mye-10k_20181231.htm

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED December 31, 2018

COMMISSION FILE NUMBER 001-08524

MYERS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

OHIO

34-0778636

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification Number)

 

1293 S. MAIN STREET, AKRON, OHIO

(Address of Principal Executive Offices)

44301

(Zip Code)

(330) 253-5592

(Telephone Number)

 

Securities Registered Pursuant to

Section 12(b) of the Act:

Name of Each Exchange

On which registered:

Common Stock, Without Par Value

(Title of Class)

New York Stock Exchange

 

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the Registrant is 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.

 

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 Act).    Yes      No  

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing sale price on the New York Stock Exchange as of June 29, 2018: $453,079,680

Indicate the number of shares outstanding of registrant’s common stock as of February 28, 2019: 35,376,498 Shares of Common Stock, without par value.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

 

 

 


 

TABLE OF CONTENTS

 

PART I

 

 

 

ITEM 1. Business

3

 

ITEM 1A. Risk Factors

8

 

ITEM 1B. Unresolved Staff Comments

13

 

ITEM 2. Properties

14

 

ITEM 3. Legal Proceedings

15

 

 

 

PART II

 

 

 

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

 

ITEM 6. Selected Financial Data

20

 

ITEM 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition

21

 

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

29

 

ITEM 8. Financial Statements and Supplementary Data

30

 

Report of Independent Registered Public Accounting Firm

30

 

Consolidated Statements of Operations

31

 

Consolidated Statements of Comprehensive Income (Loss)

32

 

Consolidated Statements of Financial Position

33

 

Consolidated Statements of Shareholders’ Equity

34

 

Consolidated Statements of Cash Flows

35

 

Notes to Consolidated Financial Statements

36

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

60

 

ITEM 9A. Controls and Procedures

60

 

ITEM 9B. Other Information

61

 

 

 

Part III

 

 

 

ITEM 10. Directors and Executive Officers of the Registrant

62

 

ITEM 11. Executive Compensation

62

 

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

62

 

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

62

 

ITEM 14. Principal Accounting Fees and Services

62

 

 

 

PART IV

 

 

 

ITEM 15. Exhibits, Financial Statement Schedules

63

 

 

SIGNATURES

66

 

Exhibit 21

 

 

Exhibit 23

 

 

Exhibit 31(a)

 

 

Exhibit 31(b)

 

 

Exhibit 32

 

 

Exhibit 101

 

 

 

 

 


 

PART I

ITEM 1.

Business

General Development of Business

Myers Industries, Inc. (the “Company”) was founded in Akron, Ohio, in 1933. The terms “Myers Industries,” “Company,” “we,” “us,” or “our” wherever used herein refer to the Company, unless the context indicates to the contrary. Since its founding, the Company has grown from a small storefront distributing tire service supplies into an international manufacturing and distribution enterprise. In 1971, the Company went public, and the stock is traded on the New York Stock Exchange under the ticker symbol MYE.

Headquartered in Akron, Ohio, the Company manufactures a diverse range of polymer products for industrial, agricultural, automotive, commercial, and consumer markets. Myers Industries is a leader in the manufacturing of plastic reusable material handling containers and pallets, and plastic fuel tanks. Other principal product lines include plastic storage and organization containers, rubber tire repair products and custom plastic and rubber products.

The Company is also the largest distributor of tools, equipment and supplies for the tire, wheel and undervehicle service industry in the United States. The distribution products range from tire balancers and alignment systems to valve caps, tire repair tools and other consumable service supplies.

As of December 31, 2018, the Company operated eight manufacturing facilities, 15 sales offices, four distribution centers and three distribution branches located throughout North and Central America; and had approximately 1,800 employees.

Serving customers around the world, Myers Industries’ brands provide safety and efficiency solutions to a wide variety of customers in diverse niche markets. Myers Industries’ diverse products and solutions help customers improve shop productivity with point of use inventory, store and transport products more safely and efficiently, improve sustainability through reuse, lower overall material handling costs, improve ergonomics for their labor force, eliminate waste and ultimately increase profitability.  Myers Industries’ employees think and act like owners, implementing long term improvements both internally and for their customers.

The Company’s business strategy is guided by the following key operating principles: 1) niche market focus, 2) flexible operations, and 3) strong cash flow growth. Applying these principles to our business, management emphasizes:

 

Customer intimacy - #1 or #2 in each served market;

 

Strong brands;

 

Process driven, simplified, lean operating principles;

 

Manufacturing only value-added components and products;

 

An asset light business model; and

 

Cash return on investment.

The Company continually reviews its segments and brands for strategic fit and growth potential. The review process is dedicated to furthering innovation and brand leadership in niche markets, building strong customer relationships and positioning the Company for strong financial performance.

Description of Business

The Company conducts its business activities in two distinct business segments, Material Handling and Distribution, consistent with the manner in which the Company’s Chief Operating Decision Maker evaluates performance and makes resource allocation decisions.

In our Material Handling Segment, we design, manufacture, and market a variety of plastic and metal products. These range from plastic reusable material handling containers and small parts storage bins to plastic recreational vehicle (“RV”) tanks and parts, marine tanks and parts, portable plastic fuel tanks and water containers, portable marine fuel containers, ammunition containers, storage totes, bulk shipping containers and metal carts and cabinets. The Material Handling Segment conducts operations in the United States and Canada. Markets served include industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, consumer, and others. Products are sold both directly to end-users and through distributors.

3


 

The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and undervehicle service on passenger, heavy truck and off-road vehicles and the manufacturing of tire repair materials and custom rubber products. The product line includes categories such as tire valves and accessories, lifts and alignment equipment, service equipment and tools, and tire repair/retread supplies. The Distribution Segment operates domestically through its sales offices and four 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.

Information regarding the revenues of each segment classified as continuing operations is contained in the Industry Segments footnote of the Notes to Consolidated Financial Statements under Item 8 of this report.

In December 2017, the Company approved and completed the sale of its subsidiaries Myers do Brasil Embalagens Plasticas Ltda. and Plasticos Novel do Nordeste Ltda. (collectively, the “Brazil Business”) to allow the Company to focus resources on its core businesses and additional growth opportunities. The Brazil Business designed and manufactured reusable plastic shipping containers, plastic pallets, crates and totes used for closed loop-shipping and storage in Brazil’s automotive, distribution, food, beverage and agriculture industries. The operating results for the Brazil Business are classified as discontinued operations in the Consolidated Statements of Operations under Items 6 and 8 of this report. The Brazil Business was part of the Material Handling Segment.

During the second quarter of 2014, the Company’s Board of Directors approved the commencement of the sale process to divest its Lawn and Garden business to allow it to focus resources on core growth platforms. The divestiture of the Lawn and Garden business was completed in February 2015 and was sold to an entity controlled by Wingate Partners V, L.P. (“L&G Buyer”) and is now named HC Companies, Inc. (“HC”). The Lawn and Garden business served the North American horticulture market with plastic products such as seedling trays, nursery products, hanging baskets, custom print containers as well as decorative resin planters. The operating results for the Lawn and Garden business are classified as discontinued operations in the Consolidated Statements of Operations under Items 6 and 8 of this report.

 

4


 

The following table summarizes the key attributes of the business segments for the year ended December 31, 2018:

 

Material Handling Segment

 

Net

Sales

 

Key Product Areas

 

Product Brands

 

Key Capabilities &

Services

 

Representative Markets

 

$417.2

Plastic Reusable Containers &

Akro-Mils™

Product Design

Agriculture

 

74%

 

Pallets

Jamco Products

Prototyping

Automotive

 

 

Plastic Storage &

Buckhorn®

Product Testing

Commercial

 

 

 

Organizational Products

Ameri-Kart®

Material Formulation

Food Processing

 

 

Plastic Carts

Scepter

Injection Molding

Food Distribution

 

 

Metal Carts

 

 

Structural Foam Molding

Healthcare

 

 

Metal Cabinets

 

 

Metal Forming

Industrial

 

 

Wooden Dollies

 

 

Stainless Steel Forming

Manufacturing

 

 

Custom Products

 

 

Wood Fabrication

Retail Distribution

 

 

 

 

 

 

Powder Coating

Wholesale Distribution

 

 

 

 

 

 

Material Regrind & Recycling

Consumer

 

 

 

 

 

 

Plastic Blow Molding

Recreational Vehicle

 

 

 

 

 

 

Plastic Rotational Molding

Marine

 

 

 

 

 

 

Thermoforming

Military

 

 

 

 

 

 

Infrared Welding

Food & Beverage

 

 

 

 

 

 

 

 

Custom

 

 

 

 

 

 

 

 

 

 

 

Distribution Segment

 

Net

Sales

 

Key Product Areas

 

Product Brands

 

Key Capabilities &

Services

 

Representative Markets

 

$149.6

Tire Valves & Accessories

Myers Tire Supply®

Broad Sales Coverage

Retail Tire Dealers

 

26%

Tire Changing &

Myers Tire Supply

Local Sales

Truck Tire Dealers

 

 

 

Balancing Equipment

 

International™

Four Strategically Placed

Auto Dealers

 

 

Lifts & Alignment Equipment

Patch Rubber Company®

 

Distribution Centers

Commercial Auto & Truck

 

 

Service Equipment

Elrick

International Distribution

 

Fleets

 

 

Hand Tools

Fleetline

Personalized Service

General Repair & Services

 

 

Tire Repair & Retread

MTS

National Accounts

 

Facilities

 

 

 

Equipment & Supplies

Phoenix

Product Training

Tire Retreaders

 

 

Brake, Transmission & Allied

Seymoure

Repair/Service Training

Tire Repair

 

 

 

Service Equipment & Supplies

 

 

New Products/Services

Governmental Agencies

 

 

Highway Markings

 

 

 

“Speed to Market”

Telecommunications

 

 

Industrial Rubber

 

 

Rubber Mixing

Industrial

 

 

General Shop Supplies

 

 

Rubber Compounding

Road Construction

 

 

Tire Pressure Monitoring System

 

 

Rubber Calendaring

Mining

 

 

 

 

 

 

Tiered Product Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

 


5


 

Segments Overview

Material Handling Segment

The Material Handling Segment manufactures highly engineered polymer packaging containers, storage and safety products, and specialty molded parts. The brands within this segment include Buckhorn®, Akro-Mils, Jamco Products, Ameri-Kart®, and Scepter.

Buckhorn’s reusable containers and pallets are used in closed-loop supply chain systems to help customers improve product protection, increase handling efficiencies, reduce freight costs and eliminate solid waste and disposal costs.  Buckhorn offers products to replace costly single use cardboard boxes, wooden pallets, and steel containers. The product line is among the broadest in the industry and includes injection-molded and structural foam-molded constructions.  Buckhorn’s product lines include hand-held containers used for inventory control, order management and transportation of retail goods; collapsible and fixed-wall bulk transport containers for light and heavy-duty tasks; intermediate bulk containers for the storage and transport of food, liquid, powder, and granular products; plastic pallets; and specialty boxes designed for storage of items such as seed. Buckhorn also produces a wide variety of specialty products designed for niche applications and custom products designed according to exact customer specifications.

Akro-Mils material handling products provide customers everything they need to store, organize and transport a wide range of goods while increasing overall productivity and profitability.  Serving industrial and commercial markets, Akro-Mils products range from AkroBins® — the industry’s leading small parts bins — to Super-Size AkroBins, metal panel and bin hanging systems, metal storage cabinet and bin systems, wire shelving systems, plastic and metal transport carts and a wide variety of custom storage and transport products. Akro-Mils products deliver storage and organization solutions in a wide variety of applications, from creating assembly line workstations to organizing medical supplies and retail displays. Emphasis is placed on product bundling and customizing systems to create specific storage and organization configurations for customers’ operations.

Jamco Products is well established in industrial and commercial markets with its wide selection of welded steel service carts, platform trucks, mobile work centers, racks and cabinets for plastic bins, safety cabinets, medical cylinder carts and more. Jamco Products’ strong product offering, relationships with industrial distributors and reputation for quality and service complements Myers Industries’ existing Material Handling businesses.

Ameri-Kart is an industry leading manufacturer and thermoformer of rotational-molded water, fuel and waste handling tanks, plastic trim and interior parts used in the production of seat components, consoles, and other applications throughout the recreational vehicle, marine, and industrial markets.  In addition to standard marine parts, Ameri-Kart is well respected within the marine market for its patented Enviro-Fill® overfill prevention system (“OPS”) technology and is the industry’s only turnkey provider of an integrated, Environmental Protection Agency (“EPA”)-compliant marine fuel tank and patented Enviro-Fill diurnal system.

Scepter is a leading producer of portable plastic fuel containers, portable marine fuel tanks and water containers, ammunition containers and storage totes.  Scepter was the first provider of Jerry Cans to North America which offer safe, reliable transportation and storage of fuel for the consumer market.  Scepter also manufactures a variety of molded products for military applications from high quality containers to safely store and transport large caliber ammunition, to military specified portable fuel and water canisters. Scepter's in-house product engineering and state of the art mold capabilities complements Myers Industries’ Material Handling Segment through an increased product offering and global reach.

Distribution Segment

Our Distribution Segment includes the Myers Tire Supply®, Myers Tire Supply International and Patch Rubber Company® brands.  Within the Distribution Segment we source and manufacture top of the line products for the tire, wheel and undervehicle service industry.

Myers Tire Supply is the largest U.S. distributor and single source for tire, wheel and undervehicle service tools, equipment and supplies. We buy and sell over 10,000 different items — everything that professionals need to service passenger, truck and off-road tires, wheels and related components. Independent tire dealers, mass merchandisers, commercial auto and truck fleets, auto dealerships, tire retreaders and general repair facilities rely on our broad product selection, rapid availability and personal service to be more productive and profitably grow their business. Myers Tire Supply International further distributes these product offerings in Central America, through its branch offices, and to other foreign countries, through its U.S. export business.

While the needs and composition of our distribution markets constantly change, we adapt and deliver new products and services that are crucial to our customers’ success. The new product pipeline is driven by a thorough understanding of the market and its customers’ needs. Myers Tire Supply in turn works closely with its suppliers to develop innovative products and services to meet these needs.

6


 

Patch Rubber Company manufactures one of the most comprehensive lines of tire repair and retreading products in the United States. Service professionals rely on our extensive product selection and quality for safe, cost-effective repairs to passenger, truck and off-road tires. Products include the plug that fills a puncture, the cement that seals the plug, the tire innerliner patch and the final sealing compound. Patch brand repair products maintain a strong position in the tire service markets including sales through the Myers Tire Supply sales network.  Patch Rubber also employs its rubber calendering and compounding expertise to create a diverse portfolio of products outside of the tire repair market, such as reflective highway marking tapes. Our rubber-based tape and symbols provide the durability and brightness that construction professionals demand to replace paint for marking road repair, intersections and hazardous areas. Compared with traditional highway paint, the tape stock is easier to apply, more reflective and longer lasting.

Raw Materials & Suppliers

The Company purchases substantially all of its raw materials from a wide range of third-party suppliers. These materials are primarily polyethylene, polypropylene, and polystyrene plastic resins, all used within the Material Handling Segment, as well as synthetic and natural rubber. Most raw materials are commodity products and available from several domestic suppliers. We believe that the loss of any one supplier or group of suppliers would not have a material adverse effect on our business.

Our Distribution Segment purchases substantially all of its components from third-party suppliers and has multiple sources for its products.

Competition

Competition in our Material Handling Segment is substantial and varied in form and size from manufacturers of similar products and of other products which can be substituted for those produced by the Company. In general, most direct competitors with the Company’s brands are private entities. Myers Industries maintains strong brand presence and market positions in the niche sectors of the markets it serves. The Company does not command substantial, overall market presence in the broad market sectors.

Competition in our Distribution Segment is generally comprised of small companies, regional players and national auto parts chains where product offerings may overlap. Within the overall tire, wheel and undervehicle service market, Myers Industries is the largest U.S. distributor of tools, equipment and supplies offered based on national coverage.

Customer Dependence

In 2018, 2017 and 2016, there were no customers that accounted for more than ten percent of total net sales from continuing operations. Myers Industries serves thousands of customers who demand value through product selection, innovation, quality, delivery and responsive personal service. Our brands foster satisfied, loyal customers who have recognized our performance through numerous supplier quality awards.

Employees

As of December 31, 2018, Myers Industries had a total of approximately 1,800 full-time and part-time employees. Of these, approximately 1,240 were employed in the Company’s Material Handling Segment and the Distribution Segment employed approximately 510. The Company’s corporate offices had approximately 50 employees.

As of December 31, 2018, the Company had approximately 140 employees represented by a labor union. The collective bargaining agreement between us and the labor union expires June 2019. We consider our relationship with our employees generally to be satisfactory.

Backlog

The backlog of orders for our operations is estimated to have been approximately $47 million at December 31, 2018 and approximately $54 million at December 31, 2017. Generally, our lead time between customer order and product delivery is less than 90 days, and thus our estimated backlog is substantially expected to be delivered within the succeeding three months. During periods of shorter lead times, backlog may not be a meaningful indicator of future sales. Accordingly, we do not believe our backlog data and comparisons thereof, as of different dates, reliably indicate future sales or shipments.

7


 

Available Information

Filings with the SEC.    As a public company, we regularly file reports and proxy statements with the Securities and Exchange Commission (“SEC”), such as:

 

annual reports on Form 10-K;

 

quarterly reports on Form 10-Q;

 

current reports on Form 8-K; and

 

proxy statements on Schedule 14A.

The SEC maintains an internet website that contains our reports, proxy and information statements, and our other SEC filings; the address of that site is http://www.sec.gov.

We make our SEC filings available free of charge on our own internet site as soon as reasonably practicable after we have filed with the SEC. Our internet address is http://www.myersindustries.com. The content on the Company’s website is available for informational purposes only and is not incorporated by reference into this Form 10-K.

Corporate Governance.     We have a Code of Business Conduct for our employees and members of our Board of Directors. A copy of this Code is posted on our website in the section titled “Investor Relations”. We will satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, any provision of this Code with respect to our executive officers or directors by disclosing the nature of that amendment or waiver.

Our website also contains additional information about our corporate governance policies, including the charters of our standing board committees. Any of these items are available in print to any shareholder who requests them. Requests should be sent to Corporate Secretary, Myers Industries, Inc., 1293 S. Main Street, Akron, Ohio 44301.

ITEM 1A.

Risk Factors  

This Form 10-K and the information we are incorporating 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. You can identify forward-looking statements 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 our 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 those set forth below and other important factors disclosed previously and from time to time in our other filings with the Securities and Exchange Commission. Given these factors, as well as other variables that may affect our operating results, you 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. We expressly disclaim any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.

Risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements include, but are not limited to:

Any significant increase in the cost of raw materials or disruption in the availability of raw materials could adversely affect our performance.

Our ability to manage our cost structure can be adversely affected by movements in commodity and other raw material prices. Our primary raw materials include plastic resins, colorants and natural and synthetic rubbers. Plastic resins in particular are subject to substantial short term price fluctuations, including those arising from supply shortages and changes in the price of natural gas, crude oil and other petrochemical intermediates from which resins are produced, as well as other factors. Over the past several years, we have at times experienced rapidly increasing resin prices. The Company’s revenue and profitability may be materially and adversely affected by these price fluctuations.

8


 

Market conditions may limit our ability to raise selling prices to offset increases in our raw material input costs. If we are unsuccessful in developing ways to mitigate raw material cost increases, we may not be able to improve productivity or realize our ongoing cost reduction programs sufficiently to help offset the impact of these increased raw material costs. As a result, higher raw material costs could result in declining margins and operating results.

Changes in raw material availability may also occur due to events beyond our control, including natural disasters such as floods, tornadoes and hurricanes. Our specific molding technologies and/or product specifications can limit our ability to locate alternative suppliers to produce certain products.

Changes in trade policies could result in new tariffs or other restrictions on products, components or raw materials sourced, directly or indirectly, from foreign countries, which could increase raw material costs and adversely impact profitability. However, as the Company has limited foreign operations and sources the majority of its raw materials domestically, we do not believe any new tariffs would have a material impact on our operations.  Additionally, the Company believes that any impact can be mitigated through increases in price or sourcing through an alternate supply chain.

We may incur inherent risks and may not achieve anticipated benefits associated with our strategic growth initiatives.

Our growth initiatives include:

 

Internal growth driven by strong brands and new product innovation;

 

Development of new, high-growth markets and expansion in existing niche markets;

 

Strengthened customer relationships through value-added initiatives and key product partnerships;

 

Investments in new technology and processes to reinforce market strength and capabilities in key business groups;

 

Consolidation and rationalization activities to further reduce costs and improve productivity within our manufacturing and distribution footprint;

 

An opportunistic and disciplined approach to strategic acquisitions to accelerate growth in our market positions; and

 

Potential divestitures of businesses with non-strategic products or markets.

While this is a continuous process, all of these activities and initiatives have inherent risks and there remain significant challenges and uncertainties, including economic and general business conditions that could limit our ability to achieve anticipated benefits associated with announced strategic initiatives and affect our financial results. We may not achieve any or all of these goals and are unable to predict whether these initiatives will produce significant revenues or profits.

We may not realize the improved operating results that we anticipate from past acquisitions or from acquisitions we may make in the future and we may experience difficulties in integrating the acquired businesses or may inherit significant liabilities related to such businesses.  

We explore opportunities to acquire businesses that we believe are related to the execution of the Company’s long-term strategy, with a focus on, among other things, asset light business models, flexible operations, and penetration of niche markets. Some of these acquisitions may be material to us. We expect such acquisitions will produce operating results consistent with our other operations and fit within our strategic goals; however, we may be unable to achieve the benefits expected to be realized from our acquisitions. In addition, we may incur additional costs and our management’s attention may be diverted because of unforeseen expenses, difficulties, complications, delays and other risks inherent in acquiring businesses, including the following:

 

We may have difficulty integrating the acquired businesses as planned, which may include integration of systems of internal controls over financial reporting and other financial and administrative functions;

 

We may have delays in realizing the benefits of our strategies for an acquired business;

 

The increasing demands on our operational systems and integration costs, including diversion of management’s time and attention, may be greater than anticipated;

 

We may not be able to retain key employees necessary to continue the operations of an acquired business;

 

Acquisition costs may be met with cash or debt, increasing the risk that we will be unable to satisfy current financial obligations; and

 

Acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital.

9


 

Our results of operations and financial condition could be adversely affected by a downturn in the United States economy or the global markets.

We operate in a wide range of regions, primarily North America and Central America, and, until the divesture of our Brazil Business in the fourth quarter of 2017, South America. Additionally, some of our end markets are cyclical, and some of our products are a capital expense for our customers. Worldwide and regional business and political conditions and overall strength of the worldwide, regional and local economies, including changes in the economic conditions of the broader markets and in our individual niche markets, could have an adverse effect on one or both of our operating segments.

We operate in a very competitive business environment, which could affect our financial condition and results of operations.

Both of our segments participate in markets that are highly competitive. We compete primarily on the basis of product quality, product performance, value, and supply chain competency. Our competitive success also depends on our ability to maintain strong brands, customer relationships and the belief that customers will need our products and services to meet their growth requirements. The development and maintenance of such brands requires continuous investment in brand building, marketing initiatives and advertising. The competition that we face in all of our markets — which varies depending on the particular business segment, product lines and customers — may prevent us from achieving sales, product pricing and income goals, which could affect our financial condition and results of operations.

Our operations depend on our ability to maintain continuous, uninterrupted production at our manufacturing facilities, which are subject to physical and other risks that could disrupt production.

We are subject to inherent risks in our diverse manufacturing and distribution activities, including, but not limited to: product quality, safety, licensing requirements and other regulatory issues, environmental events, loss or impairment of key manufacturing or distribution sites, disruptions in logistics and transportation services, labor disputes and industrial accidents. While we maintain insurance covering our manufacturing and production facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to accident, fire, explosion, or natural disaster, whether short or long-term, could have a material adverse effect on our business, financial condition and results of operations.

Unexpected failures of our equipment and machinery may also result in production delays, revenue loss and significant repair costs, as well as injuries to our employees. Any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows. Our business interruption insurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations. A temporary or long-term business disruption could result in a permanent loss of customers. If this were to occur, our future sales levels, and therefore our profitability, could be materially adversely affected.

We derive a portion of our revenues from direct and indirect sales outside the United States and are subject to the risks of doing business in foreign countries.

We currently operate manufacturing, sales and service facilities outside of the United States, particularly in Canada and Central America. For the year ended December 31, 2018, international net sales accounted for approximately 9% of our total net sales from continuing operations. Accordingly, we are subject to risks associated with operations in foreign countries, including:

 

Fluctuations in currency exchange rates;

 

Limitations on the remittance of dividends and other payments by foreign subsidiaries;

 

Limitations on foreign investment;

 

Additional costs of compliance with local regulations; and

 

In certain countries, higher rates of inflation than in the United States.

In addition, our operations outside the United States are subject to the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations and potentially adverse tax consequences. The costs related to our international operations could adversely affect our operations and financial results in the future.

10


 

Our future performance depends in part on our ability to develop and market new products if there are changes in technology, regulatory requirements or competitive processes.

Changes in technology, regulatory requirements and competitive processes may render certain products obsolete or less attractive. Our performance in the future will depend in part on our ability to develop and market new products that will gain customer acceptance and loyalty, as well as our ability to adapt our product offerings and control our costs to meet changing market conditions. Our operating performance would be adversely affected if we were to incur delays in developing new products or if such products did not gain market acceptance. There can be no assurance that existing or future products will be sufficiently successful to enable us to effectively compete in our markets or, should new product offerings meet with significant customer acceptance, that one or more current or future competitors will not introduce products that render our products noncompetitive.

We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.

In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets and employ various methods, including confidentiality agreements with employees and consultants, to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Additionally, in the future we may license patents, trademarks, trade secrets and similar proprietary rights to third parties. While we attempt to ensure that our intellectual property and similar proprietary rights are protected when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights and, if not successful, we may not be able to protect the value of our intellectual property. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

If we are unable to maintain access to credit financing, our business may be adversely affected.

The Company’s ability to make payments and to refinance our indebtedness, fund planned capital expenditures, finance acquisitions and pay dividends will depend on our ability to generate cash in the future and retain access to credit financing. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot provide assurance that our business will generate sufficient cash flow from operating activities or that future borrowings will be available to us under our credit facilities in amounts sufficient to enable us to service debt, make necessary capital expenditures or fund other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before maturity. We cannot be sure that we would be able to refinance any of our indebtedness on commercially reasonable terms or at all.

The credit facilities contain restrictive covenants and cross default provisions that require us to maintain specified financial ratios. The Company’s ability to satisfy those financial ratios can be affected by events beyond our control, and we cannot be assured we will satisfy those ratios. A breach of any of those financial ratio covenants or other covenants could result in a default. Upon the occurrence of an event of default, the lenders could elect to declare the applicable outstanding indebtedness due immediately and payable and terminate all commitments to extend further credit. We cannot be sure that our lenders would waive a default or that we could pay the indebtedness in full if it were accelerated.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our common stock.

Internal control systems are intended to provide reasonable assurance regarding the preparation and fair presentation of published financial statements. Any failure to maintain effective controls or implement required new or improved controls could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our consolidated financial statements, and substantial costs and resources may be required to rectify these internal control deficiencies. If we have an internal control deficiency and our remedial measures are insufficient, material weaknesses or significant deficiencies in our internal control over financial reporting could be discovered or occur in the future, and our consolidated financial statements may contain material misstatements. See Item 9A – Controls and Procedures for further discussion.

11


 

We may be subject to risks relating to our information technology systems.

We rely on information technology systems to process, transmit and store electronic information and manage and operate our business. Such systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, computer viruses, computer denial-of-service attacks, unauthorized intrusion, and other events, any of which could interrupt our business operations. While we have implemented security measures designed to prevent and mitigate the risk of breaches, information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. A failure in or a breach of security could expose us and our customers and suppliers to risks of misuse of confidential information, manipulation and destruction of data, production downtimes and operations disruptions, which in turn could negatively affect our reputation, competitive position, business, results of operations or cash flows. Furthermore, because the techniques used to carry out cyber-attacks change frequently and in many instances are not recognized until after they are used against a target, we may be unable to anticipate these changes or implement adequate preventative measures.

Future claims, litigation and regulatory actions could adversely affect our financial condition and our ability to conduct our business.

The nature of our business exposes us, from time to time, to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage claims. While we strive to ensure that our products comply with applicable government regulatory standards and internal requirements and that our products perform effectively and safely, customers from time to time could claim that our products do not meet contractual requirements, and users could be harmed by use or misuse of our products. This could give rise to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage. Such claims can be expensive to defend and may divert the attention of management for significant time periods. While we currently maintain what we believe to be a suitable and adequate product liability insurance, product liability insurance coverage may not be available or adequate in all circumstances and such claims may increase the cost of such insurance coverage. In addition, claims may arise related to patent infringement, environmental liabilities, distributor terminations, commercial contracts, antitrust or competition law, employment law and employee benefits issues and other regulatory matters. While we have in place processes and policies to mitigate these risks and to investigate and address such claims as they arise, we cannot predict the underlying costs to defend or resolve such claims.

Current and future environmental and other governmental laws and requirements could adversely affect our financial condition and our ability to conduct our business.

Our operations are subject to federal, state, local and foreign environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the handling, use, treatment, storage and disposal of, or exposure to, hazardous wastes and other materials and require clean-up of contaminated sites. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Fines, penalties and other civil or criminal sanctions may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. Certain environmental laws in the United States, such as the federal Comprehensive Environmental Response, Compensation and Liability act of 1980, as amended, 42 U.S.C. §§ 9601 et seq. (“CERCLA” or “Superfund law”) and similar state laws, impose liability for the cost of investigation or remediation of contaminated sites upon the current or, in some cases, the former site owners or operators (or their predecessor entities) and upon parties who arranged for the disposal of wastes or transported or sent those wastes to an off-site facility for treatment or disposal, regardless of when the release of hazardous substances occurred or the lawfulness of the activities giving rise to the release. Such liability can be imposed without regard to fault and, under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation.

While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict with any certainty our future capital expenditure requirements because of continually changing compliance standards and environmental technology. Furthermore, violations or contaminated sites that we do not know about, including contamination caused by prior owners and operators of such sites, or at sites formerly owned or operated by us or our predecessors in connection with discontinued operations, could result in additional compliance or remediation costs or other liabilities, which could be material.

As more fully described in Item 3, “Legal Proceedings” below, we are a potentially responsible party (“PRP”) in an environmental proceeding and remediation matter in which substantial amounts may be involved. It is possible that adjustments to reserved expenses will be necessary as new information is obtained, including after preparation and EPA approval of the work plan for the remedial investigation and feasibility study (“RI/FS”), which is anticipated to occur in the first half of 2019. 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 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, 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. At this time, we have not accrued for such remediation costs as we are unable to estimate the liability at this time. Additionally, we are party to a consent decree regarding another location pursuant to which we are required to contribute to the costs of the remediation project.

12


 

We have limited insurance coverage for potential environmental liabilities associated with historic and current operations and we do not anticipate increasing such coverage in the future. We may also assume significant environmental liabilities in acquisitions. Such costs or liabilities could adversely affect our financial situation and our ability to conduct our business.

Environmental regulations specific to plastic products and containers could adversely affect our ability to conduct our business.

Federal, state, local and foreign governments could enact laws or regulations concerning environmental matters that increase the cost of producing, or otherwise adversely affect the demand for, plastic products. Legislation that would prohibit, tax or restrict the sale or use of certain types of plastic and other containers, and would require diversion of solid wastes such as packaging materials from disposal in landfills, has been or may be introduced in the U.S. Congress, in state legislatures and other legislative bodies. While container legislation has been adopted in a few jurisdictions, similar legislation has been defeated in public referenda in several states, local elections and many state and local legislative sessions. There can be no assurance that future legislation or regulation would not have a material adverse effect on us. Furthermore, a decline in consumer preference for plastic products due to environmental considerations could have a negative effect on our business.

Our insurance coverage may be inadequate to protect against potential hazardous incidents to our business.

We maintain property, business interruption, product liability and casualty insurance coverage, but such insurance may not provide adequate coverage against potential claims, including losses resulting from war risks, terrorist acts or product liability claims relating to products we manufacture. Consistent with market conditions in the insurance industry, premiums and deductibles for some of our insurance policies have been increasing and may continue to increase in the future. In some instances, some types of insurance may become available only for reduced amounts of coverage, if at all. In addition, there can be no assurance that our insurers would not challenge coverage for certain claims. If we were to incur a significant liability for which we were not fully insured or that our insurers disputed, it could have a material adverse effect on our financial position, results of operations or cash flows.

Our business operations could be significantly disrupted if members of our senior management team were to leave.

Our success depends to a significant degree upon the continued contributions of our senior management team. Our senior management team has extensive marketing, sales, manufacturing, finance and engineering experience, and we believe that the depth of our management team is instrumental to our continued success. The loss of any of our key executive officers in the future could significantly impede our ability to successfully implement our business strategy, financial plans, expansion of services, marketing and other objectives.

Unforeseen future events may negatively impact our economic condition.

Future events may occur that would adversely affect the reported value of our assets. Such events may include, but are not limited to, strategic decisions made in response to changes in economic and competitive conditions, the impact of the economic environment on our customer base, a material adverse change in our relationship with significant customers, or natural disasters or other catastrophic events beyond our control. Any of these events may adversely affect our financial condition and results of operations.

Equity Ownership Concentration

Based solely on the Schedule 13D filed on September 13, 2018, by Gabelli Funds, LLC, GAMCO Asset Management Inc., MJG Associates, Inc., Gabelli & Company Investment Advisors, Inc., Teton Advisors, Inc., Gabelli Foundation, Inc., GGCP, Inc., and GAMCO Investors, Inc., (collectively, the “Gamco Group”), for which the Company disclaims any responsibility, beneficially owned 7,162,114 shares of our common stock, which represented approximately 20% of the 35,351,248 shares outstanding as reported in our Form 10-Q for the quarterly period ended September 30, 2018. Combined, these parties may have sufficient voting power to influence actions requiring the approval of our shareholders.

Changes in laws and regulations may have an adverse impact on our operations.

Changes in laws and regulations and approvals and decisions of courts, regulators, and governmental bodies on any legal claims known or unknown, could have an adverse effect on the Company’s financial results. Additionally, changes in tax laws or new guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies could impact our future effective tax rate and may result in a material adverse effect on our business, financial condition, results of operations, or cash flows.

 

 

ITEM 1B.

Unresolved Staff Comments

None.

13


 

ITEM 2.

Properties

The following table sets forth certain information with respect to properties owned by the Company as of December 31, 2018:

 

 

 

Distribution

 

 

 

Location

 

Approximate

Floor Space

(Square Feet)

 

 

Approximate

Land Area

(Acres)

 

 

Use

Akron, Ohio

 

 

129,000

 

 

 

8

 

 

Headquarters and distribution center

Akron, Ohio

 

 

67,000

 

 

 

5

 

 

Administration and warehousing

Wadsworth, Ohio

 

 

125,000

 

 

 

12

 

 

Distribution center

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

 

 

Miami, Oklahoma

 

 

330,000

 

 

 

16

 

 

Manufacturing and distribution

Sandusky, Ohio *

 

 

305,000

 

 

 

8

 

 

Manufacturing and distribution

Springfield, Missouri

 

 

227,000

 

 

 

19

 

 

Manufacturing and distribution

Wadsworth, Ohio

 

 

197,000

 

 

 

23

 

 

Manufacturing and distribution

Bristol, Indiana

 

 

185,000

 

 

 

12

 

 

Manufacturing and distribution

Roanoke Rapids, North Carolina

 

 

172,000

 

 

 

20

 

 

Manufacturing and distribution

Scarborough, Ontario

 

 

170,000

 

 

 

8

 

 

Manufacturing and distribution

 

* Facility ceased operations in March 2018.

 

The following table sets forth certain information with respect to facilities leased by the Company as of December 31, 2018:

 

 

 

Manufacturing & Distribution

 

 

Location

 

Approximate

Floor Space

(Square Feet)

 

 

Expiration Date

of Lease

 

Use

Cassopolis, Michigan

 

 

210,000

 

 

October 31, 2023

 

Manufacturing and distribution

South Beloit, Illinois

 

 

160,000

 

 

September 30, 2020

 

Manufacturing and distribution

Springfield, Missouri

 

 

70,000

 

 

October 31, 2019

 

Warehousing

Southaven, Mississippi

 

 

56,000

 

 

September 30, 2023

 

Distribution center

Salt Lake City, Utah

 

 

30,000

 

 

October 31, 2023

 

Distribution center

Milford, Ohio

 

 

22,000

 

 

Month to Month

 

Administration and sales

Milford, Ohio

 

 

12,000

 

 

December 31, 2023

 

Administration and sales

Pomona, California

 

 

18,000

 

 

February 28, 2028

 

Sales and distribution center

 

The Company also leases facilities for its sales offices and sales branches in the United States and Central America which, in the aggregate, amount to approximately 35,000 square feet of warehouse and office space. All of these locations are used by the Distribution Segment.

The Company believes that all of its properties, machinery and equipment generally are well maintained and adequate for the purposes for which they are used.

14


 

ITEM 3.

Legal Proceedings

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. 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, 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.

New Idria Mercury Mine

In September 2015, the U.S. Environmental Protection Agency (“EPA”) 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 in 1987.  As a result of the EPA Notice Letter, Buckhorn and the Company 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.

During 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 Mine. The AOC is effective as of November 27, 2018, the date that it was executed by the EPA. The AOC and accompanying SOW document the terms, conditions and procedures for the Company’s performance of the RI/FS. In addition, the AOC requires the Company to provide $2 million of financial assurance to the EPA during the estimated three year life of the RI/FS.  In January 2019, the Company provided this assurance as a letter of credit. 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.

Since October 2011, when New Idria was added to the Superfund National Priorities List by the EPA, the Company has recognized $5.9 million of costs, of which approximately $2.5 million has been paid to date. These costs are comprised primarily of negotiation of the AOC, identification of possible insurance resources and other PRPs, estimates to perform the RI/FS, EPA oversight fees, past cost claims made by the EPA, periodic monitoring, and responses to unilateral administrative orders issued by the EPA. Expenses of $0.2 million, $1.3 million, and $1.0 million were recorded in the years ended December 31, 2018, 2017, and 2016, respectively.

As of December 31, 2018, the Company has a total reserve of $3.4 million related to the New Idria Mine.

It is possible that adjustments to the aforementioned reserves will be necessary as new information is obtained, including after preparation and EPA approval of the work plan for the RI/FS, which is anticipated to occur in the first half of 2019. 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 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, 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.

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.

New Almaden Mine (formerly referred to as Guadalupe River Watershed)

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

15


 

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, 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 by the County that the original cost estimate may no longer be appropriate due to expanded scope and increased costs of construction, and provided a revised estimate of between $3.3 million and $4.4 million.  The Company completed a detailed review of the support provided by the County for their revised estimate, and as a result, recognized additional expense of $1.2 million in 2016. As of December 31, 2018, the Company has a total reserve of $1.5 million related to the New Almaden Mine.    

The project has not yet been implemented though significant work on design and planning has been performed. The Company is currently awaiting notice from Santa Clara County on the expected timing of fieldwork to 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.

Lawn and Garden Indemnification Claim

In connection with the sale of the Lawn and Garden business, as described in Note 5, the Company received Notices of Indemnification Claims in April 2015 and July 2016 (collectively, the “Claims”), alleging breaches of certain representations and warranties under the agreement resulting in alleged losses in the amount of approximately $10 million. As described in Note 5, approximately $8.6 million of the sale proceeds that were placed in escrow were due to be settled in August 2016; however, the release of these funds had been extended pending the resolution of the Claims, which were the subject of a lawsuit in the Delaware Chancery Court.

In April 2018, the Company reached agreement on the material terms of a settlement, and as a result, recorded a pre-tax charge of $1.225 million to discontinued operations in 2018. The settlement agreement was finalized in May 2018, and the settlement amount was funded from the escrow account. In addition, upon settlement and release of any further obligation on behalf of the Company, the remaining $7.4 million was released from escrow to the Company.

Patent Infringement

On December 11, 2018, No Spill Inc. filed suit against Scepter Manufacturing LLC and Scepter Corporation (collectively “Scepter”) 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. On December 31, 2018, the parties filed a waiver of service and extension of time to file a response to the complaint. The response to the complaint is due on March 28, 2019. A schedule in the case has not yet issued. Scepter intends to defend itself vigorously in this matter. 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 currently recorded any reserves for this matter.


16


 

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information concerning the executive officers of the Registrant as of December 31, 2018. Executive officers are appointed annually by the Board of Directors.

 

Name

 

Age

 

Title

R. David Banyard

 

50

 

President and Chief Executive Officer

Kevin L. Brackman

 

46

 

Executive Vice President and Chief Financial Officer

Andrean R. Horton

 

44

 

Executive Vice President, Chief Legal Officer and Secretary

 

Mr. Banyard, President and Chief Executive Officer, was appointed to his current position on December 7, 2015. Formerly, Mr. Banyard served as the Group President, Fluid Handling Technologies at Roper Technologies where he led a diverse portfolio of companies serving a wide array of end markets. Prior to that, Mr. Banyard was with Danaher Corporation, where he held successive leadership roles during his six year tenure culminating with his leadership of the Vehicle Systems business unit of Kollmorgen, based in Stockholm, Sweden.

Mr. Brackman, Executive Vice President and Chief Financial Officer, was appointed to his current position on December 11, 2018. Previously, he served as Vice President and Chief Accounting Officer since March 2, 2017 and prior to that served as Vice President, Corporate Controller, since joining the Company in March 2015; he also acted as Interim Chief Financial Officer and Corporate Secretary from March 18, 2016 until December 1, 2016. Prior to that, Mr. Brackman was with Ingersoll-Rand, where he held various finance leadership roles.  

Ms. Horton, Executive Vice President, Chief Legal Officer and Secretary, was appointed to her current position on October 8, 2018. Previously, Ms. Horton was with A. Schulman, Inc., where she held various legal positions, including Executive Vice President, Chief Legal Officer and Secretary.  Prior to that, Ms. Horton held various leadership roles, including Vice President, Legal & Regulatory Compliance, with YRC Worldwide, Inc. and General Counsel & Corporate Secretary, at The Bartech Group, Inc.

 

17


 

PART II

 

ITEM 5.

