What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-31 · 467 added, 426 removed, 708 unchanged (56% of the section changed)

1 unchanged sentence

Index to Financial Statements

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

Chicago, IL ;

Report of Independent Registered Public Accounting Firm ( Moss Adams, LLP ;

Report of Independent Registered Public Accounting Firm (BDO USA, P.C.;

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Income for the years ended December 31, 2022 and 2021

Consolidated Statements of Income (Loss) for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

2 unchanged sentences

Summary of Significant Accounting Policies

Discontinued Operations

Revenue Recognition

Fair Value Measurements

Fair Value of Financial Instruments

Property, Plant and Equipment

6 unchanged sentences

Commitments and Contingencies

Supplemental Financial Information

Subsequent Events

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

Ascent Industries Co.

Oak Brook, Illinois

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Ascent Industries Co.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years then ended, 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) ] issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 31, 2023, expressed an adverse opinion thereon.

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 audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Ascent Industries Co.

(and subsidiaries) (the “Company”) as of December 31, 2023, the related consolidated statements of income (loss), shareholders’ equity and cash flows for the year ended December 31, 2023, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We also have audited the adjustments to the 2022 financial statements for the retrospective presentation of discontinued operations, as described in Note 2.

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

We were not engaged to audit, review, or apply any procedures to the 2022 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2022 financial statements taken as a whole.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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 audits 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.

Our audits 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.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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

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

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Tax Benefits Associated with Closure of Palmer of Texas Tanks, Inc

As described in Note 11 to the consolidated financial statements, the Company's effective tax rate for 2022 was less than the U.S.

statutory rate of 21% primarily driven by tax benefits associated with losses on the investment in Palmer of Texas Tanks, Inc.

(“Palmer”) and its ultimate wind down and closure.

The tax benefits associated with the investment in Palmer which amounted to $5.7 million during the year related to a deduction claimed for the tax basis in the Company’s stock in Palmer.

We identified accounting for the tax benefits associated with the Company’s investment in Palmer as a critical audit matter.

Determining the timing of recognition and measurement of the tax benefits associated with Palmer closure required

significant management judgment, including the determination of whether the tax positions’ technical merits are more likely than not to be sustained in an audit by a taxing authority based on the application and interpretation of the relevant tax laws to the facts of the specific transaction.

Auditing these elements involved especially complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the need to involve personnel with specialized skill and knowledge.

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

• Utilizing personnel with specialized tax knowledge and skill to assist in the following:

• Evaluating the appropriateness of management’s interpretation and application of relevant tax laws in the U.S.

and the conclusions within management’s tax opinions, memoranda and other relevant documents.

• Testing the completeness and accuracy of the gross receipts test used to determine the qualification for tax benefits associated with Palmer closure.

• Testing the completeness and accuracy of the outside tax stock basis calculation used to determine the amount of the tax benefits recognized.

• Assessing the appropriateness of the timing of recognition of the tax benefits associated with Palmer closure.

Valuation of goodwill related to the Specialty Chemicals Reporting Unit

As described in Note 1 to the consolidated financial statements, the Company’s goodwill balance was $11.4 million at December 31, 2022, which pertains to its Specialty Chemicals reporting unit.

The Company’s evaluation of goodwill for impairment involves comparison of the fair value of the reporting unit to its carrying value.

Management conducted an annual quantitative impairment assessment of the Specialty Chemicals reporting unit as of October 1, 2022.

During the fourth quarter of 2022, the Company determined potential impairment indicators existed within the Specialty Chemicals reporting unit and therefore, performed another quantitative impairment assessment.

The Company determined the fair value of the reporting unit using an equal weighting of the income and market approaches, which required management to make significant estimates and assumptions related to discount rate and forecasts of revenue and profits.

We identified the valuation of goodwill for the Specialty Chemicals reporting unit as a critical audit matter.

Auditing management’s impairment assessment is complex and highly judgmental due to the significant estimation required in determining the fair value of the Specialty Chemicals reporting unit.

