synl-20211231

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, 2021


☐			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, 2021, 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 $66.3 million.

The number of shares outstanding of the registrant's common stock as of March 28, 2022 was 10,223,498.

Documents Incorporated By Reference

Portions of the Proxy Statement for the 2022 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, 2021

Table of Contents


			Page
Disclosure Regarding Forward Looking Statements			2
Part I
	Item 1	Business	2
	Item 1A	Risk Factors	5
	Item 1B	Unresolved Staff Comments	12
	Item 2	Properties	12
	Item 3	Legal Proceedings	12
	Item 4	Mine Safety Disclosures	12
Part II
	Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securit ies	13
	Item 6	[Reserved]	13
	Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 7A	Quantitative and Qualitative Disclosures about Market Risk	26
	Item 8	Financial Statements and Supplementary Data	27
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
	Item 9A	Controls and Procedures	63
	Item 9B	Other Information	65
Part III
	Item 10	Directors, Executive Officers and Corporate Governance	65
	Item 11	Executive Compensation	66
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
	Item 13	Certain Relationships and Related Transactions, and Director Independence	66
	Item 14	Principal Accounting Fees and Services	66
Part IV
	Item 15	Exhibits and Financial Statement Schedules	67
	Item 16	Form 10-K Summary	69

		Signatures	70

Forward-Looking Statements

This Annual Report on Form 10-K includes and incorporates by reference "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable federal securities laws. All statements that are not historical facts are forward-looking statements. Forward looking statements can be identified through the use of words such as "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions. 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; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw material availability; financial stability of the Company’s 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 acquisitions; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by the Company’s 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 that include Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI") (collectively "Welded Pipe & Tube"), Palmer of Texas Tanks, Inc. ("Palmer"), and Specialty Pipe & Tube, Inc. ("Specialty"). The Metals Segment serves markets through pipe and tube and customers in the appliance, architectural, automotive and commercial transportation, brewery, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste-water treatment, liquid natural gas ("LNG"), food processing, pharmaceutical, oil and gas and other industries.

The Specialty Chemicals Segment operates as one reporting unit which includes Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), CRI Tolling, LLC ("CRI") and DanChem Technologies, Inc ("DanChem"). The Specialty Chemicals Segment produces specialty products for the pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional ("HII"), agricultural, water and waste-water treatment, construction, oil and gas and other industries.

General

Metals Segment – The segment is comprised of four wholly-owned subsidiaries: Synalloy Metals, Inc., which owns 100% 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.

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 wall thickness from 1/4 inch up to 1 and 3/8 inches. Pipe smaller than 18 inches in outside diameter is made on equipment that forms and welds the pipe in a continuous process. Pipe larger than 18 inches in outside diameter is formed on presses or rolls and welded using a batch welding technique. Pipe is normally produced in standard 20-foot lengths, although BRISMET also has capabilities in the production of pipe without circumferential welds in lengths up to 60 feet. BRISMET is one of the few domestic producers capable of making pipe in 48-

foot lengths up to 36 inches in diameter. Additionally, BRISMET's Munhall facility manufactures ornamental stainless tube and galvanized carbon tube, as well as similar stainless pipe products as produced at the Bristol facility.

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. ASTI's facilities are located in Troutman and Statesville, North Carolina. ASTI incorporates proprietary finishing capabilities and the highest levels of customer service and technical support to provide the customer with the highest quality ornamental products available in the market. ASTI's product range includes a variety of shapes, including rounds, squares, rectangles and ellipticals up to 5 inches outside diameter.

Palmer is a manufacturer of fiberglass and steel storage tanks for the oil and gas, waste water treatment and municipal water industries. As discussed in Note 4, on February 17, 2021 the Board of Directors authorized the permanent cessation of operations at Palmer and the subleasing of the Palmer facility. As of December 31, 2021, the Company permanently ceased operations and is in the process of divesting all remaining assets at the facility.

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, heavy industrial, construction equipment, and chemical and other industries. Operating from facilities located in Mineral Ridge, Ohio and Houston, Texas, Specialty is well-positioned to serve the major industrial and energy regions in the United States. Specialty performs value-added processing on a majority of products shipped and typically processes and ships orders in 24 hours or less. Specialty plays a critical role in the domestic supply chain, by maintaining a diverse inventory of hard to find sizes of pipe and tube that support critical infrastructure applications across the United States.

At any given time, the Metals Segment relies on approximately 5 suppliers that furnish approximately 77% of total dollar purchases of raw materials and one supplier that furnishes 32% of total material purchases. The Company does not anticipate 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 three production facilities located in Cleveland, Tennessee, Fountain Inn, South Carolina and Danville, Virginia. MC, CRI and DanChem are aggregated as one reporting unit and comprise the Specialty Chemicals Segment.

MC and CRI produce specialty formulations and intermediates for use in a wide variety of applications and industries. MC's primary product lines focus on the production of defoamers, surfactants, and lubricating agents. MC and CRI's end users include companies that supply agrochemical paper, metal working, coatings, water treatment, paint, mining, oil and gas, and janitorial and other applications. MC's and CRI's sulfation products represent a renewable resource and are alternatives to non-renewable petroleum derivatives.

DanChem provides dedicated contract manufacturing services, as well as operating a multi-purpose plant with the ability to process a variety of difficult to handle materials including flammable solvents, viscous liquids and granular solids. DanChem has long-term relationships with a number of leading chemical companies that outsource their manufacturing production to DanChem allowing those customers to reach their target markets quicker.

The Specialty Chemicals Segment maintains three laboratories for applied research and quality control which are staffed by 18 employees, including multiple chemists.

The majority of raw materials used by the segment are available from numerous independent suppliers and approximately 29% of total purchases are from its top 5 suppliers. While some raw material needs are met by an individual supplier or only a few suppliers, the Company anticipates no difficulties in fulfilling its raw material requirements.

See Note 13 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 a sales force comprised of inside sales employees, outside sales employees and independent manufacturers' representatives. The segment's products are sold to various distributors, OEM and end use customers.

There were no customers representing more than 10% of the Metals Segment's revenues for 2021 or 2020, respectively.

Specialty Chemicals Segment – Specialty chemicals are sold directly to various industries nationwide by sales representatives comprised of outside sales employees and independent manufacturers' representatives. The Specialty Chemicals Segment has one customer that accounted for approximately 15% of the segment's revenues for 2021 and 16% of the segment's revenues for 2020.

Mergers, Acquisitions and Dispositions

The Company is committed to a long-term strategy of reinvesting capital in our current business segments to foster organic growth and completing acquisitions that expand our manufacturing capabilities, product offerings and geographic footprint.

On October 22, 2021, the Company completed the acquisition of all of the issued and outstanding shares of common stock of DanChem Technologies, Inc. ("DanChem"). The purpose of the transaction was to accelerate product development capabilities and provide entrance into new end-markets and applications within the Chemicals segment. The purchase price was $32.95 million before adjustments for working capital, transaction expenses, cash and debt. The tangible assets purchased and liabilities assumed from DanChem included accounts receivable, inventory, equipment, real property and accounts payable.

Environmental

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.

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 $91.5 million and $40.8 million at the end of 2021 and 2020, respectively. The backlog of open orders for the Specialty Chemicals Segment were $12.9 million and $3.9 million at the end of 2021 and 2020, 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, 2021, the Company had 707 employees, of which 638 were full-time 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, Bristol, Tennessee and Danville, Virginia facilities, is 342, or 48% of the Company's employees. They are represented by three locals affiliated with the United Steelworkers (the "USW") and one local affiliated with the United Food and Commercial Workers (the "UFCW"). Collective bargaining contracts for the USW locals expire at various dates between 2023 and 2024. Collective bargaining contracts for the UFCW local expires in 2024.

Our voluntary turnover rate in 2021 was approximately 23%. We monitor employee turnover rates by plant and the Company as a whole. The average employee tenure is approximately 8 years and we believe is driven by our competitive total rewards package offered to employees and development opportunities which promotes longer employee tenure.

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 demand for our products may be cyclical, creating uncertainty regarding future profitability.

Various changes in general economic conditions affect (or disproportionately 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 and excess manufacturing capacity 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 such situations, in order to maintain market share, we would have to lower our prices to match the competition. These factors have had and may in the future have a material adverse impact on our revenues, operating results and financial condition.