Market for Registrant’s Common Stock and Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is traded on the New York Stock Exchange under the symbol MYE. The approximate number of shareholders of record at December 31, 2018 was 1,010. Dividends for the last two years were:

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

2018

 

 

2017

 

March 31

 

$

0.135

 

 

$

0.135

 

June 30

 

 

0.135

 

 

 

0.135

 

September 30

 

 

0.135

 

 

 

0.135

 

December 31

 

 

0.135

 

 

 

0.135

 

 

Purchases of equity securities by the issuer

The following table presents information regarding the Company’s stock repurchase plan during the three months ended December 31, 2018.

 

 

 

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)

 

10/1/18 to 10/31/18

 

 

 

 

$

 

 

 

5,547,665

 

 

 

2,452,335

 

11/1/18 to 11/30/18

 

 

 

 

 

 

 

 

5,547,665

 

 

 

2,452,335

 

12/1/18 to 12/31/18

 

 

 

 

 

 

 

 

5,547,665

 

 

 

2,452,335

 

 

(1)

On July 11, 2013, the Board authorized the repurchase of up to an additional five million shares of the Company’s common stock. This authorization was in addition to the 2011 Board authorized repurchase of up to five 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.

 

See Item 12 of this Form 10-K for the Equity Compensation Plan Information Table which is incorporated herein by reference.      

 

 

18


 

Comparison of 5 Year Cumulative Total Return

Assumes Initial Investment of $100

December 31, 2018

The chart below compares the Company’s cumulative total shareholder return for the five years ended December 31, 2018, to that of the Standard & Poor’s 500 Index – Total Return and the Russell 2000 Index. In all cases, the information is presented on a dividend-reinvested basis and assumes investment of $100 on December 31, 2013.

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

Myers Industries Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Return %

 

 

 

 

 

(14.36

)

 

 

(21.65

)

 

 

11.74

 

 

 

40.72

 

 

 

(20.39

)

Cum $

 

100.00

 

 

 

85.64

 

 

 

67.10

 

 

 

74.98

 

 

 

105.51

 

 

 

84.00

 

S&P 500 Index - Total Return

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Return %

 

 

 

 

 

13.69

 

 

 

1.38

 

 

 

11.96

 

 

 

21.83

 

 

 

(4.38

)

Cum $

 

100.00

 

 

 

113.69

 

 

 

115.26

 

 

 

129.05

 

 

 

157.22

 

 

 

150.33

 

Russell 2000 Index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Return %

 

 

 

 

 

4.89

 

 

 

(4.41

)

 

 

21.31

 

 

 

14.65

 

 

 

(11.01

)

Cum $

 

100.00

 

 

 

104.89

 

 

 

100.26

 

 

 

121.63

 

 

 

139.44

 

 

 

124.09

 

 

19


 

ITEM 6.

Selected Financial Data

Thousands of Dollars, Except Per Share Data

 

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

Operations for the Year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

566,735

 

 

$

547,043

 

 

$

534,379

 

 

$

571,020

 

 

$

576,759

 

Cost of sales

 

 

387,442

 

 

 

389,590

 

 

 

372,481

 

 

 

395,158

 

 

 

419,575

 

Selling expenses

 

 

59,503

 

 

 

56,614

 

 

 

58,782

 

 

 

58,456

 

 

 

56,097

 

General and administrative expenses

 

 

79,832

 

 

 

78,889

 

 

 

73,797

 

 

 

82,333

 

 

 

73,938

 

(Gain) loss on disposal of fixed assets

 

 

(8

)

 

 

(3,482

)

 

 

628

 

 

 

556

 

 

 

(20

)

Impairment charges

 

 

308

 

 

 

544

 

 

 

1,329

 

 

 

 

 

 

 

Other expenses

 

 

33,331

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

1,888

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

4,938

 

 

 

7,292

 

 

 

8,643

 

 

 

9,009

 

 

 

8,570

 

Total costs and expenses

 

 

565,346

 

 

 

531,335

 

 

 

515,660

 

 

 

545,512

 

 

 

558,160

 

Income from continuing operations before income taxes

 

 

1,389

 

 

 

15,708

 

 

 

18,719

 

 

 

25,508

 

 

 

18,599

 

Income tax expense

 

 

3,037

 

 

 

4,864

 

 

 

7,395

 

 

 

8,037

 

 

 

5,680

 

Income (loss) from continuing operations

 

$

(1,648

)

 

$

10,844

 

 

$

11,324

 

 

$

17,471

 

 

$

12,919

 

Income (loss) from discontinued operations, net of tax

 

$

(1,701

)

 

$

(20,733

)

 

$

(10,267

)

 

$

291

 

 

$

(21,600

)

Net income (loss)

 

$

(3,349

)

 

$

(9,889

)

 

$

1,057

 

 

$

17,762

 

 

$

(8,681

)

Net income (loss) per basic share from continuing operations

 

$

(0.05

)

 

$

0.36

 

 

$

0.38

 

 

$

0.57

 

 

$

0.40

 

Net income (loss) per diluted share from continuing

   operations

 

$

(0.05

)

 

$

0.35

 

 

$

0.38

 

 

$

0.56

 

 

$

0.40

 

Net income (loss) per basic share from discontinued

   operations

 

$

(0.05

)

 

$

(0.69

)

 

$

(0.35

)

 

$

0.01

 

 

$

(0.67

)

Net income (loss) per diluted share from discontinued

   operations

 

$

(0.05

)

 

$

(0.68

)

 

$

(0.35

)

 

$

0.01

 

 

$

(0.67

)

Net income (loss) per basic share

 

$

(0.10

)

 

$

(0.33

)

 

$

0.03

 

 

$

0.58

 

 

$

(0.27

)

Net income (loss) per diluted share

 

$

(0.10

)

 

$

(0.33

)

 

$

0.03

 

 

$

0.57

 

 

$

(0.27

)

Financial Position — At Year End

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets(1)

 

$

348,645

 

 

$

355,942

 

 

$

381,684

 

 

$

429,024

 

 

$

563,433

 

Current assets

 

 

182,855

 

 

 

150,012

 

 

 

141,151

 

 

 

154,541

 

 

 

285,441

 

Current liabilities

 

 

97,423

 

 

 

98,653

 

 

 

79,312

 

 

 

117,045

 

 

 

153,814

 

Working capital

 

 

85,432

 

 

 

51,359

 

 

 

61,839

 

 

 

37,496

 

 

 

131,627

 

Other assets(1)

 

 

95,060

 

 

 

122,026

 

 

 

134,267

 

 

 

151,982

 

 

 

154,365

 

Property, plant and equipment, net

 

 

65,460

 

 

 

83,904

 

 

 

106,266

 

 

 

122,501

 

 

 

123,627

 

Deferred income taxes(2)

 

 

5,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion(1)

 

 

76,790

 

 

 

151,036

 

 

 

189,522

 

 

 

191,881

 

 

 

235,029

 

Other long-term liabilities

 

 

19,794

 

 

 

8,236

 

 

 

9,452

 

 

 

13,543

 

 

 

15,851

 

Deferred income taxes(2)

 

 

 

 

 

4,265

 

 

 

10,365

 

 

 

8,852

 

 

 

12,168

 

Shareholders’ Equity

 

 

154,638

 

 

 

93,752

 

 

 

93,033

 

 

 

97,703

 

 

 

146,571

 

Common Shares Outstanding

 

 

35,374,121

 

 

 

30,495,737

 

 

 

30,019,561

 

 

 

29,521,566

 

 

 

31,162,962

 

Book Value Per Common Share

 

$

4.37

 

 

$

3.07

 

 

$

3.10

 

 

$

3.31

 

 

$

4.70

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

$

17,862

 

 

$

16,341

 

 

$

16,221

 

 

$

16,675

 

 

$

15,707

 

Dividends declared per Common Share

 

$

0.54

 

 

$

0.54

 

 

$

0.54

 

 

$

0.54

 

 

$

0.52

 

Average Basic Common Shares Outstanding during

   the year

 

 

33,426,855

 

 

 

30,222,289

 

 

 

29,750,378

 

 

 

30,616,485

 

 

 

32,232,965

 

 

(1)

Balances for 2014 and 2015 reflect the retrospective change to the balance sheet presentation of unamortized debt issuance costs in conjunction with the adoption of ASU 2015-03 in 2016. Under this guidance, unamortized debt issuance costs are to be presented as a reduction of the corresponding debt liability rather than a separate asset.

(2)

Balances as of December 31, 2015 reflect the prospective change to the balance sheet presentation of deferred taxes in conjunction with the adoption of ASU 2015-17. Under this guidance, all deferred tax assets and liabilities are classified as long-term.

(3)

Historical information has been adjusted to reflect discontinued operations presentation. See Note 5 to the consolidated financial statements.

20


 

ITEM 7.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Executive Overview

The Company conducts its business activities in two distinct segments: The Material Handling Segment and the Distribution Segment. The Brazil Business, which was sold in December 2017, and the Lawn and Garden business, which was sold in February 2015, are classified as discontinued operations in all periods presented.

The Company designs, manufactures, and markets a variety of plastic and rubber products. Our 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. Our 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.

Results of Operations: 2018 Compared with 2017

Net Sales:

 

(dollars in millions)

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

Segment

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

Material Handling

 

$

417.2

 

 

$

391.3

 

 

$

25.9

 

 

 

7

%

Distribution

 

 

149.6

 

 

 

156.4

 

 

 

(6.8

)

 

 

(4

)%

Inter-company elimination

 

 

(0.1

)

 

 

(0.7

)

 

 

0.6

 

 

 

 

 

Total net sales

 

$

566.7

 

 

$

547.0

 

 

$

19.7

 

 

 

4

%

 

Net sales for the year ended December 31, 2018 were $566.7 million, an increase of $19.7 million or 4% compared to the prior year. Net sales were positively impacted by higher pricing of approximately $17.2 million and higher sales volume of $2.6 million, offset by the effect of unfavorable foreign currency translation of approximately $0.1 million.

Net sales in the Material Handling Segment increased $25.9 million or 7% for the year ended December 31, 2018 compared to the prior year. The increase in net sales was due to higher pricing of $14.6 million and higher sales volume of $11.4 million, driven primarily by demand in the food and beverage market, and offset by the effect of unfavorable foreign currency translation of $0.1 million.  

Net sales in the Distribution Segment decreased $6.8 million or 4% in the year ended December 31, 2018 compared to the prior year primarily the result of lower sales volume of approximately $9.4 million offset by higher pricing of $2.6 million. A portion of this volume decline resulted from the strategic decision to exit a low margin product line with a customer in early 2017, as well as lower overall demand levels, particularly in the equipment category.

Cost of Sales & Gross Profit:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

Cost of sales

 

$

387.4

 

 

$

389.6

 

 

$

(2.2

)

 

 

(1

)%

Gross profit

 

$

179.3

 

 

$

157.5

 

 

$

21.8

 

 

 

14

%

Gross profit as a percentage of sales

 

 

31.6

%

 

 

28.8

%

 

 

 

 

 

 

 

 

 

Gross profit margin increased to 31.6% for the year ended December 31, 2018 compared to 28.8% for the same period in 2017, primarily due to higher pricing of $17.2 million and cost savings realized in the current year as a result of the restructuring plan within the Material Handling Segment, as well as non-recurring restructuring costs of $7.5 million incurred in the prior year. This was partially offset by higher raw material costs and unfavorable mix within the higher sales volumes noted above.


21


 

Selling, General and Administrative Expenses:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

SG&A expenses

 

$

139.3

 

 

$

135.5

 

 

$

3.8

 

 

 

3

%

SG&A expenses as a percentage of sales

 

 

24.6

%

 

 

24.8

%

 

 

 

 

 

 

 

 

 

Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2018 were $139.3 million, an increase of $3.8 million or 3% compared to the prior year. SG&A expenses in 2018 were primarily impacted by higher incentive compensation and other employee-related costs of $2.1 million, higher freight costs of $1.5 million, and higher legal and professional fees of $0.7 million. The current year expenses also include costs to engage outside resources to assist with the planning and assessment of transformation initiatives for the Distribution Segment of $1.4 million. These costs were partially offset by lower environmental costs of $1.1 million and non-recurring restructuring-related costs of $1.2 million incurred in the prior year.

Restructuring:

As discussed in Note 7 to the consolidated financial statements, the Company initiated a restructuring plan (the “Plan”) in the first quarter of 2017 to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment. The Plan is completed. The Company has incurred a total of $0.1 million and $7.6 million of restructuring costs in connection with the Plan during the years ended December 31, 2018 and 2017, respectively. The Company also recorded $0.2 million and $3.9 million in net gains on asset dispositions in connection with the facility closures under the Plan during the years ended December 31, 2018 and 2017, respectively.

(Gain) Loss on Disposal of Fixed Assets:

The gains on disposal of fixed assets for the year ended December 31, 2017 were $3.5 million and were primarily due to asset dispositions in connection with the planned facility closures associated with the restructuring Plan within the Material Handling Segment.

Other Expenses:

During the year ended December 31, 2018, the Company recorded a provision for expected loss of $23.0 million as a result of the uncertainty regarding the ability to collect on the notes receivable and corresponding accrued interest from the sale of the Lawn and Garden business, as discussed in Note 5 to the consolidated financial statements. The Company also recorded a charge during 2018 of $10.3 million related to the Company’s estimate of its potential obligation under the lease guarantee on one of HC’s facilities, as discussed in Note 11 to the consolidated financial statements.

Net Interest Expense:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2018

 

 

2017

 

 

Change

 

 

% Change

 

Net interest expense

 

$

4.9

 

 

$

7.3

 

 

$

(2.4

)

 

 

(33

)%

Average outstanding borrowings, net

 

$

107.1

 

 

$

175.2

 

 

$

(68.1

)

 

 

(39

)%

Weighted-average borrowing rate

 

 

5.75

%

 

 

4.94

%

 

 

 

 

 

 

 

 

 

Net interest expense for the year ended December 31, 2018 was $4.9 million compared to $7.3 million during 2017. The decrease in net interest expense is due to a decrease in average outstanding borrowings during the year ended December 31, 2018 compared to the prior year.

Loss on Extinguishment of Debt:

During the year ended December 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $1.9 million related to the purchase of a portion of the outstanding Senior Unsecured Notes in 2017, as discussed in Note 12 to the consolidated financial statements.

22


 

Income Taxes:

 

 

 

Year Ended December 31,

 

(dollars in millions)

 

2018

 

 

2017

 

Income from continuing operations before income taxes

 

$

1.4

 

 

$

15.7

 

Income tax expense

 

$

3.0

 

 

$

4.9

 

Effective tax rate

 

 

218.7

%

 

 

31.0

%

 

The effective tax rate was 218.7% for the year ended December 31, 2018 compared to 31.0% in the prior year. The unusually high rate in 2018 was the result of a lower tax rate on the $33.3 million of charges in Other Expenses than the rate on other pre-tax earnings. Additionally, the tax rate was impacted by non-deductible expense (primarily compensation related), additional tax expense of $0.6 million related to an uncertain tax position associated with the U.S. Tax Cuts and Jobs Act (“Tax Act”), and additional tax expense of $0.6 million associated with the unremitted earnings of certain foreign subsidiaries which are no longer deemed to be permanently reinvested.

In 2017, the U.S. enacted the Tax Act, which reduced the U.S. federal corporate income tax rate from 35% to 21%. As a result of the Tax Act, the Company recognized provisional net benefits of $1.2 million in 2017 to reflect certain changes in the tax law impacting the Company. The Company’s accounting for the Tax Act was completed in the fourth quarter of 2018, and included a tax benefit of $0.3 million related to amounts previously accounted for as provisional. Refer to Note 13 in the consolidated financial statements.

Discontinued Operations:

Loss from discontinued operations, net of income taxes was $1.7 million for the year ended December 31, 2018 compared to loss of $20.7 million for the year ended December 31, 2017. In 2018, this result included a charge of $0.9 million, net of tax of $0.3 million, as a result of a settlement with the L&G Buyer related to the indemnification claims discussed in Note 11 to the consolidated financial statements.

In 2017, this result included a loss on sale of the Brazil Business of $35.0 million (pre-tax), offset primarily by a tax benefit of $15 million, which was generated as a result of a worthless stock deduction for the Brazil Business. As a result of the Company’s U.S. Federal income tax filings in 2018, the Company reduced this estimated tax benefit by $0.7 million and recognized this adjustment within net loss from discontinued operations.

Results of Operations: 2017 Compared with 2016

Net Sales:

 

(dollars in millions)

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

Segment

 

2017

 

 

2016

 

 

Change

 

 

% Change

 

Material Handling

 

$

391.3

 

 

$

363.9

 

 

$

27.4

 

 

 

8

%

Distribution

 

 

156.4

 

 

 

170.7

 

 

 

(14.3

)

 

 

(8

)%

Inter-company elimination

 

 

(0.7

)

 

 

(0.2

)

 

 

(0.5

)

 

 

 

 

Total net sales

 

$

547.0

 

 

$

534.4

 

 

$

12.6

 

 

 

2

%

 

Net sales for the year ended December 31, 2017 were $547.0 million, an increase of $12.6 million or 2% compared to the prior year. Net sales were positively impacted by higher sales volumes of approximately $4.0 million, higher pricing of $7.5 million and the effect of favorable foreign currency translation of approximately $1.1 million.

Net sales in the Material Handling Segment increased $27.4 million or 8% for the year ended December 31, 2017 compared to the prior year. The increase in net sales was due to higher sales volume of $19.9 million, mainly due to increased demand in the Company’s consumer and food and beverage markets, higher pricing of $6.4 million, and the effect of favorable foreign currency translation of $1.1 million.

Net sales in the Distribution Segment decreased $14.3 million or 8% in the year ended December 31, 2017 compared to the prior year primarily due to lower volume. A significant portion of this volume decline resulted from a strategic decision to exit a low margin product line with a customer in early 2017, which contributed to overall gross margin improvement in this segment. The remainder of the decrease in volume was across all product lines and regions, including our export and international channels; however, the Company saw most of this decline early in 2017, as both demand and pricing improved throughout the second half of the year.

23


 

Cost of Sales & Gross Profit:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2017

 

 

2016

 

 

Change

 

 

% Change

 

Cost of sales

 

$

389.6

 

 

$

372.5

 

 

$

17.1

 

 

 

5

%

Gross profit

 

$

157.5

 

 

$

161.9

 

 

$

(4.4

)

 

 

(3

)%

Gross profit as a percentage of sales

 

 

28.8

%

 

 

30.3

%

 

 

 

 

 

 

 

 

 

Gross profit margin decreased to 28.8% for the year ended December 31, 2017 compared to 30.3% for the same period in 2016, primarily due to higher raw material costs and operating inefficiencies, as well as restructuring and related costs of $7.5 million within the Material Handling Segment. These impacts were partially offset by higher pricing and a favorable sales mix.

Selling, General and Administrative Expenses:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2017

 

 

2016

 

 

Change

 

 

% Change

 

SG&A expenses

 

$

135.5

 

 

$

132.6

 

 

$

2.9

 

 

 

2

%

SG&A expenses as a percentage of sales

 

 

24.8

%

 

 

24.8

%

 

 

 

 

 

 

 

 

 

SG&A expenses for the year ended December 31, 2017 were $135.5 million, an increase of $2.9 million or 2% compared to the prior year. SG&A expenses in 2017 were unfavorably impacted by higher legal and professional fees of $1.0 million, costs associated with the restructuring within the Material Handling Segment of $1.2 million, and the non-recurring reversal of a long-term liability of approximately $2.3 million recognized in 2016, partially offset by lower expenses related to the environmental contingencies of approximately $0.8 million, which is described in Note 11 to the consolidated financial statements.

Restructuring:

As further discussed in Note 7 to the consolidated financial statements, the Company initiated a restructuring plan (the “Plan”) in the first quarter of 2017 to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment. The Company incurred a total of $7.6 million of restructuring costs in connection with the Plan during 2017. The Company also recorded $3.9 million in net gains on sales of assets in 2017, primarily related to the closure and sale of the Bluffton, Indiana facility and certain equipment. All actions under the Plan were substantially completed by the end of 2017.

(Gain) Loss on Disposal of Fixed Assets:

The gain on disposal of fixed assets for the year ended December 31, 2017 was $3.5 million compared to a loss of $0.6 million in the prior year. The gains in 2017 were primarily due to the sale of the Bluffton facility and certain equipment associated with the restructuring Plan within the Material Handling Segment, as discussed in Note 7 to the consolidated financial statements.

Impairment Charges:

During the year ended December 31, 2017, the Company recorded an impairment charge of $0.5 million related to a building classified as assets held for sale as discussed in Note 3 to the consolidated financial statements. The building was sold in December 2017.

The Company recorded $1.3 million of non-cash impairment charges, primarily related to long-lived assets associated with the exit of a non-strategic product line in the Material Handling Segment during the year ended December 31, 2016, as discussed in Note 3 to the consolidated financial statements.


24


 

Net Interest Expense:

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

2017

 

 

2016

 

 

Change

 

 

% Change

 

Net interest expense

 

$

7.3

 

 

$

8.6

 

 

$

(1.3

)

 

 

(15

)%

Average outstanding borrowings, net

 

$

175.2

 

 

$

212.1

 

 

$

(36.9

)

 

 

(17

)%

Weighted-average borrowing rate

 

 

4.94

%

 

 

4.69

%

 

 

 

 

 

 

 

 

 

Net interest expense for the year ended December 31, 2017 was $7.3 million compared to $8.6 million during 2016. The decrease in net interest expense is due to a decrease in average borrowings during the year ended December 31, 2017 compared to the prior year, partially offset by a slightly higher borrowing rate.

Loss on Extinguishment of Debt:

During the year ended December 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $1.9 million related to the purchase of a portion of the outstanding Senior Unsecured Notes in 2017, as discussed in Note 12 to the consolidated financial statements.

Income Taxes:

 

 

 

Year Ended December 31,

 

(dollars in millions)

 

2017

 

 

2016

 

Income from continuing operations before taxes

 

$

15.7

 

 

$

18.7

 

Income tax expense

 

$

4.9

 

 

$

7.4

 

Effective tax rate

 

 

31.0

%

 

 

39.5

%

 

The effective tax rate was 31.0% for the year ended December 31, 2017 compared to 39.5% in the prior year. The 2017 effective tax rate is lower than our statutory rate and the effective tax rate for the same period in 2016, primarily due to the enactment of the Tax Act in December 2017, which reduces the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result the Company revalued its U.S. deferred tax assets and liabilities to reflect the lower U.S. corporate rates, which resulted in a tax benefit of $3.0 million in 2017. This was partially offset by a $1.8 million provision for one-time transition tax expense under the Tax Act related to certain foreign earnings previously not taxed in the U.S.

Discontinued Operations:

Loss from discontinued operations, net of income taxes was $20.7 million for the year ended December 31, 2017 compared to loss of $10.3 million for the year ended December 31, 2016. In 2017, this result included a loss on sale of the Brazil Business of $35.0 million (pre-tax), offset primarily by a tax benefit of $15 million, which was generated as a result of a worthless stock deduction for the Brazil Business.

Financial Condition & Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash generated from its operating and financing activities. The cash flows from operating activities are driven primarily by its operating results and changes in its working capital requirements which is supplemented by the Company’s utilization of its current credit facilities. In addition, the Company completed a public equity offering in the second quarter of 2018 that generated $79.5 million of net proceeds. The Company used a portion of the net proceeds received from the offering to repay a portion of its outstanding indebtedness during the second quarter of 2018 and intends to use the remaining proceeds to fund the growth of the business, including selective acquisitions, and for other general corporate purposes.

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, debt service, and to fund future growth.

Operating Activities

Cash provided by operating activities from continuing operations was $60.4 million, $49.1 million and $34.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The increase in cash provided by continuing operations of $11.3 million during the year ended December 31, 2018 compared to 2017 was driven by improvements in income from continuing operations, after considering the non-cash charges of $33.3 million related to the HC matters described in Note 5 and Note 11 to the consolidated financial statements, partially offset by changes in working capital of $3.5 million driven by higher volume in 2018.

25


 

The increase in cash provided by continuing operations of $15.1 million during the year ended December 31, 2017 compared to 2016 was mainly due to an increase in cash provided by working capital of $23.4 million, which was driven by a significant increase in accounts payable in 2017. This increase in accounts payable occurred primarily in the Material Handling Segment as a result of higher demand near year-end, as well as strategic initiatives from the 2017 restructuring Plan. These initiatives included outsourcing production of certain product lines after the closure of the Bluffton facility, which results in increased payables to these strategic partners. Income from continuing operations was $10.8 million for the year ended December 31, 2017 compared to $11.3 million for the same period in 2016.  Income from continuing operations in 2017 includes gains on sale of assets of $3.5 million and non-cash deferred tax benefits of $5.7 million.

Investing Activities

Capital expenditures were $5.1 million, $5.8 million and $12.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. Higher capital spending in 2016 compared to 2018 and 2017 was due to additional investments that were made for new manufacturing focused on growth and productivity improvements in addition to higher spending at Scepter. The Company received proceeds of $2.6 million in 2018 from the sale of fixed assets, a significant portion of which was derived from the sale and leaseback of the distribution center in Pomona, California. The Company received proceeds of $11.1 million in 2017 from the sale of fixed assets, which were primarily due to asset dispositions in connection with the planned facility closures associated with the restructuring Plan with the Material Handling Segment. The Company paid a final working capital adjustment to the buyer of the Lawn and Garden business of approximately $4.0 million in the first quarter of 2016 as described in Note 5 to the consolidated financial statements.

Financing Activities

The Company received net proceeds of $79.5 million from the public offering of common stock in the current year. Net repayments on the credit facility were $74.6 million for the year ended December 31, 2018 compared to net repayments of $16.5 million for the year ended December 31, 2017. The Company used cash of $23.8 million to purchase a portion of the outstanding Senior Unsecured Notes in 2017, as discussed in Note 12 to the consolidated financial statements. The Company used cash to pay dividends of $17.9 million, $16.3 million and $16.2 million for the years 2018, 2017 and 2016, respectively.

Credit Sources

In March 2017, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Loan Agreement”).  The Loan Agreement replaced the pre-existing $300 million senior revolving credit facility with a $200 million facility and extended the term from December 2018 to March 2022. Borrowings under the 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.

The Company also has outstanding Senior Unsecured Notes totaling $78 million with a group of investors pursuant to a note purchase agreement. The series of four notes range in face value from $11 million to $40 million, with interest rates ranging from 4.67% to 5.45%, payable semiannually, and maturing between 2021 and 2026.

Total debt outstanding at December 31, 2018 was $76.8 million, net of deferred financing costs of $1.2 million, compared with $151.0 million at December 31, 2017. The Company’s Loan Agreement provides available borrowing up to $200 million, reduced for letters of credit issued. As of December 31, 2018, there was $195.6 million available under our Loan Agreement. As of December 31, 2018, the Company had $4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business. In addition, as described in Note 11, the Company issued an additional letter of credit of $2 million in January 2019.

As of December 31, 2018, the Company was in compliance with all 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 December 31, 2018 are shown in the following table:

 

 

 

Required Level

 

Actual Level

 

Interest Coverage Ratio

 

3.00 to 1 (minimum)

 

 

11.60

 

Leverage Ratio

 

3.25 to 1 (maximum)

 

 

1.15

 

26


 

Contractual Obligations

The following summarizes the Company’s estimated future cash outflows from financial contracts and commitments reflecting our current debt structure:

 

 

 

Less than

1 Year

 

 

2-3

Years

 

 

4-5

Years

 

 

Thereafter

 

 

Total

 

 

 

 

 

 

 

(Amounts in Thousands)

 

 

 

 

 

Principal payments on debt

 

$

 

 

$

40,000

 

 

$

 

 

$

38,000

 

 

$

78,000

 

Interest

 

 

3,895

 

 

 

5,999

 

 

 

4,053

 

 

 

1,392

 

 

 

15,339

 

Lease payments

 

 

2,492

 

 

 

2,721

 

 

 

1,807

 

 

 

811

 

 

 

7,831

 

Retirement obligations and other benefits

 

 

476

 

 

 

812

 

 

 

662

 

 

 

973

 

 

 

2,923

 

Total

 

$

6,863

 

 

$

49,532

 

 

$

6,522

 

 

$

41,176

 

 

$

104,093

 

 

Uncertain tax position liabilities are also excluded from the contractual obligations table because a reasonably reliable estimate of the period of cash settlement with the respective tax authority cannot be made.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based on the accompanying consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As indicated in the Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements (included in Item 8 of this report), the amount of assets, liabilities, revenue and expenses reported are affected by estimates and judgments that are necessary to comply with U.S. GAAP. The Company bases its estimates on prior experience and other assumptions that they consider reasonable to their circumstances. The Company believes the following matters may involve a high degree of judgment and complexity.

Inventory — 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. Cost is determined by the LIFO method for approximately 30 percent of the Company’s inventories and the FIFO method for all other inventories. Where appropriate, standard cost systems are utilized and appropriate variances are evaluated for purposes of determining cost; the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost or net realizable value of inventory are determined based upon current economic conditions, historical sales quantities and patterns and, in some cases, the specific risk of loss on specifically identified inventories.

Goodwill — Goodwill is subject to annual impairment testing, unless significant changes in circumstances indicate a potential impairment may have occurred sooner. The Company conducts its annual impairment assessment as of October 1. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, the Company considers relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative test is required only if the Company concludes that it is more likely than not (defined as a likelihood of more than 50%) that a reporting unit’s fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be recorded.

At October 1, 2018, after considering changes to assumptions used in the most recent quantitative annual testing for each reporting unit, including macroeconomic conditions, industry and market considerations, overall financial performance, the magnitude of the excess of fair value over the carrying amount of each reporting unit as determined in the most recent quantitative annual testing, and other factors, management concluded that it was not more likely than not that the fair values of the reporting units were less than their respective carrying values and, therefore, did not perform a quantitative analysis.

Contingencies — In the ordinary course of business, the Company is involved in various legal proceedings and contingencies. The Company has recorded liabilities for these matters in accordance with FASB ASC 450, Contingencies (“ASC 450”). ASC 450 requires a liability to be recorded based on our estimate of the probable cost of the resolution of a contingency. When management believes that a loss arising from these matters is probable and can reasonably be estimated, they 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. The actual resolution of these contingencies may differ from our estimates. If a contingency were settled for an amount greater than our estimate, a future charge to income would result. Likewise, if a contingency were settled for an amount that is less than our estimate, a future credit to income would result.


27


 

Revenue Recognition — Revenue is recognized when obligations under the terms of a contract with customers are satisfied. In both the Distribution and Material Handling segments, this generally occurs with the transfer of control of the Company’s 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 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, the Company has not recorded any deferred revenue, 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 transferring the products.  Certain contracts with customers include variable consideration, such as rebates or discounts.  The Company recognizes estimates of this variable consideration each period, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying 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 business and as part of the customer relationship.  Thus, the Company estimates the expected returns each period based on an analysis of historical experience.  For certain businesses where physical recovery of the product from returns occurs, the Company records an estimated right to return asset from such recovery, based on the approximate cost of the product.

Income Taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the change is enacted.

ASC 740, Income Taxes (“ASC 740”) requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. The Company evaluates the recovery of its deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates.

Significant judgement is required in determining the Company’s tax expense and in evaluating its tax positions, including evaluating uncertainties under ASC 740. ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized under ASC 740. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonable to have, a current or future effect on financial condition, changes in financial condition, revenues of operations, liquidity, capital expenditures or capital resources that are material.

Recent Accounting Pronouncements

Information regarding the recent accounting pronouncements is contained in the Summary of Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements under Item 8 of this report.

 

 


28


 

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Derivative Financial Instruments

Interest Rate Risk

The Company has certain financing arrangements that require interest payments based on floating interest rates. The Company’s financial results are subject to changes in the market rate of interest. 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. As of December 31, 2018, the Company has no borrowings outstanding under its floating rate debt.

Foreign Currency Exchange Risk

Some 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 sales made from businesses in Canada to customers in the United States (“U.S.”). These sales are denominated in U.S. dollars. 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 that are denominated in U.S. dollars. The net exposure generally ranges from $1 million to $3 million. The foreign currency contracts and arrangements created under this program are not designated as hedged items under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“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 income statement. The Company’s foreign currency arrangements are typically three months or less and are settled before the end of a reporting period. At December 31, 2018, the Company had no foreign currency arrangements or contracts in place.

Commodity Price Risk

The Company uses certain commodities, primarily plastic resins and natural rubber, 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 obligations to purchase fixed quantities of such commodities in future periods. Significant future increases in the cost of these commodities 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.

 

 

 

29


 

ITEM 8.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Myers Industries, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Myers Industries, Inc. and Subsidiaries (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 8, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

 

We have served as the Company’s auditor since 2011.

 

Akron, Ohio

March 8, 2019

 

 

 

30


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2018, 2017, and 2016

(Dollars in thousands, except per share data)

 

 

For the Year Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

Net sales

$

566,735

 

 

$

547,043

 

 

$

534,379

 

Cost of sales

 

387,442

 

 

 

389,590

 

 

 

372,481

 

Gross profit

 

179,293

 

 

 

157,453

 

 

 

161,898

 

Selling expenses

 

59,503

 

 

 

56,614

 

 

 

58,782

 

General and administrative expenses

 

79,832

 

 

 

78,889

 

 

 

73,797

 

 

 

139,335

 

 

 

135,503

 

 

 

132,579

 

(Gain) loss on disposal of fixed assets

 

(8

)

 

 

(3,482

)

 

 

628

 

Impairment charges

 

308

 

 

 

544

 

 

 

1,329

 

Other expenses

 

33,331

 

 

 

 

 

 

 

Operating income

 

6,327

 

 

 

24,888

 

 

 

27,362

 

Interest

 

 

 

 

 

 

 

 

 

 

 

Income

 

(1,221

)

 

 

(1,361

)

 

 

(1,262

)

Expense

 

6,159

 

 

 

8,653

 

 

 

9,905

 

Interest expense, net

 

4,938

 

 

 

7,292

 

 

 

8,643

 

Loss on extinguishment of debt

 

 

 

 

1,888

 

 

 

 

Income from continuing operations before income taxes

 

1,389

 

 

 

15,708

 

 

 

18,719

 

Income tax expense

 

3,037

 

 

 

4,864

 

 

 

7,395

 

Income (loss) from continuing operations

 

(1,648

)

 

 

10,844

 

 

 

11,324

 

Income (loss) from discontinued operations, net of income tax

 

(1,701

)

 

 

(20,733

)

 

 

(10,267

)

Net income (loss)

$

(3,349

)

 

$

(9,889

)

 

$

1,057

 

Income (loss) per common share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

0.36

 

 

$

0.38

 

Diluted

$

(0.05

)

 

$

0.35

 

 

$

0.38

 

Income (loss) per common share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

(0.69

)

 

$

(0.35

)

Diluted

$

(0.05

)

 

$

(0.68

)

 

$

(0.35

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.10

)

 

$

(0.33

)

 

$

0.03

 

Diluted

$

(0.10

)

 

$

(0.33

)

 

$

0.03

 

Dividends declared per share

$

0.54

 

 

$

0.54

 

 

$

0.54

 

 

The accompanying notes are an integral part of these statements.

 

 

31


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended December 31, 2018, 2017, and 2016

(Dollars in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Net income (loss)

 

$

(3,349

)

 

$

(9,889

)

 

$

1,057

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of ASU 2018-02

 

 

(315

)

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(3,501

)

 

 

2,391

 

 

 

5,105

 

Reclassification adjustment for foreign currency translation included in

   net income (loss)

 

 

 

 

 

17,201

 

 

 

 

Pension liability, net of tax expense (benefit) of $25 in 2018, $14 in

   2017, and ($95) in 2016

 

 

77

 

 

 

41

 

 

 

(169

)

Total other comprehensive income (loss)

 

 

(3,739

)

 

 

19,633

 

 

 

4,936

 

Comprehensive income (loss)

 

$

(7,088

)

 

$

9,744

 

 

$

5,993

 

 

The accompanying notes are an integral part of these statements.

 

32


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2018 and 2017

(Dollars in thousands)

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash

 

$

58,894

 

 

$

2,520

 

Restricted cash

 

 

 

 

 

8,659

 

Accounts receivable, less allowances of $2,259 and $1,777, respectively

 

 

72,939

 

 

 

76,650

 

Income tax receivable

 

 

4,892

 

 

 

12,954

 

Inventories, net

 

 

43,596

 

 

 

47,025

 

Prepaid expenses and other current assets

 

 

2,534

 

 

 

2,204

 

Total Current Assets

 

 

182,855

 

 

 

150,012

 

Other Assets

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

65,460

 

 

 

83,904

 

Goodwill

 

 

59,068

 

 

 

59,971

 

Intangible assets, net

 

 

30,280

 

 

 

39,049

 

Deferred income taxes

 

 

5,270

 

 

 

120

 

Notes receivable

 

 

 

 

 

18,737

 

Other

 

 

5,712

 

 

 

4,149

 

Total Assets

 

$

348,645

 

 

$

355,942

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

60,849

 

 

$

63,581

 

Accrued expenses

 

 

 

 

 

 

 

 

Employee compensation

 

 

16,531

 

 

 

15,544

 

Taxes, other than income taxes

 

 

1,403

 

 

 

1,664

 

Accrued interest

 

 

1,939

 

 

 

2,392

 

Other current liabilities

 

 

16,701

 

 

 

15,472

 

Total Current Liabilities

 

 

97,423

 

 

 

98,653

 

Long-term debt

 

 

76,790

 

 

 

151,036

 

Other liabilities

 

 

19,794

 

 

 

8,236

 

Deferred income taxes

 

 

 

 

 

4,265

 

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 35,374,121 and 30,495,737; net of treasury shares

   of 7,178,336 and 7,456,720, respectively)

 

 

21,547

 

 

 

18,547

 

Additional paid-in capital

 

 

292,558

 

 

 

209,253

 

Accumulated other comprehensive loss

 

 

(18,280

)

 

 

(14,541

)

Retained deficit

 

 

(141,187

)

 

 

(119,507

)

Total Shareholders’ Equity

 

 

154,638

 

 

 

93,752

 

Total Liabilities and Shareholders’ Equity

 

$

348,645

 

 

$

355,942

 

 

The accompanying notes are an integral part of these statements.

 

33


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Years Ended December 31, 2018, 2017 and 2016

(Dollars in thousands, except per share data)

 

 

 

Common Shares

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Total

Shareholders'

 

 

 

Number

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2016

 

 

29,521,566

 

 

$

17,895

 

 

$

196,743

 

 

$

(39,110

)

 

$

(77,825

)

 

$

97,703

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,057

 

 

 

1,057

 

Issuances under option plans

 

 

374,958

 

 

 

205

 

 

 

3,030

 

 

 

 

 

 

 

 

 

3,235

 

Dividend reinvestment plan

 

 

10,520

 

 

 

6

 

 

 

133

 

 

 

 

 

 

 

 

 

139

 

Restricted stock vested

 

 

169,929

 

 

 

104

 

 

 

(104

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

24

 

 

 

3,333

 

 

 

 

 

 

 

 

 

3,357

 

Tax benefit from options

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

64

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

5,105

 

 

 

 

 

 

5,105

 

Shares withheld for employee taxes on

   equity awards

 

 

(57,412

)

 

 

 

 

 

(1,166

)

 

 

 

 

 

 

 

 

(1,166

)

Declared dividends - $0.54 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,292

)

 

 

(16,292

)

Pension liability, net of tax of $95

 

 

 

 

 

 

 

 

 

 

 

(169

)

 

 

 

 

 

(169

)

Balance at December 31, 2016

 

 

30,019,561

 

 

 

18,234

 

 

 

202,033

 

 

 

(34,174

)

 

 

(93,060

)

 

 

93,033

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,889

)

 

 

(9,889

)

Issuances under option plans

 

 

375,292

 

 

 

229

 

 

 

4,167

 

 

 

 

 

 

 

 

 

4,396

 

Dividend reinvestment plan

 

 

7,625

 

 

 

5

 

 

 

126

 

 

 

 

 

 

 

 

 

131

 

Restricted stock vested

 

 

130,036

 

 

 

79

 

 

 

(79

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

3,626

 

 

 

 

 

 

 

 

 

3,626

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

2,391

 

 

 

 

 

 

2,391

 

Shares withheld for employee taxes on

   equity awards

 

 

(36,777

)

 

 

 

 

 

(620

)

 

 

 

 

 

 

 

 

(620

)

Declared dividends - $0.54 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,558

)

 

 

(16,558

)

Pension liability, net of tax of $14

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Reclassification adjustment for foreign

   currency translation included in net

   loss

 

 

 

 

 

 

 

 

 

 

 

17,201

 

 

 

 

 

 

17,201

 

Balance at December 31, 2017

 

 

30,495,737

 

 

 

18,547

 

 

 

209,253

 

 

 

(14,541

)

 

 

(119,507

)

 

 

93,752

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,349

)

 

 

(3,349

)

Adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

(315

)

 

 

315

 

 

 

 

Issuances under option plans

 

 

191,169

 

 

 

117

 

 

 

2,618

 

 

 

 

 

 

 

 

 

2,735

 

Dividend reinvestment plan

 

 

5,712

 

 

 

4

 

 

 

114

 

 

 

 

 

 

 

 

 

118

 

Restricted stock vested

 

 

120,142

 

 

 

73

 

 

 

(73

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

4,644

 

 

 

 

 

 

 

 

 

4,644

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(3,501

)

 

 

 

 

 

(3,501

)

Shares withheld for employee taxes on

   equity awards

 

 

(38,639

)

 

 

 

 

 

(714

)

 

 

 

 

 

 

 

 

(714

)

Declared dividends - $0.54 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,646

)

 

 

(18,646

)

Pension liability, net of tax of $25

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

77

 

Shares issued in public offering, net of

   equity issuance costs

 

 

4,600,000

 

 

 

2,806

 

 

 

76,716

 

 

 

 

 

 

 

 

 

79,522

 

Balance at December 31, 2018

 

 

35,374,121

 

 

$

21,547

 

 

$

292,558

 

 

$

(18,280

)

 

$

(141,187

)

 

$

154,638

 

 

The accompanying notes are an integral part of these statements.

