UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☑ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period fromto
Commission File Number 1-8524
Myers Industries, Inc.
(Exact name of registrant as specified in its charter)
Ohio | 34-0778636 |
(State or other jurisdiction of | (IRS Employer Identification |
incorporation or organization) | Number) |
|
|
1293 South Main Street |
|
Akron, Ohio | 44301 |
(Address of principal executive offices) | (Zip code) |
(330) 253-5592
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Exchange on Which Registered | ||
Common Stock, without par value | MYE | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑ No☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☑ |
Non-Accelerated filer | ☐ | Smaller reporting company | ☐ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ .
Indicate the
The number of shares outstanding of each of the issuer’s classes of common stock, without par value, as of the latest practicable date.April 30, 2021 was 36,086,375 shares.
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TABLE OF CONTENTS
Part I — Financial Information
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
| For the Quarter Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Net sales |
| $ | 144,075 |
|
| $ | 132,676 |
|
| $ | 428,081 |
|
| $ | 427,998 |
|
| $ | 174,429 |
|
| $ | 122,250 |
|
Cost of sales |
|
| 103,336 |
|
|
| 96,758 |
|
|
| 306,056 |
|
|
| 299,373 |
|
|
| 124,016 |
|
|
| 79,767 |
|
Gross profit |
|
| 40,739 |
|
|
| 35,918 |
|
|
| 122,025 |
|
|
| 128,625 |
|
|
| 50,413 |
|
|
| 42,483 |
|
Selling, general and administrative expenses |
|
| 36,391 |
|
|
| 32,617 |
|
|
| 105,560 |
|
|
| 103,087 |
|
|
| 39,548 |
|
|
| 31,116 |
|
(Gain) loss on disposal of fixed assets |
|
| (2,763 | ) |
|
| 315 |
|
|
| (4,128 | ) |
|
| 383 |
| ||||||||
Impairment charges |
|
| — |
|
|
| — |
|
|
| 544 |
|
|
| 9,874 |
| ||||||||
Gain on disposal of fixed assets |
|
| 0 |
|
|
| (7 | ) | ||||||||||||||||
Gain on sale of notes receivable |
|
| 0 |
|
|
| (11,924 | ) | ||||||||||||||||
Operating income |
|
| 7,111 |
|
|
| 2,986 |
|
|
| 20,049 |
|
|
| 15,281 |
|
|
| 10,865 |
|
|
| 23,298 |
|
Interest expense, net |
|
| 1,785 |
|
|
| 2,015 |
|
|
| 5,545 |
|
|
| 6,087 |
|
|
| 995 |
|
|
| 1,069 |
|
Income from continuing operations before income taxes |
|
| 5,326 |
|
|
| 971 |
|
|
| 14,504 |
|
|
| 9,194 |
| ||||||||
Income before income taxes |
|
| 9,870 |
|
|
| 22,229 |
| ||||||||||||||||
Income tax expense |
|
| 2,050 |
|
|
| 547 |
|
|
| 6,088 |
|
|
| 6,422 |
|
|
| 2,565 |
|
|
| 5,503 |
|
Income from continuing operations |
|
| 3,276 |
|
|
| 424 |
|
|
| 8,416 |
|
|
| 2,772 |
| ||||||||
Income (loss) from discontinued operations, net of income tax |
|
| (19 | ) |
|
| (10 | ) |
|
| (52 | ) |
|
| (257 | ) | ||||||||
Net income |
| $ | 3,257 |
|
| $ | 414 |
|
| $ | 8,364 |
|
| $ | 2,515 |
|
| $ | 7,305 |
|
| $ | 16,726 |
|
Income per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income per common share: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.11 |
|
| $ | 0.01 |
|
| $ | 0.28 |
|
| $ | 0.09 |
|
| $ | 0.20 |
|
| $ | 0.47 |
|
Diluted |
| $ | 0.11 |
|
| $ | 0.01 |
|
| $ | 0.28 |
|
| $ | 0.09 |
|
| $ | 0.20 |
|
| $ | 0.47 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) | ||||||||
Diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) | ||||||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic |
| $ | 0.11 |
|
| $ | 0.01 |
|
| $ | 0.28 |
|
| $ | 0.08 |
| ||||||||
Diluted |
| $ | 0.11 |
|
| $ | 0.01 |
|
| $ | 0.28 |
|
| $ | 0.08 |
| ||||||||
Dividends declared per share |
| $ | 0.14 |
|
| $ | 0.14 |
|
| $ | 0.41 |
|
| $ | 0.41 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
|
| For the Quarter Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net income |
| $ | 7,305 |
|
| $ | 16,726 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 411 |
|
|
| (2,755 | ) |
Total other comprehensive income (loss) |
|
| 411 |
|
|
| (2,755 | ) |
Comprehensive income |
| $ | 7,716 |
|
| $ | 13,971 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(Dollars in thousands)
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
| $ | 16,666 |
|
| $ | 28,301 |
|
Accounts receivable, less allowances of $3,414 and $3,278, respectively |
|
| 94,619 |
|
|
| 83,701 |
|
Income tax receivable |
|
| 0 |
|
|
| 1,049 |
|
Inventories, net |
|
| 69,848 |
|
|
| 65,919 |
|
Prepaid expenses and other current assets |
|
| 9,614 |
|
|
| 4,760 |
|
Total Current Assets |
|
| 190,747 |
|
|
| 183,730 |
|
Property, plant, and equipment, net |
|
| 83,220 |
|
|
| 73,953 |
|
Right of use asset - operating leases |
|
| 20,820 |
|
|
| 18,390 |
|
Goodwill |
|
| 79,354 |
|
|
| 79,256 |
|
Intangible assets, net |
|
| 39,844 |
|
|
| 41,038 |
|
Deferred income taxes |
|
| 84 |
|
|
| 84 |
|
Other |
|
| 6,212 |
|
|
| 3,564 |
|
Total Assets |
| $ | 420,281 |
|
| $ | 400,015 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 69,933 |
|
| $ | 61,150 |
|
Accrued employee compensation |
|
| 15,589 |
|
|
| 14,499 |
|
Income taxes payable |
|
| 2,954 |
|
|
| 0 |
|
Accrued taxes payable, other than income taxes |
|
| 2,111 |
|
|
| 2,524 |
|
Accrued interest |
|
| 476 |
|
|
| 1,785 |
|
Other current liabilities |
|
| 17,871 |
|
|
| 17,936 |
|
Operating lease liability - short-term |
|
| 4,269 |
|
|
| 4,359 |
|
Finance lease liability - short-term |
|
| 487 |
|
|
| 0 |
|
Long-term debt - current portion |
|
| 0 |
|
|
| 39,994 |
|
Total Current Liabilities |
|
| 113,690 |
|
|
| 142,247 |
|
Long-term debt |
|
| 70,928 |
|
|
| 37,582 |
|
Operating lease liability - long-term |
|
| 16,300 |
|
|
| 13,755 |
|
Finance lease liability - long-term |
|
| 9,812 |
|
|
| 0 |
|
Other liabilities |
|
| 14,303 |
|
|
| 14,373 |
|
Deferred income taxes |
|
| 995 |
|
|
| 2,958 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
Serial Preferred Shares (authorized 1,000,000 shares; NaN issued and outstanding) |
|
| 0 |
|
|
| 0 |
|
Common Shares, without par value (authorized 60,000,000 shares; outstanding 36,078,884 and 35,921,025; net of treasury shares of 6,473,573 and 6,631,432, respectively) |
|
| 22,054 |
|
|
| 21,939 |
|
Additional paid-in capital |
|
| 303,127 |
|
|
| 300,852 |
|
Accumulated other comprehensive loss |
|
| (15,362 | ) |
|
| (15,773 | ) |
Retained deficit |
|
| (115,566 | ) |
|
| (117,918 | ) |
Total Shareholders’ Equity |
|
| 194,253 |
|
|
| 189,100 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 420,281 |
|
| $ | 400,015 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
|
| Quarter Ended March 31, 2021 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2021 |
| $ | 21,939 |
|
| $ | 300,852 |
|
| $ | (15,773 | ) |
| $ | (117,918 | ) |
| $ | 189,100 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,305 |
|
|
| 7,305 |
|
Foreign currency translation adjustment |
|
| 0 |
|
|
| 0 |
|
|
| 411 |
|
|
| 0 |
|
|
| 411 |
|
Shares issued under incentive plans, net of shares withheld for tax |
|
| 115 |
|
|
| 1,122 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,237 |
|
Stock compensation expense |
|
| 0 |
|
|
| 1,153 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,153 |
|
Declared dividends - $0.135 per share |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,953 | ) |
|
| (4,953 | ) |
Balance at March 31, 2021 |
| $ | 22,054 |
|
| $ | 303,127 |
|
| $ | (15,362 | ) |
| $ | (115,566 | ) |
| $ | 194,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, 2020 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2020 |
| $ | 21,785 |
|
| $ | 296,363 |
|
| $ | (16,349 | ) |
| $ | (135,117 | ) |
| $ | 166,682 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 16,726 |
|
|
| 16,726 |
|
Foreign currency translation adjustment |
|
| 0 |
|
|
| 0 |
|
|
| (2,755 | ) |
|
| 0 |
|
|
| (2,755 | ) |
Shares issued under incentive plans, net of shares withheld for tax |
|
| 43 |
|
|
| (280 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (237 | ) |
Stock compensation expense |
|
| 0 |
|
|
| 653 |
|
|
| 0 |
|
|
| 0 |
|
|
| 653 |
|
Declared dividends - $0.135 per share |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,846 | ) |
|
| (4,846 | ) |
Balance at March 31, 2020 |
| $ | 21,828 |
|
| $ | 296,736 |
|
| $ | (19,104 | ) |
| $ | (123,237 | ) |
| $ | 176,223 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
| For the Quarter Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 7,305 |
|
| $ | 16,726 |
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
| 3,966 |
|
|
| 3,553 |
|
Amortization |
|
| 1,295 |
|
|
| 2,271 |
|
Non-cash stock-based compensation expense |
|
| 1,153 |
|
|
| 653 |
|
Gain on disposal of fixed assets |
|
| 0 |
|
|
| (7 | ) |
Gain on sale of notes receivable |
|
| 0 |
|
|
| (11,924 | ) |
Other |
|
| (1,288 | ) |
|
| 241 |
|
Other long-term liabilities |
|
| 8 |
|
|
| (104 | ) |
Cash flows provided by (used for) working capital |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (10,901 | ) |
|
| (3,524 | ) |
Inventories |
|
| (3,861 | ) |
|
| (5,209 | ) |
Prepaid expenses and other current assets |
|
| (4,854 | ) |
|
| (218 | ) |
Accounts payable and accrued expenses |
|
| 13,765 |
|
|
| 2,569 |
|
Net cash provided by (used for) operating activities |
|
| 6,588 |
|
|
| 5,027 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5,238 | ) |
|
| (2,490 | ) |
Acquisition of business |
|
| (1,223 | ) |
|
| (691 | ) |
Proceeds on sale of notes receivable |
|
| 0 |
|
|
| 1,200 |
|
Net cash provided by (used for) investing activities |
|
| (6,461 | ) |
|
| (1,981 | ) |
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings from revolving credit facility |
|
| 33,000 |
|
|
| 0 |
|
Repayments of long-term debt |
|
| (40,000 | ) |
|
| 0 |
|
Payments on finance lease |
|
| (40 | ) |
|
| 0 |
|
Cash dividends paid |
|
| (4,906 | ) |
|
| (4,899 | ) |
Proceeds from issuance of common stock |
|
| 1,900 |
|
|
| 125 |
|
Shares withheld for employee taxes on equity awards |
|
| (663 | ) |
|
| (362 | ) |
Deferred financing fees |
|
| (1,095 | ) |
|
| 0 |
|
Net cash provided by (used for) financing activities |
|
| (11,804 | ) |
|
| (5,136 | ) |
Foreign exchange rate effect on cash |
|
| 42 |
|
|
| (223 | ) |
Net decrease in cash |
|
| (11,635 | ) |
|
| (2,313 | ) |
Cash at January 1 |
|
| 28,301 |
|
|
| 75,527 |
|
Cash at March 31 |
| $ | 16,666 |
|
| $ | 73,214 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income |
| $ | 3,257 |
|
| $ | 414 |
|
| $ | 8,364 |
|
| $ | 2,515 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 2,380 |
|
|
| (823 | ) |
|
| 3,491 |
|
|
| 6,009 |
|
Total other comprehensive income (loss) |
|
| 2,380 |
|
|
| (823 | ) |
|
| 3,491 |
|
|
| 6,009 |
|
Comprehensive income (loss) |
| $ | 5,637 |
|
| $ | (409 | ) |
| $ | 11,855 |
|
| $ | 8,524 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(Dollars in thousands)
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
| $ | 4,511 |
|
| $ | 7,888 |
|
Restricted cash |
|
| 8,650 |
|
|
| 8,635 |
|
Accounts receivable, less allowances of $1,375 and $1,563, respectively |
|
| 88,278 |
|
|
| 73,818 |
|
Inventories |
|
|
|
|
|
|
|
|
Finished and in-process products |
|
| 31,254 |
|
|
| 31,826 |
|
Raw materials and supplies |
|
| 17,718 |
|
|
| 14,197 |
|
|
|
| 48,972 |
|
|
| 46,023 |
|
Prepaid expenses and other current assets |
|
| 2,881 |
|
|
| 4,787 |
|
Total Current Assets |
|
| 153,292 |
|
|
| 141,151 |
|
Other Assets |
|
|
|
|
|
|
|
|
Goodwill |
|
| 60,048 |
|
|
| 59,219 |
|
Intangible assets, net |
|
| 42,377 |
|
|
| 47,994 |
|
Deferred income taxes |
|
| 253 |
|
|
| 216 |
|
Notes receivable |
|
| 18,632 |
|
|
| 18,275 |
|
Other |
|
| 6,871 |
|
|
| 3,347 |
|
|
|
| 128,181 |
|
|
| 129,051 |
|
Property, Plant and Equipment, at Cost |
|
|
|
|
|
|
|
|
Land |
|
| 7,973 |
|
|
| 8,916 |
|
Buildings and leasehold improvements |
|
| 59,925 |
|
|
| 65,566 |
|
Machinery and equipment |
|
| 285,189 |
|
|
| 319,606 |
|
|
|
| 353,087 |
|
|
| 394,088 |
|
Less allowances for depreciation and amortization |
|
| (261,153 | ) |
|
| (282,606 | ) |
Property, plant and equipment, net |
|
| 91,934 |
|
|
| 111,482 |
|
Total Assets |
| $ | 373,407 |
|
| $ | 381,684 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(Dollars in thousands)
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 61,990 |
|
| $ | 48,988 |
|
Accrued expenses |
|
|
|
|
|
|
|
|
Employee compensation |
|
| 17,921 |
|
|
| 11,861 |
|
Taxes, other than income taxes |
|
| 2,185 |
|
|
| 2,178 |
|
Accrued interest |
|
| 1,731 |
|
|
| 3,202 |
|
Other current liabilities |
|
| 14,493 |
|
|
| 13,083 |
|
Total Current Liabilities |
|
| 98,320 |
|
|
| 79,312 |
|
Long-term debt |
|
| 158,010 |
|
|
| 189,522 |
|
Other liabilities |
|
| 7,616 |
|
|
| 9,235 |
|
Deferred income taxes |
|
| 11,729 |
|
|
| 10,582 |
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
Serial Preferred Shares (authorized 1,000,000 shares; none issued and outstanding) |
|
| — |
|
|
| — |
|
Common Shares, without par value (authorized 60,000,000 shares; outstanding 30,301,721 and 30,019,561; net of treasury shares of 7,650,736 and 7,932,896, respectively) |
|
| 18,418 |
|
|
| 18,234 |
|
Additional paid-in capital |
|
| 207,118 |
|
|
| 202,033 |
|
Accumulated other comprehensive loss |
|
| (30,683 | ) |
|
| (34,174 | ) |
Retained deficit |
|
| (97,121 | ) |
|
| (93,060 | ) |
Total Shareholders’ Equity |
|
| 97,732 |
|
|
| 93,033 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 373,407 |
|
| $ | 381,684 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2017 |
