SYNALLOY CORP (Form: 10-Q, Received: 11/09/2020 16:00:41)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the Quarterly Period Ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the Transition Period from _____ to _____

COMMISSION FILE NUMBER 0-19687

Synalloy Corporation

(Exact name of registrant as specified in its charter)

Delaware

57-0426694

(State or other jurisdiction of incorporation or organization)

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

4510 Cox Road,

Suite 201,

Richmond,

Virginia

23060

(Address of principal executive offices)

(Zip Code)

(804)

822-3260

(Registrant's telephone number, including area code)

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


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

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or 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. Yes ☐ No ☐

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

The number of shares outstanding of the registrant's common stock as of November 6, 2020 was 9,108,691

Synalloy Corporation

Table of Contents



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

	Signatures	40

Part I - Financial Information

Item 1. Financial Statements

SYNALLOY CORPORATION

Condensed Consolidated Balance Sheets

(in thousands, except par value and share data)


	(Unaudited)
	September 30, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	163	$	626
Accounts receivable, net of allowance for credit losses of $237 and $70, respectively	33,132		35,074
Inventories, net	89,007		98,186
Prepaid expenses and other current assets	13,453		13,229

Total current assets	135,755		147,115

Property, plant and equipment, net	36,331		40,690
Right-of-use assets, operating leases, net	32,090		35,772
Goodwill	6,810		17,558
Intangible assets, net	12,131		15,714
Deferred income taxes	1,327		—
Deferred charges, net	271		348

Total assets	$	224,715	$	257,197

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	$	19,514	$	21,150
Accrued expenses and other current liabilities	6,718		6,037
Current portion of long-term debt	4,000		4,000
Current portion of earn-out liability	3,959		5,576
Current portion of operating lease liabilities	835		3,562
Current portion of finance lease liabilities	26		253

Total current liabilities	35,052		40,578

Long-term debt	67,343		71,554
Long-term portion of earn-out liability	994		3,578
Deferred income taxes	—		790
Long-term portion of operating lease liabilities	33,000		33,723
Long-term portion of finance lease liabilities	41		336
Other long-term liabilities	92		127
Total non-current liabilities	101,470		110,108
Commitments and contingencies – See Note 11

Shareholders' equity
Common stock, par value $1 per share; authorized 24,000,000 shares; issued 10,300,000 shares	10,300		10,300
Capital in excess of par value	37,664		37,407
Retained earnings	51,428		70,552
	99,392		118,259
Less cost of common stock in treasury - 1,191,309 and 1,257,784 shares, respectively	11,199		11,748
Total shareholders' equity	88,193		106,511
Total liabilities and shareholders' equity	$	224,715	$	257,197

Note: The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date. See accompanying notes to condensed consolidated financial statements.

SYNALLOY CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales	$	59,266	$	73,640	$	200,099	$	237,222

Cost of sales	54,271		66,352		183,592		213,412

Gross profit	4,995		7,288		16,507		23,810

Selling, general and administrative expense	6,275		8,361		21,088		24,920
Acquisition costs and other	656		90		803		438
Proxy contest costs	207		—		3,105		—
Earn-out adjustments	(146)		(1,242)		(969)		(1,643)
Asset impairments	—		—		6,079		—
Goodwill impairment	10,748		—		10,748		—
Gain on lease modification	(171)		—		(171)		—
Operating (loss) income	(12,574)		79		(24,176)		95
Other expense (income)
Interest expense	452		944		1,703		2,977
Change in fair value of interest rate swaps	(16)		21		65		145
Other, net	59		180		(1,244)		(224)
Loss before income taxes	(13,069)		(1,066)		(24,700)		(2,803)
Income tax benefit	(2,530)		(112)		(6,026)		(660)





Net loss	$	(10,539)	$	(954)	$	(18,674)	$	(2,143)















Net loss per common share:
Basic	$	(1.16)	$	(0.11)	$	(2.06)	$	(0.24)
Diluted	$	(1.16)	$	(0.11)	$	(2.06)	$	(0.24)

Weighted average shares outstanding:
Basic	9,105		8,995		9,079		8,969
Dilutive effect from stock options and grants	—		—		—		—
Diluted	9,105		8,995		9,079		8,969

See accompanying notes to condensed consolidated financial statements

SYNALLOY CORPORATION

Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Operating activities
Net loss	$	(18,674)	$	(2,143)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense	5,752		5,806
Amortization expense	2,324		2,614
Asset impairments	6,079		—
Goodwill impairment	10,748		—
Amortization of debt issuance costs	129		120
Unrealized (gain) loss on equity securities	(208)		282
Deferred income taxes	(2,116)		(561)
Proceeds from business interruption insurance	1,040		—
Loss (gain) on sale of equity securities	38		(474)
Earn-out adjustments	(969)		(1,643)
Payments on earn-out liabilities in excess of acquisition date fair value	(292)		(448)
Provision for losses on accounts receivable	53		(92)
Provision for losses on inventories	874		1,392
Loss on sale of property, plant and equipment	237		(50)
Non-cash lease expense	385		432
Non-cash lease termination loss	24		—
Gain on lease modification	(171)		—
Change in fair value of interest rate swap	65		145
Issuance of treasury stock for director fees	405		304
Stock-based compensation expense	1,036		1,760
Changes in operating assets and liabilities:
Accounts receivable	1,438		2,779
Inventories	4,593		12,169
Other assets and liabilities	(1,902)		(1,035)
Accounts payable	(1,636)		(909)
Accrued expenses	681		(1,258)
Accrued income taxes	(3,963)		(1,263)
Net cash provided by operating activities	5,970		17,927
Investing activities
Purchases of property, plant and equipment	(2,824)		(2,841)
Proceeds from sale of property, plant and equipment	102		189
Proceeds from sale of equity securities	4,430		1,091
Purchase of equity securities	—		(543)
Acquisition of ASTI	—		(21,895)
Net cash provided by (used in) investing activities	1,708		(23,999)
Financing activities
Borrowings (repayments) from line of credit	(1,210)		(10,630)
Borrowings from term loan	—		20,000
Payments on long-term debt	(3,000)		(2,667)
Principal payments on finance lease obligations	(101)		(101)
Payments for finance lease terminations	(204)		—
Payments on earn-out liabilities	(2,939)		(2,497)
Repurchase of common stock	(635)		—
Payments for deferred financing costs	(52)		—
Net cash (used in) provided by financing activities	(8,141)		4,105
Decrease in cash and cash equivalents	(463)		(1,967)
Cash and cash equivalents at beginning of period	626		2,220
Cash and cash equivalents at end of period	$	163	$	253

Supplemental disclosure
Cash paid for:
Interest	$	1,573	$	2,780
Income taxes	$	16	$	1,174

See accompanying notes to condensed consolidated financial statements

SYNALLOY CORPORATION

Condensed Consolidated Statement of Shareholders' Equity (Unaudited)

(in thousands)


	Three Months Ended September 30, 2020

	Common Stock		Capital in Excess of Par Value		Retained Earnings		Cost of Common Stock in Treasury		Total
Balance at June 30, 2020	$	10,300	$	37,465	$	61,967	$	(11,675)	$	98,057
Net loss	—		—		(10,539)		—		(10,539)
Issuance of 50,652 shares of common stock from treasury			(71)				476		405
Stock-based compensation	—		270		—		—		270
Balance at September 30, 2020	$	10,300	$	37,664	$	51,428	$	(11,199)	$	88,193

	Nine Months Ended September 30, 2020

	Common Stock		Capital in Excess of Par Value		Retained Earnings		Cost of Common Stock in Treasury		Total
Balance at December 31, 2019	$	10,300	$	37,407	$	70,552	$	(11,748)	$	106,511
Net loss	—		—		(18,674)		—		(18,674)
Cumulative adjustment due to adoption of ASC 326	—		—		(450)		—		(450)
Issuance of 126,092 shares of common stock from treasury	—		(779)		—		1,184		405
Stock-based compensation	—		1,036		—		—		1,036
Purchase of common stock	—		—		—		(635)		(635)
Balance at September 30, 2020	$	10,300	$	37,664	$	51,428	$	(11,199)	$	88,193

See accompanying notes to condensed consolidated financial statements.

Synalloy Corporation

Condensed Consolidated Statement of Shareholders' Equity (Unaudited)

Continued


	Three Months Ended September 30, 2019

	Common Stock		Capital in Excess of Par Value		Retained Earnings		Cost of Common Stock in Treasury		Total
Balance at June 30, 2019	$	10,300	$	36,565	$	72,399	$	(12,190)	$	107,074
Net loss	—		—		(954)		—		(954)

Stock-based compensation	—		908		—		—		908



Balance at September 30, 2019	$	10,300	$	37,473	$	71,445	$	(12,190)	$	107,028

	Nine Months Ended September 30, 2019

	Common Stock		Capital in Excess of Par Value		Retained Earnings		Cost of Common Stock in Treasury		Total
Balance at December 31, 2018	$	10,300	$	36,521	$	68,965	$	(13,302)	$	102,484
Net loss	—		—		(2,143)		—		(2,143)
Cumulative adjustment due to adoption of ASC 842	—		—		4,623		—		4,623
Issuance of 118,430 shares of common stock from treasury	—		(808)		—		1,112		304
Stock-based compensation	—		1,760		—		—		1,760
Balance at September 30, 2019	$	10,300	$	37,473	$	71,445	$	(12,190)	$	107,028

See accompanying notes to condensed consolidated financial statements.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unless indicated otherwise, the terms "Company," "we," "us," and "our" refer to Synalloy Corporation and its consolidated subsidiaries.

