided by (used in) investing activities 994 ( 25,695 )

Financing activities

(Repayments) borrowings from line of credit

Repayments on line of credit ( 10,184 ) ( 17,185 )

Borrowings from term loan — 20,000

Net proceeds from at-the-market offering

Payments on long-term debt ( 4,000 ) ( 3,666 )

Principal payments on finance lease obligations ( 109 ) ( 106 )

Payments for finance lease terminations ( 204 ) —

Payments on earn-out liabilities ( 3,946 ) ( 3,627 )

Payments of debt issuance costs

Payments of deferred financing costs ( 284 ) —

Proceeds from exercised stock options — 45

Dividends paid

Tax withholdings related to net share settlements of exercised stock options

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Repurchase of common stock ( 635 ) —

Net cash used in financing activities ( 19,362 ) ( 4,539 )

Decrease in cash and cash equivalents ( 390 ) ( 1,594 )

Cash and cash equivalents at beginning of year 626 2,220

2 unchanged sentences

SYNALLOY CORPORATION

Consolidated Statements of Shareholders' Equity

For the years ended December 31, 2020 and 2019

(in thousands, except share and per share data)

Common Stock Capital in Excess of

Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Cost of Common Stock in Treasury Total

Balance December 31, 2018 $ 10,300 $ 36,521 $ 68,965 $ — $ ( 13,302 ) $ 102,484

Net loss — — ( 3,036 ) — — ( 3,036 )

Cumulative-effect adjustment related to ASU 2016-02, net of tax — — 4,623 — — 4,623

Issuance of 162,869 shares of common stock from the treasury

— ( 1,217 ) — — 1,521 304

Stock options exercised for 3,628 shares, net

— 12 — — 33 45

Stock-based compensation — 2,091 — — — 2,091

Balance December 31, 2019 $ 10,300 $ 37,407 $ 70,552 $ — $ ( 11,748 ) $ 106,511

Net loss — — ( 27,267 ) — — ( 27,267 )

Cumulative adjustment due to adoption of ASU 2016-13 — — ( 450 ) — — ( 450 )

Issuance of 194,082 shares of common stock from treasury

— ( 1,479 ) — — 1,824 345

Stock-based compensation — 1,791 — — — 1,791

Purchase of common stock — — — — ( 635 ) ( 635 )

Balance December 31, 2020 $ 10,300 $ 37,719 $ 42,835 $ — $ ( 10,559 ) $ 80,295

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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("Specialty").

Welded Pipe & Tube Operations manufactures stainless steel, galvanized, ornamental stainless steel tubing, and other alloy pipe and tube, Palmer manufactures liquid storage solutions and separation equipment and Specialty is a master distributor of seamless carbon pipe and tube.

The Specialty Chemicals Segment operates as one reportable unit and is comprised of MC and CRI Tolling, and produces specialty chemicals.

Principles of Consolidation

Welded Pipe & Tube Operations manufactures stainless steel, galvanized, ornamental stainless steel pipe and tube, and other alloy pipe and tube.

Palmer manufactures liquid storage solutions and separation equipment.

Specialty is a master distributor of seamless carbon pipe and tube.

The Specialty Chemicals Segment operates as one reportable unit and is comprised of Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), and CRI Tolling, LLC ("CRI Tolling") and produces specialty chemicals.

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned.

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ASTI, located in Troutman and Statesville, North Carolina;

Palmer, located in Andrews, Texas and Specialty, located in Mineral Ridge, Ohio and Houston, Texas.

Palmer, located in Andrews, Texas;

and Specialty, located in Mineral Ridge, Ohio and Houston, Texas.

The Specialty Chemicals Segment consists of two subsidiaries:

1 unchanged sentence

All significant intercompany transactions have been eliminated.

Certain prior year amounts have been reclassified to conform with current year presentation.

Use of Estimates

The preparation of the Company's financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities.

The Company bases these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying value of assets and liabilities that are readily available from other sources.

Actual results may differ from these estimates.

Cash and Cash Equivalents

3 unchanged sentences

Substantially all of the Company's accounts receivable are due from companies located throughout the United States.

The Company provides an allowance for doubtful accounts for projected uncollectable amounts.

The allowance is based upon a review of outstanding receivables, historical collection information and existing economic conditions.

The Company provides an allowance for credit losses for projected uncollectible amounts.

The allowance is based upon an analysis of accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivables balances, historical loss experience, current information, and future expectations.

Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis.

The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral.

1 unchanged sentence

Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer.

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Inventory is stated at the lower of cost or net realizable value.

Cost is determined by either specific identification or weighted average methods.

Inventory cost is adjusted when its recorded cost is below net realizable value.

At the end of each quarter, all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below cost.

At the end of each quarter, all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost.

This would indicate that an adjustment would be required.

During the year ended December 31, 2020, adjustments of $ 3.8 million to inventory cost were required by our storage tank facility due to the curtailment of operations at our Palmer facility as a result of the COVID-19 pandemic and lower demand for oil and gas products which caused the net realizable value to fall below inventory cost for certain tanks.

During the year ended December 31, 2019, adjustments of $ 0.2 million to inventory cost were required by our storage tank facility as lower demand for oil and gas products caused the net realizable value to fall below inventory cost for certain tanks.

Stainless steel, both in its raw material (coil or plate) or finished goods (pipe and tube) state is purchased/sold using a base price plus an additional surcharge which is dependent on current nickel prices.

As raw materials are purchased, it is priced to the Company based upon the surcharge at that date.

When the selling price of the finished pipe is set for the customer, approximately three months later, the then-current nickel surcharge is used to determine the proper selling prices.

A lower of cost or net realizable value ("LCNRV") adjustment is recorded when the Company's inventory cost, based upon a historical nickel price, is greater than the current selling price of that product due to a reduction in the nickel surcharge.

During the years ended December 31, 2020 and 2019, respectively, no material LCNRV adjustments were required by our Metals Segment other than those at our storage tank facility.

In addition, the Company establishes inventory reserves for:

2 unchanged sentences

For those inventory items not currently being marketed and unable to be sold, a reserve was established for 100 percent of the inventory cost less any estimated scrap proceeds.

The Company reserved $0.3 million at December 31, 2019 and December 31, 2018 , respectively.

The Company reserved $ 0.2 million and $ 0.3 million as of December 31, 2020 and 2019, respectively.

• Estimated quantity losses.

1 unchanged sentence

For those facilities that complete their physical inventory counts before the end of December, a reserve is established for the potential quantity losses that could occur subsequent to their physical inventory.

This reserve is based upon the

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

most recent physical inventory results.

At December 31, 2019 and December 31, 2018 , the Company had $0.4 million reserved for physical inventory quantity losses.

This reserve is based upon the most recent physical inventory results.

The Company had $ 0.5 million and $ 0.4 million reserved for physical inventory quantity losses as of December 31, 2020 and 2019, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost.

Depreciation is provided on the straight-line method over the estimated useful life of the assets.

Depreciation is determined based on the straight-line method over the estimated useful life of the assets.

Leasehold improvements are depreciated over the shorter of their useful lives or the remaining non-cancellable lease term, buildings are depreciated over a range of 10 years to 40 years, and machinery, fixtures and equipment are depreciated over a range of three years to 20 years.

7 unchanged sentences

The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets acquired, if any, and liabilities assumed.

Goodwill, Intangible Assets and Deferred Charges

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Goodwill and Intangible Assets

Goodwill, arising from the excess of purchase price over fair value of net assets of businesses acquired, is not amortized but is reviewed annually, at the reporting unit level, in the fourth quarter for impairment and whenever events or circumstances indicate that the carrying value may not be recoverable.

No goodwill impairment was identified as a result of the testing procedures performed for the years ended December 31, 2019 and December 31, 2018 .

Intangible assets represent the fair value of intellectual, non-physical assets resulting from business acquisitions.

Deferred charges represent other intangible assets and debt issuance costs.

Intangible assets are amortized over their estimated useful lives using either an accelerated or straight-line method.

Deferred charges are amortized over their estimated useful lives using the straight-line method.

Deferred charges are amortized over a period ranging from three to 10 years and intangible assets are amortized over a period ranging from eight to 15 years.

The weighted average amortization period for the customer relationships is approximately thirteen years.

Deferred charges and intangible assets totaled $32.6 million and $23.2 million at December 31, 2019 and December 31, 2018 , respectively.

Accumulated amortization of deferred charges and intangible assets as of December 31, 2019 and December 31, 2018 totaled $16.6 million and $13.0 million , respectively.

Estimated amortization expense for the next five fiscal years based on existing intangible assets, excluding deferred charges is as follows:

During the second quarter, third quarter, and fourth quarter of 2020, the Company identified potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed and performed interim goodwill impairment testing analyses.

As a result of these analyses, the Company recorded a full goodwill impairment charge of $ 10.7 million in the third quarter of 2020 and $ 5.5 million in the fourth quarter of 2020.

No goodwill impairment was identified as a result of the annual testing procedures performed for the Specialty Chemicals Segment for the year ended December 31, 2020.

No goodwill impairment was identified as a result of the testing procedures performed for the year ended December 31, 2019.

Intangible assets represent the fair value of intellectual, non-physical assets resulting from business acquisitions and are amortized over their estimated useful lives using either an accelerated or straight-line method over a period ranging from eight to 15 years.

The weighted average amortization period for the customer relationships is approximately 11 years.

During the second quarter of 2020, due to the continued curtailment of operations related to the COVID-19 pandemic and management's 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 consolidated statement of operations and comprehensive loss.

Intangible assets totaled $ 31.7 million and $ 32.6 million as of December 31, 2020 and 2019, respectively.

Accumulated amortization of intangible assets as of December 31, 2020 and 2019 totaled $ 19.8 million and $ 16.6 million, respectively.

Estimated amortization expense for the next five fiscal years based on existing intangible assets is as follows:

(in thousands)

The Company recorded amortization expense of $3.5 million for 2019 and $2.4 million for 2018 and 2017 , respectively, which excludes amortization expense of debt issuance costs, which is reflected in the consolidated financial statements as interest expense.

Thereafter 3,347

The Company recorded amortization expense of $ 3.0 million and $ 3.5 million for 2020 and 2019, respectively, which excludes amortization expense of debt issuance costs, which is reflected in the consolidated financial statements as interest expense.

Long-Lived Asset Impairment

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

A potential impairment has occurred for long-lived assets held-for-use if projected future undiscounted cash flows expected to result from the use and eventual disposition of the assets are less than the carrying amounts of the assets.

An impairment loss is recorded for long-lived assets held-for-use when the carrying amount of the asset is not recoverable and exceeds its fair value.

For long-lived assets to be abandoned, the Company considers the asset to be disposed of when it ceases to be used.

Until it ceases to be used, the Company continues to classify the asset as held-for-use and test for potential impairment accordingly.

If the Company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, its depreciable life is re-evaluated.

