ASCENT INDUSTRIES CO. 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Report of Independent Registered Public Accounting Firm ( Moss Adams, LLP ; Irvine, CA ; PCAOB ID: 659 ) 27 Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Chicago, IL; PCAOB ID: 243) 30 Consolidated Balance Sheets as of December 31, 2023 and 2022 31 Consolidated Statements of Income (Loss) for the years ended December 31, 2023 and 2022 32 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 33 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2023 and 2022 35 Notes to Consolidated Financial Statements 36 Note 1: Summary of Significant Accounting Policies 36 Note 2: Discontinued Operations 42 Note 3: Revenue Recognition 44 Note 4: Fair Value of Financial Instruments 45 Note 5: Property, Plant and Equipment 47 Note 6: Debt 47 Note 7: Leases 48 Note 8: Accrued Expenses 50 Note 9: Shareholders' Equity 50 Note 10: Accounting for Share-Based Payments 51 Note 11: Income Taxes 54 Note 12: Earnings Per Share 54 Note 13: Industry Segments 57 Note 14: Benefit Plans and Collective Bargaining Agreements 59 Note 15: Commitments and Contingencies 60 Note 16: Supplemental Financial Information 61 Note 17: Subsequent Events 62 26 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Ascent Industries Co. 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 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 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: 27 Table of Contents • 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. 28 Table of Contents 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: • 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. 29 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Ascent Industries Co. Oak Brook, Illinois 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 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. 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. /s/ BDO USA, P.C. We served as the Company's auditor from 2021 to 2023. Chicago, Illinois March 31, 2023 30 Ascent Industries Co. Consolidated Balance Sheets As of December 31, 2023 and 2022 (in thousands, except par value and share data) 2023 2022 Assets Current assets: Cash and cash equivalents $ 1,851 $ 1,440 Accounts receivable, net 26,604 33,202 Inventories Raw materials 21,020 33,405 Work-in-process 13,711 10,811 Finished goods 17,575 23,455 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 Property, plant and equipment, net 29,755 35,534 Right-of-use assets, operating leases, net 27,784 29,142 Goodwill — 11,389 Intangible assets, net 8,496 10,001 Deferred income taxes 5,808 1,353 Deferred charges, net 104 203 Other non-current assets 1,935 1,862 Long-term assets of discontinued operations — 9,184 Total assets $ 163,295 $ 269,043 Liabilities and Shareholders' equity Current liabilities: Accounts payable $ 16,416 $ 14,114 Accrued expenses and other current liabilities 5,108 5,509 Current portion of note payable 360 387 Current portion of long-term debt — 2,464 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 Long-term debt — 69,085 Long-term portion of operating lease liabilities 29,729 30,869 Long-term portion of finance lease liabilities 1,307 1,242 Other long-term liabilities 60 68 Long-term liabilities of discontinued operations — 42 Total liabilities $ 55,885 $ 134,784 Commitments and contingencies – see Note 15 Shareholders' equity: Common stock - $ 1 par value: 24,000,000 shares authorized; 11,085,103 and 10,094,821 shares issued and outstanding, respectively $ 11,085 $ 11,085 Capital in excess of par value 47,333 47,021 Retained earnings 58,517 85,146 116,935 143,252 Less cost of common stock in treasury - 990,282 and 924,504 shares, respectively ( 9,525 ) ( 8,993 ) Total shareholders' equity 107,410 134,259 Total liabilities and shareholders' equity $ 163,295 $ 269,043 See accompanying notes to consolidated financial statements. 31 Ascent Industries Co. Consolidated Statements of Income (Loss) For the years ended December 31, 2023 and 2022 (in thousands, except per share data) 2023 2022 Net sales $ 193,179 $ 261,993 Cost of sales 191,653 218,706 Gross profit 1,526 43,287 Selling, general and administrative expense 26,712 27,640 Acquisition costs and other 855 1,104 Goodwill impairment 11,389 — Operating (loss) income from continuing operations ( 37,430 ) 14,543 Other (income) and expense Interest expense 4,238 2,742 Other, net ( 593 ) ( 209 ) (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: Basic 10,140 10,230 Diluted 10,140 10,410 See accompanying notes to consolidated financial statements. 32 Ascent Industries Co. Consolidated Statements of Cash Flows For the years ended December 31, 2023 and 2022 (in thousands) 2023 2022 Cash flows from 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 Amortization expense 1,505 1,853 Amortization of debt issuance costs 99 99 Goodwill impairment 11,389 — Deferred income taxes ( 6,924 ) ( 5,568 ) Payments of earn-out liabilities in excess of acquisition date fair value — ( 372 ) (Reduction of) provision for losses on accounts receivable ( 180 ) 478 Provision for losses on inventories 3,318 2,615 Loss (gain) on disposal of property, plant and equipment 246 ( 18 ) Non-cash lease expense 242 414 Issuance of treasury stock for director fees — 364 Share-based compensation expense 1,023 1,355 Changes in operating assets and liabilities: Accounts receivable 6,778 ( 264 ) Inventories 12,245 ( 13,685 ) Other assets and liabilities 515 ( 211 ) Accounts payable 1,650 ( 6,269 ) Accounts payable - related parties — ( 2 ) Accrued expenses ( 401 ) ( 2,127 ) 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 Cash flows from investing activities: Purchases of property, plant and equipment ( 2,885 ) ( 3,394 ) Proceeds from disposal of property, plant and equipment — 99 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: Borrowings from long-term debt 256,606 443,363 Proceeds from note payable 900 967 Proceeds from exercise of stock options — 175 Payments on long-term debt ( 328,155 ) ( 442,206 ) Payments on note payable ( 928 ) ( 580 ) Principal payments on finance lease obligations ( 305 ) ( 266 ) Payments on earn-out liabilities — ( 484 ) Repurchase of common stock ( 1,287 ) ( 1,343 ) 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 ) Less: 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. 33 Ascent Industries Co. Consolidated Statements of Cash Flows For the years ended December 31, 2023 and 2022 (in thousands) Year Ended December 31, Supplemental Disclosure of Cash Flow Information 2023 2022 Cash paid for: Interest $ 4,175 $ 2,230 Income taxes 864 7,859 Noncash Investing Activities: Capital expenditures, not yet paid $ 653 $ 751 See accompanying notes to consolidated financial statements. 34 Ascent Industries Co. Consolidated Statements of Shareholders' Equity For the years ended December 31, 2023 and 2022 (in thousands, except share and per share data) Common Stock Treasury Stock Shares Amount Capital in Excess of Par Value Retained Earnings Shares Amount Total Balance December 31, 2021 11,085 $ 11,085 $ 46,058 $ 63,080 918 $ ( 8,633 ) $ 111,590 Net income — — — 22,066 — — 22,066 Issuance of 86,274 shares of common stock from treasury — — ( 449 ) — ( 86 ) 813 364 Exercise of stock options for 18,098 shares, net — — 5 — ( 18 ) 170 175 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 loss — — — ( 26,629 ) — — ( 26,629 ) Issuance of 77,330 shares of common stock from treasury — — ( 751 ) — ( 77 ) 751 — Share-based compensation — — 1,063 — — 1,063 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 See accompanying notes to consolidated financial statements. 35 Ascent Industries Co. Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies Ascent Industries Co. is an industrials company focused on the production of stainless steel pipe and tube and specialty chemicals. Ascent Industries Co. was incorporated in 1958 as the successor to a chemical manufacturing business founded in 1945 known as Blackman Uhler Industries Inc. On August 5, 2022, we filed with the Secretary of State of the State of Delaware a Certificate of Amendment to our Certificate of Incorporation to change our corporate name from Synalloy Corporation to Ascent Industries Co., effective August 10, 2022. The Company's executive office is located at 1400 16th Street, Suite 270, Oak Brook, Illinois 60523. Unless indicated otherwise, the terms "Ascent", "Company," "we" "us," and "our" refer to Ascent Industries Co. and its consolidated subsidiaries. The Company's business is divided into two reportable operating segments, Tubular Products and Specialty Chemicals. The Tubular Products segment serves markets through pipe and tube and customers in the appliance, architectural, automotive and commercial transportation, brewery, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste-water treatment, liquid natural gas ("LNG"), food processing, pharmaceutical, oil and gas and other industries. 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. Intercompany transactions and balances 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. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment; intangible assets; the fair value of assets or liabilities acquired in a business combination; valuation allowances for receivables, inventories and deferred income tax assets and liabilities; environmental liabilities; liabilities for potential tax deficiencies; and, potential litigation claims and settlements. 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. 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. The Company provides an allowance for credit losses for expected uncollectible amounts. The allowance is based upon an analysis of accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivables balances, historical loss experience, current information, and future expectations. Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are generally due within 30 to 60 days. Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer. 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 36 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 Balance at beginning of period $ 643 $ 164 Current period provision for expected credit losses 953 820 Deductions from allowance ( 1,133 ) ( 341 ) Balance at end of period $ 463 $ 643 Inventories - Inventory is stated at the lower of cost or net realizable value ("LCNRV"). Cost is determined by either specific identification or weighted average methods. At the end of each quarter, all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost. This would indicate that an adjustment would be required. 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, 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. As raw materials are purchased, it is priced to the Company based upon the surcharge at that date. When the selling price of the finished pipe is set for the customer, approximately three months later, the then-current nickel surcharge is used to determine the proper selling prices. 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. 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 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. A reserve is established for the potential quantity losses that could occur subsequent to their physical inventory. This reserve is based upon the most recent physical inventory results. The Company had $ 0.5 million and $ 0.2 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 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. The costs of software licenses are amortized over five years using the straight-line method. The Company continually reviews the recoverability of the carrying value of long-lived assets. The Company also reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. When the future undiscounted cash flows of the operation to which the assets relate do not exceed the carrying value of the asset, the assets are written down to fair value. Business Combinations - 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. 37 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. 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 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 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. During 2023 and 2022, goodwill was allocated to the Specialty Chemicals reporting unit. The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 were as follows: (in thousands) Specialty Chemicals Balance December 31, 2021 $ 12,637 Purchase Price Allocation Revision ( 1,248 ) Balance December 31, 2022 11,389 Goodwill Impairment ( 11,389 ) Balance December 31, 2023 $ — 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). 38 Ascent Industries Co. Notes to Consolidated Financial Statements The gross carrying amount and accumulated amortization of intangible assets from continuing operations consist of the following: 2023 2022 (in thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Definite-lived intangible assets: Customer related $ 14,604 $ ( 6,685 ) $ 14,604 $ ( 5,201 ) Trademarks and trade names 150 ( 17 ) 150 ( 12 ) Other 500 ( 56 ) 500 ( 40 ) Total definite-lived intangible assets $ 15,254 $ ( 6,758 ) $ 15,254 $ ( 5,253 ) 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: (in thousands) 2024 $ 1,487 2025 1,324 2026 1,102 2027 930 2028 786 Thereafter 2,867 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 (loss). Deferred charges totaled $ 0.4 million as of December 31, 2023 and 2022, respectively. Accumulated amortization of deferred charges as of December 31, 2023 and 2022 totaled $ 0.3 million and $ 0.2 million, respectively. The Company recorded amortization expense related to deferred charges of $ 0.1 million for 2023 and 2022. 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. For long-lived assets to be abandoned, the Company considers the asset to be disposed of when it ceases to be used. Until it ceases to be used, the Company continues to classify the asset as held-for-use and test for potential impairment accordingly. If the Company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, its depreciable life is re-evaluated. 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. 39 Ascent Industries Co. Notes to Consolidated Financial Statements 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; and, • 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. 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. 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 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. Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of the remaining lease payments and estimated incremental borrowing rate upon lease modification. The difference between the remeasured right-of-use asset and the operating lease liabilities are recognized as a gain or loss within operating expenses. The Company reviews any changes to its lease agreements for potential modifications and/or indicators of impairment of the respective right-of-use asset. 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. See Note 7 for additional information on the Company's leases. The Company subleases portions of certain properties that are not used in its operations. Sublease income was $ 0.4 million for 2023. Sublease income was $ 0.2 million for 2022. 