The determination of the fair value of the Specialty Chemicals reporting unit is sensitive to certain assumptions, which are affected by expected future market and economic conditions.

Auditing management’s impairment assessment involved especially challenging and subjective auditor judgment due to the uncertainty surrounding future events and the extent of specialized skill required to test certain valuation assumptions.

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.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment in Item 9A:

• Information Technology - Management did not design and maintain effective information technology (IT) general controls in the areas of user access, change management, segregation of duties, and cyber-security for systems supporting many of the Company's key financial reporting processes.

As a result, IT application controls and business process controls that are dependent on the ineffective IT general controls, or that rely on data produced from systems impacted by the ineffective IT general controls, are also deemed ineffective, which affects substantially all financial statement account balances and disclosures within the Company.

• Inventory - Management did not design and maintain effective controls over inventory.

• Revenue recognition – Management did not design and maintain effective controls over revenue and accounts receivable.

• Period-end financial reporting, journal entries, reconciliations, and account analyses - Management did not design and maintain effective controls to detect potential material misstatements to period-end financial statements through review of account reconciliations and account analyses on a timely basis.

Additionally, management did not design and maintain effective controls over the review of journal entries.

• Complex Accounting - Management did not design and maintain management review controls at a sufficient level of precision around complex accounting areas such as income taxes.

We considered the material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2023, and our opinion on such consolidated financial statements was not affected.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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 critical audit matters 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.

Goodwill Impairment

As described in Note 1 to the consolidated financial statements, the Company tests goodwill for impairment annually as of October 1 or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value.

In the third quarter of the year, the Company concluded an interim assessment should be performed and this resulted in a goodwill impairment expense of $11,389,000.

Testing goodwill for impairment involves significant management judgment, requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value, which is estimated by using valuation techniques, such as the market approach (earnings multiples or transaction multiples for the industry in which the reporting unit operates) or the income approach (discounted cash flow method).

The principal considerations for our determination that the goodwill impairment test is a critical audit matter were that our evaluation of management’s valuation methods and assumptions utilized in estimating the fair value of the reporting unit involved significant audit effort, including the use of specialists, as well as especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

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

• Evaluating the reasonableness of assumptions used in the Company’s impairment assessment, including the revenue growth rate and profit margins.

• Testing the accuracy and completeness of the data used by management to develop its projections.

• Utilizing personnel with specialized skills and knowledge in valuation approach and methodologies to assist in:

(i) assessing the appropriateness of the fair value methodology, and (ii) evaluating the reasonableness of certain valuation assumptions used, including the discount rate.

/s/ BDO USA, LLP

• Testing management’s process for determining the fair value estimate of the reporting unit by performing the following procedures:

• Evaluating the methodologies used by management, including the relative weight assigned to the valuations indicated by the market and income approaches, and assessing management’s specialist’s knowledge, skill, and ability as well as the specialist’s relationship to the Company.

• Testing the completeness, accuracy, and reliability of underlying data used in the valuation model, including the mathematical accuracy of the analysis.

• Evaluating the reasonableness of the guidelines companies and market multiples used by management.

• Evaluating the reasonableness of significant assumptions used by management, including projected revenue, projected operating margin, discount rate, including performing arithmetic analysis to replicate management’s model, and sensitivity analysis.

• Utilizing valuation specialists to assist in evaluating the appropriateness of methods used and reasonableness of significant assumptions applied in the valuation model.

/s/ Moss Adams LLP

Irvine, California

April 1, 2024

We have served as the Company's auditor since 2023.

Chicago, Illinois

March 31, 2023

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

Oak Brook, Illinois

Opinion on Internal Control Over Financial Reporting

We have audited Ascent Industries Co.'s (the "Company's") internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria").

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management's statements referring to any corrective actions taken by the Company after the date of management's assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended and the related notes (collectively referred to as "the financial statements") and our report dated March 31, 2023, expressed an unqualified opinion thereon.

