UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☑ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedJune 30, 20192020
OR
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period fromto
Commission File Number 1-8524
Myers Industries, Inc.
(Exact name of registrant as specified in its charter)
Ohio | 34-0778636 |
(State or other jurisdiction of | (IRS Employer Identification |
incorporation or organization) | Number) |
|
|
1293 South Main Street |
|
Akron, Ohio | 44301 |
(Address of principal executive offices) | (Zip code) |
(330) 253-5592
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Exchange on Which Registered |
Common Stock, without par value |
| MYE |
| New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 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 Exchange Act). Yes ☐ No ☑ .
The number of shares outstanding of the issuer’s common stock, without par value, as of July 31, 201924, 2020 was 35,493,58235,794,830 shares.
PartPart I — Financial Information
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales |
| $ | 134,285 |
|
| $ | 140,560 |
|
| $ | 273,400 |
|
| $ | 293,128 |
|
| $ | 118,394 |
|
| $ | 134,285 |
|
| $ | 240,644 |
|
| $ | 273,400 |
|
Cost of sales |
|
| 87,349 |
|
|
| 92,569 |
|
|
| 180,905 |
|
|
| 198,022 |
|
|
| 75,821 |
|
|
| 87,349 |
|
|
| 155,588 |
|
|
| 180,905 |
|
Gross profit |
|
| 46,936 |
|
|
| 47,991 |
|
|
| 92,495 |
|
|
| 95,106 |
|
|
| 42,573 |
|
|
| 46,936 |
|
|
| 85,056 |
|
|
| 92,495 |
|
Selling, general and administrative expenses |
|
| 36,809 |
|
|
| 34,506 |
|
|
| 71,277 |
|
|
| 69,979 |
|
|
| 30,317 |
|
|
| 36,809 |
|
|
| 61,433 |
|
|
| 71,277 |
|
(Gain) loss on disposal of fixed assets |
|
| (55 | ) |
|
| 66 |
|
|
| (98 | ) |
|
| (314 | ) | ||||||||||||||||
Gain on disposal of fixed assets |
|
| — |
|
|
| (55 | ) |
|
| (7 | ) |
|
| (98 | ) | ||||||||||||||||
Impairment charges |
|
| — |
|
|
| 308 |
|
|
| 916 |
|
|
| 308 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 916 |
|
Gain on sale of notes receivable |
|
| — |
|
|
| — |
|
|
| (11,924 | ) |
|
| — |
| ||||||||||||||||
Operating income |
|
| 10,182 |
|
|
| 13,111 |
|
|
| 20,400 |
|
|
| 25,133 |
|
|
| 12,256 |
|
|
| 10,182 |
|
|
| 35,554 |
|
|
| 20,400 |
|
Interest expense, net |
|
| 1,017 |
|
|
| 1,313 |
|
|
| 2,066 |
|
|
| 2,952 |
|
|
| 1,194 |
|
|
| 1,017 |
|
|
| 2,263 |
|
|
| 2,066 |
|
Income from continuing operations before income taxes |
|
| 9,165 |
|
|
| 11,798 |
|
|
| 18,334 |
|
|
| 22,181 |
|
|
| 11,062 |
|
|
| 9,165 |
|
|
| 33,291 |
|
|
| 18,334 |
|
Income tax expense |
|
| 2,559 |
|
|
| 3,190 |
|
|
| 5,085 |
|
|
| 5,818 |
|
|
| 2,694 |
|
|
| 2,559 |
|
|
| 8,197 |
|
|
| 5,085 |
|
Income from continuing operations |
|
| 6,606 |
|
|
| 8,608 |
|
|
| 13,249 |
|
|
| 16,363 |
|
|
| 8,368 |
|
|
| 6,606 |
|
|
| 25,094 |
|
|
| 13,249 |
|
Income (loss) from discontinued operations, net of income tax |
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| (911 | ) | ||||||||||||||||
Income from discontinued operations, net of income tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 127 |
| ||||||||||||||||
Net income |
| $ | 6,606 |
|
| $ | 8,608 |
|
| $ | 13,376 |
|
| $ | 15,452 |
|
| $ | 8,368 |
|
| $ | 6,606 |
|
| $ | 25,094 |
|
| $ | 13,376 |
|
Income per common share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.19 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.52 |
|
| $ | 0.23 |
|
| $ | 0.19 |
|
| $ | 0.70 |
|
| $ | 0.37 |
|
Diluted |
| $ | 0.18 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.51 |
|
| $ | 0.23 |
|
| $ | 0.18 |
|
| $ | 0.70 |
|
| $ | 0.37 |
|
Income (loss) per common share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (0.03 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Diluted |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (0.03 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.19 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.49 |
|
| $ | 0.23 |
|
| $ | 0.19 |
|
| $ | 0.70 |
|
| $ | 0.37 |
|
Diluted |
| $ | 0.18 |
|
| $ | 0.26 |
|
| $ | 0.37 |
|
| $ | 0.48 |
|
| $ | 0.23 |
|
| $ | 0.18 |
|
| $ | 0.70 |
|
| $ | 0.37 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net income |
| $ | 8,368 |
|
| $ | 6,606 |
|
| $ | 25,094 |
|
| $ | 13,376 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 1,220 |
|
|
| 758 |
|
|
| (1,535 | ) |
|
| 1,535 |
|
Total other comprehensive income (loss) |
|
| 1,220 |
|
|
| 758 |
|
|
| (1,535 | ) |
|
| 1,535 |
|
Comprehensive income |
| $ | 9,588 |
|
| $ | 7,364 |
|
| $ | 23,559 |
|
| $ | 14,911 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net income |
| $ | 6,606 |
|
| $ | 8,608 |
|
| $ | 13,376 |
|
| $ | 15,452 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (315 | ) |
Foreign currency translation adjustment |
|
| 758 |
|
|
| (123 | ) |
|
| 1,535 |
|
|
| (1,843 | ) |
Pension liability, net of tax expense of $67 in 2018 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 201 |
|
Total other comprehensive income (loss) |
|
| 758 |
|
|
| (123 | ) |
|
| 1,535 |
|
|
| (1,957 | ) |
Comprehensive income |
| $ | 7,364 |
|
| $ | 8,485 |
|
| $ | 14,911 |
|
| $ | 13,495 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(Dollars in thousands)
|
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 75,205 |
|
| $ | 58,894 |
|
| $ | 72,322 |
|
| $ | 75,527 |
|
Accounts receivable, less allowances of $1,947 and $2,259, respectively |
|
| 73,120 |
|
|
| 72,939 |
| ||||||||
Accounts receivable, less allowances of $2,542 and $1,945, respectively |
|
| 71,270 |
|
|
| 62,279 |
| ||||||||
Income tax receivable |
|
| — |
|
|
| 4,892 |
|
|
| — |
|
|
| 142 |
|
Inventories, net |
|
| 42,341 |
|
|
| 43,596 |
|
|
| 49,551 |
|
|
| 44,260 |
|
Prepaid expenses and other current assets |
|
| 4,600 |
|
|
| 2,534 |
|
|
| 5,746 |
|
|
| 2,834 |
|
Total Current Assets |
|
| 195,266 |
|
|
| 182,855 |
|
|
| 198,889 |
|
|
| 185,042 |
|
Other Assets |
|
|
|
|
|
|
|
| ||||||||
Property, plant, and equipment, net |
|
| 57,216 |
|
|
| 65,460 |
|
|
| 54,328 |
|
|
| 54,964 |
|
Right of use asset - operating leases |
|
| 5,983 |
|
|
| — |
|
|
| 4,801 |
|
|
| 5,901 |
|
Goodwill |
|
| 59,505 |
|
|
| 59,068 |
|
|
| 66,202 |
|
|
| 66,774 |
|
Intangible assets, net |
|
| 26,583 |
|
|
| 30,280 |
|
|
| 26,366 |
|
|
| 30,754 |
|
Deferred income taxes |
|
| 6,490 |
|
|
| 5,270 |
|
|
| 856 |
|
|
| 5,807 |
|
Other |
|
| 1,953 |
|
|
| 5,712 |
|
|
| 3,403 |
|
|
| 3,897 |
|
Total Assets |
| $ | 352,996 |
|
| $ | 348,645 |
|
| $ | 354,845 |
|
| $ | 353,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 52,827 |
|
| $ | 60,849 |
|
| $ | 44,857 |
|
| $ | 46,867 |
|
Accrued expenses |
|
|
|
|
|
|
|
| ||||||||
Employee compensation |
|
| 12,859 |
|
|
| 16,531 |
| ||||||||
Income taxes |
|
| 1,182 |
|
|
| — |
| ||||||||
Taxes, other than income taxes |
|
| 1,273 |
|
|
| 1,403 |
| ||||||||
Accrued employee compensation |
|
| 10,424 |
|
|
| 12,488 |
| ||||||||
Income taxes payable |
|
| 2,834 |
|
|
| — |
| ||||||||
Accrued taxes payable, other than income taxes |
|
| 1,315 |
|
|
| 1,104 |
| ||||||||
Accrued interest |
|
| 1,785 |
|
|
| 1,939 |
|
|
| 1,785 |
|
|
| 1,785 |
|
Other current liabilities |
|
| 14,639 |
|
|
| 16,701 |
|
|
| 17,726 |
|
|
| 18,324 |
|
Operating lease liability - short-term |
|
| 2,000 |
|
|
| — |
|
|
| 1,546 |
|
|
| 2,057 |
|
Long-term debt - current portion |
|
| 39,956 |
|
|
| — |
| ||||||||
Total Current Liabilities |
|
| 86,565 |
|
|
| 97,423 |
|
|
| 120,443 |
|
|
| 82,625 |
|
Long-term debt |
|
| 76,983 |
|
|
| 76,790 |
|
|
| 37,420 |
|
|
| 77,176 |
|
Operating lease liability - long-term |
|
| 4,225 |
|
|
| — |
|
|
| 3,478 |
|
|
| 4,074 |
|
Other liabilities |
|
| 22,813 |
|
|
| 19,794 |
|
|
| 11,809 |
|
|
| 22,582 |
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serial Preferred Shares (authorized 1,000,000 shares; none issued and outstanding) |
|
| — |
|
|
| — |
| ||||||||
Common Shares, without par value (authorized 60,000,000 shares; outstanding 35,484,312 and 35,374,121; net of treasury shares of 7,068,145 and 7,178,336, respectively) |
|
| 21,646 |
|
|
| 21,547 |
| ||||||||
Serial Preferred Shares (authorized 1,000,000 shares;NaN issued and outstanding) |
|
| — |
|
|
| — |
| ||||||||
Common Shares, without par value (authorized 60,000,000 shares; outstanding 35,784,525 and 35,710,934; net of treasury shares of 6,767,932 and 6,841,523, respectively) |
|
| 21,845 |
|
|
| 21,785 |
| ||||||||
Additional paid-in capital |
|
| 294,066 |
|
|
| 292,558 |
|
|
| 297,522 |
|
|
| 296,363 |
|
Accumulated other comprehensive loss |
|
| (16,745 | ) |
|
| (18,280 | ) |
|
| (17,884 | ) |
|
| (16,349 | ) |
Retained deficit |
|
| (136,557 | ) |
|
| (141,187 | ) |
|
| (119,788 | ) |
|
| (135,117 | ) |
Total Shareholders’ Equity |
|
| 162,410 |
|
|
| 154,638 |
|
|
| 181,695 |
|
|
| 166,682 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 352,996 |
|
| $ | 348,645 |
|
| $ | 354,845 |
|
| $ | 353,139 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
|
| Quarter Ended June 30, 2020 |
| |||||||||||||||||||||||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||||||||||||||||||||||
Balance at April 1, 2020 |
| $ | 21,828 |
|
| $ | 296,736 |
|
| $ | (19,104 | ) |
| $ | (123,237 | ) |
| $ | 176,223 |
| ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,368 |
|
|
| 8,368 |
| ||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 1,220 |
|
|
| — |
|
|
| 1,220 |
| ||||||||||||||||||||
Shares issued under incentive plans, net of shares withheld for tax |
|
| 17 |
|
|
| 93 |
|
|
| — |
|
|
| — |
|
|
| 110 |
| ||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| 693 |
|
|
| — |
|
|
| — |
|
|
| 693 |
| ||||||||||||||||||||
Declared dividends - $0.135 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,919 | ) |
|
| (4,919 | ) | ||||||||||||||||||||
Balance at June 30, 2020 |
| $ | 21,845 |
|
| $ | 297,522 |
|
| $ | (17,884 | ) |
| $ | (119,788 | ) |
| $ | 181,695 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Quarter Ended June 30, 2019 |
|
| Quarter Ended June 30, 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| ||||||||||
Balance at April 1, 2019 |
| $ | 21,627 |
|
| $ | 292,608 |
|
| $ | (17,503 | ) |
| $ | (138,306 | ) |
| $ | 158,426 |
|
| $ | 21,627 |
|
| $ | 292,608 |
|
| $ | (17,503 | ) |
| $ | (138,306 | ) |
| $ | 158,426 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,606 |
|
|
| 6,606 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,606 |
|
|
| 6,606 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 758 |
|
|
| — |
|
|
| 758 |
|
|
| — |
|
|
| — |
|
|
| 758 |
|
|
| — |
|
|
| 758 |
|
Shares issued under incentive plans, net of shares withheld for tax |
|
| 19 |
|
|
| 196 |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
|
| 19 |
|
|
| 196 |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
Stock compensation expense |
|
| — |
|
|
| 1,262 |
|
|
| — |
|
|
| — |
|
|
| 1,262 |
|
|
| — |
|
|
| 1,262 |
|
|
| — |
|
|
| — |
|
|
| 1,262 |
|
Declared dividends - $0.14 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,857 | ) |
|
| (4,857 | ) | ||||||||||||||||||||
Declared dividends - $0.135 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,857 | ) |
|
| (4,857 | ) | ||||||||||||||||||||
Balance at June 30, 2019 |
| $ | 21,646 |
|
| $ | 294,066 |
|
| $ | (16,745 | ) |
| $ | (136,557 | ) |
| $ | 162,410 |
|
| $ | 21,646 |
|
| $ | 294,066 |
|
| $ | (16,745 | ) |
| $ | (136,557 | ) |
| $ | 162,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Quarter Ended June 30, 2018 |
| |||||||||||||||||||||||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||||||||||||||||||||||
Balance at April 1, 2018 |
| $ | 18,598 |
|
| $ | 210,248 |
|
| $ | (16,375 | ) |
| $ | (116,545 | ) |
| $ | 95,926 |
| ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,608 |
|
|
| 8,608 |
| ||||||||||||||||||||
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| (123 | ) |
|
| — |
|
|
| (123 | ) | ||||||||||||||||||||
Shares issued under incentive plans, net of shares withheld for tax |
|
| 26 |
|
|
| 385 |
|
|
| — |
|
|
| — |
|
|
| 411 |
| ||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| 1,739 |
|
|
| — |
|
|
| — |
|
|
| 1,739 |
| ||||||||||||||||||||
Shares issued in public offering, net of equity issuance costs |
|
| 2,806 |
|
|
| 76,716 |
|
|
| — |
|
|
| — |
|
|
| 79,522 |
| ||||||||||||||||||||
Declared dividends - $0.14 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,822 | ) |
|
| (4,822 | ) | ||||||||||||||||||||
Balance at June 30, 2018 |
| $ | 21,430 |
|
| $ | 289,088 |
|
| $ | (16,498 | ) |
| $ | (112,759 | ) |
| $ | 181,261 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
|
| Six Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2019 |
| $ | 21,547 |
|
| $ | 292,558 |
|
| $ | (18,280 | ) |
| $ | (141,187 | ) |
