synl-20201231

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-19687

SYNALLOY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

57-0426694

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4510 Cox Road,

Suite 201,

Richmond,

Virginia

23060

(Address of principal executive offices)

(Zip Code)

(804)

822-3260

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, par value $1.00 per share	SYNL	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x

Based on the closing price as of June 30, 2020, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant was $38.9 million.

The number of shares outstanding of the registrant's common stock as of March 8, 2021 was 9,202,045.

Documents Incorporated By Reference

Portions of the Proxy Statement for the 2021 annual shareholders' meeting are incorporated by reference into Part III of this Form 10-K.

Synalloy Corporation

Form 10-K

For Period Ended December 31, 2020

Table of Contents



Part I			Page
	Item 1	Business	2
	Item 1A	Risk Factors	6
	Item 1B	Unresolved Staff Comments	16
	Item 2	Properties	17
	Item 3	Legal Proceedings	17
	Item 4	Mine Safety Disclosures	17
Part II
	Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6	Selected Financial Data	20
	Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 7A	Quantitative and Qualitative Disclosures about Market Risk	34
	Item 8	Financial Statements and Supplementary Data	35
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	70
	Item 9A	Controls and Procedures	70
	Item 9B	Other Information	70
Part III
	Item 10	Directors, Executive Officers and Corporate Governance	70
	Item 11	Executive Compensation	70
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
	Item 13	Certain Relationships and Related Transactions, and Director Independence	71
	Item 14	Principal Accounting Fees and Services	71
Part IV
	Item 15	Exhibits and Financial Statement Schedules	72
	Item 16	Form 10-K Summary	73

		Signatures	77

Forward-Looking Statements

This Annual Report on Form 10-K includes and incorporates by reference "forward-looking statements" within the meaning of the federal securities laws. All statements that are not historical facts are forward-looking statements. The words "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions identify forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, including risks relating to the impact and spread of and the government’s response to COVID-19; inability to weather an economic downturn; a prolonged decrease in nickel and oil prices; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw materials availability; financial stability of our customers; customer delays or difficulties in the production of products; loss of consumer or investor confidence; employee relations; ability to maintain workforce by hiring trained employees; labor efficiencies; risks associated with mergers, acquisitions, dispositions and other expansion activities; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by our debt financing arrangements; and other risks detailed in Item 1A, Risk Factors, in this Annual Report on Form 10-K and from time-to-time in Synalloy Corporation's Securities and Exchange Commission filings. Synalloy Corporation assumes no obligation to update any forward-looking information included in this Annual Report on Form 10-K.

PART I

Item 1. Business

Synalloy Corporation, a Delaware corporation, was incorporated in 1958 as the successor to a chemical manufacturing business founded in 1945. Its charter is perpetual. The name was changed on July 31, 1967 from Blackman Uhler Industries, Inc. The Company's executive office is located at 4510 Cox Road, Suite 201, Richmond, Virginia 23060. Unless indicated otherwise, the terms "Synalloy", "Company," "we" "us," and "our" refer to Synalloy Corporation and its consolidated subsidiaries.

The Company's business is divided into two reportable operating segments, the Metals Segment and the Specialty Chemicals Segment. The Metals Segment operates as three reporting units, all International Organization for Standardization ("ISO") certified manufacturers, including Welded Pipe & Tube Operations, a unit that includes Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI"), which began operations effective January 1, 2019 pursuant to our acquisition of substantially all of the assets of American Stainless Tubing, Inc. ("American Stainless") (see Note 15 to the Consolidated Financial Statements), Palmer of Texas Tanks, Inc. ("Palmer"), and Specialty Pipe & Tube, Inc. ("Specialty"). Welded Pipe & Tube Operations manufactures stainless steel, galvanized, ornamental stainless steel pipe and tube, and other alloy pipe and tube. Palmer manufactures liquid storage solutions and separation equipment. Specialty is a master distributor of seamless carbon pipe and tube. The Metals Segment serves markets through the master distribution of 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 heavy industries. The Specialty Chemicals Segment operates as one reporting unit which includes Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), and CRI Tolling, LLC ("CRI Tolling"). MC manufactures lubricants, surfactants, defoamers, reaction intermediaries and sulfated fats and oils. CRI Tolling provides chemical tolling manufacturing resources to global and regional chemical companies and contracts with other chemical companies to manufacture certain, pre-defined products. The Specialty Chemicals Segment produces specialty chemicals for the chemical, pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional, water and waste-water treatment, construction, oil and gas and other industries.

General

Metals Segment – The segment is comprised of four wholly-owned subsidiaries: Synalloy Metals, Inc., which owns 100 percent of the membership interests of BRISMET, located in Bristol, Tennessee and Munhall, Pennsylvania; ASTI, located in Troutman and Statesville, North Carolina; Palmer, located in Andrews, Texas; and Specialty, located in Mineral Ridge, Ohio and Houston, Texas. Two subsidiaries, BRISMET and ASTI, are aggregated as one reporting unit called Welded Pipe and Tube Operations, with Palmer and Specialty making up the segment's other two reporting units.

BRISMET manufactures welded pipe and tube, primarily from stainless steel, duplex, and nickel alloys. Pipe is produced in sizes from 3/8 inch outside diameter to 144 inches outside diameter and inner dimension wall thickness from 0.28 inches up to 1 and 3/8 inches. Pipe smaller than 18 inches in diameter is made on equipment that forms and welds the pipe in a continuous process. Pipe larger than 18 inches in diameter is formed on presses or rolls and welded on batch welding equipment. Pipe is normally produced in standard 20-foot lengths. BRISMET also has capabilities in the production of long length pipe without circumferential welds. This can reduce the installation cost for the customer. Lengths up to 60 feet can be produced in sizes up to 18 inches in diameter. In larger sizes, BRISMET has a unique ability among domestic producers to make 48-foot lengths in diameters up to 36 inches. BRISMET's Munhall facility manufactures stainless welded pipe as well as new product offerings in welded tube in diameters from 5/8 inch to five inches and gauges from 0.028 inch to 1/4 inch. Additionally, the Munhall facility produces galvanized carbon tube in custom sizes.

ASTI is a leading manufacturer of high-end ornamental stainless steel tube, supplying the automotive, commercial transportation, marine, food services, construction, furniture, healthcare, and other industries. Operating facilities are located in Troutman and Statesville, North Carolina. ASTI combines the use of superior metal quality with in-house capabilities in slitting and welding, along with our proprietary finishing capabilities and the highest levels of customer service and technical support to provide the customer with the highest quality ornamental product available in the market. Product range includes 1/2 inch outside diameter to 5 inch outside diameter, in a variety of shapes, including squares, rectangles and ellipticals. Refer to Note 15 to the consolidated financial statements for further details.

Palmer is a manufacturer of fiberglass and steel storage tanks for the oil and gas, waste water treatment and municipal water industries. Located in Andrews, Texas, Palmer is ideally located in the heart of a significant oil and gas production territory. Palmer produces made-to-order fiberglass tanks, utilizing a variety of custom mandrels and application specific materials. Its fiberglass tanks range from two feet to 30 feet in diameter at various heights. Most of these tanks are used for oil field waste water capture and are an integral part of the environmental regulatory compliance of the drilling process. Each fiberglass tank is manufactured to American Petroleum Institute Q1 standards to ensure product quality. Palmer's steel storage tank facility enables efficient, environmentally compliant production with designed-in expansion capability to support future growth. Finished steel tanks range in size predominantly from 50 to 1,500 barrels and are used to store extracted oil.

Specialty is a leading master distributor of hot finish, seamless, carbon steel pipe and tube, with an emphasis on large outside diameters and exceptionally heavy wall thickness. Specialty's products are primarily used for mechanical and high-pressure applications in the oil and gas, capital goods manufacturing, heavy industrial, construction equipment, paper and chemical industries. Operating from facilities located in Mineral Ridge, Ohio and Houston, Texas, Specialty is well-positioned to serve the major industrial and energy regions and successfully reach other target markets across the United States. Specialty performs value-added processing on approximately 80 percent of products shipped, which includes cutting to length, heat treatment, testing, boring and end finishing and typically processes and ships orders in 24 hours or less. Based upon its short lead times, Specialty plays a critical role in the supply chain, supplying long lead-time items to markets that demand fast deliveries, custom lengths, and reliable execution of orders.

The Metals Segment relies on 10 suppliers that furnish approximately 95 percent of total dollar purchases of raw materials and one supplier that furnishes 33 percent of material purchases. The Company does not believe that the loss of this supplier would have a materially adverse effect on the Company as raw materials are readily available from a number of different sources, and the Company anticipates no difficulties in fulfilling its requirements.

Specialty Chemicals Segment – The segment consists of the Company's wholly-owned subsidiary MS&C. MS&C owns 100 percent of the membership interests of MC, which has a production facility in Cleveland, Tennessee. The segment also includes CRI Tolling which is located in Fountain Inn, South Carolina. MC and CRI Tolling are aggregated as one reporting unit and comprise the Specialty Chemicals Segment. Both facilities are fully licensed for chemical manufacturing. MC manufactures lubricants, surfactants, defoamers, reaction intermediaries, and sulfated fats and oils. CRI Tolling provides chemical tolling manufacturing resources to global and regional companies and contracts with other chemical companies to manufacture certain pre-defined products.

MC produces over 1,100 specialty formulations and intermediates for use in a wide variety of applications and industries. MC's primary product lines focus on the areas of defoamers, surfactants, and lubricating agents. These three fundamental product lines find their way into a large number of manufacturing businesses. Over the years, the customer list has grown to include end users and chemical companies that supply paper, metal working, surface coatings, water treatment, paint, mining, oil and gas, and janitorial applications. MC's capabilities also include the sulfation of fats and oils. These products are used in a wide variety of applications and represent a renewable resource, animal and vegetable derivatives, as alternatives to more expensive and non-renewable petroleum derivatives.

MC's strategy has been to focus on industries and markets that have strong prospects for sustainability in the U.S. in light of global trends. MC's marketing strategy relies on sales to end users through its own sales force, but it also sells chemical intermediates to other chemical companies and distributors. MC also has close working relationships with a significant number of major chemical companies that outsource their production for regional manufacture and distribution to companies like MC. MC has been ISO registered since 1995.

CRI Tolling's business and strategy has been focused in toll manufacturing and providing services to many different end markets, such as the agrochemical, automotive, urethane, water treatment and coatings industries. CRI Tolling engages in sales efforts to other chemical companies in a wide array of markets through the use of its own sales force, manufacturer's representatives and through internal sales efforts involving staff interaction.

The Specialty Chemicals Segment maintains two laboratories for applied research and quality control which are staffed by 11 employees, including multiple chemists.

The majority of raw materials used by the segment are available from numerous independent suppliers and approximately 48 percent of total purchases are from its top 10 suppliers. While some raw material needs are met by a sole supplier or only a few suppliers, the Company anticipates no difficulties in fulfilling its raw material requirements.

See Note 14 to the consolidated financial statements, which are included in Item 8 of this Form 10-K, for financial information about the Company's segments.

Sales

Metals Segment – The Metals Segment utilizes separate sales organizations for its different product groups. Welded Pipe & Tube Operations include stainless steel and galvanized pipe and tube, sold worldwide under the BRISMET trade name and ornamental stainless tube, sold under the ASTI trade name in the U.S. and Canadian markets. Specialty includes the distribution of hot finish, seamless, carbon steel pipe and tube, with approximately 80 percent of Specialty's pipe and tube sales to North American pipe and tube distributors. Producing sales and providing service to distributors, OEM and end use customers are 44 sales representatives comprised of inside sales employees, outside sales employees and independent manufacturers' representatives. Customer feedback and in-field experience generate product enhancements and new product development.

There were no customers representing more than 10 percent of the Metals Segment's revenues for 2020 or 2019, respectively.

Specialty Chemicals Segment – Specialty chemicals are sold directly to various industries nationwide by 10 sales representatives comprised of outside sales employees and independent manufacturers' representatives. The Specialty Chemicals Segment has one customer that accounted for approximately 16 percent of the segment's revenues for 2020 and 2019, respectively.