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 2, the accompanying consolidated balance sheet of Ascent Industries Co.

(the “Company”) as of December 31, 2022, and the related consolidated statements of income (loss), shareholders’ equity, cash flows, and financial statement schedule for the year then ended (the 2022 consolidated financial statements before the effects of the adjustments discussed in Note 2 are not presented herein).

In our opinion, the 2022 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting in Note 2, present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Moss Adams, LLP.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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.

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

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

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

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.

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material weaknesses were identified regarding the following:

Entity Level Activities - Management did not maintain appropriately designed entity-level controls impacting:

• Control Environment:

Lack of structure and responsibility, insufficient number of qualified resources due to significant turnover in key personnel leading to insufficient oversight and accountability over the performance of controls;

• Monitoring:

Insufficient evaluation and determination as to whether the components of internal control were present and functioning based upon evidence maintained for certain management review controls and activity level controls across a significant portion of the Company's financial statement areas.

Control Activities - Management did not have effective policies and procedures or adequate selection and development of effective control activities, which resulted in the following additional material weaknesses:

• Management did not appropriately design and implement controls over the existence, accuracy, completeness, and valuation of inventory.

• Management did not maintain effectively designed and implemented controls over recorded revenue and accounts receivable, including procedures over the existence and accuracy of data input for price and quantity, review of sales contracts, as well as appropriate allocation of transaction price across identified performance obligations within the Company's contracts with customers.

• Management did not maintain effectively designed and implemented controls to detect potential material misstatements to period-end financial statements through review of account reconciliations and account analyses on a timely basis as well as other aspects of the financial statement preparation and review process.

Additionally, management did not maintain effectively designed and implemented controls over the review of journal entries.

• Management did not appropriately design and implement management review controls at a sufficient level of precision around complex accounting areas including goodwill impairment, long-lived asset impairment, and income taxes.

• Management did not fully design, implement and monitor general information technology controls in the areas of user access, cyber-security and segregation of duties for systems supporting many of the Company’s internal control processes.

As a result of these segregation of duties deficiencies the related manual business process controls were determined to be ineffective.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 financial statements, and this report does not affect our report dated March 31, 2023 on those financial statements.

Definition and Limitations of Internal Control Over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

We served as the Company's auditor from 2021 to 2023.

Chicago, Illinois

7 unchanged sentences

Accounts receivable, net 26,604 33,202

45,120 50,126

Inventories, net

Raw materials 21,020 33,405

1 unchanged sentence

Finished goods 17,575 23,455

Total inventories, net 114,452 103,249

Total inventories 52,306 67,671

Prepaid expenses and other current assets 4,879 7,770

Assets held for sale 2,912 380

Current assets of discontinued operations 861 59,912

Total current assets 89,413 170,375

6 unchanged sentences

Other non-current assets 1,935 1,862

Long-term assets of discontinued operations — 9,184

Total assets $ 163,295 $ 269,043

2 unchanged sentences

Accounts payable $ 16,416 $ 14,114

Accounts payable - related parties — 2

Accrued expenses and other current liabilities 5,108 5,509

1 unchanged sentence

Current portion of long-term debt — 2,464

Current portion of earn-out liability — 1,961

Current portion of operating lease liabilities 1,140 1,015

Current portion of finance lease liabilities 292 280

Current liabilities of discontinued operations 1,473 9,709

Total current liabilities 24,789 33,478

2 unchanged sentences

Long-term portion of finance lease liabilities 1,307 1,242

Deferred income taxes — 2,433

Other long-term liabilities 60 68

Long-term liabilities of discontinued operations — 42

Total liabilities $ 55,885 $ 134,784

14 unchanged sentences

Ascent Industries Co.

