What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-29 compared with 2021-03-09 · 690 added, 550 removed, 505 unchanged (71% of the section changed)

1 unchanged sentence

Index to Financial Statements

Financial Statements Page

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

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

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Richmond, VA ;

Report of Independent Registered Public Accounting Firm ( KPMG, LLP ;

Richmond, VA ;

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

1 unchanged sentence

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies

Revenue Recognition

Fair Value Measurements

Property, Plant and Equipment

Long-term Debt

Accrued Expenses

Shareholders' Equity

Accounting for Share-Based Payments

Earnings (Loss) Per Share

Industry Segments

Benefit Plans and Collective Bargaining Agreements

Commitments and Contingencies

Proxy Contest Costs and Recoveries

Related Party Transactions

Subsequent Events

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Synalloy Corporation

Richmond, Virginia

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Synalloy Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes and schedules (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2020 consolidated financial statements described in Note 9 and 12 to the consolidated financial statements to retrospectively apply the change in presentation of earnings per share for a deemed stock dividend related to a rights offering.

In our opinion, such retrospective adjustments are appropriate and have been properly applied.

However, we were not engaged to audit, review, or apply any procedures to the 2020 financial statements of the Company other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2020 financial statements taken as a whole.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Combination

As described in Notes 1 and 2 of the consolidated financial statements, the Company completed its acquisition of DanChem Technologies, Inc on October 22, 2021, for a preliminary purchase price of $34.1 million.

As a result of the acquisition, management was required to estimate the preliminary fair values of the assets acquired, including certain identifiable intangible and tangible assets, and liabilities assumed.

Estimates and assumptions that the Company made in estimating the preliminary fair value of the customer relationship and the machinery, fixtures, and equipment required use of estimates and judgments.

We identified the determination of the preliminary fair values of the customer relationships and machinery, fixtures, and equipment assets, as a critical audit matter.

The principal considerations for our determination included the following:

(i) significant unobservable inputs and assumptions utilized by management in determining the fair value of customer relationships, including future revenue growth, customer attrition rate, and the weighted average cost of capital;

and (ii) significant estimates and assumptions to determine the estimated fair value of the machinery, fixtures, and equipment by considering the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence.

Auditing these elements involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Assessing the reasonableness of significant underlying assumptions used to calculate the preliminary fair value of customer relationships through (i) evaluating the earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin utilizing the historical performance of the acquired entity, (ii) evaluating the reasonableness of the revenue growth rate utilizing historical performance of the acquired entity and external and industry data, and (iii) evaluating the reasonableness of customer attrition including testing and validating the underlying data utilized in estimating future customer attrition and considering the potential effect of changes in the assumption on future cash flows.

• Testing and validating the existence of machinery, fixtures, and equipment assets.

• Utilizing professionals with specialized knowledge and skill in valuation to assist in (i) evaluating the qualifications of the valuation specialists used by management, (ii) evaluating the valuation methodology applied by management to estimate the preliminary fair value of customer relationships, (iii) testing specific assumptions including the weighted average cost of capital, (iv) evaluating the valuation methodology applied by management to estimate the preliminary fair value of the machinery, fixtures, and equipment, (v) comparing the asset categories selected by management to the asset descriptions in the fixed asset listing, (vi) independently recalculating the estimated current reproduction cost new (“CRN”) of certain assets in the fixed asset listing, and (vii) independently recalculating the estimated CRN, less depreciation of certain assets in the fixed asset listing, to account for physical deterioration, functional obsolescence, and economic obsolescence.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2021.

Richmond, Virginia

March 29, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Synalloy Corporation:

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the retrospective application of the 2021 Rights Offering described in Note 9 and Note 12 (the earnings per share retrospective adjustment), the consolidated balance sheet of Synalloy Corporation and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the year then ended, and the related notes and financial statement Schedule II (collectively, the consolidated financial statements).

The 2020 consolidated financial statements before the effects of the earnings per share retrospective adjustment are not presented herein.

In our opinion, except for the effects of the earnings per share retrospective adjustment, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the earnings per share retrospective adjustment, accordingly, we do not express an opinion or any other form of assurance about whether such adjustment is appropriate and has been properly applied.

This adjustment was audited by other auditors.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG, LLP

We served as the Company's auditor from 2015 to 2021.

Richmond, Virginia

March 9, 2021

SYNALLOY CORPORATION

Consolidated Balance Sheets

11 unchanged sentences

Prepaid expenses and other current assets 3,728 13,384

Assets held for sale 855 —

Total current assets 159,979 126,883

4 unchanged sentences

Deferred charges, net 302 455

Other non-current assets 4,171 —

Total assets $ 266,002 $ 206,984

2 unchanged sentences

Accounts payable $ 32,318 $ 19,732

Accounts payable - related parties 2 —

Accrued expenses and other current liabilities 12,407 6,123

10 unchanged sentences

Other long-term liabilities 89 92

Total liabilities 154,412 126,689

Commitments and contingencies – see Note 15

Shareholders' equity:

Common stock, par value $ 1 per share - authorized 24,000,000 shares;

issued 10,300,000 shares

Common stock - $ 1 par value:

Authorized 24,000,000 shares;

issued 11,085,103 and 10,300,000 shares, respectively

11,085 10,300

3 unchanged sentences

Less cost of common stock in treasury - 918,471 and 1,123,319 shares, respectively

10,559 11,748

Total shareholders' equity 111,590 80,295

Commitments and contingencies – see Note 12

Total liabilities and shareholders' equity $ 266,002 $ 206,984

1 unchanged sentence

SYNALLOY CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations

For the years ended December 31, 2021 and 2020

4 unchanged sentences

Selling, general and administrative expense 30,144 28,718

Acquisition related costs 845 601

Proxy contest costs 3,105 —

Acquisition costs and other 1,001 845

Proxy contest costs and recoveries 168 3,105

Earn-out adjustments 1,872 ( 1,195 )

Asset impairments 6,214 —

Asset impairment 233 6,214

Goodwill impairment — 16,203

Gain on lease modification — ( 171 )

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

Operating income (loss) 27,348 ( 31,067 )

Other (income) and expense

Interest expense 1,486 2,110

Loss on extinguishment of debt 223 —

Change in fair value of interest rate swap ( 2 ) 51

Other, net 143 ( 1,255 )

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:

Income (loss) before income taxes 25,498 ( 31,973 )

Income tax provision (benefit) 5,253 ( 4,706 )

Net income (loss) $ 20,245 $ ( 27,267 )

Net income (loss) per common share:

Basic $ 2.17 $ ( 2.98 )

5 unchanged sentences

SYNALLOY CORPORATION

Consolidated Statement of Cash Flows

Consolidated Statements of Cash Flows

For the years ended December 31, 2021 and 2020

(in thousands)

Operating activities

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

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

Cash flows from operating activities:

Net income (loss) $ 20,245 $ ( 27,267 )

