UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of |
(IRS Employer Identification |
incorporation or organization) |
Number) |
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(Address of principal executive offices) |
(Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol |
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Name of Exchange on Which Registered |
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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.
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).
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 |
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Non-Accelerated filer |
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Smaller reporting company |
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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 November 1, 2024 was
TABLE OF CONTENTS
Part I — Financial Information
Item 1. Financial Statements
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
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For the Quarter Ended September 30, |
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For the Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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(Gain) loss on disposal of fixed assets |
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Impairment charges |
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Operating income (loss) |
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Interest expense, net |
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Income (loss) before income taxes |
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Income tax expense (benefit) |
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Net income (loss) |
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Net income (loss) per common share: |
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Basic |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
1
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands)
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For the Quarter Ended September 30, |
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For the Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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Unrealized gain (loss) on interest rate swap contracts, net of tax expense (benefit) of ($ |
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Realized (gain) loss on interest rate swap contracts reclassified to interest expense |
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Total other comprehensive income (loss) |
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Comprehensive income (loss) |
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$ |
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$ |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
2
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Position (Unaudited)
(Dollars in thousands)
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September 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current Assets |
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Cash |
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$ |
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$ |
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Trade accounts receivable, less allowances of $ |
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Other accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total Current Assets |
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Property, plant, and equipment, net |
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Right of use asset - operating leases |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes |
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Other |
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Total Assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued employee compensation |
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Income taxes payable |
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Accrued taxes payable, other than income taxes |
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Accrued interest |
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Other current liabilities |
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Operating lease liability - short-term |
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Finance lease liability - short-term |
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Long-term debt - current portion |
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Total Current Liabilities |
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Long-term debt |
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Operating lease liability - long-term |
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Finance lease liability - long-term |
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Other liabilities |
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Deferred income taxes |
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Total Liabilities |
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Shareholders’ Equity |
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Serial Preferred Shares (authorized |
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Common Shares, without par value (authorized |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained deficit |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
3
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
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Quarter Ended September 30, 2024 |
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Common Shares |
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Additional |
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Accumulated |
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Retained |
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Total |
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Balance at July 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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Foreign currency translation |
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Interest rate swap, net of tax of ($ |
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Shares issued under incentive plans, |
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Stock compensation expense |
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Declared dividends - $ |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
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Quarter Ended September 30, 2023 |
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Common Shares |
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Additional |
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Accumulated |
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Retained |
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Total |
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Balance at July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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Foreign currency translation |
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( |
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Shares issued under incentive plans, |
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Stock compensation expense |
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Declared dividends - $ |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
4
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(Dollars in thousands, except per share data)
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Nine Months Ended September 30, 2024 |
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Common Shares |
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Additional |
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Accumulated |
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Retained |
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Total |
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Balance at January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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Foreign currency translation |
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( |
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Interest rate swap, net of tax of ($ |
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( |
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Shares issued under incentive plans, |
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Stock compensation expense |
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Declared dividends - $ |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Nine Months Ended September 30, 2023 |
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Common Shares |
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Additional |
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Accumulated |
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Retained |
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Total |
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Balance at January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) |
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Foreign currency translation |
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( |
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Shares issued under incentive plans, |
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Stock compensation expense |
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Declared dividends - $ |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
5
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
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For the Nine Months Ended September 30, |
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2024 |
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2023 |
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Cash Flows From Operating Activities |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities |
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Depreciation and amortization |
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Amortization of deferred financing costs |
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Amortization of acquisition-related inventory step-up |
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Non-cash stock-based compensation expense |
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(Gain) loss on disposal of fixed assets |
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Impairment charges |
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Other |
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Cash flows provided by (used for) working capital |
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Accounts receivable - trade and other, net |
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Inventories |
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( |
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Prepaid expenses and other current assets |
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( |
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Accounts payable and accrued expenses |
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Net cash provided by (used for) operating activities |
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Cash Flows From Investing Activities |
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Capital expenditures |
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Acquisition of business, net of cash acquired |
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( |
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Proceeds from sale of property, plant and equipment |
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Net cash provided by (used for) investing activities |
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Cash Flows From Financing Activities |
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Net borrowings (repayments) from revolving credit facility |
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Proceeds from Term Loan A |
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Repayments of Term Loan A |
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( |
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Repayments of senior unsecured notes |
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Payments on finance lease |
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( |
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( |
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Cash dividends paid |
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( |
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Proceeds from issuance of common stock |
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Shares withheld for employee taxes on equity awards |
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( |
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Deferred financing fees |
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( |
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Net cash provided by (used for) financing activities |
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( |
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Foreign exchange rate effect on cash |
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( |
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( |
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Net increase (decrease) in cash |
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( |
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Cash at January 1 |
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Cash at September 30 |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
6
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 accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2024, and the results of operations and cash flows for the periods presented. The results of operations for the quarter and nine months ended September 30, 2024 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2024.
Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For the Company, this ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments within this ASU should be applied prospectively although retrospective application is also permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. For the Company, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments within this ASU are required to be applied retrospectively to all prior periods presented in the financial statements. 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.
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 the Company’s revolving credit facility, as defined in Note 11, approximates carrying value due to the floating rates and the relative short maturity (less than 90 days) of any revolving borrowings under this agreement. The carrying value of the unhedged portion of the Company’s term loan, as defined in Note 11, approximates fair value given that the underlying interest rate applied to such amounts outstanding is currently based upon floating market rates and the Company has the ability to repay the outstanding principal at par value at any time under the terms of this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered Level 2 inputs. At December 31, 2023, the aggregate fair value of the Company's outstanding fixed rate senior unsecured notes was estimated to be $
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The Company has also entered into an interest rate swap contract to reduce its exposure to fluctuations in variable interest rates for future interest payments, as defined in Note 11. The Company uses significant other observable market data or assumptions (Level 2 inputs) in determining the fair value of its interest rate swap that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. The fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. Refer to the derivative instruments section below for further information regarding the fair value measurements for the interest rate swap.
The purchase price allocations associated with the February 8, 2024 acquisition of Signature CR Intermediate Holdco, Inc. ("Signature" or "Signature Systems") and the May 31, 2022 acquisition of Mohawk Rubber Sales of New England Inc. ("Mohawk"), as described in Note 3, required fair value measurements using unobservable inputs which are considered Level 3 inputs. The fair value of the acquired intangible assets was determined using an income approach.
The Company performs its goodwill impairment test annually as of October 1 and in the interim only when impairment indicators are present. As described in Note 7, during the quarter ended September 30, 2024 the Company identified indicators of impairment at its rotational molding reporting unit triggering an interim quantitative assessment of goodwill at the rotational molding reporting unit. A quantitative assessment requires the Company to estimate the fair value of the reporting unit (Level 3 measurement), which the Company does using a combination of a discounted cash flow analysis and market-based approach. Estimating fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, long term growth rates and the amount and timing of expected future cash flows. The cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast. The discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. The market-based approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable transactions. The fair value of the reporting unit is then compared to the carrying value, and any excess carrying value of the reporting unit above the fair value would indicate impairment.