Consolidated Statements of Income

Consolidated Statements of Income (Loss)

For the years ended December 31, 2023 and 2022

5 unchanged sentences

Acquisition costs and other 855 1,104

Proxy contest costs and recoveries — 168

Earn-out adjustments ( 7 ) 1,872

Asset impairment — 233

Operating income 20,388 27,348

Goodwill impairment 11,389 —

Operating (loss) income from continuing operations ( 37,430 ) 14,543

Other (income) and expense

Interest expense 4,238 2,742

Loss on extinguishment of debt — 223

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

Other, net ( 593 ) ( 209 )

Income before income taxes 17,855 25,498

Income tax provision (benefit) ( 4,211 ) 5,253

Net income $ 22,066 $ 20,245

Net income per common share:

(Loss) income from continuing operations before income taxes ( 41,075 ) 12,010

Income tax benefit ( 6,924 ) ( 5,568 )

(Loss) income from continuing operations $ ( 34,151 ) $ 17,578

Income from discontinued operations, net of tax 7,522 4,488

Net (loss) income $ ( 26,629 ) $ 22,066

Net (loss) income per common share from continuing operations

Basic $ ( 3.37 ) $ 1.72

Diluted $ ( 3.37 ) $ 1.69

Net income per common share from discontinued operations

Basic $ 0.74 $ 0.44

Diluted $ 0.74 $ 0.43

Net (loss) income per common share

Basic $ ( 2.63 ) $ 2.16

Diluted $ ( 2.63 ) $ 2.12

Weighted average number of common shares outstanding:

7 unchanged sentences

Cash flows from operating activities:

Net income $ 22,066 $ 20,245

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

Net (loss) income $ ( 26,629 ) $ 22,066

Income from discontinued operations, net of tax 7,522 4,488

Net (loss) income from continuing operations ( 34,151 ) 17,578

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

Depreciation expense 6,161 6,421

1 unchanged sentence

Amortization of debt issuance costs 99 99

Asset impairment — 233

Loss on extinguishment of debt — 223

Goodwill impairment 11,389 —

Deferred income taxes ( 6,924 ) ( 5,568 )

Earn-out adjustments ( 7 ) 1,872

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

( 662 ) ( 138 )

Provision for (reduction of) losses on accounts receivable 1,034 ( 398 )

(Reduction of) provision for losses on accounts receivable ( 180 ) 478

Provision for losses on inventories 3,318 2,615

1 unchanged sentence

Non-cash lease expense 242 414

Non-cash lease termination loss — 5

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

Payments for termination of interest rate swap — ( 46 )

Issuance of treasury stock for director fees — 364

8 unchanged sentences

Accrued income taxes 3,129 ( 7,923 )

Net cash provided by (used in) operating activities - continuing operations 6,644 ( 5,262 )

Net cash provided by operating activities - discontinued operations 16,434 10,839

Net cash provided by operating activities 23,078 5,577

2 unchanged sentences

Proceeds from disposal of property, plant and equipment — 99

Acquisitions, net of cash acquired

Net cash used in investing activities ( 4,975 ) ( 32,661 )

Net cash used in investing activities - continuing operations ( 2,885 ) ( 3,295 )

Net cash provided by (used in) investing activities - discontinued operations 53,386 ( 1,680 )

Net cash provided by (used in) investing activities 50,501 ( 4,975 )

Cash flows from financing activities:

1 unchanged sentence

Proceeds from note payable 900 967

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

Proceeds from exercise of stock options — 175

4 unchanged sentences

Repurchase of common stock ( 1,287 ) ( 1,343 )

Payments of deferred financing costs — ( 165 )

Net cash (used in) provided by financing activities ( 1,182 ) 15,391

(Decrease) Increase in cash and cash equivalents ( 580 ) 1,785

Cash and cash equivalents at beginning of year 2,021 236

Cash and cash equivalents at end of year $ 1,441 $ 2,021

Net cash used in financing activities - continuing operations ( 73,169 ) ( 374 )

Net cash used in financing activities - discontinued operations — ( 808 )

Net cash used in financing activities ( 73,169 ) ( 1,182 )

Increase (decrease) in cash and cash equivalents 410 ( 580 )

Cash and cash equivalents of discontinued operations — 4

Cash and cash equivalents, beginning of period 1,441 2,017

Cash and cash equivalents, end of period $ 1,851 $ 1,441

See accompanying notes to consolidated financial statements.