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 40 Ascent Industries Co. Notes to Consolidated Financial Statements 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 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. 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. 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. See Note 12 for additional information on the Company's earnings per share. 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 Company monitors the financial institutions where it invests its cash and cash equivalents as well as performs credit reviews of potential customers when extending credit to purchase and periodic reviews of existing customers to mitigate exposure and risk. The Tubular Products segment has one customer that accounted for approximately 17 % of the segment's revenues for 2023. There were no customers representing more than 10% of the Tubular Products segment's revenues for 2022. The Specialty Chemicals segment has one customer that accounted for approximately 24 % of the segment's revenues for 2023 and 21 % of the segment's revenues for 2022. Accounting Pronouncements Recently Adopted - On March 31, 2023, the Company adopted 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, 2024. The Company intends to use the expedients where needed for reference rate transition. The adoption of this standard by the Company did not have a material effect on the consolidated financial statements or footnote disclosures.. 41 Ascent Industries Co. Notes to Consolidated Financial Statements Accounting Pronouncements Not Yet Adopted - In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The ASU is effective for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and footnote disclosures. In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments also require that all entities disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). The ASU is effective for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and footnote disclosures. Recent accounting pronouncements pending adoption not discussed in this Form 10-K are either not applicable to the Company or are not expected to have a material impact on the Company. Note 2: Discontinued Operations Munhall Closure During the fourth quarter of 2022, the Company began a strategic reassessment of certain operations to drive an increased focus on its core operations and to continue to improve overall performance and operating profitability. As a result of this reassessment, management and the Board of Directors decided to pursue an exit of the Company's galvanized pipe and tube operations at its Munhall facility ("Munhall"). During the second quarter of 2023, the Board of Directors of the Company made the decision to permanently cease operations at Munhall. The Company ceased operations effective August 31, 2023. It is anticipated that the complete exit and disposal of all assets at Munhall will be completed within one year from the date the decision was made to permanently cease operations. The strategic decision to cease operations at Munhall is part of the Company’s ongoing efforts to consolidate manufacturing to drive an increased focus on its core operations and to improve profitability while driving operational efficiencies. As a result of this decision, during the second quarter of 2023, the Company incurred asset impairment charges of $ 6.4 million related to the write down of inventory and long-lived assets as well as $ 1.4 million in increased reserves on accounts receivable at the facility. During the third quarter of 2023, the Company incurred additional asset impairment charges of $ 2.4 million related to the write down of inventory to net realizable value. Certain assets of Munhall were also classified as held for sale and the results of operations previously reported under the Tubular Products segment have been classified as discontinued operations for all periods presented. See Note 4 for further discussion of the assets held for sale and related fair value measurements. Divestiture of Specialty Pipe & Tube, Inc. On December 22, 2023, the Company and its wholly-owned subsidiary Specialty Pipe & Tube, Inc. (“SPT”) entered into an Asset Purchase Agreement pursuant to which Ascent and SPT sold substantially all of the assets primarily related to SPT to Specialty Pipe & Tube Operations, LLC, a Delaware limited liability company. The consideration for the transaction was approximately $ 55 million of cash proceeds subject to certain closing adjustments. The transaction closed on December 22, 2023. Ascent and Purchaser also entered into a Transition Services Agreement (the “TSA”) and an Employee Leasing Agreement (the “ELA”) each dated December 22, 2023, pursuant to which Ascent has agreed to provide certain transition services and to lease certain employees to Purchaser immediately after the closing for certain agreed upon transition periods. As result of the sale, SPT results of operations are classified under discontinued operations for all periods presented. Prior to the divestiture, SPT was reported under the Company's Tubular Products segment. 42 Ascent Industries Co. Notes to Consolidated Financial Statements The following table presents the aggregate carrying amounts of the classes of assets and liabilities of the Company's discontinued operations: (in thousands) December 31, 2023 December 31, 2022 Carrying amounts of assets included as part of discontinued operations: Cash and cash equivalents $ — $ 1 Accounts receivable, net 778 11,918 Inventories — 46,781 Prepaid expenses and other current assets 83 1,212 Current assets classified as discontinued operations 861 59,912 Property, plant and equipment, net — 6,812 Right-of-use assets, operating leases, net — 82 Intangible assets, net — 386 Other non-current assets, net — 1,904 Long-term assets classified as discontinued operations — 9,184 Total assets classified as discontinued operations $ 861 $ 69,096 Carrying amounts of current liabilities included as part of discontinued operations: Accounts payable $ 107 $ 8,617 Accrued expenses and other current liabilities 1,366 1,051 Current portion of operating lease liabilities — 41 Total current liabilities classified as discontinued operations $ 1,473 $ 9,709 Carrying amounts of long-term liabilities included as part of discontinued operations: Long-term portion of operating lease liabilities $ — $ 42 Total liabilities classified as discontinued operations $ 1,473 $ 9,751 In May of 2023, the Company was named as a defendant in a lawsuit filed in the U.S. District Court for the Western District of Pennsylvania, asserting various claims for breach of contracts resulting in losses to the plaintiff and seeking damages in the amount of $ 0.8 million plus prejudgment interest and attorney's fees. Although we continue to defend ourselves against the claims, we believe we may incur a material loss in this matter and that our financial statements could be materially affected by an adverse decision regarding the assessment of damages incurred by the plaintiff. Accordingly, the Company has an estimated liability of $ 1.0 million for expected losses related to this lawsuit as of December 31, 2023. 