Overcapacity and overproduction by foreign producers in our industry could result in lower domestic prices, which would adversely affect our sales, margins and profitability.

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, such as imposed in 2018 under Section 232 of the Trade Expansion Act of 1962 (section 232 tariffs). 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 or cause us to lower our prices to maintain demand for our products, which could adversely affect our business, financial position, or results of operations.

A substantial portion of our sales in the Specialty Chemicals Segment is dependent upon a limited number of customers. The top 15 customers in the Specialty Chemicals Segment accounted for approximately 60% and 63% of revenues for the years ended December 31, 2021 and 2020, respectively, with the top customer accounting for approximately 15% of revenues for 2021 and 16% of revenues for 2020. An adverse change in, or termination of, the relationship with one or more of our top customers could materially and adversely affect our results of operations.

Operations and Supply Chain Risks

Any interruption in our ability to procure raw materials, or significant volatility in the price of raw materials, could adversely affect our business and results of operations.

While the Company believes that raw materials for both segments are (in general) readily available from numerous sources, some of our raw material needs are met by a sole supplier or only a few suppliers and many such relationships are terminable by either party. If any key 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.

In addition, purchase prices and availability of these critical raw materials are subject to volatility which may negatively impact financial performance due to decreased sales volume and /or decreased profitability. At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at acceptable prices and other terms, or at all. If suppliers increase the price of critical raw materials, we may not have alternative sources of supply. As well, though we attempt to pass changes in the prices of raw materials along to our customers, we cannot always do so due to market competition, among other reasons, or price increases to customers may occur on a delayed basis. In addition, although raw materials may remain available, volatility in raw material pricing may negatively impact customer ordering patterns.

The loss of or reduced supply from one or more key suppliers in either segment, or any other material change in our current supply channels, could materially affect the Company’s ability to meet the demand for its products and adversely affect the Company’s business and results of operations. In addition, any limitations (or delay) on our ability to pass through any price increases in raw materials could have an adverse effect on our profitability.

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

Our Specialty Chemicals Segment 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 or results of operations. Supply interruptions could arise from raw material shortages, inadequate manufacturing capacity or utilization to meet demand, financial difficulties, tariffs and other regulations affecting trade between the U.S. and other countries, labor disputes, weather conditions affecting suppliers' production, transportation disruptions or other reasons beyond our control.

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 our 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 or more expensive. Further, increases in energy or freight costs that cannot be passed on to customers, or adverse changes in our 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.

Our manufacturing processes are dependent upon critical pieces of equipment. This equipment may, on occasion, be out of service as a result of unanticipated failures. We have experienced, and may in the future experience, material plant shutdowns or periods of reduced production as a result of such equipment failures. In addition, our production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of materials and products, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unscheduled downtime and environmental hazards. As well, some of our production capabilities are highly specialized, which limits our ability to shift production to another facility. The occurrence of incidents in the future may 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.

Our operations present significant risk of injury and other liabilities.

The industrial activities conducted at our facilities present significant risk of serious injury or even death to our employees or other visitors to our operations, notwithstanding our safety precautions, including our material compliance with federal, state and local employee health and safety regulations, and we may be unable to avoid material liabilities for any such incidents. We maintain various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations, but there can be no assurance that the insurance coverage will be applicable and adequate, or will continue to be available on terms acceptable to us, or at all, which could result in material liability to us for any injuries or deaths.

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, develop and manufacture new products with improved capabilities, and accurately predict future customer needs and preferences 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, including government regulations, that affect our products and the needs of our customers. 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. We cannot predict the level of market acceptance or the amount of market share these new or enhanced products may achieve, and we may experience delays or problems in the introduction of new or enhanced products. Any failure in our ability to effectively and efficiently launch new or enhanced products could materially and adversely affect our business, financial condition or results of operation.

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 or results of operations.

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 may not have been in the past or will be at all times in the future, 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 or other costs and capital expenditures) 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. At any given time, we are (or may be) 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. The occurrence and 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 incurred 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 or results of operations.

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 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 experience a decrease in revenue, which could have an adverse impact on our results of operations, including profitability.

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, 2021, we had 342 employees represented by unions at our Bristol, Tennessee, Mineral Ridge, Ohio, Munhall, Pennsylvania and Danville, Virginia facilities, which is approximately 48% of the aggregate number of Company employees. These employees are represented by three local unions affiliated with the USW and one local affiliated with the UFCW. Collective bargaining contracts for the USW locals expire at various dates between 2023 and 2024. Collective bargaining contracts for the UFCW local expires in 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.

Failure to attract and retain key personnel may adversely impact our strategy and execution and financial results.

Our ability to successfully operate, grow our business and implement our business strategies is largely dependent on the efforts, abilities and services of our employees. The loss of employees or our inability to attract, train and retain additional personnel could reduce the competitiveness of our business or otherwise impair our operations. Our future success will also depend, in part, on our ability to attract and retain qualified personnel who have experience in the application of our products and are knowledgeable about our business, markets and products.

We also face risks associated with the actions taken in response to COVID-19, including those associated with workforce reductions, and may experience difficulties with hiring additional employees or replacing employees following the pandemic, which may be exacerbated by the tight labor market. In addition, COVID-19 has, and may again result in quarantines of our personnel or an inability to access facilities, which could adversely affect our operations.

Financial and Strategic Risks

There are risks associated with our outstanding and future indebtedness.

As of December 31, 2021, we had $67.9 million of total outstanding indebtedness, and we may incur additional indebtedness in the future. We have customary restrictive covenants in our current debt agreements, which may limit our flexibility to operate our business. Failure to comply with this covenant could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition. Additionally, our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations, generate sufficient cash flows to service such debt and the other factors discussed in this section. There can be no assurance that we will be able to manage any of these risks successfully.

Our Credit Agreement with BMO Harris Bank N.A. (as amended, the "Credit Agreement") bears interest at variable interest rates, primarily based on the London Interbank Offered Rate ("LIBOR"). LIBOR is currently in the process of being phased out. The Credit Agreement includes provisions intended to provide for the replacement of LIBOR with the Secured Overnight Financing Rate ("SOFR") upon the cessation of LIBOR or the occurrence of other triggering events, with corresponding adjustments to the applicable interest rate margins. However, uncertainty as to the timing and nature of such modifications could cause the interest rate calculated for the Credit Agreement to be materially different than expected, and there is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations and financial condition. Our failure to manage these risks effectively could adversely affect our financial condition and results of operations.

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 the Credit Agreement. 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.

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 an adverse or dilutive effect on our profitability and other financial results, despite having anticipated 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, 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, financial condition or results of operations.

General Risk Factors

Our business, financial condition and results of operations 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 global outbreak of the coronavirus (COVID-19). The outbreak has resulted in governments around the world implementing varying 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 had, and may in the future have, a significant impact on the global economy, including supply chains, financial markets, and labor markets.

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 had and may continue to have 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 future 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.

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 results of operation could be adversely affected.

We may discover weaknesses in our internal controls over financial reporting, which may adversely affect investor confidence in the accuracy and completeness of our financial reports and consequently the market price of our securities.

As a public company, we are required to design and maintain proper and effective internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which, when required, must be attested to by our independent registered public accounting firm. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

The process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 is challenging and costly. In the future, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if, when required, our independent registered public accounting firm

is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Authority, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Cybersecurity 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. We have taken steps to address these concerns and have implemented internal control and security measures to protect our systems and networks from security breaches; however, there can be no assurance that a system or network failure, or security breach, will not impact our business, results of operations and financial condition.

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 and are able to accommodate our capacity needs for the immediate future. Substantially all of the value of the Company's leased plants and facilities relate to the Master Lease with Store Master Funding XII, LLC (“Store”), an affiliate of Store Capital Corporation ("Store Capital") that was entered into in 2016 and amended in 2019 and 2020; see Note 7 to the consolidated financial statements included in Item 8 of this Form 10-K for additional information on the Company's leases.