| $ | 154,638 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,376 |
|
|
| 13,376 |
|
Adoption of ASU 2016-02, net of tax of $332 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 905 |
|
|
| 905 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 1,535 |
|
|
| — |
|
|
| 1,535 |
|
Shares issued under incentive plans, net of shares withheld for tax |
|
| 99 |
|
|
| (712 | ) |
|
| — |
|
|
| — |
|
|
| (613 | ) |
Stock compensation expense |
|
| — |
|
|
| 2,220 |
|
|
| — |
|
|
| — |
|
|
| 2,220 |
|
Declared dividends - $0.27 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,651 | ) |
|
| (9,651 | ) |
Balance at June 30, 2019 |
| $ | 21,646 |
|
| $ | 294,066 |
|
| $ | (16,745 | ) |
| $ | (136,557 | ) |
| $ | 162,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2018 |
| $ | 18,547 |
|
| $ | 209,253 |
|
| $ | (14,541 | ) |
| $ | (119,507 | ) |
| $ | 93,752 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,452 |
|
|
| 15,452 |
|
Adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| (315 | ) |
|
| 315 |
|
|
| — |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| (1,843 | ) |
|
| — |
|
|
| (1,843 | ) |
Shares issued under incentive plans, net of shares withheld for tax |
|
| 77 |
|
|
| 427 |
|
|
| — |
|
|
| — |
|
|
| 504 |
|
Stock compensation expense |
|
| — |
|
|
| 2,692 |
|
|
| — |
|
|
| — |
|
|
| 2,692 |
|
Pension liability, net of tax of $67 |
|
| — |
|
|
| — |
|
|
| 201 |
|
|
| — |
|
|
| 201 |
|
Shares issued in public offering, net of equity issuance costs |
|
| 2,806 |
|
|
| 76,716 |
|
|
| — |
|
|
| — |
|
|
| 79,522 |
|
Declared dividends - $0.27 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,019 | ) |
|
| (9,019 | ) |
Balance at June 30, 2018 |
| $ | 21,430 |
|
| $ | 289,088 |
|
| $ | (16,498 | ) |
| $ | (112,759 | ) |
| $ | 181,261 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 13,376 |
|
| $ | 15,452 |
|
Income (loss) from discontinued operations, net of income taxes |
|
| 127 |
|
|
| (911 | ) |
Income from continuing operations |
|
| 13,249 |
|
|
| 16,363 |
|
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used for) operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
| 8,051 |
|
|
| 9,042 |
|
Amortization |
|
| 4,046 |
|
|
| 4,315 |
|
Accelerated depreciation associated with restructuring activities |
|
| — |
|
|
| 16 |
|
Non-cash stock-based compensation expense |
|
| 2,220 |
|
|
| 2,305 |
|
(Gain) loss on disposal of fixed assets |
|
| (98 | ) |
|
| (314 | ) |
Impairment charges |
|
| 916 |
|
|
| 308 |
|
Other |
|
| 340 |
|
|
| (215 | ) |
Payments on performance based compensation |
|
| (413 | ) |
|
| (1,249 | ) |
Other long-term liabilities |
|
| 3,514 |
|
|
| (63 | ) |
Cash flows provided by (used for) working capital |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (56 | ) |
|
| 9,106 |
|
Inventories |
|
| 1,450 |
|
|
| (2,454 | ) |
Prepaid expenses and other current assets |
|
| (2,041 | ) |
|
| (1,807 | ) |
Accounts payable and accrued expenses |
|
| (15,005 | ) |
|
| (8,130 | ) |
Net cash provided by (used for) operating activities - continuing operations |
|
| 16,173 |
|
|
| 27,223 |
|
Net cash provided by (used for) operating activities - discontinued operations |
|
| 7,297 |
|
|
| 981 |
|
Net cash provided by (used for) operating activities |
|
| 23,470 |
|
|
| 28,204 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (4,406 | ) |
|
| (2,318 | ) |
Proceeds from sale of property, plant and equipment |
|
| 7,514 |
|
|
| 2,633 |
|
Net cash provided by (used for) investing activities - continuing operations |
|
| 3,108 |
|
|
| 315 |
|
Net cash provided by (used for) investing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) investing activities |
|
| 3,108 |
|
|
| 315 |
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Net borrowings (repayments) on credit facility |
|
| — |
|
|
| (72,491 | ) |
Cash dividends paid |
|
| (9,733 | ) |
|
| (8,287 | ) |
Proceeds from issuance of common stock |
|
| 365 |
|
|
| 875 |
|
Proceeds from public offering of common stock, net of equity issuance costs |
|
| — |
|
|
| 79,522 |
|
Shares withheld for employee taxes on equity awards |
|
| (978 | ) |
|
| (371 | ) |
Net cash provided by (used for) financing activities - continuing operations |
|
| (10,346 | ) |
|
| (752 | ) |
Net cash provided by (used for) financing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) financing activities |
|
| (10,346 | ) |
|
| (752 | ) |
Foreign exchange rate effect on cash |
|
| 79 |
|
|
| (6 | ) |
Net increase in cash and restricted cash |
|
| 16,311 |
|
|
| 27,761 |
|
Cash and restricted cash at January 1 |
|
| 58,894 |
|
|
| 11,179 |
|
Cash and restricted cash at June 30 |
| $ | 75,205 |
|
| $ | 38,940 |
|
|
| Six Months Ended June 30, 2020 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2020 |
| $ | 21,785 |
|
| $ | 296,363 |
|
| $ | (16,349 | ) |
| $ | (135,117 | ) |
| $ | 166,682 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,094 |
|
|
| 25,094 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| (1,535 | ) |
|
| — |
|
|
| (1,535 | ) |
Shares issued under incentive plans, net of shares withheld for tax |
|
| 60 |
|
|
| (187 | ) |
|
| — |
|
|
| — |
|
|
| (127 | ) |
Stock compensation expense |
|
| — |
|
|
| 1,346 |
|
|
| — |
|
|
| — |
|
|
| 1,346 |
|
Declared dividends - $0.27 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,765 | ) |
|
| (9,765 | ) |
Balance at June 30, 2020 |
| $ | 21,845 |
|
| $ | 297,522 |
|
| $ | (17,884 | ) |
| $ | (119,788 | ) |
| $ | 181,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Common Shares |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Retained Deficit |
|
| Total Shareholders' Equity |
| |||||
Balance at January 1, 2019 |
| $ | 21,547 |
|
| $ | 292,558 |
|
| $ | (18,280 | ) |
| $ | (141,187 | ) |
| $ | 154,638 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,376 |
|
|
| 13,376 |
|
Adoption of ASU 2016-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 905 |
|
|
| 905 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| 1,535 |
|
|
| — |
|
|
| 1,535 |
|
Shares issued under incentive plans, net of shares withheld for tax |
|
| 99 |
|
|
| (712 | ) |
|
| — |
|
|
| — |
|
|
| (613 | ) |
Stock compensation expense |
|
| — |
|
|
| 2,220 |
|
|
| — |
|
|
| — |
|
|
| 2,220 |
|
Declared dividends - $0.27 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,651 | ) |
|
| (9,651 | ) |
Balance at June 30, 2019 |
| $ | 21,646 |
|
| $ | 294,066 |
|
| $ | (16,745 | ) |
| $ | (136,557 | ) |
| $ | 162,410 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
|
| For the Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 25,094 |
|
| $ | 13,376 |
|
Income (loss) from discontinued operations, net of income taxes |
|
| — |
|
|
| 127 |
|
Income (loss) from continuing operations |
|
| 25,094 |
|
|
| 13,249 |
|
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used for) operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
| 7,243 |
|
|
| 8,051 |
|
Amortization |
|
| 4,518 |
|
|
| 4,046 |
|
Non-cash stock-based compensation expense |
|
| 1,346 |
|
|
| 2,220 |
|
Gain on disposal of fixed assets |
|
| (7 | ) |
|
| (98 | ) |
Gain on sale of notes receivable |
|
| (11,924 | ) |
|
| — |
|
Impairment charges |
|
| — |
|
|
| 916 |
|
Other |
|
| 407 |
|
|
| 340 |
|
Payments on long-term performance based compensation |
|
| — |
|
|
| (413 | ) |
Other long-term liabilities |
|
| 478 |
|
|
| 3,514 |
|
Cash flows provided by (used for) working capital |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (9,672 | ) |
|
| (56 | ) |
Inventories |
|
| (5,453 | ) |
|
| 1,450 |
|
Prepaid expenses and other current assets |
|
| (2,926 | ) |
|
| (2,041 | ) |
Accounts payable and accrued expenses |
|
| 2,681 |
|
|
| (15,005 | ) |
Net cash provided by (used for) operating activities - continuing operations |
|
| 11,785 |
|
|
| 16,173 |
|
Net cash provided by (used for) operating activities - discontinued operations |
|
| — |
|
|
| 7,297 |
|
Net cash provided by (used for) operating activities |
|
| 11,785 |
|
|
| 23,470 |
|
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5,589 | ) |
|
| (4,406 | ) |
Acquisition of business |
|
| (691 | ) |
|
| — |
|
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| 7,514 |
|
Proceeds on sale of notes receivable |
|
| 1,200 |
|
|
| — |
|
Net cash provided by (used for) investing activities - continuing operations |
|
| (5,080 | ) |
|
| 3,108 |
|
Net cash provided by (used for) investing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) investing activities |
|
| (5,080 | ) |
|
| 3,108 |
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Cash dividends paid |
|
| (9,736 | ) |
|
| (9,733 | ) |
Proceeds from issuance of common stock |
|
| 235 |
|
|
| 365 |
|
Shares withheld for employee taxes on equity awards |
|
| (362 | ) |
|
| (978 | ) |
Net cash provided by (used for) financing activities - continuing operations |
|
| (9,863 | ) |
|
| (10,346 | ) |
Net cash provided by (used for) financing activities - discontinued operations |
|
| — |
|
|
| — |
|
Net cash provided by (used for) financing activities |
|
| (9,863 | ) |
|
| (10,346 | ) |
Foreign exchange rate effect on cash |
|
| (47 | ) |
|
| 79 |
|
Net (decrease) increase in cash |
|
| (3,205 | ) |
|
| 16,311 |
|
Cash at January 1 |
|
| 75,527 |
|
|
| 58,894 |
|
Cash at June 30 |
| $ | 72,322 |
|
| $ | 75,205 |
|
See notes to unaudited condensed consolidated financial statements.
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (collectively, the “Company”), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018.2019.
Results from our former Brazil Business, which was sold in 2017, are presented as discontinued operations. Net cash flows provided by discontinued operations in 2019 resulted from the remaining receipt of the tax benefit from a worthless stock deduction, which was recognized as part of the sale. Net income from discontinued operations for the six months ended June 30, 2019 related to interest income net of tax recognized on the receipt of the tax benefit in the first quarter of 2019. There was 0 discontinued operations activity for the quarter and six months ended June 30, 2020.
In the opinion of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2019,2020, and the results of operations and cash flows for the periods presented. The results of operations for the quarter and six months ended June 30, 20192020 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2019.2020.
Accounting Standards Adopted
In February 2016,March 2020, the FASB issued ASU 2016-02, Leases, which created Accounting Standards Codification (“ASC”) Topic 842. Under2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU 2016-02, an entity recognizes right-of-use assets and lease liabilitiesprovides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on its balance sheet, and discloses key information aboutfinancial reporting due to the amount, timing and uncertaintycessation of cash flows arising from leasing arrangements.the London Interbank Offered Rate (LIBOR). The amendments in this update are effective for the Company as of March 12, 2020 through December 31, 2022. The Company adopted this standard effective March 12, 2020. The adoption of this standard had no effect in the new guidance effective January 1, 2019, usingquarter or six months ended June 30, 2020, and its future impact will depend on the optional transition method,manner in which required application of the new guidance to only those leases that existed at the date of adoption. The Company elected the “package of practical expedients,” which permitted the Company to not reassess under the new standardand its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected to apply the guidance at a portfolio level and use the discount rate corresponding to the remaining lease term at transition. Adoption of the new standard resulted in the recognition of right-of-use assets and lease liabilities of $5.9 million and $6.2 million, respectively, on January 1, 2019. The difference between the right-of-use assets and lease liabilities related primarily tolenders ultimately address the removal of previously recorded accrued rent balancesLIBOR as a result of recording straight-line rent expense for certain leases. In addition, the adoption resulted in an adjustment to opening retained earnings (deficit) of approximately $0.9 million, net of tax, on January 1, 2019. This cumulative-effect transition adjustment to opening retained earnings (deficit) relatedit relates to the recognition of the remaining deferred gain on the sale-leaseback transaction that occurredLoan Agreement described in 2018. The standard did not have a material impact on the Company’s condensed consolidated results of operations or cash flows.
