SECURITIES AND EXCHANGE COMMISSION
FORM 10-K10-K/A
[X]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
For the Fiscal Year Ended December 31, 2003COMMISSION FILE NUMBER 001-08524
Commission File Number 001-08524
MYERS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OHIO | 34-0778636 | |
(State or other jurisdiction of | (IRS Employer Identification Number) |
1293 S. MAIN STREET, AKRON, OHIO | 44301 | (330) 253-5592 | ||
(Address of Principal Executive Offices) | (Zip Code) | (Telephone Number) |
Securities Registered Pursuant to | ||
Section 12(b) of the Act: | Name of Each Exchange | |
On which registered: | ||
Common Stock, Without Par Value | New York Stock Exchange | |
(Title of Class) |
Securities Registered Pursuant to Section 12(g) of the Act: None
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 the filing requirements for at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
State the aggregate market value of the voting and non-voting common equity stock held by non-affiliates usingcomputed by reference to the closingprice at which the common equity was sold, or the average bid and asked price of such common equity as of the registrantlast business day of the registrant's most recently completed second fiscal quarter, being as of June 30, 2003: $286,045,560.2004: $381,983,989. Indicate the number of shares outstanding of registrant’sregistrant's common stock as of June 30, 2003: 30,110,059January 31, 2005: 34,661,245 Shares of Common Stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
CROSS REFERENCE SHEET
PURSUANT TO FORM 10-K GENERAL INSTRUCTION G(4)
PART I
(a) General Development of Business
In 2003,This Amendment No. 1 on Form 10-K/A to Myers Industries, Inc.'s (the Company) had net sales of $661.1 million, an increase of 9 percent from the $608.0 million in 2002. Despite the increased sales, 2003 net income of $16.3 million declined 32 percent from the $24 million in 2002 as higher raw material costs and competitive pricing pressures combined to reduce profitability.
For the quarter ended December 31, 2003, net sales were a record $176.5 million, an increase of 11 percent from the prior year. Net income"Company") Annual Report on Form 10-K for the quarter was $4.4 million, an increase of 8 percent from the prior year.
In February 2004, the Company entered into a new $225 million unsecured revolving credit facility. Initial borrowings under the new credit facility were used to refinance the Company’s existing multi-currency loan agreement which was due to expire in February 2005. In December 2003, the Company issued $100 million in Senior Unsecured Notes consisting of $65 million of 6.08 percent, 7 year notes and $35 million of 6.81 percent, ten year notes. Proceeds from the issuance of these notes were used to repay bank debt outstanding at that time. During 2003 total debt was reduced by $17.4 million and debt as a percentage of total capitalization was reduced to 42 percent at December 31, 2003 compared to 48 percent at the end of 2002.
(b) Financial Information About Industry Segments
The response to this section of Item 1 is contained in the Industry Segments footnote of the Notes to Consolidated Financial Statements under Item 8 of this report.
(c) Description of Business
The Company conducts its business activities in two segments, manufacturing and distribution. For the fiscal year ended December 31, 2003, the manufacturing segment generated approximately 77% of sales, while the distribution segment contributed approximately 23% of sales.
Our manufacturing segment designs, manufactures, and markets a variety of plastic and rubber products, ranging from plastic material handling containers and storage boxes to rubber OEM parts and tire repair materials. These products are made through a variety of molding processes in 25 facilities located throughout North America and Europe.
Our distribution segment is engaged in the distribution of tools, equipment, and supplies used for tire and wheel service and automotive underbody repair. The distribution segment operates through 40 branches located in major cities throughout the United States and in foreign countries through export and businesses in2004, which we hold an equity interest.
In our manufacturing segment, we design, manufacture, and market more than 11,000 products from plastic and rubber. We currently operate 18 manufacturing facilities in the United States, six in Western Europe and one in Canada. Our manufactured plastic and rubber products are sold nationally and internationally by a direct sales force and through independent sales representatives.
Key Manufactured Product Areas
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Product Brands
Manufacturing Capabilities
Representative Markets
Our largest product line is reusable plastic material handling containers. These products help customers efficiently and economically move products and reduce solid waste in closed-loop distribution systems. We are one of the leading manufacturers of these material handling products, which include collapsible bulk boxes, hand-held containers and trays, small parts bins, pallets, and a variety of other specialty items. We believe that we are one of the few manufacturers positioned to supply material handling product solutions to customers worldwide.
Our material handling products are utilized for shipping and handling a wide range of industrial and commercial items, including automotive, appliance, and electronic components; food products such as meat, poultry, and produce; bulk seed and feed; health and beauty care products; apparel and textiles; and hardware. These products deliver specific cost-saving and productivity benefits to our customers. At the Saturn plant in
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Growers, retailers, and consumers use our plastic planters and trays to create plant and floral displays. We manufacture a broad line of indoor/outdoor decorative planters, pots, bowls, window boxes, urns, and grower containers and trays; we are also North America’s largest producer of hanging baskets. These items serve the needs of the grower at greenhouses and nurseries, as well as retail garden centers, home centers, and mass merchandisers such as Target®, Kmart®, and Wal-Mart®.
For consumers, we adapt storage solutions for industry to home and office settings. Our popular KeepBox® containers help consumers organize everything from holiday decorations to school supplies. Storage organizers and cabinets provide efficient storage for small items and accessories in the home workshop or at the office. Hobbyists and craftsmen use our popular CraftDesign® products for efficient, portable storage of craft, sewing, and art supplies.
Part of our product line is plastic storage tanks used for storage and transport of a wide variety of solid and liquid materials. These tanks are produced in the United States using rotational molding and in Europe with both winding extrusion and rotational molding. Our extruded tanks are primarily used for storage in industries such as chemical and water treatment and are an effective alternative to stainless steel tanks, giving customers the same performance for a lower price. For industries such as agriculture, plastics, and food, our roto-molded tanks are commonly used as intermediate bulk containers (IBCs), transporting material from one location to another or as a temporary storage vessel; these uses are often “returnable” applications, in which the tanks can be reused for multiple round trips in a closed loop distribution system.
We manufacture plastic carts used in material handling and waste collection. Manufacturers apply our carts and dumpers for in-plant transport of products and scrap. Over 700 municipalities use the carts for residential waste collection.
From seals for water supply lines to hood latches and air hose assemblies for trucks, our engineered, molded OEM and replacement parts meet precise specifications for the waterworks, agriculture, transportation, and civil construction industries. Specialized manufacturing expertise enables us to create a range of specific-performance custom rubber products, including rubber-to-metal bonded items used in marine and maintenance equipment, water control, and environmental applications.
More than 50 years ago we started making tire patches. We now offer the most comprehensive line of tire repair and retreading products in the United States. To service the more than 221 million damaged tires that occur each year, we make all the materials and products customers need to perform safe and profitable tire repairs: the plug that fills a puncture, the cement that seats the plug, the tire innerliner patch, and the final sealing compound. Our products are used to repair the smallest puncture in passenger tires and the most severe tear in large, off-the-road tires.
Our calendered rubber sheet stock is used in many applications. The telecommunications industry splices cabling with our specialty tapes. In the mining industry, our materials are used to create linings for material handling conveyor systems. Another of our custom sheet stocks is used as the base material to produce the world’s top-selling line of golf grips, “Golf Pride®”.
We have applied our rubber calendering and compounding expertise to create reflective marking products for the road repair and construction industry. Transportation professionals use our reflective tape striping, symbols, and legends for marking roadways, intersections, and hazardous areas. Our tape stock is easier to apply, more reflective, and longer lasting than paint. We make the tape in both temporary and permanent grades.
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The Company’s manufacturing business is dependent upon outside suppliers for raw materials, principally polyethylene, polypropylene, polystyrene and synthetic and natural rubber. We believe that the loss of any one supplier or group of suppliers would not have a materially adverse effect on our business, since in most instances identical or similar materials are readily obtainable from other suppliers.
In our distribution segment, we are the largest distributor of tools, equipment, and supplies to tire, wheel, and undervehicle service specialists in the United States. We buy and sell nearly 10,000 different tool, equipment, and supply items ranging from computerized alignment systems and tire balancers to tire valves and small hand tools.
Key Distribution Products
Product Brand
Capabilities
Representative Markets
Within the continental United States, we provide widespread distribution and sales coverage from 40 branches in 31 states. Each branch operates as a profit center and is staffed by a branch manager, salespeople, office, warehouse, and delivery personnel.
Internationally, we have five wholly owned warehouse distributors located in Canada and Central America. We also own interests in several foreign warehouse distributors. Sales personnel from our Akron, Ohio headquarters cover the Far East, Middle East, South Pacific and South American territories.
We buy products from top suppliers to ensure quality is delivered to our customers. Each of the brand-name products we sell is associated with superior performance in its respective area. Some of these leading brands include: Chicago Pneumatic air tools; Hennessy tire changing, balancing, and alignment equipment; Corghi tire changers and balancers; Ingersoll-Rand air service equipment; John Bean Co. tire balancing and changing equipment; our own Patch Rubber brand tire patches, cements, and repair supplies; and Rotary lifts and related equipment.
An essential element of our success in the distribution segment is our nearly 170 sales representatives, who deliver personalized service on a local level. Customers rely on Myers’ sales representatives to introduce the latest tools and technologies and provide training in new product features and applications. Representatives also teach the proper use of diagnostic equipment, and present on-site workshops demonstrating industry approved techniques for tire repair and undercar service.
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Competition in the manufacturing segment is substantial and varied in form and size from manufacturers of similar products and of other products which can be readily substituted for those produced by the Company. Competition in the distribution segment is generally from local and regional businesses.
As of December 31, 2003 the Company had a total of 4,218 full-time and part-time employees. Of these employees, 3,532 were engaged in the manufacturing segment, 589 were employed in the distribution segment and 97 were employed at the Company’s corporate offices. Approximately 10% of the Company’s employees are members of unions, however, in certain countries in which the Company operates union membership is not known due to confidentiality laws. The Company believes it has a good relationship with its union employees.
The Response to this section of Item 1 is contained in the Industry Segments footnote of the Notes to Consolidated Financial Statements under Item 8 of this Report.