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

Depreciation expense 7,547 7,572

1 unchanged sentence

Amortization of debt issuance costs 95 177

Asset impairments 6,214 —

Asset impairment 233 6,214

Goodwill impairment — 16,203

Loss on extinguishment of debt 223 —

Unrealized gain on equity securities — ( 208 )

1 unchanged sentence

Proceeds from business interruption insurance — 1,040

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

Loss on sale of equity securities — 38

Earn-out adjustments 1,872 ( 1,195 )

1 unchanged sentence

( 138 ) ( 292 )

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

(Reduction of) provision for losses on accounts receivable ( 398 ) 890

Provision for losses on inventories 1,649 271

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

(Gain) loss on disposal of property, plant and equipment ( 848 ) 237

Non-cash lease expense 481 510

2 unchanged sentences

Change in fair value of interest rate swap ( 2 ) 51

Payments for termination of interest rate swap ( 46 ) —

Issuance of treasury stock for director fees 132 345

Stock-based compensation expense 1,791 2,091

Share-based compensation expense 799 1,791

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable 10,835 ( 1,418 )

Accounts payable - related parties 2 —

Accrued expenses 1,506 86

1 unchanged sentence

Net cash provided by operating activities 19,055 17,978

Investing activities

Cash flows from investing activities:

Purchases of property, plant and equipment ( 1,497 ) ( 3,748 )

Proceeds from sale of property, plant and equipment 312 189

Purchases of equity securities — ( 544 )

Proceeds from disposal of property, plant and equipment 1,400 312

Proceeds from sale of equity securities — 4,430

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

Acquisitions, net of cash acquired

Net cash (used in) provided by investing activities ( 32,661 ) 994

Cash flows from financing activities:

Borrowings from long-term debt 215,528 —

Proceeds from the issuance of common stock related to Rights Offering 10,010 —

Proceeds from exercise of stock options 109 —

Payments on long-term debt ( 206,505 ) ( 4,000 )

Payments on BB&T line of credit — ( 10,184 )

Principal payments on finance lease obligations ( 92 ) ( 109 )

1 unchanged sentence

Payments on earn-out liabilities ( 3,494 ) ( 3,946 )

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 )

Payments of deferred financing costs ( 165 ) ( 284 )

Net cash provided by (used in) financing activities 15,391 ( 19,362 )

Increase (Decrease) in cash and cash equivalents 1,785 ( 390 )

Cash and cash equivalents at beginning of year 236 626

6 unchanged sentences

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

Par Value Retained Earnings Cost of Common Stock in Treasury Total

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

3 unchanged sentences

— ( 1,479 ) — 1,824 345

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

Share-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

Net income — — 20,245 — 20,245

Issuance of 785,103 shares of common stock - Rights Offering

785 9,225 — — 10,010

Issuance of 191,673 shares of common stock from treasury

— ( 1,670 ) — 1,802 132

Exercise of stock options for 13,174 shares, net

— ( 15 ) — 124 109

Share-based compensation — 799 — — 799

Balance December 31, 2021 $ 11,085 $ 46,058 $ 63,080 $ ( 8,633 ) $ 111,590

See accompanying notes to consolidated financial statements.

3 unchanged sentences

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.

3 unchanged sentences

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.

As of December 31, 2021, the Metals Segment operates as three reporting units that include Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI") (collectively "Welded Pipe & Tube"), 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.

As discussed in Note 4 , on February 17, 2021 the Board of Directors authorized the permanent cessation of operations at Palmer and the subleasing of the Palmer facility.

As of December 31, 2021, the Company permanently ceased operations and is in the process of divesting all remaining assets at the facility.

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"), CRI Tolling, LLC ("CRI") and DanChem Technologies, Inc.

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

All significant intercompany accounts and transactions have been eliminated.

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.

Impacts of COVID-19 - During the year ended December 31, 2021, aspects of the Company's business continued to be affected by macroeconomic factors related to the COVID-19 pandemic, including production in our plants and within our supply chain.

The nature of the situation is dynamic and the full extent of any future impacts of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside of the Company's control.

Immaterial Out of Period Adjustment - During the fourth quarter of fiscal 2021, the Company identified certain immaterial adjustments in the accounting for inventory and related effect on income taxes that impacted the Company’s quarterly and annual financial statements previously issued .

T herefore, the Company recorded an out of period adjustment which increased cost of sales by $ 2.2 million and decreased inventory by $ 2.2 million resulting in a decrease to operating income and income before income taxes of $ 2.2 million, a decrease to income tax provision of $ 0.5 million and a decrease to net income of $ 1.7 million.

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.

The Company maintains cash levels in bank accounts that, at times, may exceed federally-insured limits.

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.

5 unchanged sentences

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

The Company had an allowance for credit losses of $ 0.2 million and $ 0.5 million at December 31, 2021 and 2020, respectively.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

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

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

1 unchanged sentence

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.

3 unchanged sentences

During the years ended December 31, 2021 and 2020, respectively, no material LCNRV adjustments were required by our Metals Segment other than those at our storage tank facility.

During the year ended December 31, 2020, adjustments of $ 3.8 million to inventory cost were required 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.

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.

• 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% of the inventory cost less any estimated scrap proceeds.

The Company reserved $ 1.1 million and $ 0.2 million as of December 31, 2021 and 2020, respectively.

• Estimated quantity losses.

The Company performs an annual physical count of inventory during the fourth quarter each year.

• 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.

1 unchanged sentence

The Company had $ 0.2 million and $ 0.5 million reserved for physical inventory quantity losses as of December 31, 2021 and 2020, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost.

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.

Substantially all depreciation is recorded within cost of goods sold on the consolidated statement of operations.

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.

3 unchanged sentences

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.

Business Combinations - Business combinations are accounted for using the acquisition method of accounting.

Under this method, the total consideration transferred to consummate the business combination 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 transaction.

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.

See Not e 2 for further discussion on the Company's acquisition of DanChem in 2021.

Goodwill - Goodwill is the excess of the purchase price over the fair value of identifiable assets acquired, less fair value of liabilities assumed, in a business combination.

The Company reviews goodwill for impairment at the reporting unit level, which is the operating segment level or one level below the operating segment level.

Goodwill is not amortized but is evaluated for impairment at least annually on October 1 or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

The evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary.

If, after assessing qualitative factors, we determine it is more

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.

likely than not that the fair value of the reporting unit is less than the carrying amount, then the quantitative goodwill impairment test is performed.

The quantitative goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying amount, including goodwill.

Fair value represents the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on a combination of an income approach, based on discounted future cash flows, and a market approach, based on market multiples applied to free cash flow.

If the fair value exceeds the carrying value, then no goodwill impairment has occurred.

If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Any impairment identified is included within "goodwill impairment" in the consolidated statement of operations.

A reporting unit is an operating segment or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management.

During 2021, goodwill was allocated to the Specialty Chemicals Segment.