Distribution

Metals Segment – Welded Pipe & Tube Operations produce the largest sales volume group of products in the Metals Segment. For stainless steel and galvanized pipe and tube, although information is not publicly available regarding the sales of the majority of other producers of these products, management believes that the Company is one of the largest domestic producers of such pipe and tube. ASTI is a leading manufacturer of high-end ornamental stainless steel tube, combining the use of superior metal quality with in-house capabilities in slitting and welding, along with our proprietary finishing capabilities and the highest levels of customer service and technical support to provide customers with the highest quality ornamental product available in the market.

Specialty is a leader in the specialized products segment of the pipe and tube market by offering an industry leading in-stock inventory of a broad range of high quality products, including specialized products with limited availability. Specialty's dual branches have both common and regional-specific products and capabilities.

Specialty Chemicals Segment – The Company is the sole producer of certain specialty chemicals manufactured for other companies under processing agreements and also produces proprietary specialty chemicals. The Company's sales of specialty products are insignificant compared to the overall market for specialty chemicals. The market for most of the products is highly competitive and many competitors have substantially more resources than the Company.

Mergers, Acquisitions and Dispositions

The Company is committed to a long-term strategy of (a) reinvesting capital in our current business segments to foster their organic growth, (b) disposing of underperforming business units, and (c) completing acquisitions that expand our business segments and geographic footprint or establish new manufacturing capabilities.

On January 1, 2019, ASTI completed the American Stainless acquisition. The purpose of the transaction was to extend and enhance the Company's on-going business with additional capacity and new technological advantages in the production of stainless ornamental tube. The purchase price was $21.9 million. American Stainless will also receive quarterly earn-out payments based on ASTI's revenue for a period of three years following closing. The tangible assets purchased and liabilities assumed from American Stainless included accounts receivable, inventory, equipment, and accounts payable.

Environmental Matters

Environmental expenditures that relate to an existing condition caused by past operations and do not contribute to future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or cleanups are probable and the costs of these assessments and/or cleanups can be reasonably estimated. Changes to laws and environmental issues, including climate change, are made or proposed with some frequency and some of the proposals, if adopted, might directly or indirectly result in a material reduction in the operating results of one or more of our operating units. We are presently unable to quantify this risk due to such uncertainties.

Seasonality

The Company's businesses and products are generally not subject to seasonal impacts that result in significant variations in revenues from one quarter to another.

Backlogs

The Metals Segment's Welded Pipe & Tube Operations and the Specialty Chemicals Segment incur a significant dollar value of committed orders in advance of production. The backlog of open orders for the Welded Pipe & Tube Operations were $40.8 million and $35.4 million at the end of 2020 and 2019, respectively. The backlog of open orders for the Specialty Chemicals Segment were $3.9 million and $1.5 million at the end of 2020 and 2019, respectively. Our backlog may not be indicative of actual sales and, therefore, should not be used as a direct measure of future revenue.

Human Capital

Safety and Wellness

The health and safety of our workforce is fundamental to the success of our business. We provide our employees upfront and ongoing safety training to ensure that safety policies and procedures are effectively communicated and implemented. Personal protective equipment is provided to employees to safely perform their job responsibilities.

Because our business involves the manufacturing of physical products, many of our employees are unable to work from home. In an effort to keep our employees safe and maintain operations during the COVID-19 pandemic, we have implemented new health-related measures, including social distancing, restrictions on visitors to our facilities, limiting in-person meetings and other gatherings, limiting company travel, increasing cleanings of our facilities and providing personal protective equipment and disinfecting agents to employees.

Talent Management

Our approach to human capital management is one that seeks to foster an inclusive and respectful work environment where employees are empowered at all levels to implement new ideas, to better serve our customers and continuously improve our processes and operations. Our business results depend on our ability to manage our human capital resources, including attracting, identifying, and retaining key talent. Factors that may affect our ability to attract and retain qualified employees include competition from other employers, availability of qualified individuals and opportunities for employee growth.

As of December 31, 2020, the Company had 526 employees. The Company considers relations with employees to be strong. The number of employees of the Company represented by unions, located at the Munhall, Pennsylvania, Mineral Ridge, Ohio, and Bristol, Tennessee facilities, is 232, or 44 percent of the Company's employees. They are represented by three locals affiliated with the United Steelworkers (the "USW"). Collective bargaining contracts for the USW locals expire at various dates between 2023 and 2024.

Our voluntary turnover rate in 2020 was approximately three percent. We monitor employee turnover rates by plant and the Company as a whole. The average tenure of our employees is approximately 10 years and we believe is driven by our competitive total rewards package offered to employees and development opportunities which promotes longer employee tenure and reduces voluntary turnover.

Total Rewards

We invest in our workforce by offering a competitive total rewards package that includes a combination of salaries and wages, health and wellness benefits, retirement benefits and educational benefits. We strive to offer competitive total rewards packages and benefits for eligible employees.

Diversity and Inclusion

We are an Equal Opportunity Employer and all qualified applicants for positions with the Company receive consideration for employment without regard to race, color, religion, sex, sexual orientation, gender, identity, national origin, disability, or veteran status. We strive to provide an equitable and inclusive environment for all our employees with representation across all levels of our workforce that reflects the diversity of the communities in which we live and work.

Available information

The Company electronically files with the Securities and Exchange Commission ("SEC") its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its periodic reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "1934 Act"), and proxy materials pursuant to Section 14 of the 1934 Act. The SEC maintains a site on the internet, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Company also makes its filings available, free of charge, through its Web site, www.synalloy.com, as soon as reasonably practical after the electronic filing of such material with the SEC. The information on the Company's Web site is not incorporated into this Annual Report on Form 10-K or any other filing the Company makes with the SEC.

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with our business that could adversely affect our operating performance and financial condition. Set forth below are descriptions of those risks and uncertainties that we believe to be material, but the risks and uncertainties described are not the only risks and uncertainties that could affect our business. Reference should be made to "Forward-Looking Statements" above, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our consolidated financial statements and related notes in Item 8 below.

Industry and Segment Risks

The cyclical nature of the industries in which our customers operate causes demand for our products to be cyclical, creating uncertainty regarding future profitability.

Various changes in general economic conditions affect the industries in which our customers operate. These changes include decreases in the rate of consumption or use of our customers’ products due to economic downturns. Other factors causing fluctuation in our customers’ positions are changes in market demand, capital spending, tariff induced price changes, lower overall pricing due to domestic and international overcapacity, lower priced imports, currency fluctuations, and increases in

use or decreases in prices of substitute materials. As a result of these factors, our profitability has been and may in the future be subject to significant fluctuation.

Domestic competition could force lower product pricing and may have an adverse effect on our revenues and profitability.

From time-to-time, intense competition and excess manufacturing capacity in the commodity stainless and galvanized steel industry have resulted in reduced selling prices, excluding raw material surcharges, for many of our stainless steel products sold by the Metals Segment. In order to maintain market share, we would have to lower our prices to match the competition. These factors have had and may continue to have an adverse impact on our revenues, operating results and financial condition, and may continue to do so in the future.

Oil prices are extremely volatile. A substantial or extended decline in the price of oil could adversely affect our financial condition and results of operations.

Prices for oil can fluctuate widely. Revenues from our Palmer and Specialty (Houston, Texas) units are highly dependent on our customers adding oil well drilling and pumping locations. Should oil prices decline such that drilling becomes unprofitable for our customers, such customers will likely cap many of their current wells and cease or curtail expansion. This will decrease the demand for our tanks and pipe and tube and adversely affect the results of our operations.

Significant changes in nickel prices could have an impact on the sales of the Metals Segment.

Nickel prices are currently at a relatively low level, which reduces our manufacturing costs for certain products. When nickel prices increase, many of our customers increase their orders in an attempt to avoid future price increases, resulting in increased sales for the Metals Segment. Conversely, when nickel prices decrease, many of our customers wait to place orders in an attempt to take advantage of subsequent price decreases, resulting in reduced sales for the Metals Segment. On average, the Metals Segment turns its inventory of commodity pipe every four months, but the nickel surcharge on sales of commodity pipe is established on a monthly basis. The difference, if any, between the price of nickel on the date of purchase of the raw material and the price, as established by the surcharge, on the date of sale has the potential to create an inventory price change gain or loss. If the price of nickel steadily increases over time, the Metals Segment is the beneficiary of the increase in nickel price in the form of metal price change gains. We will incur inventory price losses in the future if nickel prices decrease. Any material changes in the cost of nickel could impact our sales and result in fluctuations in the profits of the Metals Segment.

Geographic, Trade and Customer Risks

Our business, financial condition and results of operations could be adversely affected by an increased level of imported products.

Our business is susceptible to the import of products from other countries, particularly in our Metals Segment. Import levels of various products are affected by, among other things, overall world-wide demand, lower cost of production in other countries, the trade practices of foreign governments, government subsidies to foreign producers, the strengthening of the U.S. dollar, and government imposed trade restrictions in the United States. Although imports from certain countries have been curtailed by anti-dumping duties, imported products from other countries could significantly reduce prices. Increased imports of certain products, whether illegal dumping or legal imports, could reduce demand for our products in the future and adversely affect our business, financial position, results of operations or cash flows.

A substantial portion of our overall sales is dependent upon a limited number of customers, and the loss of one or more of such customers would have a material adverse effect on our business, results of operation and profitability.

There were no customers representing more than 10 percent of the Metals Segment's revenues in 2020 or 2019, respectively. Palmer and Specialty, which are a part of the Metals Segment, sell much of their products to the oil and gas industry. Any change in this industry, or any change in this industry’s demand for their products, would have a material adverse effect on the profits of the Metals Segment and the Company.

The products of the Specialty Chemicals Segment are sold to various industries nationwide. The Specialty Chemicals Segment has one customer that accounted for approximately 16 percent of revenues in 2020 and 2019, respectively. The loss of this customer would have a material adverse effect on the revenues of the Specialty Chemicals Segment and the Company.

Operations and Supply Chain Risks

We rely on a small number of suppliers for our raw materials and any interruption in our supply chain could affect our operations.

In order to foster strong business relationships, the Metals Segment uses only a few raw material suppliers. During the year ended December 31, 2020, 10 suppliers furnished approximately 95 percent of our total dollar purchases of raw materials, with one supplier providing 33 percent of purchases of raw materials. However, these raw materials are available from a number of sources, and the Company anticipates no difficulties in fulfilling its raw materials requirements for the Metals Segment. Raw materials used by the Specialty Chemicals Segment are generally available from numerous independent suppliers and approximately 48 percent of total purchases were made from our top 10 suppliers during the year ended December 31, 2020. Although some raw material needs are met by a single supplier or only a few suppliers, the Company anticipates no difficulties in fulfilling its raw material requirements for the Specialty Chemicals Segment. While the Company believes that raw materials for both segments are readily available from numerous sources, the loss of one or more key suppliers in either segment, or any other material change in our current supply channels, could have an adverse effect on the Company’s ability to meet the demand for its products, which could impact our operations, revenues and financial results.

The purchasing incentives we earn from product suppliers can be impacted if we reduce our purchases in response to declining customer demand.

Certain of our product and raw material suppliers have historically offered to their customers and distributors, including us, incentives for purchasing their products. In addition to market or customer account-specific incentives, certain suppliers pay incentives to the customer or distributor for attaining specific purchase volumes during the program period. When the demand for our products declines, we may be less willing to add inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability.

The Specialty Chemicals Segment uses significant quantities of a variety of specialty and commodity chemicals in its manufacturing processes, which are subject to price and availability fluctuations that may have an adverse impact on our financial performance and a lengthy sales cycle which makes it difficult to predict quarterly revenue levels and operating results.

