Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Myers Industries, Inc. and all wholly owned subsidiaries (“Company”). All intercompany accounts and transactions have been eliminated in consolidation. All subsidiaries that are not wholly owned and are not included in the consolidated operating results of the Company are immaterial investments which have been accounted for under the cost method. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

Reclassification

Certain prior year amounts in the accompanying consolidated financial statements have been reclassified in conformity with generally accepted accounting principles to conform to the current year’s presentation.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income. The new accounting standard will require companies to present the components of net income and other comprehensive income either as one continuous statement or two separate but consecutive statements. The update eliminates the option to report other comprehensive income and its components in the statement of changes in equity. On December 23, 2011, the FASB issued a final standard to defer the new requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial statements, as this guidance modifies presentation of other comprehensive income already disclosed in the financial statements. The Company plans to adopt this guidance beginning in the first quarter of 2012.

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, 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 Credit Agreement approximates carrying value due to the floating interest rates and relative short maturity (less than 90 days) of the revolving borrowings under this agreement. The fair value of the Company’s $35 million fixed rate senior notes was estimated at $37.6 million at December 31, 2011 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.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk primarily consist of trade accounts receivable. The concentration of accounts receivable credit risk is generally limited based on the Company’s diversified operations, with customers spread across many industries and countries. The Company’s largest single customer accounts for approximately four percent of total sales, with only one other customer greater than three percent. Outside of the United States, only Canada, which accounts for approximately nine percent of total sales, is significant to the Company’s operations. In addition, 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. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, the Company also reviews historical trends for collectability in determining an estimate for its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due the Company could be reduced by a material amount. Expense related to bad debts was approximately $2,343, $1,117 and $861 for the years 2011, 2010 and 2009, respectively.

Inventories

Inventories are stated at the lower of cost or market. Approximately 20 percent of our inventories are valued using 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.

If the FIFO method of inventory cost valuation had been used exclusively by the Company, inventories would have been $9.6 million, $9.9 million and $9.4 million higher than reported at December 31, 2011, 2010 and 2009, respectively. In 2011, 2010 and 2009, the liquidation of LIFO inventories decreased cost of sales and increased income before taxes by approximately $0.8 million, $0.7 million and $4.2 million, respectively.

 

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization on the basis of the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings			20 to 30 years
Machinery and Equipment			3 to 12 years
Vehicles			1 to 3 years
Leasehold Improvements			7 to 10 years

Long-Lived Assets

The Company reviews its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Determination of potential impairment related to assets to be held and used is based upon undiscounted future cash flows resulting from the use and ultimate disposition of the asset. For assets held for disposal, the amount of potential impairment may be based upon appraisal of the asset, estimated market value of similar assets or estimated cash flow from the disposition of the asset.

At December 31, 2011 and 2010, the Company had approximately $5.7 million and $5.0 million, respectively, of property, plant, and equipment held for sale, which represents the lower of net book value or estimated fair value based on level 2 inputs, and is included in other assets on the accompanying Consolidated Statement of Financial Position. In 2009, the Company recorded impairment charges of $5.5 million for impairment of certain property, plant and equipment as a result of restructuring its Material Handling, Lawn and Garden and Engineered Products businesses.

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 (Loss)

As of December 31, 2011, 2010, and 2009, the balance in the Company’s accumulated other comprehensive income (loss) is comprised of the following:

 

		2011				2010				2009
Foreign currency translation adjustments		$	9,994			$	12,234			$	8,821
Pension adjustments			(2,700	)			(2,070	)			(2,044	)
Total		$	7,294			$	10,164			$	6,777

Shipping and Handling

Shipping and handling expenses are primarily classified as selling expenses in the accompanying Consolidated Statements of Income (Loss). The Company incurred shipping and handling costs of approximately $26.6 million, $24.5 million and $20.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

 

Stock Based Compensation

The Company has stock plans that provide for the granting of stock-based compensation to employees and, in certain instances, to non-employee directors. Shares are issued upon exercise from authorized, unissued shares. The Company records the costs of the plan under the provisions of ASC 718, Compensation — Stock Compensation. For transactions in which we obtain employee services in exchange for an award of equity instruments, we measure the cost of the services based on the grant date fair value of the award. The Company recognizes the cost over the period during which an employee is required to provide services in exchange for the award, referred to as the requisite service period (usually the vesting period). Cash flows resulting from tax benefits for deductions in excess of compensation cost recognized are included in financing cash flows.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company evaluates its tax positions in accordance with ASC 740 Income Taxes (ASC 740). ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized under ASC 740. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.

