Myers Industries - 10-Q quarterly report FY

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission file number I-8524

     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         . No         .

     As of March 31, 2002, the number of shares outstanding of the issuer’s Common Stock was:

23,879,195
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MYERS INDUSTRIES, INC." -->

PART 1 — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001

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PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

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PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

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PART I — FINANCIAL INFORMATION
MYERS INDUSTRIES, INC.

STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002

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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 conjunction 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 March 31, 2002, and the results of operations and cash flows for the three months ended March 31, 2002 and 2001. Certain amounts in the fiscal 2001 financial statements have been reclassified in order to conform with the fiscal year 2002 presentation.

(2) Supplemental Disclosure of Cash Flow Information

     The Company made cash payments for interest expense of $2,725,000 and $5,906,000 for the three months ended March 31, 2002 and 2001, respectively. Cash payments for income taxes totaled $1,053,000 and $640,000 for the three months ended March 31, 2002 and 2001.

(3) Goodwill and Intangible Assets

     Effective January 1, 2002, the Company adopted the provisions of SFAS No. 141,“Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that all business combinations be accounted for by the purchase method and that certain acquired intangible assets be recognized as assets apart from goodwill. No reclassification of intangible assets apart from goodwill was necessary as a result of the Company adopting the new standard.

     Under the provisions of SFAS No. 142, the Company is required to perform a transitional goodwill impairment test within six months of adopting the new standard and to test for impairment on at least an annual basis thereafter. For purposes of transitional impairment testing, the Company determined the fair value of its reporting units using discounted cash flow models and relative market multiples for comparable businesses. The Company compared the fair value of each of its reporting units to their respective carrying values, including related goodwill, which resulted in no impairment loss being recognized.

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

(3) Goodwill and Intangible Assets (Con’t)

     In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. Had goodwill amortization not been recorded in the quarter ended March 31, 2001, pretax income would have increased approximately $2.3 million and earnings per share by $.075. For the full year 2001, goodwill amortization reduced income before taxes by approximately $9.2 million and net income per share by $.30.

(4) 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.

     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 $106.9 million for the three months ended March 31, 2002 while sales of rubber products were $10.3 million. In the prior year, sales of plastic products to external customers were $122.3 million for the quarter ended March 31, 2001 and sales of rubber products were $11.4 million for the same quarter.

     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.

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

(4) Segment Information (Con’t)

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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 March 31, 2002 decreased $16.3 million or 10 percent as the Company continued to experience weak demand in its manufacturing segment. Sales in the manufacturing segment were down 12 percent, primarily as a result of lower unit volumes. In addition, soft demand and competition combined to keep significant downward pressure on pricing in most industrial markets served by the Company. Sales in the distribution segment increased one percent as sales of capital equipment improved. The translation effect of foreign currencies, primarily the euro, had only a minor impact by decreasing sales in the manufacturing segment, and total sales, approximately one percent.

     Cost of sales decreased $11.9 million or 11 percent reflecting the lower sales volume in the quarter ended March 31, 2002 compared with the prior year period. Gross profit, expressed as a percent of sales, increased to 36.6 percent compared to 35.6 percent in the prior year. The improvement in gross profit percentage was primarily the result of favorable raw material costs for plastic resins which more than offset additional unabsorbed fixed manufacturing expenses resulting from lower production levels.

     Total operating expenses were reduced $5 million or 13 percent for the quarter compared with the prior year period. The decrease includes $2.3 million related to goodwill amortization in the prior year quarter which did not impact current year results due to the adoption of the new accounting standards (SFAS 141 and 142) for business combinations and goodwill. In addition, cost control efforts combined with generally lower business levels further reduced operating expenses. Excluding the impact of goodwill amortization, operating expenses expressed as a percent of sales increased slightly to 23.2 percent from 22.6 percent in the prior year.

     Net interest expense decreased $2.5 million or 45 percent compared with the prior year quarter. This decrease reflects primarily the impact of lower interest rates, although the Company also received the benefit from lower average borrowing levels in the current year.

     Income taxes as a percent of income before taxes was reduced to 40.4 percent for the quarter ended March 31, 2002 compared to 41.7 percent in the prior year period. This decrease is primarily attributable to the elimination of non-deductible goodwill amortization.

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

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

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities was $7.6 million for the quarter ended March 31, 2002 compared with $20.9 million for the same period in the prior year. This decrease was primarily the result of unfavorable changes in working capital during the current period as compared to the prior year quarter. During the quarter, debt was reduced by $2.1 million and debt as a percentage of total capitalization was reduced from 54.9 percent at December 31, 2001 to 54.0 percent. At March 31, 2002, the Company had working capital of $100.4 million and a current ratio of 1.97.

     Capital expenditures for the quarter were $5.4 million and are anticipated to be in the range of $25 million to $30 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.

     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 periods.

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PART II — OTHER INFORMATION

MYERS INDUSTRIES, INC.

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.

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EXHIBIT INDEX

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