Note 1: Basis of Presentation

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included as required by Regulation S-X, Rule 10-01.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Synalloy Corporation (the Company) Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Recently Issued Accounting Standards - Adopted

On January 1, 2020, the Company adopted ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance removes disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. In addition, the amendment clarifies that the measurement uncertainty disclosure is to communicate information about uncertainty in measurement as of the reporting date. The guidance also adds disclosure requirements for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated financial statements or footnote disclosures. See Note 2 for further discussion on the Company's fair value measurements.

On January 1, 2020, the Company adopted ASU No. 2017-04 Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The updated guidance eliminated step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to a reporting unit with a zero or negative carrying amount of net assets should be disclosed. The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions, and reasonable and supportable forecasts rather than the incurred loss model which reflects losses that are probable. Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company evaluated its financial instruments and determined that its trade accounts receivable are subject to the new current expected credit loss model. Based upon the application of the new current expected credit loss model, on January 1, 2020, we recorded a cumulative effect adjustment of $0.4 million to Retained Earnings. The adoption of this standard by the Company did not have a material impact on the unaudited condensed consolidated statement of operations or cash flows.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

On September 30, 2020, the Company early adopted ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences as well as adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods. The adoption of this standard by the Company did not have a material effect on the unaudited condensed consolidated financial statements or footnote disclosures.

Recently Issued Accounting Standards - Not Yet Adopted

Recent accounting pronouncements pending adoption, other than those stated above, are not expected to have a material impact on the Company.

Note 2: Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 - Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.

Level 2 - Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

•Quoted prices for similar assets or liabilities in active markets;

•Quoted prices for identical or similar assets or liabilities in non-active markets;

•Inputs other than quoted prices that are observable for the asset or liability; and

•Inputs that are derived principally from or corroborated by other observable market data.

Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using model-based techniques, including option pricing models, discounted cash flow models, probability weighted models, and Monte Carlo simulations.

The Company's financial instruments include cash and cash equivalents, accounts receivable, derivative instruments, accounts payable, earn-out liabilities, a revolving line of credit, a term loan, and equity securities investments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Level 1: Equity securities

During the three and nine months ended September 30, 2020, the Company sold 494,074 and 1.2 million shares, respectively, of its equity securities investments, resulting in a realized loss of $69,375 and $37,954, respectively.

For the three months ended September 30, 2020, the Company recorded no net unrealized gains or losses on investments in equity securities. For the nine months ended September 30, 2020, the Company recorded net unrealized gains of $0.2 million on the investments in equity securities held, which is included in "Other expense (income)" on the accompanying unaudited condensed consolidated statements of operations.

The Company held no equity securities as of September 30, 2020. The fair value of equity securities held by the Company as of December 31, 2019 was $4.3 million and is included in “Prepaid expenses and other current assets” on the accompanying condensed consolidated balance sheets.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Level 2: Derivative Instruments

The Company has one interest rate swap contract, which is classified as a Level 2 financial instrument as it is not actively traded and is valued using pricing models that use observable market inputs. The fair value of the contract was a liability of $0.1 million at September 30, 2020 and an asset of $6,088 at December 31, 2019, respectively. The interest rate swap was priced using discounted cash flow techniques. Changes in its fair value were recorded to other expense (income) with corresponding offsetting entries to "Prepaid expenses and other current assets" or "Accrued Expenses", as appropriate. Significant inputs to the discounted cash flow model include projected future cash flows based on projected one-month LIBOR and the average margin for companies with similar credit ratings and similar maturities.

Level 3: Contingent consideration (earn-out) liabilities

The fair value of contingent consideration ("earn-out") liabilities resulting from the 2017 MUSA-Stainless acquisition, 2018 MUSA-Galvanized acquisition, and 2019 American Stainless acquisition are classified as Level 3. Each quarter-end, the Company re-evaluates its assumptions for all earn-out liabilities and adjusts to reflect the updated fair values. Changes in the estimated fair value of the earn-out liabilities are reflected in operating income 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. The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration (earn-out) liabilities are the discount rate, timing of the estimated payouts, and future revenue projections. Significant increases (decreases) in any of those inputs would not have resulted in a material difference in the fair value measurement of the earn-out liabilities for the three and nine months ended September 30, 2020.

The following table presents a summary of changes in fair value of the Company's Level 3 earn-out liabilities measured on a recurring basis for the nine months ended September 30, 2020:


(in thousands)	MUSA-Stainless		MUSA-Galvanized		American Stainless		Total
Balance at December 31, 2019	$	2,403	$	1,782	$	4,969	$	9,154
Earn-out payments during the period	(1,263)		(488)		(1,480)		(3,231)
Changes in fair value during the period	(415)		(38)		(516)		(969)
Balance at September 30, 2020	$	725	$	1,256	$	2,973	$	4,954

For the three and nine months ended September 30, 2020, the Company had no unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value instruments.

Quantitative Information about Significant Unobservable Inputs Used in Level 3 Fair Value Measurements

The following table summarizes the significant unobservable inputs in the fair value measurement of our contingent consideration (earn-out) liabilities as of September 30, 2020:

Instrument

Fair Value
September 30, 2020

Principal Valuation Technique

Significant Unobservable Inputs

Range

Weighted
Average

Contingent consideration (earn-out) liabilities

$4,954

Probability Weighted Expected Return

Discount rate

Timing of estimated payouts

2020 - 2022

Future revenue projections

$5.5M - 12.3M

$9.5M

The weighted average discount rate was calculated by applying an equal weighting to each contingent consideration's (earn-out liabilities) discount rate. The weighted average future revenue projection was calculated by applying an equal weighting of probabilities to each forecasted scenario within the valuation models to determine the probability weighted sales applicable to the contingent consideration (earn-out liabilities).

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

During the three and nine months ended September 30, 2020, the Company's only significant assets or liabilities measured at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets and goodwill.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. With input from executive management, the Company's accounting and finance personnel that organizationally report to the chief financial officer, assess performance quarterly against historical patterns, projections of future profitability, and whether it is more likely than not that the assets will be disposed of significantly prior to the end of their estimated useful life for evidence of possible impairment. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds fair value. The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company's own judgments about the assumptions market participants would use in pricing the assets and observable market data, when available. The Company classifies these fair value measurements as Level 3.

During the quarter ended June 30, 2020, due to the continued curtailment of operations related to the COVID-19 pandemic, inventory of Palmer was written down to its net realizable value of $2.1 million and certain long-lived assets of Palmer, including tangible and intangible assets, were written down to their estimated fair value of $1.7 million, resulting in asset impairment charges of $6.1 million.

The Company evaluates goodwill for impairment annually and earlier if an event or other circumstances indicates that we may not recover the carrying value of the asset. During 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. 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. See Note 5 - Goodwill and Intangible Assets for additional details. The Company classifies these fair value measurements as Level 3.

Fair Value of Financial Instruments

For short-term instruments, other than those required to be reported at fair value on a recurring and non-recurring basis and for which additional disclosures are included above, management concluded the historical carrying value is a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization. Therefore, as of September 30, 2020 and December 31, 2019, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, the Company's revolving line of credit, which is based on a variable interest rate, and term loan approximate their fair value.

Note 3: Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined by either specific identification or weighted average methods. The components of inventories are as follows:


(in thousands)	September 30, 2020		December 31, 2019
Raw materials	$	39,843	$	42,896
Work-in-process	20,780		17,616
Finished goods	29,964		38,422
	$	90,587	$	98,934
Less inventory reserves	$	1,580	$	748
Inventories, net	$	89,007	$	98,186

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4: Property, Plant and Equipment

Property, plant and equipment consist of the following:


(in thousands)	September 30, 2020	December 31, 2019
Land	63	63
Leasehold improvements	2,866	1,921
Buildings	84	214
Machinery, fixtures and equipment	100,097	100,300
Construction-in-progress	2,456	2,999
	105,566	105,497
Less accumulated depreciation and amortization	69,235	64,807
Property, plant and equipment, net	36,331	40,690

Note 5: Goodwill and Intangible Assets

During the second quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment, with an associated goodwill balance of $16.2 million, existed. Continued deterioration in macroeconomic conditions, continued risks within the stainless steel industrial business, reporting unit operating losses and a decline in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event. As a result, the Company quantitatively evaluated the Welded Pipe & Tube reporting unit for impairment. Fair value of the reporting unit was determined using an income approach. Determining the fair value of the reporting unit and allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. 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 greater than its carrying value by 1.7% and, as such, no goodwill impairment was necessary in the quarter ended June 30, 2020.

During the third quarter of 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment, with an associated goodwill balance of $16.2 million, existed. 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 interim 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 and allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. 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.

