Impact of Recently Issued Accounting Pronouncements

In March 2020, the first quarterFinancial Accounting Standards Board, (FASB), issued Accounting Standards Update, (ASU), No.2020-04, “Reference Rate Reform (Topic 848): Facilitation of 2017,the Effects of Reference Rate Reform on Financial Reporting”. The objective of this ASU is to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company is currently evaluating the impact of the adoptions of this ASU; however, the Company made an out-of-period adjustmentdoes not expect the adoption to correcthave a material impact on the Company’s Consolidated Financial Statements.

The Company provides metals processing, distribution and record previously unrecognized deferred tax assets,delivery of large volumes of processed carbon, coated flat-rolled sheet, coil and plate products, aluminum, and stainless flat-rolled products, prime tin mill products, flat bar products, metal tubing, pipe, bar, valves, fittings and fabricated parts. The Company's contracts with customers are comprised of purchase orders with standard terms and conditions. Occasionally the associated tax benefit, relatedCompany may also have longer-term agreements with customers. Substantially all of the contracts with customers require the delivery of metals, which represent single performance obligations that are satisfied at a point in time upon transfer of control of the product to the supplemental executive retirement plan (SERP). The adjustment, which had accumulated sincecustomer.

Transfer of control is assessed based on the inceptionuse of the plan in 2005, resulted in an increaseproduct distributed and rights to after-tax incomepayment for performance under the contract terms. Transfer of $1.9 million incontrol and revenue recognition for substantially all of the first quarterCompany’s sales occur upon shipment or delivery of 2017.the product, which is when title, ownership and risk of loss pass to the customer and is based on the applicable shipping terms. The shipping terms depend on the customer contract. An invoice for payment is issued at time of shipment and terms are generally net 30 days. The Company determined that this adjustment was has certain fabrication contracts in one business unit for which revenue is recognized over time as performance obligations are achieved. This fabrication business is not material to its current or prior periodthe Company's consolidated financial statements.results.

Within the metals industry, revenue is frequently disaggregated by products sold. The table below disaggregates the Company’s revenues by segment and products sold.

Accounts receivable are presented net of allowances for doubtful accountscredit losses and unissued credits of $3.2$4.6 million and $2.4$4.4 million as of SeptemberJune 30, 2017 2022 and December 31, 2016, 2021, respectively. The allowance for doubtful accountscredit losses is maintained at a level considered appropriate based on historical experience, and specific customer collection issues that have been identified.identified, current market conditions and estimates for supportable forecasts when appropriate. Estimations are based upon a calculated percentage of accounts receivable, which remains fairly level from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year. The Company cannot guarantee that the rate of future credit losses will be similar to past experience. The Company considers all available information when assessing the adequacy of its allowance for doubtful accountscredit losses and unissued credits each quarter.credits.

Inventories consisted of the following:

The Company values certain of its tubular and pipe products inventory at the last-in, first-outfirst-out (LIFO) method. At SeptemberJune 30, 2017 2022 and December 31, 2016, 2021, approximately $50.5$57.1 million, or 18.0%11.2% of consolidated inventory, and $43.4$55.4 million, or 17.1%11.4% of consolidated inventory, respectively, was reported under the LIFO method of accounting. The cost of the remainder of the tubular and pipe products inventory is determined using a weighted average rolling first-in, first-outfirst-in, first-out (FIFO) method.

The Company did not record any LIFO expense or income for the three and six months ended June 30, 2022 as current inventory price and volume projections anticipate no material change to the LIFO reserve by December 31, 2022. During the three and ninesix months ended SeptemberJune 30, 2017, 2021, the Company recorded $0.7$4.0 million and $1.5$5.0 million of LIFO expense, respectively, as the current projections anticipate increased pricing and volume of LIFO inventory for the remainder of the year. During the three and nine months ended September 30, 2016, the Company recorded $0.7 million of LIFO income.respectively.

If the FIFO method had been in use, inventories would have been $6.6$19.7 million lowerhigher than reported at SeptemberJune 30, 2017 2022 and $8.0 million lower than reported at December 31, 2016.2021.

During the second quarter of 2017, the Company began actively marketing for sale certain property at the flat product segment’s Siler City, North Carolina facility. As a result of that decision, the Company reclassified $0.8 million of net book value related to that property along with certain machinery and equipment as assets held for sale in the Consolidated Balance Sheets. The sale of those assets is expected to be completed within the next twelve months and are presented as current. Based on the present real estate market and discussions with the Company’s real estate adviser, no impairment of the recorded amounts has occurred as of September 30, 2017.

