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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

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

For the Quarterly Period Ended June 30, 2022
OR

☐ | 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.)
1400 16th Street, | Suite 270, |  |  |
Oak Brook, | Illinois |  |  | 60523
(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 x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | x
Smaller reporting company | x | 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 x
The number of shares outstanding of the registrant's common stock as of August 8, 2022 was 10,259,533
1

Synalloy Corporation
Table of Contents

PART I. FINANCIAL INFORMATION
Disclosure Regarding Forward Looking Statements | 3
Item 1. |  | Financial Statements |
|  | Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 | 4
|  | Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | 5
|  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited) | 6
|  | Condensed Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | 7
|  | Notes to Condensed Consolidated Financial Statements (unaudited) | 9
|  | Note 1: Basis of Presentation | 9
|  | Note 2: Acquisitions | 10
|  | Note 3: Revenue Recognition | 11
|  | Note 4: Fair Value of Financial Instruments | 11
|  | Note 5: Inventories | 13
|  | Note 6: Property, Plant and Equipment | 14
|  | Note 7: Goodwill, Intangible Assets and Deferred Charges | 14
|  | Note 8: Debt | 15
|  | Note 9: Leases | 16
|  | Note 10: Shareholders' Equity | 17
|  | Note 11: Earnings Per Share | 18
|  | Note 12: Income Taxes | 18
|  | Note 13: Commitments and Contingencies | 19
|  | Note 14: Industry Segments | 19
|  | Note 15: Subsequent Events | 20
Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 21
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk | 29
Item 4. |  | Controls and Procedures | 30
PART II. OTHER INFORMATION
Item 1. |  | Legal Proceedings | 30
Item 1A. |  | Risk Factors | 31
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 3. |  | Defaults Upon Senior Securities | 31
Item 4. |  | Mine Safety Disclosures | 31
Item 5. |  | Other Information | 31
Item 6. |  | Exhibits | 31
|  | Signatures | 32

2

Forward-Looking Statements
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable federal securities laws. All statements that are not historical facts are forward-looking statements. Forward looking statements can be identified through the use of words such as "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions. The forward-looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, including risks relating to the impact and spread of and the government’s response to COVID-19; inability to weather an economic downturn; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw material availability; financial stability of the Company’s customers; customer delays or difficulties in the production of products; loss of consumer or investor confidence; employee relations; ability to maintain workforce by hiring trained employees; labor efficiencies; risks associated with acquisitions; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by the Company’s debt financing arrangements; and other risks detailed from time-to-time in Synalloy Corporation's Securities and Exchange Commission filings, including our Annual Report on Form 10-K, which filings are available from the SEC. Synalloy Corporation assumes no obligation to update any forward-looking information included in this release.
3

Part I - Financial Information
Item 1. Financial Statements
SYNALLOY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)

| (Unaudited) |  |
| June 30, 2022 |  | December 31, 2021
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 245 |  |  | $ | 2,021 |
Accounts receivable, net of allowance for credit losses of $748 and $216, respectively | 63,932 |  |  | 50,126 |
Inventories, net | 134,529 |  |  | 103,249 |
Prepaid expenses and other current assets | 4,883 |  |  | 3,728 |
Assets held for sale | 785 |  |  | 855 |
Total current assets | 204,374 |  |  | 159,979 |
Property, plant and equipment, net | 42,177 |  |  | 43,720 |
Right-of-use assets, operating leases, net | 29,950 |  |  | 30,811 |
Goodwill | 12,637 |  |  | 12,637 |
Intangible assets, net | 12,940 |  |  | 14,382 |
Deferred charges, net | 253 |  |  | 302 |
Other non-current assets, net | 4,110 |  |  | 4,171 |
Total assets | $ | 306,441 |  |  | $ | 266,002 |
Liabilities and Shareholders' Equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 56,167 |  |  | $ | 32,318 |
Accounts payable - related parties | 2 |  |  | 2 |
Accrued expenses and other current liabilities | 10,800 |  |  | 12,407 |
Current portion of note payable | 871 |  |  | — |
Current portion of long-term debt | 2,464 |  |  | 2,464 |
Current portion of earn-out liabilities | 415 |  |  | 1,961 |
Current portion of operating lease liabilities | 1,061 |  |  | 1,104 |
Current portion of finance lease liabilities | 259 |  |  | 233 |
Total current liabilities | 72,039 |  |  | 50,489 |
Long-term debt | 65,849 |  |  | 67,928 |
Long-term portion of operating lease liabilities | 31,445 |  |  | 32,059 |
Long-term portion of finance lease liabilities | 1,363 |  |  | 1,414 |
Deferred income taxes | 1,791 |  |  | 2,433 |
Other long-term liabilities | 70 |  |  | 89 |
Total non-current liabilities | 100,518 |  |  | 103,923 |
Commitments and contingencies – See Note 13 |  |  |
Shareholders' equity: |  |  |
Common stock, par value $1 per share; authorized 24,000,000 shares; issued 11,085,000 shares | 11,085 |  |  | 11,085 |
Capital in excess of par value | 46,162 |  |  | 46,058 |
Retained earnings | 84,397 |  |  | 63,080 |
| 141,644 |  |  | 120,223 |
Less: cost of common stock in treasury - 825,570 and 918,471 shares, respectively | 7,760 |  |  | 8,633 |
Total shareholders' equity | 133,884 |  |  | 111,590 |
Total liabilities and shareholders' equity | $ | 306,441 |  |  | $ | 266,002 |

Note: The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date. See accompanying notes to condensed consolidated financial statements.
4

SYNALLOY CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net sales | $ | 116,202 |  |  | $ | 83,087 |  |  | $ | 232,420 |  |  | $ | 152,865 |
Cost of sales | 95,329 |  |  | 69,000 |  |  | 189,051 |  |  | 130,043 |
Gross profit | 20,873 |  |  | 14,087 |  |  | 43,369 |  |  | 22,822 |
Selling, general and administrative | 8,634 |  |  | 8,124 |  |  | 17,280 |  |  | 14,993 |
Acquisition costs and other | 157 |  |  | — |  |  | 688 |  |  | — |
Proxy contest costs and recoveries | — |  |  | 632 |  |  | — |  |  | 168 |
Earn-out adjustments | (109) |  |  | 1,044 |  |  | (7) |  |  | 1,270 |
Asset impairments | — |  |  | 233 |  |  | — |  |  | 233 |
Operating income | 12,191 |  |  | 4,054 |  |  | 25,408 |  |  | 6,158 |
Other expense (income) |  |  |  |  |  |  |
Interest expense | 407 |  |  | 353 |  |  | 810 |  |  | 739 |
Loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | 223 |
Change in fair value of interest rate swaps | — |  |  | — |  |  | — |  |  | (2) |
Other, net | (23) |  |  | — |  |  | (58) |  |  | 162 |
Income before income taxes | 11,807 |  |  | 3,701 |  |  | 24,656 |  |  | 5,036 |
Income tax provision | 750 |  |  | 815 |  |  | 3,339 |  |  | 1,056 |
Net income | $ | 11,057 |  |  | $ | 2,886 |  |  | $ | 21,317 |  |  | $ | 3,980 |
Net income per common share: |  |  |  |  |  |  |
Basic | $ | 1.08 |  |  | $ | 0.31 |  |  | $ | 2.08 |  |  | $ | 0.43 |
Diluted | $ | 1.06 |  |  | $ | 0.31 |  |  | $ | 2.05 |  |  | $ | 0.43 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 10,244 |  | 9,233 |  | 10,226 |  |  | 9,212 |
Dilutive effect from stock options and grants | 187 |  | 98 |  | 151 |  |  | 103 |
Diluted | 10,431 |  | 9,331 |  | 10,377 |  |  | 9,315 |