Derivative Instruments
On May 2, 2024, the Company entered into an interest rate swap agreement to limit its exposure to changes in interest rates on a portion of its floating rate indebtedness. The interest rate swap agreement is designated as a cash flow hedge that qualifies for hedge accounting. The swap has a beginning notional value of $
At September 30, 2024, the remaining notional value of the Company's interest rate swap totaled $
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) are as follows:
|
|
Foreign |
|
|
Interest Rate Swap (1) |
|
|
Defined Benefit |
|
|
Total |
|
||||
Balance at July 1, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Reclassification to (earnings) loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net current-period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance at September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(1) Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(
8
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
|
|
Foreign |
|
|
Interest Rate Swap |
|
|
Defined Benefit |
|
|
Total |
|
||||
Balance at July 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net current-period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Foreign |
|
|
Interest Rate Swap (2) |
|
|
Defined Benefit |
|
|
Total |
|
||||
Balance at January 1, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Reclassification to (earnings) loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net current-period other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(2) Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $(
|
|
Foreign |
|
|
Interest Rate Swap |
|
|
Defined Benefit |
|
|
Total |
|
||||
Balance at January 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net current-period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
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 changes in the allowance for credit losses included within Trade accounts receivable for the nine months ended September 30, 2024 and 2023 were as follows:
|
|
2024 |
|
|
2023 |
|
||
Balance at January 1 |
|
$ |
|
|
$ |
|
||
Provision for expected credit loss, net of recoveries |
|
|
|
|
|
|
||
Write-offs and other |
|
|
( |
) |
|
|
( |
) |
Balance at September 30 |
|
$ |
|
|
$ |
|
||
Allowance for credit losses pertaining to the purchased credit deteriorated assets acquired in conjunction with the acquisition of Signature, as described in Note 3, are not included in the table above. These amounts total $
9
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
2. Revenue Recognition
The Company’s revenue by major market is as follows:
|
|
For the Quarter Ended September 30, 2024 |
|
|||||||||||||
|
|
Material |
|
|
Distribution |
|
|
Inter-company |
|
|
Consolidated |
|
||||
Consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food and beverage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Auto aftermarket |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
For the Quarter Ended September 30, 2023 |
|
|||||||||||||
|
|
Material |
|
|
Distribution |
|
|
Inter-company |
|
|
Consolidated |
|
||||
Consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food and beverage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Auto aftermarket |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
For the Nine Months Ended September 30, 2024 |
|
|||||||||||||
|
|
Material |
|
|
Distribution |
|
|
Inter-company |
|
|
Consolidated |
|
||||
Consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food and beverage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Auto aftermarket |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
For the Nine Months Ended September 30, 2023 |
|
|||||||||||||
|
|
Material |
|
|
Distribution |
|
|
Inter-company |
|
|
Consolidated |
|
||||
Consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Food and beverage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Auto aftermarket |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
10
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
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 products. This transfer of control may occur at either the time of shipment from a Company facility, or at the time of delivery to a designated customer location. Obligations under contracts with customers are typically fulfilled within 90 days of receiving a purchase order from a customer, and generally no other future obligations are required to be performed. The Company generally does not enter into any long-term contracts with customers greater than one year. Based on the nature of the Company’s products and customer contracts, no deferred revenue has been recorded, with the exception of cash advances or deposits received from customers prior to transfer of control of the product. These advances are typically fulfilled within the 90-day time frame mentioned above.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for 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. Expected returns allowances are recognized each period based on an analysis of historical experience, and when physical recovery of the product from returns occurs, an estimated right to return asset is also recorded based on the approximate cost of the product.
Amounts included in the Condensed Consolidated Statements of Financial Position (Unaudited) related to revenue recognition include:
|
|
September 30, |
|
|
December 31, |
|
|
Statement of Financial |
||
|
|
2024 |
|
|
2023 |
|
|
Classification |
||
Returns, discounts and other allowances |
|
$ |
( |
) |
|
$ |
( |
) |
|
Trade accounts receivable |
Right of return asset |
|
$ |
|
|
$ |
|
|
Inventories, net |
||
Customer deposits |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other current liabilities |
Accrued rebates |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other current liabilities |
Sales, value added, and other taxes collected with revenue from customers are excluded from net sales. The cost for shipments to customers is recognized when control over products has transferred to the customer and is classified as for the Company’s manufacturing business and as Cost of sales for the Company’s distribution business. Costs for shipments to customers in Selling, general and administrative expenses were approximately $
Based on the short-term nature of contracts described above, contract acquisition costs are not significant. These costs, as well as other incidental items that are immaterial in the context of the contract, are recognized as expense as incurred.
3. Acquisitions
Signature
On February 8, 2024, the Company acquired the stock of Signature Systems, a manufacturer and distributor of composite matting ground protection for industrial applications, stadium turf protection and temporary event flooring, which is included in the Material Handling Segment. The Signature acquisition aligns with the Company's long-term strategic plan to transform the Company into a high-growth, customer-centric innovator of value-added engineered plastic solutions. Cash consideration was $
The Company funded the acquisition of Signature through an amendment and restatement of Myers’ existing loan agreement, as described in Note 11. Costs related to the acquisition are included within Selling, general and administrative on the Condensed Consolidated Statements of Operations (Unaudited) and totaled $
11
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The acquisition of Signature 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. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually and separately recognized. Goodwill acquired in this transaction will not be tax deductible. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed based on their preliminary estimated fair values at the acquisition date, which are subject to adjustment. Measurement period adjustments recorded for the period ended September 30, 2024 are also summarized in the table below. The purchase accounting will be finalized within one year from the acquisition date.