The following table sets forth certain information concerning our principal properties including which segment's products are supported out of each location:

Segment

Location

Principal Operations

Square
Feet

Land
Acres

Leased or Owned

Metals

Specialty Chemicals

Munhall, PA

Manufacturing stainless steel pipe

284,000

20.0

Leased

✔

Bristol, TN

Manufacturing stainless steel pipe

275,000

73.1

Leased

✔

Cleveland, TN

Chemical manufacturing and warehousing

143,000

18.8

Leased

✔

Fountain Inn, SC

Chemical manufacturing and warehousing

136,834

16.9

Leased

✔

Danville, VA

Chemical manufacturing and warehousing

135,811

55.3

Owned

✔

Andrews, TX

Liquid storage solutions and separation equipment

122,662

19.6

Leased

✔

Troutman, NC

Manufacturing ornamental stainless steel tube

106,657

26.5

Leased

✔

Statesville, NC

Manufacturing ornamental stainless steel tube

83,000

26.8

Leased

✔

Houston, TX

Cutting facility and storage yard for heavy walled pipe

29,821

10.0

Leased

✔

Mineral Ridge, OH

Cutting facility and storage yard for heavy walled pipe

12,000

12.0

Leased

✔

Mineral Ridge, OH

Storage yard for heavy walled pipe

—

4.6

Leased

✔

In addition to the facilities listed above, the Company leases from third parties the Company's executive office located in Richmond, Virginia and office space in Oak Brook, Illinois.

Item 3. Legal Proceedings

For a discussion of legal proceedings, see Note 15 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 368 common shareholders of record at March 28, 2022. 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 2021 or 2020.

Stock Performance Graph

The Company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide this information.

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, on May 20, 2021, the Company issued an aggregate of 22,026 shares of restricted stock to non-employee directors in lieu of $214,000 of their annual cash retainer fees. These shares vest quarterly over a one year period. On May 25, 2021, the Company also issued an aggregate of 20,000 additional shares of restricted stock to the Company's new Chairman of the Board due to the increased responsibilities of the role. 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 180,658 shares of common stock in 2021 to management and key employees that vested pursuant to the 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

Neither the Company, nor any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the 1934 Act) on behalf of the Company repurchased any of the Company's securities during the fiscal quarter ended December 31, 2021.

Item 6. [Reserved]

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 fiscal years ended December 31, 2021 and December 31, 2020. Unless otherwise noted, all references herein for the years 2021 and 2020 represent the fiscal years ended December 31, 2021 and 2020, 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:

•Executive Overview

•Results of Operations and Non-GAAP Financial Measures

•Liquidity and Capital Resources

•Material Cash Requirements from Contractual and Other Obligations

•Critical Accounting Policies and Estimates

Executive Overview

Fiscal 2021 Highlights

Consolidated net sales increased 30.7%, or $78.7 million, compared to 2020 driven by increases in average selling price and pounds shipped as well as the Company's acquisition of DanChem, which is discussed in more detail below and in Note 2 of the notes to the consolidated financial statements. Excluding the DanChem acquisition, net sales increased 28.5%, or $73.0 million, over 2020.

Consolidated net income increased to $20.2 million in 2021, compared to a net loss of $27.3 million in 2020. Earnings per share increased to $2.14 diluted earnings per share for the full-year 2021 compared to $2.98 diluted loss per share in 2020. Excluding the DanChem acquisition, consolidated net income increased to $19.6 million and earnings per share increased to $2.08 diluted earnings per share.

For 2021, cash flows from operating activities were $19.1 million, with $1.5 million used for capital expenditures.

Throughout 2021, the Company experienced profitable growth across both business segments. In our Metals Segment, robust commodity pricing and improved throughput drove strong growth while in our Specialty Chemicals Segment customer demand and increased volumes helped to offset labor and raw materials constraints and drive growth in the segment.

During the fourth quarter of 2021, the Company announced it acquired DanChem, a leading full-service specialty chemicals contract manufacturing organization located on an owned 55-acre campus in Danville, Virginia. The DanChem facility boasts the largest fleet of horizontal reactors in the industry and produces a broad array of diversified products with a stable customer base. The addition of DanChem will enable the Company to bolster its chemical operations while providing significant opportunities to grow into new end-markets with a wide array of commercial offerings. DanChem positions the Company as one of the largest specialty chemical contract manufacturers in the U.S. and enhances the Company’s ability to be a preferred acquirer for companies within the industry while continuing to strategically grow the specialty chemicals business through:

•The Acceleration of Product Development Capabilities – DanChem brings leading engineering and process development capabilities with a demonstrated track record of rapidly developing products for commercialization.

•The Expansion of Process Offerings – DanChem’s production plants and horizontal reactors drastically accelerate the long-term investment plans of Synalloy Chemicals, providing differentiated assets, rail access and meaningful site acreage for continued expansion.

•A Larger Presence in Target End-Markets and Applications – DanChem brings additional customer relationships in target markets, including CASE (coatings, adhesives, sealants and elastomers), additives, industrial and agricultural chemistries.

Full-year 2021 results include $5.7 million in net sales and $0.6 million in operating income attributable to the DanChem operations acquired in the fourth quarter of 2021.

COVID-19 Update

The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken in response have affected and could future materially impact the Company's business, results of operations and financial condition, as well as the Company's stock.

The Company has seen wide ranging impacts partially attributable to COVID-19 to date, including an adverse impact on our reported results and operations in 2020 and impacts to our supply chain in 2021. However, throughout 2021, economic conditions have improved, leading to increased demand for our products and positive operating results. The Company has also taken a number of steps to continue to improve its financial position throughout 2021 including :

•refinancing and expanding its revolving line of credit with a new lender to give the Company more favorable terms and increased liquidity;

•making the decision to permanently cease operations at the curtailed Palmer facility as of December 31, 2021 and to sublease the facility; and

•divesting the Company's ownership interest in N845BB Partners, LLC.

The extent of the continuing impact of the COVID-19 pandemic on the Company's operational and financial performance is uncertain and will depend on many factors outside the Company's control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments and the imposition of protective public safety measures. See Part I - Item 1A, "Risk Factors," included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic.

Results of Operations

Comparison of 2021 to 2020 – Consolidated

Consolidated net sales for the full-year 2021 increased $78.7 million, or 30.7%, over the full-year 2020 to $334.7 million. The increase in net sales was primarily driven by a 19.5% increase in average price and a 9.1% increase in pounds shipped. Excluding DanChem, net sales increased $73.0 million, or 28.5%, to $329.0 million driven by a 18.5% increase in average selling price and a 8.1% increase in pounds shipped.

Full-year 2021 consolidated gross profit increased 168.3% to $60.8 million, or 18.2% of sales, compared to $22.7 million, or 8.8% of sales, in the full-year 2020. The increase in dollars and percentage of sales for the full-year 2021 were attributable to increased selling prices and a continued favorable surcharge market environment partially offset by increasing raw material and freight costs.

Consolidated selling, general and administrative expense (SG&A) for the full-year 2021 increased by $1.4 million to $30.1 million compared to $28.7 million for the full-year 2020. SG&A as a percentage of sales was 9.0% of sales for 2021 and 11.2% of sales for 2020. The changes in SG&A expense were primarily driven by:

•Increases in incentive bonus expense of $1.3 million primarily driven by higher attainment of performance goals in the current year over the prior year;

•Increases in personnel costs related to salaries, commissions and employee benefit costs of $1.1 million;

•Increases in professional fees of $0.2 million primarily driven by acquisition related costs; and,

•Increases in other expenses of $0.4 million primarily driven by increases in taxes, licenses and insurance.

The full-year increases were partially offset by:

•Decreases in share-based payment expense of $1.0 million primarily driven by a reduction of awards outstanding in the current year;

•Increases on gains recognized on the sale of assets of $0.8 million primarily driven by wind down activities at the Palmer facility; and,

•Decreases in bad debt expense of $0.2 million due to lower levels of uncollectible accounts in the current year.

Consolidated operating income for the full-year 2021 totaled $27.4 million compared to an operating loss of $31.1 million for the full-year 2020. The operating income increase for the full-year 2021 was primarily driven by increased demand driven sales, increases in average selling prices, a continued favorable surcharge market environment and goodwill and asset impairment expenses in 2020 that did not occur in 2021.

Comparison of 2021 to 2020 - Metals Segment

The following table summarizes operating results for the two years indicated. Reference should be made to Note 13 to the consolidated financial statements included in Item 8 of this Form 10-K.