The Company’s intangible assets were recorded in connection with its acquisitions that occurred between 2011 and 2021. The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology. The useful life of the customer relationships was determined to be between 10 and 15 years, based primarily on the consistent and predictable revenue source associated with the existing customer base, the present value of which extends through the 10- and 15-year amortization periods. The useful life of the non-compete agreements was determined to be the length of the non-compete agreements, which range from one to five years. The useful life of the trade names was determined to be indefinite primarily due to their history and reputation in the marketplace, the Company’s expectation that the trade names will continue to be used and the conclusion that there are currently no other factors identified that would limit their useful life. The Company’s will continue to evaluate the useful life assigned to its amortizable customer relationships and noncompete agreements in future periods.

Goodwill, by reportable unit, was as follows as of June 30, 2022 and December 31, 2021, respectively. The goodwill is deductible for tax purposes.

The Company’s debt is comprised of the following components:

The Company’sCompany’s asset-based credit facility (the ABL Credit Facility) is collateralized by the Company’s accounts receivable, inventory and inventory.personal property. The $475 million ABL Credit Facility consists ofof: (i) a revolving credit linefacility of $365up to $445 million, including a $20 million sub-limit for letters of credit, and (ii) a first in, last out revolving credit facility of up to $30 million. Revolver borrowings are limited toUnder the lesserterms of a borrowing base, comprised of eligible receivables and inventories, or $365 million in the aggregate. The ABL Credit Facility, the Company may, subject to the satisfaction of certain conditions, request additional commitments under the revolving credit facility in the aggregate principal amount of up to $200 million to the extent that existing or new lenders agree to provide such additional commitments, and add real estate as collateral at the Company’s discretion. The ABL Facility matures on June 30, 2019.16, 2026.

The ABL Credit Facility requirescontains customary representations and warranties and certain covenants that limit the ability of the Company to, complyamong other things: (i) incur or guarantee additional indebtedness; (ii) pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; (iii) make investments; (iv) sell assets; (v) enter into agreements that restrict distributions or other payments from restricted subsidiaries to the Company; (vi) incur liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of the Company’s assets; and (viii) engage in transactions with various covenants, the most significant of which include: (i) until maturity ofaffiliates. In addition, the ABL Credit Facility contains a financial covenant which requires if any commitments or obligations are outstanding and the Company’sCompany’s availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($36.547.5 million at SeptemberJune 30, 2017)2022) or 10.0% of the aggregate borrowing base ($47.5 million at June 30, 2022), then the Company must maintain a ratio of EBITDAEarnings before Interest, Taxes, Depreciation and Amortization (EBITDA) minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00 for the most recent twelve fiscal month period; (ii) limitations on dividend payments and common stock repurchases; and (iii) restrictions on additional indebtedness. period.

The Company has the option to borrow under its revolver based on the agent’s base rate plus a premium ranging from 0.00% to 0.25% or the London Interbank Offered Rate (LIBOR) plus a premium ranging from 1.25% to 3.00%2.75%.

On January 10,2019, the Company entered into a five-year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $75 million of the outstanding LIBOR based borrowings under the ABL Credit Facility. The interest rate hedge fixed the rate at 2.57%. Although the Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate hedge agreement, the Company anticipates performance by the counterparty.

As of SeptemberJune 30, 2017, 2022, the Company was in compliance with its covenants and had approximately $110$183 million of availability under the ABL Credit Facility.

As of SeptemberJune 30, 2017, $1.42022, and December 31, 2021, $1.4 million and $1.6 million, respectively, of bank financing fees were included in “Prepaid expenses and other” and “Other long-term assets” on the accompanying Consolidated Balance Sheets. The financing fees are being amortized over the five-yearfive-year term of the ABL Credit facilityFacility and are included in “Interest and other expense on debt” on the accompanying Consolidated Statements of Comprehensive Income.

As part of the CTI acquisition in July 2011, the Company assumed approximately $5.9 million of Industrial Revenue Bond (IRB) indebtedness issued through the Stanly County, North Carolina Industrial Revenue and Pollution Control Authority. The bond matures in April 2018, with the option to provide principal payments annually in April. On April 3, 2017, the Company paid an optional principal payment of $0.9 million. The remaining balance of the IRB is included in “Current portion of long-term debt” on the accompanying Consolidated Balance Sheets as the payment is due in April 2018. Interest is payable monthly, with a variable rate that resets weekly. As a security for payment of the bonds, the Company obtained a direct pay letter of credit issued by JPMorgan Chase Bank, N.A. The letter of credit reduces annually by the principal reduction amount. The interest rate at September 30, 2017 was 0.9% for the IRB debt.