See accompanying notes to condensed consolidated financial statements.
5

SYNALLOY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

| Six Months Ended June 30,
| 2022 |  | 2021
Operating activities |  |  |
Net income | $ | 21,317 |  |  | $ | 3,980 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation expense | 4,208 |  |  | 3,591 |
Amortization expense | 1,442 |  |  | 1,360 |
Amortization of debt issuance costs | 49 |  |  | 46 |
Asset impairments | — |  |  | 233 |
Loss on extinguishment of debt | — |  |  | 223 |
Deferred income taxes | (642) |  |  | (76) |
Earn-out adjustments | (7) |  |  | 1,270 |
Payments on earn-out liabilities in excess of acquisition date fair value | (372) |  |  | — |
Provision for (reduction of) losses on accounts receivable | 532 |  |  | (362) |
Provision for losses on inventories | 1,234 |  |  | 368 |
Gain on disposal of property, plant and equipment | (5) |  |  | (81) |
Non-cash lease expense | 214 |  |  | 249 |
Change in fair value of interest rate swap | — |  |  | (2) |
Issuance of treasury stock for director fees | 364 |  |  | — |
Stock-based compensation expense | 452 |  |  | 456 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (14,339) |  |  | (12,536) |
Inventories | (32,442) |  |  | (5,482) |
Other assets and liabilities | (1,022) |  |  | (570) |
Accounts payable | 23,591 |  |  | 5,575 |
Accounts payable - related parties | — |  |  | 632 |
Accrued expenses | (1,795) |  |  | 1,370 |
Accrued income taxes | 110 |  |  | 4,751 |
Net cash provided by operating activities | 2,889 |  |  | 4,995 |
Investing activities |  |  |
Purchases of property, plant and equipment | (2,330) |  |  | (563) |
Proceeds from disposal of property, plant and equipment | 5 |  |  | 138 |
Net cash used in investing activities | (2,325) |  |  | (425) |
Financing activities |  |  |
Borrowings from long-term debt | 237,938 |  |  | 38,398 |
Proceeds from note payable | 967 |  |  | — |
Proceeds from exercise of stock options | 161 |  |  | — |
Payments on long-term debt | (240,017) |  |  | (40,269) |
Payments on note payable | (96) |  |  | — |
Principal payments on finance lease obligations | (126) |  |  | (19) |
Payments on earn-out liabilities | (1,167) |  |  | (1,944) |
Payments for termination of interest rate swap | — |  |  | (46) |
Payments of deferred financing costs | — |  |  | (165) |
Net cash used in financing activities | (2,340) |  |  | (4,045) |
(Decrease) increase in cash and cash equivalents | (1,776) |  |  | 525 |
Cash and cash equivalents at beginning of period | 2,021 |  |  | 236 |
Cash and cash equivalents at end of period | $ | 245 |  |  | $ | 761 |
Supplemental Disclosure of Cash Flow Information |  |  |
Cash paid for: |  |  |
Interest | $ | 699 |  |  | $ | 620 |
Income taxes | $ | 3,874 |  |  | $ | 24 |
Noncash Investing Activities: |  |  |
Capital expenditures, not yet paid | $ | 336 |  |  | $ | — |

See accompanying notes to condensed consolidated financial statements.
6

SYNALLOY CORPORATION
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
(in thousands)

| Three Months Ended June 30, 2022
| Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  |  |  | Cost of Common Stock in Treasury |  | Total
| Shares | Amount |  |  |  |  |  |
Balance March 31, 2022 | 11,085 |  | $ | 11,085 |  |  | $ | 46,028 |  |  | $ | 73,340 |  |  |  |  | $ | (8,099) |  |  | $ | 122,354 |
Net income | — |  | — |  |  | — |  |  | 11,057 |  |  |  |  | — |  |  | 11,057 |
Issuance of 32,701 shares of common stock from treasury | — |  | — |  |  | (198) |  |  | — |  |  |  |  | 308 |  |  | 110 |
Exercise of stock options for 3,334 shares, net | — |  | — |  |  | 12 |  |  | — |  |  |  |  | 31 |  |  | 43 |
Stock-based compensation | — |  | — |  |  | 320 |  |  | — |  |  |  |  | — |  |  | 320 |
Balance June 30, 2022 | 11,085 |  | $ | 11,085 |  |  | $ | 46,162 |  |  | $ | 84,397 |  |  |  |  | $ | (7,760) |  |  | $ | 133,884 |

See accompanying notes to condensed consolidated financial statements.

| Six Months Ended June 30, 2022
| Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  |  |  | Cost of Common Stock in Treasury |  | Total
| Shares | Amount |  |  |  |  |  |
Balance December 31, 2021 | 11,085 |  | $ | 11,085 |  |  | $ | 46,058 |  |  | $ | 63,080 |  |  |  |  | $ | (8,633) |  |  | $ | 111,590 |
Net income | — |  | — |  |  | — |  |  | 21,317 |  |  |  |  | — |  |  | 21,317 |
Issuance of 75,783 shares of common stock from treasury | — |  | — |  |  | (348) |  |  | — |  |  |  |  | 712 |  |  | 364 |
Exercise of stock options for 17,118 shares, net | — |  | — |  |  | — |  |  | — |  |  |  |  | 161 |  |  | 161 |
Stock-based compensation | — |  | — |  |  | 452 |  |  | — |  |  |  |  | — |  |  | 452 |
Balance June 30, 2022 | 11,085 |  | $ | 11,085 |  |  | $ | 46,162 |  |  | $ | 84,397 |  |  |  |  | $ | (7,760) |  |  | $ | 133,884 |

See accompanying notes to condensed consolidated financial statements.
7

Synalloy Corporation
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
Continued

| Three Months Ended June 30, 2021
| Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  |  |  | Cost of Common Stock in Treasury |  | Total
| Shares | Amount |  |  |  |  |  |
Balance March 31, 2021 | 10,300 |  | $ | 10,300 |  |  | $ | 37,668 |  |  | $ | 43,929 |  |  |  |  | $ | (10,321) |  |  | $ | 81,576 |
Net income | — |  | — |  |  | — |  |  | 2,886 |  |  |  |  | — |  |  | 2,886 |
Issuance of 66,809 shares of common stock from treasury | — |  | — |  |  | (628) |  |  | — |  |  |  |  | 628 |  |  | — |
Stock-based compensation | — |  | — |  |  | 269 |  |  | — |  |  |  |  | — |  |  | 269 |
Balance June 30, 2021 | 10,300 |  | $ | 10,300 |  |  | $ | 37,309 |  |  | $ | 46,815 |  |  |  |  | $ | (9,693) |  |  | $ | 84,731 |

See accompanying notes to condensed consolidated financial statements.

| Six Months Ended June 30, 2021
| Common Stock |  | Capital in Excess of Par Value |  | Retained Earnings |  |  |  | Cost of Common Stock in Treasury |  | Total
| Shares | Amount |  |  |  |  |  |
Balance December 31, 2020 | 10,300 |  | $ | 10,300 |  |  | $ | 37,719 |  |  | $ | 42,835 |  |  |  |  | $ | (10,559) |  |  | $ | 80,295 |
Net income | — |  | — |  |  | — |  |  | 3,980 |  |  |  |  | — |  |  | 3,980 |
Issuance of 92,172 shares of common stock from treasury | — |  | — |  |  | (866) |  |  | — |  |  |  |  | 866 |  |  | — |
Stock-based compensation | — |  | — |  |  | 456 |  |  | — |  |  |  |  | — |  |  | 456 |
Balance June 30, 2021 | 10,300 |  | $ | 10,300 |  |  | $ | 37,309 |  |  | $ | 46,815 |  |  |  |  | $ | (9,693) |  |  | $ | 84,731 |

8

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 ("GAAP") 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 Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"). The financial results for the interim periods may not be indicative of the financial results for the entire year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP required management to make estimates and judgments that affect the amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
COVID-19 Update
The COVID-19 pandemic and related responses by public health and governmental authorities to contain and combat the outbreak and spread have adversely affected many economic sectors, significantly disrupted the global supply chain and fueled producer price and consumer inflation. During the second quarter and first six months of 2022, aspects of the Company's business continued to be affected by macroeconomic factors related to the COVID-19 pandemic, specifically with labor shortages at our plants and other areas of our business. We continue to experience demand for our products, however, the full extent of the future impact of the COVID-19 pandemic on the Company's operational and financial performance is currently uncertain and will depend on many factors outside of the Company's control.
Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 "Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting." The ASU, and subsequent clarifications, provide practical expedients for contract modification accounting related to the transition away from the London Interbank Offered Rate (LIBOR) and other interbank offering rates to alternative reference rates. The expedients are applicable to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company intends to use the expedients where needed for reference rate transition. The Company continues to evaluate this standard update and does not currently expect a material impact to the Company’s financial statements or disclosures.
9

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 2: Acquisitions
Acquisition of DanChem Technologies, Inc.
On October 22, 2021, the Company completed the acquisition of DanChem, a contract manufacturer of chemical products located in Danville, Virginia. The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805 - "Business Combinations." The preliminary purchase price was $34.1 million including $1.5 million in cash obtained through the acquisition. The purchase price was paid in cash and funded through a drawdown of $34.5 million on the Company’s existing revolving credit facility. Amounts outstanding under the revolving line of credit portion of the facility currently bear interest, at the Company's option, at (a) the Base Rate (as defined in the Credit Agreement) plus 0.50%, or (b) LIBOR plus 150%. See Note 8 for more information on the Company's long-term debt.
The table below summarizes the preliminary estimates of fair value of identifiable assets acquired and liabilities assumed in the Acquisition. These preliminary estimates of the fair value are subject to revisions, which may result in an adjustment to the preliminary values presented below.