	2021				2020
(in thousands)	Amount		%		Amount		%
Net sales	$	267,238	100.0	%	$	204,459	100.0	%
Cost of goods sold	215,841		80.8	%	189,103		92.5	%
Gross profit	51,397		19.2	%	15,356		7.5	%
Selling, general and administrative expense	17,836		6.6	%	17,538		8.6	%
Asset impairment	—		—	%	6,214		3.0	%
Goodwill impairment	—		—	%	16,203		7.9	%
Operating income (loss)	$	33,561	12.6	%	$	(24,599)	(12.0)	%

Net sales for the Metals Segment totaled $267.2 million for the full year of 2021, an increase of 30.7% compared to the full-year 2020. The increase in net sales was primarily driven by a 15.7% increase in average selling prices and a 12.5% increase in pounds shipped.

The net sales increase (decrease) for the full-year 2021 compared to the full-year 2020 is summarized as follows:


(in thousands)	$		%		Average Selling Price(1)		Units Shipped
Fiberglass and steel liquid storage tanks and separation equipment	$	(4,159)	(75.6)	%	(29.7)	%	(62.6)	%
Heavy wall seamless carbon steel pipe and tube	16,869		71.3	%	14.7	%	49.3	%
Stainless steel pipe and tube	31,676		20.4	%	14.0	%	5.6	%
Galvanized pipe and tube	18,393		90.6	%	65.9	%	14.9	%
Total increase	$	62,779

(1) Average price increases (decreases) for the full-year 2021 as compared to the full-year 2020 relate to the following:

•Fiberglass and steel liquid storage tanks and separation equipment - due to the curtailment of Palmer operations and decision to sublease facility;

•Heavy wall seamless carbon steel pipe and tube - increase due to demand driven price increases and raw material availability;

•Stainless steel pipe and tube - increase due to demand driven price increases and raw material availability, and;

•Galvanized pipe and tube - increase due to improvement in indexed pricing.

SG&A expense increased $0.3 million, or 1.7%, for the full-year 2021 when compared to 2020. SG&A as a percentage of sales was 6.7% of sales for 2021 and 8.6% of sales for 2020. The changes in SG&A expense were primarily driven by:

•Increases in personnel costs related to salaries, commissions and employee benefit costs of $1.5 million; and,

•Increases in incentive bonus of $1.0 million primarily driven by higher attainment of performance goals in the current year over the prior year.

The full-year increases were partially offset by:

•Increases on gains recognized on the sale of assets of $1.0 million related to wind down activities at the Palmer facility;

•Decreases in bad debt expense of $0.6 million due to lower levels of uncollectible accounts in the current year; and,

•Decreases in share-based payment expense of $0.2 million primarily driven by a reduction of awards outstanding in the current year.

Operating income increased to $33.6 million for the full-year 2021 compared to an operating loss of $24.6 million for the full-year 2020. The current year operating income increase was primarily driven by increased demand driven sales, increases in average selling prices, a continued favorable surcharge market environment and goodwill and asset impairments in the full-year 2020 that did not occur in the full-year 2021.

Comparison of 2021 to 2020 – Specialty Chemicals Segment

The following tables summarize operating results for the two years indicated. Reference should be made to Note 13 to the consolidated financial statements included in Item 8 of this Form 10-K.


	2021				2020
(in thousands)	Amount		%		Amount		%
Net sales	$	67,477	100.0	%	$	51,541	100.0	%
Cost of goods sold	57,627		85.4	%	43,736		84.9	%
Gross profit	9,850		14.6	%	7,805		15.1	%
Selling, general and administrative expense	5,961		8.8	%	3,772		7.3	%
Asset impairment	233		0.3	%	—		—	%
Operating income	$	3,656	5.4	%	$	4,033	7.8	%

Net sales for the Specialty Chemicals Segment increased 30.9%, or $15.9 million, to $67.5 million for 2021 compared to $51.5 million in 2020. The increase in net sales was primarily driven by a 26.7% increase in average selling prices and a 3.8% increase in pounds shipped. Excluding DanChem, net sales increased $10.2 million, or 19.9%, to $61.8 million driven by a 18.9% increase in average selling prices and a 1.3% increase in pounds shipped.

SG&A expense increased $2.2 million or 58.0%, to $6.0 million in 2021 when compared to 2020. Excluding the DanChem acquisition, SG&A expense increased $1.3 million, or 35.2% compared to 2020. SG&A as a percentage of sales increased to 8.8% in 2021 from 7.3% in 2020. The changes in SG&A expense were primarily driven by:

•Increases in personnel costs related to salaries, commissions and employee benefit costs of $1.4 million;

•Increases in bad debt expense of $0.3 million primarily driven by an increase in uncollectible accounts in the current year;

•Increases in travel expense of $0.1 million; and,

•Increases in professional fees of $0.1 million.

The full-year increases were partially offset by:

•Decreases in incentive bonus of $0.2 million primarily driven by lower attainment of performance goals in the current year over the prior year; and,

•Decreases in share-based payment expense of $0.1 million primarily driven by a reduction of awards outstanding in the current year.

Operating income decreased to $3.7 million for the full-year 2021 compared to operating income of $4.0 million for the full-year 2020. The decrease in operating income was primarily driven by the aforementioned increases in SG&A expense.

Comparison of 2021 to 2020 - Corporate

Corporate expenses decreased $1.1 million to $6.8 million, or 2.0% of sales, in 2021 down from $7.9 million, or 3.1% of sales, in 2020. The full-year decrease resulted primarily from:

•Decreases in personnel costs related to salaries, wages and employee benefits of $1.7 million driven by a reduction in severance expense in the current year over the prior year;

•Decreases in share-based compensation of $0.8 million over the prior year driven by a reduction in awards outstanding; and,

•Decreases in travel expense of $0.3 million due to continued reductions in non-essential travel in response to the on-going COVID-19 pandemic.

The full-year decreases were partially offset by increases in :

•Incentive bonus expense of $0.6 million as a result of higher attainment of performance goals in the current year over the prior year; and,

•Other corporate overhead expenses of $0.8 million driven primarily by increases in taxes and licenses and insurance expense.

Interest expense was $1.5 million and $2.1 million for the full-years of 2021 and 2020, respectively. The decrease was primarily driven by more favorable interest rates associated the Company's debt refinance in the first quarter of 2021.

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, stock-based compensation, non-cash lease cost, acquisition costs and other fees, proxy contest costs and recoveries, loss on extinguishment of debt, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, retention costs and restructuring and severance costs from net income. We caution investors that 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)		2021			2020
Consolidated
Net income (loss)		$	20,245		$	(27,267)
Adjustments:
	Interest expense	1,486			2,110
	Change in fair value of interest rate swap	(2)			51
	Income taxes	5,253			(4,706)
	Depreciation	7,547			7,572
	Amortization	2,794			3,028
EBITDA		37,323			(19,212)
	Acquisition costs and other	1,001			861
	Proxy contest costs and recoveries	168			3,105
	Loss on extinguishment of debt	223			—
	Earn-out adjustments	1,872			(1,195)
	Loss (gain) on investments in equity securities and other investments	363			(170)
	Asset impairment	233			6,214
	Goodwill impairment	—			16,203
	Gain on lease modification	—			(171)
	Stock-based compensation	799			1,791
	Non-cash lease expense	481			510
	Retention expense	500			235
	Restructuring and severance costs	1,345			1,076
Adjusted EBITDA		$	44,308		$	9,247
	% sales	13.2		%	3.6		%

Metals Segment EBITDA and Adjusted EBITDA are as follows:


		Year Ended December 31,
($ in thousands)		2021			2020
Metals Segment
Net income (loss)		$	31,893		$	(22,388)
Adjustments:
	Interest expense	—			11
	Depreciation	5,485			5,855
	Amortization	2,721			3,028
EBITDA		40,099			(13,494)
	Acquisition costs and other	—			16
	Earn-out adjustments	1,872			(1,195)
	Asset impairment	—			6,214
	Goodwill impairment	—			16,203
	Stock-based compensation	129			303
	Retention expense	500			—
	Restructuring and severance costs	363			—
Metals Segment Adjusted EBITDA		$	42,963		$	8,047
	% of segment sales	16.1		%	3.9		%

Specialty Chemicals Segment EBITDA and Adjusted EBITDA are as follows:


