ASCENT INDUSTRIES CO. 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Financial Statements Page Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 39 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019 40 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 41 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020 and 2019 42 Notes to Consolidated Financial Statements 43 38 SYNALLOY CORPORATION Consolidated Balance Sheets As of December 31, 2020 and 2019 (in thousands, except par value and share data) 2020 2019 Assets Current assets Cash and cash equivalents $ 236 $ 626 Accounts receivable, net 28,183 35,074 Inventories, net Raw materials 35,997 42,643 Work-in-process 20,304 17,354 Finished goods 28,779 38,189 Total inventories, net 85,080 98,186 Prepaid expenses and other current assets 13,384 13,229 Total current assets 126,883 147,115 Property, plant and equipment, net 35,096 40,690 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 455 348 Total assets $ 206,984 $ 257,197 Liabilities and Shareholders' equity Current liabilities Accounts payable $ 19,732 $ 21,150 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 Current portion of finance lease liabilities 19 253 Total current liabilities 31,050 40,578 Long-term debt 60,495 71,554 Long-term portion of earn-out liability 287 3,578 Long-term portion of operating lease liabilities 32,771 33,723 Long-term portion of finance lease liabilities 37 336 Deferred income taxes 1,957 790 Other long-term liabilities 92 127 Shareholders' equity Common stock, par value $ 1 per share - authorized 24,000,000 shares; 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 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 Commitments and contingencies – see Note 12 Total liabilities and shareholders' equity $ 206,984 $ 257,197 See accompanying notes to consolidated financial statements. 39 SYNALLOY CORPORATION Consolidated Statements of Operations and Comprehensive Loss For the years ended December 31, 2020 and 2019 (in thousands, except per share data) 2020 2019 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 ) Asset impairments 6,214 — Goodwill impairment 16,203 — Gain on lease modification ( 171 ) — Operating loss ( 31,067 ) ( 1,708 ) Other (income) and expense Interest expense 2,110 3,818 Change in fair value of interest rate swap 51 141 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: Basic 9,099 8,983 Diluted 9,099 8,983 See accompanying notes to consolidated financial statements. 40 SYNALLOY CORPORATION Consolidated Statement of Cash Flows For the years ended December 31, 2020 and 2019 (in thousands) 2020 2019 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 Amortization expense 3,028 3,486 Amortization of debt issuance costs 177 160 Asset impairments 6,214 — Goodwill impairment 16,203 — Unrealized gain on equity securities ( 208 ) ( 1,547 ) Deferred income taxes 1,167 ( 773 ) 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 ( 292 ) ( 448 ) Provision for (reduction of) losses on accounts receivable 890 ( 171 ) Provision for losses on inventories 271 1,617 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 ) Issuance of treasury stock for director fees 345 304 Stock-based compensation expense 1,791 2,091 Changes in operating assets and liabilities: Accounts receivable 5,552 9,696 Inventories 9,122 19,962 Other assets and liabilities ( 912 ) 179 Accounts payable ( 1,418 ) ( 5,323 ) Accrued expenses 86 ( 3,317 ) Accrued income taxes ( 4,877 ) ( 1,114 ) Net cash provided by operating activities 17,978 28,640 Investing activities Purchases of property, plant and equipment ( 3,748 ) ( 4,537 ) Proceeds from sale of property, plant and equipment 312 189 Purchases of equity securities — ( 544 ) Proceeds from sale of equity securities 4,430 1,092 Acquisitions — ( 21,895 ) Net cash provided by (used in) investing activities 994 ( 25,695 ) Financing activities Repayments on line of credit ( 10,184 ) ( 17,185 ) Borrowings from term loan — 20,000 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 deferred financing costs ( 284 ) — Proceeds from exercised stock options — 45 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 Cash and cash equivalents at end of year $ 236 $ 626 See accompanying notes to consolidated financial statements. 41 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. 42 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies Description of Business Synalloy Corporation (the "Company") was incorporated in Delaware in 1958 as the successor to a chemical manufacturing business founded in 1945. Its charter is perpetual. The name was changed on July 31, 1967 from Blackman Uhler Industries, Inc. The Company's executive office is located at 4510 Cox Road, Suite 201, Richmond, Virginia 23060. The Company's business is divided into two reportable operating segments, the Metals Segment and the Specialty Chemicals Segment. As of December 31, 2020, the Metals Segment operated as three reportable units including Welded Pipe & Tube Operations, a unit that includes Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI"), which began operations effective January 1, 2019 pursuant to our acquisition of substantially all of the assets of American Stainless Tubing, Inc. ("American Stainless") (see Note 15 to the consolidated financial statements), Palmer of Texas Tanks, Inc. ("Palmer"), and Specialty Pipe & Tube, Inc. ("Specialty"). 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. The Metals Segment is comprised of four subsidiaries: Synalloy Metals, Inc. which owns 100 percent of BRISMET, located in Bristol, Tennessee and Munhall, Pennsylvania; ASTI, located in Troutman and Statesville, North Carolina; Palmer, located in Andrews, Texas; and Specialty, located in Mineral Ridge, Ohio and Houston, Texas. The Specialty Chemicals Segment consists of two subsidiaries: MS&C which owns 100 percent of MC, located in Cleveland, Tennessee and CRI Tolling, located in Fountain Inn, South Carolina. 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 The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Accounts Receivable Accounts receivable from the sale of products are recorded at net realizable value and the Company generally grants credit to customers on an unsecured basis. Substantially all of the Company's accounts receivable are due from companies located throughout the United States. 