The following tables summarize the impacts of ASC 842 on the Company’s condensed consolidated financial statements:
|
| For the Quarter Ended June 30, 2019 |
| |||||||||
|
| As Reported |
|
| Adjustments |
|
| Balances Without Adoption of ASC 842 |
| |||
Net sales |
| $ | 134,285 |
|
| $ | — |
|
| $ | 134,285 |
|
Cost of sales |
|
| 87,349 |
|
|
| — |
|
|
| 87,349 |
|
Gross profit |
|
| 46,936 |
|
|
| — |
|
|
| 46,936 |
|
Selling, general and administrative expenses |
|
| 36,809 |
|
|
| (34 | ) |
|
| 36,775 |
|
(Gain) loss on disposal of fixed assets |
|
| (55 | ) |
|
| — |
|
|
| (55 | ) |
Operating income |
|
| 10,182 |
|
|
| 34 |
|
|
| 10,216 |
|
Interest expense, net |
|
| 1,017 |
|
|
| — |
|
|
| 1,017 |
|
Income from continuing operations before income taxes |
|
| 9,165 |
|
|
| 34 |
|
|
| 9,199 |
|
Income tax expense |
|
| 2,559 |
|
|
| 9 |
|
|
| 2,568 |
|
Income from continuing operations |
| $ | 6,606 |
|
| $ | 25 |
|
| $ | 6,631 |
|
7
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
|
| For the Six Months Ended June 30, 2019 |
| |||||||||
|
| As Reported |
|
| Adjustments |
|
| Balances Without Adoption of ASC 842 |
| |||
Net sales |
| $ | 273,400 |
|
| $ | — |
|
| $ | 273,400 |
|
Cost of sales |
|
| 180,905 |
|
|
| — |
|
|
| 180,905 |
|
Gross profit |
|
| 92,495 |
|
|
| — |
|
|
| 92,495 |
|
Selling, general and administrative expenses |
|
| 71,277 |
|
|
| (67 | ) |
|
| 71,210 |
|
(Gain) loss on disposal of fixed assets |
|
| (98 | ) |
|
| — |
|
|
| (98 | ) |
Impairment charges |
|
| 916 |
|
|
| — |
|
|
| 916 |
|
Operating income |
|
| 20,400 |
|
|
| 67 |
|
|
| 20,467 |
|
Interest expense, net |
|
| 2,066 |
|
|
| — |
|
|
| 2,066 |
|
Income from continuing operations before income taxes |
|
| 18,334 |
|
|
| 67 |
|
|
| 18,401 |
|
Income tax expense |
|
| 5,085 |
|
|
| 18 |
|
|
| 5,103 |
|
Income from continuing operations |
| $ | 13,249 |
|
| $ | 49 |
|
| $ | 13,298 |
|
|
| As of June 30, 2019 |
| |||||||||
|
| As Reported |
|
| Adjustments |
|
| Balances Without Adoption of ASC 842 |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Right of use asset - operating leases |
| $ | 5,983 |
|
| $ | (5,983 | ) |
| $ | — |
|
Deferred tax asset |
|
| 6,490 |
|
|
| 316 |
|
|
| 6,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
| $ | 14,639 |
|
| $ | 242 |
|
| $ | 14,881 |
|
Operating lease liability - short-term |
|
| 2,000 |
|
|
| (2,000 | ) |
|
| — |
|
Operating lease liability - long-term |
|
| 4,225 |
|
|
| (4,225 | ) |
|
| — |
|
Other liabilities |
|
| 22,813 |
|
|
| 1,169 |
|
|
| 23,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Retained deficit |
| $ | (136,557 | ) |
| $ | (853 | ) |
| $ | (137,410 | ) |
Accounting Standards Not Yet AdoptedNote 13.
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 isCompany adopted this standard effective for annual periods beginning after December 15, 2019,January 1, 2020 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 willdid not have a material impact 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. TheFor the Company, the ASU is effective retrospectively beginning with the 2020 annual financial statements, but is not applicable to its interim financial statements. The Company adopted this standard effective January 1, 2020 and the adoption of this standard is not expected to have a material impact on its annual 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 annual periods ending after December 15, 2020, with early adoption permitted and shouldFair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. Certain disclosures in this ASU are required to be applied on a retrospective basis to all periods presented.and others on a prospective basis. The Company is currently evaluating the impactadopted this standard effective January 1, 2020 and the adoption of this standard willdid not have a material impact on its consolidated financial statements.
87
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
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 isCompany adopted this standard 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. The Company does not believe that2020 and the adoption of this guidance willstandard did not have a material impact on its consolidated financial statements unless a goodwill impairment were to occur.statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which introduces new guidance for theaccounting 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. The Company adopted the new guidance effective January 1, 2020. Adoption of the new standard resulted in changes to the Company’s accounting policy and disclosures related to its allowance for expected credit losses for accounts receivable. The impact of adopting this standard on the Company’s consolidated financial statements was not material and no cumulative transition adjustment was required.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. For the Company, this ASU is effective for fiscal years beginning after December 15, 2019 including interim periodswith the first quarter of 2021. Early adoption is permitted. Certain amendments within that reporting period, with early adoption permitted for fiscal years beginning after December 15, 2018.this ASU are required to be applied on a retrospective basis, certain other amendments are required to be applied on a modified retrospective basis and all other amendments on a prospective basis. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
Fair Value Measurement
The Company follows guidance included in ASC 820, Fair Value Measurements and Disclosures, for its financial assets and liabilities, as required. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
| Level 1: | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs that are observable either directly or indirectly. |
| Level 3: | Unobservable inputs for which there is little or no market data or which reflect the entity’s own assumptions. |
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 approximates 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 13, approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of theany revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered Level 2 inputs. At June 30, 20192020 and December 31, 2018,2019, the aggregate fair value of the Company's outstanding fixed rate senior unsecured notes was estimated at $78.9to be $80.5 million and $76.8$79.0 million, respectively.
9The purchase price allocation associated with the August 26, 2019 acquisition of Tuffy Manufacturing Industries, Inc., as described in Note 3, required fair value measurements using unobservable inputs which are considered Level 3 inputs. The fair value of the acquired intangible assets was determined using the income approach.
8
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:
|
| Foreign Currency |
|
| Defined Benefit Pension Plans |
|
| Total |
|
| Foreign Currency |
|
| Defined Benefit Pension Plans |
|
| Total |
| ||||||
Balance at January 1, 2019 |
| $ | (16,251 | ) |
| $ | (2,029 | ) |
| $ | (18,280 | ) | ||||||||||||
Balance at January 1, 2020 |
| $ | (14,602 | ) |
| $ | (1,747 | ) |
| $ | (16,349 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 1,535 |
|
|
| — |
|
|
| 1,535 |
|
|
| (1,535 | ) |
|
| — |
|
|
| (1,535 | ) |
Net current-period other comprehensive income (loss) |
|
| 1,535 |
|
|
| — |
|
|
| 1,535 |
|
|
| (1,535 | ) |
|
| — |
|
|
| (1,535 | ) |
Balance at June 30, 2019 |
| $ | (14,716 | ) |
| $ | (2,029 | ) |
| $ | (16,745 | ) | ||||||||||||
Balance at June 30, 2020 |
| $ | (16,137 | ) |
| $ | (1,747 | ) |
| $ | (17,884 | ) |
Allowance for Credit Losses
Management has established certain requirements that customers must meet before credit is extended. The financial condition of customers is continually monitored and collateral is usually not required. The Company evaluates the collectability of accounts receivable based on a combination of factors. The Company reviews historical trends for credit loss as well as current economic conditions in determining an estimate for its allowance for credit losses. Additionally, in circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for credit losses is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably expects will be collected.
The change in the allowance for credit losses for the six months ended June 30, 2020 was as follows:
|
| 2020 |
| |
Balance at January 1 |
| $ | 1,356 |
|
Provision for expected credit loss, net of recoveries |
|
| 447 |
|
Write-offs and other |
|
| (286 | ) |
Balance at June 30 |
| $ | 1,517 |
|
2. Revenue Recognition
The following tables disaggregate the Company’s revenue by major market:market is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Quarter Ended June 30, 2020 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 31,211 |
|
| $ | — |
|
| $ | — |
|
| $ | 31,211 |
|
Vehicle |
|
| 13,813 |
|
|
| — |
|
|
| — |
|
|
| 13,813 |
|
Food and beverage |
|
| 9,072 |
|
|
| — |
|
|
| — |
|
|
| 9,072 |
|
Industrial |
|
| 26,759 |
|
|
| — |
|
|
| (2 | ) |
|
| 26,757 |
|
Auto aftermarket |
|
| — |
|
|
| 37,541 |
|
|
| — |
|
|
| 37,541 |
|
Total net sales |
| $ | 80,855 |
|
| $ | 37,541 |
|
| $ | (2 | ) |
| $ | 118,394 |
|
|
| For the Quarter Ended June 30, 2019 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 22,515 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,515 |
|
Vehicle |
|
| 21,962 |
|
|
| — |
|
|
| — |
|
|
| 21,962 |
|
Food and beverage |
|
| 16,818 |
|
|
| — |
|
|
| — |
|
|
| 16,818 |
|
Industrial |
|
| 34,607 |
|
|
| — |
|
|
| (12 | ) |
|
| 34,595 |
|
Auto aftermarket |
|
| — |
|
|
| 38,395 |
|
|
| — |
|
|
| 38,395 |
|
Total net sales |
| $ | 95,902 |
|
| $ | 38,395 |
|
| $ | (12 | ) |
| $ | 134,285 |
|
|
| For the Quarter Ended June 30, 2018 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 27,046 |
|
| $ | — |
|
| $ | — |
|
| $ | 27,046 |
|
Vehicle |
|
| 26,758 |
|
|
| — |
|
|
| — |
|
|
| 26,758 |
|
Food and beverage |
|
| 15,308 |
|
|
| — |
|
|
| — |
|
|
| 15,308 |
|
Industrial |
|
| 34,018 |
|
|
| — |
|
|
| (47 | ) |
|
| 33,971 |
|
Auto aftermarket |
|
| — |
|
|
| 37,477 |
|
|
| — |
|
|
| 37,477 |
|
Total net sales |
| $ | 103,130 |
|
| $ | 37,477 |
|
| $ | (47 | ) |
| $ | 140,560 |
|
|
| For the Six Months Ended June 30, 2019 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 40,300 |
|
| $ | — |
|
| $ | — |
|
| $ | 40,300 |
|
Vehicle |
|
| 44,482 |
|
|
| — |
|
|
| — |
|
|
| 44,482 |
|
Food and beverage |
|
| 41,967 |
|
|
| — |
|
|
| — |
|
|
| 41,967 |
|
Industrial |
|
| 72,104 |
|
|
| — |
|
|
| (22 | ) |
|
| 72,082 |
|
Auto aftermarket |
|
| — |
|
|
| 74,569 |
|
|
| — |
|
|
| 74,569 |
|
Total net sales |
| $ | 198,853 |
|
| $ | 74,569 |
|
| $ | (22 | ) |
| $ | 273,400 |
|
109
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
|
| For the Six Months Ended June 30, 2018 |
|
| For the Six Months Ended June 30, 2020 |
| ||||||||||||||||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||||||
Consumer |
| $ | 44,277 |
|
| $ | — |
|
| $ | — |
|
| $ | 44,277 |
|
| $ | 51,498 |
|
| $ | — |
|
| $ | — |
|
| $ | 51,498 |
|
Vehicle |
|
| 52,301 |
|
|
| — |
|
|
| — |
|
|
| 52,301 |
|
|
| 30,125 |
|
|
| — |
|
|
| — |
|
|
| 30,125 |
|
Food and beverage |
|
| 52,965 |
|
|
| — |
|
|
| — |
|
|
| 52,965 |
|
|
| 26,491 |
|
|
| — |
|
|
| — |
|
|
| 26,491 |
|
Industrial |
|
| 70,396 |
|
|
| — |
|
|
| (69 | ) |
|
| 70,327 |
|
|
| 56,817 |
|
|
| — |
|
|
| (23 | ) |
|
| 56,794 |
|
Auto aftermarket |
|
| — |
|
|
| 73,258 |
|
|
| — |
|
|
| 73,258 |
|
|
| — |
|
|
| 75,736 |
|
|
| — |
|
|
| 75,736 |
|
Total net sales |
| $ | 219,939 |
|
| $ | 73,258 |
|
| $ | (69 | ) |
| $ | 293,128 |
|
| $ | 164,931 |
|
| $ | 75,736 |
|
| $ | (23 | ) |
| $ | 240,644 |
|
|
| For the Six Months Ended June 30, 2019 |
| |||||||||||||
|
| Material Handling |
|
| Distribution |
|
| Inter-company |
|
| Consolidated |
| ||||
Consumer |
| $ | 40,300 |
|
| $ | — |
|
| $ | — |
|
| $ | 40,300 |
|
Vehicle |
|
| 44,482 |
|
|
| — |
|
|
| — |
|
|
| 44,482 |
|
Food and beverage |
|
| 41,967 |
|
|
| — |
|
|
| — |
|
|
| 41,967 |
|
Industrial |
|
| 72,104 |
|
|
| — |
|
|
| (22 | ) |
|
| 72,082 |
|
Auto aftermarket |
|
| — |
|
|
| 74,569 |
|
|
| — |
|
|
| 74,569 |
|
Total net sales |
| $ | 198,853 |
|
| $ | 74,569 |
|
| $ | (22 | ) |
| $ | 273,400 |
|
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 generally does not enter into any long-term contracts with customers greater than one year. Based on the nature of the Company’s products and customer contracts, the Companyno deferred revenue has notbeen 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 day90-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 expectedExpected returns allowances are recognized each period based on an analysis of historical experience. For certain businesses whereexperience, and when physical recovery of the product from returns occurs, the Company records an estimated right to return asset from such recovery,is also recorded based on the approximate cost of the product.
Amounts included in the Condensed Consolidated StatementStatements of Financial Position (Unaudited) related to revenue recognition include:
|
| June 30, |
|
| December 31, |
|
| Statement of Financial Position |
| June 30, |
|
| December 31, |
|
| Statement of Financial Position | ||||
|
| 2019 |
|
| 2018 |
|
| Classification |
| 2020 |
|
| 2019 |
|
| Classification | ||||
Returns, discounts and other allowances |
| $ | (606 | ) |
| $ | (1,169 | ) |
| Accounts receivable |
| $ | (1,025 | ) |
| $ | (589 | ) |
| Accounts receivable |
Right of return asset |
|
| 322 |
|
|
| 535 |
|
| Inventories, net |
|
| 377 |
|
|
| 312 |
|
| Inventories, net |
Customer deposits |
|
| (115 | ) |
|
| (806 | ) |
| Other current liabilities |
|
| (19 | ) |
|
| (269 | ) |
| Other current liabilities |
Accrued rebates |
|
| (2,023 | ) |
|
| (2,559 | ) |
| Other current liabilities |
|
| (3,174 | ) |
|
| (2,349 | ) |
| Other current liabilities |
10
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Sales, value added, and other taxes the Company collects concurrentcollected with revenue from customers are excluded from net sales. The Company has elected to recognize the cost for shipments to customers is recognized when control over products has transferred to the customer. Costs for shipments to customers arecustomer and is classified as Selling, General and Administrative Expensesexpenses for the Company’s manufacturing business and as Cost of Sales for the Company’s distribution business in the accompanying Condensed Consolidated Statements of Operations (Unaudited). The Company incurred costsbusiness. Costs for shipments to customers in Selling, General and Administrative Expenses of expenses were approximately $2.0$1.7 million and $2.6$2.0 million for the quarters ended June 30, 20192020 and 2018,2019, respectively, and $4.1$3.3 million and $5.3$4.1 million for the six months ended June 30, 20192020 and 2018,2019, respectively, and in Cost of Sales of were approximately $1.5 million and $1.4$1.5 million for each of the quarters ended June 30, 20192020 and 2018, respectively,2019 and $2.9 million and $2.8 million for each of the six months ended June 30, 20192020 and 2018, respectively. All other internal distribution costs are recorded in Selling, General and Administrative Expenses.2019.