| $ | 18,234 |
|
| $ | 202,033 |
|
| $ | (34,174 | ) |
| $ | (93,060 | ) |
| $ | 93,033 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,364 |
|
|
| 8,364 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 3,491 |
|
|
| — |
|
|
| 3,491 |
|
Shares issued under incentive plans, net of shares withheld for tax |
|
| 184 |
|
|
| 2,067 |
|
|
| — |
|
|
| — |
|
|
| 2,251 |
|
Stock compensation expense |
|
| — |
|
|
| 3,018 |
|
|
| — |
|
|
| — |
|
|
| 3,018 |
|
Declared dividends - $0.41 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,425 | ) |
|
| (12,425 | ) |
Balance at September 30, 2017 |
| $ | 18,418 |
|
| $ | 207,118 |
|
| $ | (30,683 | ) |
| $ | (97,121 | ) |
| $ | 97,732 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 8,364 |
|
| $ | 2,515 |
|
Income (loss) from discontinued operations, net of income taxes |
|
| (52 | ) |
|
| (257 | ) |
Income from continuing operations |
|
| 8,416 |
|
|
| 2,772 |
|
Adjustments to reconcile income from continuing operations to net cash provided by (used for) operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
| 16,758 |
|
|
| 18,465 |
|
Amortization |
|
| 6,764 |
|
|
| 7,428 |
|
Accelerated depreciation associated with restructuring activities |
|
| 2,018 |
|
|
| — |
|
Non-cash stock-based compensation expense |
|
| 2,873 |
|
|
| 2,804 |
|
(Gain) loss on disposal of fixed assets |
|
| (4,128 | ) |
|
| 383 |
|
Deferred taxes |
|
| 101 |
|
|
| (1,985 | ) |
Accrued interest income on note receivable |
|
| (983 | ) |
|
| (948 | ) |
Impairment charges |
|
| 544 |
|
|
| 9,874 |
|
Other |
|
| 29 |
|
|
| (338 | ) |
Payments on performance based compensation |
|
| (1,010 | ) |
|
| (1,794 | ) |
Other long-term liabilities |
|
| (140 | ) |
|
| (431 | ) |
Cash flows provided by (used for) working capital |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (12,754 | ) |
|
| 1,057 |
|
Inventories |
|
| (2,490 | ) |
|
| 7,349 |
|
Prepaid expenses and other current assets |
|
| 1,696 |
|
|
| 484 |
|
Accounts payable and accrued expenses |
|
| 18,416 |
|
|
| (26,520 | ) |
Net cash provided by (used for) operating activities - continuing operations |
|
| 36,110 |
|
|
| 18,600 |
|
Net cash provided by (used for) operating activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) operating activities |
|
| 36,110 |
|
|
| 18,600 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5,128 | ) |
|
| (11,490 | ) |
Proceeds from sale of property, plant and equipment |
|
| 8,075 |
|
|
| 194 |
|
Proceeds (payments) related to sale of business |
|
| — |
|
|
| (4,034 | ) |
Net cash provided by (used for) investing activities - continuing operations |
|
| 2,947 |
|
|
| (15,330 | ) |
Net cash provided by (used for) investing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) investing activities |
|
| 2,947 |
|
|
| (15,330 | ) |
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings (repayments) on credit facility |
|
| (31,397 | ) |
|
| 4,440 |
|
Cash dividends paid |
|
| (12,230 | ) |
|
| (12,143 | ) |
Proceeds from issuance of common stock |
|
| 2,524 |
|
|
| 2,582 |
|
Excess tax benefit from stock-based compensation |
|
| — |
|
|
| 139 |
|
Shares withheld for employee taxes on equity awards |
|
| (273 | ) |
|
| (925 | ) |
Deferred financing costs |
|
| (1,030 | ) |
|
| — |
|
Net cash provided by (used for) financing activities - continuing operations |
|
| (42,406 | ) |
|
| (5,907 | ) |
Net cash provided by (used for) financing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) financing activities |
|
| (42,406 | ) |
|
| (5,907 | ) |
Foreign exchange rate effect on cash |
|
| (28 | ) |
|
| 831 |
|
Net increase (decrease) in cash |
|
| (3,377 | ) |
|
| (1,806 | ) |
Cash at January 1 |
|
| 7,888 |
|
|
| 7,344 |
|
Cash at September 30 |
| $ | 4,511 |
|
| $ | 5,538 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amountsDollars in thousands, except where otherwise indicated)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.accounting principles generally accepted accounting principlesin the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.
Certain reclassifications have been made to prior year’s reported amounts in order to conform to the current year presentation.2020.
In the opinion of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2017,March 31, 2021, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine monthsquarter ended September 30, 2017March 31, 2021 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2017.2021.
Accounting Standards Adopted
In March 2016,December 2019, the FinancialFASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation - Improvementsfor Income Taxes. This ASU is intended to Employee Share-Based Payment Accounting, which involves several aspects ofsimplify the accounting for share-based payment transactions, includingincome taxes by removing certain exceptions to the income tax consequences, classification of awards as either equity or liabilities,general principles in Topic 740 and classification on the statement of cash flows. Under the new standard, income tax benefitsby clarifying and deficienciesamending existing guidance to improve consistent application. Certain amendments within this ASU are required to be recognized as income tax expense or benefit in the income statementapplied on a retrospective basis, certain other amendments are required to be applied on a modified retrospective basis and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along withall other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.amendments on a prospective basis. The Company adopted this ASUstandard effective January 1, 20172021 and elected to recognize forfeitures as they occur. The cash flow classification requirements of ASU 2016-09 were applied prospectively. The adoption of this ASU did not have a material impact on the Company’s results of operations, cash flows or financial position.
Accounting Standards Not Yet Adopted
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The ASU also allows only the service cost component to be eligible for capitalization when applicable. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company does not anticipate that adoption of this standard willdid not have a material impact on its consolidated financial statements as the pension plan is frozen.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test and requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The guidance allows for early adoption for impairment testing dates after January 1, 2017. While the Company has elected not to early adopt this guidance for fiscal year 2017 and will continue to evaluate the timing of adoption, it does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.
7
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. This ASU requires that companies include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The ASU should be applied using a retrospective transition method to each period presented and is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. To the extent there are changes in the Company’s restricted cash balances, adoption of this standard will impact the statement of cash flows.
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). This ASU requires immediate recognition of the income tax consequences of intercompany asset transfers other than inventory. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company does not anticipate that adoption of this standard will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Company does not anticipate that adoption of this standard will have a significant impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which introduces new guidance for the accounting for credit losses on instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2019 including interim periods within that reporting period, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The new standard is effective for the Company beginning January 1, 2019 and requires a modified retrospective approach. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Additional disclosures will also be required to help users of financial statements understand the nature, amount, and timing of revenue and cash flows arising from contracts. The new guidance is effective January 1, 2018, with early adoption permitted for January 1, 2017. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented, or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Consolidated Statements of Shareholders’ Equity. The Company plans to adopt the new guidance effective January 1, 2018 under the modified retrospective approach and has developed an implementation plan. As part of this plan, the Company has identified its revenue streams and substantially completed its contract review for each of these revenue streams to assess the impact of the new guidance on its consolidated financial statements. This assessment included the potential impact of whether revenue from certain product lines would be required to be recognized over time rather than at a point in time. Based on the reviews completed to date, the Company does not currently anticipate any material changes to the timing of revenue recognition from point in time, and will continue to evaluate this contract review through the date of adoption. The Company is currently designing and implementing changes to processes and controls, where necessary, to address the requirements of the new standard upon adoption. In addition, the Company is assessing what incremental disaggregated revenue disclosures will be required in the consolidated financial statements.
8
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
Translation of Foreign Currencies
All asset and liability 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 monthly at an average currency exchange rate for the period. The resulting translation adjustment is recorded in other comprehensive income (loss) as a separate component of shareholders' equity.
Fair Value Measurement
The Company follows guidance included in the Accounting Standards Codification (“ASC”)ASC 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities, as required. The guidance established a common definition for fair value to be applied under U.S. GAAP requiring the use of fair value, established a framework for measuring fair value, and expanded disclosure requirements about such fair value measurements. The guidance did not require any new fair value measurements, but rather applied to all other accounting pronouncements that require or permit fair value measurements. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
| Level 1: | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable either directly or indirectly. |
| Level 3: | Unobservable inputs for which there is little or no market data or which reflect the entity’s own assumptions. |
The Company has financial instruments, including cash, accounts receivable, accounts payable and accrued expenses. The fair value of these financial instruments approximateapproximates carrying value due to the nature and relative short maturity of these assets and liabilities.
The fair value of debt under the Company’s Loan Agreement, as defined in Note 11,12, approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of theany revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered Level 2 inputs. At September 30, 2017March 31, 2021 and December 31, 2016,2020, the aggregate fair value of the Company's $100.0 millionoutstanding fixed rate senior unsecured notes was estimated at $101.0to be $41.7 million and $98.0$80.9 million, respectively.
FactoringThe purchase price allocation associated with the November 10, 2020 acquisition of Elkhart Plastics, Inc. (“Elkhart Plastics”), as described in Note 3, required fair value measurements using unobservable inputs which are considered Level 3 inputs. The fair value of the acquired intangible assets was determined using an income approach.
6
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:
|
| Foreign Currency |
|
| Defined Benefit Pension Plans |
|
| Total |
| |||
Balance at January 1, 2021 |
| $ | (13,974 | ) |
| $ | (1,799 | ) |
| $ | (15,773 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 411 |
|
|
| 0 |
|
|
| 411 |
|
Net current-period other comprehensive income (loss) |
|
| 411 |
|
|
| 0 |
|
|
| 411 |
|
Balance at March 31, 2021 |
| $ | (13,563 | ) |
| $ | (1,799 | ) |
| $ | (15,362 | ) |
|
| Foreign Currency |
|
| Defined Benefit Pension Plans |
|
| Total |
| |||
Balance at January 1, 2020 |
| $ | (14,602 | ) |
| $ | (1,747 | ) |
| $ | (16,349 | ) |
Other comprehensive income (loss) before reclassifications |
|
| (2,755 | ) |
|
| 0 |
|
|
| (2,755 | ) |
Net current-period other comprehensive income (loss) |
|
| (2,755 | ) |
|
| 0 |
|
|
| (2,755 | ) |
Balance at March 31, 2020 |
| $ | (17,357 | ) |
| $ | (1,747 | ) |
| $ | (19,104 | ) |
Allowance for Credit Losses
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. The Company evaluates the collectability of accounts receivable based on a combination of factors. The Company reviews historical trends for credit loss as well as current economic conditions in determining an estimate for its allowance for credit losses. Additionally, in circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for credit losses is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably expects will be collected.
The Company's wholly-owned subsidiaries Plasticos Novel Do Nordeste S.A.changes in the allowance for credit losses for the quarter ended March 31, 2021 and Plasticos Novel Do Parana S.A. (collectively, "Novel") entered into a factoring agreement2020 were as follows:
|
| 2021 |
|
| 2020 |
| ||
Balance at January 1 |
| $ | 2,335 |
|
| $ | 1,356 |
|
Provision for expected credit loss, net of recoveries |
|
| 58 |
|
|
| 148 |
|
Write-offs and other |
|
| (132 | ) |
|
| (231 | ) |
Balance at March 31 | �� | $ | 2,261 |
|
| $ | 1,273 |
|
2. Revenue Recognition
The Company’s revenue by major market is as follows:
|
| For the Quarter Ended March 31, 2021 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 25,395 |
|
| $ | — |
|
| $ | — |
|
| $ | 25,395 |
|
Vehicle |
|
| 42,192 |
|
|
| — |
|
|
| — |
|
|
| 42,192 |
|
Food and beverage |
|
| 21,417 |
|
|
| — |
|
|
| — |
|
|
| 21,417 |
|
Industrial |
|
| 40,889 |
|
|
| — |
|
|
| (14 | ) |
|
| 40,875 |
|
Auto aftermarket |
|
| — |
|
|
| 44,550 |
|
|
| — |
|
|
| 44,550 |
|
Total net sales |
| $ | 129,893 |
|
| $ | 44,550 |
|
| $ | (14 | ) |
| $ | 174,429 |
|
7
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to sell, without recourse, certain of their Brazilian Real-based trade accounts receivables to unrelated third party financial institutions as part of its working capital management. The sale of these receivables accelerated the collection of cash and reduced credit exposure. Under the terms of the factoring agreements, the Company retains no rights or interest and has noUnaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
|
| For the Quarter Ended March 31, 2020 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 20,287 |
|
| $ | — |
|
| $ | — |
|
| $ | 20,287 |
|
Vehicle |
|
| 16,312 |
|
|
| — |
|
|
| — |
|
|
| 16,312 |
|
Food and beverage |
|
| 17,419 |
|
|
| — |
|
|
| — |
|
|
| 17,419 |
|
Industrial |
|
| 30,058 |
|
|
| — |
|
|
| (21 | ) |
|
| 30,037 |
|
Auto aftermarket |
|
| — |
|
|
| 38,195 |
|
|
| — |
|
|
| 38,195 |
|
Total net sales |
| $ | 84,076 |
|
| $ | 38,195 |
|
| $ | (21 | ) |
| $ | 122,250 |
|
Revenue is recognized when obligations with respect to the sold receivables. As such, the factoring of trade receivables under these agreements are accounted for as a sale. The Company accounts for its trade receivable factoring program as required under ASC 860, Transfers and Servicing. During the nine months ended September 30, 2017, approximately $1.3 million of trade accounts receivables had been sold under the terms of a contract with customers are satisfied. In both the factoring agreementDistribution and Material Handling segments, this generally occurs with the transfer of control of the products. This transfer of control may occur at either the time of shipment from a Company facility, or at the time of delivery to a designated customer location. Obligations under contracts with customers are typically fulfilled within 90 days of receiving a purchase order from a customer, and generally no other future obligations are required to be performed. The Company generally does not enter into any long-term contracts with customers greater than one year. Based on the nature of the Company’s products and customer contracts, no deferred revenue has been recorded, with the exception of cash advances or deposits received from customers prior to transfer of control of the product. These advances are typically fulfilled within the 90-day time frame mentioned above.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for cash proceedstransferring the products. Certain contracts with customers include variable consideration, such as rebates or discounts. The Company recognizes estimates of $1.2 million. Duringthis variable consideration each period, primarily based on the nine months ended September 30, 2016, approximately $0.9 millionmost likely level of trade accounts receivables had been soldconsideration to be paid to the customer under the specific terms of the factoring agreement for cash proceedsunderlying programs. While the Company’s contracts with customers do not generally include explicit rights to return product, the Company will in practice allow returns in the normal course of $0.8 million. The receivables sold pursuant to the factoring agreements have been recorded as a reduction of trade accounts receivablebusiness and as cash provided by operating activitiespart of the customer relationship. Expected returns allowances are recognized each period based on an analysis of historical experience, and when physical recovery of the product from returns occurs, an estimated right to return asset is also recorded based on the approximate cost of the product.
Amounts included in the accompanying Condensed Consolidated Statements of Cash FlowsFinancial Position (Unaudited). The Company pays an administrative fee based on the dollar value of the receivables sold. Administrative fees related to revenue recognition include:
|
| March 31, |
|
| December 31, |
|
| Statement of Financial Position | ||
|
| 2021 |
|
| 2020 |
|
| Classification | ||
Returns, discounts and other allowances |
| $ | (1,153 | ) |
| $ | (943 | ) |
| Accounts receivable |
Right of return asset |
| $ | 374 |
|
| $ | 357 |
|
| Inventories, net |
Customer deposits |
| $ | (1,119 | ) |
| $ | (195 | ) |
| Other current liabilities |
Accrued rebates |
| $ | (2,549 | ) |
| $ | (2,712 | ) |
| Other current liabilities |
Sales, value added, and other taxes collected with revenue from customers are excluded from net sales. The cost for shipments to customers is recognized when control over products has transferred to the program for both the nine months ended September 30, 2017customer and 2016 were approximately $0.1 million. These fees are included in is classified as Selling, General and Administrative expenses for the Company’s manufacturing business and as Cost of Sales for the Company’s distribution business. Costs for shipments to customers in Selling, General and Administrative expenses were approximately $2.5 million and $1.7 million for the quarters ended March 31, 2021 and 2020, respectively, and in Cost of Sales were approximately $1.6 million and $1.4 million for the quarters ended March 31, 2021 and 2020, respectively.
Based on the short-term nature of contracts described above, contract acquisition costs are not significant. These costs, as well as other incidental items that are immaterial in the accompanyingcontext of the contract, are recognized as expense as incurred.
8
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
3. Acquisitions
Elkhart Plastics
On November 10, 2020, the Company acquired the assets of Operations (Unaudited).
Revenue RecognitionElkhart Plastics, a manufacturer of engineered products for the RV, marine, agricultural, construction, truck and other industries, which is included in the Company’s Material Handling Segment. The Elkhart Plastics acquisition aligns with the Company’s long-term strategic plan to transform the Company into a high-growth, customer-centric innovator of value-added engineered plastic solutions. The purchase price for the acquisition was $64.0 million, including a preliminary estimated working capital adjustment of $1.4 million, of which $1.2 million was settled in March 2021, and the remainder remains subject to further adjustment based on the final working capital. The Company funded the acquisition using available cash.
The Company recognizes revenuesacquisition of Elkhart Plastics was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. The following table summarized the allocation of the purchase price based on the estimated fair value of assets acquired and liabilities assumed based on their preliminary estimated fair values at the acquisition date, which are subject to adjustment. The purchase accounting will be finalized within one year from the sale of products, net of actualacquisition date.
Assets acquired: |
|
|
|
Accounts receivable | $ | 12,026 |
|
Inventories |
| 13,639 |
|
Prepaid expenses |
| 960 |
|
Other assets - long term |
| 34 |
|
Property, plant and equipment |
| 18,038 |
|
Right of use asset - operating leases |
| 13,757 |
|
Intangible assets |
| 16,627 |
|
Goodwill |
| 12,277 |
|
Assets acquired | $ | 87,358 |
|
|
|
|
|
Liabilities assumed: |
|
|
|
Accounts payable | $ | 5,603 |
|
Accrued expenses |
| 4,480 |
|
Operating lease liability - short term |
| 2,390 |
|
Operating lease liability - long term |
| 10,867 |
|
Total liabilities assumed |
| 23,340 |
|
|
|
|
|
Net acquisition cost | $ | 64,018 |
|
The goodwill represents the future economic benefits arising from other assets acquired that could not be individually and estimated returns, atseparately recognized, and the point of passage of title and risk of loss, which is generally at time of shipment, and collectabilityCompany expects that the goodwill recognized for the acquisition will be deductible for tax purposes.
The intangible assets included above consist of the fixed or determinable sales price is reasonably assured.following:
|
| Fair Value |
|
| Weighted Average Estimated Useful Life | |
Customer relationships |
| $ | 10,210 |
|
| 18.0 years |
Trade name |
|
| 5,817 |
|
| 10.0 years |
Non-competition agreements |
|
| 600 |
|
| 5.0 years |
Total amortizable intangible assets |
| $ | 16,627 |
|
|
|
9
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amountsDollars in thousands, except where otherwise indicated)
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:
|
| Foreign Currency |
|
| Defined Benefit Pension Plans |
|
| Total |
| |||
Balance at January 1, 2017 |
| $ | (32,342 | ) |
| $ | (1,832 | ) |
| $ | (34,174 | ) |
Other comprehensive income before reclassifications |
|
| 3,491 |
|
|
| — |
|
|
| 3,491 |
|
Net current-period other comprehensive income |
|
| 3,491 |
|
|
| — |
|
|
| 3,491 |
|
Balance at September 30, 2017 |
| $ | (28,851 | ) |
| $ | (1,832 | ) |
| $ | (30,683 | ) |
Tuffy
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company maintains operating cash and reserves for replacement balances in financial institutions which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal.
2. Impairment Charges
During the second quarter of 2017, an underutilized building at the Company’s Scarborough, Ontario, Canada location, in the Material Handling Segment, was identified for closure and classified as held for sale as of June 30, 2017, in Other Assets in the Condensed Consolidated Statements of Financial Position (Unaudited). This building has been recorded at its fair value, less estimated costs to sell, of $3.2 million (based primarily on a third party offer considered to be a Level 2 input), which resulted in an impairment charge of approximately $0.5 million recognized in the second quarter of 2017. No changes in the estimated fair value were recorded in the quarter ended September 30, 2017.
During the first quarter of 2016,On August 26, 2019, the Company reviewed its long-livedacquired the assets intangible assets and goodwill at Plasticos Novel do Nordeste S.A.of Tuffy Manufacturing Industries, Inc. (“Novel”Tuffy”), a reporting unit within the Material Handling Segment for impairment. The testing for impairment was performed as a resultwarehouse distributor of the presence of impairment indictors resulting from the communication of a reduction in capital spendingtire repair equipment and supplies, which is included in the near-term fromDistribution Segment. The Tuffy acquisition aligns with the Company’s strategy to grow in key niche markets and focus on strategic account customers. The purchase price for the acquisition was $18.7 million, including a significant customerworking capital adjustment of $0.7 million that was paid in March 2016, which resulted in a significant reduction in Novel’s forecasted revenue and income.
2020. The Company first conducted a review for impairmentfunded the acquisition using available cash.
4. Settlement of indefinite-lived intangiblesNote Receivable and other long-lived assets related to Novel, including amortizable intangible assets and fixed assets which indicated that the carrying amounts of such assets may not be recoverable and required an assessment of fair value of the assets for purposes of measuring an impairment charge. The estimated fair value of indefinite-lived intangibles was determined using a relief from royalty payments income approach and the other long-lived assets was determined, in part, using an analysis of projected cash flows, a market approach and a cost approach. These valuation methods use Level 3 inputs under the fair value hierarchy discussed in Note 1.Lease Guarantee
To test for potential impairment for goodwill, the Company performed an interim impairment test as of March 31, 2016. The step one goodwill impairment test was performed using a discounted cash flow (“DCF”) valuation model. The significant assumptions in the DCF model are the annual revenue growth rate, the annual operating income margin and the discount rate used to determine the present value of the cash flow projections. The discount rate was based on the estimated weighted average cost of capital as of the testing date for market participants in the industry in which the Novel reporting unit operates. Based on the estimated fair value generated by the DCF model, the Novel reporting unit’s fair value did not exceed its carrying value as of March 31, 2016 and therefore a step two analysis was required to be performed. The decline in fair value of the reporting unit resulted primarily from lower projected operating results and cash flows than those utilized from the 2015 annual impairment test, directly related to the triggering event outlined above. During the first quarter of 2016, a step two analysis was performed to allocate estimated fair value to assets and liabilities in order to estimate an implied value of goodwill. As a result of these impairment reviews, the Company concluded that the goodwill, intangibles and other long-lived assets related to Novel were impaired and recorded a non-cash impairment charge of $8.5 million, which was reported in Impairment Charges in the Condensed Consolidated Statements of Operations (Unaudited) in the first half of 2016.
10
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
During the second quarter of 2016, the Company recorded impairment charges of $1.3 million primarily related to long-lived assets associated with the exit of a non-strategic product line in the Material Handling Segment.
3. Discontinued Operations
On February 17,In 2015, the Company sold its Lawn and Garden business to an entity controlled by Wingate Partners V, L.P. (“L&G Buyer”), a private equity firm, for $110.0 million, subject to a working capital adjustment.which later became HC Companies, Inc. (“HC”). The terms of the agreement include a $90.0 million cash payment,sale included promissory notes totaling $20.0from HC. Due to uncertainty of collection, a provision for expected loss of $23.0 million that maturewas recorded within continuing operations during 2018 to fully impair the notes and corresponding interest receivable.