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. Receivables are generally due within 30 to 60 days. Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer. 43 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Inventories Inventory is stated at the lower of cost or net realizable value. Cost is determined by either specific identification or weighted average methods. 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: • Estimated obsolete or unmarketable inventory. The Company identified inventory items with no sales activity for finished goods or no usage for raw materials for a certain period of time. 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 $ 0.2 million and $ 0.3 million as of December 31, 2020 and 2019, respectively. • Estimated quantity losses. The Company performs an annual physical count of inventory during the fourth quarter each year. 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 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 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. The costs of software licenses are amortized over five years using the straight-line method. The Company continually reviews the recoverability of the carrying value of long-lived assets. The Company also reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. When the future undiscounted cash flows of the operation to which the assets relate do not exceed the carrying value of the asset, the assets are written down to fair value. Business Combinations Acquisitions are accounted for using the acquisition method of accounting for business combinations. Under this method, the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. 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. 44 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. 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) 2021 2,721 2022 2,501 2023 1,050 2024 952 2025 855 Thereafter 3,347 Total 11,426 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. 45 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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 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. Substantially all of the Company's revenues are derived from contracts with customers where performance obligations are satisfied at a point-in-time. Our contracts with customers may include multiple performance obligations. For such arrangements, revenue for each performance obligation is based on its standalone selling price and revenue is recognized as each performance obligation is satisfied. The Company generally determines standalone selling prices based on the prices charged to customers using the adjusted market assessment approach or expected cost plus margin. 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 $ 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 $ 0.5 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 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. See Note 8 for disclosures related to stock-based compensation. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing accounts and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. 46 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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. Leases 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 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. 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 Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposits and trade accounts receivable. Recent accounting pronouncements Recently Issued Accounting Standards - Adopted 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. Additionally, the amount of goodwill allocated to a reporting unit with a zero or negative carrying amount of net assets should be disclosed. The adoption of this standard by the Company did not have a material impact on the 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. 47 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 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. Note 2: 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. December 31, (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. 48 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Note 3: Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs: Level 1 - Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date. Level 2 - Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by other observable market data. Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using model-based techniques, including option pricing models, discounted cash flow models, probability weighted models, and Monte Carlo simulations. The Company's financial instruments include cash and cash equivalents, accounts receivable, derivative instruments, accounts payable, earn-out liabilities, revolving line of credit and equity investments. Assets and Liabilities Measured at Fair Value on a Recurring Basis The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Level 1: Equity securities 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. Level 2: 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 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 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. Level 3: Contingent consideration (earn-out) liabilities 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 49 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 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 ( 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 Average 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 $ 9.7 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 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. 50 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). Contingent consideration (earn-out) liabilities During the second quarter of 2019, management revised the initial estimate of the fair value of the contingent consideration (earn-out) liability from the American Stainless acquisition, resulting in an increase to the earn-out liability of $ 0.2 million (see Note 15 to the consolidated financial statements for additional information regarding this fair value measurement). Fair Value of Financial Instruments For short-term instruments, other than those required to be reported at fair value on a recurring and non-recurring basis and for which 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, 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. 