(in thousands) | October 22, 2021
Cash and cash equivalents | $ | 1,533 |
Accounts receivable, net of allowance for credit losses of $118 | 5,358 |
Inventories, net | 1,561 |
Prepaid expenses and other current assets | 454 |
Property, plant and equipment, net | 15,697 |
Right of use asset, operating leases, net | 208 |
Intangible assets, net | 5,750 |
Total identifiable assets acquired | 30,561 |
Accounts payable | 1,751 |
Accrued expenses and other current liabilities | 1,622 |
Current portion of operating lease liabilities | 51 |
Current portion of finance lease liabilities | 215 |
Deferred income taxes | 2,542 |
Long-term portion of operating lease liabilities | 157 |
Long-term portion of finance lease liabilities | 1,408 |
Total identifiable liabilities assumed | 7,746 |
Net identifiable assets acquired | 22,815 |
Transaction price | 34,097 |
Goodwill | $ | 11,282 |

The Company is in the process of finalizing the value of deferred tax balances and the Company's estimates of these values was still preliminary on June 30, 2022 pending completion of the DanChem pre-acquisition tax returns. Therefore, these provisional amounts are subject to change as the Company continues to evaluate information required to complete the valuations throughout the measurement period, which will not exceed one year from the acquisition date.
Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The recognized goodwill is attributable to operational synergies, assembled workforce and growth opportunities and was allocated to the Company's Specialty Chemicals Segment. Substantially all of the goodwill resulting from this acquisition is not expected to be deductible for tax purposes.
Approximately $0.1 million and $0.4 million of one-time, acquisition-related costs, is recognized in acquisition costs and other expenses in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2022.
10

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company identified DanChem’s customer relationships, product development know-how, and tradename as finite-lived assets with estimated fair values as of the acquisition date of $5.1 million, $0.5 million, and $0.2 million, respectively. The finite-lived assets are subject to amortization using either an accelerated or straight-line method over 15 years.
Total net sales and operating income for DanChem for the three and six months ended June 30, 2022 were as follows:

(in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022
Net sales | $ | 8,387 |  | $ | 15,861 |
Operating income | $ | 207 |  | $ | 442 |

Note 3: Revenue Recognition
Revenue is generated primarily from contracts to produce, ship and deliver steel and specialty chemical products. The Company’s performance obligations are satisfied and revenue is recognized when control and title of the contract promised goods or services is transferred to our cus tomers for product shipped or services rendered. Revenues are recorded net of any sales incentives and discounts. Sales tax and other taxes we collect with revenue-producing activities are excluded from revenue. Shipping costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Costs related to obtaining sales contracts are incidental and are expensed when incurred. Because customers are invoiced at the time title transfers and the Company’s right to consideration is unconditional at that time, the Company does not maintain contract asset balances. Additionally, the Company does not maintain material contract liability balances, as performance obligations for substantially all contracts are satisfied prior to customer payment for product. The Company offers industry standard payment terms.
The following table presents the Company's revenues, disaggregated by product group. 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 June 30, |  | Six Months Ended June 30,
(in thousands) |  |  |  |  | 2022 |  | 2021 |  | 2022 |  | 2021
Fiberglass and steel liquid storage tanks and separation equipment |  |  |  |  | $ | — |  |  | $ | 550 |  |  | 113 |  |  | 691 |
Heavy wall seamless carbon steel pipe and tube |  |  |  |  | 12,094 |  |  | 11,131 |  |  | 24,498 |  |  | 18,949 |
Stainless steel pipe and tube |  |  |  |  | 66,114 |  |  | 46,360 |  |  | 128,323 |  |  | 86,301 |
Galvanized pipe and tube |  |  |  |  | 8,974 |  |  | 10,056 |  |  | 22,745 |  |  | 17,370 |
Specialty chemicals |  |  |  |  | 29,020 |  |  | 14,990 |  |  | 56,741 |  |  | 29,554 |
Net sales |  |  |  |  | $ | 116,202 |  |  | $ | 83,087 |  |  | $ | 232,420 |  |  | $ | 152,865 |

Note 4: Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (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.
11

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 3: Contingent consideration (earn-out) liabilities
The fair value of contingent consideration ("earn-out") liabilities resulting from the 2018 MUSA-Galvanized acquisition and the 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 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 six months ended June 30, 2022.
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 six months ended June 30, 2022:

(in thousands) | MUSA-Galvanized |  | American Stainless |  | Total
Balance December 31, 2021 | $ | 1,106 |  |  | $ | 855 |  |  | $ | 1,961 |
Earn-out payments during the period | (684) |  |  | (855) |  |  | (1,539) |
Changes in fair value during the period | (7) |  |  | — |  |  | (7) |
Balance June 30, 2022 | $ | 415 |  |  | $ | — |  |  | $ | 415 |

For the three and six months ended June 30, 2022, 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 June 30, 2022:

Instrument | Fair Value June 30, 2022 | Principal Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average
Contingent consideration (earn-out) liabilities | $415 | Probability Weighted Expected Return | Discount rate | - | 5%
Timing of estimated payouts | 2022 | -
Future revenue projections | $2.5M | $2.5M

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 six months ended June 30, 2022, the Company's only significant measurements of assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain assets classified as held for sale.
Assets Held for Sale
On February 17, 2021 the Board of Directors authorized the permanent cessation of operations at Palmer and the subleasing of the Palmer facility. As of December 31, 2021 the Company permanently ceased operations at the Palmer facility and determined that the remaining asset group met the criteria to be classified as held for sale, and therefore classified the related
12

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
assets as held for sale on the consolidated balance sheets. The Company determined that the exit from this business did not represent a strategic shift that had a major effect on its consolidated results of operations, and therefore this business was not classified as discontinued operations. As of June 30, 2022, the remaining Palmer assets continue to be classified as held for sale. The results of operations for this business are included within the Metals Segment for all periods presented in this quarterly report. The Company uses observable inputs, such as prices of comparable assets in active markets to determine the fair value of the remaining assets. The Company classifies these fair value measurements as Level 2.
The assets classified as held for sale are as follows:

(in thousands) | June 30, 2022 |  | December 31, 2021
Inventory, net | $ | 547 |  |  | $ | 617 |
Property, plant and equipment, net | 238 |  |  | 238 |
Assets held for sale | $ | 785 |  |  | $ | 855 |

The Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the lease of the facility through 2036. The Company currently has a sublease for a portion of the Palmer facility and is actively pursuing a sublease for the remaining portion of the facility. The Company will continue to dispose of the remaining assets throughout fiscal 2022.
During the three and six months ended June 30, 2021, the Company's only significant measurements of assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets. During the three and six months ended June 30, 2021, the Company determined that technology associated with certain long lived assets within the Specialty Chemicals Segment was obsolete and, as a result, recognized a non-cash, pre-tax asset impairment charge of $0.2 million.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, accounts payable and the Company's note payable approximated their carrying value because of the short-term nature of these instruments. The Company's revolving line of credit and long-term debt, which is based on a variable interest rate, are also reflected in the financial statements at carrying value which approximate fair values as of June 30, 2022. See Note 8 for further information on the Company's debt.
Note 5: 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) | June 30, 2022 |  | December 31, 2021
Raw materials | $ | 73,255 |  |  | $ | 48,745 |
Work-in-process | 29,418 |  |  | 25,187 |
Finished goods | 33,992 |  |  | 30,666 |
| 136,665 |  |  | 104,598 |
Less: inventory reserves | (2,136) |  |  | (1,349) |
Inventories, net | $ | 134,529 |  |  | $ | 103,249 |

13

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 6: Property, Plant and Equipment
Property, plant and equipment consist of the following:

(in thousands) | June 30, 2022 |  | December 31, 2021
Land | $ | 723 |  |  | $ | 723 |
Leasehold improvements | 3,388 |  |  | 4,641 |
Buildings | 1,475 |  |  | 53 |
Machinery, fixtures and equipment | 111,497 |  |  | 110,127 |
Construction-in-progress | 3,022 |  |  | 1,900 |
| 120,105 |  |  | 117,444 |
Less: accumulated depreciation and amortization | (77,928) |  |  | (73,724) |
Property, plant and equipment, net | $ | 42,177 |  |  | $ | 43,720 |

The following table sets forth depreciation expense related to property, plant and equipment:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Cost of sales | $ | 2,031 |  |  | $ | 1,713 |  |  | $ | 4,086 |  |  | $ | 3,447 |
Selling, general and administrative | 61 |  |  | 61 |  |  | 122 |  |  | 144 |
Total depreciation | $ | 2,092 |  |  | $ | 1,774 |  |  | $ | 4,208 |  |  | $ | 3,591 |