 

 

34


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2018, 2017 and 2016

(Dollars in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,349

)

 

$

(9,889

)

 

$

1,057

 

Income (loss) from discontinued operations, net of income taxes

 

 

(1,701

)

 

 

(20,733

)

 

 

(10,267

)

Income (loss) from continuing operations

 

 

(1,648

)

 

 

10,844

 

 

 

11,324

 

Adjustments to reconcile income (loss) from continuing operations to net cash provided

   by (used for) operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

17,638

 

 

 

19,952

 

 

 

22,049

 

Amortization

 

 

8,485

 

 

 

8,886

 

 

 

9,743

 

Accelerated depreciation associated with restructuring activities

 

 

16

 

 

 

1,993

 

 

 

 

Non-cash stock-based compensation expense

 

 

4,257

 

 

 

3,626

 

 

 

3,357

 

(Gain) loss on disposal of fixed assets

 

 

(8

)

 

 

(3,482

)

 

 

628

 

Provision for loss on note receivable

 

 

23,008

 

 

 

 

 

 

 

Lease guarantee contingency

 

 

10,323

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

1,888

 

 

 

 

Deferred taxes

 

 

(9,450

)

 

 

(5,663

)

 

 

555

 

Interest income received (accrued) on note receivable

 

 

(361

)

 

 

(1,384

)

 

 

(1,276

)

Impairment charges

 

 

308

 

 

 

544

 

 

 

1,329

 

Other

 

 

457

 

 

 

256

 

 

 

155

 

Payments on performance based compensation

 

 

(1,249

)

 

 

(1,010

)

 

 

(1,794

)

Other long-term liabilities

 

 

180

 

 

 

723

 

 

 

(592

)

Cash flows provided by (used for) working capital

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,927

 

 

 

(6,709

)

 

 

6,427

 

Inventories

 

 

3,151

 

 

 

(1,876

)

 

 

8,603

 

Prepaid expenses and other current assets

 

 

(353

)

 

 

2,209

 

 

 

1,047

 

Accounts payable and accrued expenses

 

 

713

 

 

 

18,299

 

 

 

(27,594

)

Net cash provided by (used for) operating activities - continuing operations

 

 

60,394

 

 

 

49,096

 

 

 

33,961

 

Net cash provided by (used for) operating activities - discontinued operations

 

 

858

 

 

 

(4,633

)

 

 

(232

)

Net cash provided by (used for) operating activities

 

 

61,252

 

 

 

44,463

 

 

 

33,729

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,123

)

 

 

(5,814

)

 

 

(12,489

)

Proceeds from sale of property, plant and equipment

 

 

2,633

 

 

 

11,058

 

 

 

450

 

Proceeds (payments) related to sale of business

 

 

 

 

 

 

 

 

(4,034

)

Net cash provided by (used for) investing activities - continuing operations

 

 

(2,490

)

 

 

5,244

 

 

 

(16,073

)

Net cash provided by (used for) investing activities - discontinued operations

 

 

 

 

 

(1,107

)

 

 

(16

)

Net cash provided by (used for) investing activities

 

 

(2,490

)

 

 

4,137

 

 

 

(16,089

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings (repayments) on credit facility

 

 

(74,557

)

 

 

(16,474

)

 

 

(3,804

)

Repayments of senior unsecured notes

 

 

 

 

 

(23,798

)

 

 

 

Cash dividends paid

 

 

(17,862

)

 

 

(16,341

)

 

 

(16,221

)

Proceeds from issuance of common stock

 

 

2,853

 

 

 

4,527

 

 

 

3,374

 

Excess tax benefit from stock-based compensation

 

 

 

 

 

 

 

 

64

 

Proceeds from public offering of common stock, net of equity issuance costs

 

 

79,522

 

 

 

 

 

 

 

Shares withheld for employee taxes on equity awards

 

 

(714

)

 

 

(620

)

 

 

(1,166

)

Deferred financing costs

 

 

 

 

 

(1,030

)

 

 

 

Net cash provided by (used for) financing activities - continuing operations

 

 

(10,758

)

 

 

(53,736

)

 

 

(17,753

)

Net cash provided by (used for) financing activities - discontinued operations

 

 

 

 

 

 

 

 

 

Net cash provided by (used for) financing activities

 

 

(10,758

)

 

 

(53,736

)

 

 

(17,753

)

Foreign exchange rate effect on cash

 

 

(289

)

 

 

(208

)

 

 

665

 

Less: Net increase (decrease) in cash classified within discontinued operations

 

 

 

 

 

(5,484

)

 

 

493

 

Net increase in cash and restricted cash

 

 

47,715

 

 

 

140

 

 

 

59

 

Cash and restricted cash at January 1

 

 

11,179

 

 

 

11,039

 

 

 

10,980

 

Cash and restricted cash at December 31

 

$

58,894

 

 

$

11,179

 

 

$

11,039

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

6,236

 

 

$

8,913

 

 

$

8,917

 

Income taxes

 

$

5,539

 

 

$

5,651

 

 

$

8,136

 

 

The accompanying notes are an integral part of these statements.

 

 

35


 

MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except where otherwise indicated)

 

1.  Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. All subsidiaries that are not wholly owned and are not included in the consolidated operating results of the Company are immaterial investments which have been accounted for under the equity or cost method. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenues, and expenses recorded and disclosed. Actual results could differ from those estimates.

During the fourth quarter of 2017, the Company completed the sale of certain subsidiaries in Brazil. As further discussed in Note 5, the results of operations and cash flows of these subsidiaries have been classified as discontinued operations in the consolidated financial statements for all periods presented.

Accounting Standards Adopted

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which allowed SEC registrants to record provisional amounts in earnings for the year ended December 31, 2017 due to the complexities involved in accounting for the enactment of the Tax Cuts and Jobs Act. The Company recognized the estimated income tax effects of the Tax Cuts and Jobs Act in its 2017 consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 118. The Company finalized its accounting in 2018. Refer to Note 13 for further information regarding the provisional amounts recorded by the Company.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The new standard also requires certain disclosures about stranded tax effects. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (as further discussed in Note 13) is recognized. The Company early adopted this standard effective January 1, 2018 and as a result of adopting this standard, $0.3 million of stranded tax effects were reclassified from accumulated other comprehensive income to retained earnings in the first quarter of 2018.

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 adopted this standard effective January 1, 2018 and the adoption did not have a material impact on its consolidated financial statements as the pension plan is frozen.

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. The Company adopted this standard effective January 1, 2018. At adoption, the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on the consolidated statements of cash flows did not have a material impact on the Company’s net cash flows in prior years.

36


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

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 adopted this standard effective January 1, 2018, and the adoption of this standard did not have a material impact 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 recognizes 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 are also required to help users of financial statements understand the nature, amount, and timing of revenue and cash flows arising from contracts. The Company adopted the new guidance effective January 1, 2018 using the modified retrospective approach and applied the new guidance to all open contracts at the date of adoption. Adoption of the new standard resulted in changes to the Company’s accounting policy and disclosures related to revenue recognition (refer to Note 2). The impact of adopting this standard on the Company’s consolidated financial statements was not material, and there was no cumulative transition adjustment required.

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted and this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20). This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for annual periods ending after December 15, 2020, with early adoption permitted and should be applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. Certain disclosures in this ASU are required to be applied on a retrospective basis and others on a prospective basis. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

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 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 unless a goodwill impairment were to occur.

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.


37


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

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 the amount, timing and uncertainty of cash flows arising from leasing arrangements. The new standard is effective for the Company beginning January 1, 2019, and must be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning of the earliest comparative period presented or the optional transition approach, which requires application of the new guidance at the standard’s effective date. The Company will adopt the new guidance effective January 1, 2019 using the optional transition method. The Company is substantially complete with its implementation of the new standard, which included designing and implementing changes to processes, controls and systems, where necessary, to address the requirements of the new standard. Upon adoption, the Company expects to recognize right-of-use assets and lease liabilities in the range of $5.7 million to $6.7 million for substantially all of its operating leases. The remaining undiscounted minimum lease commitments as of December 31, 2018 are summarized in Note 15, Leases. It is not expected that the adoption of this standard will have a material impact on the consolidated results of operations or cash flows. The Company will also record a cumulative-effect adjustment to retained earnings upon adoption to recognize the remaining deferred gain on the sale-leaseback transaction that occurred prior to the date of initial application. Additionally, the standard requires new disclosures related to leases, which the Company is in the process of finalizing.

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 Accounting Standards Codification (“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 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.

Financial assets that are measured at net asset value, which is a practical expedient to estimating fair value, are not classified in the fair value hierarchy.

The Company has financial instruments, including cash, accounts receivable, accounts payable and accrued expenses. The fair value of these financial instruments approximate 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 12, approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of the 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 December 31, 2018 and 2017, the aggregate fair value of the Company’s outstanding fixed rate senior unsecured notes was estimated at $76.8 million and $78.0 million, respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk primarily consist of trade accounts receivable. The concentration of accounts receivable credit risk is generally limited based on the Company’s diversified operations, with customers spread across many industries and countries. In 2018, there were no customers that accounted for more than ten percent of net sales. Outside of the United States, only customers located in Canada, which account for approximately 4.1% of net sales, are significant to the Company’s operations. In addition, management has established certain requirements that customers must

38


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

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. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, the Company also reviews historical trends for collectability in determining an estimate for its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due the Company could be reduced by a material amount. Expense related to bad debts was approximately $0.7 million, $0.7 million and $0.8 million for 2018, 2017 and 2016, respectively, and is recorded within selling expenses in the Consolidated Statements of Operations. Deductions from the allowance for doubtful accounts, net of recoveries, were approximately $0.5 million, $0.7 million and $0.4 million for 2018, 2017 and 2016, respectively.

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 30 percent of our inventories are valued using the LIFO method of determining cost. All other inventories are valued at the FIFO method of determining cost.

 

Inventories at December 31 consist of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Finished and in-process products

 

$

27,960

 

 

$

30,874

 

Raw materials and supplies

 

 

15,636

 

 

 

16,151

 

 

 

$

43,596

 

 

$

47,025

 

 

If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $5.1 million and $5.6 million higher than reported at December 31, 2018 and 2017, respectively. Cost of sales decreased by $0.5 million and $0.1 million in 2018 and 2017, respectively, as a result of the liquidation of LIFO inventories. Cost of sales increased by $0.1 million in 2016 as a result of the liquidation of LIFO inventories.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization on the basis of the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings

20 to 40 years

Machinery and Equipment

3 to 10 years

Leasehold Improvements

5 to 10 years

 

The Company’s property, plant and equipment by major asset class at December 31 consists of:

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Land

 

$

7,017

 

 

$

7,815

 

Buildings and leasehold improvements

 

 

53,821

 

 

 

59,730

 

Machinery and equipment

 

 

253,785

 

 

 

260,880

 

 

 

 

314,623

 

 

 

328,425

 

Less allowances for depreciation and amortization

 

 

(249,163

)

 

 

(244,521

)

 

 

$

65,460

 

 

$

83,904

 

 

 

At December 31, 2018 and 2017, the Company had approximately $6.8 million and $6.9 million, respectively, of capitalized software costs included in machinery and equipment. Amortization expense related to capitalized software costs was approximately $0.5 million, $1.0 million and $0.6 million in 2018, 2017 and 2016, respectively.

39


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Long-Lived Assets

The Company reviews its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Determination of potential impairment related to assets to be held and used is based upon undiscounted future cash flows resulting from the use and ultimate disposition of the asset and related asset group. For assets held for sale, the amount of potential impairment may be based upon appraisal of the asset, estimated market value of similar assets or estimated cash flow from the disposition of the asset. Refer to Note 3 for discussion of the impairment charges.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) were as follows:

 

 

 

Foreign

Currency

 

 

Defined Benefit

Pension Plans

 

 

Total

 

Balance at January 1, 2016

 

$

(37,447

)

 

$

(1,663

)

 

$

(39,110

)

Other comprehensive income (loss) before reclassifications

 

 

5,105

 

 

 

(222

)

 

 

4,883

 

Amounts reclassified from accumulated other comprehensive income, net of

   tax of ($30) (1)

 

 

 

 

 

53

 

 

 

53

 

Net current-period other comprehensive income (loss)

 

 

5,105

 

 

 

(169

)

 

 

4,936

 

Balance at December 31, 2016

 

 

(32,342

)

 

 

(1,832

)

 

 

(34,174

)

Other comprehensive income (loss) before reclassifications

 

 

2,391

 

 

 

(31

)

 

 

2,360

 

Amounts reclassified from accumulated other comprehensive income, net of

   tax of ($24) (1) (2)

 

 

17,201

 

 

 

72

 

 

 

17,273

 

Net current-period other comprehensive income (loss)

 

 

19,592

 

 

 

41

 

 

 

19,633

 

Balance at December 31, 2017

 

 

(12,750

)

 

 

(1,791

)

 

 

(14,541

)

Other comprehensive income (loss) before reclassifications

 

 

(3,501

)

 

 

14

 

 

 

(3,487

)

Amounts reclassified from accumulated other comprehensive income, net of

   tax of ($21) (1)

 

 

 

 

 

63

 

 

 

63

 

Reclassification of stranded tax effects to retained earnings(3)

 

 

 

 

 

(315

)

 

 

(315

)

Net current-period other comprehensive income (loss)

 

 

(3,501

)

 

 

(238

)

 

 

(3,739

)

Balance at December 31, 2018

 

$

(16,251

)

 

$

(2,029

)

 

$

(18,280

)

 

(1)

The accumulated other comprehensive income (loss) components related to defined benefit pension plans are included in the computation of net periodic pension cost. See Note 14, Retirement Plans for additional details.

(2)

Cumulative translation adjustment associated with the sale of the Brazil Business, as further discussed in Note 5, was included in the carrying value of assets disposed of.

(3)

Reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act to retained earnings due to the adoption of ASU 2018-02 during the first quarter of 2018.

Stock Based Compensation

The Company has stock incentive plans that provide for the granting of stock-based compensation to employees and to non-employee directors. Shares issued for option exercises or restricted stock units may be either from authorized but unissued shares or treasury shares. The Company records the costs of the plan under the provisions of ASC 718, Compensation — Stock Compensation. For transactions in which the Company obtains employee services in exchange for an award of equity instruments, the Company measures the cost of the services based on the grant date fair value of the award. The Company recognizes the cost over the period during which an employee is required to provide services in exchange for the award, referred to as the requisite service period (usually the vesting period).

 

Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the change is enacted.

40


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

ASC 740, Income Taxes (“ASC 740”) requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. The Company evaluates the recovery of its deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates.

The Company evaluates its tax positions in accordance with ASC 740, which provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized under ASC 740. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

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.

Cash flows used in investing activities excluded $1.1 million, $0.6 million and $0.1 million of accrued capital expenditures in 2018, 2017 and 2016, respectively.

 

2.  Revenue Recognition

The following table disaggregates the Company’s revenue by major market:

 

 

 

For the Year Ended December 31, 2018

 

 

 

Material

Handling

 

 

Distribution

 

 

Inter-company

 

 

Consolidated

 

Consumer

 

$

78,174

 

 

$

 

 

$

 

 

$

78,174

 

Vehicle

 

 

95,247

 

 

 

 

 

 

 

 

 

95,247

 

Food and beverage

 

 

101,610

 

 

 

 

 

 

 

 

 

101,610

 

Industrial

 

 

142,168

 

 

 

 

 

 

(100

)

 

 

142,068

 

Auto aftermarket

 

 

 

 

 

149,636

 

 

 

 

 

 

149,636

 

Total net sales

 

$

417,199

 

 

$

149,636

 

 

$

(100

)

 

$

566,735

 

 

Revenue is recognized when obligations under the terms of a contract with customers are satisfied. In both the Distribution and Material Handling segments, this generally occurs with the transfer of control of the Company’s 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 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, the Company has not recorded any deferred revenue, 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 transferring the products.  Certain contracts with customers include variable consideration, such as rebates or discounts.  The Company recognizes estimates of this variable consideration each period, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying 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 business and as part of the customer relationship.  Thus, the Company estimates the expected returns each period based on an analysis of historical experience.  For certain businesses where physical recovery of the product from returns occurs, the Company records an estimated right to return asset from such recovery, based on the approximate cost of the product.


41


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Amounts included in the Consolidated Statements of Financial Position related to revenue recognition include:

 

 

 

December 31,

 

 

December 31,

 

 

Statement of Financial Position

 

 

2018

 

 

2017

 

 

Classification

Returns, discounts and other allowances

 

$

(1,169

)

 

$

(853

)

 

Accounts receivable

Right of return asset

 

 

535

 

 

 

292

 

 

Inventories, net

Customer deposits

 

 

(806

)

 

 

(140

)

 

Other current liabilities

Accrued rebates

 

 

(2,559

)

 

 

(2,962

)

 

Other current liabilities

 

Sales, value added, and other taxes the Company collects concurrent with revenue from customers are excluded from net sales.  The Company has elected to recognize the cost for shipments to customers when control over products has transferred to the customer.  Costs for shipments to customers are classified as selling expenses for the Company’s manufacturing businesses and as cost of sales for the Company’s distribution business in the accompanying Consolidated Statements of Operations. The Company incurred costs for shipments to customers of approximately $9.7 million, $8.2 million and $8.9 million in selling expenses for the years ended December 31, 2018, 2017 and 2016, respectively, and $5.7 million, $6.0 million, and $6.1 million in cost of sales for the years ended December 31, 2018, 2017 and 2016, respectively. All other internal distribution costs are recorded in selling expenses.

Based on the short term nature of contracts described above, the Company does not incur significant contract acquisition costs. These costs, as well as other incidental items that are immaterial in the context of the contract, are recognized as expense as incurred.

 

3.  Impairment Charges

As part of its ongoing strategy, the Company has been evaluating its various real estate holdings over the past two years. As a result of these initiatives, certain buildings have been reclassified as held for sale in 2017 and 2018. Based on the estimated fair value of these buildings (using primarily third party offers considered to be Level 2 inputs), less estimated costs to sell, the Company recorded impairment charges of $0.3 million and $0.5 million during the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, the Company had classified $4.4 million and $0.3 million for buildings as held for sale, in Other Assets in the Consolidated Statements of Financial Position. During 2018 and 2017, the Company sold certain buildings previously held for sale for net proceeds of $2.3 million and $3.1 million, respectively.

During 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.  

 

4.  Goodwill and Intangible Assets

The Company tests for impairment of goodwill and indefinite-lived intangible assets on at least an annual basis, unless significant changes in circumstances indicate a potential impairment may have occurred sooner. Such changes in circumstances may include, but are not limited to, significant changes in economic and competitive conditions, the impact of the economic environment on the Company’s customer base or its businesses, or a material negative change in its relationships with significant customers.    

The Company conducted its annual goodwill impairment assessment as of October 1 for all of its reporting units, noting no impairment in continuing operations in 2018, 2017 or 2016.      

During the 2018 annual review of goodwill, management performed a qualitative assessment for all of its reporting units. After considering changes to assumptions used in the most recent quantitative annual testing for each reporting unit, including macroeconomic conditions, industry and market considerations, overall financial performance, the magnitude of the excess of fair value over the carrying amount of each reporting unit as determined in the most recent quantitative annual testing, and other factors, management concluded that it was not more likely than not that the fair values of the reporting units were less than their respective carrying values and, therefore, did not perform a quantitative analysis in 2018. A qualitative analysis was also performed at October 31, 2017 and a quantitative analysis was performed at October 1, 2016.

42


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 were as follows:

 

 

 

Distribution

 

 

Material

Handling

 

 

Total

 

January 1, 2017

 

$

505

 

 

$

58,714

 

 

$

59,219

 

Foreign currency translation

 

 

 

 

 

752

 

 

 

752

 

December 31, 2017

 

$

505

 

 

$

59,466

 

 

$

59,971

 

Foreign currency translation

 

 

 

 

 

(903

)

 

 

(903

)

December 31, 2018

 

$

505

 

 

$

58,563

 

 

$

59,068

 

 

Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. The Company performs an annual impairment assessment for the indefinite lived trade names which had a carrying value of $9,782 and $9,972 at December 31, 2018 and 2017, respectively. In performing this assessment the Company uses an income approach, based primarily on Level 3 inputs, to estimate the fair value of the trade name. The Company records an impairment charge if the carrying value of the trade name exceeds the estimated fair value at the date of assessment.

Intangible assets at December 31, 2018 and 2017 consisted of the following:

 

 

 

 

 

 

 

2018

 

 

2017

 

 

 

Weighted Average

Remaining Useful

Life (years)

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

 

Gross

 

 

Accumulated

Amortization

 

 

Net

 

Trade Names - Indefinite Lived

 

 

 

 

 

$

9,782

 

 

$

 

 

$

9,782

 

 

$

9,972

 

 

$

 

 

$

9,972

 

Trade Names

 

 

6.5

 

 

 

80

 

 

 

(45

)

 

 

35

 

 

 

80

 

 

 

(40

)

 

 

40

 

Customer Relationships

 

 

1.5

 

 

 

39,521

 

 

 

(31,896

)

 

 

7,625

 

 

 

41,043

 

 

 

(27,396

)

 

 

13,647

 

Technology

 

 

5.2

 

 

 

24,980

 

 

 

(12,142

)

 

 

12,838

 

 

 

24,980

 

 

 

(9,590

)

 

 

15,390

 

Patents

 

 

0.0

 

 

 

11,730

 

 

 

(11,730

)

 

 

 

 

 

11,730

 

 

 

(11,730

)

 

 

 

 

 

 

 

 

 

$

86,093

 

 

$

(55,813

)

 

$

30,280

 

 

$

87,805

 

 

$

(48,756

)

 

$

39,049

 

 

Intangible amortization expense was $8,099, $8,378 and $9,277 in 2018, 2017 and 2016, respectively. Estimated annual amortization expense for intangible assets with finite lives for the next five years is: $7,571 in 2019; $4,819 in 2020; $2,278 in 2021; $2,278 in 2022 and $2,278 in 2023.