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, 2020 or 2019, respectively. Note 4: Property, Plant and Equipment Property, plant and equipment consist of the following: (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 for 2020 and 2019 . 51 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Note 5: Goodwill 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. 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 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. 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 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. 52 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. 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 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 Note 6: Long-term Debt (in thousands) 2020 2019 $ 100 million Revolving line of credit, due December 20, 2021 $ 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. ("BMO"). 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 53 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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 ). The Term Loan’s maturity date is February 1, 2024 and shall be repaid in 60 consecutive monthly installments. Interest on the Term Loan is calculated using the One Month LIBOR Rate (as defined in the Credit Agreement), plus 1.90 percent. The Line will be used for working capital needs and as a source for funding future acquisitions. 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. 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 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. As of December 31, 2020, the amount available for borrowing under the Line was $ 60.0 million of which $ 49.0 million was borrowed, leaving $ 11.0 million of availability. 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 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): 2021 (1) 53,037 2022 4,000 2023 4,000 2024 333 2025 — Thereafter — (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 54 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. Note 7: Accrued Expenses Accrued expenses consist of the following: (in thousands) 2020 2019 Salaries, wages, and commissions 3,776 2,972 Taxes, other than income taxes 133 406 Advances from customers 298 153 Insurance 702 578 Professional fees 272 265 Warranty reserve 233 11 Benefit plans 238 242 Insurance financing liability — 668 Current portion, capital lease obligation — 39 Interest rate swap liability 45 — Customer rebate liability 168 275 Other accrued items 258 428 Total accrued expenses $ 6,123 $ 6,037 Note 8: Stock-Based Compensation Overview of Stock-Based Compensation Plans The Company has a number of active equity incentive plans under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. A total of 500,000 shares have been previously authorized for grant to key employees and non-employee directors. 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 2011 Long-Term Incentive Stock Option Plan The 2011 Long-Term Incentive Stock Option Plan (the "2011 Plan") is an incentive stock option plan; therefore, there are no income tax consequences to the Company when an option is granted or exercised. The stock options will vest in 20 percent or 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. 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. 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 55 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: Weighted Average Exercise Price Options Outstanding Weighted Average Contractual Term (in years) Intrinsic Value of Options Options Available 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 $ — Options expected to vest: Grant Date Fair Value December 31, 2018 $ 15.83 9,969 6.0 $ 6.44 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 56 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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 $ 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. Restricted Stock Awards 2005 Stock Awards Plan The Compensation & Long-Term Incentive Committee ("Compensation Committee") of the Board of Directors of the Company approved stock grants under the Company's 2005 Stock Awards Plan to certain management employees of the Company. The stock grants will vest in 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant. In order for the grants to vest, the employee must be in the continuous employment of the Company since the date of the grant. Any portion of the grant that has not vested will be forfeited upon termination of employment. 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 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. Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment. The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the 2015 Stock Awards Plan. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. 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 57 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. 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. 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 50,000 shares with a market price of $ 5.65 per share were granted under the Plan. 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: Shares Weighted Average Grant Date Fair Value Outstanding December 31, 2018 142,174 $ 11.45 Granted February 6, 2019 44,949 $ 15.72 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 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 $ 1.0 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. Performance-Based Restricted Stock Awards The Company issues performance-based restricted stock classified as equity awards. Expense is recognized on a straight-line method over the requisite service period, based on the probability of achieving the performance condition, with changes in expectations recognized as an adjustment to earnings in the period of change. Compensation cost is not recognized for performance-based restricted stock awards that do not vest because service or performance conditions are not satisfied and any previously recognized compensation cost is reversed. Performance-based restricted stock awards do not have dividend rights. The Company recognized forfeitures as they occur. The Company's performance-based restricted stock awards are classified as equity and contain performance and service 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 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. 