20 unchanged sentences

Net income — — — 22,066 — — 22,066

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

785 785 9,225 — — — 10,010

Issuance of 86,274 shares of common stock from treasury

3 unchanged sentences

Share-based compensation — — 1,407 — — 1,407

Repurchase of 110,404 shares of common stock

— — — — 110 ( 1,343 ) ( 1,343 )

Balance December 31, 2022 11,085 $ 11,085 $ 47,021 $ 85,146 924 $ ( 8,993 ) $ 134,259

Net income — — — 22,066 — — 22,066

Net loss — — — ( 26,629 ) — — ( 26,629 )

Issuance of 77,330 shares of common stock from treasury

— — ( 751 ) — ( 77 ) 751 —

Exercise of stock options for 18,098 shares, net

— — 5 — ( 18 ) 170 175

Share-based compensation — — 1,063 — — 1,063

Repurchase of common stock — — — — 110 ( 1,343 ) ( 1,343 )

Repurchase of 143,108 shares of common stock

— — — — 143 ( 1,283 ) ( 1,283 )

Balance December 31, 2023 11,085 $ 11,085 $ 47,333 $ 58,517 990 $ ( 9,525 ) $ 107,410

5 unchanged sentences

Ascent Industries Co.

is an industrials company focused on the production and distribution of industrial tubular products including stainless steel and galvanized pipe and tube, seamless carbon pipe and tube, and specialty chemicals.

is an industrials company focused on the production of stainless steel pipe and tube and specialty chemicals.

Ascent Industries Co.

7 unchanged sentences

The Specialty Chemicals segment produces specialty products for the pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional ("HII"), agricultural, water and waste-water treatment, construction, oil and gas and other industries.

Below are those accounting policies considered by the Company to be significant.

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

20 unchanged sentences

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

Activity in the allowance for credit losses were as follows:

The opening and closing balances of our accounts receivables from continuing operations are as follows (in thousands):

(in thousands) January 1, 2022

December 31, 2022 December 31, 2023

Accounts receivables, net $ 33,417 $ 33,202 $ 26,604

Ascent Industries Co.

Notes to Consolidated Financial Statements

Activity in the allowance for credit losses from continuing operations were as follows:

(in thousands) 2023 2022

2 unchanged sentences

Deductions from allowance ( 1,133 ) ( 341 )

Acquired allowance — 118

Balance at end of period $ 463 $ 643

Ascent Industries Co.

Notes to Consolidated Financial Statements

Inventories - Inventory is stated at the lower of cost or net realizable value ("LCNRV").

3 unchanged sentences

An LCNRV adjustment is recorded when the Company's inventory cost, based upon a historical price, is greater than the current selling price of that product.

During the year ended December 31, 2022 and 2021, no significant LCNRV adjustments were required by our Specialty Chemicals segment.

During the year ended December 31, 2023, LCNRV adjustments of $ 0.6 million required by our Specialty Chemicals segment.

During the year ended December 31 2022, no significant LCNRV adjustments were required by our Specialty Chemicals segment.

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.

2 unchanged sentences

An LCNRV adjustment is recorded when the Company's inventory cost, based upon a historical nickel price, is greater than the current selling price of that product due to a reduction in the nickel surcharge.

During the years ended December 31, 2022, LCNRV adjustments of $ 0.5 million were required by our Tubular Products segment.

During the year ended December 31, 2021 no significant LCNRV adjustments were required by our Tubular Products segment.

LCNRV adjustments of $ 0.6 million and $ 0.3 million were required by our Tubular Products segment's continuing operations during the years ended December 31, 2023 and 2022, respectively.

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% of the inventory cost less any estimated scrap proceeds.

The Company reserved $ 3.5 million and $ 1.1 million as of December 31, 2022 and 2021, respectively.