12
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
A summary of the preliminary estimated purchase price allocation is as follows:
|
Initial Allocation of Consideration |
|
Measurement Period Adjustments(1) |
|
Updated Preliminary Allocation |
|
|||
Assets acquired: |
|
|
|
|
|
|
|||
Accounts receivable |
$ |
|
$ |
( |
) |
$ |
|
||
Inventories |
|
|
|
( |
) |
|
|
||
Prepaid expenses |
|
|
|
( |
) |
|
|
||
Other assets - long term |
|
|
|
|
|
|
|||
Property, plant and equipment |
|
|
|
|
|
|
|||
Right of use asset - operating leases |
|
|
|
|
|
|
|||
Intangible assets |
|
|
|
|
|
|
|||
Goodwill |
|
|
|
( |
) |
|
|
||
Assets acquired |
$ |
|
$ |
|
$ |
|
|||
|
|
|
|
|
|
|
|||
Liabilities assumed: |
|
|
|
|
|
|
|||
Accounts payable |
$ |
|
$ |
|
$ |
|
|||
Accrued expenses |
|
|
|
( |
) |
|
|
||
Operating lease liability - short term |
|
|
|
|
|
|
|||
Operating lease liability - long term |
|
|
|
|
|
|
|||
Deferred income taxes |
|
|
|
|
|
|
|||
Total liabilities assumed |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
Net acquisition cost |
$ |
|
$ |
|
$ |
|
|||
(1)
Included in Accounts receivable and Other assets - long term of the table above are long term notes receivable with face value of $
Intangible assets consist of Signature’s technology, customer relationships and the Signature Systems indefinite-lived trade name, and are summarized in the table below:
|
|
Fair Value |
|
|
Weighted Average |
|
Customer relationships |
|
$ |
|
|
||
Technology |
|
|
|
|
||
Total amortizable intangible assets |
|
$ |
|
|
|
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
Trademarks and trade names |
|
$ |
|
|
||
13
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
The following unaudited pro forma results of operations for the three months ended March 31, 2024 and three and nine months ended September 30, 2023, assumes the Signature acquisition was completed on January 1, 2023.
|
|
Three months ended March 31, 2024 |
|
|
Three months ended September 30, 2023 |
|
|
Nine months ended September 30, 2023 |
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net income |
|
|
|
|
|
|
|
|
|
|||
The unaudited pro forma results may not be indicative of the results that would have been obtained had the acquisition occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.
Mohawk
On May 31, 2022, the Company acquired the assets of Mohawk, a leading auto aftermarket distributor, which is included in the Distribution Segment. The Mohawk acquisition aligns with the Company's long-term objective to optimize and grow its Distribution business. Cash consideration was $
4. Restructuring
On August 1, 2024, the Company announced the consolidation of its Atlantic, Iowa rotational molding facility into other rotational molding facilities to reduce the Company's overall footprint and cost structure within the Material Handling segment. Total restructuring costs incurred related to the facility consolidation were approximately $
On May 29, 2024, the Company announced a restructuring plan to improve the Company’s organizational structure and operational efficiency within the Distribution Segment, which related primarily to planned facility consolidations and associated activities to simplify its distribution network and improve service by reducing complexity. Total restructuring costs incurred related to these actions during the quarter and nine months ended September 30, 2024, were approximately $
In conjunction with the Company's previously announced Ameri-Kart plan the Company incurred $
Charges from other restructuring initiatives to reduce overhead costs during the quarter and nine months ended September 30, 2024 totaled $
14
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
5. 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
Inventories consisted of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Finished and in-process products |
|
$ |
|
|
$ |
|
||
Raw materials and supplies |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
6. Other Liabilities
The balance in Other current liabilities is comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Customer deposits and accrued rebates |
|
$ |
|
|
$ |
|
||
Dividends payable |
|
|
|
|
|
|
||
Accrued litigation, claims and professional fees |
|
|
|
|
|
|
||
Current portion of environmental |
|
|
|
|
|
|
||
Hedge contract liability |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The balance in Other liabilities (long-term) is comprised of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Environmental reserves |
|
$ |
|
|
$ |
|
||
Supplemental executive retirement plan liability |
|
|
|
|
|
|
||
Pension liability |
|
|
|
|
|
|
||
Hedge contract liability |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
7. Goodwill and Intangible Assets
The change in goodwill for the nine months ended September 30, 2024 was as follows:
|
|
Distribution |
|
|
Material |
|
|
Total |
|
|||
January 1, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Acquisition |
|
|
|
|
|
|
|
|
|
|||
Impairment charges |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Foreign currency translation |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
15
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, non-competition agreements and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. Indefinite-lived trade names had a carrying value of $
During the quarter ended September 30, 2024, the Company’s rotational molding reporting unit continued to experience further declining market conditions including overall lower volume and uncertainty regarding the reporting unit's longer range outlook, primarily due to the current macroeconomic environment reducing expected demand for our products. Due to these potential indicators of impairment identified during the quarter ended September 30, 2024, the Company conducted an interim quantitative impairment test of the goodwill at its rotational molding reporting unit and compared the reporting unit's fair value to its carrying value as required by ASC 350. The Company did not identify indicators of impairment at any of the other reporting units.
Fair value was determined using the income and market approaches. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, EBITDA, and multiples that are applied to management’s forecasted revenues and EBITDA estimates.
The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect known market conditions at the interim impairment date. The variables and assumptions used, all of which are Level 3 fair value inputs, include the projections of future revenues and expenses, working capital, terminal values, discount rates and long term growth rates. The estimate of the fair value, and the related goodwill, could change over time based on a variety of factors, including the aggregate market value of the Company’s common stock, actual operating performance of the underlying businesses or the impact of future events on the cost of capital and the related discount rates used.
The Company's quantitative analysis identified that the estimated fair value of the rotational molding reporting unit was below the carrying value. Accordingly, during the quarter and nine months ended September 30, 2024, the Company recorded a $
The circumstances leading to the interim goodwill assessment as described above also triggered an evaluation for long-lived assets, for which the Company has first performed an ASC 360-10-35 recoverability test of other long-lived assets, including intangible assets for the rotational molding asset group. With respect to the asset group, future cash flows were estimated over the expected remaining life of the assets, and the Company determined that, on an undiscounted basis, expected cash flows exceeded the carrying value of the asset group, and
8. Net Income (loss) per Common Share
Net income (loss) per common share, as shown on the accompanying Condensed Consolidated Statements of Operations (Unaudited), is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:
|
|
For the Quarter Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Weighted average common shares outstanding basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options and restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The dilutive effect of stock options and restricted stock was computed using the treasury stock method. Because the Company incurred a net loss for the quarter ended September 30, 2024, basic and diluted shares are the same. If the Company was in a net income position during the quarter ended September 30, 2024, diluted shares would include an additional
16
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Options to purchase
9. Stock Compensation
The Company’s 2021 Long-Term Incentive Plan (the “2021 Plan”) was adopted by the Board of Directors on March 4, 2021, amended by the Board of Directors on April 20, 2021, and approved by shareholders in the annual shareholder meeting on April 29, 2021. The 2021 Plan authorizes the Compensation and Management Development Committee of the Board of Directors (“Compensation Committee”) to issue up to
The Company’s 2024 Long-Term Incentive Plan (the “2024 Plan”) was adopted by the Board of Directors on February 29, 2024, and approved by shareholders in the annual shareholder meeting on April 25, 2024. The 2024 Plan authorizes the Compensation Committee to issue up to
Stock compensation expense was approximately $
10. Contingencies
The Company is a defendant in various lawsuits and a party to various other legal proceedings arising in the ordinary course of business, some of which are covered in whole or in part by insurance. When a loss arising from these matters is probable and can reasonably be estimated, the most likely amount of the estimated probable loss is recorded, or if a range of probable loss can be estimated and no amount within the range is a better estimate than any other amount, the minimum amount in the range is recorded. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary.