The raw materials we use are generally available from numerous independent suppliers. However, some of our raw material needs are met by a sole supplier or only a few suppliers. If any supplier that we rely on for raw materials ceases or limits production, we may incur significant additional costs, including capital costs, in order to find alternate, reliable raw material suppliers. We may also experience significant production delays while locating new supply sources, which could result in our failure to timely deliver products to our customers. Purchase prices and availability of these critical raw materials are subject to volatility. Some of the raw materials used by the Specialty Chemicals Segment are derived from petrochemical-based feedstock, such as crude oil and natural gas, which have been subject to historical periods of rapid and significant movements in price. These fluctuations in price could be aggravated by factors beyond our control such as political instability, and supply and demand factors, including Organization of the Petroleum Exporting Countries ("OPEC") production quotas and increased global demand for petroleum-based products. At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at prices and other terms acceptable, or at all. If suppliers increase the price of critical raw materials, we may not have alternative sources of supply. We attempt to pass changes in the prices of raw materials along to our customers. However, we cannot always do so, and any limitation on our ability to pass through any price increases could have an adverse effect on our financial performance. Any significant variations in the cost and availability of our specialty and commodity materials may negatively affect our business, financial condition or results of operations, specifically for the Specialty Chemicals Segment.

Purchasing the products of the Specialty Chemicals Segment is also a major commitment on the part of our customers. Before a potential customer determines to purchase products from the Specialty Chemicals Segment, the Company must produce test product material so that the potential customer is satisfied that we can manufacture a product to their specifications. The production of such test materials is a time-consuming process. Accordingly, the sales process for products in the Specialty Chemicals Segment is a lengthy process that requires a considerable investment of time and resources on our part. As a result, the timing of our revenues is difficult to predict, and the delay of an order could cause our revenues to fall below our expectations and those of the public market analysts and investors.

Our operating results are sensitive to the availability and cost of energy and freight, which are important in the manufacture and transport of our products.

Our operating costs increase when energy or freight costs rise. During periods of increasing energy and freight costs, we might not be able to fully recover our operating cost increases through price increases without reducing demand for our products. In addition, we are dependent on third party freight carriers to transport many of our products, all of which are dependent on fuel to transport our products. The prices for and availability of electricity, natural gas, oil, diesel fuel and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Disruptions in the supply of energy resources could temporarily impair the ability to manufacture products for customers and may result in the decline of freight carrier capacity in our geographic markets, or make freight carriers unavailable. Further, increases in energy or freight costs that cannot be passed on to customers, or changes in costs relative to energy and freight costs paid by competitors, has adversely affected, and may continue to adversely affect, our profitability.

We are dependent upon the continued operation of our production facilities, which are subject to a number of hazards.

In both of our business segments, our production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unscheduled downtime and environmental hazards which could result in liability for workplace injuries and fatalities. In addition, some of our production capabilities are highly specialized, which limits our ability to shift production to another facility. We cannot assure you that we will not experience these types of incidents in the future or that these incidents will not result in production delays, failure to timely fulfill customer orders or otherwise have a material adverse effect on our business, financial condition or results of operations.

We may not be able to make the operational and product changes necessary to continue to be an effective competitor.

We must continue to enhance our existing products and to develop and manufacture new products with improved capabilities in order to continue to be an effective competitor in our business markets. In addition, we must anticipate and respond to changes in industry standards that affect our products and the needs of our customers. We also must continue to make improvements in our productivity in order to maintain our competitive position. When we invest in new technologies, processes or production capabilities, we face risks related to construction delays, cost over-runs and unanticipated technical difficulties.

The success of any new or enhanced products will depend on a number of factors, such as technological innovations, increased manufacturing and material costs, customer acceptance and the performance and quality of the new or enhanced products. As we introduce new products or refine existing products, we cannot predict the level of market acceptance or the amount of market share these new or enhanced products may achieve. Moreover, we may experience delays in the introduction of new or enhanced products. Any manufacturing delays or problems with new or enhanced product launches will adversely affect our operating results. In addition, the introduction of new products could result in a decrease in revenues from existing products. Also, we may need more capital for product development and enhancement than is available to us, which could adversely affect our business, financial condition, or results of operations. We sell our products in industries that are affected by technological changes, new product introductions, and changing industry standards. If we do not respond by developing new products or enhancing existing products on a timely basis, our products will become obsolete over time and our revenues, cash flows, profitability and competitive position will suffer.

In addition, if we fail to accurately predict future customer needs and preferences, we may invest heavily in the development of new or enhanced products that do not result in significant sales and revenue. Even if we successfully innovate in the development of new and enhanced products, we may incur substantial costs in doing so, and our profitability may suffer. Our products must be kept current to meet the needs of our customers. To remain competitive, we must develop new and innovative products on an on-going basis. If we fail to make innovations, or the market does not accept our new or enhanced products, our sales and results could suffer.

Our inability to anticipate and respond to changes in industry standards and the needs of our customers, or to utilize changing technologies in responding to those changes, could have a material adverse effect on our business and our results of operations.

We depend on third parties to distribute certain of our products and because we have no control over such third parties we are subject to adverse changes in such parties’ operations or interruptions of service, each of which may have an adverse effect on our operations.

We use third parties over which we have only limited control to distribute certain of our products. Because we rely on these third parties to provide distribution services, any change in our ability to access these third party distribution services could have an adverse impact on our revenues and put us at a competitive disadvantage with our competitors.

Freight costs for products produced in our Palmer facility restrict our sales area for this facility.

The freight and other distribution costs for products sold from our Palmer facility result in the market area for these products being restricted, which limits the geographic market for Palmer’s tanks and the ability to significantly increase revenues derived from sales of products from the Palmer facility.

Loss of key supplier authorizations or lack of product availability could adversely affect our sales and earnings.

Our Specialty business depends on maintaining an immediately available supply of various products to meet customer demand. Many of our relationships with key product suppliers are longstanding, but are terminable by either party. The loss of key supplier authorizations, or a substantial decrease in the availability of their products, could put us at a competitive disadvantage and have a material adverse effect on our business. Supply interruptions could arise from raw material shortages, inadequate manufacturing capacity or utilization to meet demand, financial problems, tariffs and other regulations affecting trade between the U.S. and other countries, labor disputes or weather conditions affecting suppliers' production, transportation disruptions or other reasons beyond our control.

Changes in supplier distribution programs could adversely affect sales and earnings in our Specialty business.

Specialty, as a master distributor, faces the risk of key product suppliers changing their relationships with distributors generally in a manner that adversely impacts us. For example, key suppliers could change the following: the prices we must pay for their products relative to other distributors or relative to competing products; the geographic or product line breadth of distributor authorizations; supplier purchasing incentive or other support programs; or product purchase or stock expectations.

Our existing property and liability insurance coverages contain exclusions and limitations on coverage.

We maintain various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations. From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and limitations on coverage, larger self-insured retentions and deductibles and higher premiums. As a result, our existing coverage may not be sufficient to cover any losses we may incur and in the future our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations or cash flows.

Government Regulation Risks

Our operations expose us to the risk of environmental, health and safety liabilities and obligations, which could have a material adverse effect on our financial condition, results of operations or cash flows.

We are subject to numerous federal, state and local environmental protection and health and safety laws governing, among other things:

•the generation, use, storage, treatment, transportation, disposal and management of hazardous substances and wastes;

•emissions or discharges of pollutants or other substances into the environment;

•investigation and remediation of, and damages resulting from, releases of hazardous substances; and

•the health and safety of our employees.

Under certain environmental laws, we can be held strictly liable for hazardous substance contamination of any real property we have ever owned, operated or used as a disposal site. We are also required to maintain various environmental permits and licenses, many of which require periodic modification and renewal. Our operations entail the risk of violations of those laws and regulations, and we cannot assure you that we have been or will be at all times in compliance with all of these requirements. In addition, these requirements and their enforcement may become more stringent in the future.

We have incurred, and expect to continue to incur, additional capital expenditures in addition to ordinary costs to comply with applicable environmental laws. Our failure to comply with applicable environmental laws and permit requirements could result in civil and/or criminal fines or penalties, enforcement actions, and regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures such as the installation of pollution control equipment, which could have a material adverse effect on our financial condition, results of operations or cash flows.

We are currently, and may in the future be, required to investigate, remediate or otherwise address contamination at our current or former facilities. Many of our current and former facilities have a history of industrial usage for which additional investigation, remediation or other obligations could arise in the future and that could materially adversely affect our business, financial condition, results of operations or cash flows. In addition, we are currently, and could in the future be, responsible for costs to address contamination identified at any real property we used as a disposal site.

Although we cannot predict the ultimate cost of compliance with any of the requirements described above, the costs could be material. Non-compliance could subject us to material liabilities, such as government fines, third-party lawsuits or the suspension of non-compliant operations. We also may be required to make significant site or operational modifications at substantial cost. Future developments also could restrict or eliminate the use of or require us to make modifications to our products, which could have a significant negative impact on our results of operations and cash flows. At any given time, we are involved in claims, litigation, administrative proceedings and investigations of various types involving potential environmental liabilities, including cleanup costs associated with hazardous waste disposal sites at our facilities. We cannot assure you that the resolution of these environmental matters will not have a material adverse effect on our results of operations or cash flows. The ultimate costs and timing of environmental liabilities are difficult to predict. Liability under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. We could incur significant costs, including cleanup costs, civil or criminal fines and sanctions and third-party claims, as a result of past or future violations of, or liabilities under, environmental laws.

We could be subject to third party claims for property damage, personal injury, nuisance or otherwise as a result of violations of, or liabilities under, environmental, health or safety laws in connection with releases of hazardous or other materials at any current or former facility. We could also be subject to environmental indemnification claims in connection with assets and businesses that we have acquired or divested.

There can be no assurance that any future capital and operating expenditures to maintain compliance with environmental laws, as well as costs to address contamination or environmental claims, will not exceed any current estimates or adversely affect our financial condition and results of operations. In addition, any unanticipated liabilities or obligations arising, for example, out of discovery of previously unknown conditions or changes in laws or regulations, could have an adverse effect on our business, financial condition, results of operations or cash flows.

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing, as well as governmental reviews of such activities could result in delays or eliminate new wells from being started, thus reducing the demand for our fiberglass and steel storage tanks, pressure vessels and heavy walled pipe and tube.

Hydraulic fracturing (“fracking”) is currently an essential and common practice to extract oil from dense subsurface rock formations and this lower cost extraction method is a significant driving force behind the surge of oil exploration and drilling in several locations in the United States. However, the Environmental Protection Agency, U.S. Congress and state legislatures have considered adopting legislation to provide additional regulations and disclosures surrounding this process. In the event that new legal restrictions surrounding the fracking process are adopted in the areas in which our customers operate, we may see a dramatic decrease in Palmer's and Specialty - Texas' profitability which could have an adverse impact on our financial results.

New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These regulations require companies to conduct annual due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. Tungsten and tantalum are designated as conflict minerals under the Dodd-Frank Act. These metals are used to varying degrees in our welding materials and are also present in specialty alloy products. These new requirements could adversely affect the sourcing, availability and pricing of minerals used in our products. In addition, we could incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the

relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who could require that all of the components of our products are conflict mineral-free.

Human Capital Risks

Certain of our employees in the Metals Segment are covered by collective bargaining agreements, and the failure to renew these agreements could result in labor disruptions and increased labor costs.

As of December 31, 2020, we had 232 employees represented by unions at our Bristol, Tennessee, Mineral Ridge, Ohio, and Munhall, Pennsylvania facilities, which is 44 percent of the aggregate number of Company employees. These employees are represented by three local unions affiliated with the USW. The collective bargaining contracts for the USW will expire at various dates between 2023 and 2024. Although we believe that our present labor relations are strong, our failure to renew these agreements on reasonable terms as the current agreements expire could result in labor disruptions and increased labor costs, which could adversely affect our financial performance.

If we do not successfully manage the transitions associated with the election of three new members of our Board of Directors, the appointment of a new Chairman of the Board, the retirement of our Chief Executive Officer and appointment of a new Interim Chief Executive Officer and a new Chief Financial Officer, it could have an adverse impact on our business operations, including our internal controls over financial reporting, as well as be viewed negatively by our customers and shareholders.