Also, in August 2020connection with a 6% interest rate, and approximately $8.6 million placed in escrow that was due to be settled by August 2016, but has been extended until indemnification claims are resolved, as described in Note 10. The fair market valuethe sale of the notes atLawn and Garden business, the dateCompany became a guarantor for any remaining rent payments under one of HC’s facility leases expiring in September 2025. Annual rent for the salefacility was $17.8approximately $2 million. Due to the financial risk associated with HC, the Company assessed its range of potential obligations under the lease guarantee, and recorded a liability and related pre-tax charge of $10.3 million during 2018. The carrying value of the noteslease contingency as of September 30, 2017December 31, 2019 was $18.6$10.7 million, which representsrepresented the fair value at the date of saleinitial liability recorded plus accretion and is included in Notes Receivable in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited). The fair value of the notes receivable was calculated using Level 2 inputs as defined in Note 1. The final working capital adjustment resulted in a cash payment to the buyer of approximately $4.0 million in the first half of 2016.accretion.
4. Restructuring
On March 9, 2017,In January 2020, the Company announcedsold to HC the fully-reserved promissory notes and related accrued interest receivable in exchange for $1.2 million and the release from the lease guarantee resulting in an $11.9 million pre-tax gain.
5. Restructuring
In March 2019, the Company committed to implementing a restructuring plan (the “Plan”involving its Ameri-Kart Corp. subsidiary (“Ameri-Kart”) to improve the Company’s organizational structure and operational efficiencythat operates a rotational molding business within the Material Handling Segment, which related primarilySegment. The Company plans to anticipatedconsolidate manufacturing operations currently conducted at Ameri-Kart’s Cassopolis, Michigan and Bristol, Indiana facilities with expanded operations in a new facility shutdownsin Bristol, Indiana (the “Ameri-Kart Plan”). In December 2019, as amended in March 2021, Ameri-Kart entered into a lease agreement for a newly constructed manufacturing and associated activities. Totaldistribution facility in Bristol, Indiana. The building became substantially complete in March 2021 as defined in the lease agreement, and the 15-year finance lease of the new Bristol facility commenced. In connection with the lease agreement, Ameri-Kart agreed to sell its original Bristol facility for $3.0 million and lease it back for a period of 5 years. At March 31, 2021, this sale-leaseback transaction had not yet closed. At March 31, 2021 and December 31, 2020, the $1.9 million carrying value of the original Bristol facility was classified as held for sale and included in Other Assets pending closing of the sale transaction. While Ameri-Kart has taken possession of the new Bristol facility, construction remains in process as of March 31, 2021 to complete it for its intended use. In December 2020, Ameri-Kart also provided one-year advance notice of termination for the lease of its Cassopolis, Michigan facility.
The Ameri-Kart Plan is expected to be substantially completed in 2021 and total restructuring costs expected to be incurred are approximately $7.9$1.3 million, which includes employee severance and other employee-related costs of approximately $3.2 million, $2.6 millionprimarily related to equipment relocation and facility shut down costs and non-cashcosts. NaN restructuring charges primarily accelerated depreciation charges on property, plant and equipment, of approximately $2.1 million. The Company expects to incur approximately $0.8 millionwere incurred during the remainder of 2017 under the Plan, as all remaining actions under the Plan are expected to be substantially completed by the end of the year.quarters ended March 31, 2021 or 2020.
During the three and nine months ended September 30, 2017, the Company incurred restructuring charges of $1.0 million and $5.2 million, respectively, related to closing a manufacturing plant in Bluffton, Indiana. In the third quarter of 2017, the Bluffton facility and certain related equipment, previously classified as held for sale, were sold for approximately $6.0 million, which resulted in a gain of $2.6 million. Additional gains of $0.2 million and $1.5 million for the three and nine months ended September 30, 2017, respectively, were recognized on other asset dispositions in connection with closing this plant.
In the second quarter of 2017, the Company finalized the specific actions to be taken under the Plan to reduce headcount in its Scarborough, Ontario, Canada location. These actions resulted in the recognition of $0.9 million and $1.6 million of severance and related costs for the three and nine months ended September 30, 2017, respectively.
During the three and nine months ended September 30, 2017, the Company recognized $0.2 million and $0.3 million of restructuring charges related to the planned closure of a manufacturing plant in Sandusky, Ohio.
The restructuring charges noted above are presented in the Condensed Consolidated Statement of Operations (Unaudited) as follows:
|
| For the Three Months Ended September 30, 2017 |
|
| For the Nine Months Ended September 30, 2017 |
| ||
Cost of sales |
| $ | 1,908 |
|
| $ | 6,968 |
|
Selling, general and administrative expenses |
|
| 164 |
|
|
| 164 |
|
|
| $ | 2,072 |
|
| $ | 7,132 |
|
11
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
The table below summarizes restructuring activity for the nine months ended September 30, 2017:
|
| Employee Reduction |
|
| Accelerated Depreciation |
|
| Other Exit Costs |
|
| Total |
| ||||
Balance at January 1, 2017 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Charges to expense |
|
| 2,868 |
|
|
| 2,018 |
|
|
| 2,246 |
|
|
| 7,132 |
|
Cash payments |
|
| (773 | ) |
|
| — |
|
|
| (1,929 | ) |
|
| (2,702 | ) |
Non-cash utilization |
|
| — |
|
|
| (2,018 | ) |
|
| — |
|
|
| (2,018 | ) |
Balance at September 30, 2017 |
| $ | 2,095 |
|
| $ | — |
|
| $ | 317 |
|
| $ | 2,412 |
|
In addition to the restructuring costs noted above, the Company has also incurred other associated costs of the Plan of $0.3 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, which are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited), and are primarily related to third party consulting costs. Additional estimated costs of $0.2 million are expected to be incurred throughout the remainder of 2017.
5.6. Inventories
Inventories are valued at the lower of cost or market for last-in, first-out (“LIFO”) inventory and lower of cost or net realizable value for first-in, first-out (“FIFO”) inventory. Approximately 40 percent of our inventories are valued using the LIFO method of determining cost. All other inventories are valued atusing the FIFO method of determining cost. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs. Because these are based on estimates, interim resultscalculations are subject to change inmany factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation. In the current quarter, oneBased on management’s projections of inventory pool had an increase in commoditylevels and costs, that is expected0 adjustment to hold through year-end, and therefore, an adjustment of $0.4 million was made to increase the LIFO reserve and cost of saleswas recorded for the three monthsquarters ended September 30, 2017. No adjustment was recorded during prior interim reporting periods as interim resultsMarch 31, 2021 or 2020.
10
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in those periods were immaterial.thousands, except where otherwise indicated)
6.
Inventories consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Finished and in-process products |
| $ | 43,458 |
|
| $ | 42,304 |
|
Raw materials and supplies |
|
| 26,390 |
|
|
| 23,615 |
|
|
| $ | 69,848 |
|
| $ | 65,919 |
|
7. Other Current Liabilities
The balance in other current liabilitiesOther Current Liabilities is comprised of the following:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Deposits and amounts due to customers |
| $ | 4,048 |
|
| $ | 2,688 |
| ||||||||
Customer deposits and accrued rebates |
| $ | 3,668 |
|
| $ | 2,907 |
| ||||||||
Dividends payable |
|
| 4,455 |
|
|
| 4,260 |
|
|
| 5,299 |
|
|
| 5,251 |
|
Accrued litigation and professional fees |
|
| 606 |
|
|
| 452 |
| ||||||||
Accrued litigation, claims and professional fees |
|
| 1,001 |
|
|
| 306 |
| ||||||||
Current portion of environmental reserves |
|
| 1,022 |
|
|
| 605 |
|
|
| 1,428 |
|
|
| 1,433 |
|
Other accrued expenses |
|
| 4,362 |
|
|
| 5,078 |
|
|
| 6,475 |
|
|
| 8,039 |
|
|
| $ | 14,493 |
|
| $ | 13,083 |
|
| $ | 17,871 |
|
| $ | 17,936 |
|
7.The balance in Other Liabilities (long-term) is comprised of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Environmental reserves |
| $ | 7,388 |
|
| $ | 7,266 |
|
Supplemental executive retirement plan liability |
|
| 1,423 |
|
|
| 1,510 |
|
Pension liability |
|
| 931 |
|
|
| 941 |
|
Other long-term liabilities |
|
| 4,561 |
|
|
| 4,656 |
|
|
| $ | 14,303 |
|
| $ | 14,373 |
|
8. Goodwill and Intangible Assets
The change in goodwill for the nine monthsquarter ended September 30, 2017March 31, 2021 was as follows:
|
| Distribution |
|
| Material Handling |
|
| Total |
| |||
January 1, 2017 |
| $ | 505 |
|
| $ | 58,714 |
|
| $ | 59,219 |
|
Foreign currency translation |
|
| — |
|
|
| 829 |
|
|
| 829 |
|
September 30, 2017 |
| $ | 505 |
|
| $ | 59,543 |
|
| $ | 60,048 |
|
|
| Distribution |
|
| Material Handling |
|
| Total |
| |||
January 1, 2021 |
| $ | 7,648 |
|
| $ | 71,608 |
|
| $ | 79,256 |
|
Purchase accounting adjustment |
|
| 0 |
|
|
| (35 | ) |
|
| (35 | ) |
Foreign currency translation |
|
| 0 |
|
|
| 133 |
|
|
| 133 |
|
March 31, 2021 |
| $ | 7,648 |
|
| $ | 71,706 |
|
| $ | 79,354 |
|
Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, non-competition agreements and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. Indefinite-lived trade names had a carrying value of $9.8 million at both March 31, 2021 and December 31, 2020. Refer to Note 3 for the intangible assets acquired through the Elkhart Plastics acquisition in November 2020.
1211
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amountsDollars in thousands, except where otherwise indicated)
useful lives. The Company has indefinite-lived trade names which had a carrying value of $10.9 million at both September 30, 2017 and December 31, 2016.
See Note 2 for discussion of goodwill, trade names and other long-lived asset impairment charges in the first half of 2016.
8.9. Net Income (Loss) per Common Share
Net income (loss) per common share, as shown on the accompanying Condensed Consolidated Statements of Operations (Unaudited), is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
| For the Quarter Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Weighted average common shares outstanding basic |
|
| 30,266,838 |
|
|
| 29,849,005 |
|
|
| 30,149,818 |
|
|
| 29,682,798 |
|
|
| 35,993,331 |
|
|
| 35,723,979 |
|
Dilutive effect of stock options and restricted stock |
|
| 385,105 |
|
|
| 226,473 |
|
|
| 374,343 |
|
|
| 266,913 |
|
|
| 297,500 |
|
|
| 104,449 |
|
Weighted average common shares outstanding diluted |
|
| 30,651,943 |
|
|
| 30,075,478 |
|
|
| 30,524,161 |
|
|
| 29,949,711 |
|
|
| 36,290,831 |
|
|
| 35,828,428 |
|
There were 0 options to purchase shares of common stock excluded from the computation of diluted earnings for the quarter ended March 31, 2021. Options to purchase 256,600 and 261,100401,197 shares of common stock that were outstandingfor the three and nine monthsquarter ended September 30, 2017, respectively, and 569,050 for the three and nine months ended September 30, 2016, March 31, 2020were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares, and were therefore anti-dilutive.
9.10. Stock Compensation
Subject to shareholder approval, which was received on April 26, 2017, the Board of Directors approved theThe Company’s Amended and Restated 2017 Incentive Stock Plan (the “2017 Plan”) on March 2, 2017. The 2017 Plan authorizes the Compensation and Management Development Committee of the Board of Directors (“Compensation Committee”) to issue up to 5,126,950 shares of various stock awards including stock options, performance stock units, restricted stock units and other forms of equity-based awards to key employees and directors. NaN new awards may be issued under the 2017 Plan after April 29, 2021. Options granted and outstanding vest over the requisite service period and expire ten years from the date of grant.
InThe Company’s 2021 Long-Term Incentive Plan (the “2021 Plan”) was adopted by the Board of Directors on March 2017,4, 2021, amended by the Company granted 397,759Board of Directors on April 20, 2021, and approved by shareholders in the annual shareholder meeting on April 29, 2021. The 2021 Plan authorizes the Compensation Committee to issue up to 2,000,000 additional various stock awards including stock options, with a weighted average exercise price of $14.30 and a weighted average fair value of $4.47. The fair value of options granted is estimated using a binomial lattice option pricing model. Also in March 2017, the Company granted 87,887 and 140,746 time-based and performance-basedperformance stock units, restricted stock units respectively, with a weighted average fair valueand other forms of $14.30. There were no stock-based awards granted in the second or third quarters of 2017.equity-based awards.
Stock compensation expense was approximately $1.1$1.2 million and $0.7 million for the three monthsquarters ended September 30, 2017March 31, 2021 and 2016, respectively, and $2.9 million and $2.8 million for the nine months ended September 30, 2017 and 2016,2020, respectively. These expenses are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited). expenses. Total unrecognized compensation cost related to non-vested stock-based compensation arrangements at September 30, 2017March 31, 2021 was approximately $6.5$7.7 million, which will be recognized over the next three years, as such compensation is earned.
10.11. Contingencies
The Company is a defendant in various lawsuits and a party to various other legal proceedings arising in the ordinary course of business, some of which are covered in whole or in part by insurance. When a loss arising from these matters is probable and can reasonably be estimated, the most likely amount of the estimated probable loss is recorded, or if a range of probable loss can be estimated and no amount within the range is a better estimate than any other amount, the minimum amount in the range is recorded. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary.
Based on current available information, management believes that the ultimate outcome of these matters, including those described below, will not have a material adverse effect on our financial position, cash flows or overall trends in our results of operations. However, these matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or in future periods.
