MYERS INDUSTRIES, INC. 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 theU.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 inthe 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 theSecurities 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 endedDecember 31, 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 reportable segments: The
Material Handling Segment and the Distribution Segment. The former Brazil
Business, which was sold in
The Company designs, manufactures, and markets a variety of plastic and rubber products. The Material Handling Segment manufactures products that range from plastic reusable material handling containers and small parts storage bins to plastic OEM parts, custom plastic products, consumer fuel containers, military water containers as well as ammunition packaging and shipping containers. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading products. The Company's results of operations for the quarter endedMarch 31, 2020 are discussed below. However, the Company's past results of operations may not reflect its future operating trends. InMarch 2020 , the COVID-19 pandemic began to affect theU.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. 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 ourAmeri-Kart business in the Material Handling segment and our Distribution business inCentral America have been temporarily closed due to the regulatory requirements resulting from the pandemic. Beyond the impact of these temporary closures, some of our businesses will be affected by the broader economic effects from COVID-19 and related regulatory actions, including customer demand for our products. The Company believes it is well-positioned to manage through this uncertainty - it has a strong balance sheet, with sufficient liquidity and borrowing capacity, and a diverse product offering and customer base. 20 --------------------------------------------------------------------------------
Results of Operations:
Comparison of the Quarter EndedMarch 31, 2020 to the Quarter EndedMarch 31, 2019 Net Sales : (dollars in millions) Quarter Ended March 31, Segment 2020 2019 Change % Change Material Handling$ 84.1 $ 102.9 $ (18.8 ) (18 )% Distribution 38.2 36.2 2.0 6 % Inter-company sales - - - Total net sales$ 122.3 $ 139.1 $ (16.8 ) (12 )% Net sales for the quarter endedMarch 31, 2020 were$122.3 million , a decrease of$16.8 million or 12% compared to the quarter endedMarch 31, 2019 . Net sales were negatively impacted by lower volume, primarily in the Material Handling Segment, of$20.6 million and lower pricing of$1.2 million , and were partially offset by$5.0 million of incremental sales due to the Tuffy acquisition, in the Distribution Segment, onAugust 26, 2019 . Tuffy's historical annual sales are approximately$20 million . Net sales in the Material Handling Segment decreased$18.8 million or 18% for the quarter endedMarch 31, 2020 compared to the quarter endedMarch 31, 2019 . The decrease in net sales was due to lower volume of$17.6 million and lower pricing of$1.2 million . The lower volume was primarily due to declines in the vehicle market, food and beverage market and the industrial market.
Net sales in the Distribution Segment increased
Cost of Sales & Gross Profit:
Quarter Ended March 31,
(dollars in millions) 2020 2019 Change % Change
Cost of sales $ 79.8 $ 93.6 $ (13.8 ) (15 )%
Gross profit $ 42.5 $ 45.6 $ (3.1 ) (7 )%
Gross profit as a percentage of sales 34.8 % 32.7 %
Gross profit margin increased to 34.8% in the quarter ended
Gross profit decreased$3.1 million , or 7%, primarily due to lower volume as described underNet Sales above, partly offset by lower commodity raw material costs.
Selling, General and Administrative Expenses:
Quarter Ended March 31,
(dollars in millions) 2020 2019 Change % Change
SG&A expenses $ 31.1 $ 34.5 $ (3.4 ) (10 )%
SG&A expenses as a percentage of sales 25.4 % 24.8 %
Selling, general and administrative ("SG&A") expenses for the quarter ended
March 31, 2020 were $31.1 million , a decrease of $3.4 million or 10% compared to
the same period in the prior year. SG&A expenses in the first quarter 2020 were
impacted primarily by lower compensation and benefit costs of $1.8 million ,
lower freight of $0.5 million and savings from the Distribution Transformation
Plan, that were partly offset by $0.9 million of incremental SG&A from the Tuffy
acquisition on August 26, 2019 . SG&A expense comparisons were also impacted by
$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.
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Restructuring:
As discussed in Note 6, the Company has implemented various restructuring programs.
In the Material Handling Segment, the Ameri-Kart Plan involves consolidation of two manufacturing facilities into a single new manufacturing facility, and is expected to be substantially completed in the second half of 2020. 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 site preparation for construction has commenced, no restructuring costs were incurred during the quarters endedMarch 31, 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 was substantially completed by the end of 2019. No costs were incurred during the quarter endedMarch 31, 2020 . Restructuring costs of$0.9 million were incurred during the quarter endedMarch 31, 2019 .