Fair value measurements associated with long-lived asset impairments are included in Note 3 to the consolidated financial statements.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Earn-Out Liability

In connection with the MUSA-Stainless acquisition on February 28, 2017, the Company is required to make quarterly earn-out payments to MUSA for a period of four years following closing, based on actual sales levels of stainless steel pipe and tube (outside diameter of 10 inches or less).

The fair value of the contingent consideration was estimated by applying the Monte Carlo simulation approach using management's estimates of pounds shipped and future price per unit.

Changes to the fair value of the earn-out liability are determined each quarter-end and charged to income or expense in the “Earn-Out Adjustments” line item in the Consolidated Statements of Operations and Comprehensive Income.

In connection with the MUSA-Galvanized acquisition on July 1, 2018, the Company is required to make quarterly earn-out payments to MUSA for a period of four years following closing, based on actual sales levels of galvanized pipe and tube.

The fair value of the contingent consideration was estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

In connection with the American Stainless acquisition on January 1, 2019, the Company is required to make quarterly earn-out payments to American Stainless for a period of three years following closing.

Pursuant to the asset purchase agreement between ASTI and American Stainless, earn-out payments will equate to six and one-half percent ( 6.5 percent ) of ASTI’s revenue over the three -year earn-out period.

In determining the appropriate discount rate to apply to the contingent payments, the risk associated with the functional form of the earn-out, and the credit risk associated with the payment of the earn-out were all considered.

The fair value of the contingent consideration was estimated by applying the probability weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

Earn-Out Liabilities

In connection with the American Stainless acquisition, the Company is required to make quarterly earn-out payments to American Stainless for a period of three years following closing equal to six and one-half percent ( 6.5 percent) of ASTI’s revenue over the three-year earn-out period.

In connection with the MUSA-Galvanized acquisition, the Company is required to make quarterly earn-out payments to MUSA for a period of four years following closing, based on actual sales levels of galvanized pipe and tube.

In connection with the MUSA-Stainless acquisition, the Company is required to make quarterly earn-out payments to MUSA for a period of four years following closing, based on actual sales levels of stainless steel pipe and tube (outside diameter of 10 inches or less).

The fair value of the earn-out liabilities are estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

Changes to the fair value of the earn-out liabilities are determined each quarter-end and charged to income or expense in the “Earn-Out Adjustments” line item in the consolidated statements of operations and comprehensive loss.

See Note 3 for additional information on the Company's earn-out liabilities.

Revenue Recognition

5 unchanged sentences

Deferred revenues are recorded when cash payments are received in advance of satisfying the performance obligation, including amounts which are refundable.

See Note 2 - Revenue Recognition for additional information on the Company's revenue.

Shipping Costs

Shipping costs of approximately $10.9 million , $9.8 million and $7.5 million in 2019 , 2018 and 2017 , respectively, are recorded in cost of goods sold.

Shipping costs of approximately $ 8.0 million and $ 10.9 million in 2020 and 2019, respectively, are recorded in cost of goods sold on the consolidated statement of operations and comprehensive loss.

Research and Development Expenses

The Company incurred research and development expense of approximately $0.6 million , $0.5 million and $0.6 million in 2019 , 2018 and 2017 , respectively.

The Company incurred research and development expense of approximately $ 0.5 million and $ 0.6 million in 2020 and 2019, respectively.

Stock-Based Compensation

Share-based payments to employees, including grants of employee stock options, are recognized in the Consolidated Statements of Operations as compensation expense (based on their estimated fair values at grant date) generally over the vesting period of the awards using the straight-line method.

Share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statements of operations and comprehensive loss as compensation expense (based on their estimated fair values at grant date) generally over the vesting period of the awards using the straight-line method.

Any forfeitures of stock-based awards are recorded as they occur.

5 unchanged sentences

A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.

Additionally, the Company maintains reserves for uncertain tax provisions, if necessary.

See Note 9 for additional information on the Company's income taxes.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Additionally, the Company maintains reserves for uncertain tax provisions, if necessary.

Earnings Per Share of Common Stock

Earnings per share of common stock are computed based on the weighted average number of basic and diluted shares outstanding during each period.

Fair Market Value

The Company makes estimates of fair value in accounting for certain transactions, in testing and measuring impairment and in providing disclosures of fair value in its consolidated financial statements.

The Company determines the fair values of its financial instruments for disclosure purposes by maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value.

Fair value disclosures for assets and liabilities are grouped in three levels.

The levels prioritize the inputs used to measure the fair value of the assets or liabilities.

These levels are:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly.

These inputs include quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are less active.

Level 3 - Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

Estimates of fair value using levels 2 and 3 may require judgments as to the timing and amount of cash flows, discount rates, and other factors requiring significant judgment, and the outcomes may vary widely depending on the selection of these assumptions.

The Company's most significant fair value estimates as of December 31, 2019 and December 31, 2018 relate to the purchase price allocation relating to the 2019 American Stainless, 2018 MUSA-Galvanized, and 2017 MUSA-Stainless acquisitions, earn-out liabilities, estimating the fair value of the reporting units in testing goodwill for impairment, estimating the fair value of the interest rate swap, and providing disclosures of the fair values of financial instruments.

The Company determines whether an arrangement is a lease at contract inception.

For leases in which the Company is the lessee, the Company recognizes a right-of-use asset and corresponding lease liability on the accompanying Consolidated Balance Sheets equal to the present value of the fixed lease payments over the lease term.

For leases in which the Company is the lessee, the Company recognizes a right-of-use asset and corresponding lease liability on the consolidated balance sheets equal to the present value of the fixed lease payments over the lease term.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets.

Lease liabilities represent an obligation to make lease payments arising from a lease while right-of-use assets represent a right to use an underlying asset during the lease term.

As the Company's leases generally do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate to determine the present value of fixed lease payments based on information available at the lease commencement date.

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions, primarily for testing goodwill for impairment, determining balances for the earn-out liabilities, estimating fair value of identifiable assets acquired and liabilities assumed as a result of business acquisitions and for establishing reserves on accounts receivable, inventories and environmental issues, that affect the amounts reported in the consolidated financial statements and accompanying notes.

Actual results could differ from those estimates.

The Company's leases generally do not have an implicit rate.

The Company uses its incremental borrowing rate to determine the present value of fixed lease payments based on information available at the lease commencement date.

Lease costs are recognized on a straight-line basis over the lease term.

Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of the remaining lease payments and estimated incremental borrowing rate upon lease modification.

The difference between the remeasured right-of-use asset and the operating lease liabilities are recognized as a gain or loss within operating expenses.

The Company reviews any changes to its lease agreements for potential modifications and/or indicators of impairment of the respective right-of-use asset.

See Note 11 for additional information on the Company's leases.

Concentrations of Credit Risk

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Recently Issued Accounting Standards - Adopted

In February 2016, the FASB issued ASU No.

2016-02 "Leases (Topic 842)" , as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the new standard as of January 1, 2019 on a modified retrospective basis, which does not require comparative periods to be restated.

The Company elected the package of practical expedients permitted under the transition guidance which

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

allowed us to carry-forward our historical lease classification, our assessment on whether a contract contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard.

The Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

The Company also elected to combine lease and non-lease components and elected the short-term lease recognition exemption for all leases that qualified.

On adoption, we recognized additional operating lease liabilities of $33.1 million based on the present value of the remaining minimum rental payments as of January 1, 2019.

We additionally recognized corresponding right-of-use assets for operating leases totaling $32.2 million .

On January 1, 2019, the Company also recorded cumulative-effect increases to equity and deferred tax assets totaling $4.6 million and $1.3 million , respectively, related to a deferred gain for a sale leaseback transaction that occurred in 2016 and was being amortized into earnings under the prior accounting.

The adoption of this standard did not have a material impact on the consolidated statement of operations or cash flows for the year ended December 31, 2019.

See Note 10 for further information related to the Company's leases.

In May 2014, the FASB issued ASU No.

2014-09 "Revenue from Contracts with Customers (Topic 606)." Topic 606 supersedes the revenue recognition requirements in Topic 605 "Revenue Recognition (Topic 605)," and requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method.

The adoption of this standard did not have a material effect on the Company's consolidated financial statements.

See Note 17 for further details.

Recently Issued Accounting Standards - Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments." The updated guidance amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions, and reasonable and supportable forecasts rather than the incurred loss model which reflects losses that are probable.

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

The Company does not expect the adoption of this new standard to have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No.

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

2018-13 Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The updated guidance removes disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements.

In addition, the amendment clarifies that the measurement uncertainty disclosure is to communicate information about uncertainty in measurement as of the reporting date.

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 consolidated financial statements or footnote disclosures.

See Note 3 for further discussion on the Company's fair value measurements.

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

2017-04 Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment." The updated guidance eliminated step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.

Simplifying the Test for Goodwill Impairment.

The updated guidance eliminated step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.

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

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

The Company does not expect the adoption of this new standard to have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13 "Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The updated guidance improves the disclosure requirements on fair value measurements.

The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted for any removed or modified disclosures.

The Company does not expect the adoption of this new standard to have a material impact on the consolidated financial statements or footnote disclosures.

In December 2019, the FASB issued ASU No.

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

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

2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The updated guidance amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions, and reasonable and supportable forecasts rather than the incurred loss model which reflects losses that are probable.

Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

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, 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 consolidated statement of operations and comprehensive loss or cash flows.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

On September 30, 2020, the Company early adopted ASU No.

2019-12 "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes." This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim periods.

This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group.

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.

Simplifying the Accounting for Income Taxes." This ASU removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences as well as adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group.

The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods.

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

Recently Issued Accounting Standards - Not Yet Adopted

The Company considers the applicability and impact of all ASU's.

Recently issued ASU's not listed were assessed and determined to be either not applicable or are expected to have no material impact on our consolidated financial statements.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers upon shipment, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The following table presents the Company's revenues, disaggregated by product group.

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

(in thousands) 2020 2019

Specialty chemicals $ 51,541 $ 54,090

Stainless steel pipe and tube 154,974 167,907

Heavy wall seamless carbon steel pipe and tube 23,670 30,607

Fiberglass and steel liquid storage tanks and separation equipment 5,503 28,722

Galvanized pipe and tube 20,312 23,842

Net sales $ 256,000 $ 305,168

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations.

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.

SYNALLOY CORPORATION

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Equity securities

The fair value of equity securities held by the Company as of December 31, 2019 and December 31, 2018 was $4.3 million and $2.9 million , respectively, and is included in "Prepaid expenses and other current assets" on the accompanying Consolidated Balance Sheets.

During 2020, the Company sold 1.2 million shares of equity securities for a realized loss of $ 37,954 .

During 2019, the Company sold 0.5 million shares of equity securities for a realized gain of $ 0.3 million.

The Company held no equity securities as of December 31, 2020.

The fair value of equity securities held by the Company as of December 31, 2019 was $ 4.3 million and is included in "Prepaid expenses and other current assets" on the accompanying consolidated balance sheets.