During 2020, goodwill was allocated to the Welded Pipe and Tube reporting unit and the Specialty Chemicals Segment.

The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 were as follows:

(in thousands) Specialty Chemicals Segment Metals

Segment Total

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

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

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

Acquisitions 11,282 — 11,282

Balance December 31, 2021 $ 12,637 $ — $ 12,637

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 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 existed.

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

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

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

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

Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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.

We conducted our annual impairment test of the Specialty Chemicals Segment as of October 1, 2021.

The Company performed a discounted cash flow analysis and a market multiple analysis for the Specialty Chemicals Segment.

The discounted cash flow analysis included management assumptions for expected sales growth, capital expenditures and overall operational forecasts.

the market multiple analysis included historical and projected performance, market capitalization, volatility and multiples for industry peers.

As of December 31, 2021, we determined that no impairment of the carrying value of goodwill for this reporting unit was required.

Intangible Assets - Intangible assets consists primarily of customer relationships and represents 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.

Amortization expense is recorded in selling, general and administrative expense on the consolidated statement of operations.

The weighted average amortization period for the customer relationships is approximately 12 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 $ 28.9 million and $ 30.9 million as of December 31, 2021 and 2020, respectively.

3 unchanged sentences

Thereafter 6,350

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.

Total $ 14,382

The Company recorded amortization expense related to intangible assets of $ 2.8 million and $ 3.0 million for 2021 and 2020.

respectively.

Deferred Charges - Deferred charges represent debt issuance costs and are amortized over their estimated useful lives using the straight-line method over a period of four years and is recorded in interest expense on the consolidated statement of operations.

On January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement (the "Credit Agreement") with BMO Harris Bank, N.A ("BMO") providing the Company with a new four-year revolving credit facility and replacing the Company's previous asset based revolving line of credit and term loan with Truist Bank ("Truist").

The Company accounted for this refinance as a debt extinguishment and, as a result, $ 0.2 million of unamortized debt issuance costs associated with the Company's previously existing bank debt were written off as a loss on extinguishment of debt during the year ended December 31, 2021.

Deferred charges totaled $ 0.4 million and $ 0.8 million as of December 31, 2021 and 2020, respectively.

Accumulated amortization of deferred charges as of December 31, 2021 and 2020 totaled $ 0.1 million and $ 0.3 million, respectively.

The Company recorded amortization expense related to deferred charges of $ 0.1 million for 2021.

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.

Long-lived assets that are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified as long-lived assets held-for-sale.

An impairment loss is recorded for long-lived assets held-for-sale when the carrying amount of the asset exceeds its fair value less cost to sell.

A long-lived asset is not depreciated while its classified as held-for-sale.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

2 unchanged sentences

Fair value measurements associated with long-lived asset impairments are included in Note 4 to the consolidated financial statements.

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.

Earn-Out Liabilities - In connection with the 2019 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 %) of ASTI’s revenue over the three-year earn-out period.

These quarterly earn-out payments end in 2022.

In connection with the 2018 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.

These quarterly earn-out payments end in 2022.

In connection with the 2017 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).

These quarterly earn-out payments ended in 2021.

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 4 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.

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.

3 unchanged sentences

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

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

Shipping Costs

Shipping costs of approximately $ 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 are accounted for under the asset and liability method.

See Note 3 for additional information on the Company's revenue.

Shipping Costs - Shipping costs are treated as fulfillment activities at the time control and title of the promised good and services rendered are transferred to the customer.

Shipping costs of approximately $ 9.4 million and $ 8.0 million in 2021 and 2020, respectively, are recorded in cost of goods sold on the consolidated statement of operations.

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

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

See Note 10 for additional information on the Company's accounting for share-based payments.

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.

4 unchanged sentences

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

Earnings Per Share - 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

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.

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.

equal to the present value of the fixed lease payments over the lease term.

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.

The Company does not separate lease and non-lease components for its underlying assets.

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

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value;

however, the Company's leases generally do not provide a readily determinable implicit rate.

When the implicit rate is not determinable, the Company's estimated incremental borrowing rate is utilized, determined on a fully collateralized and fully amortizing basis, to discount lease payments based on information available at lease commencement.

The Company determines the appropriate incremental borrowing rate 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.

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

2 unchanged sentences

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

Operating leases are included in ROU assets, current portion of operating lease liabilities and long-term portion of operating lease liabilities on the accompanying consolidated balance sheets.

Finance leases are included in property, plant and equipment, current portion of finance lease liabilities and long-term portion of finance lease liabilities.

See Note 7 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.

The Company subleases portions of certain properties that are not used in its operations.

Sublease income was not significant for any periods presented.

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.

The Specialty Chemicals Segment has one customer that accounted for approximately 15 % of the segment's revenues for 2021.

Accounting Pronouncement Recently Adopted - On January 1, 2020, the Company adopted ASU No.

2018-13 Fair Value Measurement (Topic 820):

18 unchanged sentences

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.

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

SYNALLOY CORPORATION

4 unchanged sentences

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.

Accounting Pronouncements Not Yet Adopted - In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 "Reference Rate Reform (Topic 848):

Facilitation of Effects of Reference Rate Reform on Financial Reporting." The ASU, and subsequent clarifications, provide practical expedients for contract modification accounting related to the transition away from the London Interbank Offered Rate (LIBOR) and other interbank offering rates to alternative reference rates.

The expedients are applicable to contract modifications made and hedging relationships entered into on or before December 31, 2022.

The Company intends to use the expedients where needed for reference rate transition.

The Company continues to evaluate this standard update and does not currently expect a material impact to the Company’s financial statements or disclosures.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Acquisition of DanChem Technologies, Inc.

On October 22, 2021, the Company completed the acquisition of all of the issued and outstanding shares of common stock of DanChem, a contract manufacturer of chemical products located in Danville, Virginia.

The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805 - "Business Combinations".

The preliminary purchase price was $ 34.1 million including $ 1.5 million in cash obtained through the acquisition.

The purchase price was paid in cash and funded through a drawdown of $ 34.5 million on the Company’s existing revolving credit facility.

Amounts outstanding under the revolving line of credit portion of the facility currently bear interest, at the Company's option, at (a) the Base Rate (as defined in the Credit Agreement) plus 0.50 %, or (b) LIBOR plus 1.50 %.

See Note 6 for more information on the Company's long-term debt.

The table below summarizes the preliminary estimates of fair value of identifiable assets acquired and liabilities assumed in the Acquisition.

These preliminary estimates of the fair value are subject to revisions, which may result in an adjustment to the preliminary values presented below.