The following table sets forth by segment certain information with respect to facilities owned by the Registrant:
Distribution
| Approximate | Approximate | |||||||||
| Floor Space | Land Area | |||||||||
| Location | (Square Feet) | (Acres) | Use | |||||||
| Akron, Ohio | 129,000 | 8 | Executive offices and warehousing | |||||||
| Akron, Ohio | 60,000 | 5 | Warehousing | |||||||
| Akron, Ohio | 31,000 | 2 | Warehousing | |||||||
| Pomona, California | 17,700 | 1 | Sales and distribution | |||||||
| Englewood, Colorado | 9,500 | 1 | Sales and distribution | |||||||
| San Antonio, Texas | 4,500 | 1 | Sales and distribution | |||||||
| Phoenix, Arizona | 8,200 | 1 | Sales and distribution | |||||||
| Akron, Ohio | 8,000 | 1 | Leased to non-affiliated party | |||||||
| Houston, Texas | 7,900 | 1 | Sales and distribution | |||||||
| Indianapolis, Indiana | 7,800 | 2 | Sales and distribution | |||||||
| Cincinnati, Ohio | 7,500 | 1 | Sales and distribution | |||||||
| York, Pennsylvania | 7,400 | 3 | Sales and distribution | |||||||
| Atlanta, Georgia | 7,000 | 1 | Sales and distribution | |||||||
| Minneapolis, Minnesota | 5,500 | 1 | Sales and distribution | |||||||
| Charlotte, North Carolina | 5,100 | 1 | Sales and distribution | |||||||
| Syracuse, New York | 4,800 | 1 | Sales and distribution | |||||||
| Franklin Park, Illinois | 4,400 | 1 | Sales and distribution | |||||||
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Manufacturing
| Approximate | Approximate | |||||||||||
| Floor Space | Land Area | |||||||||||
| Location | (Square Feet) | (Acres) | Use | |||||||||
| Gaillon, France | 500,000 | 23 | Manufacturing and distribution | |||||||||
| Nykobing, Falster Denmark | 227,000 | 68 | Manufacturing and distribution | |||||||||
| Springfield, Missouri | 227,000 | 19 | Manufacturing and distribution | |||||||||
| Dawson Springs, Kentucky | 209,000 | 36 | Manufacturing and distribution | |||||||||
| Wadsworth, Ohio | 197,000 | 23 | Manufacturing and distribution | |||||||||
| Hannibal, Missouri | 196,000 | 10 | Manufacturing and distribution | |||||||||
| Sparks, Nevada | 185,000 | 11 | Manufacturing and distribution | |||||||||
| Bluffton, Indiana | 175,000 | 17 | Manufacturing and distribution | |||||||||
| Roanoke Rapids, N. Carolina | 172,000 | 20 | Manufacturing and distribution | |||||||||
| Shelbyville, Kentucky | 160,000 | 8 | Manufacturing and distribution | |||||||||
| Sandusky, Ohio | 155,000 | 8 | Manufacturing and distribution | |||||||||
| Bristol, Indiana | 139,000 | 12 | Manufacturing and distribution | |||||||||
| Akron, Ohio | 121,000 | 17 | Manufacturing and distribution | |||||||||
| Gloucester, England | 118,000 | 3 | Manufacturing and distribution | |||||||||
| Dayton, Ohio | 85,000 | 5 | Manufacturing and distribution | |||||||||
| Palua De Plegamans, Spain | 85,000 | 7 | Manufacturing and distribution | |||||||||
| Prunay, France | 71,000 | 4 | Manufacturing and distribution | |||||||||
| Goddard, Kansas | 62,000 | 7 | Manufacturing and distribution | |||||||||
| Santa Perpetua De Mogoda, Spain | 61,000 | 3 | Manufacturing and distribution | |||||||||
| Fostoria, Ohio | 50,000 | 3 | Manufacturing and distribution | |||||||||
| Akron, Ohio | 49,000 | 6 | Manufacturing and distribution | |||||||||
| Surrey, B.C., Canada | 42,000 | 3 | Manufacturing and distribution | |||||||||
| Ontario, California | 40,000 | 2 | Distribution and warehousing | |||||||||
| Mebane, North Carolina | 30,000 | 5 | Manufacturing and distribution | |||||||||
| Nivelles, Belguim | 14,000 | 2 | Sales and distribution | |||||||||
| Maia, Portugal | 13,000 | 3 | Sales and distribution | |||||||||
The following table sets forth by segment certain information with respect to facilities leased by the Registrant:
Manufacturing
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The Registrant also leases distribution facilities in 32 locations throughout the United States and Canada which, in the aggregate, amount to approximately 167,000 square feet of warehouse and office space. All of these locations are used by the distribution of aftermarket repair products and services segment.
The Registrant believes that all of its properties, machinery and equipment generally are well maintained and adequate for the purposes for which they are used.
There are no pending legal proceedings other than ordinary routine litigation incidental to the Registrant’s business.
During the fourth quarter of the fiscal year ended December 31, 2003, there were no matters submitted to a vote of security holders.
Executive Officers of the Registrant
Set forth below is certain information concerning the executive officers of the Registrant. Executive officers are elected annually by the Board of Directors and serve at the pleasure of the Board.
| Years as | ||||||||||||
| Name | Age | Executive Officer | Title | |||||||||
| Stephen E. Myers | 60 | 31 | Chairman and Chief Executive Officer | |||||||||
| John C. Orr | 53 | 1 | President and Chief Operating Officer | |||||||||
| Milton I. Wiskind | 78 | 32 | Vice Chairman and Secretary | |||||||||
| Gregory J. Stodnick | 61 | 24 | Vice President — Finance | |||||||||
| Jean-Paul Lesage | 59 | 4 | Vice President | |||||||||
| Kevin C. O’Neil | 48 | 5 | General Counsel and Assistant Secretary | |||||||||
Each executive officer has been principally employed in the capacities shown or similar ones with the Registrant for over the past five years with the exception of Mr. O’Neil. Mr. O’Neil consulted as Assistant Secretary until June 2002 at which time he became a full time employee of by the Company. Prior to his full time employment, he was a partner and shareholder of Brouse McDowell Co., LPA.
Section 16(a) of the Securities Exchange Act of 1934 requires the Registrant’s Directors, certain of its executive officers and persons who own more than ten percent of its Common Stock (“Insiders”) to file reports of ownership and changes in ownershipfiled with the Securities and Exchange Commission andon March 16, 2005 (the "Original Filing"), is being filed to amend Item 9A of the American Stock Exchange, Inc., and to furnish the Company with copies of all such forms they file. The Company understands from the information provided to it by the Insiders that they adhered to all filing requirements applicable to the Section 16 Filers.Original Filing as follows:
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PART II
* | To update the section entitled "Management's Annual Report on Internal Control Over Financial Reporting" to include management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004; and |
* | The related attestation report of the independent registered public accounting firm is included. |
The Company’s Common Stock
This Amendment No. 1 is traded onfiled pursuant to Securities and Exchange Commission Release No. 34-50754 which provides up to 45 additional days beyond the New York Stock Exchange (ticker symbol MYE). The approximate numberOriginal Filing for the filing of record holders atthe above.
As a result of these amendments, the certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed as exhibits to the Original Filing, have been re-executed and re-filed as of the date of this Form 10-K/A..
Except for the amendments described above, this Form 10-K/A does not modify or update other disclosures in, or exhibits to, the Original Filing.
ITEM 9A - Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including out chief executive officer and chief financial officer, of the effectiveness of the design and operation, as of December 31, 2003 was 2,045. High2004, of our disclosure controls and low stock pricesprocedures, as that term is defined in Rule 13a-15(f) under the Securities and dividendsExchange Act of 1934, as amended (the Exchange Act). Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in our reports that we file with the SEC under the Exchange Act is recorded, processed and reported on a timely basis.
Based upon this evaluation, our chief executive officer and our chief financial officer concluded that, for the last two years were:
| Sales Price | ||||||||||||
| 2003 | Dividends | |||||||||||
| Quarter Ended | High | Low | Paid | |||||||||
March 31 | 11.43 | 8.80 | .05 | |||||||||
June 30 | 11.16 | 9.20 | .05 | |||||||||
September 30 | 11.67 | 9.35 | .05 | |||||||||
December 31 | 13.30 | 10.02 | .05 | |||||||||
| Sales Price | ||||||||||||
| 2002 | Dividends | |||||||||||
| Quarter Ended | High | Low | Paid | |||||||||
| March 31 | 11.64 | 9.20 | .05 | |||||||||
| June 30 | 14.48 | 11.22 | .05 | |||||||||
| September 30 | 14.20 | 10.21 | .05 | |||||||||
| December 31 | 13.70 | 10.02 | .05 | |||||||||
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
| 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||
Operations for the Year | ||||||||||||||||||||||
| Net sales | $ | 661,091,504 | $ | 607,991,158 | $ | 607,950,431 | $ | 652,659,900 | $ | 580,760,740 | ||||||||||||
| Cost of sales | 460,803,695 | 406,572,783 | 403,011,346 | 435,081,945 | 367,635,460 | |||||||||||||||||
| Selling | 98,536,272 | 88,407,389 | 88,020,857 | 85,632,525 | 83,352,607 | |||||||||||||||||
| General and administrative | 67,030,583 | 60,840,409 | 70,979,067 | 68,675,568 | 60,265,518 | |||||||||||||||||
| Interest — net | 10,074,438 | 11,809,749 | 18,699,142 | 22,360,255 | 15,205,809 | |||||||||||||||||
| 636,444,988 | 567,630,330 | 580,710,412 | 611,750,293 | 526,459,394 | ||||||||||||||||||
| Income before income taxes | 24,646,516 | 40,360,828 | 27,240,019 | 40,909,607 | 54,301,346 | |||||||||||||||||
| Income taxes | 8,321,000 | 16,401,000 | 12,049,000 | 16,909,000 | 23,125,000 | |||||||||||||||||
| Net Income | $ | 16,325,516 | $ | 23,959,828 | $ | 15,191,019 | $ | 24,000,607 | $ | 31,176,346 | ||||||||||||
| Net income per share* | $ | .54 | $ | .80 | $ | .51 | $ | .80 | $ | 1.02 | ||||||||||||
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| 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||||||
Financial Position — At Year End | |||||||||||||||||||||||
| Total assets | $ | 621,626,806 | $ | 602,482,330 | $ | 582,166,378 | $ | 622,103,970 | $ | 600,409,632 | |||||||||||||
| Current assets | 207,933,141 | 201,140,357 | 196,618,597 | 219,307,253 | 206,990,990 | ||||||||||||||||||
| Current liabilities | 94,175,498 | 117,368,956 | 104,899,238 | 112,890,230 | 102,244,419 | ||||||||||||||||||
| Working capital | 113,757,643 | 83,771,401 | 91,719,359 | 106,417,023 | 104,746,571 | ||||||||||||||||||
| Other assets | 229,849,237 | 210,546,946 | 194,811,960 | 201,291,971 | 203,923,134 | ||||||||||||||||||
| Property, plant and equipment — net | 183,844,428 | 190,795,027 | 190,735,821 | 201,504,746 | 189,495,508 | ||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Long-term debt | 211,002,691 | 212,222,615 | 247,145,234 | 284,273,097 | 280,103,906 | ||||||||||||||||||
| Deferred income taxes | 21,924,269 | 17,201,131 | 12,595,697 | 11,037,935 | 10,314,490 | ||||||||||||||||||
Shareholders’ Equity | $ | 294,524,348 | $ | 255,689,628 | $ | 217,526,209 | $ | 213,902,708 | $ | 207,746,817 | |||||||||||||
Common Shares Outstanding | 30,183,256 | 30,071,736 | 29,809,618 | 29,686,266 | 30,231,013 | ||||||||||||||||||
Book Value Per Common Share | $ | 9.76 | $ | 8.50 | $ | 7.30 | $ | 7.21 | $ | 6.87 | |||||||||||||
Other Data | |||||||||||||||||||||||
| Dividends paid | $ | 6,026,349 | $ | 5,878,169 | $ | 5,454,870 | $ | 4,969,876 | $ | 4,626,471 | |||||||||||||
| Dividends paid per Common Share* | 0.20 | 0.20 | 0.18 | 0.17 | 0.15 | ||||||||||||||||||
| Average Common Shares | |||||||||||||||||||||||
| Outstanding during the year | 30,125,533 | 29,971,843 | 29,752,373 | 29,828,210 | 30,502,466 | ||||||||||||||||||
2003 Results of Operations
For the year ended December 31, 2003, net sales2004.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as that term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of $661.1 million were up 9 percent fromfinancial reporting and the $608.0 million reportedpreparation of our company's financial statements for external reporting purposes in 2002. Despiteaccordance with U.S. generally accepted accounting principles. Under the increased sales, 2003 net income of $16.3 million declined 32 percent from $24 million in the prior year as higher raw material costssupervision and significant competitive pricing pressures combined to reduce profitability. Favorable foreign currency translations, primarily from a strong euro, increased sales for the year by $28.3 million and net income by approximately $800,000 or $.03 per share.