Based on current available information, management believes that the ultimate outcome of these matters, including those described below, will not have a material adverse effect on our financial position, cash flows or overall trends in our results of operations. However, these matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or in future periods.
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, Inc. 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. Buckhorn and the EPA finalized the AOC and related Statement of Work (“SOW”) with regards to the New Idria Mine, effective as of November 27, 2018, the date that it was executed by the EPA. The AOC requires a $
17
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
All reasonably estimable costs related to the environmental remediation are accrued. These costs are comprised primarily of estimates to perform the RI/FS, negotiation of the AOC, identification of possible other PRPs, EPA oversight fees, past cost claims made by the EPA, periodic monitoring, and responses to demands issued by the EPA under the AOC. 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 Buckhorn’s liability are based on current facts, laws, regulations and technology. Estimates of Buckhorn’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. Beginning in late 2021 and continuing through the current period, Buckhorn and the EPA continue to actively discuss the scope of the activities in the work plan for the RI/FS, resulting in changes to the estimated costs to perform the RI/FS work plan from time to time. Cost estimates will continue to be refined as the work plans for the RI/FS and the ultimate remediation are finalized and as the activities are performed over a period expected to last several years.
In the fourth quarter of 2022, Buckhorn reached an agreement with respect to certain insurance coverage related to defense costs, which is expected to apply to a substantial portion of the estimated RI/FS costs. Recovery of accrued costs are recorded as a receivable to the extent such recovery is determined to be probable under this agreement. Estimates of cost recoveries will continue to be refined as the RI/FS work plan is finalized and the activities are performed over a period expected to last several years. Buckhorn may also have opportunity for cost recovery under other insurance policies.
Since October 2011, when the New Idria Mine was added to the Superfund National Priorities List by the EPA, Buckhorn has recognized $
|
|
For the Quarter Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Beginning reserve balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Changes in estimated environmental liability |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Payments made (3) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending reserve balance (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning receivable balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Changes in estimated insurance recovery |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Insurance recovery reimbursements |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending receivable balance (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) As of September 30, 2024, Buckhorn has a total ending reserve balance of $
(2) As of September 30, 2024, Buckhorn has a total receivable balance related to the probable insurance recovery of $
(3) Payments made for the nine months ended September 30, 2023 include a $
Given the circumstances referred to above, including the fact that the final remediation strategy has not yet been determined, Buckhorn has not accrued for remediation costs in connection with this site as it is unable to estimate the range of a reasonably possible liability for remediation costs.
18
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
New Almaden Mine
A number of parties, including the Company and its subsidiary, Buckhorn (as successor to NIMCC), were alleged by trustee agencies of the United States and the State of California to be responsible for natural resource damages due to environmental contamination of areas comprising the historical New Almaden mercury mines located in the Guadalupe River Watershed region in Santa Clara County, California (“County”). In 2005, Buckhorn and the Company, without admitting liability or chain of ownership of NIMCC, resolved the trustees’ claim against them through a consent decree that required them to contribute financially to the implementation by the County of an environmentally beneficial project within the impacted area. Buckhorn and the Company negotiated an agreement with the County ("Cost Sharing Agreement"), whereby Buckhorn and the Company agreed to reimburse one-half of the County’s costs of implementing the project. A detailed estimate was received from the County in 2016, and estimated costs for implementing the project to range between $
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.
Other Matters
On February 14, 2023, a lawsuit was filed by Nan Morgan McCartney in the Circuit Court of Escambia County, Florida against the Company, Scepter US Holding Company, Scepter Manufacturing, LLC, Scepter Canada Inc., Walmart Inc., and Wal-Mart Stores East, LP. The complaint seeks compensatory damages and court costs for harm caused to Ms. McCartney allegedly arising from use of a 5-gallon portable fuel container manufactured by a Scepter company and alleges amounts in controversy in excess of $
11. Long-Term Debt and Loan Agreements
Long-term debt consisted of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Amended Loan Agreement - Revolving Credit Facility |
|
$ |
|
|
$ |
|
||
Amended Loan Agreement - Term Loan A |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
||
Less unamortized deferred financing costs |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less current portion long-term debt |
|
|
|
|
|
|
||
Long-term debt |
|
$ |
|
|
$ |
|
||
19
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
balance due upon maturity. Term Loan A may be voluntarily prepaid at any time, in whole or in part, without penalty or premium, however, all amounts repaid or prepaid in respect of Term Loan A may not be reborrowed.
Amendment No. 1 did not change the existing revolving credit facility’s maturity date or $
The Amended Loan Agreement is on substantially the same terms as the Loan Agreement, except Amendment No. 1 has amended, among other items, (i) to permit the Signature Systems acquisition, (ii) to modify the maximum leverage ratio to not exceed (x)
As of September 30, 2024, the Company had $
On January 12, 2024, the Company repaid $
The weighted average interest rate on borrowings under the Company’s long-term debt was
20
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
As of September 30, 2024, the Company was in compliance with all of its debt covenants associated with its Amended Loan Agreement. The most restrictive financial covenants for all of the Company’s debt are a net leverage ratio (defined as net debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted) and an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense).