Based on the short termshort-term nature of contracts described above, the Company does not incur significant contract acquisition costs.costs are not significant. These costs, as well as other incidental items that are immaterial in the context of the contract, are recognized as expense as incurred.
3. Acquisition
On August 26, 2019, the Company acquired the assets of Tuffy Manufacturing Industries, Inc. (“Tuffy”), a warehouse distributor of tire repair equipment and supplies, which is included in the Distribution Segment. The Tuffy acquisition aligns with the Company’s strategy to grow in key niche markets and focus on strategic account customers. The purchase price for the acquisition was $18.7 million, which includes a working capital adjustment of $0.7 million that was paid during the quarter ended March 31, 2020. The Company funded the acquisition using available cash.
The acquisition of Tuffy was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill. The following table summarizes the allocation of the purchase price based on the estimated fair value of assets acquired and liabilities assumed based on their preliminary estimated fair values at the acquisition date, which are subject to adjustment. The purchase accounting will be finalized within one year from the acquisition date.
Assets acquired: |
|
|
|
Accounts receivable | $ | 2,105 |
|
Inventories |
| 2,719 |
|
Prepaid expenses |
| 43 |
|
Property, plant and equipment |
| 124 |
|
Right of use asset - operating leases |
| 229 |
|
Intangible assets |
| 8,400 |
|
Goodwill |
| 7,143 |
|
Assets acquired | $ | 20,763 |
|
|
|
|
|
Liabilities assumed: |
|
|
|
Accounts payable | $ | 1,675 |
|
Accrued expenses |
| 143 |
|
Operating lease liability - short term |
| 112 |
|
Operating lease liability - long term |
| 117 |
|
Total liabilities assumed |
| 2,047 |
|
|
|
|
|
Net acquisition cost | $ | 18,716 |
|
The goodwill represents the future economic benefits arising from other assets acquired that could not be individually and separately recognized, and the Company expects that the goodwill recognized for the acquisition will be deductible for tax purposes.
11
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
3.The intangible assets included above consist of the following:
|
| Fair Value |
|
| Weighted Average Estimated Useful Life | |
Customer relationships |
| $ | 7,300 |
|
| 7.3 years |
Trade name |
|
| 500 |
|
| 5.0 years |
Non-competition agreements |
|
| 600 |
|
| 5.0 years |
Total amortizable intangible assets |
| $ | 8,400 |
|
|
|
4. Assets Held for Sale
As part of its ongoing strategy, the Company continues to evaluate its various real estate holdings. AsJune 30, 2020 and December 31, 2019, a result of these initiatives, certain buildings were reclassified as held for sale in 2018 and 2019. Based on the estimated fairbuilding with a carrying 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$1.9 million during the quarter ended June 30, 2018. No impairment charges were recorded during the quarter ended June 30, 2019. Impairment charges of $0.9 million and $0.3 million were recorded during the six months ended June 30, 2019 and 2018, respectively. As of December 31, 2018, the Company had classified $4.4 million of buildings as held for sale, in Other Assets in the Condensed Consolidated Statements of Financial Position (Unaudited). No assets werewas classified as held for sale as of June 30, 2019.and is included in Other Assets. During the first half of 2019, the Company sold two buildings, which had previously been held for sale, for total net proceeds of $7.4 million. These buildings were included in the Company’s Material Handling Segment.
4. 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 Brazil Business was part of the Material Handling Segment.
The Company has agreedWhen a facility meets held for sale classification criteria, it is also evaluated for impairment by comparing its carrying value to be the guarantor under a factoring arrangement between the Buyer and Banco Alfa de Investimento S.A. until December 31, 2019 for upits estimated fair value less estimated costs 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 thesell. Estimated fair value of the guaranty is immaterial (based primarilythese buildings was based on third party offers, which are Level 3 inputs), and thus has recorded no liability2 inputs. NaN impairment related to this guarantyassets held for sale was recognized in the Condensed Consolidated Statementsquarters ended June 30, 2020 or 2019 or for the six months ended June 30, 2020. An impairment charge of Financial Position (Unaudited). This guaranty also creates$0.9 million was recorded during the six months ended June 30, 2019 in connection with a variable interest tobuilding meeting the Company in the Brazil Business. Based on the termsheld for sale criteria.
5. Settlement of the transactionNote Receivable 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.Lease Guarantee
On February 17,In 2015, the Company sold its Lawn and Garden business to an entity controlled by Wingate Partners V, L.P. (“L&G Buyer”), which later became HC Companies, Inc. (“HC”). The terms of the sale included promissory notes totaling $20 million that were originally setfrom HC. Due to mature in August 2020 with a 6% interest rate. During the third quarteruncertainty 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, and as a result, the Company recordedcollection, a provision for expected loss of $23.0 million was recorded within continuing operations during the third quarter of 2018.2018 to fully impair the notes and corresponding interest receivable. The Company also ceased recognizing interest income as of September 30, 2018 following the recognition of the provision.
Also, in connection with the sale of the Lawn and Garden business, the Company became a guarantor for any remaining rent payments under one of HC’s facility leases expiring in September 2025. Annual rent for the facility is approximately $2 million. Due to the financial risk associated with HC, the Company assessed its range of potential obligations under the lease guarantee, and recorded a liability and related pre-tax charge of $10.3 million during the third quarter of 2018. The carrying value of the lease contingency as of December 31, 2019 was $10.7 million, which represented the initial liability recorded plus accretion and was included inOther Liabilities.
In AprilJanuary 2020, the Company sold to HC the fully-reserved promissory notes and related accrued interest receivable in exchange for $1.2 million and the release from the lease guarantee resulting in an $11.9 million pre-tax gain.
6. Restructuring
In March 2019, the Company committed to implementing a restructuring plan involving its Ameri-Kart Corp. subsidiary (“Ameri-Kart”) that operates within the Material Handling Segment. The Company plans to consolidate manufacturing operations currently conducted at Ameri-Kart’s Cassopolis, Michigan and Bristol, Indiana facilities with expanded operations in a new facility in Bristol, Indiana (the “Ameri-Kart Plan”). In December 2019, the Company entered into an agreement with HC to amendwhere a new manufacturing and restatedistribution facility in Bristol, Indiana will be constructed, and when substantially complete, the notes (“AmendedCompany will lease that new facility and Restated Notes”). The Amended and Restated Notes maintainsell its existing facility in Bristol, Indiana. In December 2019, the amounts due under the original terms of the notes, including interest, and extend the maturity to August 2022. The agreement to amend and restate the notes did not change management’s assessment of the uncertainty to collectCompany also provided one year advance termination notice on the notes.
In addition,lease of its Cassopolis, Michigan facility. The Ameri-Kart Plan is expected to be substantially completed in the first quarter of 2021 and total restructuring costs expected to be incurred are approximately $8.6$1.1 million, of the purchase priceprimarily related to the Lawnequipment relocation and Garden sale was 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 12. 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 for the quarter ended March 31, 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.
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 12 for further information with regards to this guarantee.facility shut down costs.
12
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Summarized selected financial information for discontinued operations for the quarters and six months ended June 30, 2019 and 2018 are presented in the following table:
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Cost of sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Selling, general, and administrative |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,225 |
|
(Gain) loss on disposal of assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Interest income, net |
|
| — |
|
|
| — |
|
|
| (174 | ) |
|
| — |
|
Income (loss) from discontinued operations before income tax |
|
| — |
|
|
| — |
|
|
| 174 |
|
|
| (1,225 | ) |
Income tax expense (benefit) |
|
| — |
|
|
| — |
|
|
| 47 |
|
|
| (314 | ) |
Income (loss) from discontinued operations, net of income tax |
| $ | — |
|
| $ | — |
|
| $ | 127 |
|
| $ | (911 | ) |
Net cash flows provided by discontinued operations in 2019 resulted from the remaining receipt of the tax benefit from a worthless stock deduction, which was recognized as part of the sale of the Brazil Business. Net cash flows provided by discontinued operations in 2018 resulted from the partial receipt of the tax benefit from the worthless stock deduction related to the Brazil Business. The worthless stock deduction allowed the Company to reduced its estimated U.S. federal tax payments in 2018 by $4.3 million. This was partially offset by the payment of expenses related to the sale of the Brazil Business and the payment of the settlement with the L&G Buyer noted above.
5. Restructuring
OnIn March 20, 2019, the Company committed to implementing a restructuring plan involving its Ameri-Kart Corp. subsidiary (“Ameri-Kart”) that operates within the Company’s Material Handling Segment. The Company plans to consolidate manufacturing operations currently conducted at Ameri-Kart’s Cassopolis, Michigan facility with expanded operations in Indiana, and eliminate up to 30 positions in connection with the consolidation (the “Ameri-Kart Plan”). Total restructuring costs expected to be incurred are approximately $0.9 million, which include employee severance and other employee-related costs of approximately $0.2 million, equipment relocation and facility shut down costs of approximately $0.6 million and non-cash charges, primarily accelerated depreciation charges on property, plant and equipment, of approximately $0.1 million. No costs were incurred during the quarter and six months ended June 30, 2019 related to the Ameri-Kart Plan. The Ameri-Kart Plan is expected to be substantially completed in the first half of 2020.
On March 18, 2019, the Company committed to implementing a restructuring plan relating to transformation initiatives within the Company’s Distribution Segment (the “Distribution Transformation Plan”) that are intended to increase sales force effectiveness, reduce costs and improve contribution margins. The Company plans to realignrealigned its Distribution Segment’s commercial sales structure, which includesincluded the elimination of certain sales and administrative positions, as well asand put into place plans to expand its e-commerce platform. Total restructuring costs expected to be incurred are approximately $0.9 million, primarily related to employee severance and other employee-related costs. No restructuring charges were incurred during the quarter ended June 30, 2019. During the six months ended June 30, 2019, the Company incurred restructuring charges of $0.9 million and does not expect to incur any additional restructuring charges in connection withAll actions under the Distribution Transformation Plan. The Distribution Transformation Plan is expected to bewere substantially completed by the end of 2019.
On March 9, 2017, the Company announced a restructuring plan to improve the Company’s organizational structure and operational efficiency within the Material Handling Segment (the “Material Handling Plan”), which related primarily to anticipated facility shutdowns and associated activities. Total restructuring costs incurred related to the Material Handling 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 Material Handling Plan are completed. The Company incurred $0.1 million of
NaN restructuring charges associated with the Material Handling Plan during the six months ended June 30, 2018. No costs were incurred during 2019.
13
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
As noted above, there were no restructuring charges incurred during the quarters ended June 30, 20192020 and 2018. The2019. Charges for the above restructuring charges noted aboveplans for the six months ended June 30, 2020 and 2019 and 2018 are presented in the Condensed Consolidated Statements of Operations (Unaudited) as follows:
|
| For the Six Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||
Segment |
| Cost of Sales |
|
| SG&A |
|
| Total |
|
| Cost of Sales |
|
| SG&A |
|
| Total |
|
| Cost of Sales |
|
| SG&A |
|
| Total |
|
| Cost of Sales |
|
| SG&A |
|
| Total |
| ||||||||||||
Distribution |
| $ | — |
|
| $ | 901 |
|
| $ | 901 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 901 |
|
| $ | 901 |
|
Material Handling |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | 901 |
|
| $ | 901 |
|
| $ | 119 |
|
| $ | — |
|
| $ | 119 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 901 |
|
| $ | 901 |
|
The table below summarizes restructuring activity for the six months ended June 30, 2019:
|
| Employee Reduction |
|
| Accelerated Depreciation |
|
| Other Exit Costs |
|
| Total |
| ||||
Balance at January 1, 2019 |
| $ | 30 |
|
| $ | — |
|
| $ | — |
|
| $ | 30 |
|
Charges to expense |
|
| 901 |
|
|
| — |
|
|
| — |
|
|
| 901 |
|
Cash payments |
|
| (582 | ) |
|
| — |
|
|
| — |
|
|
| (582 | ) |
Non-cash utilization |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at June 30, 2019 |
| $ | 349 |
|
| $ | — |
|
| $ | — |
|
| $ | 349 |
|
During the quarter ended March 31, 2019, the Company reclassified a facility that was closed in connection with the Material Handling Plan as held for sale. Based on the estimated fair value of this facility (using primarily a third party offer considered to be a Level 2 input), less estimated costs to sell, the Company recognized an impairment charge of $0.9 million during the quarter ended March 31, 2019. The facility was sold in May 2019 for net proceeds of $2.9 million, which are included in the net proceeds discussed in Note 3.
In addition to the restructuring charges noted above, the Company has also incurred $0.1 million and $0.2 million of other associated costs of the Distribution Transformation Plan during the quarter and six months ended June 30, 2019, respectively, which are included in Selling, General, and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited), and are primarily related to third party consulting costs. Additional estimated costs of $0.2 million and $0.6 million are expected to be incurred throughout the remainder of 2019 related to the Ameri-Kart Plan and the Distribution Transformation Plan, respectively.
6.7. 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 3050 percent of inventories are valued using the LIFO method of determining cost. All other inventories are valued atusing the FIFO method of determining cost. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation. Based on management’s projections of inventory levels and costs, 0 adjustment to the LIFO reserve was recorded for the quarter or six months ended June 30, 2020. During 2019, and 2018, one inventory pool had a reduction in inventory quantities that was expected to holdremain through year-end, and therefore, ana LIFO liquidation adjustment of $0.3 million was recorded forto decrease cost of sales in the quartersquarter and six months ended June 30, 2019 and 2018 to decrease cost of sales by $0.3 million and $0.5 million, respectively, as a result of the liquidation of LIFO inventories.2019.