On a segment basis, sales in the distribution segment increased $4.3 million or 3 percent, reflecting higher unit volumes for both supplies and capital equipment. In the manufacturing segment, sales for 2003 increased $48.7 million or 10 percent compared with the prior year. Favorable foreign currency translation accounted for approximately 56 percentparticipation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted a review, evaluation and assessment of the sales increase with the remaining improvement the resulteffectiveness of higher unit sales, particularly in automotive, industrial, horticultural and heavy truck markets.
Gross profit, expressedour internal control over financial reporting as a percentage of sales, was reduced to 30.3 percent for the year ended December 31, 2003, compared2004, based upon the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management has identified the following material weaknesses:
Financial Statement Close Process -- As previously reported, management determined that it had insufficient controls over the process of determining and reporting business segment information in accordance with 33.1 percentFinancial Accounting Standards Board Statement No. 131,Disclosures about Segments of an Enterprise and Related Information, which constituted a material weakness in internal controls over financial reporting as of December 31, 2004. The Company has already corrected the prior year.material weakness and has restated its business segment information in this Annual Report on Form 10-K.
The decline in margin wasCompany also had additional control weaknesses over the financial statement close process which, although individually would not have constituted a material weakness, when combined, constitute a material weakness. These insufficient controls include: (i) inadequate review related to the manufacturing segment as rawapplication of accounting policies and the presentation of disclosures in the notes to the financial statements; (ii) lack of controls over the non-routine and estimation processes on a quarterly basis, including review and supervision controls and insufficient supporting documentation of analyses underlying these processes; and (iii) inadequate review and supporting documentation over the recording of journal entries.
These material costs, primarily plastic resins, were significantly higher as compared to 2002 and competitive pressuresweaknesses resulted in slightly lower average selling prices. During the course of 2003, raw material costs were higher for virtually alla restatement of the plastic resins used byCompany's segment reporting, and in audit adjustments recorded in the Company’s manufacturing businessesfourth quarter to inventory, cash, accounts payable and were,accrued environmental and legal expense accounts.
Income Tax Process -- The weaknesses in accounting for income taxes include insufficient controls over accounting for income taxes, including the determination of deferred income tax assets and liabilities, income taxes payable and the provision for income taxes. Specifically, the Company did not have effective controls to: (i) identify and evaluate in a timely manner the tax implications of certain non-routine transactions; (ii) ensure appropriate preparation and review of the provision for income taxes and income taxes payable; (iii) determine the components of deferred income taxes and related assets and liabilities; and (iv) assess the need for valuation allowances on average, 36 percent higher on high density polyethylene, the type of resin most widely used.
Total operating expenses increased $16.3 million or 11 percent for the year ended December 31, 2003 compared with the prior year. Approximately $9.8 million or 60 percent of this increase was duenet deferred tax assets. These control deficiencies resulted in audit adjustments to the impactincome tax accounts.
Management's assessment of foreign currency translation for costs incurred in foreign business units. Other increases in operating expenses were for selling expenses related to higher unit volume sales, and bad debts, principally arising from
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Net interest expense for 2003 decreased $1.7 million or 15 percent compared with the previous year. This reduction was primarily the result of lower average borrowing levels as the Company repaid $17.4 million of debt during the year.
Income taxes as a percent of income before taxes was reduced to 33.8 percent in 2003 compared to 40.6 percent in 2002. This reduction in the Company’s effective tax rate is primarily the result of foreign tax rate differences, including the realization of approximately $600,000 in net operating loss carryforwards previously reserved.
2002 Results of Operations
Net sales of $608.0 million for the year ended December 31, 2002 were virtually unchanged from the prior year. Despite the flat sales, net income for 2002 of $24.0 million or $.80 per share increased 58 percent from the net income of $15.2 million or $.51 per share reported in 2001, as a result of the cessation of goodwill amortization and significantly lower interest expense.
On a segment basis, sales in the distribution segment increased $3.1 million or 2 percent as sales of capital equipment picked up following several years of weak demand. In the manufacturing segment, sales declined $1.7 million or less than one percent, however, excluding the favorable translation effect of foreign currencies, primarily from a stronger euro, sales in the manufacturing segment would have been down 2 percent for the year. Weak demand in most of the Company’s markets combined with competitive pressures on pricing, particularly for horticultural containers and consumer products, led to the decline.
Gross profit, expressed as a percentage of sales, declined slightly to 33.1 percent for the year ended December 31, 2002, compared with 33.7 percent in the prior year. In the distribution segment, margins increased slightly based on continuing favorable sales mix of higher margin supplies. In the manufacturing segment, margins declined as a result of lower selling prices and an increase of unabsorbed fixed manufacturing costs due to lower production levels. Raw material costs, primarily for plastic resins, were lower than prior year costs through the first half of 2002 but increased throughout the year and were unfavorable in the third and fourth quarters.
Total operating expenses decreased $9.8 million or 6 percent to $149.2 million. Expressed as a percentage of sales, operating expenses were reduced to 24.5 percent in 2002 compared to 26.1 percent in 2001. The reduction in current year operating expenses was primarily due to the elimination of goodwill amortization which totaled $9.2 million in 2001. Other reductions in general and administrative expenses resulting from cost containment efforts were largely offset by significantly higher costs for medical, property, casualty and other insurances.
Net interest expense of $11.8 million for 2002 was down $6.9 million or 37 percent from the prior year. This decrease was primarily the result of lower interest rates, however, the Company also received the benefit of lower average borrowing levels by repaying $35.8 million of debt during the year.
Income taxes as a percentage of pretax income was 40.6 percent compared with 44.2 percent in the prior year. The lower effective tax rate reflects the elimination of the impact which non-deductible goodwill amortization had in prior years. In addition, the Company experienced a more favorable foreign tax rate difference in 2002 compared with the prior year.
Financial Condition
Liquidity and Capital Resources
In 2003, the Company generated cash from operating activities of $51.1 million. During the year ended December 31, 2003, investments in property, plant and equipment totaled $20.0 million and total debt was
10
In December 2003, the Company issued $100 million of senior unsecured notes consisting of $65 million of 6.08 percent notes with a 7 year maturity and $35 million of 6.81 percent notes with a 10 year maturity. Proceeds from the senior notes were used to repay outstanding bank debt under the Company’s existing term loan and revolving credit facility. The issuance of the senior notes resulted in an increase in the Company’s current overall interest rate; however, it provides long-term financing at relatively favorable fixed rates.
On February 27, 2004, the Company entered into a new five year, $225 million unsecured revolving credit facility (the Credit Facility). Borrowings under the new Credit Facility were used to refinance the Company’s existing bank debt and fund the acquisitioninternal controls of ATP Automotive, Inc. for approximately $60 million (see Subsequent Event(ATP) and Long-Term Debtits operating subsidiaries Michigan Rubber Products (MRP), WEK Industries, Inc. (WEK), Productivity California, Inc. and Credit Agreements Footnotes).
During the next five years management anticipates on-going capital expenditures in the range of $25 to $30 million annually. Cash flows from operations and funds available under the new Credit Facility will provide the Company’s primary source of future financing. Management believes that it has sufficient financial resources available to meet anticipated business requirements in the foreseeable future including capital expenditures, dividends, working capital and debt service.
The following summarizes the Company’s future cash outflows for the next five years, adjusted to reflect payments under the new Credit Facility, resulting from financial contracts and commitments:
| 2004 | 2005 | 2006 | 2007 | 2008 | Total | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||
| Long-term Debt | $ | 4,452 | $ | 2,200 | $ | 962 | $ | 932 | $ | 894 | $ | 9,440 | ||||||||||||
| Operating Leases | 9,491 | 8,472 | 6,616 | 5,349 | 4,974 | 34,902 | ||||||||||||||||||
| Total | $ | 13,943 | $ | 10,672 | $ | 7,578 | $ | 6,281 | $ | 5,868 | $ | 44,342 | ||||||||||||
Market Risk and Derivative Financial Instruments
The Company has financing arrangements that require interest payments based on floating interest rates. As such, the Company’s financial results are subject to changes in the market rate of interest. Our objective in managing the exposure to interest rate changes is to limit the volatility and impact of rate changes on earnings while maintaining the lowest overall borrowing cost. At present, the Company has not entered into any interest rate swaps or other derivative instruments to fix the interest rate on any portion of its financing arrangements with floating rates. Accordingly, based on current debt levels at December 31, 2003, if market interest rates increase one percent, the Company’s interest expense would increase approximately $1,000,000.
Some of the Company’s subsidiaries operate in foreign countries and, as such, their financial results are subject to the variability that arises from exchange rate movements. The Company believes that foreign currency exchange rate fluctuations do not represent a significant market risk due to the nature of the foreign countries in which we operate, primarily Canada and Western Europe, as well as the size of those operations relative to the total Company.
The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. As such, the cost of operations is subject to fluctuation as the market for these commodities changes. The Company monitors this risk but currently has no derivative contracts to hedge this risk; however, the Company also has no significant purchase obligations to purchase fixed quantities of such commodities in future periods.
Critical Accounting Policies
Our discussion and analysis of the Company’s financial condition and results of operations are based on the accompanying consolidated financial statements,Diakon Molding which are prepared in accordance with accounting principles generally accepted in the United States of America. As indicated in the Summary of Significant Accounting Policies included in the footnotes to the consolidated financial statements of Myers Industries, Inc. and constituted approximately $44.6 million and $22.6 million of total and net assets, respectively, as of December 31, 2004 and approximately $69.8 million and $4.8 million of net revenues and income before income taxes, respectively for the amountyear then ended.
Our management's assessment of assets,
11
Revenue Recognition — firm. Their report appears below.
Remediation Material Weaknesses
The Company recognizes revenues from the sale of products, net of actual and estimated returns, at the point of passage of title, which is generally at the time of shipment.
Bad Debts — The Company evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivablehas dedicated substantial resources to the amount the Company reasonably believes will be collected. Additionally, the Company reviews historical trends for collectibility in determining an estimate forreview of its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due the Company could be reduced by a material amount.
Inventory — Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 34 percent of the Company’s inventoriesinternal control processes and the first-in, first-out (FIFO) method for all other inventories. Where appropriate, standard cost systems are utilized for purposes of determining cost; the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost or market value of inventory are determined based upon current economic conditions, historical sales quantities and patterns and, in some cases, the specific risk of loss on specifically identified inventories.
Goodwill —procedures. As a result of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” recorded goodwill is subjected to annual impairment testing. Goodwill impairment testing requires, in part, that we estimatereview, the fair value of our business units which, in turn, requires that we make judgements concerning future cash flows and appropriate discount rates for those businesses. Our estimateCompany has taken steps toward remediation of the fair valuematerial weaknesses by: (i) creating and filling the position of these business unitsSenior Compliance Manager; (ii) creating and filling four new positions of Director of Finance at individual operating units; (iii) establishing a Corporate Compliance Committee; (iv) increasing the related goodwill, could change over time based on a variety of factors, including the actual operating performancesize of the underlying businesses orinternal audit staff from three to five; and (v) implementing procedures to strengthen the impact of future events on the cost of capital and the related discount rates used.
Contingencies — In the ordinary course of business, we are involvedquarterly closing process.
Changes in various legal proceedings and contingencies. WeInternal Control over Financial Reporting
Other than as described above, there have recorded liabilities for these matters in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (SFAS 5). SFAS 5 requires a liability to be recorded based on our estimate of the probable cost of the resolution of a contingency. The actual resolution of these contingencies may differ from our estimates. If a contingency were settled for an amount greater than our estimates, a future charge to income would result. Likewise, if a contingency were settled for an amount that is less than our estimate, a future credit to income would result.
Income Taxes — Deferred income taxes are provided to recognize the effect of temporary differences between financial and tax reporting. Deferred income taxes are not provided for undistributed earnings of foreign consolidated subsidiaries as it is our intention to reinvest such earnings for an indefinite period of time. The Company has significant operations outside the United States and in jurisdictions with statutory tax rates both higher and lower than in the United States. As a result, significant tax and treasury planning and analysis of future operations are necessary to determine the proper amounts of tax assets, liabilities and expense to be recognized.
The Company has reserved the deferred tax benefit of certain tax loss carryforwards in foreign countries that, if realized, would reduce future income tax expense by approximately $6,504,000. Of this amount, $2,451,000 expires in various years from 2004 through 2008, and $4,053,000 hasbeen no expiration date. The Company also has U.S. foreign tax credit carryforwards of approximately $800,000 expiring in 2004.
12
The Company has financing arrangements that require interest payments based on floating interest rates. As such, the Company’s financial results are subject to changes in the market rateCompany's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Report of interest. Our objectiveIndependent Registered Public Accounting Firm on Internal Control
over Financial Reporting
Myers Industries, Inc.
We have audited management's assessment, included in managing the exposure to interest rate changes is to limit the volatility"Management's Report on Internal Control over Financial Reporting" appearing on pages 1 and impact of rate changes on earnings while maintaining the lowest overall borrowing cost. At present, the Company has not entered into any interest rate swaps or other derivative instruments to fix the interest rate on any portion of its financing arrangements with floating rates. Accordingly, based on current debt levels at December 31, 2003, if market interest rates increase one percent, the Company’s interest expense would increase approximately $1,000,000.
Some of the Company’s subsidiaries operate in foreign countries and, as such, their financial results are subject to the variability that arises from exchange rate movements. The Company believes that foreign currency exchange rate fluctuations do not represent a significant market risk due to the nature of the foreign countries in which we operate, primarily Canada and Western Europe, as well as the size of those relative to the total Company.
The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. As such, the cost of operations is subject to fluctuation as the market for these commodities changes. The Company monitors this risk but currently has no derivative contracts to hedge this risk, however, the Company also has no significant purchase obligations to purchase fixed quantities of such commodities in future periods.
The consolidated financial statements and accompanying notes and the reports of management and independent accountants follow Item 92 of this Report.
Summarized Quarterly Results of Operations
| March 31 | June 30 | Sept. 30 | Dec. 31 | Total | ||||||||||||||||
| Quarter Ended 2003 | ||||||||||||||||||||
Net Sales | $ | 163,221 | $ | 168,964 | $ | 152,400 | $ | 176,507 | $ | 661,092 | ||||||||||
Gross Profit | 53,843 | 49,724 | 44,160 | 52,561 | 200,288 | |||||||||||||||
Net Income | 7,192 | 3,276 | 1,507 | 4,351 | 16,326 | |||||||||||||||
Per Share | .24 | .11 | .05 | .14 | .54 | |||||||||||||||
| March 31 | June 30 | Sept. 30 | Dec. 31 | Total | ||||||||||||||||
| Quarter Ended 2002 | ||||||||||||||||||||
| Net Sales | $ | 148,939 | $ | 153,095 | $ | 146,626 | $ | 159,331 | $ | 607,991 | ||||||||||
| Gross Profit | 54,499 | 51,730 | 44,395 | 50,794 | 201,418 | |||||||||||||||
| Net Income | 10,046 | 6,802 | 3,068 | 4,044 | 23,960 | |||||||||||||||
| Per Share | .34 | .23 | .10 | .13 | .80 | |||||||||||||||
13
This report is a copy and hasAmended Annual Report on Form 10-K, that Myers Industries, Inc. did not been reissued by Arthur Andersen, LLP.
This report references the Company’s balance sheetmaintain effective internal control over financial reporting as of December 31, 2001 and 2000 and its related consolidated statements2004, because of income, shareholders’ equity and cash flows for the year ended December 31, 2000 and 1999 which are not presented herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have auditedeffect of the accompanying statementsthree material weaknesses identified in management's assessment, based on criteria established in Internal Control--Integrated Framework issued by the Committee of consolidated financial positionSponsoring Organizations of the Treadway Commission (the COSO criteria). Myers Industries, Inc. (an Ohio Corporation)'s management is responsible for maintaining effective internal control over financial reporting and Subsidiaries as of December 31, 2001 and 2000, and the related statements of consolidated income, shareholders’ equity and comprehensive income and cash flows for eachits assessment of the three years in the period ended December 31, 2001. Theseeffectiveness of internal control over financial statements are the responsibility of the Company’s management.reporting. Our responsibility is to express an opinion on thesemanagement's assessment and an opinion on the effectiveness of the company's internal control over financial statementsreporting based on our audits.
audit.
We conducted our auditsaudit in accordance with auditingthe standards generally accepted inof the United States.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the financial statements are freedesign and operating effectiveness of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsinternal control, and disclosuresperforming such other procedures as we considered necessary in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion,
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's a ssets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements referred to above present fairly,will not be prevented or detected. The following material weaknesses have been identified and included in allmanagement's assessment:
Financial Statement Close Process- The Company does not have adequate controls over the process of determining and reporting business segment information in accordance with Financial Accounting Standards Board Statement No. 131, Disclosures of Segments of an Enterprise and Related Information, which constituted a material respects, theweakness in controls over financial position of Myers Industries, Inc. and Subsidiariesreporting as of December 31, 2001 and 2000,2004. The Company also had additional control weaknesses over the financial statement close process which, although individually would not have constituted a material weakness, when combined, constitute a material weakness. These insufficient controls include (i) inadequate review related to the application of accounting policies and the resultspresentation of their operationsdisclosures in the notes to the consolidated financial statements; (ii) lack of controls over certain non-routine and their cash flows for eachestimation processes on a quarterly basis, including review and supervision controls and insufficient supporting documentation of analyses underlying th ese processes; and (iii) inadequate review and supporting documentation over the recording of certain journal entries. These material weaknesses resulted in a restatement of the three yearsCompany's segment reporting, and in audit adjustments recorded in the period ended December 31, 2001,fourth quarter, to income tax, inventory, cash, accounts payable and accrued environmental and legal expenses accounts.
Income Tax Process- The weaknesses in conformity withincome taxes include insufficient controls over accounting principles generally acceptedfor income taxes, including the determination of deferred income tax assets and liabilities, income taxes payable and the provision for income taxes. Specifically, the Company did not have effective controls to (i) identify and evaluate in a timely manner the tax implications of certain non-routine transactions, (ii) ensure appropriate preparation and review of the provision for income taxes and income taxes payable, (iii) determine the components of deferred income taxes and related assets and liabilities, and (iv) assess the need for valuation allowances on net deferred tax assets. These control deficiencies resulted in adjustments to the income tax accounts.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements and this report does not affect our report dated March 15, 2005, on those financial statements.
As indicated in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Cleveland, Ohio,
14
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
We have auditedaccompanying "Management's Report on Internal Control over Financial Reporting," management's assessment of and conclusion on the accompanying statementseffectiveness of consolidatedinternal control over financial positionreporting did not include the internal controls of MyersATP Automotive, Inc. (ATP) and its operating subsidiaries Michigan Rubber Products (MRP) and WEK Industries, Inc. (an Ohio Corporation)(WEK), Productivity California, Inc. and Subsidiaries as of December 31, 2003 and 2002 andDiakon Molding which are included in the related statements of consolidated income, shareholders’ equity and comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Myers Industries, Inc. and Subsidiariesconstituted approximately $44.6 million and $22.6 million of total and net assets, respectively, as of December 31, 20012004 and approximately $69.8 million and $4.8 million of revenues and loss before income taxes, respectively for the year then ended were audited by other auditors who have ceased operations and whose report dated February 15, 2002, expressedended. Our audit of internal control over financial reporting of Myers Industries, Inc. also did not include an unqualified opinion on those statements before the revisions described below and in the Goodwill and Intangible Assets note and the 2002 restatement adjustment for the retroactive effectevaluation of the five-for-four stock split described below and in the Net Income Per Share note.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether theinternal control over financial statements are freereporting of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
these acquired entities.
In our opinion, themanagement's assessment that Myers Industries, Inc. did not maintain effective internal control over financial statements referred to above presentreporting as of December 31, 2004, is fairly stated, in all material respects, based on the consolidated financial positionCOSO control criteria. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Myers Industries, Inc. and Subsidiaries at December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
As explained in the Goodwill and Intangible Assets note,has not maintained effective January 1, 2002, the Company changed its method of accounting for goodwill.
As discussed above, theinternal control over financial statements of Myers Industries, Inc.reporting as of December 31, 2001, and for the year then ended were audited by other auditors who have ceased operations. As described in the Goodwill and Intangible Assets note, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures for 2001 in the Goodwill and Intangible Assets note included (a) agreeing the previously reported net income and net income per share to the previously issued financial statements and the adjustments to those amounts representing amortization expense (including any related tax effects) recognized in the period related to goodwill to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the calculation of adjusted net income. Also, as described in the Net Income Per Share note, in 2002 the Company’s Board of Directors approved a five-for-four stock split, and all references to the number of shares, per share information and the number of stock options in the financial statements have been adjusted to reflect the stock split on a retroactive basis. We audited the adjustments that were applied to restate the number of shares and per share information and the number of stock options reflected in the 2001 financial statements. Our procedures included (a) agreeing the authorization for the five-for-four stock split to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the restated number of shares, net income per share, stock option information and all other per share amounts.
In our opinion, the disclosures for 2001 in the Goodwill and Intangible Assets note are appropriate and the adjustments to reflect the five-for-four stock split are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
Akron, Ohio
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
For the Years Ended December 31, 2003, 2002 and 2001
| 2003 | 2002 | 2001 | ||||||||||||
| Net sales | $ | 661,091,504 | $ | 607,991,158 | $ | 607,950,431 | ||||||||
| Cost of sales | 460,803,695 | 406,572,783 | 403,011,346 | |||||||||||
| Gross profit | 200,287,809 | 201,418,375 | 204,939,085 | |||||||||||
| Operating expenses | ||||||||||||||
| Selling | 98,536,272 | 88,407,389 | 88,020,857 | |||||||||||
| General and administrative | 67,030,583 | 60,840,409 | 70,979,067 | |||||||||||
| 165,566,855 | 149,247,798 | 158,999,924 | ||||||||||||
| Operating income | 34,720,954 | 52,170,577 | 45,939,161 | |||||||||||
| Interest | ||||||||||||||
| Income | (366,324 | ) | (461,038 | ) | (695,140 | ) | ||||||||
| Expense | 10,440,762 | 12,270,787 | 19,394,282 | |||||||||||
| 10,074,438 | 11,809,749 | 18,699,142 | ||||||||||||
| Income before income taxes | 24,646,516 | 40,360,828 | 27,240,019 | |||||||||||
| Income taxes | 8,321,000 | 16,401,000 | 12,049,000 | |||||||||||
| Net income | $ | 16,325,516 | $ | 23,959,828 | $ | 15,191,019 | ||||||||
| Net income per share | $ | .54 | $ | .80 | $ | .51 | ||||||||
| Weighted average shares outstanding | 30,125,533 | 29,971,843 | 29,752,373 | |||||||||||
The accompanying notes are an integral part of these statements.