Derivative instruments

The Company had 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 inputs.

The fair value of the interest swap contract entered into on August 21, 2012 was an asset of $6,088 and $0.1 million at December 31, 2019 and December 31, 2018 , respectively.

The fair value of the interest swap contract entered into on August 21, 2012 was a liability of $ 45,041 and an asset of $ 6,088 as of December 31, 2020 and 2019, respectively.

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

Changes in its fair value were recorded to other income (expense) with corresponding offsetting entries to current assets or liabilities, as appropriate.

Changes in its fair value are recorded to other income (expense) with corresponding offsetting entries to current assets or liabilities, as appropriate.

Significant inputs to the discounted cash flow model include projected future cash flows based on projected one-month LIBOR and the average margin for companies with similar credit ratings and similar maturities.

See Note 14 for for further discussion of the interest rate swap.

Contingent consideration (earn-out) liabilities

The fair value of contingent consideration liabilities ("earn-out") resulting from the 2017 MUSA-Stainless acquisition, 2018 MUSA-Galvanized acquisition, and 2019 American Stainless acquisition are classified as Level 3.

The fair value of the MUSA-Stainless earn-out was estimated by applying the Monte Carlo Simulation approach using management's projection of pounds to be shipped and future price per unit.

The fair value of the MUSA-Galvanized earn-out was estimated by applying the probability-weighted expected return method, using management's projection of pounds to be shipped and future price per unit.

The fair value of the American Stainless earn-out was estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

Each quarter-end, the Company re-evaluates its assumptions for all earn-out liabilities and adjusts to reflect the updated fair values.

Changes in the estimated fair value of the earn-out liabilities are reflected in the results of operations in the periods in which they are identified.

Changes in the fair value of the earn-out liabilities may materially impact and cause volatility in the Company's operating results.

The fair value of contingent consideration liabilities ("earn-out") resulting from the 2019 American Stainless acquisition, 2018 MUSA-Galvanized acquisition and 2017 MUSA-Stainless acquisition are classified as Level 3.

The fair value as of December 31, 2020 of the MUSA-Stainless earn-out, the MUSA-Galvanized earn-out and the American Stainless earn-out was estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

Each quarter-end, the Company re-evaluates its assumptions for all earn-out liabilities and

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

adjusts to reflect the updated fair values.

Changes in the estimated fair value of the earn-out liabilities are reflected in the results of operations in the periods in which they are identified.

Changes in the fair value of the earn-out liabilities may materially impact and cause volatility in the Company's operating results.

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 2020 and 2019:

(in thousands)

MUSA-Stainless

MUSA-Galvanized

American Stainless

Balance at December 31, 2017

Fair value of the earn-out liability associated with the MUSA-Galvanized acquisition

Earn-out payments during the period

Changes in fair value during the period

Balance at December 31, 2018

(in thousands) MUSA-Stainless MUSA-Galvanized American Stainless Total

Balance December 31, 2018 $ 4,252 $ 3,358 $ — $ 7,610

Fair value of the earn-out liability associated with the American Stainless (ASTI) acquisition — — 6,366 $ 6,366

Earn-out payments during period

( 1,634 ) ( 712 ) ( 1,729 ) $ ( 4,075 )

Changes in fair value during the period

Balance at December 31, 2019

( 215 ) ( 864 ) 332 $ ( 747 )

Balance December 31, 2019 $ 2,403 $ 1,782 $ 4,969 $ 9,154

Earn-out payments during period

( 1,625 ) ( 611 ) ( 2,002 ) $ ( 4,238 )

Changes in fair value during the period

( 403 ) ( 230 ) ( 562 ) $ ( 1,195 )

Balance December 31, 2020 $ 375 $ 941 $ 2,405 $ 3,721

For the year ended December 31, 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 December 31, 2020:

Instrument Fair Value

December 31, 2020 Principal Valuation Technique Significant Unobservable Inputs Range Weighted

Contingent consideration (earn-out) liabilities $ 3,721 Probability Weighted Expected Return Discount rate - 5 %

Timing of estimated payouts 2021 - 2022 -

Future revenue projections $ 4.7 M - 12.7 M

The weighted average discount rate was calculated by applying an equal weighting to each contingent consideration's (earn-out liabilities) discount rate.

The weighted average future revenue projection was calculated by applying an equal weighting of probabilities to each forecasted scenario within the valuation models to determine the probability weighted sales applicable to the contingent consideration (earn-out liabilities).

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

The Company's only significant measurements of assets and liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain acquisition related assets and liabilities as of December 31, 2019 and December 31, 2018 , respectively.

The Company's significant assets or liabilities measured at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets and goodwill for the year ended December 31, 2020.

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 Consolidated Financial Statements

During 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 $ 1.4 million, resulting in asset impairment charges of $ 6.2 million.

The Company evaluates goodwill for impairment annually and earlier if an event or other circumstances indicates that we may not recover the carrying value of the asset.

During 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed and, as a result of the Company's goodwill impairment evaluations, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value resulting in a full impairment charge of $ 16.2 million.

See Note 5 - Goodwill for additional details.

The Company classifies these fair value measurements as Level 3.

The Company's significant measurements of assets and liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain acquisition related assets and liabilities for the year ended December 31, 2019.

Customer List Intangible Asset

During the second quarter of 2019, management revised the initial estimate of the fair value of the customer list intangible asset acquired during the American Stainless acquisition, resulting in a decrease to the customer list intangible asset of $ 0.5 million (see Note 15 to the consolidated financial statements for additional information regarding this fair value measurement).

In the fourth quarter of 2018, management adjusted the fair value of the customer list intangible asset acquired during the MUSA-Galvanized acquisition by $0.3 million (see Note 15 to the consolidated financial statements for additional information regarding this fair value measurement).

Contingent consideration (earn-out) liabilities

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

Therefore, as of December 31, 2019 and December 31, 2018 , the carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and the Company's revolving line of credit, which is based on a variable rate, approximates fair value.

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 or changes in the fair value methodologies used by the Company in the years ended December 31, 2019 or December 31, 2018 .

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Therefore, as of December 31, 2020 and 2019, the carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and the Company's revolving line of credit, which is based on a variable rate, approximates fair value.

Property, Plant and Equipment

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(in thousands) 2020 2019

Land $ 3 $ 63

Leasehold improvements 2,939 1,921

Buildings 84 214

Machinery, fixtures and equipment 100,352 100,300

Construction-in-progress 2,772 2,999

106,150 105,497

Less accumulated depreciation 71,054 64,807

Property, plant and equipment, net $ 35,096 $ 40,690

The Company recorded depreciation expense of $7.6 million , $6.4 million , and $5.3 million for 2019 , 2018 and 2017 , respectively.

Changes in the carrying amount of goodwill by segment for the year ended December 31, 2019 and December 31, 2018 are as follows:

(in thousands)

Specialty Chemicals Segment

Metals Segment

Balance at December 31, 2017

MUSA-Galvanized Acquisition

Balance at December 31, 2018

The Company recorded depreciation expense of $ 7.6 million for 2020 and 2019 .

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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 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 third 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 declines in the Company's stock price, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event and the need to perform another quantitative evaluation of goodwill.

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

Fair value of the reporting unit was determined using a combination of an income approach and a market-based approach with equal weighting applied to each approach.

The income approach utilized the estimated discounted cash flows expected to be generated by the reporting unit's assets while the market-based approach utilized comparable company information.

Determining the fair value of 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.

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 below its carrying value by 9.7 % resulting in a goodwill impairment charge of $ 10.7 million for the quarter ended September 30, 2020.

During the fourth 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 $ 5.5 million, existed.

Continued risks within the stainless steel industrial business, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event and the need to perform another quantitative evaluation of goodwill.

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

Fair value of the reporting unit was determined using a combination of an income approach and a market-based approach with equal weighting applied to each approach.

The income approach utilized the estimated discounted cash flows expected to be generated by the reporting unit's assets while the market-based approach utilized comparable company information.

Determining the fair value of 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.

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 below its carrying value by 24.1 % resulting in the remainder of the goodwill attributable to the Welded Pipe and Tube reporting unit being impaired and a goodwill impairment charge of $ 5.5 million for the quarter ended December 31, 2020.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

During the fourth quarter of 2020, the Company completed its annual goodwill impairment evaluation for the Specialty Chemicals Segment with an associated goodwill balance of $ 1.4 million.

As part of the annual impairment evaluation, the Company quantitatively evaluated the reporting unit for impairment.

Fair value of the reporting unit was determined using a combination of an income approach and a market-based approach with equal weighting applied to each approach.

The income approach utilized the estimated discounted cash flows expected to be generated by the reporting unit's assets while the market-based approach utilized comparable company information.

Determining the fair value of 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.

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 Specialty Chemicals Segment was greater than its carrying value by 7.4 % and, as such, no goodwill impairment was necessary.

Changes in the carrying amount of goodwill by segment for the year ended December 31, 2020 and 2019 are as follows:

(in thousands) Specialty Chemicals Segment Metals Segment Total

Balance December 31, 2018 $ 1,355 $ 8,445 $ 9,800

American Stainless Acquisition — 7,758 $ 7,758

Balance December 31, 2019 $ 1,355 $ 16,203 $ 17,558

Impairment charges — ( 16,203 ) $ ( 16,203 )

Balance December 31, 2020 $ 1,355 $ — $ 1,355

Long-term Debt

1 unchanged sentence

$ 100 million Revolving line of credit, due December 20, 2021

$20 million Term loan, due January 1, 2024

On August 31, 2016, the Company amended its Credit Agreement with its bank to create a new credit facility in the form of an asset-based revolving line of credit (the "Line") in the amount of $45 million .

The Line was used to refinance and consolidate all previous debt agreements.

Interest on the Line was calculated using the One Month LIBOR Rate (as defined in the Credit Agreement), plus a pre-defined spread.

Borrowings under the Line were limited to an amount equal to a Borrowing Base calculation (as defined in the Credit Agreement) that includes eligible accounts receivable and inventory.

Pursuant to the Credit Agreement, the Company was required to pledge all of its tangible and intangible assets, including the stock and membership interests of its subsidiaries.

In the Credit Agreement, the Company's bank agreed to release its liens on the real estate properties covered by the Purchase and Sale Agreement with Store Funding, as described in Note 10.

On October 30, 2017, the Company amended its Credit Agreement with its bank to increase the limit of the Line by $20 million to a maximum of $65 million and extended the maturity date.

None of the other provisions of the Credit Agreement were changed as a result of this amendment.

On June 29, 2018, the Company amended its Credit Agreement with its bank to increase the limit of the Line by $15 million to a maximum of $80 million .

As a result of the amendment, the interest rate on the Line is now calculated using One Month LIBOR plus a spread of 1.65 percent .

None of the other provisions of the Credit Agreement were changed as a result of this amendment.