The Company appointed Sally M. Cunningham Senior Vice President and Chief Financial Officer effective June 30, 2020 after the resignation of Dennis M. Loughran. In addition, on July 7, 2020, the Company announced the election of three new members of the Board of Directors at the 2020 Annual Meeting of Shareholders. On July 9, 2020, the Company's Board of Directors elected Henry L. Guy as Chairman of the Board of Directors. On October 27, 2020, the Company announced the retirement of Craig C. Bram, the Company's President and Chief Executive Officer and member of the Company's Board of Directors, effective November 9, 2020. On October 27, 2020, the Company announced the appointment of Christopher G. Hutter, a member of the Company's Board of Directors, as interim President and Chief Executive Officer, effective November 9, 2020. Such leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to our business, including our relationships with customers, suppliers, vendors, and employees. It may also make it more difficult to hire and retain key employees.

The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and have an adverse effect on our business and results of operations.

The successful implementation of our strategies and handling of other issues integral to our future success will depend, in part, on our experienced management team. The loss of key members of our management team could have an adverse effect on our business. Although we have entered into employment agreements with key members of our management team including Christopher G. Hutter, Interim President and Chief Executive Officer and Sally M. Cunningham, Senior Vice President and Chief Financial Officer, employees may resign from the Company at any time and seek employment elsewhere, subject to certain non-competition and confidentiality restrictions. Additionally, if we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

Financial and Strategic Risks

Our current capital structure includes indebtedness, which is secured by all or substantially all of our assets and which contains restrictive covenants that may prevent us from obtaining adequate working capital, making acquisitions or capital improvements.

Our existing credit facility contains restrictive covenants that limit our ability to, among other things, borrow money or guarantee the debts of others, use assets as security in other transactions, make investments or other restricted payments or distributions, change our business or enter into new lines of business, and sell or acquire assets or merge with or into other companies. In addition, our credit facility requires us to meet a minimum fixed charge coverage ratio which could limit our ability to plan for or react to market conditions or meet extraordinary capital needs and could otherwise restrict our financing activities. Our ability to comply with the covenants and other terms of our credit facility will depend on our future operating performance. If we fail to comply with such covenants and terms, we will be in default and the maturity of any then outstanding related debt could be accelerated and become immediately due and payable. In addition, in the event of such a default, our lender may refuse to advance additional funds, demand immediate repayment of our outstanding indebtedness, and elect to foreclose on our assets that secure the credit facility. There were no events of default under our credit facility as of December 31, 2020. Although we believe we will remain in compliance with these covenants in the foreseeable future and that our relationship with our lender is strong, there is no assurance our lender would consent to an amendment or waiver in the event of noncompliance; or that such consent would not be conditioned upon the receipt of a cash payment, revised principal payout terms, increased interest rates or restrictions in the expansion of the credit facility for the foreseeable future, or that our lender would not exercise rights that would be available to them, including, among other things, demanding payment of outstanding borrowings. In addition, our ability to obtain additional capital or alternative borrowing arrangements at reasonable rates may be adversely affected. All or any of these adverse events would further limit our flexibility in planning for, or reacting to, downturns in our business.

We may need new or additional financing in the future to expand our business or refinance existing indebtedness, and our inability to obtain capital on satisfactory terms or at all may have an adverse impact on our operations and our financial results.

If we are unable to access capital on satisfactory terms and conditions, we may not be able to expand our business or meet our payment requirements under our existing credit facility. Our ability to obtain new or additional financing will depend on a variety of factors, many of which are beyond our control. We may not be able to obtain new or additional financing because we may have substantial debt, our current receivable and inventory balances do not support additional debt availability or because we may not have sufficient cash flows to service or repay our existing or future debt. In addition, depending on market conditions and our financial performance, equity financing may not be available on satisfactory terms or at all. If we are unable to access capital on satisfactory terms and conditions, this could have an adverse impact on our operations and our financial results.

We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.

On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out LIBOR rates by the end of 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month and 12-month) is currently under consultation by the ICE Benchmark Administration and may be extended until June 2023. It is not possible to predict the further effect of the rules of the FCA, any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Any such developments may cause LIBOR to perform differently than in the past or cease to exist. In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the discontinuation or unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs.

Our strategy of using acquisitions and dispositions to position our businesses may not always be successful, which may have a material adverse impact on our financial results and profitability.

We have historically utilized acquisitions and dispositions in an effort to strategically position our businesses and improve our ability to compete. We plan to continue to do this by seeking specialty niches, acquiring businesses complementary to existing strengths and continually evaluating the performance and strategic fit of our existing business units. We consider acquisitions, joint ventures and other business combination opportunities as well as possible business unit dispositions. From time-to-time, management holds discussions with management of other companies to explore such opportunities. As a result, the relative makeup of the businesses comprising our Company is subject to change. Acquisitions, joint ventures and other business combinations involve various inherent risks, such as: assessing accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates; the potential loss of key personnel of an acquired business; significant transaction costs that were not identified during due diligence; our ability to achieve identified financial and operating synergies anticipated to result from an acquisition or other transaction; impairments of goodwill; and unanticipated changes in business and economic conditions affecting an acquisition or other transaction. The amount and type of consideration and deal charges paid could have a short-term dilutive effect on the Company's earnings per share. However, such transactions are anticipated to provide long-term economic benefit to the Company. If acquisition opportunities are not available or if one or more acquisitions are not successfully integrated into our operations, this could have a material adverse impact on our financial results and profitability.

Impairment in the carrying value of our fixed assets, intangible assets, or goodwill could adversely affect our financial condition and consolidated results of operations.

Goodwill represents the excess of cost over the fair value of identified net assets of businesses acquired. We review goodwill for impairment annually, or whenever circumstances change in a way which could indicate that impairment may have occurred. Goodwill is tested at the reporting unit level. We identify potential goodwill impairments by comparing the fair value of the reporting unit to its carrying amount, which includes goodwill and other intangible assets. If the carrying amount of the reporting unit exceeds the fair value, an impairment exists. The amount of the impairment is the amount by which the carrying amount exceeds the fair value. A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors would have a significant impact on the recoverability of these assets and negatively affect our financial condition and consolidated results of operations. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.

We evaluate the useful lives of our fixed assets and intangible assets to determine if they are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the lease term, future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets. We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill, fixed assets or intangible assets become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.

Intellectual Property Risks

Our inability to sufficiently or completely protect our intellectual property rights could adversely affect our business, prospects, financial condition and results of operations.

Our ability to compete effectively in both of our business segments will depend on our ability to maintain the proprietary nature of the intellectual property used in our businesses. These intellectual property rights consist largely of trade-secrets and know-how. We rely on a combination of trade secrets and non-disclosure and other contractual agreements and technical measures to protect our rights in our intellectual property. We also depend upon confidentiality agreements with our officers, directors, employees, consultants and subcontractors, as well as collaborative partners, to maintain the proprietary nature of our intellectual property. These measures may not afford us sufficient or complete protection, and others may independently develop intellectual property similar to ours, otherwise avoid our confidentiality agreements or produce technology that would adversely affect our business, prospects, financial condition and results of operations.

General Risk Factors

Our business, financial condition, results of operations and cash flows may be adversely affected by global public health epidemics and pandemics, including the COVID-19 outbreak.

Our business and operations expose us to risks associated with global health epidemics or pandemics, such as the outbreak of the coronavirus (COVID-19) which has spread from China to many other countries including the United States. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help the control of the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, and school closures among others. The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets and increased unemployment levels leading to the Federal Reserve enacting fiscal and monetary stimulus measures to counteract the impacts of COVID-19 in the United States.

We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we currently continue to operate across our business footprint. Notwithstanding our continued operations, COVID-19 has begun to have and may have additional negative impacts on our operations and customers, which may compress our margins, including as a result of preventative and precautionary measures that we, other businesses, and governments are taking. Any resulting economic downturn could adversely affect the demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products and raw materials. The continued progression of the outbreak could also negatively impact our business or results of operations through the temporary closure or suspension of manufacturing operations at our operating locations or those of our customers or suppliers.

In addition, the ability of our employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19, and as a result, may impact our production throughout our supply chain and constrict sales channels. Our customers may be directly impacted by business curtailments or weak market conditions and may not be able to fulfill their contractual obligations. Our bank credit agreement requires that we maintain certain financial and other covenants. Events resulting from the effects of the COVID-19 outbreak may negatively affect our ability to comply with these covenants, which could lead us to seek amendment or waivers from our lenders, limit access to or require accelerated repayment of our existing credit facilities, or require us to pursue alternative financing arrangements. We have no assurance that any alternative financing arrangements, if required, could be obtained at acceptable terms to us, or at all, given effects of the financial markets at such time.

The extent to which the COVID-19 outbreak may adversely affect our business depends on future developments, which are highly uncertain and unpredictable, including new information about the severity of the outbreak and the effectiveness of actions to contain or mitigate its effects. As such, the related financial impacts cannot be reasonably estimated at this time.

We encounter significant competition in all areas of our businesses and may be unable to compete effectively, which could result in reduced profitability and loss of market share.

We actively compete with companies producing the same or similar products and, in some instances, with companies producing different products designed for the same uses. We encounter competition from both domestic and foreign sources in price, delivery, service, performance, product innovation, and product recognition and quality, depending on the product involved. For some of our products, our competitors are larger and have greater financial resources than we do. As a result, these competitors may be better able to withstand a change in conditions within the industries in which we operate, a change in the prices of raw materials or a change in the economy as a whole. Our competitors can be expected to continue to develop and introduce new and enhanced products and more efficient production capabilities, which could cause a decline in market acceptance of our products. Current and future consolidation among our competitors and customers also may cause a loss of market share as well as put downward pressure on pricing. Our competitors could cause a reduction in the prices for some of our products as a result of intensified price competition. Competitive pressures can also result in the loss of major customers. If we cannot compete successfully, our business, financial condition and profitability could be adversely affected.

Our allowance for credit losses may not be adequate to cover actual losses.

An allowance for credit losses is maintained for estimated losses resulting from the inability of our customers to make required payments. This allowance may not be adequate to cover actual losses, and future provisions for losses could materially and adversely affect our operating results. The allowance for credit losses is based on an evaluation of the outstanding receivables and existing economic conditions. The amount of future losses is susceptible to changes in economic, operating and other outside forces and conditions, all of which are beyond our control, and these losses may exceed current

estimates. Although management believes that the allowance for credit losses is adequate to cover current estimated losses, management cannot make assurances that we will not further increase the allowance for credit losses based on subsequent events and economic conditions. A significant increase in the allowance for credit losses could adversely affect our earnings.

Our internal controls over financial reporting could fail to prevent or detect misstatements.

We are subject to Section 404 of The Sarbanes-Oxley Act of 2002 ("Section 404"), and the related rules of the SEC which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. Effective April 27, 2020, the SEC adopted amendments to the "accelerated filer" and "large accelerated filer" definitions in Rule 12b-2 under the Securities and Exchange Act of 1934. The amendments exclude from the "accelerated filer" and "large accelerated filer" definitions an issuer that is eligible to be a smaller reporting company and that had a public float outstanding of less than $75 million as of the end of the registrant's most recent fiscal second quarter. We determined that the Company does not meet the accelerated or large accelerated filer definitions as of June 30, 2020. For so long as we remain a smaller reporting company and non-accelerated filer, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies, including but not limited to, not being required as a non-accelerated filer to comply with the auditor attestation requirements of Section 404(b). An independent assessment by our independent registered public accounting firm of the effectiveness of internal control over financial reporting could detect problems our management's assessment may not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

During the course of the review and testing of our internal control for the purpose of providing the reports required by these rules, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the NASDAQ Global Market or other adverse consequences that would materially harm our business.

In addition, if our status as a "non-accelerated filer" changes, we will be required to have our independent registered public accounting firm attest to the effectiveness of internal control over financial reporting. If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are an accelerated filer or large accelerated filer, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected.