12
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
New Idria Mercury Mine
In September 2015, the U.S. Environmental Protection Agency (“EPA”) formally informed a subsidiary of the Company, Buckhorn, Inc. (“Buckhorn”) via a notice letter and related documents (the “Notice Letter”) that it considers Buckhorn to be a potentially responsible party (“PRP”) in connection with the New Idria Mercury Mine site (“New Idria Mine”). New Idria Mining & Chemical Company (“NIMCC”), which owned and/or operated the New Idria Mine through 1976, was merged into Buckhorn Metal Products Inc. in 1981, which was subsequently acquired by Myers Industries, Inc. in 1987. As a result of the EPA Notice Letter, Buckhorn and the
13
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
Company are engaged in negotiations with the EPA with respect to a draft Administrative Order of Consent (“AOC”) proposed by the EPA for the Remedial Investigation/Feasibility Study (“RI/FS”) to determine the extent of remediation necessary and the screening of alternatives.
TheDuring the fourth quarter of 2018, the Company and the EPA finalized the AOC and related Statement of Work (“SOW”) with regards to the New Idria MineMine. The AOC is located near Hollister, Californiaeffective as of November 27, 2018, the date that it was executed by the EPA. The AOC and was addedaccompanying SOW document the terms, conditions and procedures for the Company’s performance of the RI/FS. In addition, the AOC required the Company to provide $2 million of financial assurance to the Superfund National Priorities ListEPA to secure its performance during the estimated life of the RI/FS. In January 2019, the Company provided a letter of credit to satisfy this assurance requirement. The AOC also includes provisions for payment by the Company of the EPA’s costs of oversight of the RI/FS, including a prepayment in the amount of $0.2 million, which was paid in January 2019.
A draft work plan for the RI/FS, in accordance with the AOC and related SOW, was submitted to the EPA for review and approval in October 2011, at which timeJuly 2019. Upon preparation of the draft work plan for the RI/FS, the Company received preliminary estimates from its consultants for the cost of the execution of the work plan. Based on these preliminary estimates, the Company recognized additional expense of $1.9$4.0 million related to performing the RI/FS. Induring the second quarter of 2016,2019. These preliminary estimates will continue to be refined through the finalization and approval of the draft work plan, which is anticipated to occur in 2021. The Company believes it has insurance coverage that applies to the New Idria Mine and thus may be able to recover a portion of the estimated costs; however, as of March 31, 2021, the Company based on discussions with the EPA, determined that the RI/FS would beginhas not recognized potential recovery in 2017 and therefore obtained updated estimated costs to perform the RI/FS. As a result of the updated estimated costs, the Company recorded additional expense of $1.0 million in the second quarter of 2016. In the second quarter of 2017, the Company, based on the status of its discussions with the EPA, determined that field work on the RI/FS will likely begin in 2018 with no changes to the cost estimates to perform the RI/FS. In the third quarter of 2017, the Company recorded an additional reserve of $0.3 million for this project, as a result of additional professional fees and other project costs expected to be incurred as part of the implementation of the AOC and site preparation and stabilization, in advance of starting the RI/FS field work in 2018. condensed consolidated financial statements.
As part of the Notice Letter, the EPA also made a claim for approximately $1.6 million in past costs for actions it claims it has taken in connection with the New Idria Mine since 1993.from 1993 through February 2014. While the Company is challenging theseevaluating this past cost claims,claim and may challenge portions of it, in 2015 the Company recognized an expense of $1.3 million related to the portionclaim. In December 2020, the EPA updated its claim to include past costs incurred from March 2014 through June 2020. As a result, the Company recognized additional expense of these costs alleged to have been incurred after$0.5 million during the sitefourth quarter of 2020.
Since October 2011, when New Idria was added to the Superfund listNational Priorities List by the EPA, the Company has recognized $10.4 million of costs, of which approximately $3.1 million has been paid through March 31, 2021. These costs are comprised primarily of estimates to perform the RI/FS, negotiation of the AOC, identification of possible insurance resources and other PRPs, EPA oversight fees, past cost claims made by the EPA, periodic monitoring, and responses to unilateral administrative orders issued by the EPA. NaN expenses were recorded related to the New Idria Mine in 2011.
the quarters ended March 31, 2021 and 2020. As of September 30, 2017,March 31, 2021, the Company has a total reserve of $2.7$7.3 million related to the New Idria Mine, of which $0.7$1.1 million is classified in Other Current Liabilities and $2.0$6.2 million is classified in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited) (long-term).
As negotiations with the EPA proceed itIt is possible that adjustments to the aforementioned reserves will be necessary to reflectas new information.information is obtained, including after finalization and EPA approval of the work plan for the RI/FS. Estimates of the Company’s liability are based on current facts, laws, regulations and technology. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the negotiations with EPA, the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluation and cost estimates, the extent of remedial actions that may be required, the extent of oversight by the EPA and the number and financial condition of other PRPs that may be named, as well as the extent of their responsibility for the remediation, and the availability of insurance coverage for these expenses.remediation.
At this time, we have not accrued for remediation costs in connection with this site as we are unable to estimate the liability, given the circumstances referred to above, including the fact that the final remediation strategy has not yet been determined.
13
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
New Almaden Mine
A number of parties, including the Company and its subsidiary, Buckhorn (as successor to NIMCC), were alleged by trustee agencies of the United States and the State of California to be responsible for natural resource damages due to environmental contamination of areas comprising the historical New Almaden mercury mines located in the Guadalupe River Watershed region in Santa Clara County, California (“County”). In 2005, Buckhorn and the Company, without admitting liability or chain of ownership of NIMCC, resolved the trustees’ claim against them through a consent decree that required them to contribute financially to the implementation by the County of an environmentally beneficial project within the impacted area. Buckhorn and the Company negotiated an agreement with the County, whereby Buckhorn and the Company agreed to reimburse one-half of the County’s costs of implementing the project, originally estimated to be approximately $1.6 million. As a result,project. The latest estimates received in 2005, the Company recognized expense of $0.8 million representing its share of the initial estimated project costs, of which approximately $0.5 million has been paid to date. In April 2016 the Company was notified byfrom the County that the original cost estimate may no longer be appropriate due toprovided for an expanded scope and increased costs of construction and provided a revised the estimate of costs for implementing the project to between $3.3 million and $4.4 million. The Company completed a detailed review of the support provided by the County for the revised estimate, and as a result, recognized additional expense of $1.2 million in 2016. NaN costs were incurred related to New Almaden in the second and third quarters of 2016.ended March 31, 2021 or 2020. As of September 30, 2017,March 31, 2021, the Company has a total reserve of $1.5 million related to the New Almaden Mine, of which $0.3 million is classified in Other Current Liabilities and $1.2 million is classified in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited) (long-term).
The project has not yet been implemented though significant work on design and planning has been performed. Field workThe Company is currently awaiting notice from Santa Clara County on the project is expected timing of fieldwork to commence in 2018.commence. As work on the project occurs, it is possible that adjustments to the aforementioned reserves will be necessary to reflect new information. In addition, the Company may have claims against and defenses to claims by the County under the 2005 agreement that could reduce or offset its obligation for reimbursement of some of these potential additional costs. With the assistance of environmental consultants, the Company will closely monitor this matter and will continue to assess its reserves as additional information becomes available.
Patent Infringement
On December 11, 2018, No Spill Inc. filed suit against Scepter Manufacturing LLC and Scepter Corporation in the United States District Court for the District of Kansas asserting infringement of two patents, breach of contract, and trade dress claims in relation to plastic gasoline containers Scepter manufactures and sells in the United States. Scepter Canada, Inc. was later added in a second amended complaint. On November 15, 2019 the court dismissed Scepter Corporation from the action. While a full schedule through trial in the case has not yet been issued, a claim construction hearing is scheduled for May 13th, 2021. The Scepter companies intend to defend themselves vigorously in this matter. On December 28, 2019, Scepter Canada, Inc. filed petitions for inter partes review (“IPR”) of the two patents asserted by No Spill, Inc. in the District of Kansas litigation. The U.S. Patent & Trademark Office (“USPTO”) instituted one IPR and denied the other. For the instituted IPR, a final decision on the validity of the patent is expected by July 2021. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter, and is unable at this time to determine whether the outcome of the litigation will have a material impact on its results of operations, financial condition, or cash flows. Accordingly, the Company has not recorded any reserves for this matter.
12. Long-Term Debt and Loan Agreements
Long-term debt consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Loan Agreement |
| $ | 33,000 |
|
| $ | — |
|
4.67% Senior Unsecured Notes due January 15, 2021 |
|
| — |
|
|
| 40,000 |
|
5.25% Senior Unsecured Notes due January 15, 2024 |
|
| 11,000 |
|
|
| 11,000 |
|
5.30% Senior Unsecured Notes due January 15, 2024 |
|
| 15,000 |
|
|
| 15,000 |
|
5.45% Senior Unsecured Notes due January 15, 2026 |
|
| 12,000 |
|
|
| 12,000 |
|
|
|
| 71,000 |
|
|
| 78,000 |
|
Less unamortized deferred financing costs |
|
| 72 |
|
|
| 424 |
|
|
|
| 70,928 |
|
|
| 77,576 |
|
Less current portion long-term debt |
|
| — |
|
|
| 39,994 |
|
Long-term debt |
| $ | 70,928 |
|
| $ | 37,582 |
|
14
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amountsDollars in thousands, except where otherwise indicated)
Lawn and Garden Indemnification Claim
In connection with the sale of the Lawn and Garden business, as described in Note 3, the Company received a Notice of Indemnification Claims in April 2015, and a Second Notice of Indemnification Claims in July 2016 (collectively, the “Claims”), alleging breaches of certain representations and warranties under the agreement resulting in losses in the amount of approximately $10 million. As described in Note 3, approximately $8.6 million of the sale proceeds were placed in escrow and due to be settled in August 2016, but have been extended until the Claims are resolved. The Company believes these Claims are without merit and intends to vigorously defend its position.
When a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the estimated loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable of occurrence than another. As additional information becomes available, any potential liability related to these matters will be assessed and the estimates will be revised, if necessary.
Based on current available information, management believes that the ultimate outcome of these matters will not have a material adverse effect on our financial position, cash flows or overall trends in our results of operations. However, these matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or in future periods.
11. Long-Term Debt and Loan Agreements
Long-term debt consisted of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Loan Agreement |
| $ | 59,795 |
|
| $ | 90,686 |
|
4.67% Senior Unsecured Notes due 2021 |
|
| 40,000 |
|
|
| 40,000 |
|
5.25% Senior Unsecured Notes due 2024 |
|
| 11,000 |
|
|
| 11,000 |
|
5.30% Senior Unsecured Notes due 2024 |
|
| 29,000 |
|
|
| 29,000 |
|
5.45% Senior Unsecured Notes due 2026 |
|
| 20,000 |
|
|
| 20,000 |
|
|
|
| 159,795 |
|
|
| 190,686 |
|
Less unamortized deferred financing costs |
|
| 1,785 |
|
|
| 1,164 |
|
|
| $ | 158,010 |
|
| $ | 189,522 |
|
In March 2017,2021, the Company entered into a Sixth Amended and Restated Loan Agreement (the “Sixth Amendment”), which amended the Fifth Amended and Restated Loan Agreement (the(collectively, the “Loan Agreement”). dated March 2017. The Loan Agreement replacedSixth Amendment increased the pre-existing $300 million senior revolving credit facility with afacility’s borrowing limit to $250 million from $200 million, facility and extended the term from December 2018maturity date to March 2022. In addition, the Loan Agreement provides for a maximum Leverage Ratio of 3.75 for the first2024 from March 2022, and second quarters of 2017, stepping down to 3.5 in the third quarter of 2017, and 3.25 thereafter.
Under the termsincreased flexibility of the Loan Agreement,financial and other covenants and provisions. Amounts borrowed under the credit facility are secured by pledges of stock of certain of the Company’s foreign subsidiaries and guaranties of certain of its domestic subsidiaries. In connection with the Sixth Amendment, the Company may borrow up to $200.0incurred $1.1 million reduced for letters of credit issued. deferred financing fees, which are included in Other Assets (long-term).
As of September 30, 2017,March 31, 2021, the Company had $135.8$211.2 million available under the Loan Agreement. The Company had $4.4$5.8 million of letters of credit issued related to insurance and other financing contracts requiring financial assurance in the ordinary course of business, at September 30, 2017.including the $2 million provided to the EPA as discussed in Note 11. Borrowings under the Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the euro currency reference rate depending on the type of loan requested by the Company, plus the applicable margin as set forth in the Loan Agreement.
The Company also holds Senior Unsecured Notes (“Notes”), which range in face value from $11.0 million to $15.0 million, with interest rates ranging from 5.25% to 5.45%, payable semiannually, and maturing between January 2024 and January 2026. At March 31, 2021, $38.0 million of the Notes were outstanding. In January 2021, the Company repaid the $40.0 million note upon maturity with a combination of cash and proceeds under the Loan Agreement.
The weighted average interest rate on borrowings under our loan agreements were 5.18%the Company’s long-term debt was 5.33% and 4.65%6.24% for the three monthsquarters ended September 30, 2017March 31, 2021 and 2016, respectively, and 5.05% and 4.61% for the nine months ended September 30, 2017 and 2016,2020, respectively, which includes a quarterly facility fee on the used and unused portion.portion, as well as amortization of deferred financing costs.