On May 2, 2024, the Company entered into an interest rate swap agreement to mitigate the variable interest rate risk of borrowings under the Amended Loan Agreement. The swap has a beginning notional value of $
12. Income Taxes
The Company’s effective tax rate was
13. 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 to
The ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent the obligation to make lease payments. ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. When leases do not provide an implicit rate, the Company’s incremental borrowing rate is used, which is then applied at the portfolio level, based on the information available at commencement date in determining the present value of lease payments. The Company has also elected not to separate lease and non-lease components. The lease terms include options to extend or terminate the lease when it is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
21
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Amounts included in the Condensed Consolidated Statements of Financial Position (Unaudited) related to leases include:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
Classification |
|
2024 |
|
|
2023 |
|
||
Assets: |
|
|
|
|
|
|
|
||
Operating lease assets |
Right of use asset - operating leases |
|
$ |
|
|
$ |
|
||
Finance lease assets |
|
|
|
|
|
|
|||
Total lease assets |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
|
||
Current |
Operating lease liability - short-term |
|
$ |
|
|
$ |
|
||
Long-term |
Operating lease liability - long-term |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
|
|
|
|
|
|
||
Current |
Finance lease liability - short-term |
|
|
|
|
|
|
||
Long-term |
Finance lease liability - long-term |
|
|
|
|
|
|
||
Total finance lease liabilities |
|
|
|
|
|
|
|
||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
The components of lease expense include:
|
|
|
|
For the Quarter Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
Lease Cost |
|
Classification |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating lease cost (1) (2) |
|
Cost of sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating lease cost (1) |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization expense |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense on lease liabilities |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental cash flow information related to leases was as follows:
|
|
For the Nine Months Ended September 30, |
|
|||||
Supplemental Cash Flow Information |
|
2024 |
|
|
2023 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new lease liabilities: |
|
|
|
|
|
|
||
Operating leases |
|
$ |
|
|
$ |
|
||
Finance leases |
|
$ |
|
|
$ |
|
||
Lease Term and Discount Rate |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Weighted-average remaining lease term (years): |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
Weighted-average discount rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
% |
||
22
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Maturity of Lease Liabilities - As of September 30, 2024 |
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
2024(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
2027 |
|
|
|
|
|
|
|
|
|
|||
2028 |
|
|
|
|
|
|
|
|
|
|||
After 2028 |
|
|
|
|
|
|
|
|
|
|||
Total lease payments |
|
|
|
|
|
|
|
|
|
|||
Less: interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
14. Segments
The Company manages its business under
The Material Handling Segment manufactures a broad selection of durable plastic reusable products that are used repeatedly during the course of their service life. At the end of their service life, these highly sustainable products can be recovered, recycled, and reprocessed into new products. The Material Handling Segment’s products include a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products, OEM parts, custom plastic products, composite ground protection matting, consumer fuel containers and tanks for water, fuel and waste handling. Products in the Material Handling Segment are primarily injection molded, rotationally molded, compression molded or blow molded. This segment conducts its primary operations in the United States, Canada and the United Kingdom. Markets served include industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, construction, infrastructure and consumer, among others. Products are sold both directly to end-users and through distributors. The acquisition of Signature, as described in Note 3, is included in the Material Handling Segment.
The Distribution Segment is engaged in the distribution of equipment, tools, and supplies used for tire servicing and automotive under-vehicle 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 five 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, truck stop operations, auto dealers, general service and repair centers, tire retreaders, and government agencies.
Total sales from foreign business units were approximately $
23
MYERS INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)
(Dollars in thousands, except where otherwise indicated)
Summarized segment detail for the quarters and nine months ended September 30, 2024 and 2023 are presented in the following table:
|
For the Quarter Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
||||
Material Handling |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Distribution |
|
|
|
|
|
|
|
|
|
|
|
||||
Inter-company sales |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
||||
Material Handling (2) (3) (4) (6) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Distribution (4) (5) |
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate (1) (3) (4) (5) |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total operating income (loss) |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) before income taxes |
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
(1) The Company recognized $(
(2) The Company recognized $
(3) The Company incurred $
(4) The Company incurred $
(5) The Company recognized $
(6) The Company recognized $
24
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 on our business, financial position, results of operations and/or liquidity include, without limitation, 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; unforeseen events, including natural disasters, unusual or severe weather events and patterns, public health crises, geopolitical crises, and other catastrophic events; and other risks and uncertainties detailed from time to time in the Company’s filings with the SEC, including without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.
Executive Overview
The Company conducts its business activities in two reportable segments: The Material Handling Segment and the Distribution Segment.
The Company designs, manufactures, and markets a variety of plastic, metal and rubber products. The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products, OEM parts, custom plastic products, composite ground protection matting, consumer fuel containers and tanks for water, fuel and waste handling. Products in the Material Handling Segment are primarily injection molded, rotationally molded, blow molded or compression molded. 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 ended September 30, 2024 are discussed below. The current economic environment includes heightened risks from inflation, interest rates, banking liquidity, volatile commodity costs, supply chain disruptions and labor availability stemming from the broader economic effects of the international geopolitical climate, including the conflict between Russia and Ukraine and Israel and Hamas. Such events have increased volatility in global commodity markets, including oil (a component of many plastic resins), energy and agricultural commodities. Some of our businesses have been and may continue to be affected by these broader economic effects, including customer demand for our products, supply chain disruptions, labor availability and inflation. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base.
25
Results of Operations:
Comparison of the Quarter Ended September 30, 2024 to the Quarter Ended September 30, 2023
Net Sales:
(dollars in thousands) |
|
Quarter Ended September 30, |
|
|
|
|
|
|
|
|||||||
Segment |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Material Handling |
|
$ |
150,718 |
|
|
$ |
132,484 |
|
|
$ |
18,234 |
|
|
|
13.8 |
% |
Distribution |
|
|
54,384 |
|
|
|
65,335 |
|
|
|
(10,951 |
) |
|
|
(16.8 |
)% |
Inter-company sales |
|
|
(35 |
) |
|
|
(21 |
) |
|
|
(14 |
) |
|
|
|
|
Total net sales |
|
$ |
205,067 |
|
|
$ |
197,798 |
|
|
$ |
7,269 |
|
|
|
3.7 |
% |
Net sales for the quarter ended September 30, 2024 were $205.1 million, an increase of $7.3 million or 3.7% compared to the quarter ended September 30, 2023. Net sales increased due to $20.7 million of incremental sales from the acquisition of Signature on February 8, 2024, included in the Material Handling Segment. Signature's annual sales were approximately $110 million at the time of the acquisition. The increase in net sales was partially offset by lower volume of $11.2 million, lower pricing of $2.1 million and the effect of unfavorable currency translation of $0.2 million.
Net sales in the Material Handling Segment increased $18.2 million or 13.8% for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023. Net sales increased due to $20.7 million of incremental sales from the acquisition of Signature on February 8, 2024, partially offset by lower volume of $1.7 million, lower pricing of $0.6 million and the effect of unfavorable currency translation of $0.2 million.
Net sales in the Distribution Segment decreased $11.0 million or 16.8% for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, primarily due to lower volume of $9.5 million and lower pricing of $1.5 million.
Cost of Sales & Gross Profit:
|
|
Quarter Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Cost of sales |
|
$ |
139,937 |
|
|
$ |
135,419 |
|
|
$ |
4,518 |
|
|
|
3.3 |
% |
Gross profit |
|
$ |
65,130 |
|
|
$ |
62,379 |
|
|
$ |
2,751 |
|
|
|
4.4 |
% |
Gross profit as a percentage of sales |
|
|
31.8 |
% |
|
|
31.5 |
% |
|
|
|
|
|
|
||
Gross profit increased $2.8 million, or 4.4%, for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, due to the benefits of the acquisition of Signature on February 8, 2024 and favorable mix, partially offset by lower volume and pricing as described under Net Sales above, and higher material costs. Gross margin was 31.8% for the quarter ended September 30, 2024 compared with 31.5% for the quarter ended September 30, 2023.