(in thousands) October 22, 2021

Cash and cash equivalents $ 1,533

Accounts receivable, net of allowance for credit losses 5,358

Inventories 1,561

Prepaid expenses and other current assets 454

Property, plant and equipment 15,697

Right of use asset, operating leases 208

Intangible assets 5,750

Total identifiable assets acquired 30,561

Accounts payable 1,751

Accrued expenses and other current liabilities 1,622

Current portion of operating lease liabilities 51

Current portion of finance lease liabilities 215

Deferred income taxes 2,542

Long-term portion of operating lease liabilities 157

Long-term portion of finance lease liabilities 1,408

Total identifiable liabilities assumed 7,746

Net identifiable assets acquired 22,815

Transaction price 34,097

Goodwill $ 11,282

The Company is in various phases of valuing the assets acquired and liabilities assumed, including deferred tax balances, and the Company's estimate of these values was still preliminary on December 31, 2021.

Therefore, these provisional amounts are subject to change as the Company continues to evaluate information required to complete the valuations throughout the measurement period, which will not exceed one year from the acquisition date.

Goodwill is calculated as the excess of the purchase price over the fair value of t he net assets acquired.

The recognized goodwill is attributable to operational synergies, assembled workforce and growth opportunities and was allocated to the Company's Specialty Chemicals Segment .

Substantially all of the goodwill resulting from this acquisition is not expected to be deductible for tax purposes.

Approximately $ 1.0 million of one-time, acquisition-related costs, is recognized in acquisition costs and other expenses in the consolidated statement of operations as of December 31, 2021 .

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

The Company identified DanChem’s customer relationships, product development know-how, and tradename as finite-lived assets with estimated fair values as of the acquisition date of $ 5.1 million, $ 0.5 million, and $ 0.2 million, respectively.

The finite-lived assets are subject to amortization using the straight-line method over 15 years.

Total net sales and operating income for DanChem for the period from October 22, 2021 through December 31, 2021 were as follows:

(in thousands) Period from

10/22/2021 - 12/31/2021

Net sales $ 5,692

Operating income $ 621

Pro Forma Financial Information

The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the acquisition of DanChem as if it had occurred on January 1, 2020:

(unaudited) Year Ended December 31,

(in thousands, except per share data) 2021 2020

Net sales $ 358,735 $ 282,365

Net income (loss) 21,681 ( 26,468 )

Basic net income (loss) per common share 2.32 ( 2.90 )

Diluted net income (loss) per common share $ 2.29 $ ( 2.90 )

These unaudited pro forma results include adjustments, such as property, plant and equipment step-up, amortization of acquired intangible assets and interest expense on debt financing in connection with the acquisition.

The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the acquisition date, including, but not limited to, the anticipated realization of operating synergies in subsequent periods.

These results do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

Revenue Recognition

Revenue is generated primarily from contracts to produce, ship and deliver steel and specialty chemical products.

The Company’s performance obligations are satisfied and revenue is recognized when control and title of the contract promised goods or services is transferred to our cus tomers for product shipped or services rendered.

Revenues are recorded net of any sales incentives and discounts.

Sales tax and other taxes we collect with revenue-producing activities are excluded from revenue.

Shipping costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer.

Costs related to obtaining sales contracts are incidental and are expensed when incurred.

Because customers are invoiced at the time title transfers and the Company’s right to consideration is unconditional at that time, the Company does not maintain contract asset balances.

Additionally, the Company does not maintain material contract liability balances, as performance obligations for substantially all contracts are satisfied prior to customer payment for product.

The Company offers industry standard payment terms.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

1 unchanged sentence

(in thousands) 2021 2020

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 $ 1,343 $ 5,503

Heavy wall seamless carbon steel pipe and tube 40,539 23,670

Stainless steel pipe and tube 186,651 154,974

Galvanized pipe and tube 38,705 20,312

Specialty chemicals 67,477 51,541

Net sales $ 334,715 $ 256,000

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations.

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

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Fair Value of Financial Instruments

Fair Value Measurements

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.

8 unchanged sentences

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

2 unchanged sentences

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.

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.

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.

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

adjusts to reflect the updated fair values.

The fair value as of December 31, 2021 of 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 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.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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 2021 and 2020:

1 unchanged sentence

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

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

Earn-out payments during period

15 unchanged sentences

Timing of estimated payouts 2022 -

Future revenue projections $ 4.7 M - 12.7 M

Future revenue projections $ 9.1 M

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

1 unchanged sentence

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.

For the fiscal years ended December 31, 2021 and 2020, the Company's only significant measurements of assets and liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets and goodwill (see Note 1 to the consolidated financial statements for additional information regarding this Level 3 fair value measurement).

Long-lived assets

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

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

The Company assesses 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.

1 unchanged sentence

The Company classifies these fair value measurements as Level 3.

During 2021, the Company determined that technology associated with certain long-lived assets within the Specialty Chemicals Segment was obsolete and, as a result, recognized a $ 0.2 million non-cash, pre-tax asset impairment charge.

SYNALLOY CORPORATION

1 unchanged sentence

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.

Assets Held-for-Sale

On February 17, 2021 the Board of Directors authorized the permanent cessation of operations at Palmer and the subleasing of the Palmer facility.

During the three months ended December 31, 2021 the Company permanently ceased operations at the Palmer facility and is in the process of divesting all remaining assets at the facility.

The Company determined that the remaining asset group is ready for immediate sale, completion of sale is probable within the next year, and no significant changes to the plan to sell are expected to occur.

As of December 31, 2021, the Company determined that the held-for-sale criteria were met and initially measured the remaining assets at the lower of carrying value or fair value less costs to sell.

The Company uses observable inputs, such as prices of comparable assets in active markets to determine the fair value of the remaining assets.

The Company classifies these fair value measurements as Level 2.

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).

The assets classified as held for sale as of December 31, 2021 are as follows:

(in thousands) 2021

Inventory, net $ 617

Property, plant and equipment, net 238

Assets held for sale $ 855

The Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the lease of the facility through 2036.

During the fourth quarter of 2021 the Company entered into a sublease for a portion of the Palmer facility and is actively pursuing a sublease for the remaining portions of the facility.

The Company will continue to dispose of the remaining assets through the first quarter of 2022.

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.

Therefore, as of December 31, 2021 and 2020, the carrying amount for cash and cash equivalents, accounts receivable, accounts payable, the Company's revolving line of credit and long-term debt, 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, 2021 or 2020, respectively.

8 unchanged sentences

117,444 106,150

Less accumulated depreciation 71,054 64,807

Less accumulated depreciation and amortization ( 73,724 ) ( 71,054 )

Property, plant and equipment, net $ 43,720 $ 35,096

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

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

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

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

Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

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.

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

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

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

Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

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

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.

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

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

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

Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

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

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

The Company recorded depreciation expense of $ 7.5 million and $ 7.6 million for 2021 and 2020, respectively .

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

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

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

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

Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions.

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

As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Specialty Chemicals Segment was greater than its carrying value by 7.4 % and, as such, no goodwill impairment was necessary.