CTI entered into an interest rate swap agreement to reduce the impact of changes in interest rates on the IRB. At September 30, 2017, the effect of the swap agreement on the bond was to fix the rate at 3.46%. The swap agreement matures in April 2018, and is reduced annually by the amount of the optional principal payments on the bond. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparties.

Metals swaps and embedded customer derivatives

During 2017the firstsix months of 2022 and 2016,2021, the Company entered into nickel swaps indexed to the London Metal Exchange (LME) price of nickel with third-partythird-party brokers. The nickel swaps are accounted for as derivatives for accounting purposes. The Company entered into them to mitigate its customers’customers’ risk of volatility in the price of metals. The outstanding nickel swaps mature in 2017 and 2018.2022. The swaps are settled with the brokers at maturity. The economic benefit or loss arising from the changes in fair value of the swaps is contractually passed through to the customer. The primary risk associated with the metals swaps is the ability of customers or third-partythird-party brokers to honor their agreements with the Company related to derivative instruments. If the customer or third-partythird-party brokers are unable to honor their agreements, the Company’s risk of loss is the fair value of the metals swaps.

While theseThese derivatives are intended to help the Company manage risk, they have not been designated as hedging instruments. The periodic changes in fair value of the metals and embedded customer derivative instruments are included in “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The Company recognizes derivative positions with both the customer and the third party for the derivatives and classifies cash settlement amounts associated with them as part of “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The cumulative change in fair value of the metals swaps that have had not yet been settled as of June 30, 2022 are included in “Other Accrued Liabilities”, and the embedded customer derivatives are included in “Other accrued liabilities”, and “Accounts receivable,Receivable, net” on the Consolidated Balance Sheets at Septemberas of June 30, 2017 and December 31, 2016.2022.

Fixed rate interest rate hedge

Interest rate swap

CTIOn January 10, 2019, the Company entered into ana five-year forward starting fixed rate interest rate swaphedge in order to reduceeliminate the impactvariability of changes incash interest ratespayments on its IRB. The swap agreement matures in April 2018, the same time as the IRB, and is reduced annually by the amount$75 million of the optional principal paymentsoutstanding LIBOR based borrowings under the ABL Credit Facility. The interest rate hedge fixed the rate at 2.57%. The interest rate hedge is included in “Other long-term liabilities” on the IRB. TheConsolidated Balance Sheets as of June 30, 2022. Although the Company is exposed to credit loss in the event of nonperformance by the other partiesparty to the interest rate swap agreement. However,hedge agreement, the Company does not anticipate nonperformanceanticipates performance by the counterparties. The interest rate swap is not treated as a hedge for accounting purposes.counterparty.

The periodic changes in fair value of the interest rate swap and cash settlement amounts associated with the interest rate swap are included in “Interest and other expense on debt” in the Consolidated Statements of Comprehensive Income.

Fixed rate interest rate hedge

In June 2012, the Company entered into a forward starting fixed rate interest rate hedge commencing June 2013 in order to eliminate the variability of cash interest payments on $53.2 million of the then outstanding LIBOR-based borrowings under the ABL Credit Facility. The hedge, which matured on June 1, 2016, fixed the rate at 1.21% plus a premium ranging from 1.25% to 1.75%. The fixed rate interest rate hedge was accounted for as a cash flow hedging instrument for accounting purposes.

There was no net impact from the nickel swaps or embedded customer derivative agreements to the Company’s Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016. The table below shows the total impact to the Company’s Consolidated Statements of Comprehensive Income through net income of the derivatives for the three and ninesix months ended SeptemberJune 30, 2017 2022 and 2016.2021, respectively.

During the threesix months ended SeptemberJune 30, 2017, 2022, there were no transfers of financial assets between Levels 1,2 or 3 fair value measurements. There have been no changes in the methodologies used at SeptemberJune 30, 2017 2022 since December 31, 2016. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value as of September 30, 2017 and December 31, 2016:

Metals swaps and embedded customer derivatives – Determined by using Level 2 inputs that include the price of nickel indexed to the LME. The fair value is determined based on quoted market prices and reflects the estimated amounts the Company would pay or receive to terminate the nickel swaps.

Interest rate swaps – Based on the present value of the expected future cash flows, considering the risks involved, and using discount rates appropriate for the maturity date. Market observable Level 2 inputs are used to determine the present value of future cash flows.2021.

The following table presents information about the Company’sCompany’s assets and liabilities that were measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company: