Myers Industries - 10-Q quarterly report FY

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the transition period from           to          

Commission file number        I-8524       

Registrant’s telephone number, including area code       (330) 253-5592      

     Indicate whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X     .   No            .

Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes    X    .   No            .

     As of October 31, 2001, the number of shares outstanding of the issuer’s Common Stock was:

23,846,878
===========

Table of Contents

MYERS INDUSTRIES, INC." -->

PART 1 — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000

-1-

Table of Contents

PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000

-2-

Table of Contents

PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED INCOME

*Adjusted for a ten percent stock dividend in August, 2001.

-3-

Table of Contents

PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

-4-

Table of Contents

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

-5-

Table of Contents

MYERS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS" -->

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

(1) Statement of Accounting Policy

     The accompanying financial statements include the accounts of Myers Industries, Inc. and subsidiaries (Company), and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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. It is suggested that these financial statements be read in con-junction with the financial statements and notes thereto included in the Company’s latest annual report on Form 10-K.

     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, 2001, and the results of operations and cash flows for the nine months ended September 30, 2001 and 2000. Certain amounts in the fiscal 2000 financial statements have been reclassified in order to conform with the fiscal year 2001 presentation.

(2) Supplemental Disclosure of Cash Flow Information

     The Company made cash payments for interest expense of $4,405,000 and $5,846,000 for the three months ended September 30, 2001 and 2000, respectively. Cash payments for interest totaled $15,066,000 and $16,005,000 for the nine months ended September 30, 2001 and 2000. Cash payments for income taxes totaled $1,002,000 and $4,365,000 for the three months ended September 30, 2001 and 2000. Cash payments for income taxes were $9,629,000 and $14,938,000 for the nine months ended September 30, 2001 and 2000.

(3) Segment Information

     The Company’s business units have separate management teams and offer different products and services. Using the criteria of FASB No. 131, these business units have been aggregated into two reportable segments; Distribution of after-market repair products and services and Manufacturing of polymer products. The aggregation of business units is based on management by the chief operating decision maker for the segment as well as similarities of production processes, distribution methods and economic characteristics (e.g. average gross margin and the impact of economic conditions on long-term financial performance).

     The Company’s Distribution segment is engaged in the distribution of equipment, tools and supplies used for tire servicing and automotive underbody repair. The Distribution segment operates domestically through 42 branches located in major cities throughout the United States and in foreign countries through export and businesses in which the Company holds an equity interest.

-6-

Table of Contents

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

(3) Segment Information (Con’t)

     The Company’s manufacturing segment designs, manufactures and markets a variety of polymer based plastic and rubber products. These products are manufactured primarily through the molding process in facilities throughout the United States and Europe.

     Sales to external customers for manufactured plastic products were $90.1 million for the quarter and $312.1 million for the nine months ended September 30, 2001 while sales of rubber products were $11.2 million and $35.6 million for the quarter and year to date periods, respectively. In the prior year, sales of plastic products to external customers were $99.4 million for the quarter and $324.5 million for the nine months ended September 30, 2000 while sales of rubber products were $12.4 million for the quarter and $40.6 million for the quarter and year-to-date periods, respectively.

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

-7-

Table of Contents

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC. FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     Net sales for the quarter ended September 30, 2001 were $141.4 million, a decrease of 8 percent from the $153.5 million reported in 2000. The Company experienced declines in both of its business segments. Distribution segment sales were down $1.6 million or 4 percent reflecting lower volume, particularly for capital equipment. Sales in the Manufacturing segment decreased $10.4 million or 9 percent as general economic conditions resulted in weak demand in most of the Company’s markets. Within the Manufacturing segment, sales of plastic products were down 9 percent for the quarter while sales of rubber products were 6 percent lower than the prior year period. There was no material impact on sales for the quarter as a result of foreign currency changes on sales of the Company’s foreign businesses.

     For the nine months ended September 30, 2001, net sales were $459.4 million, a decrease of $21.9 million or 5 percent compared with the prior year. On a segment basis, sales in the Distribution segment were down 4 percent reflecting lower unit volumes while sales in the Manufacturing segment decreased 5 percent based on lower volume which offset the contribution of acquired companies not included in the prior year. Excluding the impact from these acquisitions, total sales would have decreased 7 percent and Manufacturing segment sales would have declined 8 percent. Within the Manufacturing segment, excluding the impact of acquired companies, sales of plastic products were down 8 percent for the nine months ended September 30, 2001, while sales of rubber products declined 10 percent compared with the prior year period.