Our business could be negatively affected as a result of actions of activist shareholders.

From time to time, we may be subject to proposals by shareholders urging us to take certain corporate actions. If activist shareholder activities ensue, our business could be adversely impacted because (i) responding to actions by activist shareholders can be costly and time-consuming, and divert the attention of our management and employees; (ii) perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (iii) pursuit of an activist shareholder's agenda may adversely affect our ability to effectively implement our business strategy and create additional value for our shareholders.

Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.

Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and reputational damage adversely affecting customer or investor confidence.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company operates the major plants and facilities listed below, all of which are in adequate condition for their current usage. All facilities throughout the Company are believed to be adequately insured. The buildings are of various types of construction including brick, steel, concrete, concrete block, and sheet metal. All have adequate transportation facilities for both raw materials and finished products. In September 2016, the Company sold its real estate properties previously owned in Tennessee, South Carolina, Texas and Ohio to Store Master Funding XII, LLC ("Store Funding") and concurrently leased back these real properties; see Note 11 to the consolidated financial statements included in Item 8 of this Form 10-K.

On January 1, 2019, ASTI completed the American Stainless acquisition. In connection with the acquisition, the Company and Store Funding entered into a second Amended and Restated Master Lease, pursuant to which the Company will lease the properties purchased by Store Funding from American Stainless on January 1, 2019, for the remainder of the initial term of 20 years set forth in the Master Lease.

A parcel of land in Mineral Ridge, OH used for inventory storage, the corporate headquarters located in Richmond, VA, and the former shared service center located in Spartanburg, SC continue to be leased by the Company from other parties.


Location	Principal Operations	Building Square Feet	Land Acres
Munhall, PA	Manufacturing stainless steel pipe	284,000	20.0
Bristol, TN	Manufacturing stainless steel pipe	275,000	73.1
Cleveland, TN	Chemical manufacturing and warehousing facilities	143,000	18.8
Fountain Inn, SC	Chemical manufacturing and warehousing facilities	136,834	16.9
Andrews, TX	Manufacturing liquid storage solutions and separation equipment	122,662	19.6
Troutman, NC	Manufacturing ornamental stainless steel tube	106,657	26.5
Statesville, NC	Manufacturing ornamental stainless steel tube	83,000	26.8
Houston, TX	Cutting facility and storage yard for heavy walled pipe	29,821	10.0
Mineral Ridge, OH	Cutting facility and storage yard for heavy walled pipe	12,000	12.0
Mineral Ridge, OH	Storage yard for heavy walled pipe	—	4.6
Richmond, VA	Corporate headquarters	5,911	—
Spartanburg, SC	Former office space for corporate employees and shared service center (1)	4,858	—

(1)Property leased by Company; office was closed in 2018 and all furniture and equipment have been removed.

Item 3. Legal Proceedings

For a discussion of legal proceedings, see Note 12 to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company had 393 common shareholders of record at March 8, 2021. The Company's common stock trades on the NASDAQ Global Market under the trading symbol SYNL. The Company's credit agreement restricts the payment of dividends indirectly through a minimum fixed charge coverage covenant. No dividends were declared or paid in 2020 or 2019. The prices shown below are the high and low sales prices for the common stock for each full quarterly period in the last two fiscal years as quoted on the NASDAQ Global Market.


	2020				2019
Quarter	High		Low		High		Low
1st	$	14.25	$	8.33	$	16.80	$	12.45
2nd	10.60		6.51		19.65		14.00
3rd	8.48		5.52		17.17		15.28
4th	8.14		3.81		16.02		11.45

The information required by Item 201(d) of Regulation S-K is set forth in Part III, Item 12 of this Annual Report on Form 10-K.


*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Source: Russell Investment Group

Comparison of 5 Year Cumulative Total Return Graph


	12/15		12/16		12/17		12/18		12/19		12/20
Synalloy Corporation	$	100.00	$	159.16	$	196.49	$	247.02	$	192.23	$	116.14
Russell 2000	100.00		121.31		139.08		123.76		155.35		186.36
NASDAQ Non-Financial	100.00		107.53		141.01		137.21		187.89		276.01

This graph and related information shall not be deemed to be “filed” with the Securities and Exchange Commission or “soliciting material” or subject to Regulation 14A, or the liabilities of Section 18 of the 1934 Act, except to the extent the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act of 1933 or the 1934 Act.

Unregistered Sales of Equity Securities

Pursuant to the compensation arrangement with directors discussed under Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in this Form 10-K, in 2020, the Company issued an aggregate of 43,063 shares of restricted stock to non-employee directors in lieu of $345,000 of their annual cash retainer fees. Issuance of these shares was not registered under the Securities Act of 1933 based on the exemption provided by Section 4(a)(2) thereof because no public offering was involved.

The Company also issued 151,019 shares of common stock in 2020 to management and key employees that vested pursuant to the 2005 and 2015 Stock Awards Plans. Issuance of these shares was not registered under the Securities Act of 1933 based on the exemption provided by Section 4(a)(2) thereof because no public offering was involved.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of the Company's common stock in fiscal 2020:


	Total Number of Shares Purchased	Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Program(1)	Number of Shares that may Yet Be Purchased under the Program(1)
January 1, 2020 - January 31, 2020	—	$	—	—	850,000
February 1, 2020 - February 29, 2020	—	$	—	—	850,000
March 1, 2020 - March 31, 2020	59,617	$	10.65	59,617	790,383
Total	59,617	$	10.65	59,617	790,383

(1) Pursuant to the 850,000 share stock repurchase program authorized by the Board of Directors in February 2019. The stock repurchase program expires in 24 months from authorization, and there is no guarantee to the exact number of shares that will be repurchased by the Company over that period. For additional information, see Note 16 in the notes to the consolidated financial statements included in Item 8 of this Form.

Item 6. Selected Financial Data

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to Item 301(c) of Regulation S-K, we are not required to provide the information required by this Item.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity, and capital resources during the two-year period ended December 31, 2020. Unless otherwise noted, all references herein for the years 2020 and 2019 represent the fiscal years ended December 31, 2020 and 2019, respectively. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this Annual Report that have been prepared in accordance with accounting principles generally accepted in the United States of America. This discussion and analysis is presented in five sections:

•Business Overview

•Results of Operations and Non-GAAP Financial Measures

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements and Contractual Obligations

•Significant Accounting Policies and Estimates

Business Overview

COVID-19 Update

The impact of COVID-19, including changes in consumer behavior, pandemic fears, and market downturns as well as restrictions on business and individual activities has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by federal, state, and local public health and governmental authorities to contain the spread of COVID-19 and although many restrictions that were in place have eased in many localities, some areas that had previously eased restrictions have reverted to more stringent limitations. If new strains of COVID-19 develop or sufficient amounts of vaccines are not available or widely administered for a significant period of time, the continued impacts to our business could continue to be material.

We are an essential business and remain open in all locations, adhering to the health guidelines to operate safely provided by our government officials and the U.S. Centers for Disease Control and Prevention. Throughout the COVID-19 pandemic, our first priority has been to safeguard the health of our employees. This includes restricting outside personnel and visitors as well as requiring a face covering when a visitor is on-site, creating space between work areas for employees, providing ample PPE and cleaning supplies in our offices and manufacturing plants, restricting travel, and having formal policies for mitigation in the event of cases of illness.

During 2020, COVID-19 has had an adverse effect on our reported results and operations. The Company has seen wide ranging impacts partially attributable to COVID-19 that have included:

•A $16.2 million non-cash goodwill impairment charge related to our Metals Segment;

•Continued curtailment of operations at our Palmer facility that has resulted in $4.0 million of operating losses and $6.2 million of non-cash, pre-tax asset impairment charges related to that business; and

•Technical defaults of our debt covenants in the second and third quarter of 2020 and the need to obtain waivers for compliance.

There remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. We believe that, at a minimum, the manufacturing sector will continue to face challenges over the next several quarters. Given that, we are unable to predict the ultimate impact it may have on our business, future operations, financial position or cash flows. The extent that our operations will continue to be impacted by the COVID-19 pandemic will depend on future developments, including any new potential waves of the virus, new strains of the virus, and the success of vaccination programs, all of which are highly uncertain and cannot be accurately predicted. See Part I - Item 1A, "Risk Factors," included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic.

Goodwill Impairment

During the second quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed. Continued deterioration in macroeconomic conditions, continued risks within the stainless steel industrial business, reporting unit operating losses and a decline in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event, thereby requiring the Company to quantitatively evaluate the reporting unit for impairment. As a result of the goodwill impairment evaluation in the second quarter, it was concluded that the estimated fair value of the reporting unit was greater than its carrying value by 1.7% and, as such, no goodwill impairment was necessary.

During the third quarter of 2020, continued declines in the Company's stock price, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the Welded Pipe and Tube reporting unit had experienced a triggering event resulting in the Company performing another quantitative interim evaluation of goodwill. As a result of the goodwill impairment evaluation in the third quarter, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value by 9.7% resulting in a goodwill impairment charge of $10.7 million.

Further, continued risks within the stainless steel industrial business, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the Welded Pipe and Tube reporting unit had experienced a triggering event in the fourth quarter of 2020, resulting in the Company performing another quantitative interim evaluation of goodwill. As a result of the goodwill impairment evaluation in the fourth quarter, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value by 24.1% resulting in the remainder of the goodwill attributable to the Welded Pipe and Tube reporting unit being impaired and an additional goodwill impairment charge of $5.5 million. See Note 5 - Goodwill for further discussion on the Company's goodwill and these impairment charges.

Results of Operations

Comparison of 2020 to 2019 – Consolidated

Consolidated net sales for the full-year 2020 decreased $49.2 million, or 16 percent, over the full-year 2019 to $256.0 million. Net sales for the fourth quarter of 2020 decreased $12.0 million, or 18 percent, over the fourth quarter of 2019 to $55.9 million. The decrease in sales was driven by our Metals Segment, which had a decrease of $46.6 million, or 19 percent, for the full-year of 2020 and a decrease of $10.6 million, or 19 percent, for the fourth quarter of 2020.

For the full-year 2020, net loss totaled $27.3 million, or $3.00 diluted loss per share. This compared to full-year 2019 net loss of $3.0 million, or $0.34 diluted loss per share. The full-year 2020 was negatively impacted by:

•Non-cash goodwill impairment in our Welded Pipe and Tube reporting unit of $16.2 million;

•Operating losses at Palmer totaling $4.0 million and $6.2 million in non-cash, pre-tax asset impairment charges;

•Proxy contest costs of $3.1 million related to the Company's proxy contest and election of directors at the 2020 Annual Meeting of Shareholders;

•Costs related to the hotline investigation regarding the accounting for Palmer and other matters of $0.7 million; and

•Severance costs of $1.1 million related to the retirement of the former President and CEO.

For the fourth quarter of 2020 the Company recorded a net loss of $8.6 million, or $0.94 diluted loss per share. This compares to a net loss of $0.9 million, or $0.10 diluted loss per share for fourth quarter of 2019. The fourth quarter of 2020 was negatively impacted by:

•Non-cash goodwill impairment in our Welded Pipe and Tube reporting unit of $5.5 million;

•Operating losses at Palmer totaling $0.4 million; and

•Severance costs of $1.1 million related to the retirement of the former President and CEO.

Full-year 2020 consolidated gross profit decreased 26 percent to $22.7 million, or nine percent of sales, compared to $30.8 million, or 10 percent of sales, in the full-year 2019. For the fourth quarter of 2020, consolidated gross profit was $6.1 million, a decrease of 12 percent from the fourth quarter of 2019 of $7.0 million. Consolidated gross profit was 11 percent of sales for the fourth quarter of 2020 and 10 percent of sales for the same period of 2019. The decreases in dollars was attributable to the Metals Segment as discussed in the Metals Segment Comparison of 2020 to 2019 below.