Inventories consisted of the following:
|
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Finished and in-process products |
| $ | 27,034 |
|
| $ | 27,960 |
|
| $ | 35,837 |
|
| $ | 32,537 |
|
Raw materials and supplies |
|
| 15,307 |
|
|
| 15,636 |
|
|
| 13,714 |
|
|
| 11,723 |
|
|
| $ | 42,341 |
|
| $ | 43,596 |
|
| $ | 49,551 |
|
| $ | 44,260 |
|
148. Other Liabilities
The balance in Other Current Liabilities is comprised of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Customer deposits and accrued rebates |
| $ | 3,193 |
|
| $ | 2,618 |
|
Dividends payable |
|
| 5,143 |
|
|
| 5,114 |
|
Accrued litigation, claims and professional fees |
|
| 869 |
|
|
| 479 |
|
Current portion of environmental reserves |
|
| 1,471 |
|
|
| 1,533 |
|
Accrued product replacement costs |
|
| 741 |
|
|
| 1,835 |
|
Other accrued expenses |
|
| 6,309 |
|
|
| 6,745 |
|
|
| $ | 17,726 |
|
| $ | 18,324 |
|
13
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The balanceIn August 2019, a manufacturing defect was identified for certain boxes produced within the Material Handling segment in other current liabilities is comprisedMay and June 2019. Certain of the following:affected boxes require replacement. The total range of cost to replace these boxes is estimated to be $3.5 million to $4.0 million. In the quarter ended September 30, 2019, $3.5 million of estimated costs were recorded related to this matter, of which $0.7 million remains accrued as of June 30, 2020 and is included within Other Current Liabilities.
|
| June 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Customer deposits and accrued rebates |
| $ | 2,138 |
|
| $ | 3,365 |
|
Dividends payable |
|
| 5,179 |
|
|
| 5,260 |
|
Accrued litigation, claims and professional fees |
|
| 768 |
|
|
| 460 |
|
Current portion of environmental reserves |
|
| 1,435 |
|
|
| 1,229 |
|
Other accrued expenses |
|
| 5,119 |
|
|
| 6,387 |
|
|
| $ | 14,639 |
|
| $ | 16,701 |
|
The balance in other liabilitiesOther Liabilities (long-term) is comprised of the following:
|
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Lease guarantee contingency |
| $ | 10,562 |
|
| $ | 10,402 |
|
| $ | — |
|
| $ | 10,724 |
|
Environmental reserves |
|
| 6,815 |
|
|
| 3,702 |
|
|
| 6,600 |
|
|
| 6,658 |
|
Supplemental executive retirement plan liability |
|
| 1,871 |
|
|
| 2,026 |
|
|
| 1,622 |
|
|
| 1,776 |
|
Pension liability |
|
| 1,285 |
|
|
| 1,207 |
|
|
| 968 |
|
|
| 956 |
|
Deferred gain on sale of assets |
|
| — |
|
|
| 1,237 |
| ||||||||
Other long-term liabilities |
|
| 2,280 |
|
|
| 1,220 |
|
|
| 2,619 |
|
|
| 2,468 |
|
|
| $ | 22,813 |
|
| $ | 19,794 |
|
| $ | 11,809 |
|
| $ | 22,582 |
|
8.9. Goodwill and Intangible Assets
The change in goodwill for the six months ended June 30, 20192020 was as follows:
|
| Distribution |
|
| Material Handling |
|
| Total |
| |||
January 1, 2019 |
| $ | 505 |
|
| $ | 58,563 |
|
| $ | 59,068 |
|
Foreign currency translation |
|
| — |
|
|
| 437 |
|
|
| 437 |
|
June 30, 2019 |
| $ | 505 |
|
| $ | 59,000 |
|
| $ | 59,505 |
|
|
| Distribution |
|
| Material Handling |
|
| Total |
| |||
January 1, 2020 |
| $ | 7,716 |
|
| $ | 59,058 |
|
| $ | 66,774 |
|
Purchase accounting adjustment |
|
| (68 | ) |
|
| — |
|
|
| (68 | ) |
Foreign currency translation |
|
| — |
|
|
| (504 | ) |
|
| (504 | ) |
June 30, 2020 |
| $ | 7,648 |
|
| $ | 58,554 |
|
| $ | 66,202 |
|
Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, non-competition agreements and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. The Company has indefinite-livedIndefinite-lived trade names which had a carrying value of $9.8 million at both June 30, 20192020 and December 31, 2018.2019. Refer to Note 3 for the intangible assets acquired through the Tuffy acquisition during the quarter ended September 30, 2019.
9.10. Net Income per Common Share
Net income per common share, as shown on the accompanying Condensed Consolidated Statements of Operations (Unaudited), is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Weighted average common shares outstanding basic |
|
| 35,471,795 |
|
|
| 32,606,838 |
|
|
| 35,430,392 |
|
|
| 31,561,194 |
|
|
| 35,774,241 |
|
|
| 35,471,795 |
|
|
| 35,749,110 |
|
|
| 35,430,392 |
|
Dilutive effect of stock options and restricted stock |
|
| 271,768 |
|
|
| 477,702 |
|
|
| 322,662 |
|
|
| 520,156 |
|
|
| 146,224 |
|
|
| 271,768 |
|
|
| 150,411 |
|
|
| 322,662 |
|
Weighted average common shares outstanding diluted |
|
| 35,743,563 |
|
|
| 33,084,540 |
|
|
| 35,753,054 |
|
|
| 32,081,350 |
|
|
| 35,920,465 |
|
|
| 35,743,563 |
|
|
| 35,899,521 |
|
|
| 35,753,054 |
|
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Options to purchase 643,813455,958 and 648,313466,658 shares of common stock that were outstanding for the for the quarter and six months endedJune 30, 2020, respectively, and 643,813 and 648,313 for the quarter and six months ended June 30, 2019, respectively, and 252,132 for the six months ended June 30, 2018, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares, and were therefore anti-dilutive. There were no options
14
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to purchase shares of common stock excluded from the computation of diluted earnings per share for the quarter ended June 30, 2018.Unaudited Condensed Consolidated Financial Statements – (Continued)
10.(Dollars in thousands, except where otherwise indicated)
11. 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 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.
In March 2019, the Company granted 235,474 stock options with a weighted average exercise price of $18.54 per share and a weighted average fair value of $5.78 per share. The fair value of options granted is estimated using a binomial lattice option pricing model. Also in March 2019, the Company granted 77,810 and 101,500 time-based and performance-based restricted stock units, respectively, with a weighted average fair value of $18.54 per share. In April 2019, the Company granted 33,152 time-based restricted stock units with a weighted average fair value of $18.10 per share.
Stock compensation expense was approximately $1.3$0.7 million and $1.2$1.3 million for the quarters ended June 30, 20192020 and 2018,2019, respectively, and $2.2$1.3 million and $2.3$2.2 million for the six months ended June 30, 20192020 and 2018,2019, respectively. These expenses are included in Selling, General and Administrative expenses in the accompanying Condensed Consolidated Statements of Operations (Unaudited). expenses. Total unrecognized compensation cost related to non-vested stock-based compensation arrangements at June 30, 20192020 was approximately $7.6$7.1 million, which will be recognized over the next three years, as such compensation is earned.
11. 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.
12. Contingencies
The Company is a defendant in various lawsuits and a party to various other legal proceedings arising in the ordinary course of business, some of which are covered in whole or in part by insurance. When a loss arising from these matters is probable and can reasonably be estimated, we record the most likely amount of the estimated loss, or the minimum estimated liability when theprobable loss is estimated usingrecorded, or if a range of probable loss can be estimated and no pointamount within the range is more probable of occurrencea better estimate than another.any other amount, the minimum amount in the range is recorded. As additional information becomes available, any potential liability related to these matters will beis assessed and the estimates will beare 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.uncertainties, and unfavorable rulings could occur. If new information becomes available or 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.
16
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
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 to secure its performance during the estimated 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.
A draft work plan for the RI/FS, in accordance with the AOC and related SOW, was submitted to the EPA for review and approval in July 2019. Upon preparation of the draft work plan for the RI/FS, the Company received preliminary estimates from its consultants for the cost of the execution of the work plan. Based on these preliminary estimates, the Company recognized additional expense of $4.0 million during the second quarter and six months ended June 30,of 2019. These preliminary estimates will continue to be refined through the finalization and approval of the draft work plan, which is anticipated to occur by the end of 2019.in 2020. The Company believes it has insurance coverage that applies to the New Idria Mine and thus may be able to recover a portion of the estimated costs; however, to date,as of June 30, 2020, the Company has not recognized any potential recovery in its consolidated financial statements. No expenses were recorded related
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the New Idria MineUnaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in the quarter or six months ended June 30, 2018.thousands, except where otherwise indicated)
Since October 2011, when New Idria was added to the Superfund National Priorities List by the EPA, the Company has recognized $9.9 million of costs, of which approximately $3.2$3.4 million has been paid to date. These costs are comprised primarily of estimates to perform the RI/FS, negotiation of the AOC, identification of possible insurance resources and other PRPs, EPA oversight fees, past cost claims made by the EPA (who, as of April 2020, is represented by the U.S. Department of Justice), periodic monitoring, and responses to unilateral administrative orders issued by the EPA. NaN expenses were recorded related to the New Idria Mine in the quarter and six months ended June 30, 2020. Expenses of $4.0 million were recorded in the quarter and six months ended June 30, 2019. As of June 30, 2019,2020, the Company has a total reserve of $6.7$6.5 million related to the New Idria Mine, of which $1.1 million is classified in Other Current Liabilities and $5.6$5.4 million in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited) (long-term).
It is possible that adjustments to the aforementioned reserves will be necessary as new information is obtained, including after finalization and EPA approval of the work plan for the RI/FS. Estimates of the Company’s liability are based on current facts, laws, regulations and technology. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluation and cost estimates, the extent of remedial actions that may be required, the extent of oversight by the EPA and the number and financial condition of other PRPs that may be named, as well as the extent of their responsibility for the remediation.
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
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. NoNaN costs were incurred related to New Almaden in the quarters or six months ended June 30, 20192020 or 2018.2019. As of June 30, 2019,2020, the Company has a total reserve of $1.5 million related to the New Almaden Mine, of which $0.3 million is classified in Other Current Liabilities and $1.2 million in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited) (long-term).
17
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
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 4, 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 4, 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 for the quarter ended March 31, 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 the second quarter of 2018.
Lawn and Garden Lease Guarantee
In connection with the sale of the Lawn and Garden business, as described in Note 4, 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 4, 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 the third quarter of 2018. The carrying value of the lease contingency as of June 30, 2019 and December 31, 2018 was $10.6 million and $10.4 million, respectively, which represents the initial liability recorded plus accretion and is included in Other Liabilities on the Condensed Consolidated Statements of Financial Position (Unaudited).
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. A full schedule in the case has not yet issued. Scepter intends to defend itself vigorously in this matter. On December 28, 2019, Scepter filed petitions for inter partes review (“IPR”) of the two patents asserted by No Spill, Inc. in the District of Kansas litigation. The U.S. Patent & Trademark Office (“USPTO”) instituted one IPR and denied the other. For the instituted IPR, a final decision on the validity of the patent is expected by July 2021. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter, and is unable at this time to determine whether the outcome of the litigation will have a material impact on its results of operations, financial condition, or cash flows. Accordingly, the Company has not recorded any reserves for this matter.
1816
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
13. Long-Term Debt and Loan Agreements
Long-term debt consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
Loan Agreement |
| $ | �� |
|
| $ | — |
|
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 |
|
|
| 78,000 |
|
Less unamortized deferred financing costs |
|
| 1,017 |
|
|
| 1,210 |
|
|
| $ | 76,983 |
|
| $ | 76,790 |
|
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Loan Agreement |
| $ | — |
|
| $ | — |
|
4.67% Senior Unsecured Notes due January 15, 2021 |
|
| 40,000 |
|
|
| 40,000 |
|
5.25% Senior Unsecured Notes due January 15, 2024 |
|
| 11,000 |
|
|
| 11,000 |
|
5.30% Senior Unsecured Notes due January 15, 2024 |
|
| 15,000 |
|
|
| 15,000 |
|
5.45% Senior Unsecured Notes due January 15, 2026 |
|
| 12,000 |
|
|
| 12,000 |
|
|
|
| 78,000 |
|
|
| 78,000 |
|
Less unamortized deferred financing costs |
|
| 624 |
|
|
| 824 |
|
|
|
| 77,376 |
|
|
| 77,176 |
|
Less current portion long-term debt |
|
| 39,956 |
|
|
| — |
|
Long-term debt |
| $ | 37,420 |
|
| $ | 77,176 |
|
In March 2017, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Loan Agreement”). The Loan Agreement replacedamended the pre-existing $300 million senior revolving credit facility with afacility’s borrowing limit to $200 million, facilityinclusive of letters of credit, and extended the termmaturity date from December 2018 to March 2022. The Company also holds Senior Unsecured Notes (“Notes”), which 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. At June 30, 2019, $78 million of the Notes were outstanding.
Under the terms of the Loan Agreement, the Company may borrow up to $200 million, reduced for letters of credit issued. As of June 30, 2019,2020, the Company had $194.2 million available under the Loan Agreement. The Company had $5.8 million of letters of credit issued related to insurance and other contracts requiring financial assurance in the ordinary course of business, at June 30, 2019.including the $2 million provided to the EPA as discussed in Note 12. Borrowings under the Loan Agreement bear interest at the LIBOR rate, prime rate, federal funds effective rate, the Canadian deposit offered rate, or the euro currency reference rate depending on the type of loan requested by the Company, plus the applicable margin as set forth in the Loan Agreement.
The Company also holds Senior Unsecured Notes (“Notes”), which range in face value from $11 million to $40 million, with interest rates ranging from 4.67% to 5.45%, payable semiannually, and maturing between January 2021 and January 2026. At June 30, 2020, $78.0 million of the Notes were outstanding.
The weighted average interest rate on borrowings under the Company’s long-term debt was 6.27%6.28% and 5.82%6.27% for the quarters ended June 30, 20192020 and 2018,2019, respectively, and 6.25%6.26% and 5.55%6.25% for the six months ended June 30, 20192020 and 2018,2019, respectively, which includes a quarterly facility fee on the used and unused portion, as well as amortization of deferred financing costs.
As of June 30, 2019,2020, 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).
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 thusno benefits for service were no longer accumulated after this date.
Net periodic pension cost is as follows:
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Interest cost |
| $ | 60 |
|
| $ | 56 |
|
| $ | 120 |
|
| $ | 112 |
|
| $ | 48 |
|
| $ | 60 |
|
| $ | 96 |
|
| $ | 120 |
|
Expected return on assets |
|
| (46 | ) |
|
| (79 | ) |
|
| (92 | ) |
|
| (158 | ) |
|
| (51 | ) |
|
| (46 | ) |
|
| (102 | ) |
|
| (92 | ) |
Amortization of net loss |
|
| 24 |
|
|
| 21 |
|
|
| 48 |
|
|
| 42 |
|
|
| 20 |
|
|
| 24 |
|
|
| 40 |
|
|
| 48 |
|
Net periodic pension cost |
| $ | 38 |
|
| $ | (2 | ) |
| $ | 76 |
|
| $ | (4 | ) |
| $ | 17 |
|
| $ | 38 |
|
| $ | 34 |
|
| $ | 76 |
|
The Company expects to make a contributioncontributions to the plan of $30totaling $150 in 20192020.