The carrying amounts of goodwill are as follows:


(in thousands)	Metals Segment		Chemicals Segment
Balance at December 31, 2019	$	16,203	$	1,355
Impairment charges	(10,748)		—
Balance at September 30, 2020	$	5,455	$	1,355

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the second quarter of 2020, due to the continued curtailment of operations related to the COVID-19 pandemic and managements decision to pursue a sale and exit of the Palmer business, the intangible customer list related to Palmer was written down to its estimated fair market value of zero, resulting in an impairment charge of $1.3 million, which is included in "Asset impairments" on the accompanying unaudited condensed consolidated statements of operations.

The balance of intangible assets subject to amortization are as follows:


(in thousands)	September 30, 2020		December 31, 2019
Intangible assets, gross	$	30,866	$	32,126
Accumulated amortization of intangible assets	(18,735)		(16,412)
Intangible assets, net	$	12,131	$	15,714

Estimated amortization expense related to intangible assets for the next five years are as follows (in thousands):


Remainder of 2020	$	705
2021	2,721
2022	2,501
2023	1,050
2024	952
2025	855
Thereafter	3,347

Note 6: Long-term Debt

Long-term debt consists of the following:


(in thousands)	September 30, 2020		December 31, 2019
$100 million Revolving line of credit, due December 20, 2021	$	58,010	$	59,221
$20 million Term loan, due February 1, 2024	$	13,333	$	16,333
	$	71,343	$	75,554

On December 20, 2018, the Company amended its Credit Agreement with its bank to refinance and increase its Line of Credit (the "Line") from $80,000,000 to $100,000,000 and to create a new 5-year term loan in the principal amount of $20,000,000 (the “Term Loan”). The Term Loan was used to finance the purchase of substantially all of the assets of American Stainless (see Note 13). The Term Loan’s maturity date is February 1, 2024 and shall be repaid in 60 consecutive monthly installments. Interest on the Term Loan is calculated using the One Month LIBOR Rate (as defined in the Credit Agreement), plus 1.90 percent. The Line will be used for working capital needs and as a source for funding future acquisitions. The maturity date of the Line has been extended to December 20, 2021. Interest on the Line remains unchanged and is calculated using the One Month LIBOR Rate, plus 1.65%. Borrowings under the Line are limited to an amount equal to a Borrowing Base calculation that includes eligible accounts receivable and inventory. As of September 30, 2020, the Company had $7.5 million of remaining available capacity under the Line.

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

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

coverage ratio to include the lesser of the actual non-cash asset impairment charge related to Palmer, or $6.0 million in the numerator of the ratio calculation. The amendments are effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020.

The Company notified its bank of a technical default of the fixed charge coverage ratio in its Credit Agreement at the quarter ended September 30, 2020. To address the technical default, the Company entered into an amendment to its Credit Agreement with its bank subsequent to the end of the third quarter. On October 23, 2020, the Company entered into the Fifth Amendment to the Third Amended and Restated Loan Agreement (the "Fifth Amendment") with its bank. The Fifth Amendment amended the definition of the fixed charge coverage ratio to include in the numerator (i) the calculation of losses from the suspended operations of Palmer in the amount of $1,560,000, which is effective for the quarter ended June 30, 2020 and for the directly following three quarters after June 30, 2020, (ii) the calculation of losses from the suspended operations of Palmer in the amount of $740,000, which is effective for the quarter ended September 30, 2020 and for the directly following three quarters after September 30, 2020, and (iii) the extraordinary expenses related to the investigation of a whistleblower complaint in the amount of $636,000, which is effective for the quarter ended September 30, 2020 and for the directly following three quarters after September 30, 2020.

At September 30, 2020, the Company had a minimum fixed charge coverage ratio of 1.47 and a minimum tangible net worth of $67.7 million.

Note 7: Stock-Based Compensation

Stock-based compensation expense for the three and nine months ended September 30, 2020 was $0.3 million and $1.0 million, respectively. Stock-based compensation expense for the three and nine months ended September 30, 2019 was $0.9 million and $1.8 million, respectively.

Stock Options

During the three and nine months ended September 30, 2020 and September 30, 2019, no stock options were exercised by officers or employees of the Company.

2011 Long-Term Incentive Stock Option Plan

On February 5, 2020 the Compensation & Long-Term Incentive Committee of the Company's Board of Directors ("Compensation Committee") approved stock option grants under the 2011 Long-Term Incentive Stock Option Plan ("the 2011 Plan"). Options for a total of 123,500 shares, with an exercise price of $12.995 per share, were granted under the 2011 Plan to certain management employees of the Company. The stock options will vest in 33 percent increments annually on a cumulative basis, beginning one year after the date of grant. In order for the options to vest, the employee must be in the continuous employment of the Company since the date of the grant. Except for death, disability, or qualifying retirement, any portion of the grant that has not vested will be forfeited upon termination of employment. The Company may terminate any portion of the grant that has not vested upon an employee's failure to comply with all conditions of the award or the 2011 Plan. Shares representing grants that have not yet vested will be held in escrow by the Company. An employee will not be entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. The per share weighted-average fair value of this stock option grant was $4.53. The Black-Scholes model for this grant was based on a risk-free interest rate of 1.66 percent, an expected life of ten years, an expected volatility of 35.1 percent and a dividend yield of 1.79 percent.

On June 30, 2020 the Compensation Committee approved stock option grants under the 2011 Plan. Options for a total of 20,000 shares, with an exercise price of $7.329 per share, were granted under the 2011 Plan to certain management employees of the Company. The stock options will vest in 33 percent increments annually on a cumulative basis, beginning one year after the date of grant. In order for the options to vest, the employee must be in the continuous employment of the Company since the date of the grant. Except for death, disability, or qualifying retirement, any portion of the grant that has not vested will be forfeited upon termination of employment. The Company may terminate any portion of the grant that has not vested upon an employee's failure to comply with all conditions of the award or the 2011 Plan. Shares representing grants that have not yet vested will be held in escrow by the Company. An employee will not be entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable. The per share weighted-average fair value of this stock option grant was $2.59. The Black-Scholes model for this grant was based on a risk-free interest rate of 0.64 percent, an expected life of ten years, an expected volatility of 38.7 percent and a dividend yield of 1.89 percent.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Restricted Stock Awards

2015 Stock Awards Plan

On February 5, 2020, the Compensation Committee approved stock grants under the Company's 2015 Stock Awards Plan (the "Plan") to certain management employees of the Company where 45,418 shares with a market price of $12.995 per share were granted under the Plan. The stock awards vest in either 20 percent or 33 percent increments annually on a cumulative basis, beginning one year after the date of grant. In order for the awards to vest, the employee must be in the continuous employment of the Company since the date of the award. Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment. The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award or the Plan. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable.

Performance-Based Restricted Stock Awards

In 2017, the Compensation Committee granted performance restricted stock awards (“2017 Performance Based Incentive Award”) to officers and certain key management-level employees. The 2017 Performance Based Incentive Award vested three years from the grant date based on continuous service, with the number of shares earned (0 percent to 150 percent of the target award) depending on the extent to which the Company achieved certain financial performance targets measured over the period from January 1, 2017 to December 31, 2019. On February 5, 2020, the Compensation Committee approved the vesting of the 2017 Performance Based Incentive Award for a total of 28,481 restricted shares at a grant date market price of $12.30.

On February 5, 2020, the Compensation Committee approved performance-based restricted stock awards to certain management employees of the Company where 36,647 shares with a market price of $12.995 per share were granted under the Plan. The Company's performance-based restricted stock awards are classified as equity and contain performance and service conditions that must be satisfied for an employee to earn the right to benefit from the award. The performance condition is based on the achievement of the Company's Adjusted EBITDA targets. The fair value of the performance-based restricted stock awards are determined based on the closing market price of our stock on the date of grant. In general, 0 percent to 150 percent of the Company's performance-based restricted stock awards vest at the end of a three year service period from the date of grant based upon achievement of the performance condition specified. Except for death, disability, or qualifying retirement, any portion of an award that has not vested is forfeited upon termination of employment. The Company may terminate any portion of the award that has not vested upon an employee's failure to comply with all conditions of the award. An employee is not entitled to any voting rights with respect to any shares not yet vested, and the shares are not transferable.

Note 8: Loss Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net loss	(10,539)		(954)		(18,674)		(2,143)
Denominator:
Denominator for basic earnings per share - weighted average shares	9,105		8,995		9,079		8,969
Effect of dilutive securities:
Employee stock options and stock grants	—		—		—		—
Denominator for diluted earnings per share - weighted average shares	9,105		8,995		9,079		8,969









Net loss per share:
Basic	$	(1.16)	$	(0.11)	$	(2.06)	$	(0.24)
Diluted	$	(1.16)	$	(0.11)	$	(2.06)	$	(0.24)

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The diluted earnings per share calculations exclude the effect of potentially dilutive shares when the inclusion of those shares in the calculation would have an anti-dilutive effect. The Company had 0.3 million and 0.2 million shares of common stock that were anti-dilutive for the three and nine months ended September 30, 2020, respectively. The Company had no shares of common stock that were anti-dilutive for the three and nine months ended September 30, 2019, respectively.