• Estimated obsolete or unmarketable inventory - The Company identifies aged inventory items with slow or no sales activity for finished goods or slow or no usage for raw materials for a certain period of time.

For those inventory items, a reserve is established for a percentage of the inventory cost less any estimated scrap proceed and is based on our current knowledge with respect to inventory levels, sales trends and historical experience.

The Company reserved $ 5.6 million and $ 2.8 million for continuing operations as of December 31, 2023 and 2022, respectively.

• Estimated quantity losses - The Company performs an annual physical count of inventory during the fourth quarter each year for all facilities.

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

The Company had $ 0.2 million reserved for physical inventory quantity losses as of December 31, 2022 and 2021, respectively.

The Company had $ 0.5 million and $ 0.2 million reserved for physical inventory quantity losses for continuing operations as of December 31, 2023 and 2022, respectively.

Property, Plant and Equipment - Property, plant and equipment are stated at cost.

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

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

Substantially all depreciation is recorded within cost of goods sold on the consolidated statements of income (loss).

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.

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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 Note 2 for further discussion on the Company's acquisition of DanChem.

Ascent Industries Co.

Notes to Consolidated Financial Statements

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.

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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

Ascent Industries Co.

Notes to Consolidated Financial Statements

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.

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 statements of income.

Any impairment identified is included within "goodwill impairment" in the consolidated statements of income (loss).

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.

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Balance December 31, 2021 $ 12,637

Acquisitions 11,282

Purchase Price Allocation Revision ( 1,248 )

Balance December 31, 2022 11,389

PPA Revisions ( 1,248 )

Goodwill Impairment ( 11,389 )

Balance December 31, 2023 $ —

During the third quarter of 2022, subsequent to the preliminary estimates of fair value of intangible assets acquired and liabilities assumed, management revised the initial estimate of the fair value of property, plant and equipment resulting in an increase of $ 1.6 million.

As a result of this revision, goodwill was decreased by $ 1.2 million and the Company's deferred tax balances were increased $ 0.4 million.

In addition, the change to the provisional amount resulted in an increase in depreciation expense and accumulated depreciation of $ 0.2 million of which $ 0.1 million relates to a previous reporting period.

During the fourth quarter of 2022, subsequent to the preliminary estimates of fair value of intangible assets acquired and liabilities assumed, management finalized the values of deferred tax balances upon completion of the DanChem pre-acquisition tax returns.

As a result, within the measurement period, the Company's deferred tax balances were decreased by $ 40,475 and goodwill was decreased by $ 40,475 .

We conducted our annual impairment test of the Specialty Chemicals reporting unit as of October 1, 2022.

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

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 a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Specialty Chemicals reporting unit was greater than its carrying value and, as such, no goodwill impairment was necessary.

During the fourth quarter of 2022, the Company determined potential indicators of impairment within the Specialty Chemicals reporting unit, with an associated goodwill balance of $ 11.4 million, existed.

Significant decreases in the Company's stock price and performance relative 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 Specialty Chemicals reporting unit for impairment.

As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Specialty Chemicals reporting unit was above its carrying value and, as such, no goodwill impairment was necessary.

Intangible Assets - Intangible assets consists of customer relationships, trademarks and trade names, and Other 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.

During the third quarter of 2023, the Company determined potential indicators of impairment within the Specialty Chemicals reporting unit, with an associated goodwill balance of $ 11.4 million existed.

Macroeconomic conditions and pressures, increased risks within the broader specialty chemicals 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 and the need to perform a quantitative evaluation of goodwill.

The Company performed a discounted cash flow analysis and a market multiple analysis for the Specialty Chemicals reporting unit to determine the reporting unit's fair value.

The discounted cash flow analysis included management assumptions for expected sales growth, capital expenditures and overall operational forecasts while the market multiple analysis included historical and projected performance, market capitalization, volatility and multiples for industry peers.

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

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 reporting unit was below its carrying value by 27.6 % resulting in a goodwill impairment charge of $ 11.4 million for the year ended December 31, 2023.