     Cost of sales decreased 10 percent for the quarter ended September 30, 2001 and gross profit, expressed as a percentage of sales, improved to 32.5 percent from 31.1 percent in the prior year. In the Distribution segment, margins improved slightly based on a continuing shift in sales mix to consumable supplies compared to lower margin capital equipment. In the Manufacturing segment, margins also improved slightly as raw material costs declined sharply during the quarter which offset the decreased absorption of fixed manufacturing costs resulting from lower production levels.

     For the nine months ended September 30, 2001, cost of sales decreased 5 percent and gross profit, expressed as a percentage of sales was essentially unchanged at 33.8 percent compared with 33.6 percent in the prior year. On a segment basis, Distribution margins improved slightly reflecting a shift in sales mix to higher margin supplies while Manufacturing margins declined slightly as the impact of low demand and the resulting increase in unabsorbed fixed manufacturing expenses offset the benefit of lower raw material costs.

     Total operating expenses increased $1.4 million or 4 percent for the quarter and $5.7 million or 5 percent for the nine months ended September 30, 2001. Expressed as a percentage of sales, operating expenses were 27.1 percent for the quarter and 25.6 percent

-8-

Table of Contents

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (Con’t)

for the nine months ended September 30, 2001, compared with 24.0 percent and 23.2 percent for the same periods in the prior year. The increase in operating expense is primarily due to the impact of acquired companies while the decrease in operating leverage is a result of both the higher costs and reduced sales volume in the current year periods.

     Net interest expense decreased $1.2 million or 21 percent for the quarter and $1.5 million or 9 percent for the nine months ended September 30, 2001 compared with the prior year periods, primarily as a result of lower interest rates.

     The effective income tax rate for the quarter ended September 30, 2001 was 48.2 percent compared with 41.7 percent in the prior year. For the nine months ended September 30, 2001, the effective tax rate was 43.4 percent compared to 42.0 percent in the prior year. These changes reflect the significantly greater impact of non-deductible amortization expense as a result of lower pretax income.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities was $55.1 million for the nine months ended September 30, 2001 compared with $43.7 million for same period in the prior year. Long-term debt was reduced $22.7 million from December 31, 2000 and debt as a percentage of total capitalization was 56 percent at September 30, 2001. Working capital decreased from $106.4 million at December 31, 2001 to $98.3 million at September 30, 2001.

     Capital expenditures for the nine months ended September 30, 2001 were $19.8 million and are anticipated to be in the range of $23 million to $27 million for the full year. Management believes that anticipated cash flows from operations and available credit facilities will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital and debt service.

MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

     The Company has financing arrangements that require interest payments based on floating interest rates. As such, the company’s financial results are subject to change in the market rate of interest. Our objective in managing the exposure to interest rate changes is to limit the volatility and impact of rate changes on earnings while maintaining the lowest overall borrowing cost. At present, the Company has not entered into any interest rate swaps or other derivative instruments to fix the interest rate on any portion of its financing arrangements with floating rates.

-9-

Table of Contents

PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Market Risk and Derivative Financial Instruments (Con’t)

     Some of the Company’s subsidiaries operate in foreign countries and, as such, their financial results are subject to the variability that arises from exchange rate movements. The Company believes that foreign currency exchange rate fluctuations do not represent a significant market risk due to the nature of the foreign countries in which we operate, primarily Canada and Western Europe, as well as the size of those operations relative to the total Company.

     The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. As such, the cost of operations is subject to fluctuation as the market for these commodities changes. The Company monitors this risk but currently has no derivative contracts to hedge this risk, however, the Company also has no significant purchase obligations to purchase fixed quantities of such commodities in future priods.

ACCOUNTING STANDARDS FOR BUSINESS COMBINATIONS AND GOODWILL

     The Financial Accounting Standards Boards recently issued Statement of Financial Accounting Standard No. 141 (SFAS 141), “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets.” The statements are effective for the Company on January 1, 2002. These statements will result in modifications relative to the Company’s accounting for goodwill and other intangible assets. Specifically, the Company will cease goodwill and certain intangible asset amortization beginning January 1, 2002. Upon adopting the new standards and cessation of amortization for goodwill, the Company anticipates increases in annual income before taxes of $9.2 million and earnings per share of approximately $.30 per share. Additionally, intangible assets, including goodwill, will be subject to new impairment testing criteria. Other than the impact of earnings of intangible asset amortization, the Company has not had ample time to evaluate the impact of adoption on the Company’s financial statements, including the possible impairment of goodwill recorded on the current balance sheet.

-10-

Table of Contents

MYERS INDUSTRIES, INC." -->

PART II — OTHER INFORMATION

MYERS INDUSTRIES, INC.

14. (A)(3) Exhibits

14.(B) REPORTS ON FORM 8-K. None

14.(C) EXHIBITS. See subparagraph 14(A)(3) above.

-11-

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

-12-