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

(in thousands) Specialty Chemicals Segment Metals Segment Total

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

American Stainless Acquisition — 7,758 $ 7,758

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

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

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

Long-term Debt

Credit Facilities

(in thousands) 2021 2020

$ 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

Revolving line of credit, due January 15, 2025 $ 65,571 $ —

Term loan, due January 15, 2025 4,821 —

Revolving line of credit, due December 20, 2021 — 49,037

Term loan, due February 1, 2024 — 12,333

Total long-term debt 70,392 61,370

Debt Refinancing:

Current portion of long-term debt ( 2,464 ) ( 875 )

Long-term debt, less current portion $ 67,928 $ 60,495

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

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

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

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

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

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

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

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

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

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

The initial borrowing capacity under the Facility totals $ 110.0 million consisting of a $ 105.0 million revolving line of credit and a $ 5.0 million delayed draw term loan.

The revolving line of credit includes a $ 17.5 million machinery and equipment sub-limit which requires quarterly payments of $ 0.4 million with a balloon payment due upon maturity of the Facility in January 2025.

The term loan requires quarterly payments of $ 0.2 million with a balloon payment due upon maturity of Facility in January 2025.

We have pledged all of our accounts receivable, inventory, and certain machinery and equipment as collateral for the Credit Agreement.

Availability under the Credit Agreement is subject to the amount of eligible collateral as determined by the lenders' borrowing base calculations.

Amounts outstanding under the revolving line of credit portion of the Facility currently bear interest, at the Company's option, at (a) the Base Rate (as defined in the Credit Agreement) plus 0.50 %, or (b) LIBOR plus 1.50 %.

Amounts outstanding under the delayed draw term loan portion of the Facility bear interest at LIBOR plus 1.65 %.

The Facility also provides an unused commitment fee based on the daily used portion of the Facility.

The revolving line of credit interest rate was 2.29 % and 1.81 % as of December 31, 2021 and 2020, respectively.

Average borrowings under the revolving line of credit during 2021 and 2020 were $ 61.9 million and $ 60.3 million with a weighted average interest rate of 2.23 % and 3.50 %, respectively.

The term loan interest rate was 1.90 % and 2.06 % as of December 31, 2021 and 2020, respectively.

The Company made interest payments on all credit facilities of $ 1.4 million and 2.0 million in 2021 and 2020, respectively.

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

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

The Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $ 7.5 million and (ii) 10 % of the revolving credit facility (currently $ 10.5 million).

As of December 31, 2021, the Company was in compliance with all debt covenants.

As of December 31, 2021, the Company had $ 39.4 million of remaining availability under it credit facility.

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):

(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

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 American Stainless acquisition in 2019 as well as the sale of land at the Munhall facility in 2020.

As of December 31, 2021, operating lease liabilities related to the master lease agreement with Store Capital totaled $ 32.2 million, or 98 % of the total lease liabilities on the consolidated balance sheet.

On August 30, 2021, the Company entered into a thirty-eight month operating lease agreement for office space with an entity affiliated with the Company's Interim President and Chief Executive Officer.

Pursuant to the terms of the lease agreement, the Company will pay a base rent in the first year of the agreement of $ 5,364 monthly with an annual increase in October each year of 2.5 % through the term of the agreement.

As discussed in Note 2 , on October 22, 2021, the Company completed the DanChem acquisition.

As part of the acquisition, the Company assumed certain operating and finance leases which were recorded net of preliminary purchase price accounting adjustments.

As of December 31, 2021, the balances associated with these leases in the consolidated balance sheet include operating lease assets and liabilities of $ 0.2 million and finance lease assets and liabilities of $ 1.6 million.

During the year ended December 31, 2021, the Company had $ 0.3 million of right-of-use assets recognized in exchange for new operating lease liabilities.

Balance Sheet Presentation

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

Year Ended December 31,

Classification Financial Statement Line Item 2021 2020

Operating lease assets Right-of-use assets, operating leases $ 30,811 $ 31,769

Finance lease assets Property, plant and equipment, net 1,640 56

Current liabilities Current portion of lease liabilities, operating leases 1,104 867

Current liabilities Current portion of lease liabilities, finance leases 233 19

Non-current liabilities Non-current portion of lease liabilities, operating leases 32,059 32,771

Non-current liabilities Non-current portion of lease liabilities, finance leases $ 1,414 $ 37

Total Lease Cost

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

Year Ended December 31,

(in thousands) 2021 2020

Operating lease cost 1

$ 4,099 $ 4,124

Finance lease cost:

Reduction in carrying amount of right-of-use assets 100 92

Interest on finance lease liabilities 11 24

Total lease cost $ 4,210 $ 4,240

1 Includes short term leases and sublease income, which is immaterial

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.

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.

Maturity of Leases

The amounts of undiscounted future minimum lease payments under leases as of December 31, 2021 are as follows:

(in thousands) Operating Finance

2022 $ 3,782 $ 269

2023 3,818 260

2024 3,658 246

2025 3,677 233

2026 3,683 233

Thereafter 39,865 543

Total undiscounted minimum future lease payments 58,483 1,784

Imputed Interest ( 25,320 ) ( 137 )

Total lease liabilities $ 33,163 $ 1,647

Lease Term and Discount Rate

Year Ended December 31,

Weighted-average discount rate

Operating leases 8.30 % 8.33 %

Finance leases 2.27 % 2.44 %

Weighted-average remaining lease term

Operating leases 14.43 years 15.47 years

Finance leases 7.07 years 2.91 years

Accrued Expenses

2 unchanged sentences

Salaries, wages, and commissions $ 5,052 $ 3,776

Income taxes 3,212 —

Taxes, other than income taxes 889 133

4 unchanged sentences

Benefit plans 333 238

Insurance financing liability — 668

Current portion, capital lease obligation — 39

Interest rate swap liability — 45

2 unchanged sentences

Total accrued expenses $ 12,407 $ 6,123

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.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Shareholders' Equity

Share Repurchase Program

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

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

The share 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, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted.

As of December 31, 2021, the Company has 790,383 shares of its share repurchase authorization remaining.

Shares repurchased for the year ended December 31, 2021 and 2020 were as follows:

Year Ended December 31,

Number of shares repurchased — 59,617

Average price per share $ — $ 10.65

Total cost of shares repurchased $ — $ 636,940

Rights Offering

On November 16, 2021, the Company announced its Board of Directors had approved a Rights Offering to existing shareholders.

Under the terms of the Rights Offering, the Company distributed non-transferable subscription rights to each holder of its common stock as of November 29, 2021 with each subscription right exercisable for 0.083768 shares of common stock at an exercise price of $ 12.75 per full common share.

The Company completed its Rights Offering to the Company’s shareholders as of the close of business on December 16, 2021.

The Rights Offering was fully subscribed for the maximum offering amount of 785,103 shares of the Company’s common stock resulting in gross proceeds to the Company of approximately $ 10.0 million.

The proceeds of the Rights Offering was used for general corporate purposes, including in part, certain growth initiatives (including acquisitions) as well as repayment of the revolving credit facility.