1917
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The Company’s effective tax rate was 24.4% and 24.6% for the quarter and six months ended June 30, 2020, respectively, compared to 27.9% and 27.7% for the quarter and six months ended June 30, 2019, respectively, compared to 27.0% and 26.2% for the quarter and six months ended June 30, 2018, respectively. The effective income tax rate for both periods was different than the Company’s statutory rate, primarily due to state taxes and non-deductible expenses.
The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $1.0$1.1 million at June 30, 20192020 and December 31, 2018.2019.
The Company and its subsidiaries file U.S. Federal, state and local, and non-U.S. income tax returns. As of June 30, 2019,2020, the Company is no longer subject to U.S. Federal examination by tax authorities for tax years before 2015. The Company’s 2017 U.S. Federal tax return is currently under audit by the Internal Revenue Service (“IRS”). The Company is subject to state and local examinations for tax years of 20132015 through 2018. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 20142015 through 2018.2019.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. While the Company expects to realize certain benefits under the CARES Act and is continuing to evaluate its impacts, it does not believe the CARES Act will materially affect its consolidated financial statements.
16. Leases
The Company determines if an arrangement is a lease at inception. The Company has leases for manufacturing facilities, distribution centers, warehouses, office space and equipment, with remaining lease terms of one to nineeight years. Certain of these leases include options to extend the lease for up to five years, and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the statement of financial position; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Operating leases with an initial term greater than 12 months are included in right of use asset – operating leases (“ROU assets”), operating lease liability –short– short term, and operating lease liability – long term in the Condensed Consolidated Statement of Financial Position (Unaudited).
The ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease.payments. ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Company’sWhen leases do not provide an implicit rate, the Company uses itsCompany’s incremental borrowing rate is used, which is then applied at the portfolio level, based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The Company has also elected not to separate lease and non-lease components. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Companyoption will exercise that option.be exercised. Lease expense is recognized on a straight-line basis over the lease term.
Amounts included in the Condensed Consolidated Statement of Financial Position (Unaudited) related to leases include:
|
| June 30, |
|
| December 31, |
| ||||||
|
| June 30, 2019 |
|
| 2020 |
|
| 2019 |
| |||
Right of use asset - operating leases |
| $ | 5,983 |
|
| $ | 4,801 |
|
| $ | 5,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - short-term |
| $ | 2,000 |
|
| $ | 1,546 |
|
| $ | 2,057 |
|
Operating lease liability - long-term |
|
| 4,225 |
|
|
| 3,478 |
|
|
| 4,074 |
|
Total operating lease liabilities |
| $ | 6,225 |
|
| $ | 5,024 |
|
| $ | 6,131 |
|
The components of lease expense include:
|
|
|
| Quarter Ended |
|
| Six Months Ended |
| ||
Lease Cost |
| Classification |
| June 30, 2019 |
|
| June 30, 2019 |
| ||
Operating lease cost (1) |
| Cost of sales |
| $ | 442 |
|
| $ | 857 |
|
Operating lease cost (1) |
| Selling, general and administrative expenses |
|
| 426 |
|
|
| 897 |
|
Total lease cost |
|
|
| $ | 868 |
|
| $ | 1,754 |
|
|
|
2018
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The components of lease expense include:
|
|
|
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
Lease Cost |
| Classification |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating lease cost (1) |
| Cost of sales |
| $ | 435 |
|
| $ | 442 |
|
| $ | 834 |
|
| $ | 857 |
|
Operating lease cost (1) |
| Selling, general and administrative expenses |
|
| 427 |
|
|
| 426 |
|
|
| 868 |
|
|
| 897 |
|
Total lease cost |
|
|
| $ | 862 |
|
| $ | 868 |
|
| $ | 1,702 |
|
| $ | 1,754 |
|
(1) | Includes short-term leases and variable lease costs, which are immaterial |
Supplemental cash flow information related to leases was as follows:
|
| Six Months Ended |
|
| For the Six Months Ended June 30, |
| ||||||
Supplemental Cash Flow Information |
| June 30, 2019 |
|
| 2020 |
|
| 2019 |
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 1,149 |
|
| $ | 1,244 |
|
| $ | 1,149 |
|
Right-of-use assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| 1,037 |
|
| $ | — |
|
| $ | 1,037 |
|
Lease Term and Discount Rate |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Weighted-average remaining lease term (years): |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.13 |
|
|
| 4.23 |
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 5.0 | % |
|
| 5.0 | % |
Maturity of Lease Liabilities - As of June 30, 2020 |
| Operating Leases |
| |
2020 (1) |
| $ | 1,060 |
|
2021 |
|
| 1,339 |
|
2022 |
|
| 1,189 |
|
2023 |
|
| 1,016 |
|
2024 |
|
| 339 |
|
After 2024 |
|
| 621 |
|
Total lease payments |
|
| 5,564 |
|
Less: Interest |
|
| (540 | ) |
Present value of lease liabilities |
| $ | 5,024 |
|
|
| |||
| ||||
|
| |||
| ||||
|
|
|
Maturity of Lease Liabilities - As of June 30, 2019 |
| Operating Leases |
| |
2019 (1) |
| $ | 1,203 |
|
2020 |
|
| 1,805 |
|
2021 |
|
| 1,107 |
|
2022 |
|
| 1,051 |
|
2023 |
|
| 906 |
|
After 2023 |
|
| 897 |
|
Total lease payments |
|
| 6,969 |
|
Less: Interest |
|
| (744 | ) |
Present value of lease liabilities |
| $ | 6,225 |
|
(1) | Represents amounts due in |
Future minimum rental commitments (undiscounted) as ofIn December 31, 2018 under ASC 840 were 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 during the quarter ended March 31, 2018. The remaining $1.3 million was recognized ratably over the term of the ten-year lease at approximately $0.1 million per year, until January 1, 2019, upon the adoption of ASU 2016-02 as discussed in Note 1. Simultaneous with closing the sale, the Company entered into an agreement where a ten-year operatingnew manufacturing and distribution facility in Bristol, Indiana will be constructed, and when it is substantially complete, the Company will lease arrangementthat new facility and sell its existing facility in Bristol, Indiana. As described in Note 6, this agreement was in connection with the Ameri-Kart Plan, which includes facility consolidation for this business within the Material Handling Segment. This lease is not included in the tables disclosed above because it has not yet commenced; it commences when the facility is substantially complete, which is expected to be in the second half of 2020. Upon commencement, the lease has an initial term of fifteen years with base annual rent of approximately $0.1$0.8 million during the first year, followed by annualyear. Inclusive of scheduled increases of 3% through the remaindertotal expected future minimum lease payments during the initial term of the lease period. This facility is included inapproximately $13.5 million, but may vary depending on the Company’s Distribution Segment.actual cost of certain construction activities. At commencement of this lease, the Company expects assets and liabilities within the Consolidated Statement of Financial Position to each increase by approximately $9 million.
2119
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Using the criteria of ASC 280, Segment Reporting, theThe Company manages its business under two2 operating segments, Material Handling and Distribution, consistent with the manner in which ourthe Chief Operating Decision Maker (“CODM”) evaluates performance and makes resource allocation decisions. None of the reportable segments include operating segments that have been aggregated. These segments contain individual business components that have been combined on the basis of common management, customers, products, production processes and other economic characteristics. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.
The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products and rotationally-molded plastic tanks for water, fuel and waste handling. This segment conducts its primary operations in the United States and Canada. Markets served encompass various niches ofinclude industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, 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 also manufactures and sells certain traffic markings, including reflective highway marking tape. The Distribution Segment operates domestically through its sales offices and fourfive regional distribution centers in the United States, and in certain foreign countries through export sales. In addition, the Distribution Segment operates directly in certain foreign markets, principally Central America, through foreign branch operations. Markets served include retail and truck tire dealers, commercial auto and truck fleets, auto dealers, general service and repair centers, tire retreaders, and government agencies. The acquisition of Tuffy, described in Note 3, is included in the Distribution Segment.
Total sales from foreign business units were approximately $11.4$9.2 million and $13.1$11.4 million for the quarters ended June 30, 20192020 and 2018,2019, respectively, and $24.2$18.2 million and $24.6$24.2 million for the six months ended June 30, 20192020 and 2018, respectively.2019.
Summarized segment detail for the quarters and six months ended June 30, 20192020 and 20182019 are presented in the following table:
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| For the Quarter Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material Handling | $ | 95,902 |
|
| $ | 103,130 |
|
| $ | 198,853 |
|
| $ | 219,939 |
| $ | 80,855 |
|
| $ | 95,902 |
|
| $ | 164,931 |
|
| $ | 198,853 |
|
Distribution |
| 38,395 |
|
|
| 37,477 |
|
|
| 74,569 |
|
|
| 73,258 |
|
| 37,541 |
|
|
| 38,395 |
|
|
| 75,736 |
|
|
| 74,569 |
|
Inter-company sales |
| (12 | ) |
|
| (47 | ) |
|
| (22 | ) |
|
| (69 | ) |
| (2 | ) |
|
| (12 | ) |
|
| (23 | ) |
|
| (22 | ) |
Total net sales | $ | 134,285 |
|
| $ | 140,560 |
|
| $ | 273,400 |
|
| $ | 293,128 |
| $ | 118,394 |
|
| $ | 134,285 |
|
| $ | 240,644 |
|
| $ | 273,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Material Handling | $ | 17,589 |
|
| $ | 17,323 |
|
| $ | 33,796 |
|
| $ | 34,053 |
| $ | 15,796 |
|
| $ | 17,589 |
|
| $ | 30,963 |
|
| $ | 33,796 |
|
Distribution |
| 3,328 |
|
|
| 2,786 |
|
|
| 3,541 |
|
|
| 4,524 |
|
| 1,636 |
|
|
| 3,328 |
|
|
| 3,486 |
|
|
| 3,541 |
|
Corporate |
| (10,735 | ) |
|
| (6,998 | ) |
|
| (16,937 | ) |
|
| (13,444 | ) |
| (5,176 | ) |
|
| (10,735 | ) |
|
| 1,105 |
|
|
| (16,937 | ) |
Total operating income |
| 10,182 |
|
|
| 13,111 |
|
|
| 20,400 |
|
|
| 25,133 |
|
| 12,256 |
|
|
| 10,182 |
|
|
| 35,554 |
|
|
| 20,400 |
|
Interest expense, net |
| (1,017 | ) |
|
| (1,313 | ) |
|
| (2,066 | ) |
|
| (2,952 | ) |
| (1,194 | ) |
|
| (1,017 | ) |
|
| (2,263 | ) |
|
| (2,066 | ) |
Income from continuing operations before income taxes | $ | 9,165 |
|
| $ | 11,798 |
|
| $ | 18,334 |
|
| $ | 22,181 |
| $ | 11,062 |
|
| $ | 9,165 |
|
| $ | 33,291 |
|
| $ | 18,334 |
|
(1) | Corporate results for the six months ended June 30, 2020 include the $11.9 million gain on sale of notes receivable as described in Note 5 and results for the quarter and six months ended June 30, 2019 include the $4.0 million environmental charge as described in Note 12. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the information incorporated by reference contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including information regarding the Company’s financial outlook, future plans, objectives, business prospects and anticipated financial performance. Forward-looking statements can be identified by words such as “will,” “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” or variations of these words, or similar expressions. These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, these statements inherently involve a wide range of inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. The Company’s actual actions, results, and financial condition may differ materially from what is expressed or implied by the forward-looking statements.
Specific factors that could cause such a difference include, without limitation, impacts from the novel coronavirus (COVID-19) pandemic on our business, operations, customers and capital position; the impact of COVID-19 on local, national and global economic conditions; the effects of various governmental responses to the COVID-19 pandemic; raw material availability, increases in raw material costs, or other production costs; risks associated with our strategic growth initiatives or the failure to achieve the anticipated benefits of such initiatives; unanticipated downturn in business relationships with customers or their purchases; competitive pressures on sales and pricing; changes in the markets for the Company’s business segments; changes in trends and demands in the markets in which the Company competes; operational problems at our manufacturing facilities or unexpected failures at those facilities; future economic and financial conditions in the United States and around the world; inability of the Company to meet future capital requirements; claims, litigation and regulatory actions against the Company; changes in laws and regulations affecting the Company; and other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019 as updated in Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q. Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.
Executive Overview
The Company conducts its business activities in two distinctreportable segments: The Material Handling Segment and the Distribution Segment. The former Brazil Business, which was sold in December 2017, and the Lawn and Garden business, which was sold in February 2015, areis classified as discontinued operations in all periods presented.
The Company designs, manufactures, and markets a variety of plastic and rubber products. The Material Handling Segment manufactures products that range from plastic reusable material handling containers and small parts storage bins to plastic OEM parts, custom plastic products, consumer fuel containers, military water containers as well as ammunition packaging and shipping containers. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading productsproducts.
The Company’s results of operations for the quarter and six months ended June 30, 2020 are discussed below. However, the Company’s past results of operations may not reflect its future operating trends. In March 2020, the COVID-19 pandemic began to affect the U.S. economy and has created additional uncertainty for the Company’s operations, particularly for the remainder of 2020. Regulatory actions in response to COVID-19 have varied across jurisdictions and have included closure of nonessential businesses. The duration and extent of these measures is unknown, including possible reimplementation of any measures that have been removed or relaxed. Through the date of this report, most of the Company’s businesses are considered essential because they supply food and agricultural, automotive, healthcare, industrial and consumer end markets. Accordingly, those businesses have continued to operate. However, two manufacturing facilities of our Ameri-Kart business in the Material Handling segment and our Distribution business in Central America were temporarily closed in part of March and April 2020 due to the regulatory requirements resulting from the pandemic. Beyond the impact of these temporary closures, some of our businesses have been and may continue to be affected by the broader economic effects from COVID-19 and related regulatory actions, including customer demand for our products. The Company’s results in the second quarter of 2020 reflect this volatility with lower demand for our products in the beginning of the quarter and then improving towards the end of the quarter for most end-markets. The Company believes it is well-positioned to manage through this uncertainty – it has a strong balance sheet, with sufficient liquidity and borrowing capacity, and a diverse product offering and customer base.