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.

Cash flows used in investing activities excluded $1.8 million of accrued capital expenditures in 2011.

Goodwill and Intangible Assets

The Company is required to test for impairment on at least an annual basis. The Company conducted its annual impairment assessment as of October 1. 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.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350) effective for fiscal years beginning after December 15, 2011. The update gives companies the option to perform a qualitative assessment that may enable them to forgo the annual two-step test for impairment. ASU No. 2011-08 allows a qualitative assessment to first be performed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If a company concludes that this is the case, it must perform the two-step test. Otherwise a company does not have to perform the two-step test. The ASU also includes a revised list of events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company conducted its annual impairment assessment as of October 1, 2011 which included adoption of this guidance.

In evaluating goodwill for impairment using the two-step test, the Company uses a combination of valuation techniques primarily using discounted cash flows to determine the fair values of its business reporting units and market based multiples as supporting evidence. The variables and assumptions used, all of which are level 3 fair value inputs, including 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 are determined separately for each reporting unit are based on the weighted average cost of capital determined for each of the Company’s reporting units and ranged from 9.1% to 13.7% in 2011. In addition we make certain judgments about the selection of comparable companies used in determining market multiples in valuing our business units, as well as certain assumptions to allocate shared assets and liabilities to calculate values for each of our business units. The underlying assumptions used are based on historical actual experience and future expectations that are consistent with those used in the Company’s strategic plan. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill. We also compare our book value and the estimates of fair value of the reporting units to our market capitalization as of and at dates near the annual testing date. Management uses this comparison as additional evidence of the fair value of the Company, as our market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder, our leverage or general expectations regarding future operating results and cash flows. In situations where the implied value of the Company under the Income or Market Approach are significantly different than our market capitalization we re-evaluate and adjust, if necessary, the assumptions underlying our Income and Market Approach models. Our estimate of the fair values of these business units, 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.

In 2010, the Company determined that all reporting units had an estimated fair value substantially in excess of carrying value except for Lawn and Garden which initially passed but not by a substantial amount. In the fourth quarter, persistently high raw material costs and weak demand resulted in operating results and cash flows in the Lawn and Garden Segment that were significantly below forecasts which also impacted projections for future years. As a result of this triggering event, the Company determined that the Lawn and Garden reporting unit needed to complete a Step 1 test as of December 31, 2010. This reporting unit failed Step 1 of this impairment test, requiring a Step 2 test to be performed. Based on the results of Step 2 testing, which included a valuation of the reporting unit’s net assets in accordance with ASC 805, Business Combinations (ASC 805), a goodwill impairment charge of $72 million was recorded in the fourth quarter of 2010 writing down its implied fair value to $9.3 million. The fair values for the valuation of the net assets were developed using both level 2 and 3 inputs.

 

The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 is as follows:

 

		Distribution				Material Handling				Engineered Products				Lawn and Garden				Total
January 1, 2010		$	214			$	30,383			$	—			$	81,330			$	111,927
Acquisitions			—				—				707				—				707
Impairments			—				—				—				(72,014	)			(72,014	)
Foreign currency translation			—				—				—				272				272
December 31, 2010		$	214			$	30,383			$	707			$	9,588			$	40,892
Acquisitions			—				3,896				—				—				3,896
Impairments			—				—				—				—				—
Foreign currency translation			—				—				—				(122	)			(122	)
December 31, 2011		$	214			$	34,279			$	707			$	9,466			$	44,666

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 performs an annual impairment assessment for the indefinite lived trade name with a value of $3,600. In performing this assessment the Company uses an income approach, based primarily on level 3 inputs, to estimate the fair value of the trade name. The Company records an impairment charge if the carrying value of the trade name exceeds the estimated fair value at the date of assessment. Estimated annual amortization expense for intangible assets with definite lives for the next five years is: $2,693 in 2012; $2,157 in 2013; $1,801 in 2014, $1,749 in 2015 and $1,748 in 2016.