Note 9: Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is no longer subject to U.S. federal examinations for years before 2015 or state examinations for years before 2014. During the first nine months of 2020 and 2019, the Company did not identify nor reserve for any unrecognized tax benefits.

Our income tax provision and overall effective tax rates for the periods presented are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Income tax benefit	$	(2,530)		$	(112)		$	(6,026)		$	(660)
Effective income tax rate	19.4		%	10.6		%	24.4		%	23.6		%

The effective tax rate was 19.4% and 10.6% for the three months ended September 30, 2020 and 2019, respectively. The September 30, 2020 effective tax rate was approximately equal to the U.S. statutory rate of 21.0%. The September 30, 2019 effective tax rate was lower than the statutory rate of 21.0% due to state taxes, net of the federal benefit, and discrete tax benefits on our stock compensation plan.

The effective tax rate was 24.4% and 23.6% for the nine months ended September 30, 2020 and 2019, respectively. The September 30, 2020 effective tax rate was higher than the statutory rate of 21.0% due to discrete tax benefits over the costs associated with our public proxy contest, asset impairments at our Palmer facility, goodwill impairment over our Metals Segment and benefits from our stock compensation plan. Additionally, we recognized estimated tax benefits associated with the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which was signed into law on March 27, 2020. The CARES Act includes various income and payroll tax provisions, notably enabling the Company to carry back net operating losses and recover taxes paid in prior years. The September 30, 2019 effective tax rate was approximately equal to the U.S. statutory tax rate of 21%.

Note 10: Leases

On September 10, 2020, Store Master Funding XII, LLC, a Delaware limited liability company (“Store”) and the Company's sale-leaseback partner, closed on a transaction pursuant to which Store sold to a third party approximately 12.5 acres of unimproved land and immaterial improvements located at Synalloy’s facility in Munhall, Pennsylvania. Synalloy subleases the Munhall facility to Bristol Metals, LLC.

As a result of the sale, on September 10, 2020, Synalloy and Store entered into a Third Amended and Restated Master Lease Agreement (the “Master Lease”) to reduce Synalloy’s rent at the Munhall facility pursuant to the terms and conditions of the Second Amended and Restated Master Lease Agreement between the parties dated January 2, 2019. The Master Lease amendment was determined to be a lease modification that qualified for a change of accounting on the existing lease and not a separate contract. Upon modification of the Master Lease Agreement, the right-of-use asset and operating lease liability were remeasured using an incremental borrowing rate determined on the date of modification. As such, the Company recognized a reduction in the right-of-use asset and operating lease liability related to the Master Lease of $3.2 million and $3.4 million, respectively, and recognized a gain on the modification of $0.2 million, which is reported within operating expenses on the unaudited condensed consolidated statement of operations.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Balance Sheet Presentation

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

Classification

Financial Statement Line Item

September 30, 2020

Assets

Right-of-use assets, operating leases

32,090

Assets

Property, plant and equipment

Current liabilities

Current portion of lease liabilities, operating leases

835

Current liabilities

Current portion of lease liabilities, finance leases

Non-current liabilities

Non-current portion of lease liabilities, operating leases

33,000

Non-current liabilities

Non-current portion of lease liabilities, finance leases

Total Lease Cost

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


(in thousands)	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Operating lease cost	$	1,032	$	3,101
Finance lease cost:
Amortization of right-of-use assets	9		84
Interest on finance lease liabilities	—		24
Total lease cost	$	1,041	$	3,209

Reduction in carrying amounts of right-of-use assets held under finance leases is included in depreciation expense. Minimum rental payments under operating leases are recognized on a straight-line method over the term of the lease including any periods of free rent and are included in selling, general, and administrative expense on the unaudited condensed consolidated statement of operations.

Maturity of Leases

The amounts of undiscounted future minimum lease payments under leases as of September 30, 2020 are as follows:


(in thousands)	Operating		Finance
Remainder of 2020	$	899	$	9
2021	3,610		22
2022	3,665		15
2023	3,699		15
2024	3,549		8
Thereafter	47,159		—
Total undiscounted minimum future lease payments	62,581		69
Imputed Interest	28,746		2
Present value of lease liabilities	$	33,835	$	67

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Lease Term and Discount Rate


Weighted-average remaining lease term	September 30, 2020
Operating Leases	15.70 years
Finance Leases	2.91 years
Weighted-average discount rate
Operating Leases	8.33	%
Finance Leases	2.56	%

During the three and nine months ended September 30, 2020, no right-of-use assets were recognized in exchange for new operating lease liabilities.

Note 11: Commitments and Contingencies

The Company is from time-to-time subject to various claims, possible legal actions for product liability and other damages, and other matters arising out of the normal conduct of the Company's business.

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

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 12: Industry Segments

The following table summarizes certain information regarding segments of the Company's operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net sales
Metals Segment	$	47,079	$	60,121	$	159,761	$	195,728
Specialty Chemicals Segment	12,187		13,519		40,338		41,494
	$	59,266	$	73,640	$	200,099	$	237,222
Operating (loss) income
Metals Segment	$	(11,563)	$	450	$	(19,784)	$	3,125
Specialty Chemicals Segment	1,061		846		3,508		2,387

Unallocated corporate expenses	1,526		2,369		5,132		6,622
Acquisition related costs and other	656		90		803		438
Proxy contest costs	207		—		3,105		—
Earn-out adjustments	(146)		(1,242)		(969)		(1,643)
Gain on lease modification	(171)		—		(171)		—
Operating (loss) income	(12,574)		79		(24,176)		95
Interest expense	452		944		1,703		2,977
Change in fair value of interest rate swap	(16)		21		65		145

Other (income) expense, net	59		180		(1,244)		(224)

Loss before income taxes	$	(13,069)	$	(1,066)	$	(24,700)	$	(2,803)

	As of
(in thousands)	September 30, 2020		December 31, 2019
Identifiable assets
Metals Segment	$	157,974	$	186,758
Specialty Chemicals Segment	25,004		25,428
Corporate	41,737		45,011

	$	224,715	$	257,197

Note 13: Acquisitions

Acquisition of the Assets and Operations of American Stainless Tubing, Inc.

On January 1, 2019, the Company's wholly-owned subsidiary, ASTI Acquisition, LLC (now American Stainless Tubing, LLC) ("ASTI"), completed the acquisition of substantially all of the assets of American Stainless Tubing, Inc. ("American Stainless"). The purchase price for the all-cash acquisition was $21.9 million, subject to a post-closing working capital adjustment. The Company funded the acquisition with a new five-year $20 million term note and a draw against its asset-based line of credit (see Note 6).

The transaction is accounted for using the acquisition method of accounting for business combinations. Under this method, the total consideration transferred to consummate the acquisition is allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing date of the acquisition. 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 and liabilities assumed. During the third quarter of 2019, the Company finalized the purchase price allocation for the American Stainless acquisition.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

The excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets is reflected as goodwill. Goodwill consists of manufacturing cost synergies expected from combining American Stainless' production capabilities with the Metals Segment current operations. All of the goodwill recognized was assigned to the Company's Metals Segment and is expected to be deductible for income tax purposes.

American Stainless will receive quarterly earn-out payments for a period of three years following closing. Pursuant to the asset purchase agreement between ASTI and American Stainless, earn-out payments will equate to six and one-half percent (6.5 percent) of ASTI’s revenue over the three-year earn-out period. In determining the appropriate discount rate to apply to the contingent payments, the risk associated with the functional form of the earn-out, and the credit risk associated with the payment of the earn-out were all considered. The fair value of the contingent consideration was estimated by applying the probability weighted expected return method using management's estimates of pounds to be shipped and future price per unit.

During the second quarter of 2019, management identified circumstances that existed on the date of acquisition and as a result, revised the purchase price allocation of certain acquired assets and liabilities as allowable during the measurement period.

The following table shows the initial estimate of value and revisions made during 2019:


(in thousands)	Initial estimate		Revisions		Final
Inventories	$	5,564	$	—	$	5,564
Accounts receivable	3,534		—		3,534
Other current assets - production and maintenance supplies	605		—		605
Property, plant and equipment	2,793		—		2,793
Customer list intangible	10,000		(496)		9,504
Goodwill	7,044		714		7,758
Contingent consideration (earn-out liability)	(6,148)		(218)		(6,366)
Accounts payable	(1,400)		—		(1,400)
Other liabilities	(97)		—		(97)
	$	21,895	$	—	$	21,895

ASTI's results of operations are reflected in the Company's Condensed Consolidated Statements of Operations as follows:


	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)		2020		2019		2020		2019
Net sales		$	8,020	$	8,469	$	22,920	$	26,539
Income before taxes		$	(4,233)	$	902	$	(2,515)	$	2,001

Note 14: Shareholders' Equity

Stock Repurchase Program

On February 21, 2019, the Board of Directors authorized a stock repurchase program for up to 850,000 shares of its outstanding common stock over 24 months. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. 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.