58 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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: Units (1) Weighted-Average Grant Date Fair Value Outstanding December 31, 2019 77,986 $ 13.66 Granted (2) 36,647 $ 13.00 Vested (3) ( 64,711 ) $ 13.21 Forfeited/Canceled ( 20,558 ) $ 13.73 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. 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 Each year, the Company allows each non-employee director to elect to receive up to 100 percent of the director's annual retainer in restricted stock. 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 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. 59 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Note 9: Income Taxes 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 assets and liabilities are as follows at the respective year ends: (in thousands) 2020 2019 Deferred income tax assets: Inventory valuation reserves 176 199 Inventory capitalization 1,120 1,696 Accrued bonus 328 497 State net operating loss carryforwards 1,669 1,835 Federal net operating loss carryforwards — 139 Equity security mark to market — 217 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 Federal & State valuation allowance ( 4,243 ) ( 1,700 ) Total net deferred income tax assets 11,073 13,027 Deferred income tax liabilities: Fixed asset basis differences 5,562 4,859 Prepaid expenses 276 296 Lease assets 7,067 8,537 Interest rate swap 68 77 Other 57 48 Total deferred income tax liabilities 13,030 13,817 Deferred income taxes $ ( 1,957 ) $ ( 790 ) Significant components of the provision for income taxes are as follows: (in thousands) 2020 2019 Current: Federal $ ( 6,024 ) $ ( 10 ) State 23 57 Total current ( 6,001 ) 47 Deferred: Federal 1,011 ( 833 ) State 284 59 Total deferred 1,295 ( 774 ) Total $ ( 4,706 ) $ ( 727 ) 60 SYNALLOY CORPORATION Notes to Consolidated Financial Statements The reconciliation of income tax computed at the U. S. federal statutory tax rates to income tax expense is: (in thousands) 2020 2019 Amount % Amount % Tax at U.S. statutory rates $ ( 6,714 ) 21.0 % $ ( 790 ) 21.0 % State income taxes, net of federal tax benefit 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 % Executive compensation limitation 280 ( 0.9 ) % 57 ( 1.5 ) % Other nondeductible expenses 35 ( 0.1 ) % 64 ( 1.7 ) % 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. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. 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. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in the provision for income taxes. The Company had no accruals for uncertain tax positions including interest and penalties at the end of 2020. 61 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Note 10: Benefit Plans and Collective Bargaining Agreements The Company has a 401(k) Employee Stock Ownership Plan (the "401(k)/ESOP Plan") covering all non-union employees. Employees could contribute to the 401(k)/ESOP Plan up to 100 percent of their wages 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 additional $ 6,500 per year for a maximum of $ 26,000 for 2020. Contributions by the employees are invested in one or more funds at the direction of the employee; however, employee contributions cannot be invested in Company stock. For the year ended December 31, 2015, contributions by the Company were made in cash and then used by the 401(k)/ESOP Plan Trustee to purchase Company stock. Effective January 1, 2016, contributions by the Company are made in accordance with the investment elections made by each participant for his or her deferral contributions. The Company contributes on behalf of each eligible participant a matching contribution equal to a percentage determined each year by the Board of Directors. For 2020 and 2019 the maximum was 100 percent of employee contributions up to a maximum of four percent of their eligible compensation. The matching contribution is applied to the employee accounts after each payroll. 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. No discretionary contributions were made to the 401(k)/ESOP Plan in 2020 or 2019. The Company also has a 401(k) and Profit Sharing Plan (the "Bristol Plan") covering all employees as part of the United Steel Workers of America, Local Union 4586 Collective Bargaining Agreement (the "Bristol CBA"). 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 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. Additional profit sharing amounts may also be contributed at the option of the Company's Board of Directors, which if made, would be allocated to participants based on the ratio of the participant's compensation to the total compensation of all participants eligible to participate in the Bristol Plan. No discretionary contributions were made to the Bristol Plan in 2020 or 2019. 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. The Munhall Plan has a calendar plan year. Per the most recent available annual funding notice, the plan was at least 84 percent funded for the plan year ended December 31, 2019. Per the terms of the Munhall CBA the Company contributes 4.25 percent of each participant's eligible compensation for the 2020 plan year. Munhall Union employees make no contributions to the Munhall Plan. 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; however they do not receive matching contributions of the 401(k)/ESOP Plan. The Company also maintains a Collective Bargaining Agreement ( the "Mineral Ridge CBA") with the United Steel Workers of America, Local Union 4564-07, which represents employees at the Specialty-Mineral Ridge facility. In connection with the Mineral Ridge CBA, the Company contributes to union-sponsored defined contribution retirement plans. Contributions relating to these plans were $ 29,851 and $ 28,469 for 2020 and 2019, respectively. Note 11: Leases 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 (“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. 