Intangible assets at December 31, 2011 and 2010 consisted of the following:

 

		Life		Gross				2011 Accumulated Amortization				Net				Gross				2010 Accumulated Amortization				Net
Tradenames		Various		$	4,442				(14	)		$	4,428			$	4,340				(2	)		$	4,338
Customer Relationships		6 - 13 years			13,747				(8,437	)			5,310				13,897				(7,002	)			6,895
Technology		7.5 years			4,071				(2,181	)			1,890				2,821				(2,118	)			703
Patents		10 years			10,900				(5,269	)			5,631				10,900				(4,178	)			6,722
Non-Compete		3 years			426				(418	)			8				428				(419	)			9
				$	33,586			$	(16,319	)		$	17,267			$	32,386			$	(13,719	)		$	18,667

Net Income Per Common Share

Net income per common share, as shown on the Consolidated Statements of Income (Loss), is determined on the basis of the weighted average number of common shares outstanding during the periods as follows:

 

		2011				2010				2009
Weighted average common shares outstanding
Basic			34,584,558				35,304,817				35,266,939
Dilutive effect of stock options			158,985				—				—
Weighted average common shares outstandng diluted			34,743,543				35,304,817				35,266,939

 

Options to purchase 1,105,229 shares of common stock that were outstanding at December 31, 2011 and 1,681,169 shares of common stock that were outstanding at December 31, 2009 were not included in the computation of diluted earnings per share as the exercise prices of these options was greater than the average market price of common shares. There were 58,555 dilutive common shares at December 31, 2010 excluded from the computation of the loss per common share due to the Company’s net loss for the year then ended.

Discontinued Operations

On October 30, 2009, the Company sold substantially all the assets of its Michigan Rubber Products, Inc. and Buckhorn Rubber Products Inc. businesses to Zhongding Sealing Parts, (USA) Inc. Based on the terms of the sale, the Company recorded a loss of $8.4 million, including a charge of $7.8 million for impairment of long lived assets, which is included in the results of discontinued operations for the year ended December 31, 2009.

In accordance with U.S. generally accepted accounting principles, the operating results related to these businesses have been included in discontinued operations in the Company’s Consolidated Statements of Income (Loss) for all periods presented.

The operating results of the discontinued operations noted above are as follows for the year ended December 31:

 

		2009
Net Sales		$	26,604
Loss before income taxes			(11,806	)
Income tax benefit			(4,128	)
Net loss		$	(7,678	)

On February 1, 2007, the Company sold its former Material Handling — Europe business segment. On November 10, 2010, the French Tax Authorities issued a notice of assessment to the buyer, and current owner, of these businesses. The assessment related to business taxes for the years 2006, 2007 and 2008, and totaled 1.5 million euros. As part of the sale agreement, the Company provided indemnification to the current owner for any taxes, interest, penalties and reasonable costs related to these businesses for periods through the date of sale. On January 13, 2011, the Company filed a Notice of Claim to protest the assessment with the French Tax Authorities. On October 11, 2011, the French Tax Authorities accepted our previously filed claim and abated all of the assessed taxes. This issue has been resolved favorably in the Company’s benefit and, accordingly, no amounts have been recognized in the financial statements related to this matter.

Acquisitions

On July 20, 2011, the Company acquired tooling assets and intellectual property from Material Improvements L.P. for a new reusable plastic container used in producing, shipping and processing bulk natural cheese. The total purchase price was $5.7 million, comprised of a $1.1 million cash payment and $4.6 million contingent consideration. The allocation of purchase price included $0.3 million of property, plant and equipment, amortizable intangible assets, which included $1.3 million in technology and $0.2 million for trade name, and $3.9 million in goodwill. These assets and liabilities incurred were recorded at estimated fair value as of the date of the acquisition using primarily level 3 inputs. The operating results of the business acquired are included in our Material Handling Segment.

 

On July 21, 2010, the Company acquired the assets of Enviro-Fill, Inc., a developer of a new fuel overfill prevention and fuel vapor capture system. The total purchase price was approximately $1.5 million, including contingent liabilities for additional future consideration. The allocation of purchase price includes $0.8 million of amortizable intangible assets and $0.7 million of goodwill. These assets were recorded at fair value as of the date of acquisition using primarily level 2 and 3 inputs. The Enviro-Fill business is included in the Company’s Engineered Products Segment.

Restructuring

In 2011, the Company recorded net expenses of $2.7 million in selling, general and administrative (“SG&A”) and $0.7 million in cost of goods sold for costs associated with restructuring plans including impairment of property, plant and equipment, lease obligations, severance, consulting and other related charges. For the years ended December 31, 2010 and 2009, the Company recorded restructuring charges of $2.7 million and $24.9 million. Impairment charges for property, plant and equipment were based on appraisals or estimated market values of similar assets which are considered level 2 inputs. Estimated lease obligations associated with closed facilities were based on level 2 inputs.

In 2011, restructuring costs of $2.0 million for severance and non-cancelable lease costs were offset by a gain of $0.7 million on the sale of facilities in the Distribution Segment. In addition, $0.3 million of restructuring charges were recorded in the Engineered Products Segment related to non-cancelable lease costs and $0.4 million of costs related to mold remediation for a closed facility were recorded in the fourth quarter. In the Lawn and Garden Segment, a $0.3 million write-down for an idle manufacturing facility was recorded in the first quarter and severance costs of $0.4 million were recorded in the fourth quarter related to restructuring.

In 2010, the $2.7 million of restructuring costs were primarily related to rigging, freight and other costs to move machinery and equipment. In addition, the Company recorded some idle facility charges and consulting costs which were expensed and paid in the period.

In 2009, the Company carried out its restructuring in the Lawn and Garden Segment and also initiated a restructuring plan for its Material Handling businesses. The Company recorded impairment charges of $2.0 million in its Lawn and Garden Segment and $1.3 million in its Material Handling Segment related to certain property, plant and equipment. In the fourth quarter of 2009, the Company sold its Lawn and Garden manufacturing facility in Surrey, B.C. Canada for $5.1 million and recognized a gain on the sale of $3.3 million which is included in general and administrative expenses on the Consolidated Statements of Income (Loss). In addition, during 2009 the Company recorded consulting, severance and other expenses of $11.2 million in connection with the Lawn and Garden restructuring and $6.6 million for the Material Handling restructuring. Also in 2009, the Company closed its Fostoria, Ohio and Reidsville, North Carolina facilities in the Engineered Products Segment. In conjunction with those closures, the Company recognized fixed asset impairment charges of $2.2 million and other restructuring costs of $1.6 million for severance and lease related obligations.

 

The accrued liability balance for severance and other exit costs associated with restructuring is included in Other Accrued Expenses on the accompanying Consolidated Statements of Financial Position.

 

		Severance and Personnel				Other Exit Costs				Total
Balance at January 1, 2009		$	—			$	—			$	—
Provision			3,102				15,938				19,040
Less: Payments			(2,679	)			(14,287	)			(16,966	)
Balance at December 31, 2009		$	423			$	1,651			$	2,074
Provision			—				2,736				2,736
Less: Payments			(423	)			(3,624	)			(4,047	)
Balance at December 31, 2010		$	—			$	763			$	763
Provision			1,102				2,369				3,471
Reversal			—				(285	)			(285	)
Less: Payments			(1,102	)			(2,242	)			(3,344	)
Balance at December 31, 2011		$	—			$	605			$	605

As a result of restructuring activity including plant closures, approximately $5.7 million and $5.0 million of property, plant and equipment has been classified as held for sale as of December 31, 2011 and 2010, respectively, and is included in other assets in the Consolidated Statements of Financial Position. The Company is actively pursuing disposal including the sale of these facilities. During 2010, the Company sold its facility in Shelbyville, Kentucky, which was previously classified as held for sale with a carrying value of $4.4 million. The proceeds from this sale were $5.1 million and the Company recorded a gain of $0.7 million which is included in general and administrative expenses.

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 to five year period and expire ten years from the date of grant.