During the three months ended September 30, 2020, the Company purchased no shares under the stock repurchase program. During the nine months ended September 30, 2020, the Company purchased 59,617 shares under the stock repurchase program at an average price of approximately $10.65 per share for an aggregate amount of $0.6 million.

During the three and nine months ended September 30, 2019, the Company purchased no shares under the stock repurchase program.

As of September 30, 2020, the Company has 790,383 shares of its share repurchase authorization remaining.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Shareholder Rights Plan

On March 31, 2020, the Board of Directors unanimously authorized the adoption of a limited duration shareholder rights plan expiring on March 31, 2021 and an ownership trigger threshold of 15%. In connection with the shareholder rights plan, the Board of Directors authorized and declared a dividend of one right (each, a "Right") for each outstanding share of the Company's common stock, par value $1.00 per share ("Common Stock") to stockholders of record at the close of business on April 10, 2020 (the "Record Date"). The complete terms of the Rights are set forth in a Rights Agreement dated March 31, 2020 (the "Rights Agreement"), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The Rights will become exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's outstanding Common Stock or announces a tender or exchange offer that would result in beneficial ownership of 15% or more of the Company's Common Stock. Each Right would entitle the holder to purchase from the Company one half of one share of Common Stock at a purchase price of $22.50 per right, subject to adjustments (equivalent to $45.00 for each whole share of Common Stock).

On June 27, 2020, the Company entered into Amendment 1 to the Rights Agreement (the "Amendment"). The Amendment terminated the Rights Agreement by accelerating the expiration of the Rights to June 28, 2020. At the time of the termination of the Rights Agreement, all of the Rights, which were distributed to holders of the Company's common stock, par value, $1.00, pursuant to the Rights Agreement, expired.

Note 15: Revenues

Revenues are recognized when control of the promised goods is transferred to our customers or when a service is rendered, in an amount that reflects the consideration we are to receive in exchange for those goods or services.

The following table presents the Company's revenues, disaggregated by product group. Substantially all of the Company's revenues are derived from contracts with customers where performance obligations are satisfied at a point-in-time.


	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)		2020		2019		2020		2019
Fiberglass and steel liquid storage tanks and separation equipment		538		5,552		4,994		25,628
Heavy wall seamless carbon steel pipe and tube		5,436		7,963		18,408		23,252
Stainless steel pipe and tube		37,231		40,993		120,265		128,299
Galvanized pipe and tube		3,875		5,613		16,094		18,549
Specialty chemicals		12,186		13,519		40,338		41,494
Net sales		$	59,266	$	73,640	$	200,099	$	237,222

Arrangements with Multiple Performance Obligations

Our contracts with customers may include multiple performance obligations. For such arrangements, revenue for each performance obligation is based on its stand-alone selling price and revenue is recognized as each performance obligation is satisfied. The Company generally determines stand-alone selling prices based on the prices charged to customers using the adjusted market assessment approach or expected cost plus margin.

Note 16: Proxy Contest and Related Costs

During the six months ended June 30, 2020, the Company engaged in a proxy contest with Privet Fund Management, LLC ("Privet") and UPG Enterprises, LLC ("UPG"), which parties acted as a group during the proxy contest. At the Company’s Annual Meeting of Shareholders held on June 30, 2020 (the “Annual Meeting”), the Company’s independent shareholders voted the Company’s proxy card, resulting in five (of eight) incumbent Board members being re-elected to the Board of Directors. Due to cumulative voting, a unique voting method permitted by the Company’s Certificate of Incorporation, Privet and UPG were able to cumulate their group-owned shares to elect three (of eight) new directors at the Annual Meeting.

During the three and nine months ended September 30, 2020, total costs incurred by the Company relating to the proxy contest were $0.2 million and $3.1 million, respectively.

Synalloy Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 17: Subsequent Events

On October 27, 2020, the Company announced the retirement of Craig C. Bram, the Company's President and Chief Executive Officer and member of the Company's Board of Directors, effective November 9, 2020. On October 27, 2020, the Company announced the appointment of Christopher G. Hutter, a member of the Company's Board of Directors, as interim President and Chief Executive Officer, effective November 9, 2020.

Item 2. 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 three and nine months ended September 30, 2020, and September 30, 2019, respectively. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the Annual Report), as well as the condensed consolidated financial statements (unaudited) and notes to the condensed consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of 2019. This discussion and analysis is presented in five sections:

•Business Overview

•Results of Operations and Non-GAAP Financial Measures

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements and Contractual Obligations

•Significant Accounting Policies and Estimates

Business Overview

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

The Company's business is divided into two reportable operating segments, the Metals Segment and the Specialty Chemicals Segment. The Metals Segment operates as three reporting units, all International Organization for Standardization ("ISO") certified manufacturers, including Welded Pipe & Tube Operations, a unit that includes Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI"), which began operations effective January 1, 2019 pursuant to the American Stainless acquisition (see Note 13 to the Condensed Consolidated Financial Statements), Palmer of Texas Tanks, Inc. ("Palmer"), and Specialty Pipe & Tube, Inc. ("Specialty"). Welded Pipe & Tube Operations manufactures stainless steel, galvanized, ornamental stainless steel tubing, and other alloy pipe and tube. Palmer manufactures liquid storage solutions and separation equipment. Specialty is a master distributor of seamless carbon pipe and tube. The Metals Segment's markets include the oil and gas, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste water treatment, liquid natural gas ("LNG"), brewery, food processing, petroleum, pharmaceutical, automotive & commercial transportation, appliance, architectural, and other heavy industries. The Specialty Chemicals Segment operates as one reporting unit which includes Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), and CRI Tolling, LLC ("CRI Tolling"). The Specialty Chemicals Segment produces specialty chemicals for the chemical, paper, metals, mining, agricultural, fiber, paint, textile, automotive, petroleum, cosmetics, mattress, furniture, janitorial and other industries. MC manufactures lubricants, surfactants, defoamers, reaction intermediaries and sulfated fats and oils. CRI Tolling provides chemical tolling manufacturing resources to global and regional chemical companies and contracts with other chemical companies to manufacture certain, pre-defined products.

COVID-19 Update

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

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

•A $10.7 million non-cash goodwill impairment charge related to our Metals Segment;

•Continued curtailment of operations at our Palmer facility that has resulted in $3.6 million of operating losses through the third quarter of 2020 and $6.1 million of asset impairments related to that business; and,

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

There remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. We believe that, at a minimum, customer demand in the COVID-19 environment will continue to be lower in the fourth quarter of 2020 in comparison to the prior year fourth quarter and the manufacturing sector will continue to face challenges over the next several quarters. Given that, we are unable to predict the ultimate impact it may have on our business, future operations, financial position or cash flows. The extent that our operations will continue to be impacted by the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be accurately predicted, including the severity of the outbreak and continued actions by government authorities to contain and treat the outbreak. See Part II - Item 1A, "Risk Factors," included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic.

Goodwill Impairment Review

During the second quarter of 2020, as described in Note 5 - Goodwill and Intangible Assets, we tested our goodwill for impairment. The Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment, with an associated goodwill balance of $16.2 million, existed. Continued deterioration in macroeconomic conditions, continued risks within the stainless steel industrial business, reporting unit operating losses and a decline in the reporting unit's net sales compared to forecast, collectively, indicated that the reporting unit had experienced a triggering event. As a result, the Company quantitatively evaluated the Welded Pipe & Tube reporting unit for impairment. Fair value of the reporting unit was determined using an income approach. Determining the fair value of the reporting unit and allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. 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. We corroborated the reasonableness of the estimated reporting unit fair value by reconciling to our enterprise value and market capitalization. As a result of the goodwill impairment evaluation, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was greater than its carrying value by 1.7% and, as such, no goodwill impairment was necessary in the quarter ended June 30, 2020.

During the third quarter of 2020, as described in Note 5 - Goodwill and Intangible Assets, we tested our goodwill for impairment. The Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment, with an associated goodwill balance of $16.2 million, existed. Continued 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 interim 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 units assets while the market-based approach utilized comparable company information. Determining the fair value of the reporting unit and allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant management estimates and assumptions. 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.

We do consider the remainder of our Welded Pipe & Tube reporting unit's goodwill to be at risk and changes in our future operating results, cash flows, share price, market capitalization, or discount rate used when conducting future goodwill impairment tests could affect the estimated fair values of our reporting unit and may result in a goodwill impairment charge in the future. For example, we estimate that a 95 basis point increase in the discount rate would result in an additional goodwill impairment charge of approximately $5.5 million and the remaining goodwill attributable to the Metals Segment to be impaired.

Results of Operations

Consolidated Performance Summary

Consolidated net sales for the third quarter of 2020 were $59.3 million representing a decrease of $14.4 million or 19.5% when compared to net sales for the third quarter of 2019. Net sales for the first nine months of 2020 were $200.1 million representing a decrease of $37.1 million or 15.6% when compared to the first nine months of 2019. The decrease in sales for the third quarter and first nine months of 2020 was driven by our Metals Segment, which had a decrease of $13.0 million over the third quarter of 2019 and a decrease of $36.0 million over the first nine months of 2019.