Consolidated selling, general and administrative expense for the full-year 2020 decreased by $3.9 million to $28.7 million, or 11 percent of sales, compared to $32.6 million, or 11 percent of sales for the full-year 2019. These costs decreased $0.1 million during the fourth quarter of 2020 to $7.6 million compared to $7.7 million for the same period of 2019 and were 14 percent of sales for the fourth quarter of 2020 compared to 11 percent of sales for the fourth quarter of 2019. The Company experienced decreased SG&A costs for both the full year and fourth quarter of 2020 when compared to the same periods of 2019 resulting from:

•Decreases in personnel costs related to salaries, commissions and employee benefits ($2.3 million lower for the full-year and $0.5 million lower for the fourth quarter);

•Decreases in travel expense related to the Company's suspension of all non-essential travel in response to the COVID-19 pandemic ($0.9 million lower for the full-year and $0.2 million lower for the fourth quarter); and

•Decreases in amortization expense due to the passage of time and write down of intangible assets in the second quarter of 2020 at Palmer ($0.5 million lower for the full-year and $0.2 million lower for the fourth quarter).

The full-year and fourth quarter decreases were offset by:

•Increases in bad debt expense ($0.6 million higher for the full-year and $0.3 million higher for the fourth quarter);

•Increases in stock compensation expense ($0.4 million higher in the fourth quarter), related to the retirement of the former President and CEO; and

•Increases in taxes and licenses fees ($0.1 million higher in the fourth quarter).

Consolidated operating loss for the full-year 2020 totaled $31.1 million compared to an operating loss of $1.7 million for the full-year 2019. For the fourth quarter of 2020, operating loss was $6.9 million compared to an operating loss of $1.8 million

in the fourth quarter of 2019. Operating losses for the full-year 2020 were primarily attributable to our Metals Segment as discussed in the Metals Segment Comparison of 2020 to 2019 below.

Metals Segment

The following table summarizes operating results for the two years indicated. Reference should be made to Note 14 to the consolidated financial statements included in Item 8 of this Form 10-K.


	2020				2019
(in thousands)	Amount		%		Amount		%
Net sales	$	204,459	100.0	%	$	251,078	100.0	%
Cost of goods sold	189,103		92.5	%	226,852		90.4	%
Gross profit	15,356		7.5	%	24,226		9.6	%
Selling, general and administrative expense	17,538		8.6	%	20,534		8.2	%
Asset impairments	6,214		3.0	%	—		—	%
Goodwill impairment	16,203		7.9	%	—		—	%
Operating (loss) income	$	(24,599)	(12.0)	%	$	3,692	1.5	%

Comparison of 2020 to 2019 - Metals Segment

Net sales for the Metals Segment totaled $204.5 million for the full year of 2020, a decrease of 19 percent compared to the same period of 2019. Net sales for the fourth quarter of 2020 totaled $44.7 million, a decrease of 19 percent compared to the fourth quarter of 2019 net sales of $55.4 million. During the second quarter of 2020, the Company curtailed operations at its Palmer facility due to the impact of the COVID-19 pandemic on the oil and gas industry and the Permian Basin. Excluding Palmer, net sales for the full-year and fourth quarter of 2020 decreased 11 percent and 15 percent, respectively.

Welded Pipe & Tube Operations net sales decreased nine percent and 13 percent for the full-year and fourth quarter of 2020, respectively, when compared to the same periods of the prior year. The total sales decrease for the year resulted from a five percent decrease in unit volumes combined with a three percent decrease in average selling price. For the fourth quarter of 2020, unit volumes decreased nine percent while the average selling price decreased four percent compared to 2019. The lower average selling price for the full-year was significantly impacted by the pass through of input and cost changes related to 304 alloy surcharges and a slightly less favorable product mix for stainless steel pipe and tube and the decline in indexed pricing for galvanized pipe and tube.

Seamless heavy-wall carbon steel pipe and tube sales decreased 23 percent and 29 percent for the full-year and fourth quarter, respectively, of 2020 compared to the same periods of 2019. The full-year sales decrease was comprised of a 15 percent decrease in unit volumes combined with a nine percent decrease in average selling price. For the fourth quarter, unit volumes decreased 20 percent while average selling prices decreased 11 percent. Lower pricing was primarily due to a lower mix of energy based sales throughout the year and lower mill pricing while volume was impacted by the on-going impacts of COVID-19 in the oil and gas industry.

As mentioned above, during the second quarter of 2020, the Company curtailed operations at its Palmer facility due to the impact of the COVID-19 pandemic on the oil and gas industry and the Permian Basin. As a result, storage tank sales decreased 81 percent and 84 percent for the full-year and fourth quarter, respectively, of 2020 when compared to the same periods for the prior year. The full-year decrease was comprised of a 50 percent decrease in the average selling price and a 61 percent decline in the number of tanks sold. For the fourth quarter, the storage tank sales decrease resulted from a 90 percent decrease in average selling price offset by a 74 percent increase in unit volumes.

The Metals Segment's operating loss totaled $24.6 million for the full-year 2020 compared to operating income of $3.7 million for 2019. For the fourth quarter 2020, operating loss was $4.8 million compared to operating income of $0.6 million for the fourth quarter of 2019. Current year operating results were affected by the following factors:

•Non-cash goodwill impairment related to the Welded Pipe and Tube reporting unit totaling $16.2 million. See Note 5- Goodwill for further discussion on the Company's goodwill;

•Operating losses at Palmer totaling $4.0 million and $6.2 million in non-cash, pre-tax asset impairment charges related to this business;

•Nickel prices and resulting surcharges for 304 and 316 alloys experienced significant increases and decreases during 2020, with the net result being significant margin reduction as inventories bought at higher surcharge levels were sold during declining pricing periods. As a result, the full year of 2020 generated a net unfavorable operating impact of $5.3 million related to metal pricing, compared to a net unfavorable operating impact of $6.4 million in 2019;

•Operating income from seamless carbon pipe and tube showed a decline of $2.4 million related to lower volume and pricing noted above; and

•Year over year changes in volume, pricing and product mix in welded pipe and tube, as noted above, combined for a $0.5 million decline in operating profit margins in 2020 compared to 2019.

Selling, general and administrative expense decreased $3.0 million, or 15 percent, for the full-year 2020 when compared to 2019. This expense category was nine percent of sales for 2020 and eight percent of sales for 2019. For the fourth quarter of 2020, selling, general and administrative expense was $3.9 million (nine percent of sales), a decrease of $1.2 million from $5.1 million (nine percent of sales) for the same period of 2019. The changes in selling, general and administrative expense resulted from:

•Salaries, commissions and employee benefit costs (lower by $1.8 million and $0.5 million for the full-year and fourth quarter, respectively);

•Incentive bonus and stock compensation expense (lower by $1.2 million and $0.9 million for the full-year and fourth quarter, respectively);

•Amortization expense (lower by $0.5 million and $0.2 million for the full-year and fourth quarter, respectively); and

•Travel expense related to the Company reducing all non-essential travel in response to the COVID-19 pandemic (lower by $0.5 million and $0.1 million for the full-year and fourth quarter, respectively).

The full-year and fourth quarter decreases were offset by:

•Bad debt expense ($0.7 million and $0.3 million higher for the full-year and fourth quarter, respectively);

•Higher professional fees ($0.2 million higher for the full-year 2020); and

•Taxes and Licenses fees ($0.1 million higher for the full-year 2020 and the fourth quarter, respectively).

Specialty Chemicals Segment

The following tables summarize operating results for the two years indicated. Reference should be made to Note 14 to the consolidated financial statements included in Item 8 of this Form 10-K.


	2020				2019
(in thousands)	Amount		%		Amount		%
Net sales	$	51,541	100.0	%	$	54,090	100.0	%
Cost of goods sold	43,736		84.9	%	46,983		86.9	%
Gross profit	7,805		15.1	%	7,107		13.1	%
Selling, general and administrative expense	3,772		7.3	%	4,296		7.9	%

Operating income	$	4,033	7.8	%	$	2,811	5.2	%

Comparison of 2020 to 2019 – Specialty Chemicals Segment

Net sales for the Specialty Chemicals Segment decreased five percent, or $2.5 million, to $51.5 million for 2020 compared to $54.1 million in 2019. For the fourth quarter of 2020, sales were $11.2 million, representing an 11 percent decrease from $12.6 million for the same quarter of 2019. For the full-year, overall shipped pounds were up flat to prior year on a decrease in volume of four percent for contract manufactured products and a seven percent increase in tolled products. For the fourth quarter of 2020, pounds shipped increased two percent. Overall selling prices decreased five percent and 13 percent for the full-year and fourth quarter of 2020, respectively, compared to the same periods of 2019. Net sales were unfavorably impacted during the full-year of 2020 from downturns in demand due to weak industrial and manufacturing activities related to the COVID-19 pandemic. The Specialty Chemicals Segment was able to increase production of hand sanitizer and cleaning aids to help offset the reduced production into the oil and gas industry while also implementing cost cutting measures allowing the Segment to generate increased profits on lower sales volume.

The Specialty Chemicals Segment's operating income for the full-year of 2020 totaled $4.0 million compared to operating income of $2.8 million for the full-year 2019. The fourth quarter of 2020 increased 24 percent from the prior year quarter to $0.5 million. During 2020, gross profit margin increased as a percentage of net sales over 2019 levels, at 15 percent versus 13 percent, respectively, primarily driven by favorable reductions in shipping costs ($0.1 million), inventory shrinkage ($0.1 million) and favorable manufacturing variance adjustments ($0.7 million) over 2019.

Selling, general and administrative expense decreased $0.5 million or 12 percent, to $3.8 million in 2020 when compared to 2019 expense of $4.3 million, which represented seven percent of sales and eight percent of sales, respectively. For the fourth quarter, selling, general and administrative expense was $1.1 million (10 percent of sales) in 2020, an increase of $0.1 million when compared to $1.0 million (eight percent of sales) for the same period of 2019.

The full-year decreases in selling, general and administrative expenses resulted from:

•Salaries, commissions and employee benefits ($0.5 million and $0.1 million lower for the full-year and fourth quarter, respectively);

•Travel expense related to the Company reducing all non-essential travel in response to the COVID-19 pandemic ($0.1 million lower for the full-year 2020); and

•Bad debt expense ($0.1 million lower for the full-year 2020).

The full-year and fourth quarter decreases were offset by:

•Incentive bonus expense ($0.1 million and $0.2 million higher for the full-year and fourth quarter, respectively); and

•Higher professional fees ($0.1 million higher for the full-year 2020).

Comparison of 2020 to 2019 - Corporate

Corporate expenses decreased $0.5 million to $7.9 million, or three percent of sales, in 2020 down from $8.4 million, or three percent of sales, in 2019. The full-year decrease resulted primarily from:

•Travel expense decreased $0.3 million as a result of COVID-19 and the Company's decision to eliminate all non-essential travel;

•Professional fees decreased by $0.2 million from the prior year resulting from lower banking fees in the current year;

•Performance based bonuses decreased $0.2 million due to lower attainment of pre-defined Adjusted EBITDA targets in the year; and

•Other corporate overhead expenses decreased $0.6 million driven by lower repair and maintenance expense and lower directors' fees for the year.

The full-year decreases were partially offset by:

•Employee benefit costs increased $0.9 million driven by severance costs of $1.1 million related to the retirement of the former President and CEO.

Interest expense was $2.1 million and $3.8 million for the full-years of 2020 and 2019, respectively. The decrease was primarily related to lower average debt outstanding in the full year of 2020 driven by $10.7 million of working capital reductions in the year.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we use the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Diluted Earnings (Loss) Per Share. Management believes that these non-GAAP measures provide additional useful information to allow readers to compare the financial results between periods. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.