43 Ascent Industries Co. Notes to Consolidated Financial Statements The financial results of the Company's discontinued operations are presented as income from discontinued operations, net of tax on the consolidated statements of income (loss). The following table summarizes the results of the Company's discontinued operations: (Unaudited) Three Months Ended December 31, Year Ended December 31, (in thousands) 2023 2022 2023 2022 Net sales $ 7,214 $ 27,381 $ 64,760 $ 152,154 Cost of sales 8,115 30,674 64,507 138,909 Gross profit ( 901 ) ( 3,293 ) 253 13,245 Selling, general and administrative expense 1,261 2,088 7,587 7,311 Acquisition costs and other 355 96 568 96 Gain on sale of assets ( 26,348 ) — ( 26,348 ) — Asset impairments — — 8,720 — Earnout adjustments — — — ( 7 ) Operating income (loss) of discontinued operations 23,831 ( 5,477 ) 9,726 5,845 Loss on classification as held for sale — — 83 — Income (loss) from discontinued operations before income taxes 23,831 ( 5,477 ) 9,643 5,845 Income tax provision (benefit) 5,157 ( 1,102 ) 2,121 1,357 Net income (loss) from discontinued operations $ 18,674 $ ( 4,375 ) $ 7,522 $ 4,488 Note 3: 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. 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. The following table presents the Company's revenues, disaggregated by product group from continuing operations: (in thousands) 2023 2022 Fiberglass and steel liquid storage tanks and separation equipment $ 50 $ 411 Stainless steel pipe and tube 109,513 154,040 Specialty chemicals 83,616 107,542 Net sales $ 193,179 $ 261,993 The Company's revenues are derived from contracts with customers where performance obligations are satisfied at a point-in-time or over-time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. The following table represents the Company's revenue recognized at a point- in-time and over-time. (in thousands) 2023 2022 Point-in-time $ 175,280 $ 235,344 Over-time $ 17,899 $ 26,649 44 Ascent Industries Co. Notes to Consolidated Financial Statements Note 4: Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs: Level 1 - Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date. Level 2 - Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by other observable market data. Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using model-based techniques, including option pricing models, discounted cash flow models, probability weighted models, and Monte Carlo simulations. The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, notes payable, earn-out liabilities, revolving line of credit, and long-term debt. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis For the fiscal year ended December 31, 2023 and 2022, 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, certain assets held for sale 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. 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. The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company's own judgments about the assumptions market participants would use in pricing the assets and observable market data, when available. During the fourth quarter of 2022, the Company began a strategic reassessment of certain operations to drive an increased focus on its core operations and to continue to improve overall performance and operating profitability. As a result of this reassessment, management and the Board of Directors decided to pursue an exit of the Company's galvanized pipe and tube operations at its Munhall facility ("Munhall"). During the first quarter of 2023, it was determined that a continued change in the use of the assets of the Munhall facility had occurred before the end of their previous useful lives, and therefore, had experienced a triggering event and were evaluated for recoverability. Based on this evaluation of the Munhall assets, it was determined the assets were recoverable and no impairment was recorded during the first quarter. During the second quarter of 2023, the Board of Directors of the Company made the decision to permanently cease operations at the Munhall facility. The Company ceased operations effective August 31, 2023. As a result of this decision, it was determined to be more likely than not that the assets of Munhall would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, experienced a triggering event and were evaluated for recoverability. Based on this evaluation, inventory at Munhall was written down to its net realizable value of $ 16.0 million and certain long-lived assets, including intangible assets, were written down to their estimated fair value of $ 2.6 million, resulting in asset impairment charges of $ 6.4 million in the second quarter of 2023. 45 Ascent Industries Co. Notes to Consolidated Financial Statements During the third quarter of 2023, the remaining inventory at Munhall was written down to its net realizable value of $ 4.0 million resulting in asset impairment charges of $ 2.4 million in the third quarter of 2023. See Note 2 for further information on the Company's discontinued operations. Assets Held-for-Sale As a result of the Company's decision to cease operations and exit Munhall, during the year end December 31, 2023, certain assets of Munhall were classified as held for sale and classified as Level 2 fair value measurements. 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 Munhall facility through 2036. The Company is actively pursuing a sublease for the facility. Munhall assets classified as held for sale as are as follows: (in thousands) December 31, 2023 December 31, 2022 Property, plant and equipment, net 2,374 — Other assets, net 538 — Assets held for sale $ 2,912 $ — 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 at the Palmer facility and determined that the remaining asset group met the criteria to be classified as held for sale, and therefore classified the related assets as held for sale on the consolidated balance sheets. The Company determined that the exit from this business did not represent a strategic shift that had a major effect on its consolidated results of operations, and therefore this business was not classified as discontinued operations. As of December 31, 2023, the remaining Palmer assets continue to be classified as held for sale with the remaining assets to be disposed of in the first quarter of 2023. The results of operations for this business are included within the Tubular Products segment for all periods presented in this annual report. 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. Palmer assets classified as held for sale as of December 31, 2023 and 2022 are as follows: (in thousands) 2023 2022 Inventory, net $ — $ 198 Property, plant and equipment, net — 182 Assets held for sale $ — $ 380 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 2022, the Company entered into an amended sublease agreement with a third party to sublease the entirety of the Palmer facility. The sublease agreement amends the previous sublease agreement entered into in the fourth quarter of 2021 and continues through the remaining term of the Master Lease Agreement. The sublease will expire on September 30, 2036, unless terminated in accordance with the amended sublease agreement. The sublease provides for an annual base rent of approximately $ 0.4 million in the first year, which increases on an annual basis by 2.0 %. The sublessee is responsible for its pro rata share of certain costs, taxes and operating expenses related to the subleased space. The sublease includes an initial security deposit of $ 0.1 million. Fair Value of Financial Instruments The fair values of cash and cash equivalents, accounts receivable, accounts payable and the Company's note payable approximated their carrying value because of the short-term nature of these instruments. The Company's revolving line of credit and long-term debt, which is based on a variable interest rate, are also reflected in the financial statements at carrying value which approximates fair value as of December 31, 2023. The carrying amount of cash and cash equivalents are considered Level 1 measurements. The carrying amounts of accounts receivable, accounts payable, note payable, revolving line of credit and long-term debt