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 and nine months endedSeptember 30, 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, 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, we have experienced temporary closures of certain facilities as a result of the pandemic, including two manufacturing facilities of ourAmeri-Kart business in the Material Handling segment and our Distribution business inCentral America in part of March andApril 2020 . Beyond the impact of these temporary closures, some of our businesses have been and may continue to be affected by the broader economic effects from COVID-19 and related regulatory actions, including customer demand for our products. The Company's results in the third quarter of 2020 reflect improving demand for our products during 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. 22 --------------------------------------------------------------------------------
Results of Operations:
Comparison of the Quarter EndedSeptember 30, 2020 to the Quarter EndedSeptember 30, 2019 Net Sales : (dollars in millions) Quarter Ended September 30, Segment 2020 2019 Change % Change Material Handling$ 86.8 $ 84.1 $ 2.7 3 % Distribution 45.5 41.4 4.1 10 % Inter-company sales - - - Total net sales$ 132.3 $ 125.5 $ 6.8 5 % Net sales for the quarter endedSeptember 30, 2020 were$132.3 million , an increase of$6.8 million or 5% compared to the quarter endedSeptember 30, 2019 . Net sales were positively impacted by higher volume, primarily in the Material Handling Segment, of$5.3 million and by$2.9 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 . The increase in net sales was partially offset by lower pricing of$1.3 million and the effect of unfavorable currency translation of$0.1 million . Net sales in the Material Handling Segment increased$2.7 million or 3% for the quarter endedSeptember 30, 2020 compared to the quarter endedSeptember 30, 2019 . The increase in net sales was due to higher volume of$4.1 million partially offset by lower pricing of$1.3 million and the effect of unfavorable currency translation of$0.1 million . The higher volume was primarily due to increases in the consumer market driven by higher levels of hurricane and wildfire activity that is not expected to reoccur. Net sales in the Distribution Segment increased$4.1 million or 10% for the quarter endedSeptember 30, 2020 compared to the quarter endedSeptember 30, 2019 , primarily as a result of higher volume of$1.2 million and$2.9 million of incremental sales due to the Tuffy acquisition onAugust 26, 2019 . Cost of Sales & Gross Profit: Quarter Ended September 30, (dollars in millions) 2020 2019 Change % Change Cost of sales$ 85.2 $ 85.9 $ (0.7 ) (1 )% Gross profit$ 47.1 $ 39.6 $ 7.5 19 % Gross profit as a percentage of sales 35.6 % 31.5 % Gross profit margin increased to 35.6% in the quarter endedSeptember 30, 2020 compared to 31.5% for the quarter endedSeptember 30, 2019 , primarily due to lower commodity raw material costs and the effect of higher volumes, particularly in the consumer end market. Cost of sales in the third quarter 2019 included a$3.5 million charge for estimated replacement costs of certain defective boxes as discussed in Note 8. Gross profit increased$7.5 million , or 19%, primarily due to higher volume as described underNet Sales above and lower commodity raw material costs, as well as the 2019 charge for estimated replacement costs of certain defective boxes.
Selling, General and Administrative Expenses:
Quarter Ended September 30,
(dollars in millions) 2020 2019 Change % Change
SG&A expenses $ 33.9 $ 31.5 $ 2.4 8 %
SG&A expenses as a percentage of sales 25.6 % 25.1 %
Selling, general and administrative ("SG&A") expenses for the quarter ended
September 30, 2020 were $33.9 million , an increase of $2.4 million or 8%
compared to the same period in the prior year. SG&A expenses in the third
quarter 2020 consisted of a $2.4 million charge related to executive severance,
inclusive of $0.6 million of stock compensation acceleration. Year-over-year
comparisons were also affected by: higher incentive compensation costs of $1.8
million offset by lower travel expenses of $0.7 million and lower depreciation
and amortization of $1.3 million .
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Net Interest Expense:
Quarter Ended September 30,
(dollars in millions) 2020 2019 Change % Change
Net interest expense $ 1.2 $ 1.0 $ 0.2 20 %
Average outstanding borrowings, net
0 %
Weighted-average borrowing rate 6.28 % 6.28 %
Net interest expense for the quarter ended September 30, 2020 was $1.2 million ,
an increase of $0.2 million , or 20%, compared with $1.0 million for the quarter
ended September 30, 2019 . The higher net interest expense was due primarily to
lower interest income in the current year.