Selling, General and Administrative Expenses:
|
|
Quarter Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
SG&A expenses |
|
$ |
47,686 |
|
|
$ |
43,698 |
|
|
$ |
3,988 |
|
|
|
9.1 |
% |
SG&A expenses as a percentage of sales |
|
|
23.3 |
% |
|
|
22.1 |
% |
|
|
|
|
|
|
||
Selling, general and administrative (“SG&A”) expenses for the quarter ended September 30, 2024 were $47.7 million, an increase of $4.0 million or 9.1% compared to the same period in the prior year. Increases in SG&A expenses for the third quarter 2024 were primarily due to $8.0 million of incremental SG&A, including $3.1 million of intangible amortization, from the acquisition of Signature on February 8, 2024, $0.9 million of higher facility costs and $0.5 million of higher legal and professional fees, partially offset by $0.1 million of lower variable selling expenses, $4.6 million of lower incentive compensation, $0.7 million of lower commissions, and $0.8 million of lower salaries and benefits. Executive severance was $1.4 million for the quarter ended September 30, 2024. Environmental matters, as described in Note 10 resulted in a net $0.5 million net recovery for the quarter ended September 30, 2024, compared to $0.1 million of net recovery for the quarter ended September 30, 2023.
26
Impairment Charges:
During the quarter ended September 30, 2024, the Company recorded a $22.0 million non-cash impairment charge, for the full carrying value of goodwill in the rotational molding reporting unit, included in the Material Handling Segment, as discussed in Note 7.
Net Interest Expense:
|
|
Quarter Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Net interest expense |
|
$ |
8,091 |
|
|
$ |
1,539 |
|
|
$ |
6,552 |
|
|
|
425.7 |
% |
Average outstanding borrowings, net |
|
$ |
414,953 |
|
|
$ |
84,220 |
|
|
$ |
330,733 |
|
|
|
392.7 |
% |
Weighted-average borrowing rate |
|
|
8.40 |
% |
|
|
7.09 |
% |
|
|
|
|
|
|
||
Net interest expense for the quarter ended September 30, 2024 was $8.1 million, an increase of $6.6 million, or 425.7%, compared with $1.5 million for the quarter ended September 30, 2023. The higher net interest expense was due to higher deferred financing fees and average outstanding borrowings as a result of the acquisition of Signature, which was funded through an amendment and restatement of Myers' existing loan agreement discussed below, and a higher weighted-average borrowing rate in the quarter ended September 30, 2024.
Income Taxes:
|
|
Quarter Ended September 30, |
|
|||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
Income (loss) before income taxes |
|
$ |
(12,855 |
) |
|
$ |
17,164 |
|
Income tax expense (benefit) |
|
$ |
(1,977 |
) |
|
$ |
4,417 |
|
Effective tax rate |
|
|
15.4 |
% |
|
|
25.7 |
% |
The Company’s effective tax rate was 15.4% for the quarter ended September 30, 2024, compared to 25.7% for the quarter ended September 30, 2023. The difference in the effective tax rate compared to the 21% U.S. federal statutory rate was primarily due to non-deductible expenses, which include expenses related to the Signature acquisition, that partially offset the income tax benefit from the current quarter loss before income taxes.
Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023
Net Sales:
(dollars in thousands) |
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
Segment |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Material Handling |
|
$ |
468,951 |
|
|
$ |
428,341 |
|
|
$ |
40,610 |
|
|
|
9.5 |
% |
Distribution |
|
|
163,543 |
|
|
|
193,693 |
|
|
|
(30,150 |
) |
|
|
(15.6 |
)% |
Inter-company sales |
|
|
(89 |
) |
|
|
(44 |
) |
|
|
(45 |
) |
|
|
|
|
Total net sales |
|
$ |
632,405 |
|
|
$ |
621,990 |
|
|
$ |
10,415 |
|
|
|
1.7 |
% |
Net sales for the nine months ended September 30, 2024 were $632.4 million, an increase of $10.4 million or 1.7% compared to the nine months ended September 30, 2023. Net sales increased due to $71.8 million of incremental sales from the acquisition of Signature on February 8, 2024, included in the Material Handling Segment. Signature's annual sales were approximately $110 million at the time of the acquisition. The increase in net sales was partially offset by lower volume of $47.1 million, lower pricing of $14.0 million and the effect of unfavorable currency translation of $0.3 million.
Net sales in the Material Handling Segment increased $40.6 million or 9.5% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Net sales increased due to $71.8 million of incremental sales from the acquisition of Signature on February 8, 2024, partially offset by lower volume of $19.9 million, lower pricing of $11.0 million and the effect of unfavorable currency translation of $0.3 million.
Net sales in the Distribution Segment decreased $30.2 million or 15.6% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to lower volume of $27.2 million and lower pricing of $3.0 million.
27
Cost of Sales & Gross Profit:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Cost of sales |
|
$ |
427,489 |
|
|
$ |
420,136 |
|
|
$ |
7,353 |
|
|
|
1.8 |
% |
Gross profit |
|
$ |
204,916 |
|
|
$ |
201,854 |
|
|
$ |
3,062 |
|
|
|
1.5 |
% |
Gross profit as a percentage of sales |
|
|
32.4 |
% |
|
|
32.5 |
% |
|
|
|
|
|
|
||
Gross profit increased $3.1 million, or 1.5%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to the benefits of the acquisition of Signature on February 8, 2024, favorable mix and lower material costs, partially offset by lower volume and pricing as described under Net Sales above, the impact from acquisition-related inventory step-up amortization of $4.5 million and unfavorable cost productivity. Gross margin was 32.4% for the nine months ended September 30, 2024 compared with 32.5% for the nine months ended September 30, 2023.
Selling, General and Administrative Expenses:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
SG&A expenses |
|
$ |
152,804 |
|
|
$ |
148,130 |
|
|
$ |
4,674 |
|
|
|
3.2 |
% |
SG&A expenses as a percentage of sales |
|
|
24.2 |
% |
|
|
23.8 |
% |
|
|
|
|
|
|
||
Selling, general and administrative (“SG&A”) expenses for the nine months ended September 30, 2024 were $152.8 million, an increase of $4.7 million or 3.2% compared to the same period in the prior year. Increases in SG&A expenses for the nine months ended September 30, 2024 were primarily due to $21.1 million of incremental SG&A, including $7.3 million of intangible amortization, from the acquisition of Signature on February 8, 2024 and $1.5 million of higher facility costs, partially offset by $10.1 million of lower incentive compensation, $2.8 million of lower legal and professional fees, excluding acquisition costs, $3.4 million of lower salaries and benefits, $1.1 million of lower commissions and $1.2 million of lower variable selling expenses. Acquisition and integration costs included in SG&A expenses increased $4.0 million due to the Signature acquisition described in Note 3. Additionally, the company incurred $1.3 million of consulting costs for the nine months ended September 30, 2023, to improve its capabilities to screen and execute large acquisitions. Executive severance was $1.4 million for the nine months ended September 30, 2024, compared to $0.7 million for the nine months ended September 30, 2023. Environmental matters, as described in Note 10 resulted in a net $0.7 million recovery for the nine months ended September 30, 2024, which compared to $2.2 million of charges for the nine months ended September 30, 2023.