In September 2017,As of March 31, 2021, the Company made an offer towas in compliance with all holdersof its debt covenants associated with its Loan Agreement and Notes. The most restrictive financial covenants for all of the $100 million Senior Unsecured Notes (“Notes”) to purchase all orCompany’s debt are a portion of the Notes prior to their maturity dates. In October 2017, one note holder accepted the offerleverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and elected to tender $22 million in Notes. The Company purchased the Notes from the holder on October 31, 2017amortization, as adjusted) and a loss on extinguishment of debt of approximately $1.9 million was recorded during the fourth quarter of 2017.an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense).
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amounts in thousands, except where otherwise indicated)
The Company and certain of its subsidiaries have pension and profit sharing plans covering substantially all of their employees. The Company’s defined benefit pension plan, The Pension Agreement between Akro-Mils and United Steelworkers of America Local No. 1761-02, provides benefits primarily based upon a fixed amount for each year of service. The plan was frozen in 2007, and thusno benefits for service were no longer accumulated after this date.
Net periodic pension cost is as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
| For the Quarter Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||||
Interest cost |
| $ | 63 |
|
| $ | 68 |
|
| $ | 189 |
|
| $ | 204 |
|
| $ | 38 |
|
| $ | 48 |
|
Expected return on assets |
|
| (74 | ) |
|
| (80 | ) |
|
| (222 | ) |
|
| (240 | ) |
|
| (48 | ) |
|
| (51 | ) |
Amortization of net loss |
|
| 24 |
|
|
| 20 |
|
|
| 72 |
|
|
| 61 |
|
|
| 21 |
|
|
| 20 |
|
Net periodic pension cost |
| $ | 13 |
|
| $ | 8 |
|
| $ | 39 |
|
| $ | 25 |
|
| $ | 11 |
|
| $ | 17 |
|
Company contributions |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
The Company does not expectexpects to make a contributioncontributions to the plan totaling $112 in 2017.2021.
13.14. Income Taxes
The Company’s effective tax rate was 38.5% and 42.0%26.0% for the three and nine monthsquarter ended September 30, 2017, respectively,March 31, 2021 compared to 56.3% and 69.8%24.8% for the three and nine monthsquarter ended September 30, 2016, respectively.March 31, 2020. The effective income tax rate for the first nine months of 2017 and 2016both periods was different than the Company’s statutory rate, primarily due to losses in jurisdictions where the tax benefits are not recognized. state taxes and non-deductible expenses.
The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $0.3 million and $0.5$0.8 million at September 30, 2017March 31, 2021 and December 31, 2016, respectively.2020.
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of September 30, 2017,March 31, 2021, the Company is no longer subject to U.S. Federal examination by tax authorities for tax years before 2014.2015. The Company’s 2017 U.S. Federal tax return is currently under audit by the Internal Revenue Service (“IRS”). The IRS began the examination in 2019 and there have been no changes resulting from this audit as of March 31, 2021. The Company is subject to state and local examinations for tax years of 20122015 through 2016.2019. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 20122015 through 2016.2019.
15. Leases
The Company determines if an arrangement is a lease at inception. The Company has leases for manufacturing facilities, distribution centers, warehouses, office space and equipment, with remaining lease terms of one to fifteen years. Certain of these leases include options to extend the lease for up to five years, and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the statement of financial position; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Operating leases with an initial term greater than 12 months are included in right of use asset – operating leases (“ROU assets”), operating lease liability – short term, and operating lease liability – long term and finance leases are included property, plant and equipment, finance lease liability – short term, and finance lease liability – long term in the Condensed Consolidated Statement of Financial Position (Unaudited).
The ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent the obligation to make lease payments. ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. When leases do not provide an implicit rate, the Company’s incremental borrowing rate is used, which is then applied at the portfolio level, based on the information available at commencement date in determining the present value of lease payments. The Company has also elected not to separate lease and non-lease components. The lease terms include options to extend or terminate the lease when it is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
Amounts included in the Condensed Consolidated Statement of Financial Position (Unaudited) related to leases include:
|
|
| March 31, |
|
| December 31, |
| ||
| Classification |
| 2021 |
|
| 2020 |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
Operating lease assets | Right of use asset - operating leases |
| $ | 20,820 |
|
| $ | 18,390 |
|
Finance lease assets | Property, plant and equipment, net |
|
| 10,282 |
|
|
| — |
|
Total lease assets |
|
| $ | 31,102 |
|
| $ | 18,390 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Current | Operating lease liability - short-term |
| $ | 4,269 |
|
| $ | 4,359 |
|
Long-term | Operating lease liability - long-term |
|
| 16,300 |
|
|
| 13,755 |
|
Total operating lease liabilities |
|
| $ | 20,569 |
|
| $ | 18,114 |
|
Current | Finance lease liability - short-term |
| $ | 487 |
|
| $ | — |
|
Long-term | Finance lease liability - long-term |
|
| 9,812 |
|
|
| — |
|
Total finance lease liabilities |
|
|
| 10,299 |
|
|
| — |
|
Total lease liabilities |
|
| $ | 30,868 |
|
| $ | 18,114 |
|
16
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollar amountsDollars in thousands, except where otherwise indicated)
The components of lease expense include:
|
|
|
| For the Quarter Ended March 31, |
| |||||
Lease Cost |
| Classification |
| 2021 |
|
| 2020 |
| ||
Operating lease cost (1) |
| Cost of sales |
| $ | 1,070 |
|
| $ | 399 |
|
Operating lease cost (1) |
| Selling, general and administrative expenses |
|
| 551 |
|
|
| 441 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
| Cost of sales |
|
| 57 |
|
|
| — |
|
Interest expense on lease liabilities |
| Interest expense, net |
|
| 30 |
|
|
| — |
|
Total lease cost |
|
|
| $ | 1,708 |
|
| $ | 840 |
|
(1) | Includes short-term leases and variable lease costs, which are immaterial |
Supplemental cash flow information related to leases was as follows:
|
| For the Quarter Ended March 31, |
| |||||
Supplemental Cash Flow Information |
| 2021 |
|
| 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 1,252 |
|
| $ | 622 |
|
Operating cash flows from finance leases |
| $ | 30 |
|
| $ | — |
|
Financing cash flows from finance leases |
| $ | 40 |
|
| $ | — |
|
Right-of-use assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
|
|
Operating leases |
| $ | 3,523 |
|
| $ | — |
|
Finance leases |
| $ | 10,339 |
|
| $ | — |
|
Lease Term and Discount Rate |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Weighted-average remaining lease term (years): |
|
|
|
|
|
|
|
|
Operating leases |
|
| 6.53 |
|
|
| 5.66 |
|
Finance leases |
|
| 14.93 |
|
|
| — |
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 3.6 | % |
|
| 3.7 | % |
Finance leases |
|
| 3.5 | % |
|
| — |
|
Maturity of Lease Liabilities - As of March 31, 2021 |
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2021(1) |
| $ | 3,750 |
|
| $ | 630 |
|
| $ | 4,380 |
|
2022 |
|
| 4,433 |
|
|
| 840 |
|
|
| 5,273 |
|
2023 |
|
| 3,835 |
|
|
| 840 |
|
|
| 4,675 |
|
2024 |
|
| 2,472 |
|
|
| 861 |
|
|
| 3,333 |
|
2025 |
|
| 1,682 |
|
|
| 865 |
|
|
| 2,547 |
|
After 2025 |
|
| 6,827 |
|
|
| 9,273 |
|
|
| 16,100 |
|
Total lease payments |
|
| 22,999 |
|
|
| 13,309 |
|
|
| 36,308 |
|
Less: interest |
|
| (2,430 | ) |
|
| (3,010 | ) |
|
| (5,440 | ) |
Present value of lease liabilities |
| $ | 20,569 |
|
| $ | 10,299 |
|
| $ | 30,868 |
|
(1) | Represents amounts due in 2021 after March 31, 2021 |
In March 2021, a 15-year finance lease for a new manufacturing and distribution facility in Bristol, Indiana commenced. While the Company has taken possession of the new Bristol facility, construction remains in process as of March 31, 2021 to complete it for its intended use. As described in Note 5, this lease agreement was in connection with the Ameri-Kart Plan, which includes facility consolidation for this business within the Material Handling Segment.
17
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
16. Industry Segments
Using the criteria of ASC 280, Segment Reporting, theThe Company manages its business under two2 operating segments, Material Handling and Distribution, consistent with the manner in which ourthe Chief Operating Decision Maker (“CODM”) evaluates performance and makes resource allocation decisions. None of the reportable segments include operating segments that have been aggregated. These segments contain individual business components that have been combined on the basis of common management, customers, products, production processes and other economic characteristics. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.
The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products and rotationally-molded plastic tanks for water, fuel and waste handling. This segment conducts its primary operations in the United States but also operates in Brazil and Canada. Markets served encompass various niches ofinclude industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles and consumer, andamong others. Products are sold both directly to end-users and through distributors. The acquisition of Elkhart Plastics, described in Note 3, is included in the Material Handling Segment.
The Distribution Segment is engaged in the distribution of equipment, tools, and supplies used for tire servicing and automotive undervehicle repair and the manufacture of tire repair and retreading products. The product line includes categories such as tire valves and accessories, tire changing and balancing equipment, lifts and alignment equipment, service equipment and tools, and tire repair/retread supplies. The Distribution Segment also manufactures and sells certain traffic markings, including reflective highway marking tape. The Distribution Segment operates domestically through its sales offices and fourfive regional distribution centers in the United States, and in certain foreign countries through export sales. In addition, the Distribution Segment operates directly in certain foreign markets, principally Central America, through foreign branch operations. Markets served include retail and truck tire dealers, commercial auto and truck fleets, auto dealers, general service and repair centers, tire retreaders, and government agencies. The acquisition of Tuffy, described in Note 3, is included within the Distribution Segment.
Total sales from foreign business units were approximately $11.0 million and $9.0 million for the quarters ended March 31, 2021 and 2020, respectively.
Summarized segment detail for the threequarters ended March 31, 2021 and nine months ended September 30, 2017 and 20162020 are presented in the following table:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| For the Quarter Ended March 31, |
| |||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2021 |
|
| 2020 |
| ||||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
| $ | 104,089 |
|
| $ | 89,911 |
|
| $ | 310,343 |
|
| $ | 299,842 |
| $ | 129,893 |
|
| $ | 84,076 |
|
Distribution |
|
| 40,004 |
|
|
| 42,793 |
|
|
| 117,836 |
|
|
| 128,248 |
|
| 44,550 |
|
|
| 38,195 |
|
Inter-company sales |
|
| (18 | ) |
|
| (28 | ) |
|
| (98 | ) |
|
| (92 | ) |
| (14 | ) |
|
| (21 | ) |
Total net sales |
| $ | 144,075 |
|
| $ | 132,676 |
|
| $ | 428,081 |
|
| $ | 427,998 |
| $ | 174,429 |
|
| $ | 122,250 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating income |
|
|
|
|
|
|
| ||||||||||||||||
Material Handling | $ | 16,927 |
|
| $ | 15,167 |
| ||||||||||||||||
Distribution (1) |
| 1,438 |
|
|
| 1,850 |
| ||||||||||||||||
Corporate (1) (2) |
| (7,500 | ) |
|
| 6,281 |
| ||||||||||||||||
Total operating income |
| 10,865 |
|
|
| 23,298 |
| ||||||||||||||||
Interest expense, net |
| (995 | ) |
|
| (1,069 | ) | ||||||||||||||||
Income before income taxes | $ | 9,870 |
|
| $ | 22,229 |
|
Income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling |
| $ | 10,325 |
|
| $ | 4,378 |
|
| $ | 29,839 |
|
| $ | 26,152 |
|
Distribution |
|
| 3,179 |
|
|
| 3,301 |
|
|
| 7,742 |
|
|
| 9,803 |
|
Corporate |
|
| (6,393 | ) |
|
| (4,693 | ) |
|
| (17,532 | ) |
|
| (20,674 | ) |
Total operating income |
|
| 7,111 |
|
|
| 2,986 |
|
|
| 20,049 |
|
|
| 15,281 |
|
Interest expense, net |
|
| (1,785 | ) |
|
| (2,015 | ) |
|
| (5,545 | ) |
|
| (6,087 | ) |
Income from continuing operations before income taxes |
| $ | 5,326 |
|
| $ | 971 |
|
| $ | 14,504 |
|
| $ | 9,194 |
|
(1) | In the quarter ended March 31, 2021, the Company recognized $0.8 million of executive severance, of which $0.5 million was recognized in the Distribution Segment and $0.3 million was recognized in Corporate. This executive severance cost includes $0.5 million of severance and benefits and $0.3 million of charges for acceleration of stock compensation. |
(2) | In the quarter ended March 31, 2020, the Company recognized in Corporate an $11.9 million gain on the sale of notes receivable as described in Note 4. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the information incorporated by reference contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including information regarding the Company’s financial outlook, future plans, objectives, business prospects and anticipated financial performance. Forward-looking statements can be identified by words such as “will,” “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” or variations of these words, or similar expressions. These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, these statements inherently involve a wide range of inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. The Company’s actual actions, results, and financial condition may differ materially from what is expressed or implied by the forward-looking statements.