For the third quarter of 2020, the Company recorded a net loss of $10.5 million, or $1.16 diluted loss per share, compared to a net loss of $1.0 million, or $0.11 diluted loss per share for the third quarter of 2019. The third quarter of 2020 was negatively impacted by:

•Non-cash goodwill impairment in our Metals Segment of $10.7 million;

•Operating losses at Palmer totaling $0.9 million;

•Inventory price change losses which, on a pre-tax basis, totaled $1.6 million;

•Proxy contest costs of $0.2 million related to the Company's proxy contest and election of directors at the 2020 Annual Meeting of Shareholders; and

•Costs related to the hotline investigation regarding the accounting for Palmer and other matters $0.7 million, found within acquisition costs and other.

For the first nine months of 2020, the Company recorded a net loss of $18.7 million, or $2.06 diluted loss per share, compared to a net loss of $2.1 million, or $0.24 diluted loss per share for the first nine months of 2019. The first nine months of 2020 were negatively impacted by:

•Non-cash goodwill impairment in our Metals Segment of $10.7 million;

•Operating losses at Palmer totaling $3.6 million and $6.1 million in non-cash, pre-tax asset impairment charges;

•Inventory price change losses, which on a pre-tax basis totaled $5.5 million, compared to a $5.7 million loss for the first nine months of 2019;

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

•Costs related to the hotline investigation regarding the accounting for Palmer and other matters of $0.7 million, found within acquisition costs and other.

The third quarter of 2020 consolidated gross profit decreased 31.5% to $5.0 million, or 8.4% of sales, compared to $7.3 million, or 9.9% of sales in the third quarter of 2019. For the first nine months of 2020, consolidated gross profit decreased 30.7% to $16.5 million, or 8.2% of sales, from $23.8 million, or 10.0% of sales in the first nine months of 2019. The decrease in dollars and percentage of sales were attributable to the Metals Segment as discussed below.

Consolidated selling, general, and administrative expense for the third quarter of 2020 decreased by $2.1 million to $6.3 million or 10.6% of sales compared to $8.4 million, or 11.4% of sales in the second quarter of 2019. For first nine months of 2020, consolidated selling, general, and administrative expenses decreased $3.8 million, or 15.4%, to $21.1 million compared to $24.9 million in the first nine months of 2019. The most significant decreases for the third quarter and first nine months of 2020 compared the same period in the prior year resulted from salaries and benefits ($0.8 million lower in the third quarter and $1.8 million lower in the first nine months); travel expenses ($0.3 million lower in the third quarter and $0.7 million lower in the first nine months); stock compensation expense ($0.6 million lower in the third quarter and $0.7 million lower in the first nine months); and amortization expense ($0.2 million lower in the third quarter and $0.3 million lower in the first nine months).

Metals Segment

The Metals Segment's net sales for the third quarter of 2020 totaled $47.1 million, a decrease of $13.0 million or 21.7% from the third quarter of 2019. Net sales for the first nine months of 2020 totaled $159.8 million, a decrease of $36.0 million or 18.4% from the first nine months of 2019.

Net sales decrease for the third quarter of 2020 compared to the third quarter of 2019 is summarized as follows:


($ in thousands)	$		%	Average selling price (1)	Units shipped

Fiberglass and steel liquid storage tanks and separation equipment	$	(5,014)	(90.3)%	(76.7)%	(61.8)%
Heavy wall seamless carbon steel pipe and tube	(2,527)		(31.7)%	(7.8)%	(26.1)%
Stainless steel pipe and tube	(3,762)		(9.2)%	6.3%	(13.9)%
Galvanized pipe and tube	(1,738)		(31.0)%	(6.9)%	(24.1)%
Total decrease	$	(13,041)

1) Average price decreases for the third quarter of 2020 as compared to the third quarter of 2019 primarily relate to the following:

•Fiberglass and steel liquid storage tanks and separation equipment - decline due to curtailment of operations and effects of COVID-19 on oil and gas industry and Permian Basin;

•Heavy wall seamless carbon steel pipe and tube - decline based on lower mix of energy based sales and lower mill pricing;

•Stainless steel pipe and tube - pass through of input and cost changes related to - 304 Alloy surcharges increase of approximately 3% and a more favorable product mix; and,

•Galvanized pipe and tube - primarily decline in indexed pricing

Net sales decrease for the first nine months of 2020 compared to the first nine months of 2019 is summarized as follows:


($ in thousands)	$		%	Average selling price (1)	Units shipped

Fiberglass and steel liquid storage tanks and separation equipment	$	(20,634)	(80.5)%	(30.5)%	(72.4)%
Heavy wall seamless carbon steel pipe and tube	(4,844)		(20.8)%	(9.1)%	(12.8)%
Stainless steel pipe and tube	(8,034)		(6.3)%	(2.0)%	(4.1)%
Galvanized pipe and tube	(2,455)		(13.2)%	(7.8)%	(5.1)%
Total decrease	$	(35,967)

1) Average price decreases for the first nine months of 2020 as compared to the first nine months of 2019 primarily relate to the following:

•Fiberglass and steel liquid storage tanks and separation equipment - decline due to curtailment of operations and effects of COVID-19 on oil and gas industry and Permian Basin;

•Heavy wall seamless carbon steel pipe and tube - decline based on lower mix of energy based sales and lower mill pricing;

•Stainless steel pipe and tube - pass through of input and cost changes related to - 304 Alloy surcharges decrease of approximately 1% and a slightly less favorable product mix; and,

•Galvanized pipe and tube - primarily decline in indexed pricing

The Metals Segment's operating loss increased $12.0 million, or 2,672.1%, to $11.6 million for the third quarter of 2020 compared to income of $0.4 million for the third quarter of 2019. Operating loss for the first nine months of 2020 increased $22.9 million, or 733.1%, to $19.8 million from income of $3.1 million in the first nine months of 2019. As mentioned above, the first nine months of 2020 were negatively impacted by a non-cash goodwill impairment charge of $10.7 million as well as $6.1 million in non-cash asset impairment charges related to Palmer.

Current quarter operating results were also affected by nickel prices and resulting surcharges for 304 and 316 alloys. The third quarter of 2020 proved to be a much more unfavorable environment than the third quarter of 2019, with net metal pricing losses of $1.6 million, compared to last year's $0.6 million in metal pricing losses. Third quarter 2020 surcharges on 304 alloy were approximately 2.7% higher than third quarter 2019 levels and 2020 surcharges on 316 alloy were 10.3% lower than the third quarter of 2019.

Selling, general, and administrative expense decreased 20.6% to $4.0 million for the third quarter of 2020 compared to $5.0 million in the third quarter of 2019. For the first nine months of 2020, selling, general, and administrative expenses decreased $1.8 million, or 11.4%, to $13.7 million from $15.4 million for the first nine months of 2019. The most significant decreases for the third quarter and first nine months of 2020 compared the same periods in the prior year resulted from salaries and benefits ($0.5 million lower in the third quarter and $1.5 million lower in the first nine months); travel expenses ($0.2 million lower in the third quarter and $0.4 million lower in the first nine months); and amortization expense ($0.2 million lower in the third quarter and $0.3 million lower in the first nine months).

Specialty Chemicals Segment

Net sales for the Specialty Chemicals Segment in the third quarter of 2020 totaled $12.2 million, representing a $1.3 million, or 9.9%, decrease from the third quarter of 2019. Net sales for the first nine months of 2020 totaled $40.3 million, representing a $1.2 million, or 2.8%, decrease from the first nine months of 2019. Pounds shipped in the third quarter of 2020 were down 2.0% over the third quarter of 2019, with average selling prices declining 8.5%. Pounds for the first nine months of 2020 were down 2.4%, with average selling prices decreasing 0.6%.

The U.S. specialty chemical industry continues to face significant downturns in demand due to weak industrial and manufacturing activities related to the COVID-19 pandemic. However, during the first nine months of 2020, the Specialty Chemicals Segment was able to demonstrate relative strength in sales by increasing production of hand sanitizer and cleaning aids to offset reduced production into the oil and gas industry. Additionally, the Specialty Chemicals Segment’s cost cutting efforts have generated a decrease in selling, general and administrative costs of $0.2 million and $0.6 million for the third quarter and first nine months of 2020, respectively. These cost cutting measures have allowed the Specialty Chemicals Segment to generate increased profits on lower sales volume.

Operating income for the Specialty Chemicals Segment for the third quarter of 2020 was $1.1 million, an increase of $0.2 million, or 25.4%, from the third quarter of 2019. Operating income for the first nine months of 2020 was $3.5 million, an increase of $1.1 million, or 47.0%, from the first nine months of 2019.

Selling, general, and administrative expense decreased $0.2 million, or 20.3%, to $0.9 million for the third quarter of 2020 compared to the third quarter of 2019. For the first nine months of 2020, selling, general, and administrative expenses decreased $0.6 million, or 19.1%, to $2.7 million from $3.3 million for the first nine months of 2019. The most significant decreases for the third quarter and first nine months of 2020 compared to the same periods in the prior year resulted from salaries and benefits ($0.2 million lower for the third quarter and $0.5 million lower in the first nine months).