Note 7: Goodwill, Intangible Assets and Deferred Charges
Goodwill
The Company's goodwill balance of $12.6 million as of June 30, 2022 and year ended December 31, 2021 was attributable to the Specialty Chemicals Segment.
Intangible Assets
Intangible assets represent the fair value of intellectual, non-physical assets resulting from business acquisitions and are amortized over their estimated useful life using either an accelerated or straight-line method over a period of eight to 15 years.
The balance of intangible assets subject to amortization are as follows:

(in thousands) | June 30, 2022 |  | December 31, 2021
Intangible assets, gross | $ | 28,876 |  |  | $ | 28,876 |
Accumulated amortization of intangible assets | (15,936) |  |  | (14,494) |
Intangible assets, net | $ | 12,940 |  |  | $ | 14,382 |

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

(in thousands) |  |  |  |
Remainder of 2022 | $ | 1,442 |  |  |  |
2023 | 1,433 |  |  |  |
2024 | 1,336 |  |  |  |
2025 | 1,238 |  |  |  |
2026 | 1,141 |  |  |  |
2027 | 1,044 |  |  |  |
Thereafter | 5,306 |  |  |  |

14

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Deferred Charges
Deferred charges represent debt issuance costs and are amortized over their estimated useful lives using the straight-line method over a period of four years.
The balance of deferred charges subject to amortization are as follows:

(in thousands) | June 30, 2022 |  | December 31, 2021
Deferred charges, gross | $ | 398 |  |  | $ | 398 |
Accumulated amortization of deferred charges | (145) |  |  | (96) |
Deferred charges, net | $ | 253 |  |  | $ | 302 |

Note 8: Debt
Short-term debt
On June 6, 2022, the Company entered into a note payable in the amount of $1.0 million with an interest rate of 2.77% maturing April 1, 2023. The agreement is associated with the financing of the Company's insurance premium in the current year. As of June 30, 2022, the outstanding balance was $0.9 million.
Long-term debt
Long-term debt consists of the following:

(in thousands) | June 30, 2022 |  | December 31, 2021
Revolving line of credit, due January 15, 2025 | $ | 63,849 |  |  | $ | 65,571 |
Term loan, due January 15, 2025 | 4,464 |  |  | 4,821 |
Total long-term debt | 68,313 |  |  | 70,392 |
Less: Current portion of long-term debt | (2,464) |  |  | (2,464) |
Long-term debt, less current portion | $ | 65,849 |  |  | $ | 67,928 |

The Company and its subsidiaries have a Credit Agreement with BMO Harris Bank, N.A. ("BMO") which provides the Company with a four-year revolving credit facility with up to $150.0 million of borrowing capacity (the "Facility").
The initial borrowing capacity under the Facility totals $110.0 million consisting of a $105.0 million revolving line of credit and a $5.0 million delayed draw term loan. The revolving line of credit includes a $17.5 million machinery and equipment sub-limit which requires quarterly payments of $0.4 million with a balloon payment due upon maturity of the Facility in January 2025. The term loan requires quarterly payments of $0.2 million with a balloon payment due upon maturity of the Facility in January 2025.
We have pledged all of our accounts receivable, inventory, and certain machinery and equipment as collateral for the Credit Agreement. Availability under the Credit Agreement is subject to the amount of eligible collateral as determined by the lenders' borrowing base calculations. Amounts outstanding under the revolving line of credit portion of the Facility currently bear interest, at the Company's option, at (a) the Base Rate (as defined in the Credit Agreement) plus 0.50%, or (b) LIBOR plus 1.50%. Amounts outstanding under the delayed draw term loan portion of the Facility bear interest at LIBOR plus 1.65%. The Facility also provides an unused commitment fee based on the daily used portion of the Facility. The weighted average interest rate per annum was 2.15% a s of June 30, 2022.
Pursuant to the Credit Agreement, the Company was required to pledge all of its tangible and intangible properties, including the stock and membership interests of its subsidiaries. The Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $7.5 million and (ii) 10% of the revolving credit facility (currently $10.5 million). As of June 30, 2022, the Company was in compliance with all debt covenants.
As of June 30, 2022, the Company had $41.2 million of remaining available capacity under its credit facility.
15

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 9: Leases
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 |  | June 30, 2022 |  | December 31, 2021
Assets |  | Right-of-use assets, operating leases |  | $ | 29,950 |  |  | $ | 30,811 |
Assets |  | Property, plant and equipment |  | 1,605 |  |  | 1,640 |
Current liabilities |  | Current portion of lease liabilities, operating leases |  | 1,061 |  |  | 1,104 |
Current liabilities |  | Current portion of lease liabilities, finance leases |  | 259 |  |  | 233 |
Non-current liabilities |  | Non-current portion of lease liabilities, operating leases |  | 31,445 |  |  | 32,059 |
Non-current liabilities |  | Non-current portion of lease liabilities, finance leases |  | 1,363 |  |  | 1,414 |

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

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Operating lease cost | $ | 1,043 |  |  | $ | 1,023 |  |  | $ | 2,091 |  |  | $ | 2,046 |
Finance lease cost: |  |  |  |  |  |  |
Amortization of right-of-use assets | 69 |  |  | 11 |  |  | 136 |  |  | 20 |
Interest on finance lease liabilities | 9 |  |  | 1 |  |  | 18 |  |  | 1 |
Sublease income | (32) |  |  | — |  |  | $ | (65) |  |  | $ | — |
Total lease cost | $ | 1,089 |  |  | $ | 1,035 |  |  | $ | 2,180 |  |  | $ | 2,067 |

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.
During the fourth quarter of 2021, the Company entered into a sublease agreement with a third party to sublease a portion of the Palmer facility. The sublease agreement continues through the remaining term of the Master Lease Agreement and will expire on September 30, 2036, unless terminated in accordance with the sublease agreement. The sublease provides for an annual base rent of approximately $0.1 million in the first year, which increases on an annual basis by 2.0%. The sublessee is responsible for its pro rata share of certain costs, taxes and operating expenses related to the subleased space. The sublease includes an initial security deposit of $0.1 million.
Future expected cash receipts from the sublease as of June 30, 2022 are as follows:

(in thousands) | Sublease Receipts
Remainder of 2022 | $ | 64 |
2023 | 129 |
2024 | 132 |
2025 | 134 |
2026 | 137 |
Thereafter | 1,490 |
Total sublease receipts | $ | 2,086 |

16

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Maturity of Leases
The amounts of undiscounted future minimum lease payments under leases as of June 30, 2022 are as follows:

(in thousands) | Operating |  | Finance
Remainder of 2022 | $ | 1,873 |  |  | $ | 148 |
2023 | 3,645 |  |  | 283 |
2024 | 3,667 |  |  | 257 |
2025 | 3,687 |  |  | 244 |
2026 | 3,703 |  |  | 244 |
Thereafter | 39,916 |  |  | 571 |
Total undiscounted minimum future lease payments | 56,491 |  |  | 1,747 |
Imputed interest | 23,985 |  |  | 125 |
Present value of lease liabilities | $ | 32,506 |  |  | $ | 1,622 |

Lease Term and Discount Rate

Weighted-average remaining lease term | June 30, 2022 |  | December 31, 2021
Operating leases | 14.05 years |  | 14.43 years
Finance leases | 6.59 years |  | 7.07 years
Weighted-average discount rate |  |  |
Operating leases | 8.30 | % |  | 8.30 | %
Finance leases | 2.28 | % |  | 2.27 | %

During the three and six months ended June 30, 2022, $0.1 million of right-of-use assets were recognized in exchange for new operating lease liabilities.
Note 10: Shareholders' Equity
Share Repurchase Program
On February 17, 2021, the Board of Directors re-authorized the Company's share repurchase program. The previous share repurchase program had a term of 24 months and terminated on February 21, 2021. The share repurchase program allows for repurchase of up to 790,383 shares of the Company's outstanding common stock over 24 months. The shares will be purchased from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be returned to the status of authorized, but unissued shares of common stock or held in treasury. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. As of June 30, 2022, the Company has 790,383 shares of its share repurchase authorization remaining.
17

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 11: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:

| Three Months Ended June 30, |  | Six Months Ended June 30, |  |
(in thousands, except per share data) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |  |  |
Numerator: |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 11,057 |  |  | $ | 2,886 |  |  | $ | 21,317 |  |  | $ | 3,980 |  |  |  |  |
Denominator: |  |  |  |  |  |  |  |  |  |  |
Denominator for basic earnings per share - weighted average shares | 10,244 |  |  | 9,233 |  |  | 10,226 |  |  | 9,212 |  |  |  |  |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |
Employee stock options and stock grants | 187 |  |  | 98 |  |  | 151 |  |  | 103 |  |  |  |  |
Denominator for diluted earnings per share - weighted average shares | 10,431 |  |  | 9,331 |  |  | 10,377 |  |  | 9,315 |  |  |  |  |
Net income per share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 1.08 |  |  | $ | 0.31 |  |  | $ | 2.08 |  |  | $ | 0.43 |  |  |  |  |
Diluted | $ | 1.06 |  |  | $ | 0.31 |  |  | $ | 2.05 |  |  | $ | 0.43 |  |  |  |  |