$ 49,037 $ 59,221

$ 20 million Term loan, due February 1, 2024

$ 11,458 $ 12,333

Current portion of long-term debt $ 875 $ 4,000

Total long-term debt $ 61,370 $ 75,554

Debt Refinancing:

On January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement with BMO Harris Bank N.A.

The new Credit Agreement provides the Company with a new four-year revolving credit facility with up to $ 150.0 million of borrowing capacity (the "Facility").

The Facility refinances and replaces the Company's previous $ 100.0 million asset based revolving line of credit with Truist Bank ("Truist"), which was scheduled to mature on December 21, 2021, and the remaining portion of the Company's five-year $ 20 million term loan with Truist, which was scheduled to mature on February 1, 2024.

The initial borrowing capacity under the Facility totals $ 110.0 million.

The current portion of long-term debt as of December 31, 2020 reflects expected payments during 2021.

In addition to refinancing the Company's previously existing bank debt, the Facility will be used for ongoing working capital needs, capital expenditures, and general corporate purposes.

Interest on the revolving line of credit portion of the Facility is calculated using the LIBOR Rate (as defined in the Credit Agreement) plus 1.50 %, subject to increase based on the calculation of Applicable Margin (as defined in the Credit Agreement).

Borrowings under revolving line of credit portion of the Facility are limited to an amount equal to the Borrowing Base calculation (as defined in the Credit Agreement) that includes eligible accounts receivable, inventory, machinery and equipment.

Interest on the term potion of the Facility is calculated using the LIBOR Rate (as defined in the Credit Agreement) plus 1.65 %, subject to increase based on the calculation of Applicable Margin (as defined in the Credit Agreement).

Pursuant to the Credit Agreement, the Company was required to pledge all of its tangible and intangible properties, including the stock and membership interests of its subsidiaries.

The Credit Agreement does not include any financial covenants so long as the availability under the Facility exceeds $ 11.0 million.

If the availability falls below the availability threshold amount, the Credit Agreement provides for a minimum fixed charge coverage ratio equal to 1.0 .

Credit Facilities Prior to Debt Refinance:

On December 20, 2018, the Company amended its Credit Agreement with its bank to refinance and increase its Line of Credit (the "Line") from $ 80 million to $ 100 million and to create a new 5 -year

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

On December 20, 2018, the Company amended its Credit Agreement with its bank to refinance and increase its Line from $80 million to $100 million and to create a new 5 -year term loan in the principal amount of $20 million (the “Term Loan”).

term loan in the principal amount of $ 20 million (the “Term Loan”).

The Term Loan was used to finance the American Stainless acquisition (see Note 15 ).

2 unchanged sentences

The Line will be used for working capital needs and as a source for funding future acquisitions.

The maturity date has been extended to December 20, 2021.

The maturity date of the Line is December 20, 2021.

Interest on the Line remains unchanged and is calculated using the One Month LIBOR Rate, plus 1.65 percent.

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

Covenants under the Credit Agreement include 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.

The Company evaluated this transaction and determined the restructuring should be accounted for as a debt modification.

The Company incurred lender and third-party costs associated with the debt restructuring that were capitalized on the balance sheet in non-current assets

At December 31, 2019 , the Company was in compliance with all debt covenants.

The Line interest rate was 3.50 percent and 4.19 percent at December 31, 2019 and December 31, 2018 , respectively.

The Line interest rate was 1.81 percent and 3.50 percent as of December 31, 2020 and 2019, respectively.

Additionally, the Company is required to pay a fee equal to 0.15 percent on the average daily unused amount of the Line on a quarterly basis.

1 unchanged sentence

Average Line borrowings outstanding during fiscal 2020 and 2019 were $ 60.3 million and $ 69.1 million with weighted average interest rates of 3.50 percent and 5.52 percent, respectively.

The term loan interest rate was 3.69 percent at December 31, 2019 .

As of December 31, 2019 , the Company had outstanding borrowings against the term loan of $16.3 million .

The Company made interest payments on all credit facilities of $3.5 million in 2019 , $1.7 million in 2018 and $0.9 million in 2017 .

The term loan interest rate was 2.06 percent and 3.69 percent as of December 31, 2020 and 2019, respectively.

The Company had outstanding borrowings against the term loan of $ 12.3 million and 16.3 million as of December 31, 2020 and 2019, respectively.

The Company made interest payments on all credit facilities of $ 2.0 million and $ 3.5 million in 2020 and 2019, respectively.

Principal payments on long-term debt during the next five fiscal years and thereafter are as follows (in thousands):

(1)The amounts in the table above do not include the effects of the Company's debt refinance.

The Company's new revolving credit facility includes a $ 17.5 million machinery and equipment sub-limit which requires repayments of $ 0.4 million quarterly starting in July 2021 with a balloon payment due upon maturity of the credit facility in 2025.

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 second 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.

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 amendments are effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020 .

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

To address the technical default, on October 23, 2020, the Company entered into the Fifth Amendment to the Third Amended and Restated Loan Agreement (the "Fifth Amendment") with its bank.

The Fifth Amendment amended the definition of the fixed charge coverage ratio to include in the numerator (i) the calculation of losses from the suspended operations of Palmer in the amount of $ 1,560,000 , which is effective for the quarter ended June 30, 2020 and for the directly following three quarters after June 30, 2020, (ii) the calculation of losses from the suspended operations of Palmer in the amount of $ 740,000 , which is effective for the quarter ended September 30, 2020 and for the directly following three quarters after September 30, 2020, and (iii) the extraordinary expenses related to the investigation of a

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

whistleblower complaint in the amount of $ 636,000 , which is effective for the quarter ended September 30, 2020 and for the directly following three quarters after September 30, 2020.

As of December 31, 2020, the Company had a minimum fixed charge coverage ratio of 1.43 and a minimum tangible net worth of $ 67.1 million.

Accrued Expenses

3 unchanged sentences

Taxes, other than income taxes 133 406

Current portion of earn-out liability

Advances from customers 298 153

Insurance 702 578

Professional fees 272 265

3 unchanged sentences

Current portion, capital lease obligation — 39

Interest rate swap liability 45 —

Customer rebate liability 168 275

Current portion, deferred gain sale-leaseback

Other accrued items 258 428

Total accrued expenses $ 6,123 $ 6,037

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Stock-Based Compensation

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A total of 500,000 shares have been previously authorized for grant to key employees and non-employee directors.

As of December 31, 2019 , there were 215,823 shares remaining available for grants under the currently active equity incentive plans.

The Company recognized stock-based compensation expense within SG&A expense on the consolidated statement of earnings of $2.1 million , $0.8 million , and $0.6 million in 2019 , 2018 , and 2017 , respectively.

The associated income tax benefit recognized was $0.4 million for 2019 , and $0.2 million for 2018 and 2017 , respectively.

As of December 31, 2020, there were no shares remaining available for grants under the currently active equity incentive plans.

The Company recognized stock-based compensation expense within SG&A expense on the consolidated statement of operations and comprehensive loss of $ 1.8 million and $ 2.1 million in 2020 and 2019, respectively.

The associated income tax benefit recognized was $ 0.2 million for 2020 and $ 0.4 million for 2019, respectively.

Stock Options

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

On February 5, 2020 the Compensation Committee approved stock option grants under the 2011 Plan.

Options for a total of 123,500 shares, with an exercise price of $ 12.995 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.

The per share weighted-average fair value of this stock option grant was $ 4.53 .

The Black-Scholes model for this grant was based on a risk-free interest rate of 1.66 percent, an expected life of 10 years, an expected

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

volatility of 35.1 percent and a dividend yield of 1.79 percent.

Compensation expense totaling $ 0.6 million will be recorded against earnings over the following 36 months from the date of grant with the offset recorded in Shareholders' Equity.

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 $ 7.33 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.

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 10 years, an expected volatility of 38.7 percent and a dividend yield of 1.89 percent.

Compensation expense totaling $ 0.1 million will be recorded against earnings over the following 36 months from the date of grant with the offset recorded in Shareholders' Equity.

A summary of activity in the Company's stock option plans is as follows:

At December 31, 2016

At December 31, 2017

At December 31, 2018

At December 31, 2019

Price Options

Outstanding Weighted

(in years) Intrinsic

Options Options

December 31, 2018 $ 14.16 59,096 4.8 $ 143,737 155,845

Exercised $ 12.61 ( 3,628 ) —

December 31, 2019 $ 14.26 55,468 3.8 $ 18,331 155,845

Granted February 5, 2020 $ 13.00 123,500 ( 123,500 )

Granted June 30, 2020 $ 7.33 20,000 ( 20,000 )

Canceled, forfeited, or expired $ 13.14 ( 19,437 ) 19,437

December 31, 2020 $ 12.74 179,531 7.2 $ 9,402 31,782

Exercisable options $ 13.77 86,531 5.1 $ —

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December 31, 2018 $ 15.83 9,969 6.0 $ 6.44

Forfeited unvested options

At December 31, 2018

At December 31, 2019

Vested $ 15.72 ( 6,246 ) $ 6.46

December 31, 2019 $ 16.01 3,723 5.1 $ 6.11

Granted February 5, 2020 $ 13.00 123,500 $ 4.53

Granted June 30, 2020 $ 7.33 20,000 $ 2.59

Vested $ 13.24 ( 34,786 ) $ 4.68

Canceled, forfeited, or expired $ 13.14 ( 19,437 ) $ 4.62

December 31, 2020 $ 11.78 93,000 9.2 $ 5.53

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

The following table summarizes information about stock options outstanding at December 31, 2019 :

Range of Exercise Prices

Outstanding Stock Options

Exercisable Stock Options

Weighted Average

Weighted Average Exercise Price

Exercise Price

Remaining Contractual Life in Years

In 2019 and 2018 , options for 3,628 and 85,440 shares, respectively, were exercised by employees and directors for an aggregate exercise price of $45,734 and $1.0 million , respectively.

The following table summarizes information about stock options outstanding as of December 31, 2020:

Range of Exercise Prices Outstanding Stock Options Exercisable Stock Options

Shares Weighted Average Shares Weighted Average Exercise Price

Exercise Price Remaining Contractual Life in Years

$ 11.35 11,713 $ 11.35 1.10 11,713 $ 11.35

$ 13.70 13,994 $ 13.70 2.10 13,994 $ 13.70

$ 14.76 8,109 $ 14.76 3.13 8,109 $ 14.76

$ 16.01 20,715 $ 16.01 4.11 20,715 $ 16.01

$ 13.00 105,000 $ 13.00 9.10 32,000 $ 13.00

$ 7.33 20,000 $ 7.33 9.50 — $ 7.33

179,531 86,531

There were no options exercised by employees and directors in 2020.

In 2019, options for 3,628 shares were exercised by employees and directors for an aggregate exercise price of $ 45,734 .

At the 2020 and 2019 respective year ends, options to purchase 86,531 and 51,745 shares, respectively, with weighted average exercise prices of $ 13.77 and $ 14.13 , respectively, were fully exercisable.