Other Items

Unallocated corporate expenses for the third quarter of 2020 decreased $0.9 million, or 35.6%, to $1.5 million (2.6 percent of sales) compared to $2.4 million (3.2 percent of sales) for the same period in the prior year comparative period. For first nine months of 2020, unallocated corporate expenses decreased $1.5 million, or 22.5%, to $5.1 million from $6.6 million for the first nine months of 2019. The third quarter and first nine months decreases resulted primarily from lower professional fees, stock compensation expense and travel expenses in the period.

Interest expense was $0.5 million and $0.9 million for the third quarter of 2020 and 2019, respectively. The decrease was related to lower average debt outstanding in the third quarter of 2020 compared to the third quarter of 2019.

The Company's cash balance decreased $0.4 million to $0.2 million as of September 30, 2020 compared to $0.6 million at December 31, 2019. Fluctuations affecting cash flows during the nine months ended September 30, 2020 were comprised of the following:

a)Net inventories decreased $9.2 million at September 30, 2020 when compared to December 31, 2019, mainly due to efforts to balance inventory with projected business levels and the write-down of inventory related to the Palmer business in the second quarter. Inventory turns increased from 1.62 turns at December 31, 2019, calculated on a three-month average basis, to 1.75 turns at September 30, 2020;

b)Accounts payable decreased $1.6 million as of September 30, 2020 as compared to December 31, 2019, primarily due to the reduction of payables at the curtailed Palmer operations. Accounts payable days outstanding were approximately 32 days at September 30, 2020 compared to 36 days at December 31, 2019. Accounts payable days outstanding using a three-month average basis was approximately 38 days at September 30, 2020;

c)Net accounts receivable decreased $1.9 million at September 30, 2020 as compared to December 31, 2019, due primarily to the reduction of receivables at the curtailed Palmer operations. Days sales outstanding, calculated using a nine-month average basis, was 47 days outstanding at September 30, 2020 and 51 days at December 31, 2019, respectively. Days sales outstanding using a three-month average basis was approximately 54 days at September 30, 2020;

d)Capital expenditures for the first nine months of 2020 were $2.8 million; and

e)The Company paid $3.2 million during the first nine months of 2020 related to the earn-out liabilities from the 2019 American Stainless, 2018 MUSA-Galvanized and 2017 MUSA-Stainless acquisitions.

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 (Loss) Income, and Adjusted Diluted (Loss) Earnings 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 discontinued operations, 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: discontinued operations, goodwill impairment, asset impairment, gain on lease modification, interest (including change in fair value of interest rate swap), income taxes, depreciation, amortization, stock option / grant costs, non-cash lease cost, acquisition costs, proxy contest costs, shelf registration costs, earn-out adjustments, gain on excess death benefit, realized and unrealized (gains) and losses on investments in equity securities, casualty insurance gain, all (gains) losses associated with a Sale-Leaseback, retention costs and other adjustments from net income. We caution investors amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by other companies because not all companies calculate EBITDA and Adjusted EBITDA in the same manner. We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

Consolidated EBITDA and Adjusted EBITDA are as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands)		2020			2019			2020			2019
Consolidated
Net loss		$	(10,539)		$	(954)		$	(18,674)		$	(2,143)
Adjustments:
	Interest expense	452			944			1,703			2,977
	Change in fair value of interest rate swap	(16)			21			65			145
	Income taxes	(2,530)			(112)			(6,026)			(660)
	Depreciation	1,805			1,858			5,752			5,690
	Amortization	705			871			2,324			2,614
EBITDA		(10,123)			2,628			(14,856)			8,623
	Acquisition costs and other	656			90			807			1,763
	Proxy contest costs	207			—			3,105			—
	Shelf registration costs	—			—			—			10
	Earn-out adjustments	(146)			(1,242)			(969)			(1,643)
	Loss/(gain) on investments in equity securities	69			180			(170)			(193)
	Asset impairments	—			—			6,079			—
	Goodwill impairment	10,748			—			10,748			—
	Gain on lease modification	(171)			—			(171)			—
	Stock-based compensation	270			908			1,036			1,760
	Non-cash lease expense	130			144			386			432
	Retention expense	—			51			235			181
Adjusted EBITDA		$	1,640		$	2,759		$	6,230		$	10,933
	% sales	2.8		%	3.7		%	3.1		%	4.6		%

Metals Segment EBITDA and Adjusted EBITDA are as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands)		2020			2019			2020			2019
Metals Segment
Net (loss) income		$	(11,417)		$	1,671		$	(17,798)		$	4,658
Adjustments:
	Interest expense	—			20			11			64
	Depreciation	1,387			1,461			4,457			4,476
	Amortization	705			872			2,324			2,614
EBITDA		(9,325)			4,024			(11,006)			11,812
	Acquisition costs and other	—			1			3			1,371
	Earn-out adjustments	(146)			(1,242)			(969)			(1,643)
	Asset impairments	—			—			6,079			—
	Goodwill impairment	10,748			—			10,748			—
	Stock-based compensation	78			195			249			405
	Retention expense	—			26			—			106
Metals Segment Adjusted EBITDA		$	1,355		$	3,004		$	5,104		$	12,051
	% of segment sales	2.9		%	5.0		%	3.2		%	6.2		%

Specialty Chemicals Segment EBITDA and Adjusted EBITDA are as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands)		2020			2019			2020			2019
Chemicals Segment
Net income		$	1,061		$	846		$	3,521		$	2,386
Adjustments:
	Interest expense	—			—			9			1
	Depreciation	378			355			1,170			1,094

EBITDA		1,439			1,201			4,700			3,481
	Stock-based compensation	59			108			178			204
Specialty Chemicals Segment Adjusted EBITDA		$	1,498		$	1,309		$	4,878		$	3,685
	% of segment sales	12.3		%	9.7		%	12.1		%	8.9		%

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

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,
(Amounts in thousands, except per share data)		2020		2019		2020		2019
Loss before taxes		$	(13,069)	$	(1,066)	$	(24,700)	$	(2,803)

Adjustments:
	Acquisition costs and other	656		90		807		1,763
	Proxy contest costs	207		—		3,105		—
	Shelf registration costs	—		—		—		10
	Earn-out adjustments	(146)		(1,242)		(969)		(1,643)
	Loss/(gain) on investments in equity securities	69		180		(170)		(193)
	Asset impairments	—		—		6,079		—
	Goodwill impairment	10,748		—		10,748		—
	Gain on lease modification	(171)		—		(171)		—
	Stock-based compensation	270		908		1,036		1,760
	Non-cash lease expense	130		144		386		432
	Retention expense	—		51		235		181
Adjusted loss before income taxes		(1,306)		(935)		(3,614)		(493)
	(Benefit) for income taxes at 21%	(274)		(196)		(759)		(104)

Adjusted net loss		$	(1,032)	$	(739)	$	(2,855)	$	(389)

Average shares outstanding, as reported
	Basic	9,105		8,995		9,079		8,969
	Diluted	9,105		8,995		9,079		8,969

Adjusted net loss per common share
	Basic	$	(0.11)	$	(0.08)	$	(0.31)	$	(0.04)
	Diluted	$	(0.11)	$	(0.08)	$	(0.31)	$	(0.04)

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

management strategy which we can adjust in response to economic and other changes in our business environment. We have a disciplined approach to capital allocation focusing on priorities that support our business and growth.

Cash Flows

Cash flows from total operations were as follows ($ in thousands):


	Nine Months Ended September 30,
	2020		2019
Total cash (used in) provided by:
Operating activities	$	5,970	$	17,927
Investing activities	1,708		(23,999)
Financing activities	(8,141)		4,105
Net increase (decrease) in cash and cash equivalents	$	(463)	$	(1,967)

Operating Activities

The decrease in cash provided by operating activities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven by a net loss of $18.7 million for the first nine months of 2020 compared to a net loss of $2.1 million for the first nine months of 2019, changes in working capital, driven by decreases in accounts receivable, which increased operating cash flows for the first nine months of 2020 by $1.4 million, compared to an increase of $2.8 million in the first nine months of 2019, decreases in inventory which increased operating cash flows $4.6 million in the first nine months of 2020, compared to an increase of $12.2 million in the first nine months of 2019 and accrued income taxes, which decreased operating cash flow $4.0 million for the first nine months of 2020, compared to a decrease of $1.3 million in the first nine months of 2020. These were partially offset by changes in accounts payable, which decreased operating cash flows $1.6 million in the first nine months of 2020 compared to an decrease of $0.9 million in the first nine months of 2019 and $1.0 million in proceeds received from the Company's business interruption insurance related to the heavy wall press outage in 2019.

Investing Activities

Net cash provided by investing activities primarily consists of transactions related to capital expenditures, equity transactions, and acquisitions. The increase in cash provided by investing activities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to a decrease in cash outflows related to the American Stainless acquisition in the prior year and an increase in proceeds from the sale of equity securities in the current year over the prior year.

Financing Activities

Net cash used in financing activities primarily consists of transactions related to our long-term debt. The increase in cash used in financing activities for the nine months ended September 30, 2020 compared to cash provided by financing activities for the nine months ended September 30, 2019 was primarily due to borrowings from the Term Loan related to the American Stainless acquisition in the prior year not in the current year.