EBITDA and Adjusted EBITDA

We define "EBITDA" as earnings before interest (including change in fair value of interest rate swap), income taxes, depreciation and amortization. We define "Adjusted EBITDA" as EBITDA further adjusted for the impact of non-cash and other items we do not consider in our evaluation of ongoing performance. These items include: goodwill impairment, asset impairment, gain on lease modification, interest expense (including change in fair value of interest rate swap), income taxes, depreciation, amortization, stock-based compensation, non-cash lease cost, acquisition costs and other fees, proxy contest costs, shelf registration costs, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities, retention costs, restructuring and severance costs and other adjustments from net income. We caution investors amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by other companies because not all companies calculate EBITDA and Adjusted EBITDA in the same manner. We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

Consolidated EBITDA and Adjusted EBITDA are as follows:


		Year Ended December 31,
($ in thousands)		2020			2019
Consolidated
Net loss		$	(27,267)		$	(3,036)
Adjustments:
	Interest expense	2,110			3,818
	Change in fair value of interest rate swap	51			141
	Income taxes	(4,706)			(727)
	Depreciation	7,572			7,578
	Amortization	3,028			3,486
EBITDA		(19,212)			11,260
	Acquisition costs and other	861			1,936
	Proxy contest costs	3,105			—
	Shelf registration costs	—			10
	Earn-out adjustments	(1,195)			(747)
	Gain on investments in equity securities	(170)			(1,873)
	Asset impairments	6,214			—
	Goodwill impairment	16,203			—
	Gain on lease modification	(171)			—
	Stock-based compensation	1,791			2,091
	Non-cash lease expense	510			560
	Retention expense	235			223
	Restructuring and severance costs	1,076			—
Adjusted EBITDA		$	9,247		$	13,460
	% sales	3.6		%	4.4		%

Metals Segment EBITDA and Adjusted EBITDA are as follows:


		Year Ended December 31,
($ in thousands)		2020			2019
Metals Segment
Net (loss) income		$	(22,388)		$	4,356
Adjustments:
	Interest expense	11			83
	Depreciation	5,855			5,954
	Amortization	3,028			3,486
EBITDA		(13,494)			13,879
	Acquisition costs and other	16			1,381
	Earn-out adjustments	(1,195)			(747)
	Asset impairments	6,214			—
	Goodwill impairment	16,203			—
	Stock-based compensation	303			663
	Retention expense	—			123
Metals Segment Adjusted EBITDA		$	8,047		$	15,299
	% of segment sales	3.9		%	6.1		%

Specialty Chemicals Segment EBITDA and Adjusted EBITDA are as follows:


		Year Ended December 31,
($ in thousands)		2020			2019
Specialty Chemicals Segment
Net income		$	4,046		$	2,811
Adjustments:
	Interest expense	9			—
	Depreciation	1,552			1,461
EBITDA		5,607			4,272
	Stock-based compensation	207			226
Specialty Chemicals Segment Adjusted EBITDA		$	5,814		$	4,498
	% of segment sales	11.3		%	8.3		%

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share are non-GAAP measures and exclude goodwill impairment, asset impairment, gain on lease modification, stock-based compensation, non-cash lease costs, acquisition costs, proxy contest costs, shelf registration costs, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities, retention costs and restructuring and severance costs from net income. They also utilize a constant effective tax rate to reflect tax neutral results. Adjusted net (loss) income and adjusted diluted (loss) earnings per share should not be considered an alternative to, or a more meaningful indicator of, the Company's net (loss) income or diluted (loss) earnings per share as prepared in accordance with GAAP. The Company's methods of determining this non-GAAP financial measure may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, these non-GAAP measures may not be comparable to the measures used by other companies.

The reconciliation of net income (loss) and earnings (loss) per share to adjusted net income (loss) and adjusted earnings (loss) per share is as follows:


		Year Ended December 31,
(Amounts in thousands, except per share data)		2020		2019
Loss before income taxes		$	(31,973)	$	(3,763)

Adjustments:
	Acquisition costs and other	861		1,936
	Proxy contest costs	3,105		—
	Shelf registration costs	—		10
	Earn-out adjustments	(1,195)		(747)
	Gain on investments in equity securities	(170)		(1,873)
	Asset impairments	6,214		—
	Goodwill impairment	16,203		—
	Gain on lease modification	(171)		—
	Stock-based compensation	1,791		2,091
	Non-cash lease expense	510		560
	Retention expense	235		223
	Restructuring and severance costs	1,076		—
Adjusted loss before income taxes		(3,514)		(1,563)
	Benefit for income taxes at 21%	(738)		(328)

Adjusted net loss		$	(2,776)	$	(1,235)

Average shares outstanding, as reported
	Basic	9,099		8,983
	Diluted	9,099		8,983

Adjusted net loss per common share
	Basic	$	(0.31)	$	(0.14)
	Diluted	$	(0.31)	$	(0.14)

Liquidity and Capital Resources

Summary

We closely manage our liquidity and capital resources. Our liquidity requirements depend on key variables, including level of investment required to support our business strategies, the performance of our business, capital expenditures, credit facilities and working capital management. Capital expenditures and share repurchases are a component of our cash flow and capital.

Cash Flows

Cash flows were as follows:


	Year ended December 31,
(in thousands)		2020		2019
Total cash provided by (used in):
Operating activities		17,978		28,640
Investing activities		994		(25,695)
Financing activities		(19,362)		(4,539)
Net decrease in cash and cash equivalents		$	(390)	$	(1,594)

Operating Activities

The decrease in net cash provided by operating activities for the full-year 2020 compared to the full-year 2019 was primarily driven by a net loss of $27.3 million for 2020 compared to a net loss of $3.0 million for 2019, and changes in working capital, driven by accounts receivable and inventory, which increased operating cash flow for 2020 by approximately $14.6 million, compared to an increase of approximately $29.6 million in 2019. In 2020, accounts receivable and inventory decreased over prior year but at a slower rate. The decrease in accounts receivable was driven by lower sales and a decrease in days sales outstanding to 45 days as of December 31, 2020 from 46 days as of December 31, 2019. The decrease in inventory was due to continued inventory rationalization efforts throughout 2020 to enhance the Company's liquidity position during the COVID-19 pandemic and an increase in inventory turns from 1.62 turns as of December 31, 2019 to 1.70 turns as of December 31, 2020.

Investing Activities

Net cash provided by investing activities primarily consists of transactions related to capital expenditures, equity security transactions, and acquisitions. The increase in cash provided by investing activities for the full-year 2020 compared to cash used in investing activities for the full-year 2019 was primarily due to a decrease in cash outflows related to the American Stainless acquisition in the prior year not in the current year ($21.9 million), an increase in net proceeds from the sale of equity securities in the current year over the prior year ($4.4 million) and decreases in capital expenditures ($0.8 million).

Financing Activities

Net cash used in financing activities primarily consist of transactions related to our long-term debt. The increase in net cash used in financing activities for the full-year 2020 compared to the full-year 2019 was primarily due to borrowings from the Term Loan related to the American Stainless acquisition in the prior year not in the current year.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents and our credit facilities are our most significant sources of liquidity. We believe our sources of liquidity will be sufficient to fund operations, debt obligations and anticipated capital expenditures over the next 12 months.

The Company has a $100 million asset-backed revolving Line with a maturity date of December 20, 2021 and a $20 million Term Loan with a maturity date of February 1, 2024. As of December 31, 2020, the Company had $61.4 million of total borrowings outstanding with its lender, down $14.2 million from the balance as of December 31, 2019. As of December 31, 2020, the Company had $11.0 million of remaining available capacity under the Line. See Note 6 - Long-term Debt, in the notes to the consolidated financial statements for additional information.

The Company is subject to certain covenants including maintaining a minimum fixed charge coverage ratio of not less than 1.25, maintaining a minimum tangible net worth of not less than $60.0 million, and a limitation on the Company's maximum amount of capital expenditures per year, which is in line with current projected needs.

The Company notified its bank of a technical default of the fixed charge coverage ratio in its Credit Agreement at the quarters ended June 30, 2020 and September 30, 2020. To address the technical defaults, the Company entered into two amendments to its Credit Agreement with its bank subsequent to the end of the each quarter. See Note 6 - Long-term Debt, in the notes to the consolidated financial statements for additional information.

As of December 31, 2020, the Company had a minimum fixed charge coverage ratio of 1.43, a minimum tangible net worth of $67.1 million and was in compliance with all debt covenants.

On January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement with BMO Harris Bank N.A. providing the Company with a new four-year revolving credit facility (the "Facility"). The new Credit Agreement provides the Company with up to $150.0 million of borrowing capacity. The Facility refinances and replaces the Company's previous $100.0 million asset based revolving line of credit with Truist Bank ("Truist"), which was scheduled to mature on December 21, 2021, and the remaining portion of the Company's five-year $20 million term loan with Truist, which was scheduled to mature on February 1, 2024. The initial borrowing capacity under the Facility totals $110.0 million. See Note 6 and Note 18 for additional details on this new agreement.

Stock Repurchases and Dividends

We repurchase common stock and pay dividends pursuant to programs approved by our Board of Directors. The payment of cash dividends is also subject to customary legal and contractual restrictions. Our capital allocation strategy is to first fund operations and investments in growth and then return excess cash over time to shareholders through share repurchases and dividends.

On February 21, 2019, the Board of Directors authorized a stock repurchase program for up to 850,000 shares of its outstanding common stock over 24 months. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2020, the Company has 790,383 shares of its share repurchase authorization remaining.

Stock repurchase activity was as follows:


	Year ended December 31,
		2020		2019
Number of shares repurchased		59,617		—
Average price per share		$	10.65	—
Total cost of shares repurchased		$	636,940	$	—

At the end of each fiscal year, the Board reviews the financial performance and capital needed to support future growth to determine the amount of cash dividend, if any, which is appropriate. In 2020 and 2019, no dividends were declared or paid by the Company.

Other Financial Measures

Below are additional financial measures that we believe are important in understanding the Company's liquidity position from year to year. The metrics are defined as:

Current ratio = current asset divided by current liabilities

Debt to capital = Total debt divided by total capital

Return on average equity = net income divided by the trailing 12-month average of equity

Results of these additional financial measures are as follows:


	Year ended December 31,
		2020	2019
Current ratio		4.1	3.6
Debt to capital		43%	41%
Return on average equity		(29.2)%	(2.9)%

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on the Company's financial position, revenues, results of operations, liquidity, or capital expenditures.

As of December 31, 2020, the Company's contractual obligations and other commitments were as follows:


			Payment Obligations for the Year Ended
(in thousands)	Total		2021		2022		2023		2024		2025		Thereafter
Obligations:
Revolving credit facility(1)	$	49,037	$	49,037	$	—	$	—	$	—	$	—	$	—
Term loans(1)	12,333		4,000		4,000		4,000		333		—		—
Interest on bank debt	1,284		1,102		131		48		3		—		—
Finance lease	58		20		15		15		8		—		—
Operating leases	61,682		3,610		3,665		3,699		3,549		3,619		43,540
Total	$	124,394	$	57,769	$	7,811	$	7,762	$	3,893	$	3,619	$	43,540

(1) On January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement with BMO Harris Bank N.A .providing the Company with a new four-year revolving credit facility. The amounts in the table above do not include the effects of the debt refinance. See Note 6 and Note 18 for additional details on this new agreement

Critical Accounting Policies and Estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.

Business Combinations

Acquisitions are accounted for using the acquisition method of accounting for business combinations in accordance with GAAP. Under this method, the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets, if any, acquired and liabilities assumed.

Earn-Out Liabilities

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

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

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

The fair value of the contingent consideration earn-out liabilities are estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit. Changes to the fair value of the earn-out liabilities are determined each quarter-end and charged to income or expense in the “Earn-Out Adjustments” line item in the consolidated statements of operations and comprehensive loss.

Goodwill

Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is tested for impairment at least on an annual basis. Goodwill was $1.4 million and $17.6 million as of December 31, 2020 and 2019, respectively.