		Year Ended December 31,
($ in thousands)		2021			2020
Specialty Chemicals Segment
Net income		$	3,589		$	4,046
Adjustments:
	Interest expense	11			9
	Depreciation	1,932			1,552
	Amortization	73			—
EBITDA		5,605			5,607
	Acquisition costs and other	61			—
	Asset impairment	233			—
	Stock-based compensation	165			207
	Restructuring and severance costs	484			—
Specialty Chemicals Segment Adjusted EBITDA		$	6,548		$	5,814
	% of segment sales	9.7		%	11.3		%

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)		2021		2020
Total cash provided by (used in):
Operating activities		19,055		17,978
Investing activities		(32,661)		994
Financing activities		15,391		(19,362)
Net increase (decrease) in cash and cash equivalents		$	1,785	$	(390)

Operating Activities

The increase in net cash provided by operating activities for the full-year 2021 compared to the full-year 2020 was primarily driven by higher net earnings partially offset by changes in working capital. Accounts receivable decreased operating cash flow for 2021 by approximately $21.7 million over 2020 driven by an increase in net sales partially offset by a decrease in days sales outstanding to 43 days as of December 31, 2021 from 45 days as of December 31, 2020. The decrease in days sales outstanding was driven by increased collection efforts in the current year. Inventory decreased operating cash flow for 2021 by approximately $28.0 million over 2020 driven by higher purchases to meet increased customer demand partially offset by increases in inventory turns to 2.91 turns as of December 31, 2021 from 2.55 turns as of December 31, 2020. The increases in cash used from accounts receivable and inventory were partially offset by an increase in cash provided by accounts payable due to an increase in days payables outstanding to 35 days as of December 31, 2021 from 32 days as of December 31, 2020, as well as changes in accrued income taxes driven in part by tax benefits received as part of the CARES Act.

Investing Activities

Net cash used in investing activities primarily consists of transactions related to capital expenditures, proceeds from the disposal of property, plant and equipment and acquisitions. The increase in cash used in investing activities for the full-year 2021 compared to cash provided by investing activities for the full-year 2020 was primarily driven by an increase in cash outflows related to the DanChem acquisition in the current year partially offset by a decrease in capital expenditures in the current year over the prior year.

Financing Activities

Net cash used in financing activities primarily consist of transactions related to our long-term debt. The increase in net cash provided by financing activities for the full-year 2021 compared to net cash used in financing activities in the full-year 2020 was primarily due to increased borrowings against the Company's asset backed line of credit driven by the acquisition of DanChem and proceeds received from the Company's Rights Offering in the fourth quarter of 2021.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents and our credit facilities are our most significant sources of liquidity. Our existing cash, cash equivalents, and credit facilities balances may fluctuate during 2022. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, continued effects of the pandemic and other risks detailed in Item 1A - Risk Factors of this report. We believe our current sources of liquidity will be sufficient to fund operations, debt obligations and anticipated capital expenditures over the next 12 months.

On January 15, 2021, the Company and its subsidiaries entered into a new Credit Agreement with BMO Harris Bank N.A. ("BMO"). The new Credit Agreement provides the Company with a new four-year revolving credit facility with up to

$150.0 million of borrowing capacity (the "Facility"). The Facility refinances and replaces the Company's previous $100.0 million asset based revolving line of credit with Truist (the "Truist Line"), which was scheduled to mature on December 20, 2021, and the remaining portion of the Company's five-year $20 million term loan with Truist (the "Truist term loan"), which was scheduled to mature on February 1, 2024.

The initial borrowing capacity under the Facility totals $110.0 million consisting of a $105.0 million revolving line of credit and a $5.0 million delayed draw term loan. The revolving line of credit includes a $17.5 million machinery and equipment sub-limit which requires quarterly payments of $0.4 million with a balloon payment due upon maturity of the Facility in January 2025. The term loan requires quarterly payments of $0.2 million with a balloon payment due upon maturity of Facility in January 2025.

We have pledged all of our accounts receivable, inventory, and certain machinery and equipment as collateral for the Credit Agreement. Availability under the Credit Agreement is subject to the amount of eligible collateral as determined by the lenders' borrowing base calculations. Amounts outstanding under the revolving line of credit portion of the Facility currently bear interest, at the Company's option, at (a) the Base Rate (as defined in the Credit Agreement) plus 0.50%, or (b) LIBOR plus 1.50%. Amounts outstanding under the delayed draw term loan portion of the Facility bear interest at LIBOR plus 1.65%. The Facility also provides an unused commitment fee based on the daily used portion of the Facility.

Pursuant to the Credit Agreement, the Company was required to pledge all of its tangible and intangible properties, including the stock and membership interests of its subsidiaries. The Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $7.5 million and (ii) 10% of the revolving credit facility (currently $10.5 million). As of December 31, 2021, the Company was in compliance with all debt covenants.

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

Stock Repurchases and Dividends

We may repurchase common stock and pay dividends from time to time 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 17, 2021, the Board of Directors re-authorized the Company's share repurchase program. The previous share repurchase program had a term of 24 months and terminated on February 21, 2021. The share repurchase program allows for repurchase of up to 790,383 shares of the Company's outstanding common stock over 24 months. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of December 31, 2021, the Company has 790,383 shares of its share repurchase authorization remaining.

Stock repurchase activity was as follows:


	Year ended December 31,
		2021		2020
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 2021 and 2020, 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:

Liquidity Measure:

•Current ratio = current asset divided by current liabilities. The current ratio will be determined by the Company using generally accepted accounting principles, consistently applied.

Leverage Measure:

•Debt to capital = Total debt divided by total capital. The debt to capital ratio will be determined by the Company using generally accepted accounting principles, consistently applied.

Profitability Ratio:

•Return on average equity ("ROAE") = net income divided by the trailing 12-month average of equity. The ROAE will be determined by the Company using generally accepted accounting principles, consistently applied.

Results of these additional financial measures are as follows:


	Year ended December 31,
		2021	2020
Current ratio		3.3	4.1
Debt to capital		39%	43%
Return on average equity		21.1%	(29.2)%

Material Cash Requirements from Contractual and Other Obligations

As of December 31, 2021, our material cash requirements for our known contractual and other obligations were as follows:

•Debt Obligations and Interest Payments - Outstanding obligations on our revolving credit facility and term loan were $65.6 million and $4.8 million, respectively, with $2.5 million payable within 12 months. The interest payments on our remaining borrowings will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time. See Note 6 for further detail of our debt and the timing of expected future payments.

•Operating and Finance Leases - The Company enters into various lease agreements for real estate and manufacturing equipment used in the normal course of business. Operating and finance lease obligations were $34.8 million, with $1.3 million payable within 12 months. See Note 7 for further detail of our lease obligations and the timing of expected future payments.

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. We expect capital spending in fiscal 2022 to be as much as $10.0 million.

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. Our significant accounting policies are described in Note 1 to the consolidated financial statements included herein. We believe the following accounting policies affect the most significant estimates and management judgments used in the preparation of the Company's consolidated financial statements.

Business Combinations

Description

Business combinations are accounted for using the acquisition method of accounting in accordance with GAAP. Under this method, the total consideration transferred to consummate the business combination is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the transaction.

Judgments and uncertainties involved in the estimate

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. Fair value determinations involve significant assumptions about highly subjective variables, including future cash flows, discount rates, and expected business performance. There are also different valuation models and inputs for each component, the selection of which requires considerable judgment. Our estimates and assumptions may be based, in part, on the availability of listed market prices or other transparent market data. These determinations will affect the amount of amortization expense recognized in future periods as well the allocation of goodwill, if any, attributable to the transaction.

Effect if actual results differ from assumptions

We base our fair value estimates on assumptions we believe are reasonable, but recognize the assumptions are inherently uncertain. Depending on the size of the purchase price of a particular acquisition, the mix of intangible assets acquired and expected business performance, the purchase price allocation could be materially impacted by applying a different set of assumptions and estimates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Earn-Out Liabilities

Description

Our acquisitions may include earn-out liabilities (contingent consideration) as part of the purchase price. In connection with the American Stainless, MUSA-Galvanized and MUSA-Stainless acquisitions, we are required to make quarterly earn-out payments based on certain performance metrics determined at the time of the acquisition. These quarterly earn-out payments end in 2022. The fair value of the earn-out liabilities is estimated as of the acquisition date based on the present value of the contingent payments to be made using the probability-weighted expected return method. Each quarter-end, the Company re-evaluates its assumptions for all earn-out liabilities and adjusts to reflect the updated fair values.