Compensation cost charged against income before taxes for the options was approximately $31,186 for 2019 , $46,529 for 2018 and $80,966 for 2017 .

As of December 31, 2019 , there was $2,261 of unrecognized compensation cost related to unvested stock options granted under the Company's stock option plans.

Compensation cost charged against income before taxes for the options was approximately $ 0.4 million for 2020 and $ 31,186 for 2019, respectively.

As of December 31, 2020, there was $ 0.2 million of unrecognized compensation cost related to unvested stock options granted under the Company's stock option plans.

The weighted average period over which the stock option compensation cost is expected to be recognized is 2.14 years.

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Any portion of the grant that has not vested will be forfeited upon termination of employment.

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

Shares representing grants that have not 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.

2015 Stock Awards Plan

The 2015 Stock Awards Plan was approved by the Compensation Committee and authorizes the issuance of up to 250,000 shares which can be awarded for a period of 10 years from the effective date of the plan.

Prior to May 9, 2017, as discussed below, the stock awards vest in 20 percent increments annually on a cumulative basis, beginning one year after the date of grant from shares held in treasury with the Company.

The 2015 Stock Awards Plan was approved by the Compensation Committee and originally authorized the issuance of up to 250,000 shares which can be awarded for a period of 10 years from the effective date of the plan.

On May 17, 2018, a majority of the shareholders of the Company, upon the recommendation of the Company's Board of Directors, voted to amend and restate the 2015 Stock Awards Plan to increase the authorization of issuances from 250,000 shares to 500,000 shares.

Prior to May 9, 2017, the stock awards vest in 20 percent increments annually on a cumulative basis, beginning one year after the date of grant from shares held in treasury with the Company.

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

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

On February 8, 2017, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan to certain management employees of the Company where 44,687 shares with a market price of $12.30 per share were granted under the Plan.

Effective May 1, 2017, the Company's Board of Directors approved the First Amendment to the 2015 Stock Awards Plan.

The amendment grants the Compensation Committee the authority to establish and amend vesting schedules for stock awards made pursuant to the 2015 Stock Awards Plan.

On May 9, 2017, the Committee approved the amendment of the vesting schedules for the May 5, 2016 and February 8, 2017 stock grants reducing the vesting period from five years to three years .

As a result of this amendment, compensation expense increased in 2017 by $75,756 and $67,180 , for the five employees receiving grants on May 5, 2016 and eight employees receiving grants on February 8, 2017, respectively.

On February 7, 2018, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan to certain management employees of the Company where 65,527 shares with a market price of $12.47 per share were granted under the Plan.

The fair value of the restricted stock awards are determined based on the average of the high and low common stock price on the day prior to the date of grant.

On February 6, 2019, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan to certain management employees of the Company where 44,949 shares with a market price of $ 15.72 per share were granted

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

under the Plan.

These stock awards vest in either 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant.

On February 5, 2020, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan to certain management employees of the Company where 45,418 shares with a market price of $ 13.00 per share were granted under the Plan.

These stock awards vest in either 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant.

The stock awards vest in either 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant.

Under the terms of the associated employment agreement, two-thirds of the stock award vests over a one-year period from the effective date of the agreement while one-third of the award vests over an 18 -month period from the effective date of the agreement.

A summary of plan activity for the 2005 and 2015 Stock Awards Plans is as follows:

Weighted Average

Shares Weighted Average

Grant Date Fair Value

Outstanding at December 31, 2016

Granted February 8, 2017

Outstanding at December 31, 2017

Outstanding December 31, 2018 142,174 $ 11.45

Granted February 6, 2019 44,949 $ 15.72

Outstanding at December 31, 2018

Vested ( 84,734 ) $ 11.76

Forfeited ( 1,614 ) $ 12.44

Outstanding December 31, 2019 100,775 $ 13.28

Granted February 5, 2020 45,418 $ 13.00

Outstanding at December 31, 2019

Granted November 10, 2020 50,000 $ 5.65

Vested ( 81,233 ) $ 12.87

Forfeited ( 17,535 ) $ 13.11

Outstanding December 31, 2020 97,425 $ 11.97

Compensation expense on the grants issued is charged against earnings equally before forfeitures, if any, with the offset recorded in Shareholders' Equity.

Compensation cost charged against income for the awards was approximately $1.4 million for 2019 , $0.8 million , for 2018 and $0.6 million for 2017 .

As of December 31, 2019 , there was $0.8 million of total unrecognized compensation cost related to unvested stock grants under the Company's Stock Awards Plan.

Compensation cost charged against income for the awards was approximately $ 1.0 million and $ 1.4 million for 2020 and 2019, respectively.

As of December 31, 2020, there was $ 0.5 million of total unrecognized compensation cost related to unvested restricted stock grants under the Company's Stock Awards Plan.

The weighted average period over which the stock grant compensation cost is expected to be recognized is 2.78 years.

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The performance condition is based on the achievement of the Company's EBITDA targets.

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.

The fair value of the performance-based restricted stock awards are determined based on the average of the high and low common stock price on the day prior to 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 specified performance condition.

The total fair value of performance-based restricted stock awards vesting was approximately $0.4 million in 2019 .

There were no performance-based restricted stock awards that vested in 2018 or 2017 , respectively.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

A summary of the status of our non-vested performance-based restricted stock awards at December 31, 2019 , and changes during fiscal 2019 , were as follows:

The weighted-average grant-date fair value per unit of performance-based restricted stock classified as equity awards granted was $ 13.00 and $ 15.72 in 2020 and 2019, respectively.

The total fair value of performance-based restricted stock awards vesting was approximately $ 0.6 million and $ 0.4 million in 2020 and 2019, respectively.

On November 10, 2020, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan in conjunction with the appointment of the Company's Interim President and Chief Executive Officer where 90,000 shares were granted under the Plan, with 50,000 shares vesting when, during the term of the employment agreement, the thirty-day volume weighted average price of a Company common share equals $ 8 per share or more, and the remaining 40,000 shares vesting when, during the term of the employment agreement, the thirty-day volume weighted average price of a Company common share equals $ 11 or more.

The grant is contingent upon shareholder approval of an increase in the number of shares of our common stock that may be issued pursuant to the 2015 Stock Awards Plan.

Shareholders will vote on this matter at our 2021 Annual Meeting of Shareholders.

A summary of the status of our non-vested performance-based restricted stock awards as of December 31, 2020, and changes during fiscal 2020, were as follows:

Weighted-Average Grant Date Fair Value

Outstanding at December 31, 2018

Outstanding December 31, 2019 77,986 $ 13.66

36,647 $ 13.00

( 64,711 ) $ 13.21

Forfeited/Canceled ( 20,558 ) $ 13.73

Non-vested at December 31, 2019

Non-vested December 31, 2020 29,364 $ 13.76

(1) The number of units presented is based on achieving the targeted performance goals as defined in the performance award agreement.

As of December 31, 2020, the maximum number of non-vested shares under the provisions of the agreement was 44,046 .

(2) Contingent shares have been excluded from the table above.

(3) Excludes the vesting of an additional 5,074 shares due to performance conditions of the awards exceeding target.

At December 31, 2019 , there was $0.2 million of unrecognized compensation expense related to non-vested performance-based restricted stock awards that is expected to be recognized over a weighted-average period of 1.36 years .

As of December 31, 2020, there was $ 0.2 million of unrecognized compensation expense related to non-vested performance-based restricted stock awards that is expected to be recognized over a weighted-average period of 2.12 years.

Non-Employee Director Compensation Plan

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The number of restricted shares issued is determined by the average of the high and low common stock price on the day prior to the Annual Meeting of Shareholders or the date prior to the appointment to the Board for those individuals that are appointed mid-term.

On May 16, 2019 , May 17, 2018 and May 18, 2017 , non-employee directors received an aggregate of 15,909 , 14,857 and 24,209 shares, respectively, of restricted stock in lieu of total retainer fees of $304,000 , $276,000 and $287,500 , respectively.

On December 18, 2020 and May 16, 2019, non-employee directors received an aggregate of 43,063 and 15,909 shares, respectively, of restricted stock in lieu of total retainer fees of $ 345,000 and $ 304,000 , respectively.

The shares granted to the directors are not registered under the Securities Act of 1933 and are subject to forfeiture in whole or in part upon the occurrence of certain events.

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Deferred income taxes reflect the net tax effects of 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 deferred tax liabilities and assets are as follows at the respective year ends:

Significant components of the Company's deferred tax assets and liabilities are as follows at the respective year ends:

(in thousands) 2020 2019

Deferred income tax assets:

Sale leaseback deferred gain

Inventory valuation reserves 176 199

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Equity security mark to market — 217

Straight line lease

Lease liabilities 7,484 8,945

Interest limitation carryforwards — 754

Accrued Federal Insurance Contributions Act ("FICA") deferral 299 —

Intangible asset basis differences 3,706 —

Other 534 445

Total deferred income tax assets 15,316 14,727

Valuation allowance

Federal & State valuation allowance ( 4,243 ) ( 1,700 )

Total net deferred income tax assets 11,073 13,027

Deferred income tax liabilities:

Tax over book depreciation and amortization

Fixed asset basis differences 5,562 4,859

Prepaid expenses 276 296

Lease assets 7,067 8,537

Interest rate swap 68 77

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Deferred income taxes $ ( 1,957 ) $ ( 790 )

Significant components of the provision for income taxes from continuing operations are as follows:

Significant components of the provision for income taxes are as follows:

(in thousands) 2020 2019

Federal $ ( 6,024 ) $ ( 10 )

Total current ( 6,001 ) 47

Federal 1,011 ( 833 )

Total deferred 1,295 ( 774 )

Total $ ( 4,706 ) $ ( 727 )

SYNALLOY CORPORATION

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(in thousands) 2020 2019

Amount % Amount %

statutory rates $ ( 6,714 ) 21.0 % $ ( 790 ) 21.0 %

State income taxes, net of federal tax benefit

State valuation allowance

Manufacturing exemption

73 ( 0.2 ) % 165 ( 4.4 ) %

Federal and State valuation allowance 2,541 ( 7.9 ) % ( 60 ) 1.6 %

CARES Act carryback benefits ( 1,123 ) 3.5 % — — %

Stock option compensation 65 ( 0.2 ) % ( 155 ) 4.1 %

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Other nondeductible expenses 35 ( 0.1 ) % 64 ( 1.7 ) %

Rate change effects

Income tax payments of $1.2 million , $2.4 million and $2.6 million were made in 2019 , 2018 and 2017 , respectively.

The Company has US Federal net operating loss carryforwards of $0.7 million and interest limitation carryforwards of $3.5 million at the end of fiscal year 2019.

Such items are not subject to expiration.

The Company also had state net operating loss carryforwards at the end of fiscal years 2019 and 2018 of $43.6 million and $46.5 million , respectively.

The majority of these losses will expire between the years of 2020 and 2037, while various losses are not subject to expiration.

