MYERS INDUSTRIES INC, 10-Q filed on 10/30/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 24, 2014
Document Information [Line Items]
 
 
Entity Registrant Name
MYERS INDUSTRIES INC 
 
Entity Central Index Key
0000069488 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
31,511,839 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net sales
$ 162,109 
$ 141,442 
$ 465,378 
$ 440,009 
Cost of sales
122,148 
98,924 
340,814 
310,398 
Gross profit
39,961 
42,518 
124,564 
129,611 
Selling, general and administrative expenses
42,639 
30,253 
107,073 
94,613 
Operating income (loss)
(2,678)
12,265 
17,491 
34,998 
Interest expense, net
2,637 
1,113 
5,888 
3,309 
Income (loss) from continuing operations before income taxes
(5,315)
11,152 
11,603 
31,689 
Income tax expense (benefit)
(1,697)
4,293 
4,131 
11,629 
Income (loss) from continuing operations
(3,618)
6,859 
7,472 
20,060 
Income (loss) from discontinued operations
875 
(371)
(3,786)
2,623 
Net income (loss)
$ (2,743)
$ 6,488 
$ 3,686 
$ 22,683 
Income (loss) per common share from continuing operations:
 
 
 
 
Basic (in dollars per share)
$ (0.11)
$ 0.20 
$ 0.23 
$ 0.60 
Diluted (in dollars per share)
$ (0.11)
$ 0.20 
$ 0.23 
$ 0.59 
Income (loss) per common share from discontinued operations:
 
 
 
 
Basic (in dollars per share)
$ 0.02 
$ (0.01)
$ (0.12)
$ 0.08 
Diluted (in dollars per share)
$ 0.02 
$ (0.01)
$ (0.12)
$ 0.08 
Net income per common share:
 
 
 
 
Basic (in dollars per share)
$ (0.09)
$ 0.19 
$ 0.11 
$ 0.68 
Diluted (in dollars per share)
$ (0.09)
$ 0.19 
$ 0.11 
$ 0.67 
Dividends declared per share (in dollars per share)
$ 0.13 
$ 0.09 
$ 0.39 
$ 0.27 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net income (loss)
$ (2,743)
$ 6,488 
$ 3,686 
$ 22,683 
Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustment
(9,638)
255 
(6,780)
(5,590)
Pension liability
(75)
Total other comprehensive income (loss), net of tax
(9,638)
255 
(6,780)
(5,665)
Comprehensive income (loss)
$ (12,381)
$ 6,743 
$ (3,094)
$ 17,018 
Condensed Consolidated Statements of Financial Position (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current Assets
 
 
Cash
$ 8,358 
$ 6,539 
Accounts receivable-less allowances of $1,019 and $1,314, respectively
99,460 
74,932 
Inventories
 
 
Finished and in-process products
53,441 
34,337 
Raw materials and supplies
28,208 
18,786 
Inventory net
81,649 
53,123 
Prepaid expenses
8,477 
5,492 
Income Taxes Receivable, Current
4,035 
Deferred income taxes
2,228 
2,064 
Assets held for sale
140,815 
92,760 
Total Current Assets
345,022 
234,910 
Other Assets
 
 
Goodwill
70,203 
51,075 
Patents and other intangible assets, net
75,846 
14,255 
Assets held for sale
67,808 
Other
4,300 
2,959 
Total other non current assets
150,349 
136,097 
Property, Plant and Equipment, at Cost
 
 
Land
2,957 
3,082 
Buildings and leasehold improvements
45,021 
48,159 
Machinery and equipment
346,959 
294,537 
Property, Plant and Equipment, at cost
394,937 
345,778 
Less allowances for depreciation and amortization
(260,363)
(247,328)
Property, plant and equipment, net
134,574 
98,450 
Total Assets
629,945 
469,457 
Current Liabilities
 
 
Accounts payable
66,298 
68,897 
Accrued expenses
 
 
Employee compensation
19,387 
17,413 
Income taxes
5,519 
Taxes, other than income taxes
2,686 
2,173 
Accrued interest
1,940 
103 
Liabilities of Assets Held-for-sale
34,989 
40,044 
Other
18,944 
16,434 
Total Current Liabilities
144,244 
150,583 
Long-term debt, net
276,867 
44,347 
Liabilities of Assets Held-for-sale, Noncurrent
7,825 
Other liabilities
13,893 
14,687 
Deferred income taxes
18,939 
16,508 
Shareholders’ Equity
 
 
Serial Preferred Shares (authorized 1,000,000 shares; none issued and outstanding)
Common Shares, without par value (authorized 60,000,000 shares; outstanding 31,539,664 and 33,572,778; after deducting treasury shares of 6,227,473 and 4,203,179, respectively)
19,085 
20,313 
Additional paid-in capital
223,788 
266,276 
Accumulated other comprehensive (loss) income
(4,353)
2,427 
Retained deficit
(62,518)
(53,509)
Total Shareholders' Equity
176,002 
235,507 
Total Liabilities and Shareholders' Equity
$ 629,945 
$ 469,457 
Condensed Consolidated Statements of Financial Position (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Current Assets
 
 
Allowances for accounts receivable
$ 1,019 
$ 1,314 
Shareholders’ Equity
 
 
Preferred Shares, shares authorized (in shares)
1,000,000 
1,000,000 
Preferred Shares, shares issued (in shares)
Preferred Shares, shares outstanding (in shares)
Common Shares, shares authorized (in shares)
60,000,000 
60,000,000 
Common Shares, shares outstanding (in shares)
31,539,664 
33,572,778 
Common shares, treasury (in shares)
6,227,473 
4,203,179 
Condensed Consolidated Statement of Shareholders' Equity (Unaudited) (USD $)
In Thousands, unless otherwise specified
Total
Common Stock
Additional Paid-In Capital
Accumulative Other Comprehensive Income (Loss)
Retained Deficit
Beginning balance at Dec. 31, 2013
$ 235,507 
$ 20,313 
$ 266,276 
$ 2,427 
$ (53,509)
Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income (loss)
3,686 
 
 
 
3,686 
Net sales under option plans
 
119 
2,305 
 
 
Dividend reinvestment plan
 
97 
 
 
Restricted stock vested
 
76 
(76)
 
 
Restricted stock and stock option grants, net
 
2,259 
 
 
Tax benefit from options
 
 
681 
 
 
Foreign currency translation adjustment
 
 
 
(6,780)
 
Purchases for treasury-net
 
(1,410)
(46,896)
 
 
Stock Issued During Period, Value, Other
 
194 
 
 
Shares withheld for employee taxes on equity awards
 
(31)
(1,052)
 
 
Dividends declared - $.39 per share
 
 
 
 
(12,695)
Ending balance at Sep. 30, 2014
$ 176,002 
$ 19,085 
$ 223,788 
$ (4,353)
$ (62,518)
Condensed Consolidated Statement of Shareholders' Equity (Unaudited) (Parenthetical)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Statement of Stockholders' Equity [Abstract]
 
 
 
 
Dividends declared per share (in dollars per share)
$ 0.13 
$ 0.09 
$ 0.39 
$ 0.27 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash Flows from Operating Activities
 
 
Net income
$ 3,686 
$ 22,683 
(Loss) income from discontinued operations, net of income taxes
(3,786)
2,623 
Income from continuing operations
7,472 
20,060 
(Loss) income from discontinued operations, net of income taxes
 