16
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Statements of Consolidated Financial Position
As of December 31, 2003 and 2002
| 2003 | 2002 | |||||||||
Assets | ||||||||||
Current Assets | ||||||||||
| Cash | $ | 5,666,997 | $ | 1,702,334 | ||||||
| Accounts receivable — less allowances of $4,245,000 and $4,507,000, respectively | 114,038,680 | 111,207,172 | ||||||||
| Inventories | ||||||||||
| Finished and in-process products | 61,240,225 | 66,819,085 | ||||||||
| Raw materials and supplies | 22,613,029 | 16,280,910 | ||||||||
| 83,853,254 | 83,099,995 | |||||||||
| Prepaid expenses | 4,374,210 | 5,130,856 | ||||||||
Total Current Assets | 207,933,141 | 201,140,357 | ||||||||
Other Assets | ||||||||||
| Goodwill | 224,298,302 | 204,465,504 | ||||||||
| Patents and other intangible assets, net | 2,321,584 | 2,422,772 | ||||||||
| Other | 3,229,351 | 3,658,670 | ||||||||
| 229,849,237 | 210,546,946 | |||||||||
Property, Plant and Equipment, at Cost | ||||||||||
| Land | 8,461,003 | 7,878,664 | ||||||||
| Buildings and leasehold improvements | 80,588,395 | 77,061,850 | ||||||||
| Machinery and equipment | 352,995,191 | 318,617,656 | ||||||||
| 442,044,589 | 403,558,170 | |||||||||
| Less allowances for depreciation and amortization | 258,200,161 | 212,763,143 | ||||||||
| 183,844,428 | 190,795,027 | |||||||||
| $ | 621,626,806 | $ | 602,482,330 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current Liabilities | ||||||||||
| Accounts payable | $ | 39,731,250 | $ | 49,970,910 | ||||||
| Accrued expenses | ||||||||||
| Employee compensation and related items | 30,975,836 | 29,843,708 | ||||||||
| Taxes, other than income taxes | 2,874,171 | 3,260,304 | ||||||||
| Accrued interest | 608,575 | 754,668 | ||||||||
| Other | 15,533,529 | 12,849,101 | ||||||||
| Current portion of long-term debt | 4,452,137 | 20,690,265 | ||||||||
Total Current Liabilities | 94,175,498 | 117,368,956 | ||||||||
Long-term Debt, less current portion | 211,002,691 | 212,222,615 | ||||||||
Deferred Income Taxes | 21,924,269 | 17,201,131 | ||||||||
Shareholders’ Equity | ||||||||||
| Serial Preferred Shares (authorized 1,000,000 shares) | –0– | –0– | ||||||||
| Common Shares, without par value (authorized 60,000,000 shares; outstanding 30,183,256 and 30,071,736 shares, respectively) | 18,369,240 | 18,301,212 | ||||||||
| Additional paid-in capital | 217,019,810 | 216,077,838 | ||||||||
| Accumulated other comprehensive income (loss) | 10,934,860 | (16,590,693 | ) | |||||||
| Retained income | 48,200,438 | 37,901,271 | ||||||||
| 294,524,348 | 255,689,628 | |||||||||
| $ | 621,626,806 | $ | 602,482,330 | |||||||
The accompanying notes are an integral part of these statements.
17
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Statements of Consolidated Shareholders’ Equity
For the Years Ended December 31, 2003, 2002 and 2001
| Accumulated | |||||||||||||||||||||||||
| Common Shares | Additional | Other | |||||||||||||||||||||||
| Paid-In | Comprehensive | Retained | Comprehensive | ||||||||||||||||||||||
| Number | Amount | Capital | Income | Income | Income | ||||||||||||||||||||
Balance at January 1, 2001 | 21,590,012 | $ | 13,234,830 | $ | 189,779,843 | $ | (27,149,716 | ) | $ | 38,037,751 | $ | –0– | |||||||||||||
| Additions | |||||||||||||||||||||||||
| Net income | –0– | –0– | –0– | –0– | 15,191,019 | 15,191,019 | |||||||||||||||||||
| Sales under option plans | 46,404 | 26,707 | 331,899 | –0– | –0– | –0– | |||||||||||||||||||
| Employees stock purchase plan | 35,204 | 21,474 | 410,218 | –0– | –0– | –0– | |||||||||||||||||||
| Dividend reinvestment plan | 11,830 | 8,840 | 365,917 | –0– | –0– | –0– | |||||||||||||||||||
| Deductions | |||||||||||||||||||||||||
| Dividends — $.18 per share | –0– | –0– | –0– | –0– | (5,454,868 | ) | –0– | ||||||||||||||||||
| 10% stock dividend | 2,164,244 | 1,211,977 | 26,706,771 | –0– | (27,934,414 | ) | –0– | ||||||||||||||||||
| Foreign currency translation adjustment | –0– | –0– | –0– | (7,262,039 | ) | –0– | (7,262,039 | ) | |||||||||||||||||
Balance at December 31, 2001 | 23,847,694 | $ | 14,503,828 | $ | 217,594,648 | (34,411,755 | ) | $ | 19,839,488 | $ | 7,928,980 | ||||||||||||||
| Additions | |||||||||||||||||||||||||
| Net income | –0– | –0– | –0– | –0– | 23,959,828 | 23,959,828 | |||||||||||||||||||
| Sales under option plans | 166,837 | 102,297 | 1,562,041 | –0– | –0– | –0– | |||||||||||||||||||
| Employees stock purchase plan | 30,035 | 18,321 | 359,833 | –0– | –0– | –0– | |||||||||||||||||||
| Dividend reinvestment plan | 16,415 | 10,015 | 228,067 | –0– | –0– | –0– | |||||||||||||||||||
| Foreign currency translation adjustment | –0– | –0– | –0– | 19,404,517 | –0– | 19,404,517 | |||||||||||||||||||
| Deductions | |||||||||||||||||||||||||
| Dividends — $.20 per share | –0– | –0– | –0– | –0– | (5,878,169 | ) | –0– | ||||||||||||||||||
| Five-for-four stock split | 6,010,755 | 3,666,751 | (3,666,751 | ) | –0– | (19,876 | ) | –0– | |||||||||||||||||
| FAS 87 additional pension liability | –0– | –0– | –0– | (1,583,455 | ) | –0– | (1,583,455 | ) | |||||||||||||||||
Balance at December 31, 2002 | 30,071,736 | $ | 18,301,212 | $ | 216,077,838 | $ | (16,590,693 | ) | $ | 37,901,271 | $ | 41,780,890 | |||||||||||||
| Additions | �� | ||||||||||||||||||||||||
| Net income | –0– | –0– | –0– | –0– | 16,325,516 | 16,325,516 | |||||||||||||||||||
| Sales under option plans | 43,747 | 26,687 | 358,862 | –0– | –0– | –0– | |||||||||||||||||||
| Employees stock purchase plan | 53,264 | 32,490 | 441,917 | –0– | –0– | –0– | |||||||||||||||||||
| Dividend reinvestment plan | 14,509 | 8,851 | 141,193 | –0– | –0– | –0– | |||||||||||||||||||
| Foreign currency translation adjustment | –0– | –0– | –0– | 27,413,845 | –0– | 27,413,845 | |||||||||||||||||||
| FAS 87 additional pension liability | –0– | –0– | –0– | 111,708 | –0– | 111,708 | |||||||||||||||||||
| Deductions | |||||||||||||||||||||||||
| Dividends — $.20 per share | –0– | –0– | –0– | –0– | (6,026,349 | ) | –0– | ||||||||||||||||||
Balance at December 31, 2003 | 30,183,256 | $ | 18,369,240 | $ | 217,019,810 | $ | 10,934,860 | $ | 48,200,438 | $ | 43,851,069 | ||||||||||||||
The accompanying notes are an integral part of these statements.
18
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Statements of Consolidated Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
| 2003 | 2002 | 2001 | |||||||||||||
Cash Flows from Operating Activities | |||||||||||||||
| Net income | $ | 16,325,516 | $ | 23,959,828 | $ | 15,191,019 | |||||||||
| Items not affecting use of cash | |||||||||||||||
| Depreciation | 34,777,734 | 34,550,402 | 33,361,480 | ||||||||||||
| Amortization of goodwill | –0– | –0– | 9,223,542 | ||||||||||||
| Amortization of other intangibles | 1,777,258 | 1,163,688 | 1,320,197 | ||||||||||||
| Deferred income taxes | 4,415,099 | 4,526,372 | 1,632,285 | ||||||||||||
| Cash flow provided by (used for) working capital | |||||||||||||||
| Accounts receivable | 4,855,862 | 553,688 | 18,608,281 | ||||||||||||
| Inventories | 2,975,650 | 741,868 | 6,359,412 | ||||||||||||
| Prepaid expenses | 908,618 | (1,481,808 | ) | (1,220,662 | ) | ||||||||||
| Accounts payable and accrued expenses | (14,901,650 | ) | 1,491,683 | (7,674,145 | ) | ||||||||||
| Net cash provided by operating activities | 51,134,087 | 65,505,721 | 76,801,409 | ||||||||||||
Cash Flows from Investing Activities | |||||||||||||||
| Acquisition of businesses, net of cash acquired | (776,058 | ) | (2,819,901 | ) | (7,480,000 | ) | |||||||||
| Additions to property, plant and equipment, net | (20,009,908 | ) | (28,389,133 | ) | (25,182,509 | ) | |||||||||
| Other | 439,237 | (298,226 | ) | (1,807,899 | ) | ||||||||||
| Net cash used for investing activities | (20,346,729 | ) | (31,507,260 | ) | (34,470,408 | ) | |||||||||
Cash Flows from Financing Activities | |||||||||||||||
| Long-term debt proceeds | 100,000,000 | –0– | –0– | ||||||||||||
| Repayment of long-term debt | (41,500,000 | ) | (12,000,000 | ) | (12,000,000 | ) | |||||||||
| Net borrowing (repayments) — on credit facility | (79,264,114 | ) | (23,773,496 | ) | (21,144,207 | ) | |||||||||
| Deferred financing costs | (1,042,232 | ) | –0– | –0– | |||||||||||
| Cash dividends paid | (6,026,349 | ) | (5,878,169 | ) | (5,454,868 | ) | |||||||||
| Proceeds from issuance of common stock | 1,010,000 | 2,280,574 | 1,165,055 | ||||||||||||
| Net cash used for financing activities | (26,822,695 | ) | (39,371,091 | ) | (37,434,020 | ) | |||||||||
Increase (Decrease) in Cash | 3,964,663 | (5,372,630 | ) | 4,896,981 | |||||||||||
| Cash at January 1 | 1,702,334 | 7,074,964 | 2,177,983 | ||||||||||||
| Cash at December 31 | $ | 5,666,997 | $ | 1,702,334 | $ | 7,074,964 | |||||||||
Supplemental Disclosures of Cash Flow Information | |||||||||||||||
| Cash paid during the year for | |||||||||||||||
| Interest | $ | 9,555,766 | $ | 12,023,900 | $ | 19,715,515 | |||||||||
| Income taxes | $ | 4,809,142 | $ | 11,617,883 | $ | 11,478,129 | |||||||||
The accompanying notes are an integral part of these statements.
19
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (Company). Significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Subsequent Event
On March 10, 2004, the Company completed the acquisition of the shares of ATP Automotive, Inc. (ATP), a subsidiary of Applied Tech, LLC, a Delaware limited liability company. ATP, comprised of subsidiaries Michigan Rubber Products (MRP) and WEK Industries (WEK), is a manufacturer of molded rubber products for the automotive industry with approximately 600 employees, two manufacturing facilities in Michigan and Ohio, and 2003 sales of approximately $60 million. Total purchase price was $60 million, which includes the assumption of ATP debt outstanding as of the date of acquisition. The acquisition was financed using a portion of the proceeds from a new $225 million Credit Facility which the Company entered into on February 27, 2004 (see Long-Term Debt and Credit Agreements footnote). The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values during 2004 when appraisals, other studies and additional information become available. The results of ATP will be included in the consolidated results of operations of the Company from the date of acquisition.