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 2021 and 2020, no dividends were declared or paid by the Company.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Accounting for Share-Based Payments

Overview of Share-Based Payment Plans

The Company has a number of active and inactive equity incentive plans (the "Incentive Plans") under which the Company has been authorized to grant share-based awards to key employees and non-employee directors.

A total of 1.5 million shares have been previously authorized for grant to key employees and non-employee directors under the Company's currently active Incentive Plans.

As of December 31, 2021, there were 0.9 million shares remaining available for grants under the currently active equity Incentive Plans.

The Company recognized share-based compensation expense within SG&A expense on the consolidated statement of operations of $ 0.8 million and $ 1.8 million in 2021 and 2020, respectively.

The Company had $ 0.2 million of associated income tax benefit recognized for 2021 and 2020.

Stock Options

2 unchanged sentences

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.

Stock options have terms of 10 years and vest in 20 % or 33 % increments annually on a cumulative basis, beginning one year after the date of grant, and are assigned an exercise price equal to the average of the high and low common stock price on the day prior to the date of grant.

Options are expensed on a straight-line basis over the grant vesting period, which is considered to be the requisite service period.

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

2 unchanged sentences

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

As of December 31, 2021, the Company has no options authorized for issuance under the 2011 Plan.

Under the 2011 Plan, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

When determining expected volatility, the Company considers the historical volatility of the Company’s stock price.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant, based on the options’ expected term.

The Company granted no new options in 2021.

The weighted-average assumptions used in the Black-Scholes option-pricing model and weighted-average grant date fair value for options granted in 2020 are as follows:

February 5, 2020 June 30, 2020

Weighted-average assumptions used:

Expected volatility 35.1 % 38.7 %

Dividend yield 1.79 % 1.89 %

Risk-free interest rate 1.66 % 0.64 %

Expected term, in years 10 10

Weighted-average grant date fair value $ 4.53 $ 2.59

In 2021, options for 13,174 shares were exercised by employees and directors for an aggregate exercise price of $ 109,324 .

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

At the 2021 and 2020 respective year ends, options to purchase 129,163 and 86,531 shares, respectively, with weighted average exercise prices of $ 13.05 and $ 13.77 , respectively, were fully exercisable.

Compensation cost charged against income before taxes for the options was approximately $ 0.1 million for 2021 and $ 0.4 million for 2020, respectively.

As of December 31, 2021, there was $ 13,786 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 1.10 years.

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:

A summary of activity for the 2011 Plan is as follows:

Price Options

1 unchanged sentence

(in years) Intrinsic

Options Options

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

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

Granted June 30, 2020 7.33 20,000

Exercised — —

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

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

Exercised 12.71 ( 13,174 )

Canceled, forfeited, or expired 13.33 ( 22,529 )

December 31, 2021 $ 13.04 143,828 6.0 $ 487,011

Exercisable options $ 13.05 129,163 5.8 $ 436,637

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

Price Options

Outstanding Weighted

(in years) Grant Date Fair Value

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

4 unchanged sentences

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

Vested 10.83 ( 55,806 ) 3.72

Canceled, forfeited, or expired 13.33 ( 22,529 ) 4.80

December 31, 2021 $ 13.00 14,665 8.1 $ 4.99

SYNALLOY CORPORATION

11 unchanged sentences

143,828 129,163

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

2015 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.

The 2015 Stock Awards Plan (the "2015 Plan") was approved by the Compensation & Long-Term Incentive Committee (the "Compensation Committee") and originally authorized the issuance of up to 250,000 shares.

At the 2018 Annual Meeting, upon the recommendation of the Company's Board of Directors, a majority of the shareholders of the Company voted to amend and restate the 2015 Plan to increase the authorization of issuances from 250,000 shares to 500,000 shares.

At the 2021 Annual Meeting, upon the recommendation of the Company's Board of Directors, a majority of the shareholders of the Company voted to amend and restate the 2015 Plan to increase the authorization of issuances from 500,000 shares to 1.5 million shares.

Shares which can be awarded under the 2015 Plan for a period of 10 years from the effective date of the plan.

Stock awards issued under the 2015 Plan vest in either 20 % or 33 % increments annually on a cumulative basis, beginning one year after the date of grant.

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.

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.

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 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

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.

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:

A summary of plan activity for the 2015 Plan is as follows:

Shares Weighted Average

2 unchanged sentences

Granted February 5, 2020 45,418 13.00

Granted November 10, 2020 50,000 5.65

Vested ( 81,233 ) 12.87

2 unchanged sentences

Granted February 10, 2021 15,181 8.57

Granted October 28, 2021 6,751 11.11

Granted November 15, 2021 751 13.32

2 unchanged sentences

Outstanding December 31, 2021 43,581 $ 9.82

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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 $ 0.4 million and $ 1.0 million for 2021 and 2020, 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.

As of December 31, 2021, there was $ 0.2 million of total unrecognized compensation cost related to unvested restricted stock grants under the Company's 2015 Plan.

The weighted average period over which the stock grant compensation cost is expected to be recognized is 2.89 years.

Performance-Based Restricted Stock Awards

The Company issues performance-based restricted stock classified as equity awards.

The Company issues performance-based restricted stock classified as equity awards which 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.

In November 2020, the Compensation Committee approved stock grants under the 2015 Plan to the Company's Interim President and Chief Executive Officer.

For these awards, the performance condition was based on the achievement of thirty-day volume weighted average price targets of a Company share of stock.

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.

The fair value of the performance-based restricted stock awards granted with a market performance condition are determined using a Monte Carlo simulation considering historical performance of the Company's stock as well as the probability of attaining the market performance condition determined on the date of grant.

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.

1 unchanged sentence

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.

The Company recognizes forfeitures as they occur.

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.

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 $ 0.69 and $ 13.00 in 2021 and 2020, respectively.

The total fair value of performance-based restricted stock awards vesting was approximately $ 1.1 million and $ 0.6 million in 2021 and 2020, respectively.

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

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

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

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

Weighted-Average Grant Date Fair Value

A summary of the status of our performance-based restricted stock awards as of December 31, 2021, and changes during fiscal 2021, were as follows:

Units Weighted-Average Grant Date Fair Value

Outstanding December 31, 2019 77,986 $ 13.66

( 64,711 ) 13.21

( 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.

Forfeited ( 20,558 ) 13.73

Outstanding December 31, 2020 29,364 $ 13.76

Vested ( 116,260 ) 3.66

Forfeited ( 3,104 ) 12.99

Outstanding December 31, 2021 — $ —

1 Contingent shares granted excluded from 2020

2 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.

3 Contingent shares granted in prior year included in 2021

As of December 31, 2021, there was no unrecognized compensation expense related to non-vested performance-based restricted stock awards.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Inducement Awards

During the year ended December 31, 2021, the Company granted stock-based awards to incoming executive officers as incentives to enter into an at-will employment agreement with the Company.

These inducement awards were approved by the Compensation Committee of the Board of Directors and did not require shareholder approval in accordance with NASDAQ Rule 5635(c)(4).