The following tables summarize stock option activity in the past three years:

Options granted in 2011, 2010 and 2009:

 

Year		Options				Exercise Price
2011			365,025			$10.10 to $10.28
2010			345,600			$9.97 to $12.46
2009			614,869			$8.19 to $10.92

 

Options exercised in 2011, 2010 and 2009:

 

Year		Options				Exercise Price
2011			59,031			$8.00 to $12.55
2010			5,650			$8.00
2009			—			—

In addition, options totaling 153,426, 175,909 and 127,076 expired or were forfeited during the years ended December 31, 2011, 2010 and 2009, respectively.

Options outstanding and exercisable at December 31, 2011, 2010 and 2009 were as follows:

 

Year		Outstanding				Range of Exercise Prices		Exercisable				Weighted Average Exercise Price
2011			1,997,778			$8.00 to $18.62			1,429,040			$	11.75
2010			1,845,210			$8.00 to $18.62			1,191,865			$	12.21
2009			1,681,169			$8.00 to $18.62			1,095,383			$	12.21

Stock compensation expense reduced income before taxes approximately $2,595, $2,326 and $2,660 for the years ended December 31, 2011, 2010, and 2009, respectively. These expenses are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income (Loss). Total unrecognized compensation cost related to non-vested share based compensation arrangements at December 31, 2011 was approximately $2.7 million, which will be recognized over the next three to four years.

The fair value of options granted is estimated using an 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 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. In 2011 the Company used the Trinomial Lattice method which we believe provides a more accurate fair value calculation. There is no material difference in the valuation of these options using prior models.

 

		2011				2010				2009
Risk free interest rate			3.79	%			3.09	%			2.66	%
Expected dividend yield			2.90	%			2.86	%			1.67	%
Expected life of award (years)			6.00				5.18				4.83
Expected volatility			50.72	%			48.77	%			58.2	%
Fair value per option share		$	3.69			$	3.01			$	3.87

 

The following table provides a summary of stock option activity for the period ended December 31, 2011:

 

		Shares				Average Exercise Price				Weighted Average Life				Aggregate Intrinsic Value
Outstanding at December 31, 2010			1,845,210			$	11.33
Options Granted			365,025				10.10
Options Exercised			(59,031	)			10.73
Cancelled or Forfeited			(153,426	)			12.56
Outstanding at December 31, 2011			1,997,778			$	11.33				6.74 years			$	2,018
Exercisable at December 31, 2011			1,429,040			$	11.75							$	843

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 intrinsic value of stock options exercised in 2011 and 2010 was $117 and $14, respectively. There were no options exercised in 2009.

The following table provides a summary of restricted stock activity for the period ended December 31, 2011:

 

		Shares				Average Grant-Date Fair Value
Unvested shares at December 31, 2010			177,250
Granted			121,800				10.10
Vested			(4,750	)			16.22
Forfeited			(5,800	)			10.04
Unvested shares at December 31, 2011			288,500			$	10.39

The restricted stock awards are rights to receive shares of common stock, subject to forfeiture and other restrictions, which generally vest over a three to four 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 shares are valued on the grant date based on the price issued. At December 31, 2011, shares of restricted stock had vesting periods up through March 2014.

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. 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.

Environmental

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, owned and operated the New Idria Mine through 1972. In 1981, New Idria was merged into Buckhorn 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 in the San Carlos Creek, Silver Creek and a portion of Panoche Creek and that other downstream locations may also be impacted.

Since Buckhorn Inc. may be a potentially responsible party (“PRP”) of the New Idria Mercury Mine, the Company recognized $1.9 million, undiscounted, during the three months ended September 30, 2011, in general and administrative expenses related to performing a remedial investigation and feasibility study to determine the extent of remediation, if any, and the screening of alternatives. The Company’s environmental liabilities are included in other long-term liabilities in the Consolidated Statements of Financial Position. As investigation and remediation proceed, it is possible that adjustments to the liability 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 and 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 plan for this site. The EPA’s interim removal project costs are unknown at this time. It is possible that at some future date the EPA will seek recovery of the costs of this work from PRPs.