 
Depreciation
17,749 
15,310 
Amortization
4,275 
2,355 
Non-cash stock compensation
2,413 
2,142 
Amortization of deferred financing costs
560 
396 
Deferred income taxes
3,073 
2,348 
Other long-term liabilities
1,422 
1,757 
(Gain) loss from asset dispositions
(229)
615 
Tax benefit from options
(681)
(167)
Other Noncash Income (Expense)
200 
202 
Payments on performance based compensation
(1,293)
(1,719)
Cash flows provided by (used for) working capital, net of effect of acquisitions:
 
 
Accounts receivable
(5,584)
(7,605)
Inventories
(15,446)
(5,175)
Prepaid expenses and other current assets
(8,933)
(1,820)
Accounts payable and accrued expenses
(7,828)
602 
Net cash (used for) provided by operating activities-continuing operations
(2,830)
29,301 
Net cash (used for) provided by operating activities-discontinued operations
(14,054)
17,542 
Net cash (used for) provided by operating activities
(16,884)
46,843 
Net cash (used for) provided by operating activities-continuing operations
 
 
Net cash (used for) provided by operating activities-discontinued operations
(10,860)
(13,464)
Payments to Acquire Businesses, Net of Cash Acquired
(157,811)
(600)
Proceeds from sale of property, plant and equipment
548 
Acquisition of business, net of cash acquired
(68)
Net Cash Provided by (Used in) Investing Activities, Continuing Operations
(168,123)
(14,132)
Cash Provided by (Used in) Investing Activities, Discontinued Operations
12,876 
(5,607)
Proceeds from sale of property, plant and equipment
(155,247)
(19,739)
Other
 
 
Proceeds from long-term debt
89,000 
Net borrowing on credit facility
143,390 
(15,007)
Cash dividends paid
(11,602)
(6,046)
Proceeds from issuance of common stock
2,524 
5,765 
Repayment of long-term debt
681 
167 
Repurchase of common stock
(48,306)
(5,271)
Shares withheld for employee taxes on equity awards
(1,083)
(684)
Deferred financing costs
(543)
Net cash provided by (used for) financing activities - continuing operations
174,061 
(21,076)
Cash Provided by (Used in) Financing Activities, Discontinued Operations
(2,317)
Net Cash Provided by (Used in) Financing Activities
174,061 
(23,393)
Foreign Exchange Rate Effect on Cash
(111)
(655)
Net increase in cash
1,819 
3,056 
Cash at January 1
6,539 
3,948 
Cash at September 30
8,358 
7,004 
Interest
3,910 
2,629 
Income taxes
$ 10,910 
$ 9,776 
Statement of Accounting Policies
Statement of Accounting Policy
Statement of 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 without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2014, and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2014.
Segment Realignment and Discontinued Operations

During the second quarter of 2014, the Company realigned its reportable segments as a result of organizational changes to better align its resources to support its ongoing business strategy. The realignment is consistent with the manner in which our Chief Operating Decision Maker evaluates performance and makes resource allocation decisions. Historical segment information has been adjusted to reflect the effect of this change. Our segment information is more fully described in Note 15. Historical information also reflects discontinued operations presentation for businesses disposed of or meeting the held for sale criteria as described in Note 3. Reclassifications of prior year amounts have been made in conformity with generally accepted accounting principles to conform to current year’s reporting presentation.

Recent Accounting Pronouncements Not Yet Adopted
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This guidance states that the disposal of a component of an entity is to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The pronouncement also requires additional disclosures regarding individually significant disposals of components that do not meet the criteria to be recognized as a discontinued operation as well as additional and expanded disclosures. The guidance is effective for the Company on January 1, 2015 and is to be applied prospectively. While early adoption is permitted, the Company plans to adopt this guidance on January 1, 2015. The Company is currently evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for the Company on January 1, 2017. The Company is currently evaluating the impact the adoption of this guidance will have on its financial position, results of operations, cash flows and related disclosures.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. Under ASU 2014-15, management will be required to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this standard is not expected to have an impact on the Company’s financial statement disclosures.


Translation of Foreign Currencies

All asset and liability accounts of consolidated foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period and income statement items are translated monthly at an average currency exchange rate for the period. The resulting translation adjustment is recorded in other comprehensive income (loss) as a separate component of shareholders' equity.
Fair Value Measurement
The Company follows guidance included in ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), for its financial assets and liabilities, as required. The guidance established a common definition for fair value to be applied to U.S. GAAP requiring the use of fair value, established a framework for measuring fair value, and expanded disclosure requirements about such fair value measurements. The guidance did not require any new fair value measurements, but rather applied to all other accounting pronouncements that require or permit fair value measurements. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical 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 fair value of the Company’s cash, accounts receivable, accounts payable and accrued expenses are considered to have a fair value which approximates carrying value due to the nature and relative short maturity of these assets and liabilities.
The fair value of debt under the Company’s Loan Agreement approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of the revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered level 2 inputs. At September 30, 2014, the fair value of the Company's $100.0 million fixed rate senior unsecured notes was estimated at $103.8 million. At December 31, 2013, the fair value of the Company's $11.0 million fixed rate senior unsecured notes was estimated at $10.8 million.
Revenue Recognition

The Company recognizes revenues from the sale of products, net of actual and estimated returns, at the point of passage of title and risk of loss, which is generally at time of shipment, and collectability of the fixed or determinable sales price is reasonably assured.



















Accumulated Other Comprehensive Income

The balances in the Company’s accumulated other comprehensive income ("AOCI") as of September 30, 2014 and September 30, 2013 are as follows:
 
Foreign Currency
 
Defined Benefit Pension Plans
 
Total
Balance at January 1, 2013
$
12,784

 
$
(2,141
)
 
$
10,643

Other comprehensive income before reclassifications
(851
)
 

 
(851
)
Amounts reclassified from accumulated other comprehensive income

 
(75
)
 
(75
)
Net current-period other comprehensive income
(851
)
 
(75
)
 
(926
)
Balance at March 31, 2013
11,933

 
(2,216
)
 
9,717

Other comprehensive income before reclassifications
(4,994
)
 

 
(4,994
)
Balance at June 30, 2013
6,939

 
(2,216
)
 
4,723

Other comprehensive income before reclassifications
255

 

 
255

Balance at September 30, 2013
$
7,194

 
$
(2,216
)
 
$
4,978

 
 
 
 
 
 
Balance at January 1, 2014
$
3,493

 
$
(1,066
)
 
$
2,427

Other comprehensive income before reclassifications
54

 

 
54

Balance at March 31, 2014
3,547

 
(1,066
)
 
2,481

Other comprehensive income before reclassifications
2,804

 

 
2,804

Balance at June 30, 2014
6,351

 
(1,066
)
 
5,285

Other comprehensive income before reclassifications
(9,638
)
 

 
(9,638
)
Balance at September 30, 2014
$
(3,287
)
 
$
(1,066
)
 
$
(4,353
)

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company maintains operating cash and reserves for replacement balances in financial institutions which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal.
Acquisitions
Acquisitions
Acquisition

On July 2, 2014, CA Acquisition Inc., now known as Scepter Canada Inc., and a wholly-owned subsidiary of Myers Industries, Inc., completed the purchase of substantially all of the assets and assumption of certain liabilities of Scepter Corporation and certain real property of SHI Properties Inc., both located in Scarborough, Ontario, Canada. Contemporaneously with the asset acquisition, Crown US Acquisition Company, now known as Scepter US Holding Company, and another wholly-owned subsidiary of Myers Industries, Inc., completed the purchase of all of the issued and outstanding membership interests of Eco One Leasing, LLC and Scepter Manufacturing, LLC, both located in Miami, Oklahoma. Eco One Leasing, LLC was subsequently merged into Scepter Manufacturing, LLC. The total purchase price for these acquisitions (collectively, “Scepter”) was approximately $157.8 million in cash, which includes an estimated working capital adjustment of $0.8 million subject to further adjustment based on the final working capital and other specified items. The acquisition of Scepter was funded from net proceeds from additional borrowings of approximately $135.3 million under the Fourth Amended and Restated Loan Agreement and cash on hand of $22.5 million.




The acquisition of Scepter strengthens and expands the Company's position as an industry leading producer of portable marine fuel containers, portable fuel and water containers and accessories, ammunition containers, storage totes and environmental bins for the marine, military, consumer and industrial markets. The acquisition of Scepter is consistent with the Company's business strategy and the products fit well with the Company's overall portfolio. The operating results of Scepter have been included within our Condensed Consolidated Statement of Income (Unaudited) and within the Company's Material Handling Segment since the date of acquisition. The Condensed Consolidated Statements of Income (Unaudited) for the Company for the three and nine months ended September 30, 2014 include net sales of $21.6 million and an operating loss of $5.2 million related to Scepter. Included in Scepter's operating results for the three months ended September 30, 2014 were approximately $3.0 million in transactional costs and $2.3 million of inventory purchase accounting fair value adjustments charged to cost of sales as the inventory was sold. Total transactional costs incurred relating to the Scepter acquisition were approximately $3.6 million for the nine months ended September 30, 2014 and are included in general and administrative expenses in the Condensed Consolidated Statements of Income (Unaudited).
The Company accounted for the acquisition of Scepter using the acquisition method of accounting, which requires among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. As of September 30, 2014, the entire purchase price allocation is preliminary. The Company has received a preliminary third-party valuation of certain tangible and intangible assets of Scepter and, therefore, the values attributed to those acquired assets in the condensed consolidated financial statements are subject to adjustment. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional adjustments will be recorded during the measurement period.
Scepters assets and liabilities are recorded at fair value as of the date of acquisition using primarily level 3 fair value inputs. The purchase consideration, related preliminary estimated allocations, and resulting excess over fair value of net assets acquired are as follows:
Assets acquired:
 
 
Current assets
 
$
34,572

Property, plant and equipment
 
44,613

Intangible assets
 
66,500

Assets acquired
 
$
145,685

 
 
 
Liabilities assumed:
 
 
Current liabilities
 
$
8,877

Total liabilities assumed
 
8,877

 
 
 
Goodwill
 
21,003

Total consideration
 
$
157,811


Goodwill is calculated as the excess of the consideration transferred over the assets acquired and liabilities assumed and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The Company expects that approximately $21.0 million of goodwill recognized for the acquisition will be deductible for tax purposes.
Identifiable intangible assets acquired in connection with the acquisition of Scepter are as follows:
 
 
 
 
Estimated
 
 
 
 
Fair Value
 
Useful Life
 
Valuation Method
Intangible assets not subject to amortization:
 

 
 
 
 
Trademarks and trade names
 
$
8,900

 

 
Relief from royalty
 
 

 
 
 
 
Intangible assets subject to amortization:
 

 
 
 
 
Technology
 
22,300

 
10 years
 
Relief from royalty
Customer relationships
 
35,300

 
6 years
 
Multi-period excess earnings
 
 
57,600

 
 
 
 
Total
 
$
66,500

 
 
 
 





The following unaudited pro forma information presents a summary of the consolidated results of operations for the Company as if the acquisition of Scepter had occurred on January 1, 2013.
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Net sales
 
$
162,109

 
$
165,642

 
$
516,774

 
$
515,605

 
 

 

 

 

Income from continuing operations
 
$
357

 
$
7,688

 
$
14,717

 
$
19,679

 
 

 

 

 

Income per share from continuing operations:
 

 

 

 

Basic
 
$
0.01

 
$
0.23

 
$
0.45

 
$
0.59

Diluted
 
$
0.01

 
$
0.22

 
$
0.45

 
$
0.58


The unaudited pro forma consolidated results are based on the Company’s historical financial statements and those of Scepter and do not necessarily indicate the results of operations that would have resulted had the acquisition actually been completed at the beginning of the applicable period presented. The pro forma financial information assumes that the companies were combined as of January 1, 2013. The pro forma results reflect the business combination accounting effects from the acquisition including amortization charges from the acquired intangible assets, inventory purchase accounting adjustments charged to cost of sales as the inventory is sold and increased interest expense associated with debt incurred to fund the acquisition. The unaudited pro forma consolidated results do not give effect to the synergies of the acquisition and are not indicative of the results of operations in future periods.
Discontinued Operations
Discontinued Operations
Discontinued Operations

On June 20, 2014, the Company completed the sale of the assets and associated liabilities of its wholly-owned subsidiaries WEK Industries, Inc. and Whiteridge Plastics LLC (collectively “WEK”) for approximately $19.9 million, which includes a working capital adjustment of approximately $0.4 million based on the estimated level of working capital as of the closing date of the sale. Of the total proceeds from the sale of WEK, approximately $1.0 million are held in escrow to be received in December 2015. The Company recorded a gain on the sale of WEK of approximately $2.4 million, net of tax of $1.3 million. WEK is a premier blow molder of custom engineered plastic components for the heavy truck, recreational vehicle, marine, appliance and consumer products industries. WEK was previously reported as part of our former Engineered Products Segment.

In addition, during the second quarter of 2014, the Company’s Board of Directors approved the commencement of the sale process to divest its Lawn and Garden Segment to allow it to focus resources on its core growth platforms. The Lawn and Garden Segment serves the North American horticulture market with plastic products such as seedling trays, nursery products, hanging baskets, custom print containers as well as decorative resin planters. The business is available for sale in its present condition and it is anticipated that a sale will be completed by the end of the second quarter of 2015.


















Myers Industries, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except where otherwise indicated)

The Lawn and Garden Segment meets the held-for sale criteria under the requirements of ASC 360. The Company performed a fair value assessment in accordance with ASC 820 for its financial assets and liabilities included in discontinued operations. The Company’s assessment focused on whether it is more likely than not that the fair value of the Lawn and Garden Segment at September 30, 2014 was less than its carrying value. The Company used a combination of valuation techniques primarily using discounted cash flows to determine the fair value of its Lawn and Garden Segment and market based multiples as supporting evidence. The variables and assumptions used, all of which are level 3 fair value inputs, included the projections of future revenues and expenses, working capital, terminal values, discount rates and long term growth rates. The market multiples observed in sale transactions were determined separately based on the weighted average cost of capital determined for the Company’s Lawn and Garden Segment. In addition, we made certain judgments about the selection of comparable companies used in determining market multiples in valuing our Lawn and Garden Segment, as well as certain assumptions to allocate shared assets and liabilities to calculate values for that business. The underlying assumptions used were based on historical actual experience and future expectations that are consistent with those used in the Company’s strategic plan. The Company compared the fair value of the Lawn and Garden Segment to its respective carrying value, including related goodwill. Our estimate of the fair value of the Lawn and Garden Segment could change over time based on a variety of factors, including actual operating performance of the underlying businesses or the impact of future events on the cost of capital and the related discount rates used. Since the estimated fair value less cost to sell for the Lawn and Garden Segment exceeded its carrying value as of September 30, 2014, no adjustments were made to its carrying value.