Sources of Liquidity

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

We have a $100 million asset-backed revolving Line with a maturity date of December 21, 2021 and a $20 million Term Loan with a maturity date of February 1, 2024. As of September 30, 2020, the Company had $71.3 million of total borrowings outstanding with its lender. That total is down $4.2 million from the balance at December 31, 2019. As of September 30, 2020, the Company had $7.5 million of remaining available capacity under its Line. See Note 6, Long-term Debt, in the notes to the unaudited condensed consolidated financial statements for additional information.

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

The Company notified its bank of a technical default of the fixed charge coverage ratio in its Credit Agreement at the quarter ended June 30, 2020. To address the technical default, the Company entered into two amendments to its Credit Agreement with its bank subsequent to the end of the second quarter. On July 31, 2020, the Company entered into the Third Amendment to the Third Amended and Restated Loan Agreement (the "Third Amendment") with its bank. The Third Amendment amended the definition of the fixed charge coverage ratio to include the proxy contest costs in the numerator of the ratio calculation. The amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020. Additionally, on August 13, 2020, the Company entered into the Fourth Amendment to the Third Amended and Restated Loan Agreement (the "Fourth Amendment") with its bank. The Fourth Amendment amended the definition of the fixed charge coverage ratio to include the lesser of the actual non-cash asset impairment charge related to Palmer, or $6.0 million in the numerator of the ratio calculation. The amendment is effective for the quarter ended June 30, 2020 and the directly following three quarters after June 30, 2020.

At September 30, 2020, the Company had a minimum fixed charge coverage ratio of 1.47 and a minimum tangible net worth of $67.7 million.

Stock Repurchases and Dividends

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

Stock repurchase activity was as follows:


	Nine Months Ended September 30,
		2020		2019
Number of shares repurchased		59,617		—
Average price per share		$	10.65	$	—
Total cost of shares repurchased		$	636,940	$	—

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

Other Financial Measures

Our current ratio, calculated as current assets divided by current liabilities, was 3.9 at September 30, 2020 and 3.6 at December 31, 2019.

Our long-term debt to capital, calculated as long-term debt divided by total capital, was 45% at September 30, 2020 and 41% at December 31, 2019.

Our return on average equity, calculated as net income divided by the trailing 12-month average of equity, was (10.8)% at September 30, 2020 and (2.9)% at December 31, 2019, respectively.

Off-Balance Sheet Arrangements and Contractual Obligations

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

There has been no material change in our contractual obligations other than in the ordinary course of business since the end of fiscal 2019. See our Annual Report on Form 10-K for the year ended December 31, 2019, for additional information regarding our contractual obligations.

Significant Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements presented in the Annual Report on Form 10-K for the year ended December 31, 2019. We discuss our critical accounting estimates in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Annual Report on Form 10-K for the year ended December 31, 2019. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2019, except as discussed below.

Credit Losses on Accounts Receivable

The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable. Beginning January 1, 2020, when evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes 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. Changes to the allowance for credit losses are adjusted through bad debt expense, which is presented within "Selling, general and administrative" operating expenses on the unaudited condensed consolidated statement of operations.

Leases

The Company determines whether an arrangement is a lease at contract inception. For leases in which the Company is the lessee, the Company recognizes a right-of-use asset and corresponding lease liability on the accompanying unaudited condensed consolidated balance sheets equal to the present value of the fixed lease payments over the lease term. Lease with an initial term of 12 months or less are not recorded on the unaudited condensed consolidated balance sheets. Lease liabilities represent an obligation to make lease payments arising from a lease while right-of-use assets represent a right to use an underlying asset during the lease term. As the Company's leases generally do not have an implicit rate, the Company uses its incremental borrowing rate to determine the present value of fixed lease payments based on information available at the lease commencement date. Lease cost is recognized on a straight-line basis over the lease term.

Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of the remaining lease payments and estimated incremental borrowing rate upon lease modification. The difference between the remeasured right-of-use asset and the operating lease liabilities are recognized as a gain or loss within operating expenses.

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

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

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

Item 3. Quantitative and Qualitative Disclosures about Market Risks

Information about the Company's exposure to market risk was disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 6, 2020. There have been no material quantitative or qualitative changes in market risk exposure since the date of that filing.

Item 4. Controls and Procedures

Changes in Internal Control over Financial Reporting

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

Remediation Efforts to Address Material Weakness

In response to the material weakness identified in Management’s Report on Internal Control Over Financial Reporting as set forth in item 4 “Controls and Procedures” in the Q2 2020 Form 10-Q, the Company, with oversight from the Audit Committee of the Board of Directors, developed a plan to remediate the material weakness at Synalloy. The remediation actions included the following:

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

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

•Reaffirming communication protocols and refreshing policies related to the transition process for new finance executives and audit committee members;

•Initiating implementation of an independent third-party Ethics and Compliance Hotline service for the receipt and reporting to the Audit Committee.

The Company believes the foregoing efforts will effectively remediate the material weakness described in “Management’s Report on Internal Control Over Financial Reporting” in the Q2 2020 Form 10-Q. Because the reliability of the internal control process requires repeatable execution, the successful on-going remediation of the material weakness will require on-going review and evidence of effectiveness prior to concluding that the material weakness is remediated.

PART II

Item 1. Legal Proceedings

It is not unusual for us and our subsidiaries to be involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business involving, among other things, product liability, commercial, employment, workers' compensation, and environmental matters. We establish reserves in a manner that is consistent with accounting principles generally accepted in the U.S. for costs associated with such matters when a liability is probable and those costs are capable of being reasonably estimated. We cannot predict with any certainty the outcome of these unresolved legal actions or the range of possible loss or recovery. Based on current information, however, we believe that the eventual outcome of these unresolved legal actions, either individually or in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows. There were no material changes in our Legal Proceedings, as discussed in Part I, Item 3 in the Company's Annual Report on Form 10-K for the period ending December 31, 2019.

Item 1A. Risk Factors

There were no material changes in our assessment of risk factors as discussed in Part I, Item 1A in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the addition of the following risk factors:

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

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

An 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.

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

Our business and operations expose us to risks associated with global health epidemics or pandemics, such as the recent outbreak of the coronavirus (COVID-19) which has spread from China to many other countries including the United States. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help the control of the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, and school closures among others. The President of the United States has declared the COVID-19 outbreak a national emergency and the Federal Reserve has enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

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

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

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

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

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit No.						Description
10.1						Third Amended and Restated Master Lease Agreement, dated September 10, 2020, between Registrant and Store Master Funding XII, LLC.
31.1						Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer
31.2						Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32						Certifications Pursuant to 18 U.S.C. Section 1350
101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase
101.LAB*						XBRL Taxonomy Extension Label Linkbase
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase
101.DEF*						XBRL Taxonomy Extension Definition Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101*)
*						In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed "furnished" and not "filed."

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	SYNALLOY CORPORATION
	(Registrant)


Date:	November 9, 2020	By:	/s/ Craig C. Bram
			Craig C. Bram
			President and Chief Executive Officer
			(principal executive officer)

Date:	November 9, 2020	By:	/s/ Sally M. Cunningham
			Sally M. Cunningham
			Senior Vice President and Chief Financial Officer
			(principal accounting officer)


If to Lessee:			Synalloy Corporation 4510 Cox Road, Suite 201 Richmond, VA 23060 Attention: Craig Bram Email: cbram@synalloy.com
With a copy to:			Williams Mullen Attention: Lori H. Schweller, Esq. 321 East Main Street, Suite 400 Charlottesville, VA 22902 434-951-5728 Direct 434-817-0977 Fax 804-248-8700 Mobile LSchweller@williamsmullen.com
If to Lessor:			STORE Master Funding XII, LLC 8377 E. Hartford Drive, Suite 100 Scottsdale, AZ 85255 Attention: Asset Management Email: customerservice@storecapital.com Burke
With a copy to:			Kutak Rock LLP 1801 California Street, Suite 3000 Denver, CO 80202 Attention: Nathan Humphrey, Esq. Email: nathan.humphrey@kutakrock.com


Corporate Financial Reporting Certificate

Company:

For the Qtr or FYE ending

# of months represented

Number of units operating at the end of reporting period

EBITDAR Calculation:

Net Income

Plus: Interest Expense
Plus: Taxes
Plus: Depreciation & Amortization
Plus: Operating Lease Expense
Plus: Any non-recurring expenses (please clarify below)
Plus: Any other non-cash expenses (please clarify below)
EBITDAR

Items required to be broken out of Balance Sheet:
Current Portion of Long-Term Debt
Current Portion of any Capital Leases
Senior Third-Party Debt Balances
Subordinate/Related Party Debt Balances

Explanations of non-recurring and non-cash items:


			LESSOR: STORE MASTER FUNDING XII, LLC, a Delaware limited liability company By: Printed Name: Title:


			LESSEE: SYNALLOY CORPORATION, a Delaware corporation By: Name: Craig C. Bram Title: Chief Executive Officer