California Regional Water Quality Control Board

In October 2008, the Company and its subsidiary, Buckhorn Inc., along with a number of other parties were identified in a planning document adopted 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. Buckhorn has been alleged to be a successor in interest to an entity that performed mining operations in a portion of the Watershed area. The Company has not been contacted by the RWQCB with respect to Watershed clean-up efforts that may result from the adoption of this planning document. The extent of the mining wastes that may be the subject of future cleanup has yet to be determined, and the actions of the RWQCB have not yet advanced to the stage where a reasonable estimate of remediation cost, if any, can be determined. Although assertion of a claim by the RWQCB 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.

Other

In October 2009, an employee was fatally wounded while performing maintenance at the Company’s manufacturing facility in Springfield, Missouri. On February 22, 2011, the family of the deceased filed a civil complaint against the manufacturer of the press involved in the incident and the Buckhorn Inc. employee involved in the incident. Buckhorn Inc. has not been named as a party to this lawsuit. At this time the Company is not able to determine whether this proceeding or the incident will result in legal exposure to the Company, or if any such liability that results would be material to the Company’s financial statements. The Company believes that it has adequate insurance to resolve any claims resulting from this incident.

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.

Long-Term Debt and Credit Agreements

Long-term debt at December 31, 2011 and 2010 consisted of the following:

 

		2011				2010
Credit agreement		$	37,800			$	47,300
Senior notes			35,000				35,000
Industrial revenue bonds			1,230				1,535
			74,030				83,835
Less current portion			305				305
		$	73,725			$	83,530

In 2010, the Company entered into an amendment and restatement of its revolving credit agreement (“the Credit Agreement”) with a group of banks. Under terms of the Credit Agreement, the Company may borrow up to $180 million, reduced for letters of credit issued. As of December 31, 2011, the Company had $135.5 million available under the Credit Agreement. Interest is based on the bank’s Prime rate or Euro dollar rate plus an applicable margin that varies depending on the Company’s ratio of total debt to earnings before interest, taxes, depreciation and amortization. The average interest rate on borrowing under the Credit Agreement was 3.25 percent at December 31, 2011 and 3.55 percent at December 31, 2010. In addition, the Company pays a quarterly facility fee on the used and unused portion. The Credit Agreement expires November 19, 2015.

In December 2003, the Company issued $100 million in Senior Unsecured Notes (the Notes) consisting of $65 million of notes with an interest rate of 6.08 percent and a 7 year maturity and $35 million of notes with an interest rate of 6.81 percent and a 10 year maturity. Proceeds from the issuance of the Notes were used to pay down the term loan and revolving credit facility borrowing outstanding at that time. In December 2010, the Company paid the $65 million Senior Notes at maturity with borrowings from the Credit Agreement.

In addition, at December 31, 2011, the Company had approximately $1.2 million of industrial revenue bonds with a weighted average interest rate of 0.19 percent. In 2011, the Company repaid $0.3 million of industrial revenue bonds.

As of December 31, 2011, the Company also has $6.7 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business.

As of December 31, 2011, the Company was in compliance with all its debt covenants associated with its Credit Agreement and Senior Notes. The significant financial covenants include an interest coverage ratio, defined as earnings before interest and taxes divided by interest expense, and a leverage ratio, defined as earnings before interest, taxes, depreciation, and amortization, as adjusted, compared to total debt. The ratios as of December 31, 2011 are shown in the following table:

 

		Required Level		Actual Level
Interest Coverage Ratio		2.25 to 1 (minimum)			8.76
Leverage Ratio		3.25 to 1 (maximum)			1.07

Maturities of long-term debt under the loan agreements in place at December 31, 2011 are as follows: $305 in 2012; $35,375 in 2013; $275 in 2014; and $38,075 in 2015.

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 defined.