are considered Level 2 measurements. See Note 6 for further information on the Company's debt. 46 Ascent Industries Co. Notes to Consolidated Financial Statements Note 5: Property, Plant and Equipment Property, plant and equipment consist of the following: (in thousands) 2023 2022 Land $ 723 $ 723 Leasehold improvements 3,079 3,495 Buildings 1,534 1,534 Machinery, fixtures and equipment 93,758 98,225 Construction-in-progress 1,330 1,657 100,424 105,634 Less accumulated depreciation and amortization ( 70,669 ) ( 70,100 ) Property, plant and equipment, net $ 29,755 $ 35,534 The following table sets forth depreciation expense related to property, plant and equipment: (in thousands) 2023 2022 Cost of sales $ 5,918 $ 6,196 Selling, general and administrative 243 225 Total depreciation $ 6,161 $ 6,421 Note 6: Debt Short-term debt On June 13, 2023, the Company entered into a note payable in the amount of $ 0.9 million with an interest rate of 3.70 % maturing April 1, 2024. The agreement is associated with the financing of the Company's insurance premium in the current year. As of December 31, 2023, the outstanding balance was $ 0.4 million. Credit Facilities (in thousands) 2023 2022 Revolving line of credit, due January 15, 2025 $ — $ 67,442 Term loan, due January 15, 2025 — 4,107 Total long-term debt — 71,549 Less: Current portion of long-term debt — ( 2,464 ) Long-term debt, less current portion $ — $ 69,085 During the first quarter of 2023, the Company entered into an Amended and Restated Credit Agreement with BMO Harris Bank, N.A. ("BMO") to replace LIBOR with the Secured Overnight Funding Rate ("SOFR"). During the fourth quarter of 2023, the Company entered into a Limited Consent, Second Amendment to Credit Agreement and Omnibus Amendment to Loan Documents with BMO Bank N.A. and the other lenders under the Company’s credit facility (the “Credit Facility Amendment”). The Credit Facility Amendment contains a consent for the SPT divestiture, released the lien on the assets of SPT and removed SPT as a loan party. The Credit Facility Amendment also reduced the maximum revolving loan commitment under the credit facility from $ 105 million to $ 80 million, and increased the interest rate for the credit facility from SOFR plus an interest rate margin of between 1.60 % and 1.70 % to SOFR plus an interest rate margin of between 1.85 % and 2.10 %, depending on average availability under the credit facility and the Company’s consolidated fixed charge coverage ratio. As required by the Credit Facility Amendment, the Company used the proceeds from the SPT divestiture to prepay in full the term loan in the original principal amount of $ 5 million under the credit facility and used the remaining proceeds to prepay in part the revolving loans under the credit facility. 47 Ascent Industries Co. Notes to Consolidated Financial Statements The borrowing capacity under the credit facility totals $ 80.0 million consisting of a $ 80.0 million revolving line of credit which includes a $ 17.5 million machinery and equipment sub-limit. 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 currently bear interest at (a) the Base Rate (as defined in the Credit Agreement) plus 0.75 % or (b) SOFR plus 1.85 %. The Credit Agreement also provides an unused commitment fee based on the daily used portion of the credit facility. The revolving line of credit interest rate was 6.20 % and 5.18 % as of December 31, 2023 and 2022, respectively. Average borrowings under the revolving line of credit during 2023 and 2022 were $ 55.6 million and $ 71.0 million with a weighted average interest rate of 7.22 % and 3.67 %, respectively. The term loan interest rate was 6.38 % as of December 31, 2022. The Company made interest payments on all credit facilities of $ 4.0 million and 2.6 million in 2023 and 2022, respectively. As of December 31, 2023, the Company has no principal payments outstanding on long-term debt. 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 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 $ 8.0 million). As of December 31, 2023, the Company was in compliance with all financial debt covenants. As of December 31, 2023, the Company had $ 61.8 million of remaining availability under it credit facility. Note 7: Leases The Company's portfolio of leases contains both finance and operating leases that relate to real estate and manufacturing equipment. Substantially all of the value of the Company's lease portfolio relates to the Master Lease with Store Master Funding XII, LLC (“Store”), an affiliate of Store Capital Corporation ("Store Capital") that was entered into in 2016 and amended with the American Stainless acquisition in 2019 as well as the sale of land at the Munhall facility in 2020. As of December 31, 2023, operating lease liabilities related to the master lease agreement with Store Capital totaled $ 30.6 million, or 94 % of the total lease liabilities on the consolidated balance sheet. During the year ended December 31, 2023, the Company entered into new operating lease agreements resulting in an additional $ 0.5 million of right-of-use assets and lease liabilities. Balance Sheet Presentation Operating and finance lease amounts from continuing operations are as follows (in thousands): Year Ended December 31, Classification Financial Statement Line Item 2023 2022 Operating lease assets Right-of-use assets, operating leases $ 27,784 $ 29,142 Finance lease assets Property, plant and equipment, net 1,543 1,494 Current liabilities Current portion of lease liabilities, operating leases 1,140 1,015 Current liabilities Current portion of lease liabilities, finance leases 292 280 Non-current liabilities Non-current portion of lease liabilities, operating leases 29,729 30,869 Non-current liabilities Non-current portion of lease liabilities, finance leases $ 1,307 $ 1,242 48 Ascent Industries Co. Notes to Consolidated Financial Statements Total Lease Cost Individual components of the total lease cost incurred by the Company are as follows: Year Ended December 31, (in thousands) 2023 2022 Operating lease cost 1 $ 3,945 $ 4,108 Finance lease cost: Reduction in carrying amount of right-of-use assets 334 273 Interest on finance lease liabilities 85 36 Sublease income ( 394 ) ( 187 ) Total lease cost $ 3,970 $ 4,230 1 Includes short term leases, which are 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 statements of income (loss). Maturity of Leases The amounts of undiscounted future minimum lease payments under leases as of December 31, 2023 are as follows: (in thousands) Operating Finance 2024 $ 3,651 $ 367 2025 3,671 361 2026 3,691 361 2027 3,765 361 2028 3,840 303 Thereafter 32,312 85 Total undiscounted minimum future lease payments 50,930 1,838 Imputed Interest ( 20,061 ) ( 239 ) Total lease liabilities $ 30,869 $ 1,599 Lease Term and Discount Rate Year Ended December 31, 2023 2022 Weighted-average discount rate Operating leases 8.33 % 8.27 % Finance leases 5.92 % 2.32 % Weighted-average remaining lease term Operating leases 12.67 years 13.59 years Finance leases 5.07 years 6.06 years 49 Ascent Industries Co. Notes to Consolidated Financial Statements Note 8: Accrued Expenses Accrued expenses for continuing operations consist of the following: (in thousands) 2023 2022 Salaries, wages, and commissions $ 1,706 $ 1,989 Taxes, other than income taxes 359 844 Advances from customers 62 98 Insurance 1,129 553 Professional fees 694 482 Warranty reserve 4 29 Benefit plans 427 383 Customer rebate liability 243 194 Other accrued items 484 937 Total accrued expenses $ 5,108 $ 5,509 Note 9: Shareholders' Equity Authorized shares of common stock were $ 24.0 million ($ 1.00 par value) at December 31, 2023 and 2022. Share Repurchase Program The share repurchase program allows for repurchase of up to 790,383 shares of the Company's outstanding common stock and expires on February 17, 2025. 