A valuation allowance has been set up against $40.3 million of these state net operating loss carryforwards because it is not more likely than not that the losses will be realized in the foreseeable future.

The portion of the valuation allowance for the state net operating loss carryforwards was $1.7 million at December 31, 2019 and December 31, 2018 respectively.

In addition, $47,504 and $76,747 valuation allowance was established at December 31, 2019 and 2018 respectively, for other deferred tax assets.

This resulted in a valuation allowance decrease of $66,744 .

Other, net 137 ( 0.5 ) % ( 8 ) 0.2 %

Total $ ( 4,706 ) 14.7 % $ ( 727 ) 19.3 %

The Company made income tax payments of $ 16,000 and $ 1.2 million in 2020 and 2019, respectively.

The Company has no U.S.

Federal net operating loss carryforwards and no interest limitation carryforwards at the end of 2020 compared with $ 0.7 million of U.S.

Federal net operating loss carryforwards and $ 3.5 million of interest limitation carryforwards at the end of 2019.

During the current period, in response to the COVID-19 pandemic, the Coronavirus, Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020.

Among various income and payroll tax provisions, the CARES Act permitted the Company to carryback net operating losses realized in 2020 and 2019, refunding previous taxes paid over tax years 2014 through 2018, resulting in no U.S.

Federal net operating loss carryforwards to 2021.

This resulted in $ 1.1 million of income tax benefits realized in 2020 due to tax rate differentials between the tax years.

During 2020, the Company increased the combined U.S.

federal and state valuation allowance by $ 2.5 million because it is not more likely than not that the underlying deferred tax assets will be realized in the foreseeable future.

While no U.S.

federal net operating losses exist as of December 31, 2020, the current year increase in the valuation allowance is principally related to deferred tax assets created in the current year associated with the impairment of intangible assets.

In addition, on a gross basis the Company had state operating loss carryforwards of $ 39.4 million and $ 43.6 million at the end of 2020 and 2019, respectively.

The majority of these losses will expire between the years of 2021 and 2038, while certain losses are not subject to expiration.

A valuation allowance has been established for $ 39.4 million and $ 40.3 million of these state net operating losses at the end of 2020 and 2019, respectively, or $ 1.7 million on an after-tax basis at each period.

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

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The Company is no longer subject to U.S.

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

federal examinations for years before 2015 or state examinations for years before 2014.

The Company had no uncertain tax position activity during 2020 or 2019.

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The Company had no accruals for uncertain tax positions including interest and penalties at the end of 2020.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Benefit Plans and Collective Bargaining Agreements

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The matching contribution is applied to the employee accounts after each payroll.

Matching contributions of approximately $0.8 million , $0.7 million and $0.6 million were made for 2019 , 2018 and 2017 , respectively.

Matching contributions of approximately $ 0.4 million and $ 0.8 million were made for 2020 and 2019, respectively.

The Company may also make a discretionary contribution, which if made, would be distributed to all eligible participants regardless of whether they contribute to the 401(k)/ESOP Plan.

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Employees could contribute to the Bristol Plan up to 60 percent of pretax annual compensation, as defined in the Bristol Plan, with a maximum of $ 19,500 for 2020.

Under the Economic Growth and Tax Relief Reconciliation Act, employees who are age 50 or older could contribute an

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

additional $6,000 per year for a maximum of $25,000 for 2019 .

The Company contributes three percent of a participant's eligible compensation for the plan year, regardless of whether the participants contribute to the Bristol Plan.

Under the Economic Growth and Tax Relief Reconciliation Act, employees who are age 50 or older could contribute an additional $ 6,500 per year for a maximum of $ 26,000 for 2020.

During 2020, the Company contributed three percent of a participant's eligible compensation from January to July and increased this amount to four percent for the remainder of the plan year, regardless of whether the participants contribute to the Bristol Plan.

The Company's contributions were $ 0.2 million for 2020 and 2019, respectively.

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No discretionary contributions were made to the Bristol Plan in 2020 or 2019.

In connection with the MUSA-Stainless acquisition discussed in Note 15, the Company assumed the rights and obligations pursuant to the Collective Bargaining Agreement (the "Munhall CBA") between MUSA and the United Steel Workers of America, Local Union 5852-22 (the " Munhall Union").

The Company maintains a Collective Bargaining Agreement (the "Munhall CBA") with the United Steel Workers of America, Local Union 5852-22 (the "Munhall Union"), which represents the employees at the Munhall facility.

As a part of this Munhall CBA, the Company assumed the obligation of participating in the Steelworkers Pension Trust, a union-sponsored multi-employer defined benefit plan (the "Munhall Plan"), which covers all the Company's eligible Munhall Union employees.

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Munhall Union employees make no contributions to the Munhall Plan.

The Company's contributions are less than 5 percent of total contributions to the plan based on contributions for the plan year ended December 31, 2018 .

The Company's contributions to the Munhall Plan totaled $0.2 million for the year ended December 31, 2019 and $0.1 million for the years ended December 31, 2018 and December 31, 2017 , respectively.

The Company's contributions are less than five percent of total contributions to the plan based on contributions for the plan year ended December 31, 2019.

The Company's contributions to the Munhall Plan totaled $ 0.2 million for the year ended December 31, 2020 and 2019, respectively.

Additionally, as part of the Munhall CBA, members of the union are eligible to make deferral contributions to the Company's 401(k)/ESOP Plan per the plan guidelines;

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Contributions relating to these plans were $ 29,851 and $ 28,469 for 2020 and 2019, respectively.

Adoption of ASC Topic 842, "Leases"

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method applied to leases that were in place as of January 1, 2019.

Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840.

The Company's portfolio of leases contains both finance and operating leases that relate to real estate and manufacturing equipment.

Substantially all of the value of the Company's lease portfolio relates to the Master Lease with Store Master Funding XII, LLC, an affiliate of Store Capital Corporation ("Store Capital") that was entered into in 2016 and amended with the 2018 MUSA-Galvanized and 2019 American Stainless acquisitions.

Substantially all of the value of the Company's lease portfolio relates to the Master Lease with Store Master Funding XII, LLC (“Store”), an affiliate of Store Capital Corporation ("Store Capital") that was entered into in 2016 and amended with the 2019 American Stainless acquisitions as well as the 2020 sale of land at the Munhall facility.

As of December 31, 2020, operating lease liabilities related to the master lease agreement with Store Capital totaled $ 32.9 million, or 98 percent of the total lease liabilities on the consolidated balance sheet.

Discount Rate

To determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the "incremental borrowing rate" or "IBR").

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances.

Such adjustments included assuming the Store Capital lease would require two lenders with the secondary lender being secured on a second lien requiring mezzanine rates.

Based on this assessment, the Company determined that 7.32 percent was an appropriate incremental borrowing rate to apply to its portfolio of real-estate operating leases at adoption.

The Company elected to utilize a single discount rate for its portfolio of operating leases because of similar lease characteristics;

In determining the lease liability and corresponding right-of-use asset for its operating leases, the Company calculates the present value of future lease payments using the interest rate implicit in the lease, when available, or the Company's

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

incremental borrowing rate ("IBR").

The Company determines the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances.

Such adjustments include assuming the Store Capital lease would require two lenders with the secondary lender being secured on a second lien requiring mezzanine rates.

The Company utilizes a single discount rate for its portfolio of operating leases because of similar lease characteristics;

the resulting calculation does not differ materially from applying the standard to the individual leases.

On January 2, 2019, the Company and Store Master Funding XII, LLC, a Delaware limited liability company and the Company's sale-leaseback partner, amended and restated the Master Lease, pursuant to which the Company leases the Statesville and Troutman, NC facilities, purchased by Store Capital from American Stainless on January 1, 2019, for the remainder of the initial term of 20 years set forth in the Master Lease, with two renewal options of 10 years each.

Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments.

The Master Lease includes a rent escalator equal to the lesser of 1.25 times the percentage increase in the Consumer Price Index since the previous increase or two percent.

On September 10, 2020, the Company and Store closed on a transaction pursuant to which Store sold to a third party approximately 12.5 acres of unimproved land and immaterial improvements located at Synalloy’s facility in Munhall, Pennsylvania.

Synalloy subleases the Munhall facility to Bristol Metals, LLC.

As a result of the sale, on September 10, 2020, the Company and Store entered into a Third Amended and Restated Master Lease Agreement (the “Third Master Lease”) to reduce the Company's rent at the Munhall facility pursuant to the terms and conditions of the Second Amended and Restated Master Lease Agreement between the parties dated January 2, 2019.

The Third Master Lease was determined to be a lease modification that qualified for a change of accounting on the existing lease and not a separate contract.

Upon modification of the Third Master Lease, the right-of-use asset and operating lease liability were remeasured using an incremental borrowing rate determined on the date of modification.

As such, the Company recognized a reduction in the right-of-use asset and operating lease liability related to the Third Master Lease of $ 3.2 million and $ 3.4 million, respectively, and recognized a gain on the modification of $ 0.2 million, which is reported within operating expenses on the consolidated statement of operations and comprehensive loss.

Weighted average discount rates for operating and finance leases are as follows:

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Finance Leases 2.44 %

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Balance Sheet Presentation

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

Classification

Financial Statement Line Item

December 31, 2019

Right-of-use assets, operating leases

Property, plant and equipment, net

Current liabilities

Current portion of lease liabilities, operating leases

Current liabilities

Current portion of lease liabilities, finance leases

Non-current liabilities

Non-current portion of lease liabilities, operating leases

Non-current liabilities

Non-current portion of lease liabilities, finance leases

Classification Financial Statement Line Item December 31, 2020

Assets Right-of-use assets, operating leases $ 31,769

Assets Property, plant and equipment, net 56

Current liabilities Current portion of lease liabilities, operating leases 867

Current liabilities Current portion of lease liabilities, finance leases 19

Non-current liabilities Non-current portion of lease liabilities, operating leases 32,771

Non-current liabilities Non-current portion of lease liabilities, finance leases 37

Total Lease Cost

Individual components of the total lease cost incurred by the Company are as follows:

(in thousands)

December 31, 2019

(in thousands) December 31, 2020

Operating lease cost $ 4,124

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Total lease cost $ 4,240

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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 consolidated statement of operations.

Maturity of Leases

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

(in thousands)

(in thousands) Operating Finance

2021 $ 3,610 $ 20

2022 3,665 15

2023 3,699 15

Thereafter 43,540 —

Total undiscounted minimum future lease payments 61,682 58

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Weighted average remaining lease terms for operating and finance leases as of December 31, 2020 are as follows:

Operating Leases

Finance Leases

During the year ended December 31, 2019 , right-of-use assets recognized in exchange for new operating lease liabilities totaled $4.9 million .

Operating Leases 15.47 years

Finance Leases 2.91 years

During the year ended December 31, 2020, the Company had no right-of-use assets recognized in exchange for new operating lease liabilities.