Net periodic pension cost for the years ended December 31, 2011, 2010 and 2009 was as follows:

 

		2011				2010				2009
		Underfunded				Underfunded				Underfunded
Service cost		$	74			$	39			$	60
Interest cost			303				320				324
Expected return on assets			(309	)			(300	)			(259	)
Amortization of net loss			64				59				94
Net periodic pension cost		$	132			$	118			$	219

The reconciliation of changes in projected benefit obligations are as follows:

 

		2011				2010
Accumulated benefit obligation at beginning of year		$	5,973			$	5,757
Service cost			74				39
Interest cost			303				320
Actuarial loss			724				327
Expenses paid			(70	)			(73	)
Benefits paid			(413	)			(397	)
Accumulated benefit obligation at end of year		$	6,591			$	5,973

The assumptions used to determine the net periodic benefit cost and benefit obligations are as follows:

 

		2011				2010				2009
Discount rate for net periodic pension cost			5.25	%			5.75	%			5.75	%
Discount rate for benefit obligations			4.50	%			5.25	%			5.75	%
Expected long-term return of plan assets			8.00	%			8.00	%			8.00	%

 

The expected long-term rate of return assumption is based on the actual historical rate of return on assets adjusted to reflect recent market conditions and future expectation consistent with the Company’s current asset allocation and investment policy. This policy provides for aggressive capital growth balanced with moderate income production. The inherent risks of equity exposure exists, however, returns generally are less volatile than maximum growth programs. The assumed discount rates represent long-term high quality corporate bond rates commensurate with the liability duration of its plan.

The following table reflects the change in the fair value of the plan’s assets:

 

		2011				2010
Fair value of plan assets at beginning of year		$	3,946			$	3,951
Actual return on plan assets			-0-				465
Company contributions			268				-0-
Expenses paid			(70	)			(73	)
Benefits paid			(413	)			(397	)
Fair value of plan assets at end of year		$	3,731			$	3,946

The fair value of plan assets are all categorized as level 1 and were determined based on period end closing prices in active markets. The weighted average asset allocations at December 31, 2011 and 2010 are as follows:

 

		2011				2010
U.S. Equities securities			80	%			81	%
U.S. Debt securities			19				18
Cash			1				1
Total			100	%			100	%

The following table provides a reconciliation of the funded status of the plan at December 31, 2011 and 2010:

 

		2011				2010
Projected benefit obligation		$	6,591			$	5,973
Plan assets at fair value			3,731				3,946
Funded status		$	(2,860	)		$	(2,027	)

The funded status shown above is included in other long term liabilities in the Company’s Consolidated Statements of Financial Position at December 31, 2011 and 2010. The Company expects to make a contribution of $661 to the plan in 2012.

Benefit payments projected for the plan are as follows:

 

2012		$	401
2013			404
2014			396
2015			395
2016			392
2017-2021			1,901

 

The Myers Industries Profit Sharing and 401(k) Plan is maintained for the Company’s U.S. based employees, not covered under defined benefit plans, who have met eligibility service requirements. The amount to be contributed by the Company under the profit sharing plan is determined at the discretion of the Board of Directors. For 2011, the Company has recognized profit sharing plan expense of $1,678 and expects to make a contribution of that amount. The Company recognized profit sharing plan expense of $1,355 and $420 in 2010 and 2009, respectively and contributed that amount. Effective January 1, 2012 the Company made changes to its profit sharing and 401(k) plan which includes an increase in the Company’s matching contributions and the frequency of the Company’s match.

In addition, the Company has a Supplemental Executive Retirement Plan (“SERP”) to provide certain participating senior executives with retirement benefits in addition to amounts payable under the profit sharing plan. Expense related to the SERP was approximately $784, $459, and $161 for the years ended December 2011, 2010 and 2009, respectively. The SERP liability is based on the discounted present value of expected future benefit payments using a discount rate of 4.50%. The SERP liability was approximately $4.5 million and $4.0 million at December 31, 2011 and 2010, respectively, and is included in accrued employee compensation and other long term liabilities on the accompanying Consolidated Statements of Financial Position. The SERP is unfunded.

Leases

The Company and certain of its subsidiaries are committed under non-cancelable operating leases involving certain facilities and equipment. Aggregate rental expense for all leased assets was $10,372, $10,880 and $12,111 for the years ended December 31, 2011, 2010 and 2009, respectively.

Future minimum rental commitments are as follows:

 

Year Ended December 31,		Commitment
2012		$	9,674
2013			5,767
2014			4,574
2015			4,096
2016			3,856
Thereafter			16,818
Total		$	44,785