 

5.  Disposal of Businesses

On December 18, 2017, the Company, collectively with its wholly owned subsidiary, Myers Holdings Brasil, Ltda. (“Holdings”), completed the sale of its subsidiaries, Myers do Brasil Embalagens Plasticas Ltda. and Plasticos Novel do Nordeste Ltda. (collectively, the “Brazil Business”), to Novel Holdings – Eireli (“Buyer”), an entity controlled by a member of the Brazil Business’ management team.  The divestiture of the Brazil Business will allow the Company to focus resources on its core businesses and additional growth opportunities. The Brazil Business is a leading designer and manufacturer of reusable plastic shipping containers, plastic pallets, crates and totes used for closed-loop shipping and storage in Brazil’s automotive, distribution, food, beverage and agriculture industries. The sale of the Brazil Business included manufacturing facilities and offices located in Lauro de Freitas City, Bahia, Brazil; Ibipora, Parana, Brazil; and Jaguarinuna, Brazil. The Brazil Business was part of the Company’s Material Handling Segment.

 

Pursuant to the terms of the Quota Purchase Agreement by and among the Company, Holdings and Buyer (the “Purchase Agreement”), the Buyer paid a purchase price of one U.S. Dollar to the Company and has assumed all liabilities and obligations of the Brazil Business, whether arising prior to or after the closing of the transaction. There are no additional amounts due, or to be settled, under the terms of the Purchase Agreement with the Buyer. The Company recorded a loss on the sale of the Brazil Business during the fourth quarter of 2017 of $35.0 million, which included $1.2 million of cash held by the Brazil Business and approximately $0.3 million of costs to sell. In addition, the Company recorded a U.S. tax benefit of approximately $15 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business. As a result of the Company’s U.S. Federal income tax filings in 2018, the Company reduced this estimated tax benefit by $0.7 million and recognized this adjustment within net loss from discontinued operations.

43


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

The Company has agreed to be the guarantor under a factoring arrangement between the Buyer and Banco Alfa de Investimento S.A. until December 31, 2019 for up to $7 million, in the event the Buyer is unable to meet its obligations under this arrangement. The Company also holds a first lien against certain machinery and equipment, exercisable only upon default by the Buyer under the guaranty. Based on the nature of the guaranty, as well as the existence of the lien, the Company believes the fair value of the guaranty is immaterial (based primarily on Level 3 inputs), and thus has recorded no liability related to this guaranty in the Consolidated Statement of Financial Position. This guaranty also creates a variable interest to the Company in the Brazil Business. Based on the terms of the transaction and the fact that the Company has no management involvement or voting interests in the Brazil Business following the sale, the Company does not have any power to direct the significant activities of the Brazil Business, and is thus not the primary beneficiary.

During the second quarter of 2014, the Company’s Board of Directors approved the commencement of the sale process to divest its Lawn and Garden business to allow it to focus resources on its core growth platforms. The business was sold February 17, 2015 to an entity controlled by Wingate Partners V, L.P. (“L&G Buyer”), a private equity firm, for $110 million, subject to a working capital adjustment of approximately $4.0 million paid to the L&G Buyer in 2016. The terms of the agreement included a $90 million cash payment and promissory notes totaling $20 million that mature in August 2020 with a 6% interest rate, with approximately $8.6 million placed in escrow that was due to be settled by August 2016. The release of these funds had been extended pending the resolution of indemnification claims, as further described in Note 11. In April 2018, the Company reached agreement on the material terms of a settlement, and, as a result, recorded a pre-tax charge of $1.225 million to discontinued operations in 2018. The settlement was finalized and paid in May 2018, and upon settlement and release of any further obligation on behalf of the Company, the remaining $7.4 million was released from escrow to the Company.

During the third quarter of 2018, management of the Lawn and Garden business, now named HC Companies, Inc. (“HC”), requested an extension to the maturity of the notes as part of an effort to restructure their debt. The Company believes there is uncertainty about the ability to collect on the notes and corresponding accrued interest. The fair market value of the notes at the date of the sale was $17.8 million. The fair value of the notes receivable was calculated using Level 2 inputs as defined in Note 1. The carrying value of the notes as of December 31, 2018 and 2017 was $19.1 million and $18.7 million, respectively, which represents the fair value at the date of sale plus accretion. As a result of the uncertainty regarding the ability to collect on the notes and corresponding accrued interest, the Company recorded a provision for expected loss of $23.0 million within continuing operations to Other Expenses in the Consolidated Statements of Operations during the third quarter of 2018 based on the carrying value of the notes and corresponding accrued interest. Interest income on the notes receivable was $1.0 million, $1.3 million, and $1.3 million during the years ended December 31, 2018, 2017 and 2016 and was recognized based on the stated interest rate above. The Company ceased recognizing interest income following the recording of the provision noted above.

In connection with the financial risk described above with HC, the Company further assessed its potential obligations under a lease guarantee granted as part of the sale of the Lawn and Garden business. Refer to Note 11 for further information with regards to this obligation.

Summarized selected financial information for discontinued operations for the years ended December 31, 2018, 2017 and 2016 are presented in the following table:

 

 

 

 

 

For the Year Ended December 31,

 

 

 

 

 

2018

 

 

2017*

 

 

2016

 

Net sales

 

 

 

$

 

 

$

29,976

 

 

$

23,683

 

Cost of sales

 

 

 

 

 

 

 

25,359

 

 

 

20,941

 

Selling, general, and administrative

 

 

 

 

1,348

 

 

 

6,748

 

 

 

5,438

 

(Gain) loss on disposal of assets

 

 

 

 

 

 

 

(32

)

 

 

226

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

8,545

 

Interest income, net

 

 

 

 

 

 

 

(286

)

 

 

(469

)

Gain (loss) on the disposal of the discontinued operations

 

 

 

 

 

 

 

(34,956

)

 

 

 

Loss from discontinued operations before income tax

 

 

 

 

(1,348

)

 

 

(36,769

)

 

 

(10,998

)

Income tax expense (benefit)

 

 

 

 

353

 

 

 

(16,036

)

 

 

(731

)

Loss from discontinued operations, net of income tax

 

 

 

$

(1,701

)

 

$

(20,733

)

 

$

(10,267

)

 

*

Includes Brazil Business operating results through December 18, 2017.

 

44


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Net cash flows provided by discontinued operations in 2018 resulted from the payment of expenses related to the sale of the Brazil Business, the payment of the settlement with the L&G Buyer noted above and partial receipt of the tax benefit from the worthless stock deduction related to the Brazil Business. The worthless stock deduction allowed the Company to reduce its estimated U.S. federal tax payments in 2018 by $4.3 million.

 

6.  Net Income (Loss) Per Common Share

Net income (loss) per common share, as shown on the accompanying Consolidated Statements of Operations, is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Weighted average common shares outstanding basic

 

 

33,426,855

 

 

 

30,222,289

 

 

 

29,750,378

 

Dilutive effect of stock options and restricted stock

 

 

 

 

 

340,357

 

 

 

217,534

 

Weighted average common shares outstanding diluted

 

 

33,426,855

 

 

 

30,562,646

 

 

 

29,967,912

 

 

Due to the net loss for the year ended December 31, 2018, diluted weighted-average shares outstanding are equal to basic weighted-average shares outstanding because the effect of all equity awards is anti-dilutive. Options to purchase 242,500 and 551,761 shares of common stock that were outstanding at December 31, 2017 and 2016, respectively, were not included in the computation of diluted earnings per share as the exercise prices of these options was greater than the average market price of common shares, and were therefore anti-dilutive.

 

7.  Restructuring

The charges related to various restructuring programs implemented by the Company are included in cost of sales and selling, general and administrative (“SG&A”) expenses depending on the type of cost incurred. The restructuring charges recognized in the years ended 2018, 2017 and 2016 are presented in the following table.  

 

 

 

 

2018

 

 

2017

 

 

2016

 

Segment

 

 

Cost of

sales

 

 

SG&A

 

 

Total

 

 

Cost of

sales

 

 

SG&A

 

 

Total

 

 

Cost of

sales

 

 

SG&A

 

 

Total

 

Distribution

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Material Handling

 

 

 

119

 

 

 

 

 

 

119

 

 

 

7,389

 

 

 

164

 

 

 

7,553

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

119

 

 

$

 

 

$

119

 

 

$

7,389

 

 

$

164

 

 

$

7,553

 

 

$

 

 

$

 

 

$

 

 

On March 9, 2017, the Company announced a restructuring plan (the “Plan”) to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment, which related primarily to anticipated facility shutdowns and associated activities.  Total restructuring costs incurred related to the Plan were approximately $7.7 million, which includes employee severance and other employee-related costs of approximately $3.1 million, $2.6 million related to equipment relocation and facility shut down costs and non-cash charges, primarily accelerated depreciation charges on property, plant and equipment, of approximately $2.0 million.

All actions under the Plan are completed. The Company incurred $0.1 million and $7.6 million of restructuring charges associated with the activities under the Plan during the years ended December 31, 2018 and 2017, respectively.

45


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

The table below summarizes restructuring activity for the years ended December 31, 2018 and 2017:

 

 

 

Employee

Reduction

 

 

Accelerated

Depreciation

 

 

Other Exit Costs

 

 

Total

 

Balance at January 1, 2017

 

$

 

 

$

 

 

$

 

 

$

 

Charges to expense

 

 

3,022

 

 

 

1,993

 

 

 

2,538

 

 

 

7,553

 

Cash payments

 

 

(1,924

)

 

 

 

 

 

(2,448

)

 

 

(4,372

)

Non-cash utilization

 

 

 

 

 

(1,993

)

 

 

 

 

 

(1,993

)

Balance at December 31, 2017

 

$

1,098

 

 

$

 

 

$

90

 

 

$

1,188

 

Charges to expense

 

 

31

 

 

 

16

 

 

 

72

 

 

 

119

 

Cash payments

 

 

(1,099

)

 

 

 

 

 

(162

)

 

 

(1,261

)

Non-cash utilization

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

Balance at December 31, 2018

 

$

30

 

 

$

 

 

$

 

 

$

30

 

 

In addition to the restructuring costs noted above, the Company also incurred other associated costs of the Plan of $1.1 million for the year ended December 31, 2017, of which $0.1 million is included in cost of sales and $1.0 is included in general and administrative expenses in the accompanying Consolidated Statements of Operations, and are primarily related to third party consulting costs. No such costs were incurred for the year ended December 31, 2018.

 

For the years ended December 31, 2018 and 2017, the Company recognized gains of $0.2 million and $3.9 million, respectively, on asset dispositions in connection with the planned facility closures under the Plan.

 

8.  Other Liabilities

The balance in other current liabilities is comprised of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Customer deposits and accrued rebates

 

$

3,365

 

 

$

3,102

 

Dividends payable

 

 

5,260

 

 

 

4,478

 

Accrued litigation, claims and professional fees

 

 

460

 

 

 

417

 

Current portion of environmental reserves

 

 

1,229

 

 

 

1,322

 

Other accrued expenses

 

 

6,387

 

 

 

6,153

 

 

 

$

16,701

 

 

$

15,472

 

 

The balance in other liabilities (long-term) is comprised of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Lease guarantee contingency

 

$

10,402

 

 

$

 

Environmental reserves

 

 

3,702

 

 

 

3,814

 

Supplemental executive retirement plan liability

 

 

2,026

 

 

 

2,416

 

Pension liability

 

 

1,207

 

 

 

1,318

 

Deferred gain on sale of assets

 

 

1,237

 

 

 

 

Other long-term liabilities

 

 

1,220

 

 

 

688

 

 

 

$

19,794

 

 

$

8,236

 

 

 


46


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

9.  Stock Compensation

The Company’s Amended and Restated 2017 Incentive Stock Plan (the “2017 Plan”) authorizes the Compensation Committee of the Board of Directors to issue up to 5,126,950 shares of various stock awards including stock options, performance-based restricted stock units, restricted stock units and other forms of equity-based awards to key employees and directors. Options granted and outstanding vest over the requisite service period and expire ten years from the date of grant.

The following tables summarize stock option activity in the past three years:

Options granted in 2018, 2017 and 2016 were as follows:

 

Year

 

Options

 

 

Exercise

Price

 

2018

 

 

255,072

 

 

$

21.30

 

2017

 

 

397,759

 

 

$

14.30

 

2016

 

 

271,350

 

 

$

11.62

 

 

Options exercised in 2018, 2017 and 2016 were as follows:

 

Year

 

Options

 

 

Exercise

Price

2018

 

 

191,169

 

 

$9.97 to $20.93

2017

 

 

375,292

 

 

$9.97 to $20.93

2016

 

 

334,836

 

 

$9.00 to $14.77

 

In addition, options totaling 86,411, 218,130 and 162,565 expired or were forfeited during the years ended December 31, 2018, 2017 and 2016, respectively.

Options outstanding and exercisable at December 31, 2018, 2017 and 2016 were as follows:

 

Year

 

Outstanding

 

 

Range of Exercise

Prices

 

Exercisable

 

 

Weighted Average

Exercise Price

 

2018

 

 

965,659

 

 

$10.10 to $21.30

 

 

521,202

 

 

$

16.08

 

2017

 

 

988,167

 

 

$9.97 to $20.93

 

 

539,993

 

 

$

16.23

 

2016

 

 

1,183,830

 

 

$9.97 to $20.93

 

 

934,898

 

 

$

14.88

 

 

The fair value of options granted is estimated using an option pricing model based on the assumptions set forth in the following table. The Company uses historical data to estimate employee exercise and departure behavior. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and through the expected term. The dividend yield rate is based on the Company’s historical dividend yield. The expected volatility is derived from historical volatility of the Company’s shares and those of similar companies measured against the market as a whole. The Company used the binomial lattice option pricing model based on the assumptions set forth in the following table.

 

 

 

2018

 

 

2017

 

 

2016

 

Risk free interest rate

 

 

2.90

%

 

 

2.50

%

 

 

1.80

%

Expected dividend yield

 

 

2.50

%

 

 

3.80

%

 

 

4.60

%

Expected life of award (years)

 

 

4.00

 

 

 

4.10

 

 

 

8.00

 

Expected volatility

 

 

42.50

%

 

 

50.00

%

 

 

50.00

%

Fair value per option

 

$

6.30

 

 

$

4.47

 

 

$

3.45

 

 

47


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

The following table provides a summary of stock option activity for the period ended December 31, 2018:

 

 

 

Shares

 

 

Average

Exercise

Price

 

 

Weighted

Average

Life (in Years)

 

Outstanding at December 31, 2017

 

 

988,167

 

 

$

15.13

 

 

 

 

 

Options granted

 

 

255,072

 

 

 

21.30

 

 

 

 

 

Options exercised

 

 

(191,169

)

 

 

14.30

 

 

 

 

 

Canceled or forfeited

 

 

(86,411

)

 

 

17.65

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

965,659

 

 

 

16.69

 

 

 

7.23

 

Exercisable at December 31, 2018

 

 

521,202

 

 

$

16.08

 

 

 

6.10

 

 

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The intrinsic value of stock options exercised in 2018, 2017 and 2016 was $1,745, $2,813 and $1,809, respectively.

The following table provides a summary of restricted stock units, including performance-based restricted stock units, and restricted stock activity for the year ended December 31, 2018:

 

 

 

Shares

 

 

Average

Grant-Date

Fair Value

 

Unvested shares at December 31, 2017

 

 

412,650

 

 

 

 

 

Granted

 

 

178,005

 

 

$

21.65

 

Vested

 

 

(104,737

)

 

 

14.09

 

Forfeited

 

 

(62,123

)

 

 

16.94

 

Unvested shares at December 31, 2018

 

 

423,795

 

 

 

 

 

 

Restricted stock units are rights to receive shares of common stock, subject to forfeiture and other restrictions, which vest over a one or three year period. Restricted stock units are considered to be non-vested shares under the accounting guidance for share-based payment and are not reflected as issued and outstanding shares until the restrictions lapse. At that time, the shares are released to the grantee and the Company records the issuance of the shares. Restricted stock awards are valued based on the market price of the underlying shares on the grant date. Compensation expense is recognized on a straight-line basis over the requisite service period. At December 31, 2018, restricted stock awards had vesting periods up through March 2021.

 

 

Included in the December 31, 2018 unvested shares are 268,103 performance-based restricted stock units. The fair value of these awards is calculated using the market price of the underlying common stock on the date of grant. In determining fair value, the Company does not take into account performance-based vesting requirements. For these awards, the performance-based vesting requirements determines the number of shares that ultimately vest, which can vary from 0% to 200% of target depending on the level of achievement of established performance criteria. Compensation expense is recognized over the requisite service period subject to adjustment based on the probable number of shares expected to vest under the performance condition.

 

Stock compensation expense was approximately $4,257, $3,626 and $3,357 for the years ended December 31, 2018, 2017 and 2016, respectively. These expenses are included in general and administrative expenses in the accompanying Consolidated Statements of Operations. Total unrecognized compensation cost related to non-vested share based compensation arrangements at December 31, 2018 was approximately $4,737 which will be recognized over the next three years, as such compensation is earned.

10.  Equity

In May 2018, the Company completed a public offering of 4,600,000 shares of its common stock at a price to the public of $18.50 per share. The net proceeds from the offering were approximately $79.5 million, after deducting underwriting discounts and commissions and $0.5 million of offering expenses paid by the Company. The Company used a portion of the net proceeds received from the offering to repay a portion of its outstanding indebtedness during the second quarter of 2018.

 

48


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

11.  Contingencies

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. 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, 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.

New Idria Mercury Mine

In September 2015, the U.S. Environmental Protection Agency (“EPA”) 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 in 1987.  As a result of the EPA Notice Letter, Buckhorn and the Company 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.

During 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 Mine. The AOC is effective as of November 27, 2018, the date that it was executed by the EPA. The AOC and accompanying SOW document the terms, conditions and procedures for the Company’s performance of the RI/FS. In addition, the AOC requires the Company to provide $2 million of financial assurance to the EPA during the estimated three year life of the RI/FS.  In January 2019, the Company provided this assurance as a letter of credit. 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.

Since October 2011, when New Idria was added to the Superfund National Priorities List by the EPA, the Company has recognized $5.9 million of costs, of which approximately $2.5 million has been paid to date. These costs are comprised primarily of negotiation of the AOC, identification of possible insurance resources and other PRPs, estimates to perform the RI/FS, EPA oversight fees, past cost claims made by the EPA, periodic monitoring, and responses to unilateral administrative orders issued by the EPA. Expenses of $0.2 million, $1.3 million, and $1.0 million were recorded in the years ended December 31, 2018, 2017, and 2016, respectively. All charges related to this claim have been recorded within general and administrative expenses in the Consolidated Statements of Operations.  

As of December 31, 2018 and 2017, the Company had a total reserve of $3.4 million and $3.6 million, respectively, related to the New Idria Mine.  As of December 31, 2018, $0.9 million is classified in Other Current Liabilities and $2.5 million is classified in Other Liabilities on the Consolidated Statements of Financial Position.

It is possible that adjustments to the aforementioned reserves will be necessary as new information is obtained, including after preparation and EPA approval of the work plan for the RI/FS, which is anticipated to occur in the first half of 2019. 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 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, 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.

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.

49


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

New Almaden Mine (formerly referred to as Guadalupe River Watershed)

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, 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 by the County that the original cost estimate may no longer be appropriate due to expanded scope and increased costs of construction, and provided a revised estimate of 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.  As of December 31, 2018 and 2017, the Company has a total reserve of $1.5 million related to the New Almaden Mine. As of December 31, 2018, $0.3 million is classified in Other Current Liabilities and $1.2 million is classified in Other Liabilities on the Consolidated Statements of Financial Position. All charges related to this claim have been recorded with general and administrative expenses in the Consolidated Statements of Operations.

The project has not yet been implemented though significant work on design and planning has been performed. The Company is currently awaiting notice from Santa Clara County on the expected timing of fieldwork to 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.

Lawn and Garden Indemnification Claim

In connection with the sale of the Lawn and Garden business, as described in Note 5, the Company received Notices of Indemnification Claims in April 2015 and July 2016 (collectively, the “Claims”), alleging breaches of certain representations and warranties under the agreement resulting in alleged losses in the amount of approximately $10 million. As described in Note 5, approximately $8.6 million of the sale proceeds that were placed in escrow were due to be settled in August 2016; however, the release of these funds had been extended pending the resolution of the Claims, which were the subject of a lawsuit in the Delaware Chancery Court.

In April 2018, the Company reached agreement on the material terms of a settlement, and as a result, recorded a pre-tax charge of $1.225 million to discontinued operations in 2018. The settlement agreement was finalized in May 2018, and the settlement amount was funded from the escrow account. In addition, upon settlement and release of any further obligation on behalf of the Company, the remaining $7.4 million was released from escrow to the Company in 2018.  