Commitments and Contingencies

Management is not currently aware of any asserted or unasserted matters which could have a material effect on the financial condition or results of operations of the Company.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

On January 1, 2019, the Company and Store Capital amended and restated the Master Lease, pursuant to which the Company leases the Statesville and Troutman, NC facilities, purchased by Store Capital from American Stainless on January 1, 2019, for the remainder of the initial term of 20 years set forth in the Master Lease, with two renewal options of 10 years each.

The Master Lease includes a rent escalator equal to the lesser of 1.25 times the percentage increase in the Consumer Price Index since the previous increase or 2 percent .

Undiscounted future minimum lease payments under non-cancellable operating and capital leases as of December 31, 2018 accounted for under ASC 840 " Leases" were as follows:

(in thousands)

Total undiscounted minimum future operating lease payments

Imputed Interest

Total lease liabilities recorded as of December 31, 2018

Rent expense related to operating leases was $4.0 million and $3.3 million in 2018 and 2017, respectively.

Commitments and Contingencies

Management is not currently aware of any asserted or unasserted matters which could have a significant effect on the financial condition or results of operations of the Company.

(Loss)/Earnings Per Share

Loss Per Share

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

(in thousands, except per share data) 2020 2019

Net (loss) income

Net loss $ ( 27,267 ) $ ( 3,036 )

Denominator for basic earnings per share - weighted average shares

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Denominator for diluted earnings per share - weighted average shares

Net (loss) earnings per share:

Net loss per share:

Basic $ ( 3.00 ) $ ( 0.34 )

Diluted $ ( 3.00 ) $ ( 0.34 )

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 weighted average shares of common stock of 300 in 2019 , 600 in 2018 and 86,524 in 2017 , which were not included in the diluted earnings per share calculation as their effect was anti-dilutive.

The Company had weighted average shares of common stock of 194,576 in 2020 and 300 in 2019, which were not included in the diluted earnings per share calculation as their effect was anti-dilutive.

Industry Segments

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The Company identifies such segments based on products and services, long-term financial performance and end markets targeted.

The Metals Segment operates as three reporting units including Welded Pipe & Tube Operations, a unit that includes Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI"), Palmer of Texas Tanks, Inc.

("Palmer"), and Specialty Pipe & Tube, Inc.

("Specialty").Welded Pipe & Tube Operations manufactures pipe and tube from stainless steel, galvanized, ornamental stainless steel tubing, and other alloy pipe and tube.

Palmer manufactures liquid storage solutions and separation equipment.

Specialty is a master distributor of seamless carbon pipe and tube.

The Metals Segment's markets include the oil and gas, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste water treatment, liquid natural gas ("LNG"), brewery, food processing, petroleum, pharmaceutical, automotive & commercial transportation, appliance, architectural, and other heavy industries.

The Specialty Chemicals Segment operates as one reporting unit which includes Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), and CRI Tolling, LLC ("CRI Tolling").

The Specialty Chemicals Segment produces specialty chemicals for the chemical, paper, metals, mining, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture, janitorial and other industries.

MC manufactures lubricants, surfactants, defoamers, reaction intermediaries and sulfated fats and oils.

CRI Tolling provides chemical tolling manufacturing resources to global and regional chemical companies and contracts with other chemical companies to manufacture certain, pre-defined products.

The Metals Segment operates as three reporting units including Welded Pipe & Tube Operations, Palmer and Specialty.

The Specialty Chemicals Segment operates as one reporting unit which includes MC and CRI Tolling.

The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being operating income (loss).

4 unchanged sentences

Corporate assets consist principally of cash, certain investments and equipment.

Segment Information:

All values are for continuing operations only.

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

(in thousands) 2020 2019

1 unchanged sentence

Specialty Chemicals Segment 51,541 54,090

$ 256,000 $ 305,168

Operating (loss) income

Metals Segment $ ( 24,599 ) $ 3,692

Gain on sale-leaseback

Total Metals Segment

Specialty Chemicals Segment 4,033 2,811

Gain on sale-leaseback

Total Specialty Chemicals Segment

( 20,566 ) 6,503

Unallocated corporate expenses 7,917 8,357

Earn-out adjustments

Acquisition related costs 845 601

Operating (loss) income

Proxy contest costs 3,105 —

Earn-out adjustments ( 1,195 ) ( 747 )

Gain on lease modification ( 171 ) —

Operating loss ( 31,067 ) ( 1,708 )

Interest expense 2,110 3,818

1 unchanged sentence

Other income, net ( 1,255 ) ( 1,904 )

(Loss) income before income taxes

Loss before income taxes $ ( 31,973 ) $ ( 3,763 )

Identifiable assets

1 unchanged sentence

Specialty Chemicals Segment 25,039 25,428

Corporate 40,146 45,011

$ 206,984 $ 257,197

Depreciation and amortization

1 unchanged sentence

Specialty Chemicals Segment 1,552 1,461

Corporate 165 164

$ 10,600 $ 11,064

Capital expenditures

1 unchanged sentence

Specialty Chemicals Segment 866 1,157

Corporate 1,121 568

$ 3,748 $ 4,537

Sales by product group

4 unchanged sentences

Galvanized pipe and tube 20,312 23,842

$ 256,000 $ 305,168

Geographic sales

United States $ 248,470 $ 297,808

Interest Rate Swap

The Company has an interest rate swap associated with its current credit facility which effectively is expected to offset variable interest in the borrowing;

hedge accounting was not utilized.

The notional amount of the swap was $6.0 million and $8.25 million at December 31, 2019 and December 31, 2018 , respectively.

The fair value is recorded in current assets or liabilities, as appropriate, with corresponding changes to fair value recorded to other income (expense).

The interest rate swap will remain in place for the remainder of the current credit facility's term.

The Company recorded an asset of $6,088 and $ 0.1 million for the fair value of the swap at December 31, 2019 and December 31, 2018 , respectively.

Elsewhere 7,530 7,360

$ 256,000 $ 305,168

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

On January 1, 2019, ASTI completed the American Stainless acquisition.

On January 1, 2019, ASTI completed the American Stainless Tubing, Inc.

("American Stainless") acquisition.

The purchase price for the all-cash acquisition was $ 21.9 million, subject to a post-closing working capital adjustment.

6 unchanged sentences

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.

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

All of the goodwill recognized was assigned to the Company's Metals Segment.

During the second quarter of 2019, management identified circumstances that existed on the date of acquisition and as a result, revised the purchase price allocation of certain acquired assets and liabilities as allowable during the measurement period.

The following table shows the initial estimate of value and revisions made during 2019:

(in thousands)

Initial estimate

(in thousands) Initial estimate Revisions Final

Inventories $ 5,564 $ — $ 5,564

Accounts receivable 3,534 — 3,534

2 unchanged sentences

Customer list intangible 10,000 ( 496 ) 9,504

Goodwill 7,044 714 7,758

Contingent consideration (earn-out liability) ( 6,148 ) ( 218 ) ( 6,366 )

1 unchanged sentence

Other liabilities ( 97 ) — ( 97 )

ASTI's results of operations since acquisition are reflected in the Company's consolidated statements of operations as follows:

(in thousands)

Income before income taxes

$ 21,895 $ — $ 21,895

For the year ended December 31, 2019, cost of sales included $ 1.1 million representing the fair value above predecessor cost associated with acquired inventory that was sold during the year ended December 31, 2019.

The following unaudited pro-forma information is provided to present a summary of the combined results of the Company's operations with ASTI as if the acquisition had occurred on January 1, 2018.

The unaudited pro-forma financial information is for information purposes only and is not necessarily indicative of what the results would have been had the acquisition been completed on the date indicated above.

Pro-Forma (Unaudited)

(in thousands, except per share data)

Pro-forma net sales

Pro-forma net income

Earnings per share:

Pro-forma net income was reduced for the following:

Amortization of American Stainless’ customer list intangible of $1.2 million for the year ended December 31, 2018 ;

Additional rent expense related to the Company’s lease of American Stainless’ real estate from Store Capital of $0.5 million for the year ended December 31, 2018 ;

An estimated am ount of interest expense associated with the additional borrowings to fund the American Stainless acquisition of $0.8 million f or the year ended December 31, 2018 ;

Depreciation of $0.2 million for the year ended December 31, 2018 , related to the incremental fair value above historical cost for acquired property, plant and equipment;

An increase in the provision for income taxes of $0.1 million for the year ended December 31, 2018 related to the impact of the other pro-forma adjustments and American Stainless' previous status as a pass-through entity for income tax purposes prior to the acquisition.

Acquisition of the Galvanized Pipe and Tube Assets of Marcegaglia USA, Inc.

On July 1, 2018, BRISMET completed the MUSA-Galvanized acquisition.

The purpose of the transaction was to enhance the Company's on-going business with additional capacity and technological advantages.

The transaction was funded through an increase to the Company's current credit facility (refer to Note 5).

The purchase price for the transaction totaled $10.4 million .

The tangible assets purchased and liabilities assumed from MUSA include accounts receivable, inventory, equipment, and accounts payable.

MUSA will receive quarterly earn-out payments for a period of four years following closing.

Earn-out payments will equate to three percent of BRISMET’s galvanized steel pipe and tube revenue.

As of July 1, 2018, the Company forecasted earn-out payments to be $4.2 million , for which the Company established a fair value of $3.8 million using a probability-weighted expected return method and a discount rate applicable to future revenue of five percent .

At December 31, 2018 the fair value of the earn-out totaled $3.4 million with $1.0 million of this liability classified as a current liability because the payments will be made quarterly.

In the fourth quarter of 2018, management adjusted the fair value of the customer list intangible asset.

Because this adjustment was determined within the measurement period, the customer list intangible was decreased by $0.3 million and goodwill was

increased by $0.3 million .

Goodwill arising from the MUSA-Galvanized transaction increased from $3.5 million to $3.8 million and the fair value of the customer list intangible asset was decreased from $1.4 million to $1.2 million .

All other changes in fair value have been included as earn-out adjustments in the Company's consolidated statements of operations.

The total purchase price was allocated to the acquired net tangible and identifiable intangible assets based on their estimated fair values as of July 1, 2018.

The fair value assigned to the customer list intangible is being amortized on an accelerated basis over 15 years.

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 Munhall-Galvanized's production capabilities with BRISMET's 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.

During the fourth quarter of 2018, the Company finalized the purchase price allocation for the MUSA-Galvanized acquisition.

The following table shows the initial estimate of value and revisions made during 2018:

(in thousands)

Initial estimate

Accounts Receivable

Other current assets - production and maintenance supplies

Property, plant and equipment

Customer list intangible

Earn-out Liability

Accounts payable

Other liabilities

MUSA-Galvanized's results of operations since acquisition are reflected in the Company's consolidated statements of operations as follows:

(in thousands)

Income before income taxes

The following unaudited pro-forma information is provided to present a summary of the combined results of the Company's operations with Munhall-Galvanized as if the acquisition had occurred on January 1, 2017.