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 0.1 million shares of common stock that were anti-dilutive for the three months ended June 30, 2022. The Company had an insignificant number of shares that were anti-dilutive for the six months ended June 30, 2022. The Company had 0.2 million shares of common stock that were anti-dilutive for both the three and six months ended June 30, 2021.
Note 12: 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 2018 or state examinations for years before 2017. During the three and six months ended June 30, 2022 and 2021, 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 June 30, |  | Six Months Ended June 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Income tax provision | $ | 750 |  |  | $ | 815 |  |  | $ | 3,339 |  |  | $ | 1,056 |
Effective income tax rate | 6.4 | % |  | 22.0 | % |  | 13.5 | % |  | 21.0 | %

The effective tax rate was 6.4% and 13.5% for the three and six months ended June 30, 2022. The June 30, 2022 effective tax rate was lower than the U.S. statutory rate of 21.0% primarily due to the year-to-date release of federal valuation allowances.
In prior years, primarily due to the historical losses, the Company established valuation allowances against its certain deferred tax assets. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of its deferred tax assets. When the Company is able to demonstrate that it could generate taxable income on a sustained basis, its conclusion could change regarding the need for valuation allowance against its deferred tax assets.
During the quarter ended June 30, 2022, the Company continued to generate pre-tax profits and as a result of sustained profitability evidenced by a strong earnings history and additional positive evidence, the Company determined it was more likely than not it would be able to support realization of certain deferred tax assets and released valuation allowances of $1.9 million. The remaining valuation allowances relate to certain U.S. state deferred tax assets that are not considered realizable based on the assessment of all available evidence as of June 30, 2022.
18

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
The three and six months ended June 30, 2021 effective tax rates approximated the U.S. statutory rate of 21.0%.
Note 13: 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.
Note 14: Industry Segments
The Company's business is divided into two reportable operating segments, the Metals Segment and the Specialty Chemicals Segment. The Metals Segment operates as three reporting units that include Bristol Metals, LLC ("BRISMET") and American Stainless Tubing, LLC ("ASTI") (collectively "Welded Pipe & Tube"), Palmer of Texas Tanks, Inc. ("Palmer"), and Specialty Pipe & Tube, Inc. ("Specialty"). As discussed in Note 4, the Company permanently ceased operations at Palmer as of December 31, 2021 and have classified the remaining assets as held for sale. The results of operations for this business are included within the Metals Segment for all periods presented in this quarterly report. The Metals Segment serves markets through pipe and tube and customers in the appliance, architectural, automotive and commercial transportation, brewery, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste-water treatment, liquid natural gas ("LNG"), food processing, pharmaceutical, oil and gas and other industries.
The Specialty Chemicals Segment operates as one reporting unit which includes Manufacturers Chemicals, LLC ("MC"), a wholly-owned subsidiary of Manufacturers Soap and Chemical Company ("MS&C"), CRI Tolling, LLC ("CRI") and DanChem Technologies, Inc ("DanChem"). The Specialty Chemicals Segment produces specialty products for the pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional ("HII"), agricultural, water and waste-water treatment, construction, oil and gas and other industries.
19

Synalloy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes certain information regarding segments of the Company's operations:

| Three Months Ended June 30, |  | Six Months Ended June 30, |  |
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021 |  |  |  |
Net sales |  |  |  |  |  |  |  |  |  |  |
Metals Segment | $ | 87,182 |  |  | $ | 68,097 |  |  | $ | 175,679 |  |  | $ | 123,311 |  |  |  |  |
Specialty Chemicals Segment | 29,020 |  |  | 14,990 |  |  | 56,741 |  |  | 29,554 |  |  |  |  |
| $ | 116,202 |  |  | $ | 83,087 |  |  | $ | 232,420 |  |  | $ | 152,865 |  |  |  |  |
Operating income (loss) |  |  |  |  |  |  |  |  |  |  |
Metals Segment | $ | 12,934 |  |  | $ | 7,504 |  |  | $ | 27,426 |  |  | $ | 10,081 |  |  |  |  |
Specialty Chemicals Segment | 2,627 |  |  | (414) |  |  | 5,014 |  |  | 642 |  |  |  |  |
Unallocated corporate expenses | 3,322 |  |  | 1,360 |  |  | 6,351 |  |  | 3,127 |  |  |  |  |
Acquisition costs and other | 157 |  |  | — |  |  | 688 |  |  | — |  |  |  |  |
Proxy contest costs and recoveries | — |  |  | 632 |  |  | — |  |  | 168 |  |  |  |  |
Earn-out adjustments | (109) |  |  | 1,044 |  |  | (7) |  |  | 1,270 |  |  |  |  |
Operating income | 12,191 |  |  | 4,054 |  |  | 25,408 |  |  | 6,158 |  |  |  |  |
Interest expense | 407 |  |  | 353 |  |  | 810 |  |  | 739 |  |  |  |  |
Loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | 223 |  |  |  |  |
Change in fair value of interest rate swap | — |  |  | — |  |  | — |  |  | (2) |  |  |  |  |
Other, net | (23) |  |  | — |  |  | (58) |  |  | 162 |  |  |  |  |
Income before income taxes | $ | 11,807 |  |  | $ | 3,701 |  |  | $ | 24,656 |  |  | $ | 5,036 |  |  |  |  |
| As of |  |  |  |  |  |
(in thousands) | June 30, 2022 |  | December 31, 2021 |  |  |  |  |  |  |  |
Identifiable assets |  |  |  |  |  |  |  |  |  |  |
Metals Segment | $ | 196,429 |  |  | $ | 160,625 |  |  |  |  |  |  |  |  |
Specialty Chemicals Segment | 78,013 |  |  | 72,908 |  |  |  |  |  |  |  |  |
Corporate | 31,999 |  |  | 32,469 |  |  |  |  |  |  |  |  |
| $ | 306,441 |  |  | $ | 266,002 |  |  |  |  |  |  |  |  |

Note 15: Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed consolidated financial statements.
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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 six months ended June 30, 2022 and 2021, 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, 2021 (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 2021. This discussion and analysis is presented in five sections:
•Executive Overview
•Results of Operations and Non-GAAP Financial Measures
•Liquidity and Capital Resources
•Material Cash Requirements from Contractual and Other Obligations
•Critical Accounting Policies and Estimates
21

Executive Overview
Second Quarter 2022 Highlights
Consolidated net sales for the second quarter of 2022 were $116.2 million increasing 40.0%, or $33.1 million, compared to the second quarter of 2021. The increase was primarily driven by increases in average selling price as well as the Company's acquisition of DanChem in the fourth quarter of 2021, which is discussed in more detail in Note 2 of the notes to the unaudited condensed consolidated financial statements, partially offset by a decrease in pounds shipped. Excluding the DanChem acquisition, net sales increased 29.8%, or $24.7 million, over the second quarter of 2021.
Consolidated net income increased to $11.1 million, or $1.06 diluted earnings per share, in the second quarter of 2022, compared to net income of $2.9 million, or $0.31 diluted earnings per share, in the second quarter of 2021. Excluding the DanChem acquisition, consolidated net income increased to $10.9 million and earnings per share increased to $1.04 diluted earnings per share.
During the quarter, the Company used $1.5 million for capital expenditures focusing on growth and maintenance projects to continue to improve operational efficiencies.
In the second quarter of 2022, we experienced another period of profitable growth. We believe that we have been able to manage the impacts of significant changes in inflation rates through our customer relationships, continued pass through of rising input and other raw material costs and a continued focus on operational productivity in our facilities. During the quarter, the pass through of these continued rising input and other raw material costs as a result of the ongoing inflationary environment, as well as the acquisition of DanChem in our Specialty Chemicals Segment, helped to drive earnings growth and to offset increasing labor costs in the markets we compete and continued labor shortages in our facilities.
The second quarter of 2022 includes $8.4 million in net sales and $0.2 million in operating income attributable to the DanChem operations acquired in the fourth quarter of 2021.
Six Months Ended June 30, 2022 Highlights
Consolidated net sales for the first six months of 2022 were $232.4 million increasing 52.0%, or $79.6 million, compared to the first six months of 2021. The increase was primarily driven by increases in average selling price as well as the Company's acquisition of DanChem in the fourth quarter of 2021, which is discussed in more detail in Note 2 of the notes to the unaudited condensed consolidated financial statements, partially offset by a decrease in pounds shipped. Excluding the DanChem acquisition, net sales increased 41.7%, or $63.7 million, over the first six months of 2021.
Consolidated net income increased to $21.3 million, or $2.05 diluted earnings per share, in the first six months of 2022, compared to net income of $4.0 million, or $0.43 diluted earnings per share, in the first six months of 2021. Excluding the DanChem acquisition, consolidated net income increased to $20.9 million and earnings per share increased to $2.01 diluted earnings per share.
During the first six months of 2022, the Company generated cash flows from operating activities of $2.9 million driven by increased profitability, partially offset by working capital use due to the rise in raw material costs. The Company also used $2.6 million for capital expenditures focusing on growth and maintenance projects to continue to improve operational efficiencies during the first six months of 2022.
The first six months of 2022 includes $15.9 million in net sales and $0.4 million in operating income attributable to the DanChem operations acquired in the fourth quarter of 2021.
Macroeconomic Events
In February 2022, the United States announced targeted economic sanctions on Russia in response to the military conflict in Ukraine. As our operations are located in North America, we have no direct exposure to Russia and Ukraine. However, we are actively monitoring the broader economic impact of the crisis, especially the potential impact on commodity and fuel prices, and the potential decreased demand for our products.
We continue to monitor the impact of COVID-19 on all aspects of our business. 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 have continued to operate across our footprint throughout the COVID-19 pandemic. Ensuring the health and safety of our employees, and all who visit our sites, is our top priority, and we are following all U.S. Centers for Disease Control and Prevention and state and local health department guidelines. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our fiscal 2020 results, global economic conditions improved during fiscal 2021, resulting in increased demand for our products. Beginning in fiscal 2021 and continuing through the first
22