In accordance with the rule, the only persons eligible to receive incentive awards are individuals not previously an employee or director of the Company.

In general, 50 % of the inducement awards vest based on the achievement of thirty-day volume weighted average price targets of a Company share of stock and 50 % vest on the third anniversary of the grant date.

The fair value of the market based portion of inducement awards are determined using a Monte Carlo simulation considering historical performance of the Company's stock as well as the probability of attaining the market condition determined on the date of grant.

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

A summary of the status of our inducement stock awards as of December 31, 2021, and changes during fiscal 2021, were as follows:

Units Weighted-Average Grant Date Fair Value

Outstanding December 31, 2020 — $ —

Granted 53,696 6.35

Vested ( 12,516 ) 2.35

Forfeited/Canceled ( 10,324 ) 5.96

Outstanding December 31, 2021 30,856 $ 8.11

Compensation expense charged against income for the inducement awards was approximately $ 0.1 million for 2021.

There was no compensation expense related to inducement awards in 2020.

The total fair value of inducement awards vesting was approximately $ 0.2 million in 2021.

There were no inducement awards that vested in 2020.

As of December 31, 2021, there was $ 0.2 million of total unrecognized compensation cost related to inducement awards.

The weighted average period over which the stock grant compensation cost is expected to be recognized is 2.53 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.

Each year, the Company allows each non-employee director to elect to receive up to 100 % 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.

Non-employee directors received an aggregate of 22,026 and 43,603 shares, respectively, of restricted stock in lieu of total retainer fees of $ 214,000 and $ 345,000 , respectively.

The Company also issued an aggregate of 20,000 additional shares of restricted stock to the Company's new Chairman of the Board due to the increased responsibilities of the role.

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.

10 unchanged sentences

Federal net operating loss carryforwards 890 —

Equity security mark to market — 217

Lease liabilities 8,069 7,484

Interest limitation carryforwards — 754

Accrued Federal Insurance Contributions Act ("FICA") deferral 155 299

10 unchanged sentences

Total deferred income tax liabilities 15,180 13,030

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

Deferred income taxes, net $ ( 2,433 ) $ ( 1,957 )

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

3 unchanged sentences

Federal ( 1,943 ) 1,011

State ( 128 ) 284

Total deferred ( 2,071 ) 1,295

13 unchanged sentences

Executive compensation limitation 59 0.2 % 280 ( 0.9 ) %

Transaction costs 134 0.5 % — — %

Other nondeductible expenses 51 0.2 % 35 ( 0.1 ) %

1 unchanged sentence

Total $ 5,253 20.6 % $ ( 4,706 ) 14.7 %

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.

The Company's effective tax rate for 2021 was less than the U.S.

statutory rate of 21% primarily driven by windfall tax benefits associated with share-based compensation and the release of valuation allowances on certain deferred tax assets partially offset by state taxes and transaction costs, net of federal benefit.

The Company made income tax payments of $ 1.6 million and $ 16,000 in 2021 and 2020, respectively.

The Company has $ 4.2 million of U.S.

Federal net operating loss carryforwards and no interest limitation carryforwards at the end of 2021 compared with no U.S.

Federal net operating loss carryforwards or interest limitation carryforwards at the end of 2020.

Federal net operating loss carryforwards were acquired in the DanChem acquisition and are subject to certain limitations under IRC Section 382.

However, the Company believes that these losses are more likely than not to be utilized.

In addition, on a gross basis the Company had state operating loss carryforwards of $ 36.2 million and $ 39.4 million at the end of 2021 and 2020, respectively.

The majority of these losses will expire between the years of 2022 and 2039, 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.

During 2021, the Company recognized a combined U.S.

federal and state valuation allowance of $ 3.7 million because it is more likely than not that the underlying deferred tax assets will not be realized.

This represents a $ 0.5 million decrease year over year, primarily driven by deferred tax liabilities acquired in the DanChem acquisition.

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

7 unchanged sentences

Notes to Consolidated Financial Statements

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.

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

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

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.

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

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.

Commitments and Contingencies

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

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Loss Per Share

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

(in thousands, except per share data) 2020 2019

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

Denominator for basic earnings per share - weighted average shares

Earnings (Loss) Per Share

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

(in thousands, except per share data) 2021 2020 (a)

Net earnings (loss) $ 20,245 $ ( 27,267 )

Denominator for basic earnings (loss) per share - weighted average shares 9,340 9,140

Effect of dilutive securities:

Employee stock options and stock grants 116 —

Denominator for diluted earnings per share - weighted average shares

Net loss per share:

Denominator for diluted earnings (loss) per share - weighted average shares 9,456 9,140

Net earnings (loss) per share:

Basic $ 2.17 $ ( 2.98 )

Diluted $ 2.14 $ ( 2.98 )

(a) As discussed in Note 9 , the Company distributed subscription rights to holders of common stock, which were priced at a discount to the market value, to acquire additional common shares.

The Rights Offering, because of the discount, contains a bonus element that is similar to a stock dividend.

As such, the basic and diluted EPS has been retroactively adjusted for the bonus element for all prior periods presented.

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.

The Company had 0.1 million and 0.2 million shares of common stock that were anti-dilutive in 2021 and 2020, respectivel y.

Industry Segments

2 unchanged sentences

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

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

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.

Segment operating income (loss) 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.

6 unchanged sentences

$ 334,715 $ 256,000

Operating (loss) income

Operating income (loss)

Metals Segment $ 33,561 $ ( 24,599 )

2 unchanged sentences

Unallocated corporate expenses 6,828 7,917

Acquisition related costs 845 601

Proxy contest costs 3,105 —

Acquisition costs and other 1,001 845

Proxy contest costs and recoveries 168 3,105

Earn-out adjustments 1,872 ( 1,195 )

Gain on lease modification — ( 171 )

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

Operating income (loss) 27,348 ( 31,067 )

Interest expense 1,486 2,110

Change in fair value of interest rate swap ( 2 ) 51

Loss on extinguishment of debt 223 —

Other income, net 143 ( 1,255 )

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

Income (loss) before income taxes $ 25,498 $ ( 31,973 )

Identifiable assets

14 unchanged sentences

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 $ 1,343 $ 5,503

Heavy wall seamless carbon steel pipe and tube 40,539 23,670

Stainless steel pipe and tube 186,651 154,974

Galvanized pipe and tube 38,705 20,312

Specialty chemicals 67,477 51,541

$ 334,715 $ 256,000

3 unchanged sentences

$ 334,715 $ 256,000

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.

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.

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.

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

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

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

Shareholder Rights Plan

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

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

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

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

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

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

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

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

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

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

Proxy Contest and Related Costs

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 % of their wages with a maximum of $ 19,500 for 2021.

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 2021.

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.

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 2021 and 2020 the maximum was 100 % of employee contributions up to a maximum of 4 % of their eligible compensation.