Lawn and Garden Lease Guarantee

In connection with the sale of the Lawn and Garden business, as described in Note 5, the Company is a guarantor for one of HC’s facility leases expiring in September 2025 for any remaining rent payments under the lease for which HC is unable to meet its obligations. Current annual rent for the facility is approximately $2 million, and is subject to annual CPI increases throughout the lease term. In connection with the financial risk associated with HC, as described in Note 5, the Company assessed its range of potential obligations under the lease guarantee, and as a result of this analysis, recorded a liability and related pre-tax charge of $10.3 million during 2018. The carrying value of the lease obligation as of December 31, 2018 was $10.4 million, which represents the initial liability recorded plus accretion and is included in Other Liabilities on the Consolidated Statements of Financial Position. The related initial charge was recorded to Other Expenses in the Consolidated Statements of Operations.  

50


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Patent Infringement

On December 11, 2018, No Spill Inc. filed suit against Scepter Manufacturing LLC and Scepter Corporation (“Scepter”) 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. On December 31, 2018, the parties filed a waiver of service and extension of time to file a response to the complaint. The response to the complaint is due on March 28, 2019. A schedule in the case has not yet issued. Scepter intends to defend itself vigorously in this matter. 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 currently recorded any reserves for this matter.

 

 

12.  Long-Term Debt and Loan Agreements

Long-term debt at December 31, 2018 and 2017 consisted of the following:

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Loan Agreement

 

$

 

 

$

74,632

 

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

 

 

15,000

 

 

 

15,000

 

5.45% Senior Unsecured Notes due 2026

 

 

12,000

 

 

 

12,000

 

 

 

 

78,000

 

 

 

152,632

 

Less unamortized deferred financing costs

 

 

1,210

 

 

 

1,596

 

 

 

$

76,790

 

 

$

151,036

 

 

In March 2017, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Loan Agreement”).  The Loan Agreement replaced the pre-existing $300 million senior revolving credit facility with a $200 million facility and extended the term from December 2018 to March 2022.  

Under the terms of the Loan Agreement, the Company may borrow up to $200 million, reduced for letters of credit issued. As of December 31, 2018, the Company had $195.6 million available under the Loan Agreement. The Company had $4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business at December 31, 2018. In addition, as described in Note 11, the Company issued an additional letter of credit of $2 million in January 2019. Borrowings under the 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.

The Company’s Senior Unsecured Notes (“Notes”) range in face value from $11 million to $40 million, with interest rates ranging from 4.67% to 5.45%, payable semiannually, and maturing between 2021 and 2026. In September 2017, the Company made an offer to all holders of the $100 million 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 for approximately $23.8 million, which includes the outstanding principal balance of $22.0 million and a make-whole premium of $1.8 million. A loss on extinguishment of debt of approximately $1.9 million was recorded during 2017, which consisted of the make-whole premium plus unamortized deferred financing costs of $0.1 million.

Amortization expense of the deferred financing costs was $386, $508, and $466 for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in interest expense in the Consolidated Statements of Operations.

The average interest rate on borrowings under our loan agreements were 5.75% for 2018, 4.94% for 2017, and 4.69% for 2016, which includes a quarterly facility fee on the used and unused portion.


51


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

As of December 31, 2018, the Company was in compliance with all of its debt covenants associated with its Loan Agreement and Notes. 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 December 31, 2018 are shown in the following table:

 

 

 

Required Level

 

Actual Level

 

Interest Coverage Ratio

 

3.00 to 1 (minimum)

 

 

11.60

 

Leverage Ratio

 

3.25 to 1 (maximum)

 

 

1.15

 

 

 

13.  Income Taxes

The effective tax rate from continuing operations was 218.7% in 2018, 31.0% in 2017 and 39.5% in 2016. A reconciliation of the Federal statutory income tax rate to the Company’s effective tax rate is as follows:

 

  

 

Percent of Income before

Income Taxes

 

 

 

2018

 

 

2017

 

 

2016

 

Statutory Federal income tax rate

 

 

21.0

%

 

 

35.0

%

 

 

35.0

%

State income taxes - net of Federal tax benefit

 

 

42.5

 

 

 

8.3

 

 

 

3.0

 

Foreign tax rate differential

 

 

3.9

 

 

 

(1.6

)

 

 

(0.9

)

Domestic production deduction

 

 

 

 

 

(5.2

)

 

 

(3.2

)

Non-deductible expenses

 

 

93.8

 

 

 

0.4

 

 

 

2.9

 

Impact of tax law changes

 

 

22.1

 

 

 

(7.4

)

 

 

 

Changes in unrecognized tax benefits

 

 

42.9

 

 

 

0.9

 

 

 

(0.8

)

Foreign tax incentives

 

 

(3.1

)

 

 

 

 

 

(0.4

)

Valuation allowances

 

 

 

 

 

 

 

 

3.2

 

Other

 

 

(4.4

)

 

 

0.6

 

 

 

0.7

 

Effective tax rate for the year

 

 

218.7

%

 

 

31.0

%

 

 

39.5

%

 

Income from continuing operations before income taxes was attributable to the following sources:

 

 

 

2018

 

 

2017

 

 

2016

 

United States

 

$

419

 

 

$

12,979

 

 

$

17,010

 

Foreign

 

 

970

 

 

 

2,729

 

 

 

1,709

 

Totals

 

$

1,389

 

 

$

15,708

 

 

$

18,719

 

 

Income tax expense (benefit) from continuing operations consisted of the following:

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

Current

 

 

Deferred

 

 

Current

 

 

Deferred

 

 

Current

 

 

Deferred

 

Federal

 

$

9,694

 

 

$

(7,910

)

 

$

6,304

 

 

$

(4,394

)

 

$

5,684

 

 

$

(413

)

Foreign

 

 

1,218

 

 

 

(718

)

 

 

1,821

 

 

 

(883

)

 

 

515

 

 

 

741

 

State and local

 

 

1,575

 

 

 

(822

)

 

 

2,402

 

 

 

(386

)

 

 

641

 

 

 

227

 

 

 

$

12,487

 

 

$

(9,450

)

 

$

10,527

 

 

$

(5,663

)

 

$

6,840

 

 

$

555

 

 

 


52


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Tax Act”). Effective January 1, 2018, the Tax Act established a corporate income tax rate of 21%, replacing the former 35% rate, and created a territorial tax system rather than a worldwide system, which generally eliminated the U.S. federal income tax on dividends from foreign subsidiaries. The transition to the territorial system included a one-time deemed repatriation transition tax (“Transition Tax”) on certain foreign earnings previously untaxed in the United States. In response to the complexities and timing of issuance of the Tax Act, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provided up to a one-year measurement period for companies to finalize the accounting for the impacts of this new legislation. As required, the Company finalized its accounting during 2018 for items previously considered provisional. At December 31, 2017, the Company recorded an initial provisional net benefit to income tax expense of $1.2 million related to the enactment of the Tax Act. This net benefit included a provisional deferred tax benefit of $3.0 million related to revaluing the net U.S. deferred tax liabilities to reflect the lower U.S. corporate tax rate. The deferred tax benefit was offset by a provision of $1.8 million related to the Transition Tax. In general, the Transition Tax imposed by the Tax Act results in the taxation of foreign earnings and profits (“E&P”) at a 15.5% rate on liquid assets and 8% on the remaining unremitted foreign E&P, both net of foreign tax credits. The provisional amounts for the Transition Tax recorded by the Company in 2017 included the undistributed E&P for all the Company’s foreign subsidiaries. Based on the finalized accounting and preparation of the Company’s 2017 U.S. Federal Tax Return, the Company recorded a reduction of income tax expense of $0.3 million for the year ended December 31, 2018 to reflect adjustments to the previously recognized provisional amounts under the Tax Act. In addition, the Company recorded income tax expense of $0.6 million associated with an uncertain tax position related to the calculation of the Transition Tax included in the 2017 return.

During 2018, the Company recorded a provision and related deferred tax liability of $0.6 million related to the earnings of the Company’s subsidiary in Guatemala, which were deemed by management to no longer be permanently reinvested. As noted above, the E&P for all foreign subsidiaries has been previously included in the calculation of the Transition Tax, and thus, should there be a repatriation of earnings from any other foreign subsidiaries in future periods, the Company expects to be subject to only foreign withholding tax. Management does not currently anticipate a repatriation of earnings from any foreign subsidiaries, except as provided above, as these earnings are deemed to be permanently reinvested.

 

Significant components of the Company’s deferred taxes as of December 31, 2018 and 2017 are as follows:

 

 

 

2018

 

 

2017

 

Deferred income tax assets

 

 

 

 

 

 

 

 

Compensation

 

 

2,774

 

 

 

3,030

 

Inventory valuation

 

 

695

 

 

 

502

 

Allowance for uncollectible accounts

 

 

237

 

 

 

268

 

Provision for loss on note receivable

 

 

5,031

 

 

 

 

Non-deductible accruals

 

 

4,196

 

 

 

2,195

 

Non-deductible intangibles

 

 

1,574

 

 

 

1,193

 

State deferred taxes

 

 

843

 

 

 

 

Capital loss carryforwards

 

 

1,982

 

 

 

1,982

 

Net operating loss carryforwards

 

 

 

 

 

405

 

 

 

 

17,332

 

 

 

9,575

 

Valuation allowance

 

 

(1,982

)

 

 

(1,982

)

 

 

 

15,350

 

 

 

7,593

 

Deferred income tax liabilities

 

 

 

 

 

 

 

 

Property, plant and equipment

 

$

4,247

 

 

$

6,255

 

Tax-deductible goodwill

 

 

5,089

 

 

 

5,202

 

State deferred taxes

 

 

 

 

 

132

 

Other

 

 

744

 

 

 

149

 

 

 

 

10,080

 

 

 

11,738

 

Net deferred income tax asset (liability)

 

$

5,270

 

 

$

(4,145

)

 


53


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

ASC 740, Income Taxes, requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies. Based on the current available evidence, the Company considers the net deferred tax asset at December 31, 2018 to be fully realizable except for the deferred tax asset related to the capital loss carryforward described below.

As further discussed in Note 5, the Company sold its investments in certain Brazilian subsidiaries on December 18, 2017. In connection with this divestiture, the Company incurred a capital loss of $9.5 million on its investment in the Myers do Brazil business and recorded a deferred tax asset of $2.0 million as the result of this capital loss carryforward. A valuation allowance of $2.0 million has been recorded against this deferred tax asset as the recovery of the asset is not more likely than not as of December 31, 2018. In addition, in accordance with ASC 740, for the year ended December 31, 2016 the Company allocated $0.6 million of a valuation allowance related to the Brazil Business to income from continuing operations in the Consolidated Statement of Operations, as this valuation allowance related to the change in estimated realizability of the beginning of the year net deferred tax asset in the Brazil Business.

The Company recorded a tax benefit of approximately $15 million generated as a result of a worthless stock deduction for the Novel do Nordeste business included in the divestiture. Although management believes that the worthless stock deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, that the Company will prevail. This tax benefit is included in the net loss from discontinued operations in the Consolidated Statements of Operations for the year ended December 31, 2017. As a result of the Company’s U.S. Federal income tax filings in 2018, the Company reduced this estimated tax benefit by $0.7 million and recognized this adjustment within net loss from discontinued operations.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

 

 

 

2018

 

 

2017

 

 

2016

 

Balance at January 1

 

$

359

 

 

$

478

 

 

$

151

 

Increases related to previous year tax positions

 

 

596

 

 

 

359

 

 

 

478

 

Reductions due to lapse of applicable statute of limitations

 

 

 

 

 

(478

)

 

 

(151

)

Reduction due to settlements

 

 

 

 

 

 

 

 

 

Balance at December 31

 

$

955

 

 

$

359

 

 

$

478

 

 

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $1.0 million, $0.4 million and $0.5 million at December 31, 2018, 2017 and 2016.  

The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns.  As of December 31, 2018, the Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2015. The Company is subject to state and local examinations for tax years of 2013 through 2017. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2013 through 2017.

 

14.  Retirement Plans

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 thus benefits for service were no longer accumulated after this date.

 


54


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Net periodic pension cost for the years ended December 31, 2018, 2017 and 2016 was as follows:

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Interest cost

 

$

224

 

 

$

253

 

 

$

270

 

Expected return on assets

 

 

(317

)

 

 

(295

)

 

 

(319

)

Amortization of net loss

 

 

84

 

 

 

96

 

 

 

82

 

Net periodic pension cost

 

$

(9

)

 

$

54

 

 

$

33

 

 

The reconciliation of changes in projected benefit obligations are as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Projected benefit obligation at beginning of year

 

$

6,579

 

 

$

6,503

 

Interest cost

 

 

224

 

 

 

253

 

Actuarial loss (gain)

 

 

(362

)

 

 

276

 

Expenses paid

 

 

(135

)

 

 

(84

)

Benefits paid

 

 

(362

)

 

 

(369

)

Projected benefit obligation at end of year

 

$

5,944

 

 

$

6,579

 

Accumulated benefit obligation at end of year

 

$

5,944

 

 

$

6,579

 

 

The assumptions used to determine the net periodic benefit cost and benefit obligations are as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Discount rate for net periodic pension cost

 

 

3.50

%

 

 

4.00

%

 

 

4.30

%

Discount rate for benefit obligations

 

 

4.20

%

 

 

3.50

%

 

 

4.00

%

Expected long-term return of plan assets

 

 

7.50

%

 

 

7.75

%

 

 

7.75

%

 

The expected long-term rate of return assumption is based on the actual historical rate of return on assets adjusted to reflect recent market conditions and future expectations consistent with the Company’s current asset allocation and investment policy. In the current year, the Company’s asset allocation and investment policy transitioned from a total-return strategy to a liability-driven strategy. This revised policy shifts from equities and market duration fixed income and into fixed income investments that are managed to match the duration of the underlying pension liability. The assumed discount rates represent long-term high quality corporate bond rates commensurate with the liability duration of the plan.

The following table reflects the change in the fair value of the plan’s assets:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Fair value of plan assets at beginning of year

 

$

5,261

 

 

$

5,183

 

Actual return on plan assets

 

 

(27

)

 

 

531

 

Company contributions

 

 

 

 

 

 

Expenses paid

 

 

(135

)

 

 

(84

)

Benefits paid

 

 

(362

)

 

 

(369

)

Fair value of plan assets at end of year

 

$

4,737

 

 

$

5,261

 

55


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

 

The fair value of plan assets as of December 31, 2018 consist of mutual funds valued at $2,352 and pooled separate accounts valued at $2,385. The mutual funds were categorized as Level 1 and were determined based on period end, closing quoted prices in active markets. The pooled separate accounts are measured at net asset value as a practical expedient to estimate fair value and are not classified in the fair value hierarchy as of December 31, 2018. Each of the pooled separate accounts invest in multiple fixed securities and provide for daily redemptions by the plan with no advance notice requirements, and have redemption prices that are determined by the fund’s net asset value per unit with no redemption fees.

The fair value of plan assets as of December 31, 2017, which consisted mainly of mutual funds, were all categorized as Level 1 and were determined based on period end closing, quoted prices in active markets.

The weighted average asset allocations at December 31, 2018 and 2017 were as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

U.S. Equities securities

 

 

50

%

 

 

72

%

U.S. Debt securities

 

 

50

%

 

 

24

%

Cash

 

 

 

 

 

4

%

Total

 

 

100

%

 

 

100

%

 

The following table provides a reconciliation of the funded status of the plan at December 31, 2018 and 2017:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Projected benefit obligation

 

$

5,944

 

 

$

6,579

 

Plan assets at fair value

 

 

4,737

 

 

 

5,261

 

Funded status

 

$

(1,207

)

 

$

(1,318

)

 

The funded status shown above is included in Other Liabilities in the Company’s Consolidated Statements of Financial Position at December 31, 2018 and 2017. The Company expects to make a contribution to the plan of $30 in 2019.

Benefit payments projected for the plan are as follows:

 

2019

 

$

372

 

2020

 

 

376

 

2021

 

 

377

 

2022

 

 

374

 

2023

 

 

374

 

2024-2028

 

 

1,889

 

 

The Myers Industries Profit Sharing and 401(k) Plan is maintained for the Company’s U.S. based employees, not covered under defined benefit plans, who have met eligibility service requirements. The Company recognized expense related to the 401(k) employer matching contribution in the amount of $2,216, $2,302 and $2,324 in 2018, 2017 and 2016, respectively.

In addition, the Company has a Supplemental Executive Retirement Plan (“SERP”) to provide certain participating senior executives with retirement benefits in addition to amounts payable under the 401(k) plan. Expense related to the SERP was approximately $33, $128 and $192 for the years ended December 2018, 2017 and 2016, respectively. The SERP liability was based on the discounted present value of expected future benefit payments using a discount rate of 4.2% at December 31, 2018 and 3.5% at December 31, 2017. The SERP liability was approximately $2,449 and $2,923 at December 31, 2018 and 2017, respectively, and is included in Accrued Employee Compensation and Other Liabilities on the accompanying Consolidated Statements of Financial Position. The SERP is unfunded.

 

56


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

15.  Leases

The Company and certain of its subsidiaries are committed under non-cancelable operating leases involving certain facilities and equipment. Aggregate rental expense for all leased assets was $3,312, $3,198 and $3,625 for the years ended December 31, 2018, 2017 and 2016, respectively.

Future minimum rental commitments are as follows:

 

Year Ended December 31,

 

 

 

 

2019

 

$

2,492

 

2020

 

 

1,739

 

2021

 

 

982

 

2022

 

 

966

 

2023

 

 

841

 

Thereafter

 

 

811

 

Total

 

$

7,831

 

 

On February 27, 2018, the Company completed a sale-leaseback transaction for its distribution center in Pomona, California for a net purchase price of $2.3 million. The Company realized a gain on the sale of $2.0 million, of which $0.7 million was recognized at the time of the sale. The remaining $1.3 million is being recognized ratably over the term of the ten-year lease at approximately $0.1 million per year. Simultaneous with the closing of the sale, the Company entered into a ten-year operating lease arrangement with base annual rent of approximately $0.1 million during the first year, followed by annual increases of 3% through the remainder of the lease period. This facility is included in the Company’s Distribution Segment.

 

16.  Industry Segments

Using the criteria of ASC 280, Segment Reporting, the Company manages its business under two operating segments, Material Handling and Distribution, consistent with the manner in which our Chief Operating Decision Maker 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 and Canada. Markets served include industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, consumer, and others. Products are sold both directly to end-users and through distributors.

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 operates domestically through its sales offices and four 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.

57


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

Total sales from foreign business units were approximately $50.6 million, $53.9 million, and $64.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total export sales to countries outside the U.S. were approximately $19.6 million, $17.2 million, and $18.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. Sales made to customers in Canada accounted for approximately 4.1% of total net sales in 2018, 2.4% in 2017 and 4.6% in 2016. There are no other individual foreign countries for which sales are material. Long-lived assets in foreign countries, primarily in Canada, consisted of property, plant and equipment, and were approximately $14.1 million at December 31, 2018 and $17.6 million at December 31, 2017.

 

 

2018

 

 

2017

 

 

2016

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

Material Handling

$

417,199

 

 

$

391,313

 

 

$

363,956

 

Distribution

 

149,636

 

 

 

156,428

 

 

 

170,660

 

Inter-company sales

 

(100

)

 

 

(698

)

 

 

(237

)

Total net sales

$

566,735

 

 

$

547,043

 

 

$

534,379

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

Material Handling

$

57,948

 

 

$

38,874

 

 

$

40,776

 

Distribution

 

7,441

 

 

 

9,073

 

 

 

12,834

 

Corporate

 

(59,062

)

 

 

(23,059

)

 

 

(26,248

)

Total operating income

 

6,327

 

 

 

24,888

 

 

 

27,362

 

Interest expense, net

 

(4,938

)

 

 

(7,292

)

 

 

(8,643

)

Loss on extinguishment of debt

 

 

 

 

(1,888

)

 

 

 

Income from continuing operations before income taxes

$

1,389

 

 

$

15,708

 

 

$

18,719

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

Material Handling

$

229,962

 

 

$

257,863

 

 

$

268,634

 

Distribution

 

48,575

 

 

 

49,822

 

 

 

56,072

 

Corporate

 

70,108

 

 

 

48,257

 

 

 

36,271

 

Discontinued operations

 

 

 

 

 

 

 

20,707

 

Total identifiable assets

$

348,645

 

 

$

355,942

 

 

$

381,684

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Additions, Net

 

 

 

 

 

 

 

 

 

 

 

Material Handling

$

4,500

 

 

$

5,165

 

 

$

10,933

 

Distribution

 

587

 

 

 

622

 

 

 

1,424

 

Corporate

 

36

 

 

 

27

 

 

 

132

 

Total capital additions, net

$

5,123

 

 

$

5,814

 

 

$

12,489

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

 

 

 

 

 

 

 

 

 

Material Handling

$

24,159

 

 

$

28,506

 

 

$

29,270

 

Distribution

 

1,169

 

 

 

1,174

 

 

 

1,221

 

Corporate

 

811

 

 

 

1,151

 

 

 

1,301

 

Total depreciation and amortization

$

26,139

 

 

$

30,831

 

 

$

31,792

 

 

 

17.  Subsequent Events (Unaudited)

On March 1, 2019, the Company sold a distribution center in Wadsworth, Ohio for net proceeds of approximately $4.5 million. This facility was classified as an asset held for sale as of December 31, 2018, as discussed in Note 3, and was included in the Company’s Material Handling Segment.