Intangible Assets - Intangible assets consists of customer relationships, trademarks and trade names, 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 of 15 years.

Amortization expense is recorded in selling, general and administrative expense on the consolidated statements of income (loss).

Ascent Industries Co.

Notes to Consolidated Financial Statements

Amortization expense is recorded in selling, general and administrative expense on the consolidated statements of income.

The weighted average amortization period for the customer relationships is approximately 12 years.

The gross carrying amount and accumulated amortization of intangible assets consist of the following:

The gross carrying amount and accumulated amortization of intangible assets from continuing operations consist of the following:

(in thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

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Total definite-lived intangible assets $ 15,254 $ ( 6,758 ) $ 15,254 $ ( 5,253 )

The Company recorded amortization expense related to intangible assets of $ 4.0 million and $ 2.8 million for 2022 and 2021, respectively.

The Company recorded amortization expense related to intangible assets from continuing operations of $ 1.5 million and $ 1.9 million for 2023 and 2022, respectively.

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

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Total $ 8,496

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 statements of income.

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 as of December 31, 2023 and 2022, respectively.

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

Ascent Industries Co.

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.

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

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

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 ended 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 ended 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 income.

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.

The Company's revenues are derived from contracts with customers where performance obligations are satisfied at a point-in-time or over-time.

For certain contracts under which the Company produces product with no alternative use and for which the Company has an enforceable right to payment during the production cycle, product in which the material is customer owned or in which the customer simultaneously consumes the benefits throughout the production cycle, progress toward satisfying the performance obligation is measured using an output method of units produced.

Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been met (including the passing of title and significant risk and reward of ownership to the customers).

Therefore, the customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is shipped to a customer at a point in time in the future.

Our contracts with customers may include multiple performance obligations.

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

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

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

See Note 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 $ 11.2 million and $ 9.4 million in 2022 and 2021, respectively, are recorded in cost of goods sold on the consolidated statements of income.

Share-Based Compensation - Share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statements of income 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.

Deferred tax assets and liabilities are measured using enacted tax rates.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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

Gains and losses on the disposal of assets are recorded as the difference between the net proceeds received, if any, and net carrying values of the assets disposed and are included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income.

Ascent Industries Co.

Notes to Consolidated Financial Statements

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

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.

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

Discontinued Operations - The Company accounts for and classifies a business as a discontinued operation when the following criteria are met:

the disposal group is a component of an entity, the component of the entity meets the held for sale criteria in accordance with our policy described above and the component of the entity represents a strategic shift in the entity's operating and financial results.

See N o te 2 for discussion on the Company's discontinued operations.

Assets Held for Sale - The Company classifies long-lived assets or disposal groups as held for sale in the period when all of the following conditions have been met:

• the Board of Directors have approved and committed to a plan to sell the assets or disposal group;

• the asset or disposal group is available for immediate sale in its present condition;

• an active program to locate a buyer and other actions required to complete the sale have been initiated;

• the sale of the asset or disposal group is probable and expected to be completed within one year;

• the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value;

• it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell and recognize any loss in the period in which the held for sale criteria are met.

Gains are not recognized until the date of sale.

We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting period until the asset or disposal group is no longer classified as held for sale.

See Note 4 for discussion on the Company's assets held for sale.

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

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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.

Operating leases are included in right-of-use 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.

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Sublease income was $ 0.4 million for 2023.

Sublease income was not significant for 2021.

Sublease income was $ 0.2 million for 2022.

The Company's revenues are derived from contracts with customers where performance obligations are satisfied

Ascent Industries Co.

Notes to Consolidated Financial Statements

at a point-in-time or over-time.

Therefore, the customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is shipped to a customer at a point in time in the future.

Our contracts with customers may include multiple performance obligations.

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

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

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

See Note 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 from continuing operations of approximately $ 3.4 million and $ 4.3 million in 2023 and 2022, respectively, are recorded in cost of goods sold on the consolidated statements of income (loss).

Share-Based Compensation - Share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statements of income (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.