The Company has classified and accounted for the assets and liabilities of the Lawn and Garden Segment and WEK, for periods prior to the sale, as held for sale in the accompanying Condensed Consolidated Statements of Financial Position (Unaudited) and their operating results, net of tax, as discontinued operations in the accompanying Condensed Consolidated Statements of Income (Unaudited) for all periods presented.
Summarized selected financial information for the Lawn and Garden Segment and WEK for the three and nine months ended September 30, 2014 and 2013, are presented in the following table.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014*
 
2013
Net sales
 
$
44,957

 
$
53,478

 
$
149,634

 
$
173,916

Income (loss) from discontinued operations before income taxes
 
$
758

 
$
(188
)
 
$
(9,908
)
 
$
3,430

Income tax expense (benefit)
 
(117
)
 
183

 
(3,694
)
 
807

Income (loss) from discontinued operations
 
875

 
(371
)
 
(6,214
)
 
2,623

Net gain on sale of discontinued operations, net of tax of $1.3 million
 

 

 
2,428

 

Income (loss) from discontinued operations
 
$
875

 
$
(371
)
 
$
(3,786
)
 
$
2,623

 
 
 
 
 
 
 
 
 
* Includes WEK operating results through June 20, 2014.









Myers Industries, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except where otherwise indicated)
The assets and liabilities of discontinued operations are stated separately as of September 30, 2014 and December 31, 2013, in the Condensed Consolidated Statements of Financial Position (Unaudited) and are comprised of the following items:
 
 
September 30,
 
December 31,
 
 
2014
 
2013
Assets
 
 
 
 
Accounts receivable-net
 
$
26,256

 
$
37,527

Inventories
 
56,809

 
53,401

Prepaid expenses and other current assets
 
1,417

 
1,832

Income taxes refundable
 
1,889

 

Goodwill
 
9,220

 
9,567

Patents and other intangible assets, net
 
6,262

 
6,860

Property, plant and equipment, net
 
38,219

 
51,028

Other
 
743

 
353

Total Assets Held for Sale
 
$
140,815

 
$
160,568

 
 
 
 
 
Liabilities
 
 
 
 
 Accounts payable
 
$
22,658

 
$
29,366

 Accrued expenses and other liabilities
 
12,331

 
18,503

Total Liabilities Held for Sale
 
$
34,989

 
$
47,869



The Lawn and Garden Segment restructuring plan, announced in July 2013, detailed the closure of two manufacturing plants: one in Brantford, Ontario and the second in Waco, Texas. The restructuring actions include closure, relocation and employee related costs. Through September 30, 2014, the Lawn and Garden Segment has incurred approximately $14 million of charges under its restructuring plan. Restructuring actions under the plan have been completed.

Restructuring charges related to discontinued operations for the three and nine months ended September 30, 2014 and 2013 are presented in the following table:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Severance and personnel
$
428

 
$
50

 
$
1,596

 
$
310

Other exit costs
187

 
943

 
3,461

 
1,822

Total
$
615

 
$
993

 
$
5,057

 
$
2,132

Inventories
Inventories
Inventories
Inventories are stated at the lower of cost or market. Approximately forty percent of the Company’s inventories use the last-in, first-out (LIFO) method of determining cost. All other inventories are valued at the first-in, first-out ("FIFO") method of determining cost. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management’s control, estimated interim results, which were immaterial, are subject to change in the final year-end LIFO inventory valuation and therefore, no adjustment was recorded as of September 30, 2014.
Account Receivable Factoring
Account Receivable Factoring
Accounts Receivable Factoring

During the third quarter of 2014, the Company’s wholly-owned subsidiaries Plasticos Novel Do Nordeste S.A. and Plasticos Novel Do Parana S.A. (collectively, "Novel") entered into a factoring agreement to sell, without recourse, certain of their Brazilian real -based trade accounts receivables to an unrelated third party financial institution as part of its working capital management. The sale of these receivables accelerated the collection of the Company's cash and reduced credit exposure. Under the terms of the factoring agreement, the Company retains no rights or interest, has no obligations with respect to the sold receivables, and does not service the receivables after the sale. As such, the factoring of trade receivables under this agreement is accounted for as a sale. The Company accounts for its trade accounts receivable factoring program as required under ASC 860, Transfers and Servicing. During the quarter, $8.1 million of trade accounts receivables had been sold under the terms of the factoring agreement for cash proceeds of $7.9 million. The receivables sold pursuant to the factoring agreement have been


Myers Industries, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except where otherwise indicated)

recorded as a reduction of trade accounts receivable and as cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. The Company pays an administrative fee based on the dollar value of receivables sold. Administrative fees related to this program for the period ended September 30, 2014 were $0.2 million and are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Unaudited).
Other Accrued Expenses
Other Accrued Expenses
Other Accrued Expenses

Other accrued expenses consisted of the following:
 
 
September 30, 2014
 
December 31, 2013
Deposits and amounts due to customers
 
$
5,295

 
$
7,664

Dividends payable
 
4,268

 
3,174

Accrued legal and professional fees
 
500

 
289

Other accrued expenses
 
8,881

 
5,307

 
 
$
18,944

 
$
16,434

Goodwill and Intangible Assets
Goodwill and Intangible Assets
Goodwill and Intangible Assets
The Company is required to test for impairment on at least an annual basis. In addition, the Company tests for impairment whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. Such events may include, but are not limited to, significant changes in economic and competitive conditions, the impact of the economic environment on the Company's customer base or its businesses, or a material negative change in its relationships with significant customers. The Company conducts its annual impairment assessment as of October 1. Refer to Note 3 regarding assessment of fair value of our Lawn and Garden Segment as of September 30, 2014.
The carrying amount of goodwill at January 1, 2014 reflects our new reportable segments, more fully described in Note 15. The change in goodwill for the nine months ended September 30, 2014 was as follows:
Segment
Balance at January 1, 2014
 
Acquisitions
 
Foreign
Currency
Translation
 
Balance at September 30, 2014
Material Handling
$
50,570

 
$
21,003

 
$
(1,875
)
 
$
69,698

Distribution
505

 

 

 
505

 
$
51,075

 
$
21,003

 
$
(1,875
)
 
$
70,203


Intangible assets other than goodwill primarily consist of trade names, customer relationships, patents, and technology assets established in connection with acquisitions. These intangible assets, other than certain trade names, are amortized over their estimated useful lives. The Company has indefinite lived trade names which had a carrying value of $11.4 million and $2.5 million at September 30, 2014 and December 31, 2013, respectively. The estimated annual amortization expense for intangible assets with finite lives is $6.6 million for 2014, $10.6 million in 2015; $10.5 million in 2016; $9.5 million in 2017, $9.0 million in 2018 and $8.6 million in 2019.