Results of Operations:
Comparison of the Quarter Ended June 30, 20192020 to the Quarter Ended June 30, 20182019
Net Sales:
(dollars in millions) |
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||
Segment |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||||||
Material Handling |
| $ | 95.9 |
|
| $ | 103.1 |
|
| $ | (7.2 | ) |
|
| (7 | )% |
| $ | 80.9 |
|
| $ | 95.9 |
|
| $ | (15.0 | ) |
|
| (16 | )% |
Distribution |
|
| 38.4 |
|
|
| 37.5 |
|
|
| 0.9 |
|
|
| 2 | % |
|
| 37.5 |
|
|
| 38.4 |
|
|
| (0.9 | ) |
|
| (2 | )% |
Inter-company sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Total net sales |
| $ | 134.3 |
|
| $ | 140.6 |
|
| $ | (6.3 | ) |
|
| (4 | )% |
| $ | 118.4 |
|
| $ | 134.3 |
|
| $ | (15.9 | ) |
|
| (12 | )% |
Net sales for the quarter ended June 30, 20192020 were $134.3$118.4 million, a decrease of $6.3$15.9 million or 4%12% compared to the quarter ended June 30, 2018.2019. Net sales were negatively impacted by lower sales volume, primarily in the Material Handling Segment, of $7.1$19.9 million, lower pricing of $0.7 million, and the effect of unfavorable currency translation of $0.3 million, and were partially offset by higher pricing$5.0 million of incremental sales due to the Tuffy acquisition in the Distribution Segment on August 26, 2019. Tuffy’s historical annual sales are approximately $1.1$20 million.
Net sales in the Material Handling Segment decreased $7.2$15.0 million or 7%16% for the quarter ended June 30, 20192020 compared to the quarter ended June 30, 2018.2019. The decrease in net sales was due to lower sales volume of $7.9$14.0 million, lower pricing of $0.7 million, and the effect of unfavorable foreign currency translation of $0.3 million, partially offset by higher pricing of $1.0 million. The lower sales volume was primarily due to declines in the consumervehicle market, food and beverage market and the vehicleindustrial market (mainlyand was partially offset by higher volume in the recreational vehicle market).consumer market.
Net sales in the Distribution Segment increaseddecreased $0.9 million or 2% for the quarter ended June 30, 20192020 compared to the quarter ended June 30, 2018,2019, primarily theas a result of higher saleslower volume of $0.8$5.9 million and higher pricingpartially offset by $5.0 million of $0.1 million.
incremental sales due to the Tuffy acquisition on August 26, 2019.
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||||||
Cost of sales |
| $ | 87.3 |
|
| $ | 92.6 |
|
| $ | (5.3 | ) |
|
| (6 | )% |
| $ | 75.8 |
|
| $ | 87.3 |
|
| $ | (11.5 | ) |
|
| (13 | )% |
Gross profit |
| $ | 46.9 |
|
| $ | 48.0 |
|
| $ | (1.1 | ) |
|
| (2 | )% |
| $ | 42.6 |
|
| $ | 46.9 |
|
| $ | (4.3 | ) |
|
| (9 | )% |
Gross profit as a percentage of sales |
|
| 35.0 | % |
|
| 34.1 | % |
|
|
|
|
|
|
|
|
|
| 36.0 | % |
|
| 35.0 | % |
|
|
|
|
|
|
|
|
Gross profit margin increased to 35.0%36.0% in the quarter ended June 30, 20192020 compared to 34.1%35.0% for the quarter ended June 30, 2018,2019, primarily due to higher pricing of $1.1 million and lower commodity raw material costs. This was partiallycosts offsetting the effect of lower volumes.
Gross profit decreased $4.3 million, or 9%, primarily due to lower volume as described under Net Sales above, partly offset by unfavorable mix within the lower sales volumes noted above.commodity raw material costs.
Selling, General and Administrative Expenses:
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||||||
SG&A expenses |
| $ | 36.8 |
|
| $ | 34.5 |
|
| $ | 2.3 |
|
|
| 7 | % |
| $ | 30.3 |
|
| $ | 36.8 |
|
| $ | (6.5 | ) |
|
| (18 | )% |
SG&A expenses as a percentage of sales |
|
| 27.4 | % |
|
| 24.5 | % |
|
|
|
|
|
|
|
|
|
| 25.6 | % |
|
| 27.4 | % |
|
|
|
|
|
|
|
|
Selling, general and administrative (“SG&A”) expenses for the quarter ended June 30, 20192020 were $36.8$30.3 million, an increasea decrease of $2.3$6.5 million or 7%18% compared to the same period in the prior year. SG&A expenses in the second quarter 2019 were impacted primarily byincluded a $4.0 million charge related to the environmental contingencies discussed in Note 12. This was partially offset byYear-over-year comparisons were also affected by: lower compensation and benefit costs of $1.2$1.0 million, mainly due to actions taken underlower travel expenses of $0.9 million, lower freight of $0.3 million and savings from the Distribution Transformation Plan, that were partly offset by $0.9 million of incremental SG&A from the August 26, 2019 Tuffy acquisition.
Net Interest Expense:
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||
Net interest expense |
| $ | 1.2 |
|
| $ | 1.0 |
|
| $ | 0.2 |
|
|
| 20 | % |
Average outstanding borrowings, net |
| $ | 78.0 |
|
| $ | 78.0 |
|
| $ | 0.0 |
|
|
| 0 | % |
Weighted-average borrowing rate |
|
| 6.28 | % |
|
| 6.27 | % |
|
|
|
|
|
|
|
|
Net interest expense for the quarter ended June 30, 2020 was $1.2 million, an increase of $0.2 million, or 20%, compared with $1.0 million for the quarter ended June 30, 2019. The higher net interest expense was due primarily to lower interest income in the current year.
Income Taxes:
|
| Quarter Ended June 30, |
| |||||
(dollars in millions) |
| 2020 |
|
| 2019 |
| ||
Income from continuing operations before income taxes |
| $ | 11.1 |
|
| $ | 9.2 |
|
Income tax expense |
| $ | 2.7 |
|
| $ | 2.6 |
|
Effective tax rate |
|
| 24.4 | % |
|
| 27.9 | % |
The Company’s effective tax rate was 24.4% for the quarter ended June 30, 2020, compared to 27.9% for the quarter ended June 30, 2019. The decrease in the effective tax rate was primarily the result of lower non-deductible expenses. Refer to Note 15.
Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019
Net Sales:
(dollars in millions) |
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
Segment |
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||
Material Handling |
| $ | 164.9 |
|
| $ | 198.8 |
|
| $ | (33.9 | ) |
|
| (17 | )% |
Distribution |
|
| 75.7 |
|
|
| 74.6 |
|
|
| 1.1 |
|
|
| 1 | % |
Inter-company elimination |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Total net sales |
| $ | 240.6 |
|
| $ | 273.4 |
|
| $ | (32.8 | ) |
|
| (12 | )% |
Net sales for the six months ended June 30, 2020 were $240.6 million, a decrease of $32.8 million or 12% compared to the six months ended June 30, 2019. Net sales were negatively impacted by lower volume, primarily in the Material Handling Segment, of $40.4 million, lower pricing of $1.9 million, and the effect of unfavorable currency translation of $0.4 million, and were partially offset by $9.9 million of incremental sales due to the Tuffy acquisition, in the Distribution Segment, on August 26, 2019. Tuffy’s historical annual sales are approximately $20 million.
Net sales in the Material Handling Segment decreased $33.9 million or 17% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The decrease in net sales was due to lower volume of $31.6 million, lower pricing of $1.9 million, and the effect of unfavorable currency translation of $0.4 million. The lower volume was primarily due to declines in the vehicle market, food and beverage market and the industrial market and was partially offset by higher volume in the consumer market
Net sales in the Distribution Segment increased $1.1 million or 1% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily the result of $9.9 million of incremental sales due to the August 26, 2019 Tuffy acquisition partly offset by $8.8 million of lower volume.
Cost of Sales & Gross Profit:
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||
Cost of sales |
| $ | 155.6 |
|
| $ | 180.9 |
|
| $ | (25.3 | ) |
|
| (14 | )% |
Gross profit |
| $ | 85.1 |
|
| $ | 92.5 |
|
| $ | (7.4 | ) |
|
| (8 | )% |
Gross profit as a percentage of sales |
|
| 35.3 | % |
|
| 33.8 | % |
|
|
|
|
|
|
|
|
Gross profit margin increased to 35.3% in the six months ended June 30, 2020 compared to 33.8% for the six months ended June 30, 2019, primarily due to lower commodity raw material costs offsetting the effect of lower volumes.
Gross profit decreased $7.4 million, or 8%, primarily due to lower volume as described under Net Sales above, partly offset by lower commodity raw material costs.
Selling, General and Administrative Expenses:
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||
SG&A expenses |
| $ | 61.4 |
|
| $ | 71.3 |
|
| $ | (9.9 | ) |
|
| (14 | )% |
SG&A expenses as a percentage of sales |
|
| 25.5 | % |
|
| 26.1 | % |
|
|
|
|
|
|
|
|
SG&A expenses for the six months ended June 30, 2020 were $61.4 million, a decrease of $9.9 million or 14% compared to the same period in the prior year. SG&A expenses in the second quarter 2019 included a $4.0 million charge related to the environmental contingencies discussed in Note 12 and $0.9 million of restructuring costs incurred in the prior year related to the implementation of the Distribution Transformation Plan that did not reoccur in 2020. Year-over-year comparisons were also affected by: lower compensation and benefit costs of $3.0 million, lower travel expenses of $1.0 million, lower freight costs of $0.6 million.$0.8 million and savings from the Distribution Transformation Plan, that were partly offset by $1.8 million of incremental SG&A from the August 26, 2019 Tuffy acquisition.
Restructuring:
As discussed in Note 5,6, the Company has implemented various restructuring programs.
TheIn the Material Handling Segment, the Ameri-Kart Plan was announced during the first quarterinvolves consolidation of 2019two manufacturing facilities into a single new manufacturing facility, and is expected to be substantially completed in the first halfquarter of 2020. No2021. In connection with this plan, the Company plans to commence a new facility lease once construction of the new facility is substantially completed, as described in Note 16. Although construction has commenced, no restructuring costs were incurred during the quartersix months ended June 30, 2020 or 2019 related to the Ameri-Kart Plan. As previously announced, the Company expects annualized benefits of approximately $1.5 million upon completion.
The Distribution Transformation Plan was announced during the first quarter of 2019 and is expected to bewas substantially completed by the end of 2019. No costs were incurred in connection with the Distribution Transformation Plan during the quarter ended June 30, 2019. As previously announced, the Company expects annualized benefits of $5 to $7 million after 2019.
The Material Handling Plan was initiated in the first quarter of 2017 and is completed.
Net Interest Expense:
|
| Quarter Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
| ||||
Net interest expense |
| $ | 1.0 |
|
| $ | 1.3 |
|
| $ | (0.3 | ) |
|
| (23 | )% |
Average outstanding borrowings, net |
| $ | 78.0 |
|
| $ | 114.5 |
|
| $ | (36.5 | ) |
|
| (32 | )% |
Weighted-average borrowing rate |
|
| 6.27 | % |
|
| 5.82 | % |
|
|
|
|
|
|
|
|
Net interest expense for the quarter ended June 30, 2019 was $1.0 million, a decrease of $0.3 million, or 23%, compared with $1.3 million for the quarter ended June 30, 2018. The lower interest expense was due primarily to the lower average outstanding borrowings for the period. The lower borrowings were driven by cash flow from operations and the proceeds generated by the public equity offering completed in the second quarter of 2018.
|
| Quarter Ended June 30, |
| |||||
(dollars in millions) |
| 2019 |
|
| 2018 |
| ||
Income from continuing operations before income taxes |
| $ | 9.2 |
|
| $ | 11.8 |
|
Income tax expense |
| $ | 2.6 |
|
| $ | 3.2 |
|
Effective tax rate |
|
| 27.9 | % |
|
| 27.0 | % |
The Company’s effective tax rate was 27.9% for the quarter ended June 30, 2019, compared to 27.0% for the quarter ended June 30, 2018. The effective tax rate was slightly higher in 2019, primarily due to higher estimates of state taxes and non-deductible expenses.
Comparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018
Net Sales:
(dollars in millions) |
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
Segment |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
| ||||
Material Handling |
| $ | 198.8 |
|
| $ | 219.9 |
|
| $ | (21.1 | ) |
|
| (10 | )% |
Distribution |
|
| 74.6 |
|
|
| 73.3 |
|
|
| 1.3 |
|
|
| 2 | % |
Inter-company elimination |
|
| — |
|
|
| (0.1 | ) |
|
| 0.1 |
|
|
|
|
|
Total net sales |
| $ | 273.4 |
|
| $ | 293.1 |
|
| $ | (19.7 | ) |
|
| (7 | )% |
Net sales for the six months ended June 30, 2019 were $273.4 million, a decrease of $19.7 million or 7% compared to the six months ended June 30, 2018. Net sales were negatively impacted by lower sales volume of $21.6 million and the effect of unfavorable currency translation of $1.0 million, and were partially offset by higher pricing of approximately $2.9 million.
Net sales in the Material Handling Segment decreased $21.1 million or 10% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease in net sales was due to lower sales volume of $22.7 million and the effect of unfavorable foreign currency translation of $1.0 million, partially offset by higher pricing of approximately $2.6 million. The lower sales volume was primarily due to declines in the food and beverage market and the vehicle market (mainly in the recreational vehicle market).
Net sales in the Distribution Segment increased $1.3 million or 2% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily the result of higher sales volume of $1.0 million and higher pricing of $0.3 million.
Cost of Sales & Gross Profit:
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
| ||||
Cost of sales |
| $ | 180.9 |
|
| $ | 198.0 |
|
| $ | (17.1 | ) |
|
| (9 | )% |
Gross profit |
| $ | 92.5 |
|
| $ | 95.1 |
|
| $ | (2.6 | ) |
|
| (3 | )% |
Gross profit as a percentage of sales |
|
| 33.8 | % |
|
| 32.4 | % |
|
|
|
|
|
|
|
|
Gross profit margin increased to 33.8% in the six months ended June 30, 2019 compared to 32.4% for the six months ended June 30, 2018, primarily due to higher pricing of $2.9 million and lower raw material costs. This was partially offset by unfavorable mix within the lower sales volumes noted above.