Judgments and uncertainties involved in the estimate

Our earn-out liability evaluations require us to apply judgment surrounding the unobservable inputs used in the determination of the fair value of the earn-out liabilities. The calculations require us to apply judgment in estimating expected pounds to be shipped and future price per pound. We apply judgment in estimating future payments, including the selection of an appropriate discount rate to determine the present value of the contingent payments to be made and liability balance at a period end.

Effect if actual results differ from assumptions

We have not made any material changes in the methodology used to establish our earn-out liabilities in the past two fiscal years. This approach reasonably estimates future payments related to the earn-out liabilities, however, it is possible that actual results could differ from recorded earn-out liabilities. Changes in the estimated fair value of the earn-out liabilities are reflected in the results of operations in the periods in which they are identified. Changes in the fair value of the earn-out liabilities may materially impact and cause volatility in the Company's operating results. For instance, a 10% change in estimated pounds shipped or future price per pound used in our earn-out liability calculation would not have had a material effect on earnings for 2021.

Goodwill

Description

Goodwill is the excess of the purchase price over the fair value of identifiable assets acquired, less fair value of liabilities assumed, in a business combination. The Company reviews goodwill for impairment at the reporting unit level, which is the operating segment level or one level below the operating segment level. A reporting unit is an operating segment or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. Goodwill is not amortized but is evaluated for impairment at least annually on October 1

or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable. The evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If, after assessing qualitative factors, we determine it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the quantitative goodwill impairment test is performed.

Judgments and uncertainties involved in the estimate

We make various estimates and assumptions about our goodwill, including whether any potential impairment events have occurred. Examples of such events or changes in circumstances, many of which are subjective in nature, include the following:

•Significant negative industry or economic trends;

•A significant change in the use of the acquired assets or our strategy;

•A significant divestiture or other disposition activity;

•A significant decrease in the market value of the asset;

•A significant change in legal factors or the business climate that could affect the value of the asset; and

•A change in segment by one or more reporting unit

Additionally, we make estimates and assumptions regarding the inputs used to perform a quantitative assessment of our goodwill, if necessary. The Company performed a discounted cash flow analysis and a market multiple analysis. The discounted cash flow analysis included management assumptions for expected sales growth, capital expenditures and overall operational forecasts. The market multiple analysis included historical and projected performance, market capitalization, volatility and multiples for industry peers.

Effect if actual results differ from assumptions

We have not made any material changes in our methodology used to determine whether potential impairment events have occurred or any material changes in the estimates and assumptions used in our quantitative goodwill impairment testing. During 2021, goodwill was allocated to the Company's Specialty Chemicals Segment and as of December 31, 2021, we determined that no impairment of the carrying value of goodwill for this reporting unit was required. During the third and fourth quarter of 2020, the Company determined potential indicators of impairment existed within our Welded Pipe and Tube reporting unit existed and quantitatively tested the goodwill assigned to the reporting unit for impairment. As a result of the quantitative analysis, the Company incurred goodwill impairment expenses of $16.2 million. In the event that our estimates vary from actual results, we may record additional impairment losses, which could be material to our results of operations.

Inventory

Description

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.

We record an obsolete inventory reserve for identified finished goods with no sales activity and raw materials with no usage. This reserve is based on our current knowledge with respect to inventory levels, sales trends and historical experience. During 2021, our reserve increased approximately $0.9 million to $1.1 million as of December 31, 2021.

We also record an inventory reserve for the estimated shrinkage (quantity losses) between physical inventories. This reserve is based upon the most recent physical inventory results. During 2021, the inventory shrink reserve decreased approximately $0.3 million to $0.2 million as of December 31, 2021, in response to estimated shrinkage rates based on results from previous physical inventories.

Judgments and uncertainties involved in the estimate

We do not believe that our inventories are subject to significant risk of obsolescence in the near term and we have the ability to adjust purchasing practices based on anticipated sales trends and general economic conditions. However, changes in demand, product life cycle, cost trends, product pricing or a deterioration in product quality could result in the need for additional reserves. Likewise, changes in the estimated shrink reserve may be necessary, based on the timing and results of physical inventories. We also apply judgment in the determination of levels of obsolete inventory and assumptions about net realizable value.

Effect if actual results differ from assumptions

We have not made any material changes in the methodology used to establish our reserves for obsolete inventory or inventory shrinkage during the past two fiscal years. However, it is possible that actual results could differ from recorded reserves. For instance, a 10% change in the amount of products considered obsolete or the estimated shrinkage rate would not have had a material impact on net earnings for 2021.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide the information required by this Item.

Item 8. Financial Statements and Supplementary Data


Index to Financial Statements			Page
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Richmond, VA; PCAOB ID: 243)			28
Report of Independent Registered Public Accounting Firm (KPMG, LLP; Richmond, VA; PCAOB ID: 185)			30
Consolidated Balance Sheets as of December 31, 2021 and 2020			31
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020			32
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020			33
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021 and 2020			34
Notes to Consolidated Financial Statements			35
Note 1: Summary of Significant Accounting Policies			35
Note 2: Acquisitions			42
Note 3: Revenue Recognition			43
Note 4: Fair Value Measurements			44
Note 5: Property, Plant and Equipment			46
Note 6: Long-term Debt			47
Note 7: Leases			48
Note 8: Accrued Expenses			49
Note 9: Shareholders' Equity			50
Note 10: Accounting for Share-Based Payments			51
Note 11: Income Taxes			56
Note 12: Earnings (Loss) Per Share			56
Note 13: Industry Segments			58
Note 14: Benefit Plans and Collective Bargaining Agreements			60
Note 15: Commitments and Contingencies			61
Note 16: Proxy Contest Costs and Recoveries			61
Note 17: Related Party Transactions			61
Note 18: Subsequent Events			62

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Synalloy Corporation

Richmond, Virginia

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Synalloy Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2020 consolidated financial statements described in Note 9 and 12 to the consolidated financial statements to retrospectively apply the change in presentation of earnings per share for a deemed stock dividend related to a rights offering. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2020 financial statements of the Company other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2020 financial statements taken as a whole.

Basis for Opinion

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

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

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

Critical Audit Matter

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

Business Combination

As described in Notes 1 and 2 of the consolidated financial statements, the Company completed its acquisition of DanChem Technologies, Inc on October 22, 2021, for a preliminary purchase price of $34.1 million. As a result of the acquisition, management was required to estimate the preliminary fair values of the assets acquired, including certain identifiable intangible and tangible assets, and liabilities assumed. Estimates and assumptions that the Company made in estimating the preliminary fair value of the customer relationship and the machinery, fixtures, and equipment required use of estimates and judgments.

We identified the determination of the preliminary fair values of the customer relationships and machinery, fixtures, and equipment assets, as a critical audit matter. The principal considerations for our determination included the following: (i) significant unobservable inputs and assumptions utilized by management in determining the fair value of customer relationships, including future revenue growth, customer attrition rate, and the weighted average cost of capital; and (ii) significant estimates and assumptions to determine the estimated fair value of the machinery, fixtures, and equipment by considering the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence. Auditing these elements involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

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

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

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

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

/s/ BDO USA, LLP

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

Richmond, Virginia

March 29, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Synalloy Corporation:

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the retrospective application of the 2021 Rights Offering described in Note 9 and Note 12 (the earnings per share retrospective adjustment), the consolidated balance sheet of Synalloy Corporation and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the year then ended, and the related notes and financial statement Schedule II (collectively, the consolidated financial statements). The 2020 consolidated financial statements before the effects of the earnings per share retrospective adjustment are not presented herein. In our opinion, except for the effects of the earnings per share retrospective adjustment, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

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

Basis for Opinion

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

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG, LLP

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

Richmond, Virginia

March 9, 2021

SYNALLOY CORPORATION

Consolidated Balance Sheets

As of December 31, 2021 and 2020

(in thousands, except par value and share data)


	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	2,021	$	236
Accounts receivable, net	50,126		28,183
Inventories, net
Raw materials	48,448		35,997
Work-in-process	24,990		20,304
Finished goods	29,811		28,779
Total inventories, net	103,249		85,080