two quarters of fiscal 2022, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on individual, business, and government activities. The existence of new or enduring variant strains of COVID-19 may lead to a rise in infections, which could cause delays in the easing of restrictions previously in place and the implementation of new restrictions and mandates, and there are ongoing global impacts resulting directly or indirectly from the pandemic including labor shortages, logistical challenges such as increased port congestion, and increases in costs for certain goods and services. While the ongoing effects of the COVID-19 pandemic could negatively impact our results of operations, cash flows, and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. See Part I - Item 1A, "Risk Factors," included in our Annual Report on Form 10-K for our risk factors regarding risks associated with the COVID-19 pandemic.
Results of Operations
Consolidated Performance Summary
Consolidated net sales for the second quarter of 2022 were $116.2 million, an increase of $33.1 million, or 40.0%, compared to net sales for the second quarter of 2021. The increase in net sales was primarily driven by a 60.2% increase in average selling price partially offset by a 14.9% decrease in pounds shipped. Excluding DanChem, net sales increased $24.7 million, or 29.8%, to $107.8 million primarily driven by a 62.0% increase in average selling price partially offset by a 20.1% decrease in pounds shipped.
Consolidated net sales for the first six months of 2022 were $232.4 million, an increase of $79.6 million, or 52.0%, compared to net sales for the six months of 2021. The increase in net sales for the first six months of 2022 was primarily driven by a 59.4% increase in average selling price partially offset by a 6.6% decrease in pounds shipped. Excluding DanChem, net sales increased $63.7 million, or 41.7%, to $216.6 million primarily driven by a 60.6% increase in average selling price partially offset by a 12.0% decrease in pounds shipped.
For the second quarter of 2022, consolidated gross profit increased 48.2% to $20.9 million, or 18.0% of sales, compared to $14.1 million, or 17.0% of sales in the second quarter of 2021. For the first six months of 2022, consolidated gross profit increased 90.0% to $43.4 million, or 18.7% of sales, compared to $22.8 million, or 14.9% of sales in the first six months of 2021. The increase in dollars and percentage of sales for the second quarter and first six months of 2022 were attributable to increased selling prices partially offset by increasing raw material costs, freight costs, repairs and maintenance and supplies expenses.
Consolidated selling, general, and administrative expense (SG&A) for the second quarter of 2022 increased $0.5 million to $8.6 million, or 7.4% of sales, compared to $8.1 million, or 9.8% of sales in the second quarter of 2021. The changes in SG&A for the second quarter of 2022 were primarily driven by the acquisition of DanChem in the fourth quarter of 2021 as well as increases in professional fees, travel expense and taxes, licenses and insurance expense partially offset by lower salaries, wages and benefits.
Consolidated SG&A expense for the first six months of 2022 increased $2.3 million to $17.3 million, or 7.4% of sales, compared to $15.0 million, or 9.8% of sales in the first six months of 2021. The changes in SG&A for the first six months of 2022 were primarily driven by the acquisition of DanChem in the fourth quarter of 2021 as well as increases in salaries, wages and benefits, travel expense, professional fees and taxes, licenses and insurance expense partially offset by lower share based compensation.
Consolidated operating income in the second quarter of 2022 totaled $12.2 million, increasing 200.8% compared to operating income of $4.1 million in the second quarter of 2021. Consolidated operating income for the first six months of 2022 totaled $25.4 million, increasing 312.6% compared to operating income of $6.2 million in the first six months of 2021. The operating increase in the second quarter and first six months of 2022 was primarily driven by increases in average selling price and the continued pass through of rising input and other raw material costs as well as a continued focus on operational productivity in our facilities.
Metals Segment
Net sales for the Metals Segment in the second quarter of 2022 totaled $87.2 million, an increase of $19.1 million, or 28.0%, from the second quarter of 2021. The increase was primarily driven by a 63.9% increase in average selling price partially offset by 21.9% decrease in pounds shipped. Net sales in the first six months of 2022 totaled $175.7 million, an increase of $52.4 million, or 42.5%, from the first six months of 2021. The increase was primarily driven by a 63.3% increase in average selling price partially offset by 12.8% decrease in pounds shipped.
23

The net sales increase for the second quarter of 2022 compared to the second quarter of 2021 is summ arized as follows:

($ in thousands) | $ | % | Average selling price | Units shipped
Fiberglass and steel liquid storage tanks and separation equipment | $ | (550) |  | (100.0)% | (100.0)% | (100.0)%
Heavy wall seamless carbon steel pipe and tube | 963 |  | 8.7% | 48.2% | (26.7)%
Stainless steel pipe and tube | 19,754 |  | 42.6% | 63.7% | (12.8)%
Galvanized pipe and tube | (1,082) |  | (10.8)% | 26.9% | (29.7)%
Total increase | $ | 19,085 |  |  |  |

The net sales increase for the first six months of 2022 compared to the first six months of 2021 is summarized as follows:

($ in thousands) | $ | % | Average selling price | Units shipped
Fiberglass and steel liquid storage tanks and separation equipment | $ | (578) |  | (83.5)% | 40.8% | (88.3)%
Heavy wall seamless carbon steel pipe and tube | 5,549 |  | 29.3% | 44.0% | (10.2)%
Stainless steel pipe and tube | 42,022 |  | 48.7% | 62.4% | (8.4)%
Galvanized pipe and tube | 5,375 |  | 30.9% | 61.2% | (18.8)%
Total increase | $ | 52,368 |  |  |  |

SG&A expense for the second quarter of 2022 decreased to $3.8 million, or 4.4% of sales, compared to $4.9 million, or 7.2% of sales in the second quarter of 2021. The changes in SG&A were primarily driven by lower salaries, wages and benefits and lower allocated costs in the current year compared to the prior year partially offset by increases in travel expense. SG&A expense for the first six months of 2022 decreased to $8.0 million, or 4.5% of sales, compared to $9.1 million, or 7.4% of sales for the first six months of 2021. The changes in SG&A were primarily driven by lower allocated costs in the current year compared to the prior year partially offset by increases in salaries, wages and benefits and travel expense.
Operating income increased $5.4 million, or 72.3%, to $12.9 million for the second quarter of 2022 compared to $7.5 million for the second quarter of 2021. Operating income increased $17.3 million, or 172.0%, to $27.4 million for the first six months of 2022 compared to $10.1 million for the first six months of 2021. The current quarter and first six months of 2022 increase in operating income was primarily driven by the aforementioned average selling price increases due to pass through of raw material cost fluctuations.
Specialty Chemicals Segment
Net sales for the Specialty Chemicals Segment in the second quarter of 2022 totaled $29.0 million, representing a $14.0 million, or 93.6%, increase from the second quarter of 2021. The increase was driven by a 76.1% increase in average selling price partially offset by a 1.9% decrease in pounds shipped, excluding trial and dedicated facility revenue. Excluding DanChem, net sales totaled $20.6 million, representing a $5.6 million, or 37.6%, increase primarily driven by a 62.8% increase in average selling price partially offset by a 16.9% decrease in pounds shipped.
Net sales for the Specialty Chemicals Segment in the first six months of 2022 totaled $56.7 million, representing a $27.2 million, or 92.0%, increase from the first six months of 2021. The increase was driven by a 67.9% increase in average selling price and a 4.3% increase in pounds shipped, excluding trial and dedicated facility revenue. Excluding DanChem, net sales totaled $40.9 million, representing a $11.3 million, or 38.3%, increase primarily driven by a 53.4% increase in average selling price partially offset by a 10.6% decrease in pounds shipped.
SG&A expense for the second quarter of 2022 decreased to $1.6 million, or 5.5% of sales, compared to $2.0 million, or 13.4% of sales in the second quarter of 2021. The decrease in SG&A expense was primarily driven by lower salaries, wages and benefits and lower share based compensation in the period. Excluding DanChem, SG&A expense for the second quarter of 2022 decreased to $0.3 million compared to $2.0 million in the second quarter of 2021.
24

SG&A expense for the first six months of 2022 increased to $3.2 million, or 5.6% of sales, compared to $3.0 million, or 10.3% of sales in the first six months of 2021. The increase in SG&A expense was primarily driven by increases in professional fees and travel expense in the period partially offset by lower share based compensation. Excluding DanChem, SG&A expense for the first six months of 2022 decrease to $0.9 million compared to $3.0 million in the fist six months of 2021.
Operating income increased $3.0 million, or 735.5%, to $2.6 million for the second quarter of 2022 compared to an operating loss of $0.4 million for the second quarter of 2021. Operating income increased $4.4 million, or 680.5%, to $5.0 million for the first six months of 2022 compared to $0.6 million for the first six months of 2021. The increase in operating income is primarily driven by increases in average selling price, favorable operational efficiencies and the acquisition of DanChem in fourth quarter of 2021.
Other Items
Unallocated corporate expenses for the second quarter of 2022 increased $2.0 million, or 144.0%, to $3.3 million, or 2.9% of sales, compared to $1.4 million, or 1.6% of sales, in the prior year comparative period. Unallocated corporate expenses for the first six months of 2022 increased $3.2 million, or 103.0%, to $6.4 million, or 2.7% of sales, compared to $3.1 million, or 2.1% of sales, in the prior year comparative period. The second quarter and first six months of 2022 increases resulted primarily from decreases in allocated costs, increases in professional fees, salaries, wages and benefits, share based compensation, and taxes, licenses and insurance.
Interest expense was $0.4 million for both the second quarter of 2022 and 2021. For the first six months of 2022, interest expense to $0.8 million from $0.7 million in the first six months of 2021 primarily driven by higher debt outstanding in the current year as a result of the DanChem acquisition in the fourth quarter of 2021.
The effective tax rate was 6.4% and 13.5% for the three and six months ended June 30, 2022. The June 30, 2022 effective tax rate was lower than the U.S. statutory rate of 21.0% primarily due to the year-to-date release of federal valuation allowances. During the quarter ended June 30, 2022, the Company continued to generate pre-tax profits and as a result of sustained profitability evidenced by a strong earnings history and additional positive evidence, the Company determined it was more likely than not it would be able to support realization of certain deferred tax assets and released valuation allowances of $1.9 million. The remaining valuation allowances relate to certain U.S. state deferred tax assets that are not considered realizable based on the assessment of all available evidence as of June 30, 2022.
The three and six months ended June 30, 2021 effective tax rates approximated the U.S. statutory rate of 21.0%.
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 and Adjusted EBITDA. Management believes that these non-GAAP measures provide additional useful information to allow readers to compare the financial results between periods. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under GAAP.
EBITDA and Adjusted EBITDA
We define "EBITDA" as earnings before interest (including change in fair value of interest rate swap), income taxes, depreciation and amortization. We define "Adjusted EBITDA" as EBITDA further adjusted for the impact of non-cash and other items we do not consider in our evaluation of ongoing performance. These items include: goodwill impairment, asset impairment, gain on lease modification, stock-based compensation, non-cash lease cost, acquisition costs and other fees, proxy contest costs and recoveries, shelf registration costs, loss on extinguishment of debt, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, retention costs and restructuring and severance costs from net income. We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by other companies because not all companies calculate EBITDA and Adjusted EBITDA in the same manner. We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
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Consolidated EBITDA and Adjusted EBITDA are as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
($ in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Consolidated |  |  |  |  |  |  |
Net income | $ | 11,057 |  |  | $ | 2,886 |  |  | $ | 21,317 |  |  | $ | 3,980 |
Adjustments: |  |  |  |  |  |  |
| Interest expense | 407 |  |  | 353 |  |  | 810 |  |  | 739 |
| Change in fair value of interest rate swap | — |  |  | — |  |  | — |  |  | (2) |
| Income taxes | 750 |  |  | 815 |  |  | 3,339 |  |  | 1,056 |
| Depreciation | 2,092 |  |  | 1,774 |  |  | 4,208 |  |  | 3,591 |
| Amortization | 721 |  |  | 680 |  |  | 1,442 |  |  | 1,360 |
EBITDA | 15,027 |  |  | 6,508 |  |  | 31,116 |  |  | 10,724 |
| Acquisition costs and other | 157 |  |  | — |  |  | 688 |  |  | — |
| Proxy contest costs and recoveries | — |  |  | 632 |  |  | — |  |  | 168 |
| Loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | 223 |
| Earn-out adjustments | (109) |  |  | 1,044 |  |  | (7) |  |  | 1,270 |
| Loss on investments in equity securities and other investments | — |  |  | — |  |  | — |  |  | 363 |
| Asset impairments | — |  |  | 233 |  |  | — |  |  | 233 |
| Goodwill impairment | — |  |  | — |  |  | — |  |  | — |
| Gain on lease modification | (2) |  |  | — |  |  | (2) |  |  | — |
| Stock-based compensation | 263 |  |  | 269 |  |  | 395 |  |  | 456 |
| Non-cash lease expense | 107 |  |  | 124 |  |  | 214 |  |  | 249 |
| Retention expense | — |  |  | 476 |  |  | — |  |  | 476 |
| Restructuring and severance cost | 10 |  |  | 477 |  |  | 10 |  |  | 477 |
Adjusted EBITDA | $ | 15,453 |  |  | $ | 9,763 |  |  | $ | 32,414 |  |  | $ | 14,639 |
| % of sales | 13.3 | % |  | 11.7 | % |  | 13.9 | % |  | 9.6 | %

Metals Segment EBITDA and Adjusted EBITDA are as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
($ in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Metals Segment |  |  |  |  |  |  |
Net income | $ | 13,074 |  |  | $ | 6,463 |  |  | $ | 27,498 |  |  | $ | 9,002 |
Adjustments: |  |  |  |  |  |  |
| Depreciation | 1,163 |  |  | 1,350 |  |  | 2,376 |  |  | 2,742 |
| Amortization | 625 |  |  | 680 |  |  | 1,250 |  |  | 1,360 |
EBITDA | 14,862 |  |  | 8,493 |  |  | 31,124 |  |  | 13,104 |
| Earn-out adjustments | (109) |  |  | 1,044 |  |  | (7) |  |  | 1,270 |
| Stock-based compensation | (11) |  |  | 46 |  |  | 24 |  |  | 83 |
| Non-cash lease expense | (1) |  |  | — |  |  | (1) |  |  | — |
| Retention expense | — |  |  | 476 |  |  | — |  |  | 476 |
| Restructuring and severance costs | — |  |  | 50 |  |  | — |  |  | 50 |
Metals Segment Adjusted EBITDA | $ | 14,741 |  |  | $ | 10,109 |  |  | $ | 31,140 |  |  | $ | 14,983 |
| % of segment sales | 16.9 | % |  | 14.8 | % |  | 17.7 | % |  | 12.2 | %

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Specialty Chemicals Segment EBITDA and Adjusted EBITDA are as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
($ in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Specialty Chemicals Segment |  |  |  |  |  |  |
Net income (loss) | $ | 2,617 |  |  | $ | (414) |  |  | $ | 4,995 |  |  | $ | 641 |
Adjustments: |  |  |  |  |  |  |
| Interest expense | 9 |  |  | — |  |  | 18 |  |  | — |
| Depreciation | 915 |  |  | 390 |  |  | 1,800 |  |  | 776 |
| Amortization | 96 |  |  | — |  |  | 192 |  |  | — |
EBITDA | 3,637 |  |  | (24) |  |  | 7,005 |  |  | 1,417 |
| Asset impairments | — |  |  | 233 |  |  | — |  |  | 233 |
| Stock-based compensation | 11 |  |  | 136 |  |  | 18 |  |  | 167 |
| Restructuring and severance costs | — |  |  | 427 |  |  | — |  |  | 427 |
Specialty Chemicals Segment Adjusted EBITDA | $ | 3,648 |  |  | $ | 772 |  |  | $ | 7,023 |  |  | $ | 2,244 |
| % of segment sales | 12.6 | % |  | 5.2 | % |  | 12.4 | % |  | 7.6 | %

Liquidity and Capital Resources
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.
Sources of Liquidity
Funds generated by operating activities supplemented by our available cash and cash equivalents and our credit facilities are our most significant sources of liquidity. As of June 30, 2022, we held $0.2 million of cash and cash equivalents, as well as $41.2 million of remaining available capacity on our revolving line of credit. We believe our sources of liquidity will be sufficient to fund operations and anticipated capital expenditures as well as repay our debt obligations as they become due over the next 12 months.
Cash Flows
Cash flows from total operations were as follows:

| Six Months Ended June 30,
(in thousands) | 2022 |  | 2021
Total cash provided by (used in): |  |  |
Operating activities | $ | 2,889 |  |  | $ | 4,995 |
Investing activities | (2,325) |  |  | (425) |
Financing activities | (2,340) |  |  | (4,045) |
Net (decrease) increase in cash and cash equivalents | $ | (1,776) |  |  | $ | 525 |

Operating Activities
The decrease in cash provided by operating activities for the six months ended June 30, 2022 compared to cash provided by operating activities in the six months ended June 30, 2021 was primarily driven by increased net income in the first six months of 2022 compared to the first six months of 2021 and changes in working capital. Accounts receivable increased for the first six months of 2022 by $14.3 million, compared to an increase of $12.5 million for the first six months of 2021, driving a decrease of $2.1 million in operating cash flows for the first six months of 2022. Inventories increased $32.4 million in the first six months of 2022 compared to an increase of $5.5 million in the first six months of 2021, driving a decrease of
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$26.9 million in operating cash flow for the first six months of 2022. The increase in accounts receivable and inventory was due to larger increases in average selling prices in the first six months of 2022 than experienced in the first six months of 2021, an increase in DSO from 41 days during the first six months of 2021 to 44 days in the first six months of 2022 and higher cost of inventory purchases in the first six months of 2022. The increases in cash used from accounts receivable and inventory were partially offset by an increase in accounts payable of $23.5 million in the first six months of 2022 compared to a $5.6 million increase in the first six months of 2021. The increase in accounts payable was primarily driven by higher cost inventory purchases and an increase in days payables outstanding from 32 days in the first six months of 2021 to 42 days in the first six months of 2022.
Investing Activities
Net cash used in investing activities primarily consists of transactions related to capital expenditures. The increase in cash used in investing activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to a increases in capital expenditures in the current year compared to the prior year.
Financing Activities
Net cash used in financing activities primarily consists of transactions related to our long-term debt and earn-out liabilities. The decrease in cash used in financing activities for the six months ended June 30, 2022 compared to cash used in financing activities for the six months ended June 30, 2021 was primarily due to decreased payments for the Company's earnout liabilities and proceeds received from the note payable associated with the Company's insurance financing agreement.
Short-term Debt
The Company has a note payable in the amount of $1.0 million with an annual interest rate of 2.77% maturing April 1, 2023 associated with the financing of the Company's insurance premium in the current year. As of June 30, 2022, the outstanding balance was $0.9 million.
Long-term Debt
The Company and its subsidiaries have a Credit Agreement with BMO providing the Company with a four-year revolving credit facility, maturing on January 15, 2025, and providing the Company with up to $150.0 million of borrowing capacity. As of June 30, 2022, the Company had $68.3 million of total borrowings outstanding with its lender, a decrease of $2.1 million from the balance at December 31, 2021. The Facility contains covenants requiring the maintenance of a minimum consolidated fixed charge coverage ratio if excess availability falls below the greater of (i) $7.5 million and (ii) 10% of the revolving credit facility (currently $10.5 million). As of June 30, 2022, the Company was in compliance with all debt covenants. See Note 8 in the notes to the unaudited condensed consolidated financial statements for additional information on the Company's line of credit.
Share Repurchases and Dividends
We have a share repurchase program, authorized by the Company's Board of Directors, that is executed through purchases made from time to time at prevailing market prices, through open market or privately negotiated transactions, depending on market conditions. Shares repurchased are returned to status of authorized, but unissued shares of common stock or held in treasury. The Company repurchased no shares during the six months ended June 30, 2022 and 2021. As of June 30, 2022, the Company has 790,383 shares of its share repurchase authorization remaining.
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 2021, no dividends were declared or paid by the Company.
Other Financial Measures
Below are additional financial measures that we believe are important in understanding the Company's liquidity position from year to year. The metrics are defined as:
Liquidity Measure:
•Current ratio = current assets divided by current liabilities. The current ratio will be determined by the Company using generally accepted accounting principles, consistently applied.
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Leverage Measure:
•Debt to capital = total debt divided by total capital. The debt to capital ratio will be determined by the Company using generally accepted accounting principles, consistently applied.
Profitability Ratio:
•Return on average equity ("ROAE") = net income divided by the trailing 12-month average of equity. The ROAE will be determined by the Company using generally accepted accounting principles, consistently applied.
Results of these additional measures are as follows:

|  |  |  | June 30, 2022 |  | December 31, 2021
Current ratio |  |  |  | 2.8 |  | 3.3
Debt to capital |  |  |  | 34% |  | 39%
Return on average equity |  |  |  | 34.9% |  | 21.1%

Material Cash Requirements from Contractual and Other Obligations
As of June 30, 2022, our material cash requirements for our known contractual and other obligations were as follows:
•Debt Obligations and Interest Payments - Outstanding obligations on our revolving credit facility and term loan were $63.8 million and $4.5 million, respectively, with $2.5 million payable within 12 months. The interest payments on our remaining borrowings will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time. Outstanding obligations on our note payable were $0.9 million, which matures within 12 months. Interest payments on the remaining borrowings will be based on an interest rate of 2.77%. See Note 8 for further detail of our debt and the timing of expected future payments.
•Operating and Finance Leases - The Company enters into various lease agreements for the real estate and manufacturing equipment used in the normal course of business. Operating and finance lease obligations were $34.1 million, with $1.3 million payable within 12 months. See Note 9 for further detail of our lease obligations and the timing of expected future payments.
The Company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on the Company's financial position, revenues, results of operations, liquidity, or capital expenditures. We expect capital spending to be as much as $6.5 million for the remainder of fiscal 2022.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements presented in the Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, we are not required to provide the information required by this Item.
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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 Weaknesses”, there were no changes in the Company's internal control over financial reporting during the second quarter of 2022, 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 Weaknesses
In response to the material weaknesses identified in Management’s Report on Internal Control Over Financial Reporting as set forth in Item 9A “Controls and Procedures” in the 2021 Form 10-K, the Company, with oversight from the Audit Committee of the Board of Directors, developed a plan to remediate the material weaknesses at Synalloy. The remediation actions include the following:
•Providing relevant training on internal controls over financial reporting to control owners and control preparers;
•Hiring accounting and finance resources with relevant public company experience and evaluating and realigning roles and responsibilities of management;
•Enhancing/designing/implementing controls over physical inventory counts and inventory valuation;
•Enhancing/designing/implementing controls over revenue recognition and accounts receivable; and,
•Enhancing/designing/implementing controls over period-end financial reporting, account reconciliation and account analysis processes.
Our remediation efforts were ongoing during the period of the report. During the second quarter of 2022, the Company filled certain key leadership roles in accounting and finance and is in the process of further enhancing the capabilities of that department and across various areas of the Company. The Company has engaged Senior Leadership across the organization to better define its ownership of areas of controls and remediation. In addition, an outside service provider has been engaged to assist management with the remediation efforts in the areas of identified weaknesses. We will require additional time to complete the implementation of our remediation plans as well as demonstrate the effectiveness of our efforts of such plans. The material weaknesses cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has tested and subsequently concluded that these controls are operating effectively.
As stated above, we have begun remediating the material weaknesses identified by management and described in greater detail in our 2021 Form 10-K. Although we intend to complete the remediation process with respect to these material weaknesses as quickly as possible, we cannot at this time forecast exactly how long it will take nor can we guarantee that all of such remediation efforts will prove to be successful within a specified time period. Because the reliability of the internal control process requires repeatable execution, the successful remediation of the company’s material weaknesses will require repeated review and evidence of repeated effectiveness prior to concluding that the controls are effective. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide it necessary to take additional measures to address the material weaknesses or modify the remediation steps already underway.
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, 2021.
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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 year ended December 31, 2021.
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
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
32.1 |  | 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."

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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: | August 9, 2022 | By: | /s/ Christopher G. Hutter
|  |  | Christopher G. Hutter
|  |  | President and Chief Executive Officer
|  |  | (principal executive officer)
Date: | August 9, 2022 | By: | /s/ Aaron M. Tam
|  |  | Aaron M. Tam
|  |  | Chief Financial Officer
|  |  | (principal accounting officer)