Income Taxes:
Quarter Ended September 30,
(dollars in millions) 2020 2019Income from continuing operations before income taxes $ 11.9
$ 7.1 Income tax expense $ 3.3 $ 1.8 Effective tax rate 27.2 % 26.2 % The Company's effective tax rate was 27.2% for the quarter endedSeptember 30, 2020 , compared to 26.2% for the quarter endedSeptember 30, 2019 . The increase in the effective tax rate was primarily the result of higher non-deductible expenses. Comparison of the Nine Months EndedSeptember 30, 2020 to the Nine Months EndedSeptember 30, 2019 Net Sales: (dollars in millions) Nine Months Ended September 30, Segment 2020 2019 Change % Change Material Handling $ 251.7 $ 283.0$ (31.3 ) (11 )% Distribution 121.3 115.9 5.4 5 % Inter-company elimination (0.1 ) - (0.1 ) Total net sales $ 372.9 $ 398.9$ (26.0 ) (7 )% Net sales for the nine months endedSeptember 30, 2020 were$372.9 million , a decrease of$26.0 million or 7% compared to the nine months endedSeptember 30, 2019 . Net sales were negatively impacted by lower volume, primarily in the Material Handling Segment, of$34.7 million , lower pricing of$3.7 million , and the effect of unfavorable currency translation of$0.4 million , and were partially offset by$12.8 million of incremental sales in the Distribution Segment due to the Tuffy acquisition onAugust 26, 2019 . Tuffy's historical annual sales are approximately$20 million . Net sales in the Material Handling Segment decreased$31.3 million or 11% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The decrease in net sales was due to lower volume of$27.2 million , lower pricing of$3.7 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 driven by higher levels of hurricane and wildfire activity that is not expected to reoccur. Net sales in the Distribution Segment increased$5.4 million or 5% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , primarily the result of$12.8 million of incremental sales due to theAugust 26, 2019 Tuffy acquisition partly offset by$7.4 million of lower volume, which occurred primarily in the first and second quarters. 24 --------------------------------------------------------------------------------
Cost of Sales & Gross Profit:
Nine Months Ended September 30,
(dollars in millions) 2020 2019 Change % Change
Cost of sales $ 240.8 $ 266.8 $ (26.0 ) (10 )%
Gross profit $ 132.1 $ 132.1 $ 0.0 0 %
Gross profit as a percentage of sales 35.4 % 33.1 %
Gross profit margin increased to 35.4% in the nine months ended September 30,
2020 compared to 33.1% for the nine months ended September 30, 2019 , primarily
due to lower commodity raw material costs offsetting the effect of lower
volumes. Cost of sales in the third quarter 2019 included a $3.5 million charge
for estimated replacement costs of certain defective boxes as discussed in Note
8.
Selling, General and Administrative Expenses:
Nine Months Ended September 30,
(dollars in millions) 2020 2019 Change % Change
SG&A expenses $ 95.4 $ 102.8 $ (7.4 ) (7 )%
SG&A expenses as a percentage of sales 25.6 % 25.8 %
SG&A expenses for the nine months ended September 30, 2020 were $95.4 million , a
decrease of $7.4 million or 7% compared to the same period in the prior
year. SG&A expenses in the third quarter 2020 included a $2.4 million charge
related to executive severance, of which $0.6 million related to stock
compensation acceleration. SG&A expenses in 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 $0.7 million , lower travel expenses of $1.7 million , lower freight of
$0.7 million , lower depreciation and amortization of $1.5 million and savings
from the Distribution Transformation Plan, that were partly offset by $2.4
million of incremental SG&A from the August 26, 2019 Tuffy acquisition.
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 first quarter of 2021. 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 nine months endedSeptember 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 was substantially completed by the end of 2019. No costs were incurred during the nine months endedSeptember 30, 2020 . Restructuring costs of$0.9 million were incurred during the nine months endedSeptember 30, 2019 .
Impairment Charges:
During the nine months endedSeptember 30, 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 nine months endedSeptember 30, 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. 25 --------------------------------------------------------------------------------
Net Interest Expense:
Nine Months Ended September 30,
(dollars in millions) 2020 2019 Change % Change
Net interest expense $ 3.5 $ 3.1 $ 0.4 13 %Average outstanding borrowings, net $ 78.0 $
78.0$ 0.0 0 % Weighted-average borrowing rate 6.27 % 6.26 % Net interest expense for the nine months endedSeptember 30, 2020 was$3.5 million , an increase of$0.4 million , or 13%, compared with$3.1 million during the nine months endedSeptember 30, 2019 . The higher interest expense was due primarily to lower interest income in the current year. Income Taxes: Nine Months Ended September 30, (dollars in millions) 2020 2019
Income from continuing operations before income taxes $ 45.2
$ 25.4
Income tax expense $ 11.4 $ 6.9
Effective tax rate 25.3 % 27.3 %
The Company's effective tax rate was 25.3% for the nine months ended
September 30, 2020 , compared to 27.3% for the nine months ended September 30,
2019 . The decrease in the effective tax rate was primarily the result of lower
non-deductible expenses.
Financial Condition, Liquidity and Capital Resources:
The Company's primary sources of liquidity are cash on hand, cash generated from operations and availability under the Loan Agreement (defined below). AtSeptember 30, 2020 , the Company had$83.7 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.
Operating Activities
Net cash provided by operating activities from continuing operations was$31.3 million for the nine months endedSeptember 30, 2020 , compared to$39.5 million in the same period in 2019. The decrease was primarily due to lower net sales in the first half of 2020, partly offset by higher volume of sales in the third quarter 2020 due to hurricane and wildfire activity and its effects on working capital, particularly on increases in accounts receivable and inventory balances as ofSeptember 30, 2020 . 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$8.5 million for the nine months endedSeptember 30, 2020 compared to cash used of$16.2 million for the nine months endedSeptember 30, 2019 . In 2020, the Company paid the working capital adjustment of$0.7 million related to the 2019 acquisition 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 paid$18.0 million to acquire Tuffy as discussed in Note 3, and received proceeds from the sale of fixed assets of$7.5 million , substantially all of which related to the sale of two buildings as discussed in Note 4. Capital expenditures were$9.0 million and$5.7 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Full year 2020 capital expenditures are expected to be approximately$15 million .
Financing Activities
There were no net payments or borrowings on the credit facility for the nine months endedSeptember 30, 2020 or 2019. The Company used cash to pay dividends of$14.6 million and$14.5 million for the nine months endedSeptember 30, 2020 and 2019, respectively. 26
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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 ofSeptember 30, 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. AtSeptember 30, 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 ofSeptember 30, 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 endedSeptember 30, 2020 are shown in the following table: Required Level Actual Level Interest Coverage Ratio 3.00 to 1 (minimum) 14.50 Leverage Ratio 3.25 to 1 (maximum) 1.18
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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