Selling, General and Administrative Expenses:
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
| ||||
SG&A expenses |
| $ | 71.3 |
|
| $ | 70.0 |
|
| $ | 1.3 |
|
|
| 2 | % |
SG&A expenses as a percentage of sales |
|
| 26.1 | % |
|
| 23.9 | % |
|
|
|
|
|
|
|
|
SG&A expenses for the six months ended June 30, 2019 were $71.3 million, an increase of $1.3 million or 2% compared to the same period in the prior year. SG&A expenses in 2019 were primarily impacted by a $4.0 million charge related to the environmental contingencies discussed in Note 12 and by restructuring2020. Restructuring costs of $0.9 million incurred in the current year related to the Distribution Transformation Plan. This was partially offset by lower compensation and benefit costs of $1.9 million, mainly due to actions taken under the Distribution Transformation Plan, as well as lower freight costs of $1.1 million and lower legal and professional fees of $0.7 million.
Restructuring:
As discussed in Note 5, the Company has implemented various restructuring programs.
The Ameri-Kart Plan was announced during the first quarter of 2019 and is expected to be substantially completed in the first half of 2020. No costs were incurred during the six months ended June 30, 2019 related to the Ameri-Kart Plan. As previously announced, the Company expects annualized benefits of approximately $1.5 million upon completion.
The Distribution Transformation Plan was announced during the first quarter of 2019 and is expected to be substantially completed by the end of 2019. The Company incurred $0.9 million of restructuring costs in connection with the Distribution Transformation Plan during the six months ended June 30, 2019. As previously announced, the Company expects annualized benefits of $5 to $7 million after 2019.
The Material Handling Plan was initiated in the first quarter of 2017 and is completed. No costs were incurred during the six months ended June 30, 2019 compared to $0.1 million of restructuring costs incurred in connection with the Material Handling Plan during the six months ended June 30, 2018.
(Gain) Loss on Disposal of Fixed Assets:
The gain on disposal of fixed assets for the six months ended June 30, 2019 was $0.1 million compared to a gain of $0.3 million in the prior year. The gain in 2018 was primarily due to the sale and leaseback of the distribution center in Pomona, California, as discussed in Note 16.
Impairment Charges:
During the six months ended June 30, 2019, the Company recognized ana $0.9 million impairment charge of $0.9 million compared to $0.3 million in the prior year. The impairment in 2019 primarily related to a facility that was previously closed in connection with the Material Handling Plan and reclassifiedclassifying a previously-closed facility as held for sale. See further discussion in Note 4.
Gain on Sale of Notes Receivable:
During the six months ended June 30, 2020, the Company recorded a pre-tax gain of $11.9 million related to the sale duringto HC of the first quarterfully-reserved promissory notes and related accrued interest receivable in exchange for $1.2 million and the release from a lease guarantee with a carrying value of 2019,$10.7 million related to one of HC’s facilities as discussed in Note 5.
Net Interest Expense:
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
|
|
|
|
|
|
|
|
| ||||||||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| Change |
|
| % Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| % Change |
| ||||||||
Net interest expense |
| $ | 2.1 |
|
| $ | 3.0 |
|
| $ | (0.9 | ) |
|
| (30 | )% |
| $ | 2.3 |
|
| $ | 2.1 |
|
| $ | 0.2 |
|
|
| 10 | % |
Average outstanding borrowings, net |
| $ | 78.0 |
|
| $ | 131.6 |
|
| $ | (53.6 | ) |
|
| (41 | )% |
| $ | 78.0 |
|
| $ | 78.0 |
|
| $ | 0.0 |
|
|
| 0 | % |
Weighted-average borrowing rate |
|
| 6.25 | % |
|
| 5.55 | % |
|
|
|
|
|
|
|
|
|
| 6.26 | % |
|
| 6.25 | % |
|
|
|
|
|
|
|
|
Net interest expense for the six months ended June 30, 20192020 was $2.1$2.3 million, a decreasean increase of $0.9$0.2 million, or 30%10%, compared with $3.0$2.1 million during the six months ended June 30, 2018.2019. The lowerhigher interest expense was due primarily to the lower average outstanding borrowings during the six months ended June 30, 2019 as compared to the same period in 2018. The lower borrowings were driven by cash flow from operations and the proceeds generated by the public equity offering completedinterest income in the second quarter of 2018.
current year.
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(dollars in millions) |
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Income from continuing operations before income taxes |
| $ | 18.3 |
|
| $ | 22.2 |
|
| $ | 33.3 |
|
| $ | 18.3 |
|
Income tax expense |
| $ | 5.1 |
|
| $ | 5.8 |
|
| $ | 8.2 |
|
| $ | 5.1 |
|
Effective tax rate |
|
| 27.7 | % |
|
| 26.2 | % |
|
| 24.6 | % |
|
| 27.7 | % |
The Company’s effective tax rate was 24.6% for the six months ended June 30, 2020, compared to 27.7% for the six months ended June 30, 2019, compared to 26.2% for2019. The decrease in the six months ended June 30, 2018. The effective tax rate was slightly higher in 2019, primarily due to higher estimatesthe result of state taxes andlower non-deductible expenses. Refer to Note 15.
Discontinued Operations:
Income from discontinued operations, net of income taxes was $0.1 million for the six months ended June 30, 2019 compared to a loss of $0.9 million for the six months ended June 30, 2018. The loss in 2018 related to a charge of $0.9 million, net of tax of $0.3 million, as a result of agreement on the material terms of a settlement with the L&G Buyer related to the indemnification claims discussed in Note 12.
Financial Condition, Liquidity and Capital Resources:
The Company’s primary sources of liquidity are cash on hand, cash generated from its operatingoperations and financing activities. The cash flows from operating activities are driven primarily byavailability under the Company’s operating results and changes in its working capital requirements which is supplemented by the Company’s utilization of its current credit facilities. In addition,Loan Agreement (defined below). At June 30, 2020, the Company completed a public equity offering in the second quarter of 2018 that generated $79.5had $72.3 million of net proceeds. Thecash, $194.2 million available under the Loan Agreement and outstanding debt with face value of $78.0 million. Based on this liquidity and borrowing capacity, the Company used a portion ofbelieves it is well-positioned to manage through 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.
uncertainty caused by COVID-19. The Company believes that cash on hand, cash flows from operations and available borrowingcapacity 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.growth, including selective acquisitions.
Operating Activities
Net cash provided by operating activities from continuing operations was $16.2$11.8 million for the six months ended June 30, 2019,2020, compared to $27.2$16.2 million in the same period in 2018.2019. The decrease was primarily due to changes in working capital of $12.4 million, which was primarily driven by a higher variable compensation payout, timing of collections from customers and lower volume with third party subcontractors in 2019.of sales.
Net cash provided by operating activities from discontinued operations was $7.3 million in 2019 and resulted from the remaining receipt of the tax benefit from the worthless stock deduction related to the Brazil Business (see Note 4). Net cash flows provided by discontinued operations in 2018 resulted from the the 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 federal tax payments in 2018 by $4.3 million. This was partially offset by the payment of expenses related to the sale of the Brazil Business and the payment of the settlement with the L&G Buyer.in 2017.
Investing Activities
Net cash providedused by investing activities fromof continuing operations was $5.1 million for the six months ended June 30, 2020 compared to cash provided of $3.1 million for the six months ended June 30, 2019. In 2020, the Company paid the working capital adjustment of $0.7 million related to the 2019 comparedacquisition of Tuffy discussed in Note 3, and received proceeds from the sale of notes receivable of $1.2 million as discussed in Note 5. In 2019, the Company received proceeds from the sale of fixed assets of $7.5 million, substantially all of which related to cash providedthe sale of $0.3two buildings as discussed in Note 4. Capital expenditures were $5.6 million and $4.4 million for the six months ended June 30, 2018. Capital expenditures were $4.4 million2020 and $2.3 million for the six months ended June 30, 2019, and 2018, respectively. Full year 2020 capital expenditures in 2019 are expected to be approximately $10$15 million. The Company received proceeds of $7.5 million in the first half of 2019 from the sale of fixed assets, substantially all of which was derived from the sale of two buildings previously classified as held for sale, as discussed in Note 3 and Note 5. The Company received proceeds of $2.6 million in the first half of 2018 from the sale of fixed assets, which were primarily due to the sale and leaseback of the distribution center in Pomona, California, as discussed in Note 16.
The Company received net proceeds of $79.5 million from the public offering of common stock in 2018. Net payments on the credit facility were $72.5 million for the six months ended June 30, 2018. There were no net payments or borrowings on the credit facility for the six months ended June 30, 2020 or 2019. The Company used cash to pay dividends of $9.7 million and $8.3 million for each of the six months ended June 30, 20192020 and 2018, respectively.2019.
Credit Sources
In March 2017, the Company entered into a Fifth Amended and Restated Loan Agreement (the “Loan Agreement”). The Loan Agreement replacedamended the pre-existing $300 million senior revolving credit facility with afacility’s borrowing limit to $200 million, facilityinclusive of letters of credit, and extended the termmaturity date from December 2018 to March 2022. TheAs of June 30, 2020, the Company also holdshad $5.8 million of letters of letters of credit issued related to insurance and other financing contracts in the ordinary course of business, including the $2 million provided to the EPA as described in Note 12, and there was $194.2 million available under our Loan Agreement. 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.
At June 30, 2020, $78 million face value of Senior Unsecured Notes (“Notes”), whichare outstanding. 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 January 15, 2021 and 2026. At June 30, 2019, $78The $40 million note of thethese Senior Unsecured Notes were outstanding.
Total debt outstanding at June 30, 2019 was $77.0 million, net of $1.0 million of deferred financing costs, compared with $76.8 million at December 31, 2018. The Company’s Loan Agreement provides available borrowing up to $200 million, reduced for letters of credit issued. As of June 30, 2019, the Company had $5.8 million of letters of credit issued related to insurance and other contracts requiring financial assurance in the ordinary course of business and there was $194.2 million available under our Loan Agreement.is due January 15, 2021.
As of June 30, 2019,2020, the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company’s debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a leverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of and for the period ended June 30, 20192020 are shown in the following table:
|
| Required Level |
| Actual Level |
| |
Interest Coverage Ratio |
| 3.00 to 1 (minimum) |
|
|
|
|
Leverage Ratio |
| 3.25 to 1 (maximum) |
|
|
|
|
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonablereasonably expected to have, a material current or future effect on its financial condition, changes in financial condition, revenuesresults of operations, liquidity, capital expenditures or capital resources that are material.resources.
Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk
Interest Rate Risk
The Company has certain financing arrangements that require interest payments based on floating interest rates. Therates, and to that extent, the Company’s financial results are subject to changes in the market rate of interest. 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 June 30, 2019,2020, 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 U.S. dollar sales made from businesses in Canada to customers in the United States (“U.S.”). These sales are denominated in U.S. dollars.States. The Company has a systematic program to limit its exposure to fluctuations in exchange rates related to certain assets and liabilities of its operations in Canada 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 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 Condensed Consolidated Statements of Operations (Unaudited). The Company’s foreign currency arrangements are typically three months or less and are settled before the end of a reporting period. At June 30, 2019,2020, the Company had no foreign currency arrangements or contracts in place.
Commodity Price Risk
The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. The cost of operations can be affected as the market for these commodities changes. The Company currently has no derivative contracts to hedge this risk; however, the Company also has no significant purchase obligations to purchase fixed quantities of such commodities in future periods. Significant future increases in the cost of plastic resin or other adverse changes in the general economic environment could have a material adverse impact on the Company’s financial position, results of operations or cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’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 June 30, 2019.2020.
Changes in Internal Control Over Financial Reporting
During the six months ended June 30, 2019,2020, there have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Certain legal proceedings in which the Company is involved are discussed in Note 12, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report, and Part I, Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.2019. The Company’s disclosures relating to legal proceedings in Note 12, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report is incorporated into Part II of this report by reference. The Company is a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in part by insurance. We believe that the outcome of these lawsuits and other proceedings will not individually or in the aggregate have a future material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
For a discussion of risk factors related to the Company, refer to Part 1, Item 1A, “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The following risk factor should be read in conjunction with the risk factors described in the Annual Report on Form 10-K.
The COVID-19 pandemic could negatively affect our business, financial position, results of operations and/or liquidity.
In December 2019, a strain of coronavirus (COVID-19) first surfaced in Wuhan, China, and has since been labeled a pandemic and has spread rapidly to other areas of the world, including our primary markets. Regulatory actions in response to the COVID-19 pandemic have included closure of nonessential businesses and other requirements to maintain social distance and limit further spread of the coronavirus. Through the date of this report, most of our businesses are considered essential because they supply food and agricultural, automotive, healthcare, industrial and consumer end markets. Accordingly, these businesses have continued to operate. However, two manufacturing facilities of our Ameri-Kart business in the Material Handling segment and our Distribution business in Central America were temporarily closed due to the regulatory requirements resulting from the pandemic. Beyond the impact of these temporary closures, some of our businesses have been and may continue to be affected by the broader economic effects from the COVID-19 and related regulatory actions, including customer demand for our products. While we have so far been able to source required materials and products at reasonable cost, the pandemic may also affect our supply chain in ways that are beyond our control. We may also incur costs or experience further disruption to comply with new or changing regulations in response to the pandemic.
The overall magnitude of the COVID-19 pandemic, including the extent of its direct and indirect impact on our business, financial position, results of operations or liquidity is inherently uncertain due to the rapid development and fluidity of the situation. Further, the ultimate impact of the COVID-19 pandemic depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the COVID-19 pandemic; the severity and duration of outbreaks of the virus; the impact of the COVID-19 pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery, particularly in our end markets, when the COVID-19 pandemic subsides.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c)The following table presents information regarding the Company’s stock repurchase plan during the quarter ended June 30, 20192020.
|
| 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) |
| ||||
4/1/2019 to 4/30/2019 |
|
| — |
|
| $ | — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
5/1/2019 to 5/31/2019 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
6/1/2019 to 6/30/2019 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
|
| 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) |
| ||||
4/1/2020 to 4/30/2020 |
|
| — |
|
| $ | — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
5/1/2020 to 5/31/2020 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
6/1/2020 to 6/30/2020 |
|
| — |
|
|
| — |
|
|
| 5,547,665 |
|
|
| 2,452,335 |
|
(1) | On July 11, 2013, the Board authorized the repurchase of up to 5.0 million shares of the Company’s common stock. This authorization was in addition to the 2011 Board authorized repurchase of up to 5.0 million shares. The Company completed the repurchase of approximately 2.0 million shares in 2011 pursuant to Rule 10b5-1 plans, which were adopted pursuant to the 2011 authorized share repurchase. |
3(a) |
| |
3(b) |
| |
10(a) | ||
10(b) | ||
31.1 |
| |
31.2 |
| |
32.1 |
| |
101 |
| The following financial information from Myers Industries, Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* | Indicates executive compensation plan or arrangement. |
Pursuant to the requirements of 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 (Principal Financial and Accounting Officer) |
3230