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

Assets held for sale	855		—
Total current assets	159,979		126,883

Property, plant and equipment, net	43,720		35,096
Right-of-use assets, operating leases, net	30,811		31,769
Goodwill	12,637		1,355
Intangible assets, net	14,382		11,426

Deferred charges, net	302		455
Other non-current assets	4,171		—
Total assets	$	266,002	$	206,984

Liabilities and Shareholders' equity
Current liabilities:
Accounts payable	$	32,318	$	19,732
Accounts payable - related parties	2		—
Accrued expenses and other current liabilities	12,407		6,123
Current portion of long-term debt	2,464		875
Current portion of earn-out liability	1,961		3,434
Current portion of operating lease liabilities	1,104		867
Current portion of finance lease liabilities	233		19
Total current liabilities	50,489		31,050
Long-term debt	67,928		60,495
Long-term portion of earn-out liability	—		287
Long-term portion of operating lease liabilities	32,059		32,771
Long-term portion of finance lease liabilities	1,414		37
Deferred income taxes	2,433		1,957
Other long-term liabilities	89		92
Total liabilities	154,412		126,689

Commitments and contingencies – see Note 15

Shareholders' equity:
Common stock - $1 par value: Authorized 24,000,000 shares; issued 11,085,103 and 10,300,000 shares, respectively	11,085		10,300
Capital in excess of par value	46,058		37,719
Retained earnings	63,080		42,835

	120,223		90,854
Less cost of common stock in treasury - 918,471 and 1,123,319 shares, respectively	8,633		10,559
Total shareholders' equity	111,590		80,295
Total liabilities and shareholders' equity	$	266,002	$	206,984

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Operations

For the years ended December 31, 2021 and 2020

(in thousands, except per share data)


	2021		2020
Net sales	$	334,715	$	256,000
Cost of sales	273,949		233,348
Gross profit	60,766		22,652

Selling, general and administrative expense	30,144		28,718
Acquisition costs and other	1,001		845
Proxy contest costs and recoveries	168		3,105
Earn-out adjustments	1,872		(1,195)
Asset impairment	233		6,214
Goodwill impairment	—		16,203
Gain on lease modification	—		(171)
Operating income (loss)	27,348		(31,067)
Other (income) and expense
Interest expense	1,486		2,110
Loss on extinguishment of debt	223		—
Change in fair value of interest rate swap	(2)		51
Other, net	143		(1,255)
Income (loss) before income taxes	25,498		(31,973)
Income tax provision (benefit)	5,253		(4,706)
Net income (loss)	$	20,245	$	(27,267)

Net income (loss) per common share:
Basic	$	2.17	$	(2.98)
Diluted	$	2.14	$	(2.98)

Weighted average number of common shares outstanding:
Basic	9,340		9,140
Diluted	9,456		9,140

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Cash Flows

For the years ended December 31, 2021 and 2020

(in thousands)


	2021		2020
Cash flows from operating activities:
Net income (loss)	$	20,245	$	(27,267)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense	7,547		7,572
Amortization expense	2,794		3,028
Amortization of debt issuance costs	95		177
Asset impairment	233		6,214
Goodwill impairment	—		16,203
Loss on extinguishment of debt	223		—
Unrealized gain on equity securities	—		(208)
Deferred income taxes	(2,071)		1,167
Proceeds from business interruption insurance	—		1,040
Loss on sale of equity securities	—		38
Earn-out adjustments	1,872		(1,195)
Payments of earn-out liabilities in excess of acquisition date fair value	(138)		(292)
(Reduction of) provision for losses on accounts receivable	(398)		890
Provision for losses on inventories	1,649		271
(Gain) loss on disposal of property, plant and equipment	(848)		237

Non-cash lease expense	481		510
Non-cash lease termination loss	5		24
Gain on lease modification	—		(171)
Change in fair value of interest rate swap	(2)		51
Payments for termination of interest rate swap	(46)		—
Issuance of treasury stock for director fees	132		345
Share-based compensation expense	799		1,791
Changes in operating assets and liabilities:
Accounts receivable	(16,185)		5,552
Inventories	(18,873)		9,122
Other assets and liabilities	(55)		(912)
Accounts payable	10,835		(1,418)
Accounts payable - related parties	2		—
Accrued expenses	1,506		86
Accrued income taxes	9,253		(4,877)
Net cash provided by operating activities	19,055		17,978

Cash flows from investing activities:
Purchases of property, plant and equipment	(1,497)		(3,748)
Proceeds from disposal of property, plant and equipment	1,400		312

Proceeds from sale of equity securities	—		4,430
Acquisitions, net of cash acquired	(32,564)		—
Net cash (used in) provided by investing activities	(32,661)		994

Cash flows from financing activities:
Borrowings from long-term debt	215,528		—
Proceeds from the issuance of common stock related to Rights Offering	10,010		—
Proceeds from exercise of stock options	109		—
Payments on long-term debt	(206,505)		(4,000)
Payments on BB&T line of credit	—		(10,184)
Principal payments on finance lease obligations	(92)		(109)
Payments for finance lease terminations	—		(204)
Payments on earn-out liabilities	(3,494)		(3,946)
Repurchase of common stock	—		(635)
Payments of deferred financing costs	(165)		(284)
Net cash provided by (used in) financing activities	15,391		(19,362)

Increase (Decrease) in cash and cash equivalents	1,785		(390)
Cash and cash equivalents at beginning of year	236		626
Cash and cash equivalents at end of year	$	2,021	$	236

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Consolidated Statements of Shareholders' Equity

For the years ended December 31, 2021 and 2020

(in thousands, except share and per share data)


	Common Stock		Capital in Excess of Par Value		Retained Earnings		Cost of Common Stock in Treasury		Total
Balance December 31, 2019	$	10,300	$	37,407	$	70,552	$	(11,748)	$	106,511
Net loss	—		—		(27,267)		—		(27,267)
Cumulative adjustment due to adoption of ASU 2016-13	—		—		(450)		—		(450)
Issuance of 194,082 shares of common stock from treasury	—		(1,479)		—		1,824		345
Share-based compensation	—		1,791		—		—		1,791
Purchase of common stock	—		—		—		(635)		(635)
Balance December 31, 2020	$	10,300	$	37,719	$	42,835	$	(10,559)	$	80,295
Net income	—		—		20,245		—		20,245
Issuance of 785,103 shares of common stock - Rights Offering	785		9,225		—		—		10,010
Issuance of 191,673 shares of common stock from treasury	—		(1,670)		—		1,802		132
Exercise of stock options for 13,174 shares, net	—		(15)		—		124		109
Share-based compensation	—		799		—		—		799

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

See accompanying notes to consolidated financial statements.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

Synalloy Corporation (the "Company") was incorporated in Delaware in 1958 as the successor to a chemical manufacturing business founded in 1945. Its charter is perpetual. The name was changed on July 31, 1967 from Blackman Uhler Industries, Inc. The Company's executive office is located at 4510 Cox Road, Suite 201, Richmond, Virginia 23060.

The Company's business is divided into two reportable operating segments, the Metals Segment and the Specialty Chemicals Segment. As of December 31, 2021, the Metals Segment operates as three reporting units that include Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI") (collectively "Welded Pipe & Tube"), Palmer of Texas Tanks, Inc. ("Palmer") and Specialty Pipe & Tube, Inc. ("Specialty"). As discussed in Note 4, on February 17, 2021 the Board of Directors authorized the permanent cessation of operations at Palmer and the subleasing of the Palmer facility. As of December 31, 2021, the Company permanently ceased operations and is in the process of divesting all remaining assets at the facility. The Specialty Chemicals Segment operates as one reportable unit and is comprised of Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), CRI Tolling, LLC ("CRI") and DanChem Technologies, Inc. ("DanChem").

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates - The preparation of the Company's financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. The Company bases these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying value of assets and liabilities that are readily available from other sources. Actual results may differ from these estimates.

Impacts of COVID-19 - During the year ended December 31, 2021, aspects of the Company's business continued to be affected by macroeconomic factors related to the COVID-19 pandemic, including production in our plants and within our supply chain. The nature of the situation is dynamic and the full extent of any future impacts of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside of the Company's control.