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 62 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: Operating Leases 8.33 % Finance Leases 2.44 % 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, 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, 2020 Operating lease cost $ 4,124 Finance lease cost: Reduction in carrying amount of right-of-use assets 92 Interest on finance lease liabilities 24 Total lease cost $ 4,240 63 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 and comprehensive loss. Maturity of Leases The amounts of undiscounted future minimum lease payments under leases as of December 31, 2020 are as follows: (in thousands) Operating Finance 2021 $ 3,610 $ 20 2022 3,665 15 2023 3,699 15 2024 3,549 8 2025 3,619 — Thereafter 43,540 — Total undiscounted minimum future lease payments 61,682 58 Imputed Interest 28,044 2 Total lease liabilities $ 33,638 $ 56 Additional Information Weighted average remaining lease terms for operating and finance leases as of December 31, 2020 are as follows: 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. Note 12: 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. 64 SYNALLOY CORPORATION Notes to Consolidated Financial Statements Note 13: 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 Numerator: Net loss $ ( 27,267 ) $ ( 3,036 ) Denominator: Denominator for basic earnings per share - weighted average shares 9,099 8,983 Effect of dilutive securities: Employee stock options and stock grants — — Denominator for diluted earnings per share - weighted average shares 9,099 8,983 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 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. Note 14: Industry Segments The Company's business is divided into two operating segments: Metals and Specialty Chemicals. 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, 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). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Segment operating income is the segment's total revenue less operating expenses. Identifiable assets, all of which are located in the U.S., are those assets used in operations by each segment. Centralized data processing and accounting expenses are allocated to the two segments based upon estimates of their percentage of usage. Corporate assets consist principally of cash, certain investments and equipment. 65 The following table summarizes certain information regarding segments of the Company's operations: (in thousands) 2020 2019 Net sales Metals Segment $ 204,459 $ 251,078 Specialty Chemicals Segment 51,541 54,090 $ 256,000 $ 305,168 Operating (loss) income Metals Segment $ ( 24,599 ) $ 3,692 Specialty Chemicals Segment 4,033 2,811 ( 20,566 ) 6,503 Unallocated corporate expenses 7,917 8,357 Acquisition related costs 845 601 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 Change in fair value of interest rate swap 51 141 Other income, net ( 1,255 ) ( 1,904 ) Loss before income taxes $ ( 31,973 ) $ ( 3,763 ) Identifiable assets Metals Segment $ 141,799 $ 186,758 Specialty Chemicals Segment 25,039 25,428 Corporate 40,146 45,011 $ 206,984 $ 257,197 Depreciation and amortization Metals Segment $ 8,883 $ 9,439 Specialty Chemicals Segment 1,552 1,461 Corporate 165 164 $ 10,600 $ 11,064 Capital expenditures Metals Segment $ 1,761 $ 2,812 Specialty Chemicals Segment 866 1,157 Corporate 1,121 568 $ 3,748 $ 4,537 Sales by product group 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 $ 256,000 $ 305,168 Geographic sales United States $ 248,470 $ 297,808 Elsewhere 7,530 7,360 $ 256,000 $ 305,168 66 Note 15: Acquisitions Acquisition of the Assets and Operations of American Stainless Tubing, Inc. 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. The Company funded the acquisition with a new five-year $ 20 million term note and a draw against asset-based line of credit (see Note 6 ). The transaction is accounted for using the acquisition method of accounting for business combinations. Under this method, the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. 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 and liabilities assumed. During the third quarter of 2019, the Company finalized the purchase price allocation for the American Stainless acquisition. The excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets is reflected as goodwill. Goodwill consists of manufacturing cost synergies expected from combining American Stainless' production capabilities with the Metals Segment current operations. All of the goodwill recognized was assigned to the Company's Metals Segment. 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 Revisions Final Inventories $ 5,564 $ — $ 5,564 Accounts receivable 3,534 — 3,534 Other current assets - production and maintenance supplies 605 — 605 Property, plant and equipment 2,793 — 2,793 Customer list intangible 10,000 ( 496 ) 9,504 Goodwill 7,044 714 7,758 Contingent consideration (earn-out liability) ( 6,148 ) ( 218 ) ( 6,366 ) Accounts payable ( 1,400 ) — ( 1,400 ) Other liabilities ( 97 ) — ( 97 ) $ 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. Note 16: 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 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, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. 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. 67 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. Dividends 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 2020 and 2019, no dividends were declared or paid by the Company. Note 17: 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. Note 18: Subsequent Events 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 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. Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment. The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the 2015 Stock Awards Plan. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. 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. 68 SYNALLOY CORPORATION Notes to Consolidated Financial Statements 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. 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.