Myers Industries, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except where otherwise indicated)
Intangible assets at September 30, 2014 and December 31, 2013 consisted of the following:
 
 
 
September 30, 2014
 
December 31, 2013
 
Weighted Average Useful Life (years)
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
Trade Names
5.6
 
$
11,640

 
$
(102
)
 
$
11,538

 
$
2,789

 
$
(78
)
 
$
2,711

Customer Relationships
5.4
 
42,290

 
(6,479
)
 
35,811

 
7,968

 
(4,515
)
 
3,453

Technology
9.3
 
27,746

 
(1,885
)
 
25,861

 
5,502

 
(918
)
 
4,584

Patents
2.4
 
10,900

 
(8,266
)
 
2,634

 
10,900

 
(7,448
)
 
3,452

Non-Compete
1.4
 
150

 
(148
)
 
2

 
150

 
(95
)
 
55

 
 
 
$
92,726

 
$
(16,880
)
 
$
75,846

 
$
27,309

 
$
(13,054
)
 
$
14,255

Net Income Per Common Share
Net Income (Loss) Per Common Share
Net Income (Loss) Per Common Share
Net income (loss) per common share, as shown on the Condensed Consolidated Statements of Income (Unaudited), is determined on the basis of the weighted average number of common shares outstanding during the period as follows:
 
Three Months Ended
 
Nine Month Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
31,641,680

 
33,670,639

 
32,510,415

 
33,574,801

Dilutive effect of stock options and restricted stock

 
538,170

 
488,967

 
416,220

Weighted average common shares outstanding diluted
31,641,680

 
34,208,809

 
32,999,382

 
33,991,021


Options to purchase 198,500 shares of common stock that were outstanding for the nine month period ended September 30, 2014, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares. There were 435,559 dilutive common shares excluded from the computation of loss per common share for three months ended September 30, 2014 due to the Company's net loss for the period. Options to purchase 123,900 shares of common stock that were outstanding for the nine month period ended September 30, 2013, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of common shares.
Restructuring
Restructuring
Restructuring

The charges related to various restructuring programs implemented by the Company are included in selling, general and administrative ("SG&A") expenses and cost of sales depending on the type of cost incurred. The restructuring charges for the three and nine months ended September 30, 2014 and 2013 are presented in the following tables.
 
Three Months Ended September 30,
 
2014
 
2013
Segment
Cost of sales
Selling, general and administrative
Total
 
Cost of sales
Selling, general and administrative
Total
Distribution
$

$
4

$
4

 
$

$
25

$
25

Material Handling
112

230

342

 



Total
$
112

$
234

$
346

 
$

$
25

$
25

 
Nine Months Ended September 30,
 
2014
 
2013
Segment
Cost of sales
Selling, general and administrative
Total
 
Cost of sales
Selling, general and administrative
Total
Distribution
$

$
764

$
764

 
$

$
117

$
117

Material Handling
189

260

449

 
177

48

225

Corporate



 

17

17

Total
$
189

$
1,024

$
1,213

 
$
177

$
182

$
359



The accrued liability balance for severance and other exit costs associated with restructuring are presented in the following table.
 
Severance and Personnel
 
Other Exit Costs
 
Total
Balance at January 1, 2013
$
318

 
$

 
$
318

Provision
284

 
75

 
359

Less: Payments
(602
)
 
(75
)
 
(677
)
Balance at September 30, 2013
$

 
$

 
$

 
 
 
 
 
 
Balance at January 1, 2014
$

 
$

 
$

Provision
1,139

 
74

 
1,213

Less: Payments
(1,139
)
 
(74
)
 
(1,213
)
Balance at September 30, 2014
$

 
$

 
$


In January 2014, the Distribution Segment announced the closing of its Canadian branches which operated under the name Myers Tire Supply International. The restructuring actions included closure, lease cancellation and employee related costs. The aggregate restructuring charges related to this plan through September 30, 2014 were approximately $0.8 million. Restructuring actions under the plan have been completed.
Stock Compensation
Stock Compensation
Stock Compensation
The Company’s 2008 Incentive Stock Plan (the “2008 Plan”) authorizes the Compensation Committee of the Board of Directors to issue up to 3,000,000 shares of various types of stock based awards including stock options, restricted stock and stock appreciation rights to key employees and directors. In general, options granted and outstanding vest over a three year period and expire ten years from the date of grant.
Stock compensation expense reduced income from continuing operations before taxes approximately $0.8 million for both the three months ended September 30, 2014 and 2013. Stock compensation expense reduced income from continuing operations before taxes approximately $2.4 million and $2.1 million for the nine months ended September 30, 2014 and 2013, respectively. These expenses are included in SG&A expenses in the accompanying Condensed Consolidated Statements of Income (Unaudited). Total unrecognized compensation cost related to non-vested share based compensation arrangements at September 30, 2014 was approximately $4.8 million which will be recognized over the next three years, as such compensation is earned.
On March 7, 2014, stock options for 209,500 shares were granted with a three year vesting period. The fair value of options granted is estimated using a binomial lattice option pricing model based on assumptions set forth in the following table. The Company uses historical data to estimate employee exercise and departure behavior. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and through the expected term. The dividend yield rate is based on the Company’s historical dividend yield. The expected volatility is derived from historical volatility of the Company’s shares and those of similar companies measured against the market as a whole.
Model
 
Risk free interest rate
2.80
%
Expected dividend yield
2.50
%
Expected life of award (years)
7.0

Expected volatility
50.00
%
Fair value per option share
$
7.05



The following table provides a summary of stock option activity for the period ended September 30, 2014:
 
Shares
 
Average
Exercise
Price
 
Weighted
Average
Life
Outstanding at January 1, 2014
1,574,572

 
$
12.14

 
 
Options granted
209,500

 
20.93

 
 
Options exercised
(196,541
)
 
12.27

 
 
Canceled or forfeited
(35,752
)
 
15.48

 
 
Outstanding at September 30, 2014
1,551,779

 
$
13.23

 
5.90 years
Exercisable at September 30, 2014
1,105,242

 
$
11.62

 
4.76 years


The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of all stock options exercised during the three months ended September 30, 2014 and 2013 was approximately $0.2 million and $1.2 million, respectively. The total intrinsic value of all stock options exercised during the nine months ended September 30, 2014 and 2013 was approximately $1.6 million and $2.6 million, respectively.
On March 7, 2014, 104,100 Restricted Stock Unit ("RSU") Awards were granted with a three year vesting period. The RSUs had a grant date fair value of $20.93 per share, which was the closing price of the common stock on the date of grant.



The following table provides a summary of combined RSU and restricted stock activity for the period ended September 30, 2014:
 
Awards
 
Average Grant-Date Fair Value
Unvested at January 1, 2014
275,525

 
 
Granted
104,100

 
$
20.93

Released
(123,829
)
 
11.75

Canceled or forfeited
(19,600
)
 