Pro-Forma (Unaudited)

(in thousands, except per share data)

Pro-forma net sales

Pro-forma net income (loss)

Earnings (loss) per share:

The 2018 pro-forma calculation excludes non-recurring acquisition costs of $0.7 million that were incurred by the Company during 2018.

Munhall-Galvanized's historical financial results were adjusted for both years to eliminate interest expense charged by the prior owner.

Pro-forma net income was reduced for both years for the amount of amortization on Munhall-Galvanized's customer list intangible and an estimated amount of interest expense associated with the additional line of credit borrowings.

Acquisition of the Stainless Steel Pipe and Tube Assets of Marcegaglia USA, Inc.

On February 28, 2017, BRISMET completed the MUSA-Stainless acquisition.

The Company funded the transaction through an increase to the Company's credit facility (See Note 5).

The purchase price for the transaction, which excluded real estate and certain other assets, totaled $15.0 million .

The assets purchased from MUSA included inventory, production and maintenance supplies and equipment less specific identified liabilities assumed.

In accordance with the agreement, on December 9, 2016, BRISMET entered into an escrow agreement and deposited $3.0 million into the escrow fund.

The deposit was remitted to MUSA at the close of the transaction and was reflected as a credit against the purchase price.

The transaction was accounted for using the acquisition method of accounting for business combinations.

During the fourth quarter of 2017, the Company finalized the purchase price allocation for the MUSA-Stainless acquisition.

MUSA will receive quarterly earn-out payments for a period of four years following closing.

Aggregate earn-out payments will be at least $3.0 million , with no maximum.

Actual payouts will equate to three percent of BRISMET’s incremental revenue, if any, from the amount of small diameter stainless steel pipe and tube (outside diameter of 10 inches or less) sold.

At February 28, 2017, the acquisition date, the Company forecasted earn-out payments to be $4.1 million , which was discounted to a present value of $3.6 million using a discount rate applicable to future revenue of five percent .

In determining the appropriate discount rate to apply to the contingent payments, the risk associated with the functional form of the earn-out, the credit risk associated with the payment of the earn-out and the methodology to quantify the earn-out were all considered.

The fair value of the contingent consideration was estimated by applying the Monte Carlo simulation approach using management's estimates of pounds shipped.

In the second quarter of 2017, management adjusted the selling price used in the earn-out calculation associated with the MUSA-Stainless acquisition.

Since this adjustment was determined within the measurement period, the beginning earn-out liability and goodwill were increased by $1.1 million .

Goodwill related to the MUSA-Stainless acquisition increased from $3.6 million to $4.6 million and the fair value of contingent consideration was increased from $3.6 million to $4.7 million .

All other changes in fair value have been included as earn-out adjustments in the Company's consolidated statements of operations.

The total purchase price was allocated to Munhall-Stainless' net tangible and identifiable intangible assets based on their estimated fair values as of February 28, 2017.

The fair value assigned to the customer list intangible is being amortized on an accelerated basis over 15 years .

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

Goodwill consists of manufacturing cost synergies expected from combining laser mill capabilities acquired as part of Munhall-Stainless with BRISMET's 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.

The following table shows the initial estimate of value and revisions made during 2017:

(in thousands)

Initial estimate

Other current assets - production and maintenance supplies

Customer list intangible

Earn-out liability

Other liabilities assumed

Munhall-Stainless' results of operations since acquisition are reflected in the Company's consolidated statements of operations.

The amount of Munhall-Stainless' revenues and operating loss included in the consolidated statements of operations for the year ended December 31, 2017 was $25.8 million and $0.2 million , respectively.

On March 1, 2017, pursuant to the terms and conditions of the MUSA-Stainless asset purchase agreement, the Company entered into a lease agreement to lease manufacturing and warehouse space at MUSA's Munhall, PA facility for $33,333 per month for the initial lease term of 15 months .

In February 2018, the lease was amended to extend the term of the lease for the period beginning June 1, 2018 and ending May 31, 2023 and includes escalating rent payments.

The lease met the operating lease requirements and was accounted for as such in 2017.

As part of the MUSA-Galvanized acquisition that occurred on July 1, 2018, the Company amended and restated the Master Lease, effective June 29, 2018, pursuant to which the Company leased the Munhall, PA facility, purchased by Store Funding from MUSA for the remainder of the initial term of 20 years set forth in the Master Lease (see Note 10).

Shareholders Equity

Stock Repurchase Program

On February 21, 2019, the Board of Directors authorized a stock repurchase program for up to 850,000 shares of its outstanding common stock over twenty-four months.

On February 21, 2019, the Board of Directors authorized a stock repurchase program for up to 850,000 shares of its outstanding common stock over 24 months.

The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions.

1 unchanged sentence

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 year-ended December 31, 2019 the Company did no t purchase any shares under the stock repurchase program.

At the Market Offering

On August 9, 2018, the Company entered into an Equity Distribution Agreement pursuant to which the Company had the ability to issue and sell, from time to time, shares of the Company’s common stock (the "Shares"), par value $ 1.00 per share, with aggregate gross sales proceeds of up to $10 million , through an “at-the-market” equity offering program under which BB&T Capital Markets, a division of BB&T Securities, LLC and Ladenburg Thalmann & Co.

(the "Agents") were sales agents (the “ATM Program”).

In 2018, the Company issued and sold 44,378 shares in connection with the ATM Program, with total net proceeds of $1.0 million .

The Agents received $20,470 in commission on the sales.

On November 16, 2018, the Company terminated the ATM Program.

The Company has not sold any shares under the ATM Offering since September 30, 2018, and will no longer offer any shares under this program.

During the year ended December 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 year ended December 31, 2019, the Company purchased no shares under the stock repurchase program.

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

Shareholder Rights Plan

On March 31, 2020, the Board of Directors unanimously authorized the adoption of a limited duration shareholder rights plan expiring on March 31, 2021 and an ownership trigger threshold of 15 %.

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 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).

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.

At the end of each fiscal year the Board reviews the financial performance and capital needed to support future growth to determine the amount of cash dividend, if any, which is appropriate.

In 2019 , no dividends were declared or paid by the Company.

In 2018 , the Company paid a $0.25 cash dividend on December 12, 2018 for a total of $2.3 million .

In 2017 , the Company paid a $0.13 cash dividend totaling $1.1 million .

Adoption of ASC Topic 606, "Revenue from Contracts with Customers"

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

The Company operates as a manufacturer of various products, and revenue is comprised of short-term contracts with point-in-time performance obligations.

As a result, the Company did not identify any differences in its recognition of revenue between Topic 606 and Topic 605.

Accordingly, there was no adjustment required to opening retained earnings for the cumulative impact of adopting Topic 606 and no impact to revenues for the year-ended December 31, 2018 as a result of applying Topic 606.

Revenue Recognition

The following table presents the Company's revenues, disaggregated by product group.

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

(in thousands)

Fiberglass and steel liquid storage tanks and separation equipment

Heavy wall seamless carbon steel pipe and tube

Stainless steel pipe and tube

Galvanized pipe and tube

Specialty chemicals

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations.

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.

Deferred Revenues

Deferred revenues are recorded when cash payments are received in advance of satisfying the performance obligation, including amounts which are refundable.

The deferred revenue balance decreased less than $0.1 million during 2019 to $0.2 million as of December 31, 2019 due to receiving $2.4 million in advance of satisfying our performance obligations during the period, offset by $2.4 million of revenue that was recognized during the period after satisfying the performance obligations that were included in the beginning deferred revenue balance or received during the current period.

Deferred revenues are included in "Accrued expenses" on the accompanying Consolidated Balance Sheets.

Our payment terms vary by the financial strength or location of our customer and the products offered.

The length of time between invoicing and when payment is due is not significant.

For certain customers, payment is required before the products or services are delivered to the customer.

Practical Expedients and Election

When shipping and handling activities are performed after a customer obtains control of goods, the Company reflects shipping and handling activities as part of satisfying the obligation of providing goods to the customer.

In some instances, the Company withholds various states' sales taxes upon shipments into those states.

Accordingly, management makes an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on and concurrent with a specific revenue-producing transaction and collected from a customer.

The Company expenses sales commissions when incurred because the amortization period would have been one year or less.

These costs are recorded within selling, general, and administrative expenses.

The Company does not disclose the value of unsatisfied performance obligations since contracts are expected to be completed within one year.

Quarterly Results (Unaudited)

The following is a summary of quarterly operations for 2019 and 2018 :

(in thousands, except per share data)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Per common share (1)

(1) Per Share amounts may not foot due to rounding.

In 2020 and 2019, no dividends were declared or paid by the Company.

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 year ended December 31, 2020, total costs incurred by the Company relating to the proxy contest were $ 3.1 million.

Subsequent Events

On February 5, 2020 the Compensation Committee approved stock option grants under the 2011 Plan.

Options for a total of 123,500 shares, with an exercise price of $12.995 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 $4.53 .

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 .

Compensation expense totaling $0.6 million will be recorded against earnings equally over the following 36 months from the date of grant with the offset recorded in Shareholders' Equity.

As discussed in Note 6 , on January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement with BMO Harris Bank N.A.

The new Credit Agreement provides the Company with a new four-year revolving credit facility with up to $ 150.0 million of borrowing capacity.

The Facility refinances and replaces the Company's previous $ 100.0 million asset based revolving line of credit with Truist Bank, which was scheduled to mature on December 21, 2021, and the remaining portion of the Company's five-year $ 20 million term loan with Truist, which was scheduled to mature on February 1, 2024.

The initial borrowing capacity under the Facility totals $ 110.0 million.

On February 10, 2021, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan to certain management employees of the Company where 15,181 shares with a market price of $ 8.575 per share were granted under the Plan.

The stock awards vest in either 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant.

The stock awards vest in 20 percent increments annually on a cumulative basis, beginning one year after the date of grant.

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

2 unchanged sentences

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

On February 5, 2020, the Compensation Committee approved performance-based restricted stock awards to certain management employees of the Company where 36,647 shares with a market price of $12.995 per share were granted under the Plan.

The Company's performance-based restricted stock awards are classified as equity and contain performance and service

The grants are contingent upon shareholder approval of an increase in the number of shares of our common stock that may be issued pursuant to the 2015 Stock Awards Plan.

Shareholders will vote on this matter at our 2021 Annual Meeting of Shareholders.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

conditions that must be satisfied for an employee to earn the right to benefit from the award.

The performance condition is based on the achievement of the Company's EBITDA targets.

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.

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.

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

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On February 17, 2021, the Board of Directors re-authorized the Company's stock repurchase program.

The previous stock repurchase program had a term of 24 months and terminated on February 21, 2021.

This stock repurchase program allows for repurchase of up to 790,383 shares of the Company's outstanding common stock over 24 months.

The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions.

Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury.

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

On February 17, 2021, the Board of Directors authorized the permanent closure of the Company's Palmer facility.

The Company will cease operations and divest all remaining assets at the facility.

Costs associated with this closure cannot be determined at this time.

This closure will not affect any of the Company's other operating units.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data