Impairment Charges:
During the nine months ended September 30, 2024, the Company recorded a $22.0 million non-cash impairment charge, for the full carrying value of goodwill in the rotational molding reporting unit, included in the Material Handling Segment, as discussed in Note 7.
Net Interest Expense:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% Change |
|
||||
Net interest expense |
|
$ |
23,176 |
|
|
$ |
4,975 |
|
|
$ |
18,201 |
|
|
|
365.8 |
% |
Average outstanding borrowings, net |
|
$ |
372,759 |
|
|
$ |
96,112 |
|
|
$ |
276,647 |
|
|
|
287.8 |
% |
Weighted-average borrowing rate |
|
|
8.60 |
% |
|
|
6.74 |
% |
|
|
|
|
|
|
||
Net interest expense for the nine months ended September 30, 2024 was $23.2 million, an increase of $18.2 million, or 365.8%, compared with $5.0 million for the nine months ended September 30, 2023. The higher net interest expense was due to higher deferred financing fees and average outstanding borrowings as a result of the acquisition of Signature, which was funded through an amendment and restatement of Myers' existing loan agreement discussed below, and a higher weighted-average borrowing rate for the nine months ended September 30, 2024.
28
Income Taxes:
|
|
Nine Months Ended September 30, |
|
|||||
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
Income (loss) before income taxes |
|
$ |
6,667 |
|
|
$ |
48,827 |
|
Income tax expense (benefit) |
|
$ |
3,763 |
|
|
$ |
12,499 |
|
Effective tax rate |
|
|
56.4 |
% |
|
|
25.6 |
% |
The Company’s effective tax rate was 56.4% and 25.6% for the nine months ended September 30, 2024 and 2023, respectively. The increase in the effective tax rate is driven by the fixed non-deductible expenses, including expenses related to the Signature acquisition, on lower income before income taxes plus the tax effect of impairment charges.
Liquidity and Capital Resources:
The Company’s primary sources of liquidity are cash on hand, cash generated from operations and availability under the Amended Loan Agreement (defined below). At September 30, 2024, the Company had $29.7 million of cash, $239.4 million available under the Amended Loan Agreement and outstanding debt of $396.2 million, including the finance lease liability of $8.8 million. Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to manage through the working capital demands and the heightened uncertainty in the current macroeconomic environment. The Company believes that cash on hand, cash flows from operations and available capacity under its Amended Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth.
Operating Activities
Net cash provided by operating activities was $51.9 million for the nine months ended September 30, 2024, compared to $70.8 million in the same period in 2023. The decrease was primarily due to changes in working capital, primarily due to reductions in accounts payable and accrued expenses. Year to date cash used for working capital was $9.1 million for the nine months ended September 30, 2024, compared to cash generated from working capital of $9.8 million in the prior year to date period, primarily due to reductions in accounts receivable.
Investing Activities
Net cash used for investing activities was $365.5 million for the nine months ended September 30, 2024 compared to cash used of $19.3 million for the same period in 2023. In 2024, the Company paid $348.3 million to acquire Signature, net of cash acquired and working capital adjustments, as discussed in Note 3. Capital expenditures were $17.3 million and $19.3 million for the nine months ended September 30, 2024 and 2023, respectively. Full year 2024 capital expenditures are expected to be approximately $30 million.
Financing Activities
Cash provided by financing activities was $313.0 million for the nine months ended September 30, 2024 compared to cash used of $49.8 million for the same period in 2023. In 2024, the Company received proceeds of $400 million under a new term loan facility, as described below and repaid $38.0 million of senior unsecured notes, including $26.0 million of senior unsecured notes that matured in January 2024 and the prepayment of $12.0 million of senior unsecured notes in conjunction with the amendment and restatement to the Loan Agreement described below. The company also made scheduled repayments of the Term Loan A totaling $10.0 million. Net borrowings (repayments) of the Company's existing revolving credit facility were $(15.0) million and $(34.0) million for the nine months ended September 30, 2024 and 2023, respectively. Net proceeds from the issuance of common stock in connection with incentive stock option exercises were $3.1 million and $1.9 million for the nine months ended September 30, 2024 and 2023, respectively. Cash paid for tax withholdings on vesting of stock compensation totaled $2.0 million and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively. Fees paid for the amendment and restatement to the Loan Agreement in February 2024 totaled $9.2 million. The Company also used cash to pay dividends of $15.4 million and $15.3 million for the nine months ended September 30, 2024 and 2023, respectively.
29
Credit Sources
Seventh Amendment to Loan Agreement
On September 29, 2022, the Company entered into a Seventh Amended and Restated Loan Agreement (the “Seventh Amendment”), which amended the Sixth Amended and Restated Loan Agreement (the "Sixth Amendment"), dated March 12, 2021. The Seventh Amendment, among other things, extended the maturity date to September 2027 from March 2024. There was no change to the credit facility's borrowing limit of $250 million.
Repayment and termination of Senior Unsecured Notes
On January 12, 2024, the Company repaid $26.0 million of senior unsecured notes upon maturity using cash on hand and availability under the Loan Agreement. On February 6, 2024, in connection with the first amendment and restatement to the Loan Agreement described below, the Company prepaid the remaining $12.0 million face value of senior unsecured notes, which were due January 15, 2026, using availability under the revolving credit facility under the Loan Agreement. After giving effect to the payment in full, all outstanding senior unsecured notes under the Note Purchase Agreement have been paid and the Note Purchase Agreement has been terminated. In conjunction with the termination the Company recognized a loss on debt extinguishment of $0.1 million, primarily representing the make-whole fees on the senior unsecured notes and the unamortized value of the original issuance discount.
First Amendment to Loan Agreement
On February 8, 2024, the Company entered into Amendment No. 1 to the Seventh Amended and Restated Loan Agreement (“Amendment No. 1”), which amended the Seventh Amended and Restated Loan Agreement (the "Loan Agreement” – see also Note 11) dated September 29, 2022 (collectively, the “Amended Loan Agreement”). Amendment No. 1, among other things, permitted the acquisition of Signature Systems and provided a new 5-year $400 million term loan facility (“Term Loan A”). Term Loan A will amortize in eight quarterly installment payments of $5 million beginning June 30, 2024, quarterly installment payments of $10 million thereafter, and any remaining balance due upon maturity. Term Loan A may be voluntarily prepaid at any time, in whole or in part, without penalty or premium, however, all amounts repaid or prepaid in respect of Term Loan A may not be reborrowed.