Translation of Foreign Currencies
All balance sheet accounts of consolidated foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period and income statement items are translated at an average currency exchange rate. The resulting translation adjustment is recorded in other comprehensive income as a separate component of shareholders’ equity.
Financial Instruments
Financial instruments, consisting of trade and notes receivable, and long-term debt, including borrowings at variable interest rates, are considered to have a fair value which approximates carrying value at December 31, 2003.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk primarily consist of trade accounts receivable. The concentration of accounts receivable credit risk is generally limited based on the Company’s diversified operations, with customers spread across many industries and countries. No single customer accounts for more than two percent of total sales and no country, outside of the United States, accounts for more than ten percent of total sales. In addition, management has established certain requirements that customers must meet before credit is extended. The financial condition of customers is continually monitored and collateral is usually not required.
COSO control criteria.Inventories
Inventories are stated at the lower of cost or market. For approximately 34 percent of its inventories, the Company uses the last-in, first-out (LIFO) method of determining cost. All other inventories are valued at the first-in, first-out (FIFO) method of determining cost.
20
Notes to Consolidated Financial Statements — Continued
If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $4,074,000, $4,455,000 and $3,731,000 higher than reported at December 31, 2003, 2002 and 2001, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization on the basis of the straight-line method over the estimated useful lives of the assets as follows:
Long-Lived Assets
The Company reviews its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or discounted future cash flows resulting from the use and ultimate disposition of the asset. There were no impairment charges recorded in connection with the long-lived assets in 2003, 2002 or 2001.
Revenue Recognition
The Company recognizes revenue from sales when goods are shipped and title has passed to the customer.
Income Taxes
Deferred income taxes are provided to recognize differences between financial statement and income tax reporting, principally for depreciation, non-deductible reserves and certain valuation allowances. No provision is made for U.S. income taxes on the unremitted earnings of foreign subsidiaries as the Company’s intention is to indefinitely reinvest these earnings in the operations of these subsidiaries.
Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted the provisions of SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations be accounted for by the purchase method and that certain acquired intangible assets be recognized as assets apart from goodwill. No reclassification of intangible assets apart from goodwill was necessary as a result of the Company adopting the new standard.
Under the provisions of SFAS No. 142, the Company was required to perform a transitional goodwill impairment test within six months of adopting the new standard and to test for impairment on at least an annual basis thereafter. The Company conducts its annual impairment assessment of October 1. For purposes of impairment testing, the Company determines the fair value of its reporting units using discounted cash flow models and relative market multiples for comparable businesses. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill. These tests resulted in no impairment to the recorded amounts of goodwill in 2003 and 2002.
21
Notes to Consolidated Financial Statements — Continued
In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002, at which time accumulated amortization was $30.7 million. Had goodwill amortization not been recorded in 2001, income before taxes would have increased $9.2 million, while net income would have increased $7.1 million to $22.3 million and net income per share would have increased by $.24.
Net Income Per Share
Net income per share, as shown on the Statements of Consolidated Income, is determined on the basis of the weighted average number of common shares outstanding during the year, and for all periods shown basic and diluted earnings per share are identical. During the year ended December 31, 2002, the Company declared a five-for-four stock split and for the year ended December 31, 2001, the Company paid a ten percent stock dividend. All per share data has been adjusted for the stock split and stock dividends.
Stock Compensation
The Company accounts for stock compensation arrangements using the intrinsic value in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” In accordance with the intrinsic value method, the Company has not recognized any expense related to stock options, as options have only been granted with an exercise price equal to the market value of the shares at the date of the grant.
The alternative policy in SFAS No. 123, “Accounting for Stock Based Compensation,” provides that compensation expense be recognized based on the fair value of the options awarded, determined by an option pricing model. If the Company had recognized compensation expense using the fair value method under SFAS No. 123 rather than APB 25, net income would not have been materially different than reported amounts and net income per share would be identical for 2003, 2002 and 2001. In calculating the compensation expense under SFAS No. 123, the Company uses a Block Scholes option pricing model and assumes that all options will vest and be exercised at the expiration date of the grant. Other assumptions used in calculating the compensation expense for options granted in 2003 include a dividend yield of 2.3 percent, a risk free interest rate of 3.875 percent and a volatility measure based on the Company’s stock beta of .85.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure,” as an amendment to SFAS No. 123. SFAS No. 148 provides for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements to require prominent disclosure in both interim and annual financial statements about the method of accounting used for stock based employee compensation and the effect of the method on reported results. The Company adopted the disclosure provisions of SFAS No. 148 effective December 31, 2002.
Stock Options
In 1999, the Company and its shareholders adopted the 1999 Stock Plan allowing the Board of Directors to grant key employees and Directors the right to purchase Common Stock of the Company at the market price on the date of grant. In general, options granted and outstanding permit 20 percent of the shares granted to be exercised after six months, with additional vesting of 20 percent exercisable each year thereafter, with the options expiring ten years from the date of grant. At December 31, 2003, there were 1,623,885 stock option shares available for future grant. The activity listed below covers the 1999 Stock Plan, the 1997 Incentive Stock Plan and the 1992 Stock Option Plan.
22
Notes to Consolidated Financial Statements — Continued
Options granted during the past three years:
| Year | Shares | Price | ||||||
2003 | 243,150 | $ | 8.80 to $ 9.99 | |||||
| 2002 | 6,250 | $ | 12.32 | |||||
| 2001 | 300,212 | $ | 8.36 to $10.40 | |||||
Options exercised during the past three years:
| Year | Shares | Price | ||||||
2003 | 33,260 | $ | 8.36 to $9.99 | |||||
| 2002 | 255,000 | $ | 8.18 to $9.92 | |||||
| 2001 | 72,098 | $ | 8.55 to $9.83 | |||||
In addition, options totaling 321,036 and 20,688 expired during the years ended December 31, 2003 and 2002, respectively. Options outstanding and exercisable at December 31, 2003, 2002 and 2001 were as follows:
| Range of | Weighted Average | |||||||||||||||
| Year | Outstanding | Exercise Prices | Exercisable | Exercise Price | ||||||||||||
2003 | 800,725 | $ | 8.18 to $13.90 | 488,369 | $ | 9.60 | ||||||||||
| 2002 | 911,871 | $ | 8.18 to $15.78 | 675,288 | $ | 10.51 | ||||||||||
| 2001 | 1,181,309 | $ | 8.18 to $15.78 | 743,719 | $ | 10.03 | ||||||||||
Long-Term Debt and Credit Agreements
Long-term debt at December 31, consisted of the following:
| 2003 | 2002 | |||||||
| Revolving credit agreement | $ | 98,900,919 | $ | 174,179,776 | ||||
| Term loan | 0 | 41,500,000 | ||||||
| Senior Notes | 100,000,000 | 0 | ||||||
| Industrial revenue bonds | 4,000,000 | 4,000,000 | ||||||
| Other | 12,553,909 | 13,233,104 | ||||||
| 215,454,828 | 232,912,880 | |||||||
| Less current portion | 4,452,137 | 20,690,265 | ||||||
| $ | 211,002,691 | $ | 212,222,615 | |||||
At December 31, 2003, the Company had a Multi-Currency Loan Agreement with a group of banks providing a revolving credit facility in five currencies up to $228 million. At December 31, 2003, the amount borrowed was $89.0 million U.S. dollars and $9.9 million Canadian dollars at an average interest rate of 3.07 percent.
On February 27, 2004, the Company entered into a new unsecured revolving credit facility (the Credit Facility) which enables the Company to borrow up to $225 million, including up to $50 million available for multi-currency loans in freely traded foreign currencies. Borrowing under the new Credit Facility were used to refinance the Company’s existing Multi-Currency Loan Agreement, fund the acquisition of ATP Automotive, Inc. and for general corporate purposes. Interest is based on the Prime rate or Euro dollar rate (for U.S. or Canadian dollar loans) or Eurocurrency Rate (for other multi-currency loans) plus an applicable margin that varies depending on the Company’s ratio of total debt to earnings before interest, taxes, depreciation and
23
Notes to Consolidated Financial Statements — Continued
amortization (EBITDA). In addition, the Company pays a quarterly facility fee. The Credit Facility expires in February 2009.
In December 2003, the Company issued $100 million in Senior Unsecured Notes (the Notes) consisting of $65 million of notes with an interest rate of 6.08 percent and a 7 year maturity and $35 million with an interest rate of 6.81 percent and a 10 year maturity. Proceeds from the issuance of the Notes were used to pay down term loan and revolving credit facility borrowing outstanding at that time.
In addition, at December 31, 2003, the Company had $16.6 million of other long-term debt consisting of industrial revenue bonds, certain indebtedness of acquired companies, and in-country credit facilities for the Company’s international operations. The weighted average interest rate on these amounts outstanding at December 31, 2003, was 4.01 percent.
The Credit Facility and Notes contain customary covenants including the maintenance of minimum consolidated net worth, certain financial ratios regarding leverage and interest coverage, and limitation on annual capital expenditures. The Company was in compliance with all of its debt covenant requirements at December 31, 2003.
Maturities of long-term debt under the loan agreements in place at December 31, 2003 for the five years ending December 31, 2008 were approximately: $4,452,000 in 2004; $101,102,000 in 2005; $962,000 in 2006; $932,000 in 2007 and $894,000 in 2008.
Maturities of long-term debt, adjusted to reflect payments under the new Credit Facility, for the five years ending December 31, 2008 are approximately: $4,452,000 in 2004; $2,200,000 in 2005; $962,000 in 2006; $932,000 in 2007 and $894,000 in 2008.
Retirement Plans
The Company and certain of its subsidiaries have pension and profit sharing plans covering substantially all of their employees. Two plans are defined benefit plans with benefits primarily based upon a fixed amount for each completed year of service as defined.
For the Company’s defined benefit plans, the net periodic pension cost was as follows:
| 2003 | 2002 | 2001 | ||||||||||
| Service cost | $ | 198,305 | $ | 188,990 | $ | 179,192 | ||||||
| Interest cost | 319,292 | 303,202 | 288,493 | |||||||||
| Expected return on assets | (239,885 | ) | (261,029 | ) | (291,192 | ) | ||||||
| Amortization of transition obligation | (2,945 | ) | (2,942 | ) | 2,525 | |||||||
| Amortization of prior service cost | 42,776 | 42,776 | 42,776 | |||||||||
| Amortization of net loss | 76,748 | 14,032 | 0 | |||||||||
| Net periodic pension cost | $ | 394,291 | $ | 285,029 | $ | 221,794 | ||||||
24
Notes to Consolidated Financial Statements — Continued
The reconciliation of changes in projected benefit obligations are as follows:
| 2003 | 2002 | 2001 | ||||||||||
| Benefit obligation at beginning of year | $ | 4,884,755 | $ | 4,485,321 | $ | 3,980,688 | ||||||
| Service cost | 198,305 | 188,990 | 179,192 | |||||||||
| Interest cost | 319,292 | 303,202 | 288,493 | |||||||||
| Plan amendments | 0 | 0 | 0 | |||||||||
| Actuarial loss | 455,307 | 66,248 | 190,309 | |||||||||
| Benefits paid | (173,472 | ) | (159,006 | ) | (153,361 | ) | ||||||
| Benefit obligation at end of year | $ | 5,684,187 | $ | 4,884,755 | $ | 4,485,321 | ||||||
The assumptions used to determine the net periodic benefit cost and benefit obligations are as follows:
| 2003 | 2002 | |||||||
| Discount Rate | 6.00 | % | 6.75 | % | ||||
| Expected long-term return of Plan Assets | 8.00 | % | 8.00 | % | ||||
Future benefit increases were not considered, as there is no substantive commitment to increase benefits. The expected long-term rate of return assumption is based on the actual historical rate of return on assets adjusted to reflect recent market conditions and future expectation consistent with the Company’s current asset allocation and investment policy.