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, 2023, the Company has 536,871 shares of its share repurchase authorization remaining. Shares repurchased for the year ended December 31, 2023 and 2022 were as follows: Year Ended December 31, 2023 2022 Number of shares repurchased 143,108 110,404 Average price per share $ 8.97 $ 12.16 Total cost of shares repurchased 1 $ 1,287,416 $ 1,345,540 1 Includes broker fees incurred as part of repurchase transactions Dividends At the end of each fiscal year the Board reviews the financial performance and capital needed to support future growth to determine the amount of cash dividend, if any, which is appropriate. In 2023 and 2022, no dividends were declared or paid by the Company. 50 Ascent Industries Co. Notes to Consolidated Financial Statements Note 10: 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 0.8 million shares have been authorized for grant to key employees and non-employee directors under the Company's currently active Incentive Plans. As of December 31, 2023, there were 0.4 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 statements of income (loss) of $ 1.1 million and $ 1.4 million in 2023 and 2022, respectively. Total unrecognized share-based payment expense for all share-based payment plans was $ 0.8 million at December 31, 2023, of which $ 0.6 million is expected to be recognized in 2024, $ 0.1 million in 2025, and $ 0.1 million thereafter. This results in these amounts being recognized over a weighted-average period of 1.57 years. Stock Options 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. There was no compensation expense charged against income for options in 2023. Compensation expense charged against income for options was insignificant for 2022. 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 2023 or 2022. Transactions related to stock options for the year ended December 31, 2023 are summarized as follows: Weighted Average Exercise Price Options Outstanding Weighted Average Contractual Term (in years) Intrinsic Value of Options Outstanding at December 31, 2022 $ 13.66 118,142 5.2 $ — Exercised — — Canceled, forfeited, or expired 13.70 ( 11,945 ) Outstanding at December 31, 2023 $ 13.65 106,197 4.8 $ — Vested and expected to vest at December 31, 2023 1 $ — — — $ — Exercisable options $ 13.65 106,197 4.8 $ — 1 Includes outstanding vested and nonvested options Restricted Stock Awards Restricted stock awards are valued based on the average of the high and low common stock price on the day prior to the date of grant. In general, these awards vest in either 20 % or 33 % increments annually on a cumulative basis, beginning one year after the date of grant. Certain of these awards vest 100 % at the end of a three-year period from 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. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. 51 Ascent Industries Co. Notes to Consolidated Financial Statements All awards are expensed on a straight-line basis over the grant vesting period, which is considered to be the requisite service period. The weighted average period over which the restricted stock awards compensation expense is expected to be recognized is 1.54 years. Transactions related to restricted stock awards for the year ended December 31, 2023 are summarized as follows: Shares Weighted Average Grant Date Fair Value Nonvested at December 31, 2022 79,103 $ 17.31 Granted 47,158 9.74 Vested ( 47,875 ) 15.74 Forfeited ( 10,179 ) 15.56 Nonvested at December 31, 2023 68,207 $ 12.57 Performance Stock Units The Company issues performance stock units classified as equity awards which contain market conditions that must be satisfied for an employee to earn the right to benefit from the award. Performance stock units vest upon the achievement of specific thirty-day volume-weighted average price targets of a share of the Company's common stock over a period of three years . 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. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. The performance stock units are divided into tranches, each one vesting on the date the thirty-day volume-weighted average price of the Company's common stock `meets or exceeds the price target as set forth in the table below: Shares Volume Weighted Average Price Target Tranche I 4,902 $ 13.00 Tranche II 52,566 15.00 Tranche III 4,902 16.00 Tranche IV 2,566 17.50 Tranche V 4,902 19.00 Tranche VI 52,567 20.00 Tranche VII 2,230 22.50 Tranche VIII 100,000 25.00 Tranche IX 40,000 27.50 Tranche X 30,000 30.00 Tranche XI 30,000 $ 35.00 The fair value of the performance stock units 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. Performance stock units do not have dividend rights. The weighted average period over which the performance stock units compensation expense is expected to be recognized is 1.71 years. The weighted-average grant-date fair value per unit of performance stock units granted was $ 0.64 and $ 3.92 in 2023 and 2022, respectively. There were no performance stock units vesting in 2023 and 2022. 52 Ascent Industries Co. Notes to Consolidated Financial Statements Transactions related to performance stock units for the year ended December 31, 2023 were as follows: Units Weighted-Average Grant Date Fair Value Outstanding at December 31, 2022 159,663 $ 3.92 Granted 172,405 0.64 Forfeited ( 7,433 ) 4.73 Outstanding at December 31, 2023 324,635 $ 2.16 Inducement Awards The Company has previously 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. Transactions related to inducement stock awards as of December 31, 2023 were as follows: Units Weighted-Average Grant Date Fair Value Outstanding December 31, 2022 21,686 $ 10.61 Vested — — Forfeited/Canceled ( 16,784 ) $ 10.72 Outstanding December 31, 2023 4,902 $ 10.21 There were no inducement awards that vested in 2023. The total fair value of inducement awards vesting was approximately $ 0.2 million in 2022 The weighted average period over which inducement award compensation cost is expected to be recognized is 0.51 years. Non-Employee Director Compensation Plan Non-employee directors are paid an annual retainer of $ 115,000 . Each non-employee director appointed to serve as a chairperson of a standing board committee receives the following annual retainer: Audit Committee: $ 10,000 ; Compensation Committee: $ 7,500 ; Nominating and Corporate Governance Committee: $ 6,000 . The committee chairperson retainer is in addition to the board retainer. Each director has the opportunity to elect to receive 100 % of the retainer in restricted stock with a minimum of $ 30,000 of the retainer in restricted stock. The amount of the retainer elected to be paid in restricted stock vests quarterly over a one year period. The number of restricted shares is determined by the average of the high and low sale price of the Company's stock on the day prior to the Annual Meeting of Shareholders. In 2023, the Company issued an aggregate of 27,432 shares of restricted stock to non-employee directors in lieu of $ 0.3 million of their annual cash retainer fees. The weighted average period over which the non-employee director award compensation expense is expected to be recognized is 1.23 years. 