Amendment No. 1 did not change the existing revolving credit facility’s maturity date or $250 million borrowing limit, which includes a letter of credit subfacility and swingline subfacility. In connection with Amendment No. 1, the Company incurred deferred financing fees of $9.2 million.
The Amended Loan Agreement is on substantially the same terms as the Loan Agreement, except Amendment No. 1 has amended, among other items, (i) to permit the Signature Systems acquisition, (ii) to modify the maximum leverage ratio to not exceed (x) 4.00 to 1:00 on a “net” basis for an initial “net” leverage ratio holiday period for the immediate fiscal quarter end after the Signature Systems acquisition is consummated and for the three immediately following fiscal quarter ends thereafter and (y) 3.25 to 1.00 on a “net” basis after such “net” leverage ratio holiday period (subject to additional “net” leverage ratio holiday periods at the election of the Company for such periods that are more fully described in the Amended Loan Agreement), (iii) to modify certain negative covenants (including the restricted payment covenant) so that the applicable incurrence tests for such negative covenants is now based on the new “net” leverage ratio level, (iv) to increase the applicable margins for the loans under the Amended Loan Agreement to range between 1.775% to 2.35% for Term SOFR, RFR, SONIA, EURIBOR and CORRA based loans and between 0.775% and 1.35% for base rate loans, in each case based from time to time on the determination of the Company’s then net leverage ratio, (v) to replace the Canadian Dealer Offered Rate (CDOR) as the applicable reference rate with respect to loans denominated in Canadian Dollars to the Canadian Overnight Repo Rate Average (CORRA), and (vi) to amend the scope of collateral securing the obligations under the Amended Loan Agreement to be an “all asset” lien (subject to customary provisions of excluded collateral not subject to the liens).
On May 2, 2024, the Company entered into an interest rate swap agreement to mitigate the variable interest rate risk of borrowings under the Amended Loan Agreement. The swap has a beginning notional value of $200.0 million, which reduces proportionately with scheduled Term Loan A amortization payments, and has a final maturity date of January 31, 2029. At September 30, 2024, the remaining notional value of the Company's interest rate swap totaled $195.0 million. The swap is designated as a cash flow hedge and effectively results in a fixed rate of 4.606% plus the applicable margin for the hedged debt, as described in Notes 1 and 11.
30
As of September 30, 2024, $239.4 million was available under the Amended Loan Agreement, after borrowings and the Company had $5.6 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business. Borrowings under the Amended Loan Agreement bear interest at the Term SOFR, RFR, SONIA, EURIBOR and CORRA-based borrowing rates.
As of September 30, 2024, the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company’s debt are a net leverage ratio (defined as net debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted) and an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense). The ratios as calculated under the terms of the Amended Loan Agreement as of and for the period ended September 30, 2024 are shown in the following table:
|
|
Required Level |
|
Actual Level |
|
|
Interest Coverage Ratio |
|
3.00 to 1 (minimum) |
|
|
5.52 |
|
Net Leverage Ratio |
|
4.00 to 1 (maximum) |
|
|
2.72 |
|
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 at September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company has certain financing arrangements that require interest payments based on floating interest rates, and to that extent, the Company’s financial results are subject to changes in the market rate of interest. Borrowings under the Amended Loan Agreement bear interest at the Term SOFR, RFR, SONIA, EURIBOR and CORRA-based borrowing rates. Based on current debt levels at September 30, 2024, if market interest rates decrease or increase one percent, the Company’s annual variable interest expense would change by approximately $2.0 million.
The Company has entered into an interest rate swap agreement to mitigate the variable interest rate risk under the Amended Loan Agreement, which effectively results in a fixed rate debt on a portion of its outstanding borrowings. Based on current debt levels at September 30, 2024, if market interest rates decrease or increase one percent, the Company's annual fixed rate interest expense on the fair value of the interest rate swap would change by approximately $6.8 million.
Foreign Currency Exchange Risk
Certain of the Company’s subsidiaries operate in foreign countries and their financial results are subject to exchange rate movements. The Company has operations in Canada and the United Kingdom with foreign currency exposure, primarily due to U.S. dollar sales made from businesses in Canada and the United Kingdom to customers in the United States. The Company has a systematic program to limit its exposure to fluctuations in exchange rates related to certain assets and liabilities of its operations in Canada and the United Kingdom that are denominated in U.S. dollars. The net exposure is generally less than $1 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 September 30, 2024, the Company had no foreign currency arrangements or contracts in place.
Commodity Price Risk
The Company uses certain commodity raw materials, primarily plastic resins, and other commodities, such as natural gas, in its operations. The cost of operations can be affected by changes in the market for these commodities, particularly plastic resins. The Company currently has no derivative contracts to hedge changes in raw material pricing. The Company may from time to time enter into forward buy positions for certain utility costs, which were not material at September 30, 2024. 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.
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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 SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
The Company carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
On February 8, 2024, the Company acquired the stock of Signature Systems. As permitted by SEC rules and regulations, the scope of management’s evaluation of internal control over financial reporting as of September 30, 2024 did not include an evaluation of the internal control over financial reporting of Signature. However, we are extending our oversight and monitoring processes that support our review of internal control over financial reporting to include Signature’s operations.
Excluding the Signature acquisition, during the nine months ended September 30, 2024, 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.
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PART II – Other Information
Item 1. Legal Proceedings
Certain legal proceedings in which the Company is involved are discussed in Note 10, 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, 2023. The Company’s disclosures relating to legal proceedings in Note 10, Contingencies, in the Unaudited Condensed Consolidated Financial Statements in Part I of this report are incorporated into Part II of this report by reference. The Company is a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in part by insurance. We believe that the outcome of these lawsuits and other proceedings will not individually or in the aggregate have a future material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information regarding the Company’s stock repurchase plan during the quarter ended September 30, 2024:
|
|
Total Number of |
|
|
Average Price Paid |
|
|
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) |
|
||||
7/1/2024 to 7/31/2024 |
|
|
— |
|
|
$ |
— |
|
|
|
5,547,665 |
|
|
|
2,452,335 |
|
8/1/2024 to 8/31/2024 |
|
|
— |
|
|
|
— |
|
|
|
5,547,665 |
|
|
|
2,452,335 |
|
9/1/2024 to 9/30/2024 |
|
|
— |
|
|
|
— |
|
|
|
5,547,665 |
|
|
|
2,452,335 |
|
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2024, none of our directors or executive officers
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Item 6. Exhibits
3.1 |
|
3.2 |
|
10.1* |
|
10.2* |
|
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 September 30, 2024, formatted in inline XBRL includes: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Financial Position, (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements. |
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* |
Indicates executive compensation plan or arrangement |
34
SIGNATURE
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. |
|
|
November 4, 2024 |
/s/ Grant E. Fitz |
|
Grant E. Fitz |
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
35