The following table reflects the change in the fair value of the plans’ assets:
| 2003 | 2002 | 2001 | ||||||||||
| Fair value of plan assets at beginning of year | $ | 2,843,312 | $ | 3,199,226 | $ | 3,744,411 | ||||||
| Actual return on plan assets | 766,459 | (550,240 | ) | (380,259 | ) | |||||||
| Company contribution | 535,000 | 369,000 | 6,435 | |||||||||
| Expenses paid | (33,362 | ) | (15,668 | ) | (18,000 | ) | ||||||
| Benefits paid | (173,472 | ) | (159,006 | ) | (153,361 | ) | ||||||
| Fair value of plan assets at end of year | $ | 3,937,937 | $ | 2,843,312 | $ | 3,199,226 | ||||||
The weighted average asset allocations for the Company’s defined benefit plans at December 31, 2003 and 2002, are as follows:
| 2003 | 2002 | |||||||
| Equities securities | 82 | % | 76 | % | ||||
| Debt Securities | 17 | 21 | ||||||
| Cash | 1 | 3 | ||||||
| Total | 100 | % | 100 | % | ||||
The Company’s investment policy related to the defined benefit plans is to provide for aggressive capital growth with moderate income production. Capital growth through equity exposure is emphasized which is balanced with small to moderate use of fixed income investments. Equity exposure is limited to a maximum of 85 percent of the total portfolios.
25
Notes to Consolidated Financial Statements — Continued
The following table provides a reconciliation of the funded status of the plans, both of which were underfunded at December 31, 2003 and 2002:
| 2003 | 2002 | |||||||
| Funded status | $ | (1,746,250 | ) | $ | (2,041,443 | ) | ||
| Unrecognized liability | 0 | (2,946 | ) | |||||
| Unrecognized prior service cost | 318,925 | 361,702 | ||||||
| Unrecognized net loss | 1,471,748 | 1,586,401 | ||||||
| Net amount recognized | $ | 44,423 | $ | (96,286 | ) | |||
Under the provisions of SFAS No. 87, the Company recorded an additional minimum pension liability of $1,790,673 at December 31, 2003, of which $1,471,748 has been recorded as a component of accumulated other comprehensive income and $318,925 as an intangible pension asset. The accumulated benefit obligation for the defined benefit plans was $5,684,187 and $4,884,755 at December 31, 2003 and 2002, respectively. The Company expects to contribute approximately $996,000 to its defined benefit pension plans in 2004.
A profit sharing plan is maintained for the Company’s U.S. based employees, not covered under defined benefit plans, who have met eligibility service requirements. The amount to be contributed by the Company under the profit sharing plan is determined at the discretion of the Board of Directors. Profit sharing plan expense was $1,450,000, $1,700,000, and $1,500,000 for the years 2003, 2002 and 2001, respectively. In addition, the Company has a Supplemental Executive Retirement Plan (SERP) to provide participating senior executives with retirement benefits in addition to amounts payable under the profit sharing plan. Expense related to the SERP was $1,044,000, $253,000 and $108,000 for the years 2003, 2002 and 2001, respectively. The SERP is unfunded.
Leases
The Company and certain of its subsidiaries are committed under non-cancelable operating leases involving certain facilities and equipment. Aggregate rental expense for all leased assets was $10,836,000, $9,395,000, and $9,493,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
Future minimum rental commitments for the next five years are as follows:
| Year Ended | ||||
| December 31, | Commitment | |||
| 2004 | $ | 9,491,000 | ||
| 2005 | 8,472,000 | |||
| 2006 | 6,616,000 | |||
| 2007 | 5,349,000 | |||
| 2008 | 4,974,000 | |||
| Thereafter | 3,887,000 | |||
26
Notes to Consolidated Financial Statements — Continued
Income Taxes
The effective tax rate was 33.8% in 2003, 40.6% in 2002 and 44.2% in 2001. A reconciliation of the Federal statutory income tax rate to the Company’s effective tax rate is as follows:
| Percent of Pre-Tax Income | ||||||||||||
| 2003 | 2002 | 2001 | ||||||||||
| Statutory Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State Income Taxes — net of Federal tax benefit | 3.1 | 4.2 | 3.8 | |||||||||
| Foreign tax rate differential | (4.7 | ) | 1.1 | 2.1 | ||||||||
| Effect of non-deductible depreciation and amortization | 0.0 | 0.0 | 2.3 | |||||||||
| Other | 0.4 | 0.3 | 1.0 | |||||||||
| Effective tax rate for the year | 33.8 | % | 40.6 | % | 44.2 | % | ||||||
Income before income taxes was attributable to the following sources:
| (Dollar in thousands) | ||||||||||||
| 2003 | 2002 | 2001 | ||||||||||
| United States | $ | 16,917 | $ | 34,231 | $ | 23,799 | ||||||
| Foreign | 7,730 | 6,130 | 3,441 | |||||||||
| Totals | $ | 24,647 | $ | 40,361 | $ | 27,240 | ||||||
Income taxes consisted of the following:
| 2003 | 2002 | 2001 | ||||||||||||||||||||||
| Current | Deferred | Current | Deferred | Current | Deferred | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
| Federal | $ | 2,904 | $ | 2,694 | $ | 7,269 | $ | 3,921 | $ | 6,518 | $ | 2,140 | ||||||||||||
| Foreign | 163 | 1,376 | 2,471 | 123 | 2,248 | (455 | ) | |||||||||||||||||
| State and local | 839 | 345 | 2,135 | 482 | 1,651 | (53 | ) | |||||||||||||||||
| $ | 3,906 | $ | 4,415 | $ | 11,875 | $ | 4,526 | $ | 10,417 | $ | 1,632 | |||||||||||||
27
Notes to Consolidated Financial Statements — Continued
Significant components of the Company’s deferred taxes as of December 31, 2003 and 2002 are as follows:
| 2003 | 2002 | ||||||||
(Dollars in thousands) | |||||||||
| Deferred income tax liabilities | |||||||||
| Property, plant and equipment | $ | 22,483 | $ | 20,101 | |||||
| Tax deductible goodwill | 3,911 | 2,206 | |||||||
| Employee benefit trust | 602 | 556 | |||||||
| Other | 2,473 | 1,641 | |||||||
| 29,469 | 24,504 | ||||||||
| Deferred income tax assets | |||||||||
| Compensation | 3,683 | 3,282 | |||||||
| Inventory valuation | 1,150 | 1,108 | |||||||
| Allowance for uncollectible accounts | 817 | 858 | |||||||
| Non-deductible accruals | 1,895 | 2,055 | |||||||
| 7,545 | 7,303 | ||||||||
| Net deferred income tax liability | $ | 21,924 | $ | 17,201 | |||||
In addition, the Company has reserved the deferred tax benefit of certain tax loss carryforwards in foreign countries that if realized would reduce future income tax expense by approximately $6,504,000 at December 31, 2003 and $5,977,000 at December 31, 2002. Of these carryforwards at December 31, 2003, $2,451,000 expires in various years from 2004 through 2008, and $4,053,000 has no expiration date. The Company also has U.S. foreign tax credit carryforwards of approximately $800,000 expiring in 2004.
Industry Segments
The Company’s business units have separate management teams and offer different products and services. Using the criteria of SFAS No. 131, these business units have been aggregated into two reportable segments; distribution of aftermarket repair products and services and manufacturing of polymer products. The aggregation of business units is based on management by the chief operating decision-maker for the segment as well as similarities of production processes, distribution methods and economic characteristics (e.g. average gross margin and the impact of economic conditions on long-term financial performance).
The Company’s distribution segment is engaged in the distribution of equipment, tools and supplies used for tire servicing and automotive underbody repair. The distribution segment operates domestically through 40 branches located in major cities throughout the United States and in foreign countries through export sales and businesses in which the Company holds an equity interest.
The Company’s manufacturing segment designs, manufactures and markets a variety of polymer based plastic and rubber products. These products are manufactured primarily through the molding process in facilities throughout the United States and in Europe. Sales to external customers for manufactured plastic products were $453.0 million, $406.7 million and $411.1 million for fiscal years 2003, 2002 and 2001, respectively. Outside sales of manufactured rubber products were $49.8 million, $47.3 million and $46.0 million for fiscal years 2003, 2002 and 2001.
Operating income for each segment is based on net sales less cost of products sold, and the related selling, administrative and general expenses. In computing segment operating income, general corporate overhead expenses and interest expenses are not included. The identifiable assets of each segment include: accounts
28
Notes to Consolidated Financial Statements — Continued
receivable, inventory, net fixed assets, goodwill, patents and other intangible assets. Corporate assets are principally land, buildings, computer equipment and cash.
Total sales from foreign business units and export were approximately $210.3 million, $182.5 million and $182.0 million for the years 2003, 2002 and 2001, respectively. There are no individual foreign countries for which sales are material. Long-lived assets in foreign countries consisting primarily of property, plant and equipment and goodwill were approximately $156.8 million at December 31, 2003 and $133.9 million at December 31, 2002. No single customer accounts for 10 percent or more of total company net sales or the net sales of either business segment.
| 2003 | 2002 | 2001 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Net Sales | ||||||||||||
| Distribution of aftermarket repair products and services | $ | 158,317 | $ | 154,028 | $ | 150,932 | ||||||
| Manufacturing of polymer products | 517,311 | 468,633 | 470,387 | |||||||||
| Intra-segment elimination | (14,537 | ) | (14,670 | ) | (13,369 | ) | ||||||
| $ | 661,091 | $ | 607,991 | $ | 607,950 | |||||||
Income Before Income Taxes | ||||||||||||
| Distribution of aftermarket repair products and services | $ | 12,537 | $ | 16,970 | $ | 14,733 | ||||||
| Manufacturing of polymer products | 33,831 | 45,091 | 40,597 | |||||||||
| Corporate | (11,647 | ) | (9,890 | ) | (9,391 | ) | ||||||
| Interest expense-net | (10,074 | ) | (11,810 | ) | (18,699 | ) | ||||||
| $ | 24,647 | $ | 40,361 | $ | 27,240 | |||||||
Identifiable Assets | ||||||||||||
| Distribution of aftermarket repair products and services | $ | 44,077 | $ | 50,934 | $ | 48,993 | ||||||
| Manufacturing of polymer products | 576,261 | 545,970 | 528,775 | |||||||||
| Corporate | 1,644 | 6,008 | 4,558 | |||||||||
| Intra-segment elimination | (355 | ) | (430 | ) | (160 | ) | ||||||
| $ | 621,627 | $ | 602,482 | $ | 582,166 | |||||||
Capital Additions, Net | ||||||||||||
| Distribution of aftermarket repair products and services | $ | 46 | $ | 52 | $ | 29 | ||||||
| Manufacturing of polymer products | 19,025 | 27,895 | 24,950 | |||||||||
| Corporate | 939 | 442 | 206 | |||||||||
| $ | 20,010 | $ | 28,389 | $ | 25,185 | |||||||
Depreciation | ||||||||||||
| Distribution of aftermarket repair products and services | $ | 383 | $ | 433 | $ | 483 | ||||||
| Manufacturing of polymer products | 33,684 | 33,390 | 32,172 | |||||||||
| Corporate | 711 | 727 | 706 | |||||||||
| $ | 34,778 | $ | 34,550 | $ | 33,361 | |||||||
29
MYERS INDUSTRIES, INC.