 

58


MYERS INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(Dollars in thousands, except where otherwise indicated)

 

18.  Summarized Quarterly Results of Operations (Unaudited)

 

Quarter Ended 2018

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

 

Total

 

Net Sales

 

$

152,568

 

 

$

140,560

 

 

$

135,219

 

 

$

138,388

 

 

$

566,735

 

Gross Profit

 

 

47,115

 

 

 

47,991

 

 

 

42,091

 

 

 

42,096

 

 

 

179,293

 

Income (loss) from continuing operations

 

 

7,755

 

 

 

8,608

 

 

 

(21,137

)

 

 

3,126

 

 

 

(1,648

)

Income (loss) from discontinued operations, net

 

 

(911

)

 

 

 

 

 

(2

)

 

 

(788

)

 

 

(1,701

)

Net income (loss)

 

 

6,844

 

 

 

8,608

 

 

 

(21,139

)

 

 

2,338

 

 

 

(3,349

)

Income (loss) per common share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

0.25

 

 

$

0.26

 

 

$

(0.60

)

 

$

0.09

 

 

$

(0.05

)

Diluted*

 

$

0.25

 

 

$

0.26

 

 

$

(0.60

)

 

$

0.09

 

 

$

(0.05

)

Income (loss) per common share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

(0.03

)

 

$

 

 

$

 

 

$

(0.02

)

 

$

(0.05

)

Diluted*

 

$

(0.03

)

 

$

 

 

$

 

 

$

(0.02

)

 

$

(0.05

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

0.22

 

 

$

0.26

 

 

$

(0.60

)

 

$

0.07

 

 

$

(0.10

)

Diluted*

 

$

0.22

 

 

$

0.26

 

 

$

(0.60

)

 

$

0.07

 

 

$

(0.10

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended 2017

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

 

Total

 

Net Sales

 

$

136,572

 

 

$

135,252

 

 

$

135,113

 

 

$

140,106

 

 

$

547,043

 

Gross Profit

 

 

41,761

 

 

 

38,292

 

 

 

39,143

 

 

 

38,257

 

 

 

157,453

 

Income (loss) from continuing operations (3) (4)

 

 

3,458

 

 

 

2,482

 

 

 

3,083

 

 

 

1,821

 

 

 

10,844

 

Income (loss) from discontinued operations, net (1) (2)

 

 

(344

)

 

 

(489

)

 

 

174

 

 

 

(20,074

)

 

 

(20,733

)

Net income (loss)(1) (2) (3) (4)

 

$

3,114

 

 

$

1,993

 

 

$

3,257

 

 

$

(18,253

)

 

 

(9,889

)

Income (loss) per common share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

0.12

 

 

$

0.08

 

 

$

0.10

 

 

$

0.06

 

 

$

0.36

 

Diluted*

 

$

0.11

 

 

$

0.08

 

 

$

0.10

 

 

$

0.06

 

 

$

0.35

 

Income (loss) per common share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

(0.02

)

 

$

(0.01

)

 

$

0.01

 

 

$

(0.66

)

 

$

(0.69

)

Diluted*

 

$

(0.01

)

 

$

(0.01

)

 

$

0.01

 

 

$

(0.65

)

 

$

(0.68

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic*

 

$

0.10

 

 

$

0.07

 

 

$

0.11

 

 

$

(0.60

)

 

$

(0.33

)

Diluted*

 

$

0.10

 

 

$

0.07

 

 

$

0.11

 

 

$

(0.59

)

 

$

(0.33

)

 

 

(1)

A loss on the sale of the Brazil Business of $35 million was recognized during the fourth quarter of 2017. This loss is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations.

(2)

During the quarter ended December 31, 2017, the Company recorded a U.S. tax benefit of approximately $15 million as a result of a worthless stock deduction related to the Company’s investment in the Brazil Business. This benefit is included in loss from discontinued operations in the accompanying Consolidated Statements of Operations.

(3)  

During the quarter ended December 31, 2017, the Company recorded a loss on extinguishment of debt of approximately $1.9 million.

(4)

During the quarter ended December 31, 2017, the Company recorded a net tax benefit of approximately $1.2 million related to the Tax Act

 

*

The sum of the earnings per share for the four quarters in a year does not necessarily equal the total year earnings per share due to the computation of weighted shares outstanding during each respective period.

 

59


 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.

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’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 December 31, 2018.

Management’s report on internal control over financial reporting, and the report of the independent registered public accounting firm on internal control over financial reporting are titled “Management’s Annual Assessment of and Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm”, respectively, and are included herein.

Changes in Internal Control Over Financial Reporting

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.

 

Management’s Annual Assessment of and Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2018.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report included herein.

 

R. David Banyard

Kevin L. Brackman

President and

Executive Vice President and

Chief Executive Officer

Chief Financial Officer

 

 

60


 

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Myers Industries, Inc. and Subsidiaries

 

Opinion on Internal Control over Financial Reporting

 

We have audited Myers Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Myers Industries, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of Myers Industries, Inc. and Subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018 and the related notes of the Company and our report dated March 8, 2019 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Assessment of and Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Akron, Ohio

March 8, 2019

ITEM 9B.

Other Information.

None.

61


 

PART III

 

 

ITEM 10.

Directors and Executive Officers of the Registrant

For information about the directors of the Company, see the sections titled “Proposal No. 1 – Election of Directors”, “Nominees”, “Corporate Governance Guidelines”, “Corporate Governance and Compensation Practices”, “Board and Committee Independence”, “Board Committees and Meetings”, “Committee Charters and Policies”, and “Shareholder Nomination Process” of the Company’s Proxy Statement filed with the Securities and Exchange Commission for the Company’s annual meeting of shareholders to be held on April 24, 2019 (“Proxy Statement”), which is incorporated herein by reference.

Each member of the Company’s Audit Committee is financially literate and independent as defined under the Company’s Independence Criteria Policy and the independence standards set by the New York Stock Exchange. The Board has identified Robert A. Stefanko, Jane Scaccetti, F. Jack Liebau, Jr. and Lori Lutey as “Audit Committee Financial Experts”.

Information about the Executive Officers of Registrant appears in Part I of this Report.

Disclosures by the Company with respect to compliance with Section 16(a) appears under the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement, and is incorporated herein by reference.

For information about our Code of Ethics see the section titled “Corporate Governance and Compensation Practices” of our Proxy Statement, which is incorporated herein by reference.

 

 

ITEM 11.

Executive Compensation

See the sections titled “Compensation Discussion and Analysis”, “Employment Arrangements Including Change in Control”, "Risk Assessment of Compensation Practices”, “CEO Pay Ratio”, “Compensation Committee Interlocks and Insider Participation”, and “Compensation Committee Report on Executive Compensation” of the Proxy Statement, which are incorporated herein by reference.

 

 

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

See the sections titled “Security Ownership of Certain Beneficial Owners and Management,” and “Proposal No. 1 - Election of Directors” of the Proxy Statement, which are incorporated herein by reference.

 

 

 

(A)

 

 

(B)

 

 

(C)

 

Plan Category

 

Number of Securities

to be Issued Upon

Exercise of

Outstanding Options,

Warrants and Rights

 

 

Weighted-average

Exercise Price of

Outstanding Options,

Warrants and Rights

 

 

Number of Securities

Remaining Available for

Future Issuance Under

Equity Compensation

Plans (Excluding

Securities Reflected in

Column (A))

 

Equity Compensation Plans Approved by Security Holders

 

 

1,389,454

 

(1)

$

16.69

 

(2)

 

1,549,514

 

Equity Compensation Plans Not Approved by Security Holders

 

–0–

 

 

–0–

 

 

–0–

 

Total

 

 

1,389,454

 

 

 

 

 

 

 

1,549,514

 

 

(1)

This information is as of December 31, 2018 and includes outstanding stock option and restricted stock unit awards, including performance-based restricted stock unit awards, granted under the 2017 Incentive Stock Plan and 1999 Incentive Stock Plan.

(2)

Represents the weighted average exercise price of outstanding stock options and does not take into account outstanding restricted stock unit awards, which do not have an exercise price.

 

 

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

See the sections titled “Policies and Procedures with Respect to Related Party Transactions” and “Corporate Governance Guidelines”, “Corporate Governance and Compensation Practices” and “Board and Committee Independence” of the Proxy Statement, which are incorporated herein by reference.

 

 

ITEM 14.

Principal Accounting Fees and Services

Required information regarding fees paid to and services provided by the Company’s independent registered public accounting firm and the pre-approval policies and procedures of the Audit Committee of the Company’s Board of Directors is set forth under the section titled “Matters Relating to the Independent Registered Public Accounting Firm” of the Proxy Statement, which is incorporated herein by reference.

62


 

PART IV

 

 

ITEM 15.

Exhibits, Financial Statement Schedules

 

The following consolidated financial statements of the Registrant appear in Part II of this Report:

15.

(A)(1) Financial Statements

Consolidated Financial Statements of Myers Industries, Inc. and Subsidiaries

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Statements of Operations For The Years Ended December 31, 2018, 2017 and 2016

 

Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2018, 2017 and 2016

 

Consolidated Statements of Financial Position As of December 31, 2018 and 2017

 

Consolidated Statements of Shareholders’ Equity For The Years Ended December 31, 2018, 2017 and 2016

 

Consolidated Statements of Cash Flows For The Years Ended December 31, 2018, 2017 and 2016

 

Notes to Consolidated Financial Statements

15.

(A)(2) Financial Statement Schedules

All schedules are omitted because they are inapplicable, not required, or because the information is included in the consolidated financial statements or notes thereto which appear in Part II of this Report.


63


 

15.(A)(3) Exhibits

EXHIBIT INDEX

 

2(a)

Amended and Restated Asset Purchase Agreement, dated as of February 17, 2015, among Myers Industries, Inc., MYE Canada Operations, Inc., and the HC Companies, Inc. Reference is made to Exhibit 2.1 to Form 8-K filed with the Commission on February 18, 2015.**

2(b)

Quota Purchase Agreement by and among Myers Industries, Inc., Myers Holdings Brasil Ltda., Novel Holdings - Eireli, and Gabriel Alonso Neto dated as of December 18, 2017. Reference is made to Exhibit 2.1 to Form 8-K filed with the Commission on December 20, 2017.

3(a)

Myers Industries, Inc. Amended and Restated Articles of Incorporation. Reference is made to Exhibit 3(a) to Form 10-K filed with the Commission on March 16, 2005.

3(b)

Myers Industries, Inc. Amended and Restated Code of Regulations. Reference is made to Exhibit 3.1 to Form 8-K filed with the Commission on April 12, 2013.

10(a)

Myers Industries, Inc. Amended and Restated Employee Stock Purchase Plan. Reference is made to Exhibit 10(a) to Form 10-K filed with the Commission on March 30, 2001.

10(b)

Form of Indemnification Agreement for Directors and Officers. Reference is made to Exhibit 10.1 to Form 10-Q filed with the Commission on May 1, 2009.

10(c)

Myers Industries, Inc. Amended and Restated Dividend Reinvestment and Stock Purchase Plan. Reference is made to Exhibit 99 to Post-Effective Amendment No. 2 to Form S-3 filed with the Commission on March 19, 2004.

10(d)

Myers Industries, Inc. Amended and Restated 1999 Incentive Stock Plan. Reference is made to Exhibit 10(f) to Form 10-Q filed with the Commission on August 9, 2006.*

10(e)

Myers Industries, Inc. Executive Supplemental Retirement Plan. Reference is made to Exhibit (10)(g) to Form 10-K filed with the Commission on March 26, 2003.*

10(f)

Amendment to the Myers Industries, Inc. Executive Supplemental Retirement Plan, effective August 12, 2015. Reference is made to the Exhibit 10.1 to Form 8-K filed with the Commission on August 14, 2015.*

10(g)

Non-Competition and Confidentiality Agreement between Myers Industries, Inc. and Gregg Branning dated September 1, 2012. Reference is made to Exhibit 10(s) to Form 10-Q filed with the Commission on May 1, 2013.*

10(h)

Performance Bonus Plan of Myers Industries, Inc. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on April 30, 2013.*

10(i)

Note Purchase Agreement between Myers Industries, Inc. and the Note Purchasers, dated October 22, 2013, regarding the issuance of $40,000,000 of 4.67% Series A Senior Notes due January 15, 2021, $11,000,000 of 5.25% Series B Senior Notes due January 15, 2024, $29,000,000 of 5.30% Series C Senior Notes due January 15, 2024, and $20,000,000 of 5.45% Series D Senior Notes due January 15, 2026. Reference is made to Exhibit 4.1 to Form 8-K filed with the Commission on October 24, 2013.

10(j)

First Amendment to the Note Purchase Agreement between Myers Industries, Inc. and the Note Purchasers, regarding the issuance of $40,000,000 of 4.67% Series A Senior Notes due January 15, 2021, $11,000,000 of 5.25% Series B Senior Notes due January 15, 2024, $29,000,000 of 5.30% Series C Senior Notes due January 15, 2024, and $20,000,000 of 5.45% Series D Senior Notes due January 15, 2026, dated July 21, 2015. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on July 23, 2015.

10(k)

Fourth Amended and Restated Loan Agreement among Myers Industries, Inc., MYE Canada Operations, Inc., the lenders party thereto, and JPMorgan Chase Bank, National Association, as Agent, dated December 13, 2013. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on December 17, 2013.

10(l)

First Amendment to Fourth Amended and Restated Loan Agreement among Myers Industries, Inc., the foreign subsidiary borrowers, the lenders party thereto, and JPMorgan Chase Bank, National Association, as Agent, dated May 30, 2014. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on June 4, 2014.

10(m)

Amended and Restated 2008 Incentive Stock Plan of the Company, effective as of March 5, 2015. Reference is made to the Exhibit 10.1 to Form 8-K filed with the Commission on April 30, 2015.*

10(n)

Second Amendment to Fourth Amended and Restated Loan Agreement among Myers Industries, Inc., the foreign subsidiary borrowers, the lenders party thereto, and JPMorgan Chase Bank, National Association, as Agent, dated May 19, 2015. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on May 26, 2015.

10(o)

Severance Agreement between the Company and R. David Banyard, entered into as of December 7, 2015. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on December 8, 2015.*

10(p)

Non-Competition and Confidentiality Agreement between Myers Industries, Inc. and R. David Banyard dated December 7, 2015. Reference is made to Exhibit 10(u) to the Annual Report on Form 10-K filed with the Commission on March 14, 2016.*

10(q)

Form of 2016 Stock Unit Award Agreement under the Amended and Restated 2008 Incentive Stock Plan for Named Executive Officers. Reference is made to Exhibit 10(v) to the Annual Report on Form 10-K filed with the Commission on March 14, 2016.*

10(r)

Form of 2016 Stock Unit Award Agreement under the Amended and Restated 2008 Incentive Stock Plan for Director Awards. Reference is made to Exhibit 10(x) to the Annual Report on Form 10-K filed with the Commission on March 14, 2016.*

10(s)

Form of 2016 Option Award Agreement under the Amended and Restated 2008 Incentive Stock Plan for Named Executive Officers. Reference is made to Exhibit 10(y) to the Annual Report on Form 10-K filed with the Commission on March 14, 2016.*

10(t)

Form of Long Term Cash Award Agreement under the Performance Bonus Plan. Reference is made to Exhibit 10(aa) to the Annual Report on Form 10-K filed with the Commission on March 14, 2016.*

10(u)

Severance Agreement between the Company and Matteo Anversa, entered into as of October 17, 2016. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on October 19, 2016.*

64


 

10(v)

Severance Agreement between the Company and Kevin Brackman entered into December 13, 2018 effective December 11, 2018. Reference is made to Exhibit 10.1 to Form 8-K/A filed with the Commission on December 18, 2018.*

10(w)

Change in Control Agreement between the Company and Andrean Horton entered into as of October 8, 2018.* (filed herewith)

10(x)

Form of Performance-based Stock Unit Award Agreement (three-year vest period) under the Amended and Restated 2008 Incentive Stock Plan for R. David Banyard.  Reference is made to Exhibit 10(a) to Form 10-Q filed with the Commission on May 2, 2016.*

10(y)

Form of Director Stock Award Agreement under the Amended and Restated 2008 Incentive Stock Plan.  Reference is made to Exhibit 10(b) to Form 10-Q filed with the Commission on May 2, 2016.*

10(z)

Form of 2017 Performance Stock Unit Award Agreement under the 2017 Incentive Stock Plan of Myers Industries, Inc. Reference is made to Exhibit 10(ag) to Form 10-K filed with the Commission on March 9, 2017.*

10(aa)

Fifth Amended and Restated Loan Agreement, dated March 8, 2017, among Myers Industries, Inc., MYE Canada Operations Inc., Scepter Canada Inc. and the other foreign subsidiary borrowers, the lenders and JPMorgan Chase Bank, National Association, as administrative agent. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on March 9, 2017.

10(ab)

Second Amendment to the Note Purchase Agreement among the Subsidiary Guarantors identified therein and each of the institutions which is a signatory thereto, dated March 8, 2017. Reference is made to Exhibit 10.2 to Form 8-K filed with the Commission on March 9, 2017.

10(ac)

Form of Director Stock Award Agreement under the Amended and Restated 2017 Incentive Stock Plan.* (filed herewith)

10(ad)

Form of 2018 Option Award Agreement under the Amended and Restated 2017 Incentive Stock Plan of Myers Industries, Inc. Reference is made to Exhibit 10(ai) to Form 10-K filed with the Commission on March 9, 2018.*

10(ae)

Form of 2018 Restricted Stock Unit Award Agreement under the Amended and Restated 2017 Incentive Stock Plan of Myers Industries, Inc. Reference is made to Exhibit 10(aj) to Form 10-K filed with the Commission on March 9, 2018.*

10(af)

Form of 2018 Performance Stock Unit Award Agreement under the Amended and Restated 2017 Incentive Stock Plan of Myers Industries, Inc. Reference is made to Exhibit 10(an) to Form 10-K filed with the Commission on March 9, 2018.*

10(ag)

Amended and Restated 2017 Stock Incentive Plan of Myers Industries, Inc. Reference is made to Exhibit 10(ao) to Form 10-K filed with the Commission on March 9, 2018.*

10(ah)

Administrative Settlement Agreement and Order on Consent For Remedial Investigation/Feasibility Study, effective November 27, 2018, by and between the United States Environmental Protection Agency and Buckhorn, Inc. Reference is made to Exhibit 10.1 to Form 8-K filed with the Commission on December 13, 2018.

10(ai)

Executive Nonqualified Excess Plan effective January 1, 2018* (filed herewith)

14

Myers Industries, Inc. Code of Ethics and Business Conduct. Reference is made to Exhibit 14.1 to Form 8-K filed with the Commission on March 6, 2017.

21

List of Direct and Indirect Subsidiaries, and Operating Divisions, of Myers Industries, Inc.

23

Consent of Independent Registered Public Accounting Firm.

31(a)

Certification of R. David Banyard, President and Chief Executive Officer of Myers Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)

Certification of Kevin L. Brackman, Executive Vice President and Chief Financial Officer of Myers Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32

Certifications of R. David Banyard, President and Chief Executive Officer, and Kevin L. Brackman, Executive Vice President and Chief Financial Officer, of Myers Industries, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following financial information from Myers Industries, Inc. Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL includes: (i) Consolidated Statements of Financial Position (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Shareholders' Equity, and (vi) the Notes to Consolidated Financial Statements.

*

Indicates executive compensation plan or arrangement.

**

Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted from this filing. The registrant agrees to furnish the Commission on a supplemental basis a copy of any omitted exhibit or schedule.

65


 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

MYERS INDUSTRIES, INC.

 

/s/ Kevin L. Brackman

Kevin L. Brackman

Executive Vice President and

Chief Financial Officer

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

SIGNATURE

 

TITLE

 

DATE

/s/ R. David Banyard

 

President, Chief Executive Officer

and Director (Principal Executive Officer)

 

March 8, 2019

R. DAVID BANYARD

 

 

 

 

 

 

 

 

 

/s/ Kevin L. Brackman

 

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

 

March 8, 2019

KEVIN L. BRACKMAN

 

 

 

 

 

 

 

 

 

/s/ Sarah R. Coffin

 

Director

 

March 8, 2019

SARAH R. COFFIN

 

 

 

 

 

 

 

 

 

/s/ Ron DeFeo

 

Director

 

March 8, 2019

RON DEFEO

 

 

 

 

 

 

 

 

 

/s/ William A. Foley

 

Director

 

March 8, 2019

WILLIAM A. FOLEY

 

 

 

 

 

 

 

 

 

/s/ Lori Lutey

 

Director

 

March 8, 2019

LORI LUTEY

 

 

 

 

 

 

 

 

 

/s/ F. Jack Liebau, Jr.

 

Director

 

March 8, 2019

F. JACK LIEBAU, JR.

 

 

 

 

 

 

 

 

 

/s/ Bruce M. Lisman

 

Director

 

March 8, 2019

BRUCE M. LISMAN

 

 

 

 

 

 

 

 

 

/s/ Jane Scaccetti

 

Director

 

March 8, 2019

JANE SCACCETTI

 

 

 

 

 

 

 

 

 

/s/ Robert A. Stefanko

 

Director

 

March 8, 2019

ROBERT A. STEFANKO

 

 

 

 

 

66