Impairment of Goodwill

We evaluate the carrying value of goodwill annually as of October 1 and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair value of the reporting units are estimated using a combination of the discounted cash flow method and the market based approach. This method uses projections of cash flows from the reporting unit as well as available comparable company information. This approach requires significant judgments including the Company's projected net cash flows, the weighted average cost of capital used to discount the cash flows and terminal value assumptions. We derive these assumptions used in the testing from several sources. Many of these assumptions are derived from our internal budgets, which would include existing sales data based on current product lines and assumed production levels, manufacturing costs and product pricing. We believe that our internal forecasts are consistent with those that would be used by a potential buyer in valuing our reporting units. Goodwill is considered impaired if the carrying value of the reporting unit exceeds it fair value.

During 2020, goodwill was allocated to the Welded Pipe & Tube reporting unit found within the Metals Segment and the Specialty Chemicals Segment. During the second quarter, third quarter, and fourth quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit existed and interim goodwill impairment tests were performed. As a result of these interim impairment tests, the Company recorded goodwill impairment of $16.2 million related to the Welded Pipe and Tube reporting unit.

We conducted our annual impairment test of the Specialty Chemicals Segment as of October 1, 2020 and 2019. As of December 31, 2020 and 2019, we determined that no impairment of the carrying value of goodwill for this reporting unit was required. See Note 5 - Goodwill in the notes to the consolidated financial statements included in this report for additional information.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined by either specific identification or weighted average methods. At the end of each quarter, all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost. This would indicate that an adjustment would be required. Factors influencing these adjustments include changes in demand, product life cycle, cost trends and product pricing.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risks from adverse changes in interest rates and nickel prices.

Changes in United States interest rates affect the interest earned on the Company's cash and cash equivalents as well as interest paid on its indebtedness. Except as described below, the Company does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. The Company is exposed to changes in interest rates primarily as a result of its borrowing activities used to maintain liquidity and fund business operations.

Fair value of the Company's debt obligations as of December 31, 2020, which approximated the recorded value, consisted of:

•$49.0 million under a revolving line of credit with an availability of $11.0 million, maturing December 20, 2021 with a variable interest rate of 1.81 percent;

•$12.3 million under a term loan, maturing February 1, 2024 with a variable interest rate of 2.06 percent; and

•An interest rate swap contract with a notional amount of $3.8 million which fixes the term loan interest rate at 3.74 percent. The fair value of the interest rate swap contract was a liability to the Company of $45,041.

The Company occasionally hedges its nickel exposure to provide coverage against extreme downside product pricing exposure related to the content of nickel alloy contained in purchased stainless steel inventory. The sales price of stainless steel product (containing nickel alloy) is subject to a variable pricing component for alloys (nickel, chrome, molybdenum and iron) contained in the product. As of December 31, 2020, the Company had no such hedge contracts in place.

Management's Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control involves maintaining records that accurately represent our business transactions, providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be detected or prevented on a timely basis.

Because of innate limitations, internal control over our financial statements is not intended to provide absolute guarantee that a misstatement can be detected or prevented in the statements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework). A material weakness is a deficiency, or 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.

Based on this evaluation, and those criteria, the Company's CEO and CFO concluded that the Company's internal control over financial reporting was effective as of December 31, 2020.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report as a non-accelerated filer.

Changes in Internal Control Over Financial Reporting

Other than the actions taken as described below under "Remediation Efforts to Address Material Weakness," there were no changes in the Company's internal control over financial reporting during the fourth quarter of 2020, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Efforts to Address Material Weakness

In response to the material weakness identified in Management’s Report on Internal Control Over Financial Reporting as set forth in item 4 “Controls and Procedures” in the second quarter 2020 Form 10-Q filing, management, with oversight from the Audit Committee of the Board of Directors, developed and fully executed a plan to remediate the material weakness at Synalloy. The remediation actions included the following:

•Conducted executive coaching and mentoring sessions with select executives to reinforce their responsibility in maintaining effective internal control over financial reporting;

•Performed activities to identify, evaluate, and align job descriptions with job responsibilities;

•Reaffirmed communication protocols and refreshed policies related to the transition process for new finance executives and Audit Committee members; and

•Implemented an independent third-party Ethics and Compliance Hotline service for the receipt and timely reporting to the Audit Committee.

During our fourth fiscal quarter of 2020, we completed our testing of the operating effectiveness of the controls and found them to be effective. As a result, we have concluded the material weakness has been remediated as of December 31, 2020.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Synalloy Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Synalloy Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the years then ended, and the related notes and financial statement Schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Earn-out liabilities

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company has recorded a liability for the quarterly earn-out payments to be made to the previous owners of acquired businesses, which included MUSA-Galvanized and ASTI. The earn-out payments are based on actual revenues earned over the respective earn-out periods pursuant to the asset purchase agreements. The fair value of the earn-out liabilities was estimated by applying the probability-weighted expected return method using management’s revenue projections, which required an estimation of pounds to be shipped and future price per unit. The fair value of the earn-out liabilities as of December 31, 2020 was $3.7 million, of which $3.3 million related to the MUSA-Galvanized and ASTI acquisitions. The liabilities are classified as Level 3 in the fair value hierarchy.

We identified the earn-out liabilities for the MUSA-Galvanized and ASTI acquisitions as a critical audit matter. Significant auditor judgment was required in evaluating management’s revenue projections used in the fair value estimation of the related earn-out liabilities due to the unobservable nature of management’s projections of pounds to be shipped and the future price per unit.

The following are the primary procedures we performed to address this critical audit matter. We compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast and we performed sensitivity analyses over the Company’s revenue projections (pounds and price) to assess the impact on the Company’s determination of the fair value of the earn-out liabilities. We involved valuation professionals with specialized skills and knowledge, who utilized third-party market research tools to assist in the evaluation of the revenue projections by comparing third-party market data to the Company’s revenue projections.

/s/ KPMG LLP

We have served as the Company’s auditor since 2015.

Richmond, Virginia

March 9, 2021

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements



Financial Statements			Page
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019			39
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019			40
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019			41
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020 and 2019			42
Notes to Consolidated Financial Statements			43

SYNALLOY CORPORATION

Consolidated Balance Sheets

As of December 31, 2020 and 2019

(in thousands, except par value and share data)


	2020		2019
Assets
Current assets
Cash and cash equivalents	$	236	$	626
Accounts receivable, net	28,183		35,074
Inventories, net
Raw materials	35,997		42,643
Work-in-process	20,304		17,354
Finished goods	28,779		38,189
Total inventories, net	85,080		98,186

Prepaid expenses and other current assets	13,384		13,229

Total current assets	126,883		147,115


Property, plant and equipment, net	35,096		40,690
Right-of-use assets, operating leases, net	31,769		35,772
Goodwill	1,355		17,558
Intangible assets, net	11,426		15,714

Deferred charges, net	455		348
Total assets	$	206,984	$	257,197

Liabilities and Shareholders' equity
Current liabilities
Accounts payable	$	19,732	$	21,150
Accrued expenses and other current liabilities	6,123		6,037
Current portion of long-term debt	875		4,000
Current portion of earn-out liability	3,434		5,576
Current portion of operating lease liabilities	867		3,562
Current portion of finance lease liabilities	19		253
Total current liabilities	31,050		40,578

Long-term debt	60,495		71,554
Long-term portion of earn-out liability	287		3,578
Long-term portion of operating lease liabilities	32,771		33,723
Long-term portion of finance lease liabilities	37		336
Deferred income taxes	1,957		790
Other long-term liabilities	92		127

Shareholders' equity
Common stock, par value $1 per share - authorized 24,000,000 shares; issued 10,300,000 shares	10,300		10,300
Capital in excess of par value	37,719		37,407
Retained earnings	42,835		70,552

	90,854		118,259
Less cost of common stock in treasury - 1,123,319 and 1,257,784 shares, respectively	10,559		11,748
Total shareholders' equity	80,295		106,511
Commitments and contingencies – see Note 12

Total liabilities and shareholders' equity	$	206,984	$	257,197

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

For the years ended December 31, 2020 and 2019

(in thousands, except per share data)


	2020		2019
Net sales	$	256,000	$	305,168
Cost of sales	233,348		274,395
Gross profit	22,652		30,773

Selling, general and administrative expense	28,718		32,627
Acquisition related costs	845		601
Proxy contest costs	3,105		—
Earn-out adjustments	(1,195)		(747)
Asset impairments	6,214		—
Goodwill impairment	16,203		—
Gain on lease modification	(171)		—
Operating loss	(31,067)		(1,708)
Other (income) and expense
Interest expense	2,110		3,818
Change in fair value of interest rate swap	51		141
Other, net	(1,255)		(1,904)
Loss before income taxes	(31,973)		(3,763)
Benefit from income taxes	(4,706)		(727)
Net loss and comprehensive loss	(27,267)		(3,036)

Net loss per common share:
Basic	$	(3.00)	$	(0.34)
Diluted	$	(3.00)	$	(0.34)

Weighted average number of common shares outstanding:
Basic	9,099		8,983
Diluted	9,099		8,983

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statement of Cash Flows

For the years ended December 31, 2020 and 2019

(in thousands)


	2020		2019
Operating activities
Net loss	$	(27,267)	$	(3,036)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense	7,572		7,578
Amortization expense	3,028		3,486
Amortization of debt issuance costs	177		160
Asset impairments	6,214		—
Goodwill impairment	16,203		—
Unrealized gain on equity securities	(208)		(1,547)
Deferred income taxes	1,167		(773)
Proceeds from business interruption insurance	1,040		—
Loss (gain) on sale of equity securities	38		(326)
Earn-out adjustments	(1,195)		(747)
Payments of earn-out liabilities in excess of acquisition date fair value	(292)		(448)
Provision for (reduction of) losses on accounts receivable	890		(171)
Provision for losses on inventories	271		1,617
Loss (gain) on sale of property, plant and equipment	237		(50)

Non-cash lease expense	510		560
Non-cash lease termination loss	24		—
Gain on lease modification	(171)		—
Change in fair value of interest rate swap	51		(141)
Issuance of treasury stock for director fees	345		304
Stock-based compensation expense	1,791		2,091
Changes in operating assets and liabilities:
Accounts receivable	5,552		9,696
Inventories	9,122		19,962
Other assets and liabilities	(912)		179
Accounts payable	(1,418)		(5,323)
Accrued expenses	86		(3,317)
Accrued income taxes	(4,877)		(1,114)
Net cash provided by operating activities	17,978		28,640
Investing activities
Purchases of property, plant and equipment	(3,748)		(4,537)
Proceeds from sale of property, plant and equipment	312		189
Purchases of equity securities	—		(544)
Proceeds from sale of equity securities	4,430		1,092
Acquisitions	—		(21,895)
Net cash provided by (used in) investing activities	994		(25,695)
Financing activities
Repayments on line of credit	(10,184)		(17,185)
Borrowings from term loan	—		20,000

Payments on long-term debt	(4,000)		(3,666)
Principal payments on finance lease obligations	(109)		(106)
Payments for finance lease terminations	(204)		—
Payments on earn-out liabilities	(3,946)		(3,627)
Payments of deferred financing costs	(284)		—
Proceeds from exercised stock options	—		45


Repurchase of common stock	(635)		—
Net cash used in financing activities	(19,362)		(4,539)
Decrease in cash and cash equivalents	(390)		(1,594)
Cash and cash equivalents at beginning of year	626		2,220
Cash and cash equivalents at end of year	$	236	$	626

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Shareholders' Equity

For the years ended December 31, 2020 and 2019

(in thousands, except share and per share data)


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









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

Net loss	—		—		(3,036)		—		—		(3,036)
Cumulative-effect adjustment related to ASU 2016-02, net of tax	—		—		4,623		—		—		4,623
Issuance of 162,869 shares of common stock from the treasury	—		(1,217)		—		—		1,521		304
Stock options exercised for 3,628 shares, net	—		12		—		—		33		45
Stock-based compensation	—		2,091		—		—		—		2,091
Balance December 31, 2019	$	10,300	$	37,407	$	70,552	$	—	$	(11,748)	$	106,511

Net loss	—		—		(27,267)		—		—		(27,267)
Cumulative adjustment due to adoption of ASU 2016-13	—