Impairment Charges:
During the quarter endedMarch 31, 2019 , the Company recognized a$0.9 million impairment charge in connection with classifying a previously-closed facility as held for sale. See further discussion in Note 4.
Gain on Sale of Notes Receivable:
During the quarter endedMarch 31, 2020 , the Company recorded a pre-tax gain of$11.9 million related to the sale to HC of the fully-reserved promissory notes and related accrued interest receivable in exchange for$1.2 million and the release from a lease guarantee with a carrying value of$10.7 million related to one of HC's facilities as discussed in Note 5. Net Interest Expense: Quarter Ended March 31, (dollars in millions) 2020 2019 Change % Change Net interest expense$ 1.1 $ 1.0 $ 0.1 10 %
Average outstanding borrowings, net
$ 0.0 0 % Weighted-average borrowing rate 6.24 % 6.23 % Net interest expense for the quarter endedMarch 31, 2020 was$1.1 million , an increase of$0.1 million , or 10%, compared with$1.0 million for the quarter endedMarch 31, 2019 . The higher net interest expense was due primarily to lower interest income in the current year. Income Taxes: Quarter Ended March 31, (dollars in millions) 2020 2019
Income from continuing operations before income taxes
9.2
Income tax expense $ 5.5 $ 2.5
Effective tax rate 24.8 % 27.6 %
The Company's effective tax rate was 24.8% for the quarter ended March 31, 2020 ,
compared to 27.6% for the quarter ended March 31, 2019 . The decrease in the
effective tax rate was primarily the result of lower non-deductible expenses.
Refer to Note 15.
Financial Condition, Liquidity and Capital Resources:
The Company's primary sources of liquidity are cash on hand, cash generated from operations and availability under the Loan Agreement (defined below). AtMarch 31, 2020 , the Company had$73.2 million of cash,$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 believes it is well-positioned to manage through the uncertainty caused by COVID-19. The Company believes that cash on hand, cash flows from operations and available capacity under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth, including selective acquisitions. 22 --------------------------------------------------------------------------------
Operating Activities
Net cash provided by operating activities from continuing operations was$5.0 million for the quarter endedMarch 31, 2020 , compared to$5.3 million in the same period in 2019. The decrease was primarily due to lower volume and its effects on working capital partly offset by lower incentive compensation payments. 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 sale of the Brazil Business in 2017.
Investing Activities
Net cash used by investing activities of continuing operations was$2.0 million for the quarter endedMarch 31, 2020 compared to cash provided of$1.6 million for the quarter endedMarch 31, 2019 . During the first quarter of 2020 the Company paid the working capital adjustment of$0.7 million related to the 2019 acquisition of Tuffy discussed in Note 3. Capital expenditures were$2.5 million and$2.9 million for the quarter endedMarch 31, 2020 and 2019, respectively. Full year 2020 capital expenditures are expected to be approximately$15 million . Proceeds from the sale of notes receivable were$1.2 million in 2020, as discussed in Note 5. Proceeds from the sale of fixed assets were$4.5 million in 2019, substantially all of which was derived from the sale of a building previously classified as held for sale, as discussed in Note 4.
Financing Activities
There were no net payments or borrowings on the credit facility for the quarter endedMarch 31, 2020 or 2019. The Company used cash to pay dividends of$4.9 million and$4.9 million for the quarters endedMarch 31, 2020 and 2019, respectively.
Credit Sources
InMarch 2017 , the Company entered into a Fifth Amended and Restated Loan Agreement (the "Loan Agreement"). The Loan Agreement amended the pre-existing senior revolving credit facility's borrowing limit to$200 million , inclusive of letters of credit, and extended the maturity date fromDecember 2018 toMarch 2022 . As ofMarch 31, 2020 , the Company had$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. AtMarch 31, 2020 ,$78 million face value of Senior Unsecured Notes are 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 betweenJanuary 15, 2021 and 2026. The$40 million note of these Senior Unsecured Notes is dueJanuary 15, 2021 . As ofMarch 31, 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 endedMarch 31, 2020 are shown in the following table: Required Level Actual Level Interest Coverage Ratio 3.00 to 1 (minimum) 14.04 Leverage Ratio 3.25 to 1 (maximum) 1.22
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are
reasonably expected to have, a material current or future effect on its
financial condition, results of operations, liquidity, capital expenditures or
capital resources.
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