Specific factors that could cause such a difference include, without limitation, impacts from the novel coronavirus (“COVID-19”) pandemic on our business, operations, customers and capital position; the impact of COVID-19 on local, national and global economic conditions; the effects of various governmental responses to the COVID-19 pandemic; raw material availability, increases in raw material costs, or other production costs; risks associated with our strategic growth initiatives or the failure to achieve the anticipated benefits of such initiatives; unanticipated downturn in business relationships with customers or their purchases; competitive pressures on sales and pricing; changes in the markets for the Company’s business segments; changes in trends and demands in the markets in which the Company competes; operational problems at our manufacturing facilities or unexpected failures at those facilities; future economic and financial conditions in the United States and around the world; inability of the Company to meet future capital requirements; claims, litigation and regulatory actions against the Company; changes in laws and regulations affecting the Company; and other risks and uncertainties detailed from time to time in the Company’s filings with the SEC, including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.
Executive Overview
The Company conducts its business activities in two reportable segments: The Material Handling Segment and the Distribution Segment.
The Company designs, manufactures, and markets a variety of plastic and rubber products. The Material Handling Segment manufactures products that range from plastic reusable material handling containers and small parts storage bins to plastic OEM parts, custom plastic products, consumer fuel containers, military water containers as well as ammunition packaging and shipping containers. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading products.
The Company’s results of operations for the quarter ended March 31, 2021 are discussed below. In March 2020, the COVID-19 pandemic began to affect the U.S. economy and has created additional uncertainty for the Company’s operations. Regulatory actions in response to COVID-19 have varied across jurisdictions and have included closure of nonessential businesses. While the effects from the pandemic appear to be improving compared to 2020, the duration and extent of these measures put in place to slow the spread of COVID-19 remain unknown, including possible reimplementation of any measures that have been removed or relaxed. Through the date of this report, most of the Company’s businesses are considered essential because they supply food and agricultural, automotive, healthcare, industrial and consumer end markets. Accordingly, those businesses have continued to operate. During 2020, the Company experienced temporary closures of certain facilities as a result of the pandemic, including certain manufacturing facilities in the Material Handling Segment and our Distribution business in Central America, in parts of March and April 2020. Beyond the impact of these temporary closures, some of our businesses have been and may continue to be affected by the broader economic effects from COVID-19 and related regulatory actions, including customer demand for our products. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base.
Results of Operations:
Comparison of the Three MonthsQuarter Ended September 30, 2017March 31, 2021 to the Three MonthsQuarter Ended September 30, 2016March 31, 2020
Net Sales:
(dollars in millions) |
| Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||
Segment |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||||||
Material Handling |
| $ | 104.1 |
|
| $ | 89.9 |
|
| $ | 14.2 |
|
|
| 16 | % |
| $ | 129,893 |
|
| $ | 84,076 |
|
| $ | 45,817 |
|
|
| 54 | % |
Distribution |
|
| 40.0 |
|
|
| 42.8 |
|
|
| (2.8 | ) |
|
| (7 | )% |
|
| 44,550 |
|
|
| 38,195 |
|
|
| 6,355 |
|
|
| 17 | % |
Inter-company sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| (14 | ) |
|
| (21 | ) |
|
| 7 |
|
|
|
|
|
Total net sales |
| $ | 144.1 |
|
| $ | 132.7 |
|
| $ | 11.4 |
|
|
| 9 | % |
| $ | 174,429 |
|
| $ | 122,250 |
|
| $ | 52,179 |
|
|
| 43 | % |
Net sales for the three monthsquarter ended September 30, 2017March 31, 2021 were $144.1$174.4 million, an increase of $11.4$52.2 million or 9%43% compared to the three monthsquarter ended September 30, 2016.March 31, 2020. Net sales were positively impacted byincreased due to higher volume/mix of $24.2 million and due to $27.1 million of incremental sales volumefrom the Elkhart Plastics acquisition in the Material Handling Segment on November 10, 2020. Elkhart Plastic’s historical annual sales are approximately $100 million. Net sales also increased due to the effect of approximately $9.5favorable currency translation of $0.6 million and due to higher pricing of $1.2$0.3 million. In late February and again in March 2021, the Company announced two pricing increases across a majority of its portfolio of products in response to rapidly rising raw material costs. The Company expects these pricing increases to contribute to higher net sales, particularly in the Material Handling Segment, as the pricing changes take effect. Comparisons to 2020 are also affected by the onset of the COVID-19 pandemic in March 2020.
Net sales in the Material Handling Segment increased $45.8 million or 54% for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020. Net sales increased due to higher volume/mix of $17.6 million across all markets and due to $27.1 million of incremental sales due to the Elkhart Plastics acquisition in the Material Handling Segment on November 10, 2020. Net sales also increased due to higher pricing of $0.5 million and the effect of favorable currency translation of $0.7 million.
Net sales in the Material Handling Segment increased $14.2 million or 16% for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase in net sales was primarily due to higher sales volume of approximately $12.8 million, mainly due to increased demand in the Company’s consumer and food and beverage markets, higher pricing of $0.7 million, and the effect of favorable foreign currency translation of $0.7$0.6 million.
Net sales in the Distribution Segment decreased $2.8increased $6.4 million or 7%17% for the three monthsquarter ended September 30, 2017March 31, 2021 compared to the three monthsquarter ended September 30, 2016,March 31, 2020, primarily theas a result of lower saleshigher volume of approximately $3.3$6.6 million partially offset by higherlower pricing of $0.5$0.2 million.
Cost of Sales & Gross Profit:
|
| Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||||||
Cost of sales |
| $ | 103.3 |
|
| $ | 96.8 |
|
| $ | 6.5 |
|
|
| 7 | % |
| $ | 124,016 |
|
| $ | 79,767 |
|
| $ | 44,249 |
|
|
| 55 | % |
Gross profit |
| $ | 40.7 |
|
| $ | 35.9 |
|
| $ | 4.8 |
|
|
| 13 | % |
| $ | 50,413 |
|
| $ | 42,483 |
|
| $ | 7,930 |
|
|
| 19 | % |
Gross profit as a percentage of sales |
|
| 28.3 | % |
|
| 27.1 | % |
|
|
|
|
|
|
|
|
|
| 28.9 | % |
|
| 34.8 | % |
|
|
|
|
|
|
|
|
Gross profit margin increased to 28.3% in$7.9 million, or 19%, for the three monthsquarter ended September 30, 2017March 31, 2021 compared to 27.1% for the three monthsquarter ended September 30, 2016, primarilyMarch 31, 2020, due to improved mix withinincreased contribution from sales volume described under Net Sales above, the higher sales volumes noted above, mainly in the food and beverage and consumer end markets, as well as the higher pricing of $1.2 million. These effects wereElkhart Plastics acquisition on November 10, 2020, partially offset by restructuring costs of $1.9 million within the Material Handling Segment, as well asunfavorable price to cost relationship from higher commodity raw material costs.costs, an unfavorable sales mix, and higher manufacturing costs including labor.
Selling, General and Administrative Expenses:
|
| Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||||||
SG&A expenses |
| $ | 36.4 |
|
| $ | 32.6 |
|
| $ | 3.8 |
|
|
| 12 | % |
| $ | 39,548 |
|
| $ | 31,116 |
|
| $ | 8,432 |
|
|
| 27 | % |
SG&A expenses as a percentage of sales |
|
| 25.3 | % |
|
| 24.6 | % |
|
|
|
|
|
|
|
|
|
| 22.7 | % |
|
| 25.5 | % |
|
|
|
|
|
|
|
|
Selling, general and administrative (“SG&A”) expenses for the three monthsquarter ended September 30, 2017March 31, 2021 were $36.4$39.5 million, an increase of $3.8$8.4 million or 12%27% compared to the same period in the prior year. Increases in SG&A expenses in the thirdfirst quarter 20172021 were impacted byprimarily due to $3.7 million of incremental SG&A from the November 10, 2020 Elkhart Plastics acquisition and $3.1 million of higher incentive compensation cost accruals, which were low in the 2020 comparison period because achievement thresholds were not expected to be met due to the COVID-19 pandemic. SG&A expenses also increased due to $0.7 million of $3.9 million.
higher legal and professional fees and a $0.8 million charge related to executive severance, inclusive of $0.3 million of stock compensation acceleration.
Restructuring:Gain on Sale of Notes Receivable:
As furtherDuring the quarter ended March 31, 2020, the Company recorded a pre-tax gain of $11.9 million related to the sale to HC of the fully-reserved promissory notes and related accrued interest receivable in exchange for $1.2 million and the release from a lease guarantee with a carrying value of $10.7 million related to one of HC’s facilities as discussed in Note 4, the Company continued to execute on the restructuring plan within the Material Handling Segment initiated in the first quarter of 2017. The Company incurred a total of $2.1 million of restructuring costs in connection with the Plan during the three months ended September 30, 2017, as well as recognized $2.8 million in gains on sales of assets related to the closure and sale of the Bluffton, Indiana facility and certain related equipment.
As previously announced, the Company expects to save approximately $10 million on an annual basis as a result of the actions under the Plan, a portion of which began being realized starting in the third quarter of 2017. The Plan is expected to be substantially completed by the end of 2017.4.
Net Interest Expense:
|
| Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||||||
Net interest expense |
| $ | 1.8 |
|
| $ | 2.0 |
|
| $ | (0.2 | ) |
|
| (10 | )% |
| $ | 995 |
|
| $ | 1,069 |
|
| $ | (74 | ) |
|
| (7 | )% |
Outstanding borrowings, net of deferred financing costs |
| $ | 158.0 |
|
| $ | 197.9 |
|
| $ | (39.9 | ) |
|
| (20 | )% | ||||||||||||||||
Average borrowing rate |
|
| 5.18 | % |
|
| 4.65 | % |
|
|
|
|
|
|
|
| ||||||||||||||||
Average outstanding borrowings, net |
| $ | 73,833 |
|
| $ | 78,000 |
|
| $ | (4,167 | ) |
|
| (5 | )% | ||||||||||||||||
Weighted-average borrowing rate |
|
| 5.33 | % |
|
| 6.24 | % |
|
|
|
|
|
|
|
|
Net interest expense for the three monthsquarter ended September 30, 2017March 31, 2021 was $1.0 million, a decrease of $1.8$0.1 million, decreased 10%or 7%, compared with $2.0$1.1 million for the three monthsquarter ended September 30, 2016. Lower average outstandingMarch 31, 2020. The lower net interest expense was due to the lower borrowing rate and lower borrowings forin the period were partially offset with a higher average borrowing rate.current year.
Income Taxes:
|
| Three Months Ended September 30, |
|
| Quarter Ended March 31, |
| ||||||||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
Income from continuing operations before income taxes |
| $ | 5.3 |
|
| $ | 1.0 |
|
| $ | 9,870 |
|
| $ | 22,229 |
|
Income tax expense |
| $ | 2.1 |
|
| $ | 0.5 |
|
| $ | 2,565 |
|
| $ | 5,503 |
|
Effective tax rate |
|
| 38.5 | % |
|
| 56.3 | % |
|
| 26.0 | % |
|
| 24.8 | % |
The Company’s effective tax rate of 38.5%was 26.0% for the three monthsquarter ended September 30, 2017, decreased whenMarch 31, 2021, compared with 56.3%to 24.8% for the three monthsquarter ended September 30, 2016, primarily due to the mix of income by jurisdiction between periods, including those where no benefits are recognized on losses.
Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016
Net Sales:
(dollars in millions) |
| Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
| |||||
Segment |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Material Handling |
| $ | 310.3 |
|
| $ | 299.8 |
|
| $ | 10.5 |
|
|
| 4 | % |
Distribution |
|
| 117.9 |
|
|
| 128.3 |
|
|
| (10.4 | ) |
|
| (8 | )% |
Inter-company elimination |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| — |
|
|
|
|
|
Total net sales |
| $ | 428.1 |
|
| $ | 428.0 |
|
| $ | 0.1 |
|
|
| 0 | % |
Net sales for the nine months ended September 30, 2017 were $428.1 million and were relatively flat with the nine months ended September 30, 2016. Net sales were negatively impacted by lower sales volume of approximately $4.0 million, offset by the effect of favorable foreign currency translation of approximately $2.2 million and higher pricing of $1.9 million.
Net sales in the Material Handling Segment increased $10.5 million or 4% for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.March 31, 2020. The increase in net sales was due to higher sales volume of $6.7 million, mainly in the consumer and food and beverage markets, higher pricing of $1.6 million, and the effect of favorable foreign currency translation of $2.2 million.
Net sales in the Distribution Segment decreased $10.4 million or 8% for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to lower volume. The decrease in volume was across all product lines and regions, including our export and international channels.
Cost of Sales & Gross Profit:
|
| Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Cost of sales |
| $ | 306.1 |
|
| $ | 299.4 |
|
| $ | 6.7 |
|
|
| 2 | % |
Gross profit |
| $ | 122.0 |
|
| $ | 128.6 |
|
| $ | (6.6 | ) |
|
| (5 | )% |
Gross profit as a percentage of sales |
|
| 28.5 | % |
|
| 30.1 | % |
|
|
|
|
|
|
|
|
Gross profit margin decreased to 28.5% in the nine months ended September 30, 2017 compared to 30.1% for the nine months ended September 30, 2016, primarily due to higher raw material costs and operating inefficiencies, as well as restructuring costs of $7.0 million within the Material Handling Segment. These impacts were partially offset by higher pricing and a favorable sales mix.
Selling, General and Administrative Expenses:
|
| Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
SG&A expenses |
| $ | 105.6 |
|
| $ | 103.1 |
|
| $ | 2.5 |
|
|
| 2 | % |
SG&A expenses as a percentage of sales |
|
| 24.7 | % |
|
| 24.1 | % |
|
|
|
|
|
|
|
|
SG&A expenses for the nine months ended September 30, 2017 were $105.6 million, an increase of $2.5 million or 2% compared to the same period in the prior year. SG&A expenses in the first nine months of 2017 were primarily impacted by higher severance, compensation and benefits of approximately $1.2 million and higher legal and professional fees of $1.3 million.