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

Matching contributions of approximately $ 0.7 million and $ 0.4 million were made for 2021 and 2020, 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 2021 or 2020.

The Company 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 % of pretax annual compensation, as defined in the Bristol Plan, with a maximum of $ 19,500 for 2021.

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 2021.

During 2021, the Company contributed 4 % of a participant's eligible compensation regardless of whether the participants contribute to the Bristol Plan.

During 2020, the Company contributed 3 % of a participant's eligible compensation from January to July and increased the amount to 4 % for the remainder of the plan year.

The Company's contributions were $ 0.3 million and $ 0.2 million for 2021 and 2020, respectively.

No discretionary contributions were made to the Bristol Plan in 2021 or 2020.

The Company also has a 401(k) Plan (the "DanChem Plan") covering substantially all employees at the DanChem facility.

Employees could contribute to the DanChem Plan up to a maximum of $ 19,500 for 2021.

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 2021.

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 2021 and 2020 the maximum was 100 % of employee contributions up to the first 3 % of their eligible compensation and 50 % for employee contributions from 3 % to 6 %.

The Company also maintains a Collective Bargaining Agreement (the "Danville CBA") with the United Food and Commercial Workers, Local Union 400 (the "Danville Union"), which represents employees at the Danville facility and is required to make additional quarterly contributions for hourly employees who had a hire date prior to June 1, 2013.

Matching contributions of approximately $ 0.4 million were made for 2021.

The Munhall Plan has a calendar plan year.

Per the most recent available annual funding notice, the plan was at least 87 % funded for the plan year ended December 31, 2020.

Per the terms of the Munhall CBA the Company contributes 4.25 % 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 to the Munhall Plan totaled $ 0.2 million for the year ended December 31, 2021 and 2020, 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 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 $ 37,208 and $ 29,851 for 2021 and 2020, respectively.

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.

Proxy Contest Costs and Recoveries

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.

During the year ended December 31, 2021, the Company incurred proxy contest costs of $ 0.6 million related to the reimbursement of documented out-of-pocket fees and expenses to Privet and UPG.

See Note 17 for further information on this related party transaction.

During the year ended December 31, 2021, the Company received insurance recoveries of $ 0.5 million related to a claim for a portion of the costs associated with the proxy contest.

The Company received no insurance recoveries for the year ended December 31, 2020.

The Company continues to seek coverage under its policies for reimbursement of costs associated with the proxy contest;

however, any future reimbursement under the policies are neither probable nor estimable at this time.

Related Party Transactions

The Company from time-to-time engages in transactions with related parties.

The Company's Board of Directors reviews any related party relationships and approves any significant modifications to any existing related party transactions, as well as any new significant related party transactions.

Expense Reimbursement

During the six months ended June 30, 2020, Privet and UPG, with an ownership interest of approximately 25 % of the Company's outstanding common shares, filed a proxy statement with the Securities and Exchange Commission seeking an election of five of its nominees to the Synalloy Board of Directors at the Company's 2020 Annual Meeting of Shareholders.

At the Annual Meeting held on June 30, 2020, Synalloy shareholders voted to elect three of the five nominees designated by Privet and UPG to serve on Synalloy's Board of Directors.

In May 2021, the Company agreed to reimburse Privet and UPG for up to 90 % of its documented out-of-pocket fees and expenses (including legal expenses) incurred related to the proxy contest through the date of the 2020 Annual Meeting.

During the third quarter of 2021, the Company paid $ 0.6 million related to the reimbursement to Privet and UPG.

As of December 31, 2021, there are no charges outstanding related to this matter.

During the year ended December 31, 2021, the Company paid reimbursable travel expenses of $ 3,140 to an entity affiliated with the Company's Interim President and Chief Executive Officer.

The Company had no such transactions for the year ended December 31, 2020.

Sales to Related Parties

The Company's Interim President and Chief Executive Officer has ownership interests in other entities with which the Company may, from time-to-time, conduct business.

During the year ended December 31, 2021, the Company recorded revenue of $ 31,073 from the sale of product to certain of these entities.

During the year ended December 31, 2021, the Company received $ 40,000 in cash and recognized a loss on disposal of property, plant and equipment of $ 13,000 from the sale of property, plant and equipment to certain of these entities.

The Company had no such transactions for the year ended December 31, 2020.

Lease Agreement

During the year ended December 31, 2021, the Company recognized $ 0.2 million of right-of-use assets in exchange for new operating lease liabilities and incurred $ 23,220 in rent expense associated with this lease agreement.

See Note 7 for additional information on the Company's leases.

Shared Services Agreement

In September 2021, the Company entered into a shared services agreement (the "Shared Services Agreement") with UPG, an entity that has an ownership interest of approximately 8 % of the Company's outstanding common shares and an entity in which the Company's Interim Chief Executive Officer has an ownership interest.

Pursuant to the agreement, UPG provides the Company with certain corporate functions, including human resources and information technology services.

The Shared Services Agreement has an indefinite term, with either party having the right to terminate any or all services with 30 days' prior written notice.

Charges allocated to the Company are based on the Company's actual use of specific services detailed in the Shared Services Agreement at a rate of $ 145 per hour.

The Company will also pay or reimburse UPG for all out-of-pocket fees and expenses incurred by UPG in connection with the rendering of services under the Shared Services Agreement including, (i) reasonable fees and disbursements of any independent professionals and organizations, including independent accountants, outside legal counsel or consultants and (ii) travel expenses or similar expenses not associated with UPG's ordinary operations.

During the year ended December 31, 2021, the Company incurred $ 2,320 of expense related to the Shared Service Agreement.

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.

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.

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.

On March 18, 2022, the Compensation Committee approved an equity grant to Christopher Hutter of (i) 50,000 restricted stock units (“RSUs”) and (ii) 150,000 performance stock units (“PSUs”) with a market price of $ 18.89 per share.

The RSUs will vest over two years , with half of such RSUs vesting on March 18, 2023, and the other half vesting on March 18, 2024, subject to continued employment unless provided otherwise under the terms of the Executive Employment Agreement dated October 26, 2020, between the Company and Mr.

Hutter (the “Hutter Employment Agreement”) and/or the Company’s Amended and Restated 2015 Stock Awards Plan (the “2015 Awards Plan”).

The PSUs will vest based on the 30-day volume weighted average price (“VWAP”) of the Company’s common stock, with 33.3 %, 26.7 %, 20 %, and 20 % of such PSUs vesting if the 30-day VWAP equals or exceeds $ 25.00 , $ 27.50 , $ 30.00 , and $ 35.00 , respectively, subject to continued employment unless provided otherwise under the terms of the Hutter Employment Agreement and/or the 2015 Awards Plan.

The PSU award will have a term of three years .

The grant of RSUs and PSUs was made in connection with the decision of the Board to remove the “interim” designation from the title of Mr.

Hutter and approve his position as Chief Executive Officer of the Company.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data