17.34

Unvested at September 30, 2014
236,196

 
$
16.78


Restricted stock units are rights to receive shares of common stock, subject to forfeiture and other restrictions, which vest over a three year period. Restricted shares are considered to be non-vested shares under the accounting guidance for share-based payment and are not reflected as issued and outstanding shares until the restrictions lapse. At that time, the shares are released to the grantee and the Company records the issuance of the shares. Restricted stock awards are valued based on the market price of the underlying shares on the grant date. Compensation expense is recognized on a straight-line basis over the requisite service period. At September 30, 2014, restricted stock awards had vesting periods up through March 2017.
Contingencies
Contingencies
Contingencies
The Company is a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in part by insurance.
New Idria Mercury Mine
Effective October 2011, the U.S. Environmental Protection Agency (“EPA”) added the New Idria Mercury Mine site located near Hollister, California to the Superfund National Priorities List because of alleged contaminants discharged to California waterways. The New Idria Quicksilver Mining Company, founded in 1936, and later renamed the New Idria Mining & Chemical Company ("NIMCC") owned and/or operated the New Idria Mine through 1976. In 1981 NIMCC was merged into Buckhorn Metal Products Inc. which was subsequently acquired by Myers Industries in 1987. The EPA contends that past mining operations have resulted in mercury contamination and acid mine drainage at the mine site, in the San Carlos Creek, Silver Creek and a portion of Panoche Creek and that other downstream locations may also be impacted.
As of the date of this disclosure, no formal claim or allegation relating to the New Idria Mine Site against the Company or its subsidiary Buckhorn Inc. ("Buckhorn") has been received. However, since Buckhorn may be a potentially responsible party (“PRP”) at the New Idria Mercury Mine, the Company recognized an expense of $1.9 million, on an undiscounted basis, in 2011 related to performing a remedial investigation and feasibility study to determine the extent of remediation and the screening of alternatives. Payments of approximately $0.7 million have been incurred and charged against the reserve classified in Other Liabilities on the Condensed Consolidated Statements of Financial Position as of September 30, 2014. As investigation and remediation proceed, it is likely that adjustments to the reserved expense will be necessary to reflect new information. Estimates of the Company’s liability are based on current facts, laws, regulations and technology. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluation and cost estimates, the extent of corrective actions that may be required, the number and financial condition of other PRPs as well as the extent of their responsibility for the remediation, and the availability of insurance coverage for these expenses. At this time, further remediation cost estimates are not known and have not been prepared.
In November 2011 the EPA completed an interim removal project at the New Idria Mercury Mine site. It is expected this removal action will be part of the final remediation strategy for the site. According to informal reports, EPA’s interim removal project costs were approximately $0.5 million. It is possible that at some future date the EPA will seek recovery of the costs of this work and other past costs from PRPs.


California Regional Water Quality Control Board
A number of parties, including the Company and its subsidiary, Buckhorn, were identified in a planning document adopted in October 2008 by the California Regional Water Quality Control Board, San Francisco Bay Region (“RWQCB”). The planning document relates to the presence of mercury, including amounts contained in mining wastes, in and around the Guadalupe River Watershed (“Watershed”) region in Santa Clara County, California and specifically to the development of a "total maximum daily load" for mercury deposits into the Watershed. Buckhorn has previously been alleged to be a successor in interest to NIMCC, which owned property and performed mining operations in a portion of the Watershed area. The Company has not been contacted by the RWQCB or by other parties who have been involved in Watershed clean-up efforts that have been initiated as a result of the adoption of this planning document. Although assertion of a claim by the RWQCB or another party involved in this clean up effort is reasonably possible, it is not possible at this time to estimate the amount of any obligation the Company may incur for these cleanup efforts within the Watershed region, or whether such cost would be material to the Company’s financial statements.
When management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the estimated loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable of occurrence than another. As additional information becomes available, any potential liability related to these matters will be assessed and the estimates will be revised, if necessary.
Based on current available information, management believes that the ultimate outcome of these matters 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.

Other

Buckhorn and Schoeller Arca Systems, Inc. (“SAS”) were plaintiffs in a patent infringement lawsuit against Orbis Corp. and Orbis Material Handling, Inc. (“Orbis”) for alleged breach by Orbis of an exclusive patent license agreement from SAS to Buckhorn.  SAS is an affiliate of Schoeller Arca Systems Services B.V. (“SASS B.V.”), a Dutch company.  SAS manufactures and sells plastic returnable packaging systems for material handling.  In the course of the litigation, it was discovered that SAS had given a patent license agreement to a predecessor of Orbis that pre-dated the one that SAS sold to Buckhorn.  As a result, judgment was entered in favor of Orbis, and the court awarded attorney fees and costs to Orbis in the amount of $3.1 million, plus interest and costs.  In May 2014, Orbis made demand to SAS that SAS pay the judgment in full, and subsequently in July 2014, Orbis made the same demand to Buckhorn.  Although the range of exposure is $0 - $3.1 million, plus interest, Buckhorn’s responsibility as a co-judgment debtor is not specified.  Buckhorn believes it is not responsible for any of the legal fee award because it is not a party to the Orbis license and will continue to aggressively pursue any and all legal actions both with respect to appealing the award requesting SAS be named solely responsible for payment of the judgment, as well as pursuing SAS and SASS B.V. for fraudulently selling an exclusive patent license they could not sell.   In August 2014, SASS B.V. informed Buckhorn that SAS may not have the financial ability to pay the judgment and provided financial statements to Buckhorn indicating SAS is in financial distress and while SASS B.V is financially stable, the award is against SAS, not SASS B.V.  Given the uncertainty of SAS’s financial ability to meet the obligation and the judgment is joint and several, Myers has recorded an expense in the quarter for the entire amount of the unpaid judgment, despite the belief we will ultimately be successful in the appeal and suing SAS and SASS B.V. The matter is presently under appeal and Buckhorn is also suing SAS and SASS B.V.
Debt
Debt Disclosure
Long-Term Debt and Loan Agreement
Long-term debt consisted of the following:
 
September 30,
 
December 31,
 
2014
 
2013
Loan Agreement
$
177,590

 
$
34,200

4.67% Senior Unsecured Notes due 2021
40,000

 

5.25% Senior Unsecured Notes due 2024
11,000

 
11,000

5.30% Senior Unsecured Notes due 2024
29,000

 

5.45% Senior Unsecured Notes due 2026
20,000

 

 
277,590

 
45,200

Less unamortized deferred financing fees
723

 
853

 
$
276,867

 
$
44,347


On May 30, 2014, the Company entered into a First Amendment to the Fourth Amended and Restated Loan Agreement (the "Loan Amendment"). The Loan Amendment increased the senior revolving credit facility from $200 million to $300 million through December 2018 and provides for an additional subsidiary of the Company as a borrower and another subsidiary of the Company as a guarantor of the credit facility. On July 2, 2014, the Company borrowed approximately $135.3 million under the Loan Agreement to fund the acquisition of Scepter as described in Note 2.
As of September 30, 2014, the Company had $117.8 million available, reduced for letters of credit issued, under the Loan Agreement. The Company also had $4.6 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business at September 30, 2014.
Long-term debt at September 30, 2014 and December 31, 2013 includes $0.7 million and $0.9 million, respectively, of unamortized deferred financing costs, which are accounted for as debt valuation accounts.
On October 22, 2013, the Company entered into a note purchase agreement for the private placement of Senior Unsecured Notes totaling $100.0 million with a group of investors. The four series of notes are payable semiannually. Proceeds of $11.0 million under the note purchase agreement were received in December 2013, and the remaining proceeds of $89.0 million were received in January 2014.
Retirement Plans
Retirement Plans
Retirement Plans
The Company and certain of its subsidiaries have pension and profit sharing plans covering substantially all of their employees. The Company’s frozen defined benefit pension plan ("The Pension Agreement between Akro-Mils and United Steelworkers of America Local No. 1761-02") provides benefits primarily based upon a fixed amount for each year of service as of the date the plan was frozen.
Net periodic pension cost are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Interest cost
$
70

 
$
64

 
$
210

 
$
194

Expected return on assets
(93
)
 
(84
)
 
(278
)
 
(250
)
Amortization of actuarial net loss
11

 
28

 
34

 
84

Net periodic pension (benefit) cost
$
(12
)
 
$
8

 
$
(34
)
 
$
28

Company contributions
$
84

 
$
81

 
$
237

 
$
284


The Company anticipates contributions totaling $0.3 million to its pension plan for the full year of 2014.
Income Taxes
Income Taxes
Income Taxes
The total amount of gross unrecognized tax benefit that would reduce the Company's effective tax rates at September 30, 2014 and September 30, 2013, was $0.7 million and $1.2 million, respectively. Accrued interest expense included within accrued income taxes in the Company's Condensed Consolidated Statements of Financial Position (Unaudited) was less than $0.1 million at both September 30, 2014 and December 31, 2013. The September 30, 2014 balance of unrecognized tax benefits includes approximately $0.6 million of unrecognized tax benefits for which it is reasonably possible that they will be recognized within the next twelve months.