Employee Stock Purchase Plan
Contents
Report of Independent Public Accountants for the Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan
Financial Statements for the Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan:
Notes to Financial Statements for the Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan
30
This report is a copy and has not been reissued by Arthur Andersen, LLP.
This report references the Myers Industries, Inc. Employee Stock Purchase Plan Statement of Assets available for plan benefits as of December 31, 2000 and the related statement of changes in assets available for plan for the year ended December 31, 1999, which are not presented herein.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Myers Industries, Inc. EmployeeStock Purchase Plan Administrator:
We have audited the accompanying statements of assets available for plan benefits of the Myers Industries, Inc. Employee Stock Purchase Plan as of December 31, 2001 and 2000, and the related statements of changes in assets available for plan benefits for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for plan benefits of the Myers Industries, Inc. Employee Stock Purchase Plan as of December 31, 2001 and 2000, and the changes in its assets available for plan benefits for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Cleveland, Ohio,
31
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
Myers Industries, Inc.Employee Stock Purchase Plan Administrator:
We have audited the accompanying statement of assets available for plan benefits of the Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan as of December 31, 2003 and 2002, and the related statements of changes in assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for plan benefits of the Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan as of December 31, 2003 and 2002, and the changes in its assets available for plan benefits for the years then ended, in conformity with accounting principles generally accepted in the United States.
Akron, Ohio,
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MYERS INDUSTRIES, INC.
Statements of Assets Available for Plan Benefits
| 2003 | 2002 | |||||||
| Receivable from Trustee (Myers Industries, Inc.) | $ | 109,202 | $ | 113,348 | ||||
Statements of Changes in Assets Available for Plan Benefits
| 2003 | 2002 | ||||||||
| Contributions: | |||||||||
| Assets Available for Plan Benefits at beginning of year | $ | 113,348 | $ | 105,837 | |||||
| Participants’ contributions during the year | 470,722 | 456,979 | |||||||
| Assets Available for Stock Purchases | 584,070 | 562,816 | |||||||
| Less: | |||||||||
| Assets Used for Stock Purchases | (474,868 | ) | (449,468 | ) | |||||
| Assets Available for Plan Benefits at End of Year | $ | 109,202 | $ | 113,348 | |||||
See the accompanying notes to financial statements.
33
MYERS INDUSTRIES, INC.
Notes to Financial Statements
1. Description of Plan
The following description of the Myers Industries, Inc. Amended and Restated Employee (“Company”) Stock Purchase Plan (“Stock Plan”) provides only general information. Participants should refer to the Plan Agreement and Prospectus for the Stock Plan for a more complete description of the Plan’s provisions.
(a) General. The shareholders of the Company approved the adoption of a nonqualified and a qualified Employee Stock Purchase Plan. The Stock Plan is designed to encourage, facilitate and provide employees with an opportunity to share in the favorable performance of the Company through ownership of the Company’s Common Stock. The total number of shares of the Common Stock which may be sold under the Stock Plan is currently limited to 188,176 shares.
(b) Purpose. The purpose of the Stock Plan is to provide employees (including officers) of the Company and its subsidiaries with an opportunity to purchase Common Stock through payroll deductions.
(c) Administration. The Stock Plan is administered by a committee appointed by the Board of Directors. All questions of interpretation or application of the Stock Plan are determined by the Board of Directors (or its appointed committee) and its decisions are final, conclusive and binding upon all participants.
(d) Eligibility and Participation. Any permanent employee (including an officer) who has been employed for at least one calendar year by the Company, or its subsidiaries who have adopted the Stock Plan, is eligible to participate in the Stock Plan, provided that such employee is employed by the Company on the date his participation is effective and subject to limitations on stock ownership described in the Stock Plan. Eligible employees become participants in the Stock Plan by delivering to the Company a subscription agreement authorizing payroll deductions prior to the commencement of the applicable offering period.
(e) Offering Dates. The Stock Plan is implemented by one offering during each calendar quarter. Offering periods commence on the last day of each calendar quarter. The Board of Directors has the power to alter the duration of the offering periods without shareholder approval.
(f) Purchase Price. The price at which shares may be purchased in an offering under the Stock Plan is 90% of the fair market value of the Common Stock on the last day of the prior calendar quarter. The fair market value of the Common Stock on a given date is the closing price for that date as listed on the American Stock Exchange.
(g) Payroll Deductions. The purchase price of the shares to be acquired under the Stock Plan are accumulated by payroll deductions over the offering period. The rate of deductions may not be less than five dollars ($5.00) per week or exceed 10% of a participant’s compensation, and the aggregate of all payroll deductions during the offering may not exceed 10% of the participant’s aggregate compensation for the offering period. A participant may discontinue their participation in the Stock Plan or may decrease or increase the rate of payroll deductions at any time during the offering period by filing with the Company a new authorization for payroll deductions.
All payroll deductions made for a participant are credited to their account under the Stock Plan and are deposited with the general funds of the Company to be used for any corporate purpose. The amount by which an employee’s payroll deductions exceed the amount required to purchase whole shares will be placed in a suspense account for the employee with no interest thereon and rolled over into the next offering period.
(h) Withdrawal. A participant in the Stock Plan may terminate their interest in a given offering in whole, but not in part, by giving written notice to the Company of their election to withdraw at any time prior to the end of the applicable offering period. Such withdrawal automatically terminates the participant’s
34
Employee Stock Purchase Plan
Notes to Financial Statements — (Continued)
interest in that offering, but does not have any effect upon such participant’s eligibility to participate in subsequent offerings under the Stock Plan.
(i) Termination of Employment. Termination of a participant’s employment for any reason, including retirement or death, cancels his or her participation in the Stock Plan immediately.
(j) Nonassignability. No rights or accumulated payroll deductions of an employee under the Stock Plan may be pledged, assigned, transferred or otherwise disposed of in any way for any reason, other than on account of death. Any attempt to do so may be treated by the Company as an election to withdraw from the Stock Plan.
(k) Amendment and Termination of the Plan. The Board of Directors may at any time amend or terminate the Stock Plan. Except as provided above, no amendment may be made to the Stock Plan without prior approval of the shareholders if such amendment would increase the number of shares reserved under the Stock Plan, permit payroll deductions at a rate in excess of 10% of a participant’s compensation, materially modify the eligibility requirements or materially increase the benefits which may accrue to participants under the Stock Plan.
(l) Taxation. Participants in the Stock Plan, which is nonqualified for federal income tax purposes, are taxed currently on the 10% discount in the purchase price granted by the Stock Plan in the year in which stock is purchased. The 10% discount is treated as ordinary income to the participant and that amount is currently deductible by the Company to the extent the participant’s total compensation from the Company is within the “reasonable compensation” limits imposed by Section 162 of the Internal Revenue Code of 1986, as amended.
(a) Basis of Presentation. The accompanying statements of assets available for plan benefits and statements of changes in assets available for plan benefits are prepared on the accrual basis of accounting.
(b) Administrative Expenses. Administrative costs and expenses are absorbed by the Trustee.
35
On June 13, 2002, the Company filed a Current Report on Form 8-K reporting that the Company’s Audit Committee of the Board of Directors terminated Arthur Andersen LLP and appointed Ernst & Young LLP as the Company’s independent auditors for the Company’s fiscal year ended December 31, 2002.
Akron, Ohio
April 29, 2005
The Audit Committee of the Board of Directors selects the Company’s independent accountants. On June 13, 2002 the Audit Committee terminated Arthur Andersen LLP as its independent auditors. Simultaneously with the termination of Arthur Andersen LLP, the Audit Committee appointed Ernst & Young LLP as the Company’s independent auditors. The appointment of Ernst & Young LLP was made after significant consideration and review by the Audit Committee, and concluded a thorough and deliberate evaluation including discussions with the Board of Directors and management.
The reports of Arthur Andersen LLP on the Company’s financial statements for the fiscal years ended December 31, 2000 and 2001 did not contain an adverse opinion, disclaimer of opinion or qualification or modification as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2000 and 2001 and during the subsequent interim period, there were no disagreements with Arthur Andersen LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures. During the fiscal years ended December 31, 2000 and 2001 and during the subsequent interim period, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).
Simultaneously with the dismissal of Arthur Andersen LLP, the Audit Committee appointed Ernst & Young LLP as the Company’s independent auditors. During the years ended December 31, 2000 and 2001 and through the date of the Audit Committee’s decision, the Company did not consult Ernst & Young LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any matter that was either the subject of disagreement on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures or a reportable event as defined in Item 304 (a)(1)(v) of Regulation S-K.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2003. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2003.
PART III
For information about the directors of the Registrant, see “Election of Directors” on pages 3 through 8 of Registrant’s Proxy Statement dated March 15, 2004 (“Proxy Statement”), which is incorporated herein by reference.
Information about the Executive Officers of Registrant appears in Part I of this Report.
Disclosures by the Registrant with respect to compliance with Section 16(a) appear on page 8 of the Proxy Statement, and are incorporated herein by reference.
36
See “Executive Compensation and Other Information” on pages 9 through 13 of the Proxy Statement, which is incorporated herein by reference.
See “Principal Shareholders” and “Election of Directors” on page 22, and pages 3 through 8, respectively, of the Proxy Statement, which are incorporated herein by reference.
| (C) | ||||||||||||
| Number of Securities | ||||||||||||
| (A) | Remaining Available for | |||||||||||
| Number of Securities to | (B) | Future Issuance Under | ||||||||||
| Be Issued Upon | Weighted-average | Equity Compensation | ||||||||||
| Exercise | Exercise Price of | Plans (Excluding | ||||||||||
| of Outstanding Options, | Outstanding Options, | Securities Reflected | ||||||||||
| Plan Category | Warrants or Rights | Warrants or Rights | in Column (A)) | |||||||||
Equity Compensation Plans Approved by Security Holders(1) | 800,725 | $ | 9.60 | 1,623,885 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | –0– | –0– | –0– | |||||||||
| Total | 800,725 | $ | 9.60 | 1,623,885 | ||||||||
None.
PART IV
Required information regarding fees paid to and services provided by the Company’s independent auditor during the years ended December 31, 2003 and 2002 and the pre-approval policies and procedures of the Audit Committee of the Company’s Board of Directors is set forth on page 15 of the Proxy Statement dated March 15, 2004, which is incorporated herein by reference.
The following consolidated financial statements of the Registrant appear in Part II of this Report:
15. (A)(1) Financial Statements
37
15. (A)(2) Financial Statement Schedules
15. (A)(3) Management Contracts or Compensatory Plans or Arrangements
15. (B) Reports on Form 8-KExhibits
Exhibit Index
23(a) | Consent of Independent Registered Public Accounting Firm. |
31.1 |
15. (C) Exhibits
38
| Certification of Stephen E. Myers, | ||||
31.2 | Certification of Gregory J. Stodnick, Vice President-Finance (Chief Financial Officer) of Myers Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
______________
15.(D) FINANCIAL STATEMENTS
See subparagraph 15(a)(1) above.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| |
MYERS INDUSTRIES, INC. |
B /s/ Gregory J. Stodnick | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
GREGORY J. STODNICK | Vice President Chief Financial Officer | |||
40