53 Ascent Industries Co. Notes to Consolidated Financial Statements Note 11: Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities from continuing operations are as follows at the respective year ends: (in thousands) 2023 2022 Deferred income tax assets: Inventory valuation reserves $ 1,829 $ 963 Inventory capitalization 360 907 Accrued bonus 127 150 State net operating loss carryforwards 2,239 1,572 Federal net operating loss carryforwards 2,209 1,088 Lease liabilities 7,415 7,744 Interest Limitation Carryforwards 1,396 555 Intangible asset basis differences 2,564 3,262 Other 1,932 1,192 Total deferred income tax assets 20,071 17,433 State valuation allowance ( 1,641 ) ( 1,371 ) Total net deferred income tax assets 18,430 16,062 Deferred income tax liabilities: Fixed asset basis differences 5,478 7,184 Prepaid expenses 445 418 Lease assets 6,699 7,107 Total deferred income tax liabilities 12,622 14,709 Deferred income taxes, net $ 5,808 $ 1,353 Significant components of the provision for income taxes are as follows: (in thousands) 2023 2022 Current: Federal $ ( 561 ) $ ( 189 ) State 191 137 Total current ( 370 ) ( 52 ) Deferred: Federal ( 5,965 ) ( 4,903 ) State ( 589 ) ( 613 ) Total deferred ( 6,554 ) ( 5,516 ) Total $ ( 6,924 ) $ ( 5,568 ) 54 Ascent Industries Co. Notes to Consolidated Financial Statements The reconciliation of income tax computed at the U. S. federal statutory tax rates to income tax expense is: (in thousands) 2023 2022 Amount % Amount % Tax at U.S. statutory rates $ ( 8,616 ) 21.0 % $ 2,522 21.0 % State income taxes, net of federal tax benefit ( 585 ) 1.4 % 184 1.5 % Federal and State valuation allowance 270 ( 0.7 ) % ( 2,366 ) ( 19.7 ) % Stock option compensation 87 ( 0.2 ) % ( 173 ) ( 1.4 ) % Tax Benefits Associated with Palmer Closure — — % ( 5,707 ) ( 47.5 ) % Other nondeductible expenses 33 ( 0.1 ) % 51 0.4 % Goodwill impairment 2,049 ( 5.0 ) % — — % Other, net ( 162 ) 0.5 % ( 79 ) ( 0.7 ) % Total $ ( 6,924 ) 16.9 % $ ( 5,568 ) ( 46.4 ) % The Company's effective tax rate for 2023 was less than the U.S. statutory rate of 21% primarily driven by tax benefits associated with non-deductible goodwill impairment. 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 the closure of Palmer and the release of valuation allowances on certain deferred tax assets, partially offset by state taxes. The Company made income tax payments of $ 0.9 million and $ 7.8 million in 2023 and 2022, respectively. The Company has $ 10.5 million of U.S. Federal net operating loss carryforwards and $ 6.6 million of interest limitation carryforwards at the end of 2023 compared to $ 5.2 million of U.S. Federal net operating loss carryforwards and $ 2.6 million interest limitation carryforwards at the end of 2022. The Company believes that these carryforwards are more likely than not to be utilized in future periods. The majority of these carryforwards are not subject to expiration. In addition, on a gross basis the Company had state net operating loss carryforwards of $ 49.0 million and $ 37.2 million at the end of 2023 and 2022, respectively. As of the end of 2023, the Company had recognized a state valuation allowance of $ 1.6 million. This represents a $ 0.3 million increase year-over-year primarily driven by losses in jurisdictions for which we believe it is not more likely than not to be utilized in future periods. The majority of these losses will expire between the years of 2023 and 2043, while certain losses are not subject to expiration. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. federal examinations for years before 2020 or state examinations for years before 2019. The Company had no uncertain tax position activity during 2023 or 2022. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in the provision for income taxes. The Company had no accruals for uncertain tax positions including interest and penalties at the end of 2023. 55 Ascent Industries Co. Notes to Consolidated Financial Statements Note 12: Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: (in thousands, except per share data) 2023 2022 Numerator: Net (loss) income from continuing operations $ ( 34,151 ) $ 17,578 Net income from discontinued operations 7,522 4,488 Net (loss) income ( 26,629 ) 22,066 Denominator: Weighted average common shares outstanding 10,140 10,230 Effect of dilutive securities: Employee stock options and stock grants — 180 Denominator for diluted earnings per share - weighted average shares 10,140 10,410 Net (loss) income per share from continuing operations: Basic $ ( 3.37 ) $ 1.72 Diluted $ ( 3.37 ) $ 1.69 Net income per share from discontinued operations: Basic $ 0.74 $ 0.44 Diluted $ 0.74 $ 0.43 Net (loss) income per share: Basic $ ( 2.63 ) $ 2.16 Diluted $ ( 2.63 ) $ 2.12 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 an $ 0.1 million shares of common stock that were anti-dilutive in 2023. The Company had 0.2 million shares of common stock that were anti-dilutive in 2022 . 56 Ascent Industries Co. Notes to Consolidated Financial Statements Note 13: Industry Segments Ascent Industries Co. has two reportable segments: Tubular Products and Specialty Chemicals. The Tubular Products segment includes the operating results of the Company’s plants involved in the production of stainless steel pipe and tube. The Tubular Products segment serves markets through pipe and tube and customers in the appliance, architectural, automotive and commercial transportation, brewery, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste-water treatment, liquid natural gas ("LNG"), food processing, pharmaceutical, oil and gas and other industries. On January 1, 2023, the Company changed the grouping of certain immaterial revenue and expenses associated with the ceased Palmer operations. As a result, certain prior period Tubular Products segment results have been reclassified to All Other to be comparable to the current period's presentation. During the second quarter of 2023, the Board of Directors made the decision to permanently cease operations at the Company’s Munhall facility, which was effective August 31, 2023. As a result, certain prior period Tubular Products segment results have been reclassified to remove Munhall's results from continuing operations to discontinued operations. On December 22, 2023, the Company and its wholly-owned subsidiary Specialty Pipe & Tube, Inc. (“SPT”) entered into an Asset Purchase Agreement pursuant to which Ascent and SPT sold substantially all of the assets primarily related to SPT to Specialty Pipe & Tube Operations, LLC, a Delaware limited liability company. The transaction closed on December 22, 2023. As a result, prior period Tubular Products segment results have been reclassified to remove SPT's results from continuing operations to discontinued operations. The Specialty Chemicals segment includes the operating results of the Company’s plants involved in the production of specialty chemicals. The Specialty Chemicals segment produces 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. The chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measures being operating income and Adjusted earnings (loss) before interest, income taxes, depreciation and amortization. Adjusted earnings (loss) before interest, income taxes, depreciation and amortization excludes certain items that management believes are not indicative of future results. The accounting principles applied at the operating segment level are the same as those applied at the consolidated financial statement level. Intersegment sales and transfers are eliminated at the corporate consolidation level. 