Impairment Charges:
During the nine months ended September 30, 2017, the Company recorded an impairment charge of $0.5 million related to assets held for sale at its Scarborough, Ontario, Canada location, as discussed in Note 2.
The Company recorded $9.9 million of non-cash impairment charges, primarily related to its Plasticos Novel do Nordeste S.A. (“Novel”) reporting unit during the nine months ended September 30, 2016, as discussed in Note 2.
As further discussed in Note 4, the Company initiated a restructuring plan in the first quarter of 2017 to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment. The Company has incurred a total of $7.1 million of restructuring costs in connection with the Plan during the nine months ended September 30, 2017, with additional costs under the Plan of approximately $0.8 million expected through the end of 2017. The Company also recorded $4.1 million in gains on sales of assets in the nine months ended September 30, 2017 related to the closure and sale of the Bluffton, Indiana facility and certain related equipment.
As previously announced, the Company expects to save approximately $10 million on an annual basis as a result of the actions under the Plan, a portion of which began being realized starting in the third quarter of 2017. The Plan is to be substantially completed by the end of 2017.
Net Interest Expense:
|
| Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2017 |
|
| 2016 |
|
| Change |
|
| % Change |
| ||||
Net interest expense |
| $ | 5.5 |
|
| $ | 6.1 |
|
| $ | (0.6 | ) |
|
| (10 | )% |
Outstanding borrowings, net of deferred financing costs |
| $ | 158.0 |
|
| $ | 197.9 |
|
| $ | (39.9 | ) |
|
| (20 | )% |
Average borrowing rate |
|
| 5.05 | % |
|
| 4.61 | % |
|
|
|
|
|
|
|
|
Net interest expense for the nine months ended September 30, 2017 was $5.5 million compared to $6.1 million during the nine months ended September 30, 2016. The decrease in net interest expense is due to lower average outstanding borrowings during the nine months ended September 30, 2017 as compared to the same period in 2016, partially offset by a slightly higher borrowing rate.
Income Taxes:
|
| Nine Months Ended September 30, |
| |||||
(dollars in millions) |
| 2017 |
|
| 2016 |
| ||
Income from continuing operations before income taxes |
| $ | 14.5 |
|
| $ | 9.2 |
|
Income tax expense |
| $ | 6.1 |
|
| $ | 6.4 |
|
Effective tax rate |
|
| 42.0 | % |
|
| 69.8 | % |
The effective income tax rate for the nine months ended September 30, 2017 was different than the Company’s effective tax rate forwas primarily the same period in 2016, primarily due to losses in jurisdictions where the tax benefits are not recognized, which included the impairment charges in Brazil in 2016.result of higher non-deductible expenses.
Financial Condition & Liquidity and Capital Resources:
The Company’s primary sources of liquidity are cash on hand, cash generated from operations and availability under the Loan Agreement (defined below). At March 31, 2021, the Company had $16.7 million of cash, $211.2 million available under the Loan Agreement and outstanding debt of $81.3 million, including the finance lease liability of $10.3 million. Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to manage through the uncertainty caused by COVID-19. The Company believes that cash on hand, cash flows from operations and available capacity under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth, including selective acquisitions.
Operating Activities
CashNet cash provided by operating activities from continuing operations was $36.1$6.6 million for the nine monthsquarter ended September 30, 2017,March 31, 2021, compared to $18.6$5.0 million in the same period in 2016.2020. The improvementincrease was primarily due to an increase in cash provided by working capitalhigher volume of $22.5 million, which resulted from a swingsales in the cash providedcurrent year, partly offset by (used for) accounts payable and accrued expenses.timing of annual insurance premium payments.
Investing Activities
Cash providedNet cash used by investing activities from continuing operations was $2.9$6.5 million for the nine monthsquarter ended September 30, 2017March 31, 2021 compared to cash used of $15.3$2.0 million for the nine months ended September 30, 2016. Thesame period in 2020. In 2021, the Company paid the working capital adjustment of $1.2 million related to the November 10, 2020 acquisition of Elkhart Plastics as discussed in Note 3. In 2020, the Company paid a final working capital adjustment of $0.7 million related to the buyer2019 acquisition of the Lawn and Garden business of approximately $4.0 million in the first quarter of 2016,Tuffy as describeddiscussed in Note 3. The Company3, and received proceeds of $8.1 million in the first nine months of 2017 from the sale of fixed assets, a significant portionnotes receivable of which was derived from the sale of the Company’s Bluffton, Indiana facility and related equipment$1.2 million as part of the Material Handling restructuring plan.discussed in Note 4. Capital expenditures were $5.1$5.2 million and $11.5$2.5 million for the nine monthsquarter ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Full year 2021 capital expenditures in 2017 are expected to be approximately $7 to $9$15 million.
Cash used for financing activities was $11.8 million for the quarter ended March 31, 2021 compared to $5.1 million for the same period in 2020. The Company repaid the $40.0 million Senior Unsecured Note that matured in January 2021 with a combination of cash and proceeds under the Loan Agreement (defined below). Net paymentsborrowings on the credit facility were $31.4 million for the nine monthsquarter ended September 30, 2017 compared to net borrowings of $4.4 millionMarch 31, 2021 were $33.0 million. Fees paid for the nine months ended September 30, 2016.amendment and extension of the Loan Agreement in March 2021 totaled $1.1 million. Net proceeds from the issuance of common stock in connection with incentive stock option exercises were $1.2 million. The Company also used cash to pay dividends of $12.2 million and $12.1$4.9 million for each of the nine monthsquarters ended September 30, 2017March 31, 2021 and 2016, respectively. 2020.
In March 2021, a 15-year finance lease for a new manufacturing and distribution facility in Bristol, Indiana commenced. While the Company has taken possession of the new Bristol facility, construction remains in process as of March 31, 2021 to complete it for its intended use. As further described in Note 5, this lease agreement was in connection with a plan for consolidation of the Ameri-Kart rotational molding facilities within the Material Handling Segment. As of March 31, 2021, the balance of the finance lease liability is $10.3 million, of which $0.5 million is classified as current.
Credit Sources
In March 2017,2021, the Company entered into a Sixth Amended and Restated Loan Agreement (the “Sixth Amendment”), which amended the Fifth Amended and Restated Loan Agreement (the(collectively, the “Loan Agreement”). dated March 2017. The Loan Agreement replacedSixth Amendment increased the pre-existing $300 million senior revolving credit facility with afacility’s borrowing limit to $250 million from $200 million, facility and extended the term from December 2018maturity date to March 2022. In addition,2024 from March 2022, and increased flexibility of the financial and other covenants and provisions.
As of March 31, 2021, $211.2 million was available under the Loan Agreement, provides for a maximum Leverage Ratio of 3.75 for the firstafter borrowings and second quarters of 2017, stepping down to 3.5 in the third quarter of 2017, and 3.25 thereafter.
Total debt outstanding at September 30, 2017 was $158.0 million, net of $1.8$5.8 million of deferred financing costs, compared with $189.5 million at December 31, 2016. The Company’s Loan Agreement provides available borrowing up to $200 million, reduced for letters of credit issued. As of September 30, 2017, the Company had $4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business, and there was $135.8including the $2 million availableprovided to the EPA as discussed in Note 11. Borrowings under ourthe Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the eurocurrency reference rate depending on the type of loan requested by the Company, in each case plus the applicable margin as set forth in the Loan Agreement.
At March 31, 2021, $38 million face value of Senior Unsecured Notes are outstanding. The series of notes range in face value from $11 million to $15 million, with interest rates ranging from 5.25% to 5.45%, payable semiannually As described in Note 12, $26.0 million of the Senior Unsecured Notes mature on January 15, 2024 and $12.0 million mature on January 15, 2026.
As of September 30, 2017,March 31, 2021, the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company’s debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a leverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of and for the period ended September 30, 2017March 31, 2021 are shown in the following table:
|
| Required Level |
| Actual Level |
| |
Interest Coverage Ratio |
| 3.00 to 1 (minimum) |
|
|
|
|
Leverage Ratio |
|
|
|
|
|
|
In September 2017, the Company made an offer to all holders of the $100 million Senior Unsecured Notes (“Notes”) to purchase all or a portion of the Notes prior to their maturity dates. In October 2017, one note holder accepted the offer and elected to tender $22 million in Notes. The Company purchased the Notes from the holder on October 31, 2017 and a loss on extinguishment of debt of approximately $1.9 million was recorded during the fourth quarter of 2017.
The Company believes that cash flows from operations and available borrowing under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, and debt service.
Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk
Interest Rate Risk
The Company has certain financing arrangements that require interest payments based on floating interest rates. Therates, and to that extent, the Company’s financial results are subject to changes in the market rate of interest. Borrowings under the Loan Agreement bear interest at the LIBOR, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the euro currency reference rate depending on the type of loan requested by the Company, plus the applicable margin as set forth in the Loan Agreement. 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, basedThe Financial Conduct Authority in the United Kingdom has stated that it will not require banks to submit LIBOR beyond 2021. The Company does not anticipate a significant impact to its financial position as a result of this action given its current mix of fixed- and variable-rate debt. Based on current debt levels at September 30, 2017, March 31, 2021, if market interest rates increase one percent, the Company’s interest expense would increase approximately $0.6$0.3 million annually.annually.
SomeForeign Currency Exchange Risk
Certain of the Company’s subsidiaries operate in foreign countries and their financial results are subject to exchange rate movements. The Company has operations in Canada with foreign currency exposure, primarily due to U.S. dollar sales made from businesses in Canada to customers in the United States (“U.S.”). These sales are denominated in U.S. dollars.States. The Company has a systematic program to limit its exposure to fluctuations in exchange rates related to certain assets and liabilities of its operations in Canada and Brazil that are denominated in U.S. dollars. The net exposure generally ranges from $2$1 million to $7$3 million. The foreign currency contracts and arrangements created under this program are not designated as hedged items under ASC 815, Derivatives and Hedging, and accordingly, the changes in the fair value of the foreign currency arrangements, which have been immaterial, are recorded in the statementsCondensed Consolidated Statements of operations.Operations (Unaudited). The Company’s foreign currency arrangements are typically three months or less and are settled before the end of a reporting period. At September 30, 2017,March 31, 2021, the Company had no foreign currency arrangements or contracts in place.
Commodity Price Risk
The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. The cost of operations can be affected as the market for these commodities changes. The Company 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. Significant future increases in the cost of plastic resin or other adverse changes in the general economic environment could have a material adverse impact on the Company’s financial position, results of operations or cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’sSEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
The Company carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2021.
Changes in Internal Control Over Financial Reporting
On November 10, 2020, the Company acquired the assets of Elkhart Plastics. As permitted by SEC rules and regulations, the scope of management’s evaluation of internal control over financial reporting as of March 31, 2021 did not include an evaluation of the internal control over financial reporting of Elkhart Plastics. However, we are extending our oversight and monitoring processes that support our review of internal control over financial reporting to include Elkhart Plastic’s operations.
During the nine monthsquarter ended September 30, 2017,March 31, 2021, there have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Certain legal proceedings in which the Company is involved are discussed in Note 10,11, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report, and Part I, Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2020. The Company’s disclosures relating to legal proceedings in Note 11, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report is incorporated into Part II of this report by reference. The Company is a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in part by insurance. We believe that the outcome of these lawsuits and other proceedings will not individually or in the aggregate have a future material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 11, 2013,(c)The following table presents information regarding the Board authorized theCompany’s stock repurchase of up to 5.0 million shares of its common stock. This authorization was in addition to the 2011 Board authorized repurchase of up to 5.0 million shares. The Company completed the repurchase of approximately 2.0 million shares in 2011 pursuant to Rule 10b5-1 plans, which were adopted pursuant to the 2011 authorized share repurchase. The Company has repurchased a total of 5,547,665 shares of its common stock under this program and as of September 30, 2017, 2,452,335 shares of common stock remain available for repurchase under the Board authorization. The Company did not repurchase any shares of its common stockplan during the three or nine monthsquarter ended September 30, 2017.March 31, 2021:
|
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs |
|
| Maximum number of Shares that may yet be Purchased Under the Plans or Programs (1) |
| ||||
1/1/2021 to 1/31/2021 |
|
| — |
|
| $ | — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
2/1/2021 to 2/28/2021 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
3/1/2021 to 3/31/2021 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
(1) | On July 11, 2013, the Board authorized the repurchase of up to 5.0 million shares of the Company’s common stock. This authorization was in addition to the 2011 Board authorized repurchase of up to 5.0 million shares. The Company completed the repurchase of approximately 2.0 million shares in 2011 pursuant to Rule 10b5-1 plans, which were adopted pursuant to the 2011 authorized share repurchase. |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | Form of Indemnification Agreement for Directors and Officers. (filed herewith) | |
10.5 | ||
10.6 | ||
10.7 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101 | The following financial information from Myers Industries, Inc. Quarterly Report on Form 10-Q for the quarterly period ended | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | Indicates executive compensation plan or arrangement. |
|
|
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. | |
|
| |
|
| |
May 6, 2021 | /s/ Sonal P. Robinson | |
Sonal P. Robinson | ||
| Executive Vice President and Chief Financial Officer (Principal Financial | |
|
| |
| ||
|
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