As of September 30, 2014, the Company is no longer subject to U.S. Federal examination by tax authorities for tax years before 2011. The Company is subject to state and local examinations for tax years of 2010 through 2013. In addition, the Company is subject to non-U.S. income tax examinations for tax years of 2010 through 2013.
Segment Information
Segment Information
Segment Information

During the second quarter of 2014, the Company realigned its reportable segments as a result of organizational changes to better support its ongoing business strategy. The realignment is consistent with the manner in which our Chief Operating Decision Maker evaluates performance and makes resource allocation decisions. Using the criteria of ASC 280, Segment Reporting, the Company currently manages its business under two operating segments: Material Handling and Distribution. Certain business units that formerly reported in the Engineered Products Segment are now part of the Material Handling and Distribution Segments. Historical segment information has been adjusted to reflect the effect of these changes. Each of these operating segments is also a reportable segment under the ASC 280 criteria.

None of the reportable segments include operating segments that have been aggregated. Some of these segments contain individual business components that have been aggregated on the basis of common management, customers, products, production processes and other economic characteristics. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up.

Income before income taxes for each business segment is based on net sales less cost of products sold, and the related selling, administrative and general expenses. In computing business segment operating income, general corporate overhead expenses and interest expenses are not included.

Material Handling

The Material Handling Segment includes a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products and rotationally-molded plastic tanks for water, fuel and waste handling. This segment conducts its primary operations in the United States, but also operates in Brazil and Canada. Markets served encompass various niches of industrial manufacturing, food processing, retail/wholesale products distribution, agriculture, automotive, recreational vehicles, marine vehicles, healthcare, appliance, bakery, electronics, textiles, consumer, and others. Products are sold both directly to end-users and through distributors.

Distribution

The Distribution Segment is engaged in the distribution of equipment, tools, and supplies used for tire servicing and automotive undervehicle repair and the manufacture of tire repair and retreading products. The product line includes categories such as tire valves and accessories, tire changing and balancing equipment, lifts and alignment equipment, service equipment and tools, and tire repair/retread supplies. The Distribution Segment operates domestically through sales offices, and four regional distribution centers in the United States and in foreign countries through export sales. In addition, the Distribution Segment operates directly in certain foreign markets, principally Central America, through foreign branch operations. Markets served include retail and truck tire dealers, commercial auto and truck fleets, auto dealers, general service and repair centers, tire retreaders, and government agencies.





Discontinued Operations

During the quarter ended June 30, 2014, the Company’s Board of Directors approved the commencement of the sale process to divest its Lawn and Garden Segment. As a result, the Company has classified and accounted for its assets and liabilities as held for sale and its operating results, net of tax, as discontinued operations for all periods presented.

In addition, on June 20, 2014 the Company completed the sale of the assets and associated liabilities of WEK. As a result, the Company has classified and accounted for its assets and liabilities as held for sale and its operating results, net of tax, as discontinued operations for all periods presented through the date of sale. WEK was previously reported as part of our former Engineered Products Segment.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Net Sales
2014
 
2013
 
2014
 
2013
Material Handling
$
112,277

 
$
89,855

 
$
322,000

 
$
284,987

Distribution
49,908

 
51,667

 
143,580

 
155,284

Inter-company Sales
(76
)
 
(80
)
 
(202
)
 
(262
)
 
$
162,109

 
$
141,442

 
$
465,378

 
$
440,009


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Income (Loss) From Continuing Operations Before Income Taxes
2014
 
2013
 
2014
 
2013
Material Handling
$
(426
)
 
$
12,085

 
$
23,879

 
$
36,925

Distribution
4,133

 
6,287

 
12,716

 
17,617

Corporate
(6,385
)
 
(6,107
)
 
(19,104
)
 
(19,544
)
Interest expense - net
(2,637
)
 
(1,113
)
 
(5,888
)
 
(3,309
)
 
$
(5,315
)
 
$
11,152

 
$
11,603

 
$
31,689



 
September 30,
 
December 31,
Identifiable Assets
2014
 
2013
Material Handling
$
408,060

 
$
240,897

Distribution
70,176

 
63,340

Corporate
10,894

 
4,652

Discontinued operations
140,815

 
160,568

 
$
629,945

 
$
469,457

Statement of Accounting Policies (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 without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2014, and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results of operations that will occur for the year ending December 31, 2014.
Translation of Foreign Currencies

All asset and liability accounts of consolidated foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period and income statement items are translated monthly at an average currency exchange rate for the period. The resulting translation adjustment is recorded in other comprehensive income (loss) as a separate component of shareholders' equity.
Fair Value Measurement
The Company follows guidance included in ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), for its financial assets and liabilities, as required. The guidance established a common definition for fair value to be applied to U.S. GAAP requiring the use of fair value, established a framework for measuring fair value, and expanded disclosure requirements about such fair value measurements. The guidance did not require any new fair value measurements, but rather applied to all other accounting pronouncements that require or permit fair value measurements. Under ASC 820, the hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical 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 fair value of the Company’s cash, accounts receivable, accounts payable and accrued expenses are considered to have a fair value which approximates carrying value due to the nature and relative short maturity of these assets and liabilities.
The fair value of debt under the Company’s Loan Agreement approximates carrying value due to the floating rates and relative short maturity (less than 90 days) of the revolving borrowings under this agreement. The fair value of the Company’s fixed rate senior unsecured notes was estimated using market observable inputs for the Company’s comparable peers with public debt, including quoted prices in active markets and interest rate measurements which are considered level 2 inputs. At September 30, 2014, the fair value of the Company's $100.0 million fixed rate senior unsecured notes was estimated at $103.8 million. At December 31, 2013, the fair value of the Company's $11.0 million fixed rate senior unsecured notes was estimated at $10.8 million.
Revenue Recognition

The Company recognizes revenues from the sale of products, net of actual and estimated returns, at the point of passage of title and risk of loss, which is generally at time of shipment, and collectability of the fixed or determinable sales price is reasonably assured.
Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company maintains operating cash and reserves for replacement balances in financial institutions which, from time to time, may exceed federally insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal.
Statement of Accounting Policies (Tables)
The balances in the Company's accumulated other comprehensive income



















Accumulated Other Comprehensive Income

The balances in the Company’s accumulated other comprehensive income ("AOCI") as of September 30, 2014 and September 30, 2013 are as follows:
 