57 Ascent Industries Co. Notes to Consolidated Financial Statements The following table summarizes certain information regarding segments of the Company's continuing operations: (in thousands) 2023 2022 Net sales Tubular Products $ 109,513 $ 154,040 Specialty Chemicals 83,616 107,542 All Other 50 411 $ 193,179 $ 261,993 Operating (loss) income Tubular Products $ ( 11,210 ) $ 22,182 Specialty Chemicals ( 12,558 ) 6,971 All Other ( 801 ) ( 509 ) ( 24,569 ) 28,644 Corporate Unallocated corporate expenses ( 12,018 ) ( 12,997 ) Acquisition costs and other ( 843 ) ( 1,104 ) Total Corporate ( 12,861 ) ( 14,101 ) Operating (loss) income ( 37,430 ) 14,543 Interest expense 4,238 2,742 Other income, net ( 593 ) ( 209 ) (Loss) income before income taxes $ ( 41,075 ) $ 12,010 Identifiable assets Tubular Products $ 70,548 $ 89,050 Specialty Chemicals 49,547 72,990 Corporate & Other 42,339 37,907 $ 162,434 $ 199,947 Depreciation and amortization Tubular Products $ 3,145 $ 3,451 Specialty Chemicals 4,432 4,749 Corporate & Other 89 74 $ 7,666 $ 8,274 Capital expenditures Tubular Products $ 1,104 $ 2,076 Specialty Chemicals 1,519 1,140 Corporate & Other 262 178 $ 2,885 $ 3,394 Sales by product group Fiberglass and steel liquid storage tanks and separation equipment $ 50 $ 411 Stainless steel pipe and tube 109,513 154,040 Specialty chemicals 83,616 107,542 $ 193,179 $ 261,993 Geographic sales United States $ 188,241 $ 253,693 Elsewhere 4,938 8,300 $ 193,179 $ 261,993 58 Ascent Industries Co. Notes to Consolidated Financial Statements Note 14: 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. Beginning January 1, 2023 the plan was extended to include all non-union and union employees at the Company's Virginia facility. Employees can contribute to the 401(k)/ESOP Plan up to 100 % of their wages with a maximum of $ 22,500 for 2023. Under the Economic Growth and Tax Relief Reconciliation Act, employees who are age 50 or older could contribute an additional $ 7,500 per year for a maximum of $ 30,000 for 2023. 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 2023 and 2022 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 $ 1.0 million were made for 2023 and $ 0.7 million for 2022. 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 2023 or 2022. 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 "Brist ol CBA"). Employees can contribute to the Bristol Plan up to 60 % of pretax annual compensation, as defined in the Bristol Plan, with a maximum of $ 22,500 for 2023. Under the Economic Growth and Tax Relief Reconciliation Act, employees who are age 50 or older could contribute an additional 7,500 per year for a maximum of 30,000 for 2023. During 2023 and 2022 , the Company contributed 4 % of a participant's eligible compensation regardless of whether the participants contribute to the Bristol Plan. The Company's contributions were $ 0.3 million for both 2023 and 2022. 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 2023 or 2022. During 2022, the Company also maintained a 401(k) Plan (the "Virginia Plan") covering substantially all employees at the Virginia facility. The Company contributed on behalf of each eligible participant a matching contribution equal to a percentage determined each year by the Board of Directors. For 2022 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 %. Matching contributions of $ 0.4 million were made under the Virginia Plan for 2022 . The Company also maintains a Collective Bargaining Agreement (the "Virginia CBA") with the United Food and Commercial Workers, Local Union 400 (the "Virginia Union"), which represents employees at the Virginia facility and is required to make additional quarterly contributions for hourly employees who had a hire date prior to June 1, 2013. Additional quarterly matching contributions of approximately $ 34,734 were made for 2023 and $ 37,743 for 2022 . 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 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 $ 37,818 and $ 40,835 for 2023 and 2022, respectively. The employees at this facility are covered under the Employee Leasing Services Agreement entered into as part of the sale of Specialty Pipe & Tube, Inc which closed December 22, 2023. 59 Ascent Industries Co. Notes to Consolidated Financial Statements Note 15: Commitments and Contingencies In October 2021, the Company acquired DanChem Technologies, Inc. ("DanChem"), a specialty chemical manufacturer based in Virginia. In June of 2020, DanChem received a demand letter from Henkel US Operations Corporation (“Henkel”), a former customer, asserting various claims for breach of contract alleging that product supplied by DanChem under four (4) purchase orders in 2018 and 2019 were defective and/or non-conforming and seeking approximately $ 315,000 in damages. DanChem responded in August 2020 disputing the claims and denying wrongdoing. Henkel was silent almost two years and then, in August 2022, sent another demand letter to DanChem asserting similar, if not identical claims, but now seeking alleged damages of approximately $ 3 million (with the main difference between the two demands being Henkel’s new claims for lost profits and other consequential damages). Henkel filed a lawsuit against DanChem in Connecticut state court in October 2022 seeking its newly alleged damages of approximately $ 3 million. The Company settled the lawsuit with Henkel during the third quarter of 2023. In addition, from time to time, we are involved in various other legal proceedings arising from the normal course of business activities. We are not presently a party to any other such litigation the outcome of which, we believe, if determined adversely to us, would individually, or taken together, have a material adverse effect on our business, operating results, cash flows, or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. 60 Ascent Industries Co. Notes to Consolidated Financial Statements Note 16: Supplemental Financial Information (unaudited) The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters ended December 31, 2023. This quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments necessary to state fairly the information for the periods presented. Unaudited, in thousands, except per share data Quarter Ended 2023 March 31 June 30 September 30 December 31 Net sales $ 54,861 $ 50,355 $ 46,747 $ 41,216 Gross profit 1,466 ( 776 ) 2,984 ( 2,148 ) Loss from continuing operations ( 5,788 ) ( 6,150 ) ( 14,678 ) ( 7,535 ) Income (loss) from discontinued operations, net of tax 588 ( 8,486 ) ( 3,254 ) 18,674 Net (loss) income ( 5,200 ) ( 14,636 ) ( 17,932 ) 11,139 Net loss per share from continuing operations: Basic ( 0.57 ) ( 0.60 ) ( 1.45 ) ( 0.75 ) Diluted ( 0.57 ) ( 0.60 ) ( 1.45 ) ( 0.73 ) Net income (loss) per share from discontinued operations: Basic 0.06 ( 0.83 ) ( 0.32 ) 1.85 Diluted 0.06 ( 0.83 ) ( 0.32 ) 1.80 Net (loss) income per share: Basic ( 0.51 ) ( 1.44 ) ( 1.77 ) 1.10 Diluted ( 0.51 ) ( 1.44 ) ( 1.77 ) 1.07 Weighted-average shares: Basic 10,148 10,170 10,135 10,107 Diluted 10,148 10,170 10,135 10,374 Unaudited, in thousands, except per share data Quarter Ended 2022 March 31 June 30 September 30 December 31 Net sales $ 71,238 $ 72,443 $ 64,132 $ 54,180 Gross profit 15,791 14,350 8,257 4,889 Income (loss) from continuing operations 6,488 7,189 ( 600 ) 4,501 Income (loss) from discontinued operations, net of tax 3,770 3,868 1,224 ( 4,374 ) Net income 10,258 11,057 624 127 Net income (loss) per share from continuing operations: Basic 0.64 0.70 ( 0.06 ) 0.44 Diluted 0.63 0.69 ( 0.06 ) 0.43 Net income (loss) per share from discontinued operations: Basic 0.37 0.38 0.12 ( 0.43 ) Diluted 0.37 0.37 0.12 ( 0.42 ) Net income per share: Basic 1.00 1.08 0.06 0.01 Diluted 0.99 1.06 0.06 0.01 Weighted-average shares: Basic 10,209 10,244 10,253 10,213 Diluted 10,320 10,431 10,465 10,416 61 Ascent Industries Co. Notes to Consolidated Financial Statements Note 17: Subsequent Events The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.