Immaterial Out of Period Adjustment - During the fourth quarter of fiscal 2021, the Company identified certain immaterial adjustments in the accounting for inventory and related effect on income taxes that impacted the Company’s quarterly and annual financial statements previously issued. Therefore, the Company recorded an out of period adjustment which increased cost of sales by $2.2 million and decreased inventory by $2.2 million resulting in a decrease to operating income and income before income taxes of $2.2 million, a decrease to income tax provision of $0.5 million and a decrease to net income of $1.7 million.

Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash levels in bank accounts that, at times, may exceed federally-insured limits.

Accounts Receivable - Accounts receivable from the sale of products are recorded at net realizable value and the Company generally grants credit to customers on an unsecured basis. Substantially all of the Company's accounts receivable are due from companies located throughout the United States. The Company provides an allowance for credit losses for projected uncollectible amounts. The allowance is based upon an analysis of accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivables balances, historical loss experience, current information, and future expectations. Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are generally due within 30 to 60 days. Delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer. The Company had an allowance for credit losses of $0.2 million and $0.5 million at December 31, 2021 and 2020, respectively.

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

Inventories - Inventory is stated at the lower of cost or net realizable value. Cost is determined by either specific identification or weighted average methods.

At the end of each quarter, all facilities review recent sales reports to identify sales price trends that would indicate products or product lines that are being sold below our cost. This would indicate that an adjustment would be required.

Stainless steel, both in its raw material (coil or plate) or finished goods (pipe and tube) state is purchased/sold using a base price plus an additional surcharge which is dependent on current nickel prices. As raw materials are purchased, it is priced to the Company based upon the surcharge at that date. When the selling price of the finished pipe is set for the customer, approximately three months later, the then-current nickel surcharge is used to determine the proper selling prices. A lower of cost or net realizable value ("LCNRV") adjustment is recorded when the Company's inventory cost, based upon a historical nickel price, is greater than the current selling price of that product due to a reduction in the nickel surcharge. During the years ended December 31, 2021 and 2020, respectively, no material LCNRV adjustments were required by our Metals Segment other than those at our storage tank facility.

During the year ended December 31, 2020, adjustments of $3.8 million to inventory cost were required due to the curtailment of operations at our Palmer facility as a result of the COVID-19 pandemic and lower demand for oil and gas products which caused the net realizable value to fall below inventory cost for certain tanks.

In addition, the Company establishes inventory reserves for:

•Estimated obsolete or unmarketable inventory - The Company identified inventory items with no sales activity for finished goods or no usage for raw materials for a certain period of time. For those inventory items not currently being marketed and unable to be sold, a reserve was established for 100% of the inventory cost less any estimated scrap proceeds. The Company reserved $1.1 million and $0.2 million as of December 31, 2021 and 2020, respectively.

•Estimated quantity losses - The Company performs an annual physical count of inventory during the fourth quarter each year. For those facilities that complete their physical inventory counts before the end of December, a reserve is established for the potential quantity losses that could occur subsequent to their physical inventory. This reserve is based upon the most recent physical inventory results. The Company had $0.2 million and $0.5 million reserved for physical inventory quantity losses as of December 31, 2021 and 2020, respectively.

Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation is determined based on the straight-line method over the estimated useful life of the assets. Substantially all depreciation is recorded within cost of goods sold on the consolidated statement of operations. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining non-cancellable lease term, buildings are depreciated over a range of 10 years to 40 years, and machinery, fixtures and equipment are depreciated over a range of three years to 20 years. The costs of software licenses are amortized over five years using the straight-line method. The Company continually reviews the recoverability of the carrying value of long-lived assets. The Company also reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. When the future undiscounted cash flows of the operation to which the assets relate do not exceed the carrying value of the asset, the assets are written down to fair value.

Business Combinations - Business combinations are accounted for using the acquisition method of accounting. Under this method, the total consideration transferred to consummate the business combination is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the transaction. The acquisition method of accounting requires extensive use of estimates and judgments to allocate the consideration transferred to the identifiable tangible and intangible assets acquired, if any, and liabilities assumed. See Not e 2 for further discussion on the Company's acquisition of DanChem in 2021.

Goodwill - Goodwill is the excess of the purchase price over the fair value of identifiable assets acquired, less fair value of liabilities assumed, in a business combination. The Company reviews goodwill for impairment at the reporting unit level, which is the operating segment level or one level below the operating segment level. Goodwill is not amortized but is evaluated for impairment at least annually on October 1 or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable. The evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If, after assessing qualitative factors, we determine it is more

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

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

The quantitative goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying amount, including goodwill. Fair value represents the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on a combination of an income approach, based on discounted future cash flows, and a market approach, based on market multiples applied to free cash flow. If the fair value exceeds the carrying value, then no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any impairment identified is included within "goodwill impairment" in the consolidated statement of operations.

A reporting unit is an operating segment or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. During 2021, goodwill was allocated to the Specialty Chemicals Segment. During 2020, goodwill was allocated to the Welded Pipe and Tube reporting unit and the Specialty Chemicals Segment.

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


(in thousands)	Specialty Chemicals Segment		Metals Segment		Total
Balance December 31, 2019	$	1,355	$	16,203	$	17,558
Impairment charges	—		(16,203)		(16,203)
Balance December 31, 2020	1,355		—		1,355
Acquisitions	11,282		—		11,282
Balance December 31, 2021	$	12,637	$	—	$	12,637

During the third quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed. Continued declines in the Company's stock price, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event and the need to perform another quantitative evaluation of goodwill. As a result, the Company quantitatively evaluated the Welded Pipe & Tube reporting unit for impairment. Fair value of the reporting unit was determined using a combination of an income approach and a market-based approach with equal weighting applied to each approach. The income approach utilized the estimated discounted cash flows expected to be generated by the reporting unit's assets while the market-based approach utilized comparable company information. Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. These estimates and assumptions include the discount rate, terminal growth rate, tax rate, projected capital expenditures, and overall operational forecasts, including sales growth, gross margins, and operating margins. Any changes in the judgments, estimates, or assumptions could produce significantly different results. As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value by 9.7% resulting in a goodwill impairment charge of $10.7 million for the quarter ended September 30, 2020.

During the fourth quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed. Continued risks within the stainless steel industrial business, reporting unit operating losses, and continued declines in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event and the need to perform another quantitative evaluation of goodwill. As a result, the Company quantitatively evaluated the Welded Pipe & Tube reporting unit for impairment. Fair value of the reporting unit was determined using a combination of an income approach and a market-based approach with equal weighting applied to each approach. The income approach utilized the estimated discounted cash flows expected to be generated by the reporting unit's assets while the market-based approach utilized comparable company information. Determining the fair value of the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. These estimates and assumptions include the discount rate, terminal growth rate, tax rate, projected capital expenditures, and overall operational forecasts, including sales growth, gross margins, and operating margins. Any changes in the judgments, estimates, or assumptions could produce significantly different results. As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value by 24.1% resulting in the remainder of the

SYNALLOY CORPORATION

Notes to Consolidated Financial Statements

goodwill attributable to the Welded Pipe and Tube reporting unit being impaired and a goodwill impairment charge of $5.5 million for the quarter ended December 31, 2020.

We conducted our annual impairment test of the Specialty Chemicals Segment as of October 1, 2021. The Company performed a discounted cash flow analysis and a market multiple analysis for the Specialty Chemicals Segment. The discounted cash flow analysis included management assumptions for expected sales growth, capital expenditures and overall operational forecasts. the market multiple analysis included historical and projected performance, market capitalization, volatility and multiples for industry peers. As of December 31, 2021, we determined that no impairment of the carrying value of goodwill for this reporting unit was required.

Intangible Assets - Intangible assets consists primarily of customer relationships and represents the fair value of intellectual, non-physical assets resulting from business acquisitions and are amortized over their estimated useful lives using either an accelerated or straight-line method over a period ranging from eight to 15 years. Amortization expense is recorded in selling, general and administrative expense on the consolidated statement of operations. The weighted average amortization period for the customer relationships is approximately 12 years.

Intangible assets totaled $28.9 million and $30.9 million as of December 31, 2021 and 2020, respectively. Accumulated amortization of intangible assets as of December 31, 2021 and 2020 totaled $14.5 million and $19.5 million, respectively.

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


(in thousands)
2022	$	2,884