Foreign Currency
 
Defined Benefit Pension Plans
 
Total
Balance at January 1, 2013
$
12,784

 
$
(2,141
)
 
$
10,643

Other comprehensive income before reclassifications
(851
)
 

 
(851
)
Amounts reclassified from accumulated other comprehensive income

 
(75
)
 
(75
)
Net current-period other comprehensive income
(851
)
 
(75
)
 
(926
)
Balance at March 31, 2013
11,933

 
(2,216
)
 
9,717

Other comprehensive income before reclassifications
(4,994
)
 

 
(4,994
)
Balance at June 30, 2013
6,939

 
(2,216
)
 
4,723

Other comprehensive income before reclassifications
255

 

 
255

Balance at September 30, 2013
$
7,194

 
$
(2,216
)
 
$
4,978

 
 
 
 
 
 
Balance at January 1, 2014
$
3,493

 
$
(1,066
)
 
$
2,427

Other comprehensive income before reclassifications
54

 

 
54

Balance at March 31, 2014
3,547

 
(1,066
)
 
2,481

Other comprehensive income before reclassifications
2,804

 

 
2,804

Balance at June 30, 2014
6,351

 
(1,066
)
 
5,285

Other comprehensive income before reclassifications
(9,638
)
 

 
(9,638
)
Balance at September 30, 2014
$
(3,287
)
 
$
(1,066
)
 
$
(4,353
)
Acquisitions (Tables)
The purchase consideration, related preliminary estimated allocations, and resulting excess over fair value of net assets acquired are as follows:
Assets acquired:
 
 
Current assets
 
$
34,572

Property, plant and equipment
 
44,613

Intangible assets
 
66,500

Assets acquired
 
$
145,685

 
 
 
Liabilities assumed:
 
 
Current liabilities
 
$
8,877

Total liabilities assumed
 
8,877

 
 
 
Goodwill
 
21,003

Total consideration
 
$
157,811

Identifiable intangible assets acquired in connection with the acquisition of Scepter are as follows:
 
 
 
 
Estimated
 
 
 
 
Fair Value
 
Useful Life
 
Valuation Method
Intangible assets not subject to amortization:
 

 
 
 
 
Trademarks and trade names
 
$
8,900

 

 
Relief from royalty
 
 

 
 
 
 
Intangible assets subject to amortization:
 

 
 
 
 
Technology
 
22,300

 
10 years
 
Relief from royalty
Customer relationships
 
35,300

 
6 years
 
Multi-period excess earnings
 
 
57,600

 
 
 
 
Total
 
$
66,500

 
 
 
 
The following unaudited pro forma information presents a summary of the consolidated results of operations for the Company as if the acquisition of Scepter had occurred on January 1, 2013.
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Net sales
 
$
162,109

 
$
165,642

 
$
516,774

 
$
515,605

 
 

 

 

 

Income from continuing operations
 
$
357

 
$
7,688

 
$
14,717

 
$
19,679

 
 

 

 

 

Income per share from continuing operations:
 

 

 

 

Basic
 
$
0.01

 
$
0.23

 
$
0.45

 
$
0.59

Diluted
 
$
0.01

 
$
0.22

 
$
0.45

 
$
0.58

Discontinued Operations (Tables)
The restructuring charges for the three and nine months ended September 30, 2014 and 2013 are presented in the following tables.
 
Three Months Ended September 30,
 
2014
 
2013
Segment
Cost of sales
Selling, general and administrative
Total
 
Cost of sales
Selling, general and administrative
Total
Distribution
$

$
4

$
4

 
$

$
25

$
25

Material Handling
112

230

342

 



Total
$
112

$
234

$
346

 
$

$
25

$
25

 
Nine Months Ended September 30,
 
2014
 
2013
Segment
Cost of sales
Selling, general and administrative
Total
 
Cost of sales
Selling, general and administrative
Total
Distribution
$

$
764

$
764

 
$

$
117

$
117

Material Handling
189

260

449

 
177

48

225

Corporate



 

17

17

Total
$
189

$
1,024

$
1,213

 
$
177

$
182

$
359

Summarized selected financial information for the Lawn and Garden Segment and WEK for the three and nine months ended September 30, 2014 and 2013, are presented in the following table.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014*
 
2013
Net sales
 
$
44,957

 
$
53,478

 
$
149,634

 
$
173,916

Income (loss) from discontinued operations before income taxes
 
$
758

 
$
(188
)
 
$
(9,908
)
 
$
3,430

Income tax expense (benefit)
 
(117
)
 
183

 
(3,694
)
 
807

Income (loss) from discontinued operations
 
875

 
(371
)
 
(6,214
)
 
2,623

Net gain on sale of discontinued operations, net of tax of $1.3 million
 

 

 
2,428

 

Income (loss) from discontinued operations
 
$
875

 
$
(371
)
 
$
(3,786
)
 
$
2,623

 
 
 
 
 
 
 
 
 
* Includes WEK operating results through June 20, 2014.









Myers Industries, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except where otherwise indicated)
The assets and liabilities of discontinued operations are stated separately as of September 30, 2014 and December 31, 2013, in the Condensed Consolidated Statements of Financial Position (Unaudited) and are comprised of the following items:
 
 
September 30,
 
December 31,
 
 
2014
 
2013
Assets
 
 
 
 
Accounts receivable-net
 
$
26,256

 
$
37,527

Inventories
 
56,809

 
53,401

Prepaid expenses and other current assets
 
1,417

 
1,832

Income taxes refundable
 
1,889

 

Goodwill
 
9,220

 
9,567

Patents and other intangible assets, net
 
6,262

 
6,860

Property, plant and equipment, net
 
38,219

 
51,028

Other
 
743

 
353

Total Assets Held for Sale
 
$
140,815

 
$
160,568

 
 
 
 
 
Liabilities
 
 
 
 
 Accounts payable
 
$
22,658

 
$
29,366

 Accrued expenses and other liabilities
 
12,331

 
18,503

Total Liabilities Held for Sale
 
$
34,989

 
$
47,869

Restructuring charges related to discontinued operations for the three and nine months ended September 30, 2014 and 2013 are presented in the following table:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Severance and personnel
$
428

 
$
50

 
$
1,596

 
$
310

Other exit costs
187

 
943

 
3,461

 
1,822

Total
$
615

 
$
993

 
$
5,057

 
$
2,132

Other Accrued Expenses (Tables)
Schedule of Accounts Other Accrued Expenses
Other accrued expenses consisted of the following:
 
 
September 30, 2014
 
December 31, 2013
Deposits and amounts due to customers
 
$
5,295

 
$
7,664

Dividends payable
 
4,268

 
3,174

Accrued legal and professional fees
 
500

 
289

Other accrued expenses
 
8,881

 
5,307

 
 
$
18,944

 
$
16,434

Goodwill and Intangible Assets (Tables)
The change in goodwill for the nine months ended September 30, 2014 was as follows:
Segment
Balance at January 1, 2014
 
Acquisitions
 
Foreign
Currency
Translation
 
Balance at September 30, 2014
Material Handling
$
50,570

 
$
21,003

 
$
(1,875
)
 
$
69,698

Distribution
505

 

 

 
505

 
$
51,075

 
$
21,003

 
$
(1,875
)
 
$
70,203

Intangible assets at September 30, 2014 and December 31, 2013 consisted of the following:
 
 
 
September 30, 2014
 
December 31, 2013
 
Weighted Average Useful Life (years)