Myers Industries - 10-Q quarterly report FY

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended                      June 30, 2002                    

or

For the transition period from __________________________ to ___________________________

Commission file number    I-8524

MYERS INDUSTRIES, INC.

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 _____. No ______.

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

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PART 1 — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

CONDENSED STATEMENT OF CONSOLIDATED INCOME

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 June 30, 2002, and the results of operations and cash flows for the six months ended June 30, 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 $2,698,000 and $4,737,000 for the three months ended June 30, 2002 and 2001, respectively. Cash payments for interest totaled $5,423,000 and $10,661,000 for the six months ended June 30, 2002 and 2001. Cash payments for income taxes totaled $6,683,000 and $8,005,000 for the three months ended June 30, 2002 and 2001. Cash payments for income taxes were $7,736,000 and $8,627,000 for the six months ended June 30, 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 was required to perform a transitional goodwill impairment test within six months of adopting the new standard and to test for impairment on a 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 and six months ended June 30, 2001, income before taxes would have increased approximately $2.3 million and $4.6 million, respectively and net income per share by $.075 and $.15. 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 of 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 $100.9 million for the quarter and $207.8 million for the six months ended June 30, 2002, while sales of rubber products were $13.0 million and $23.2 million for the quarter and year-to-date periods, respectively. In the prior year, sales of plastic products to external customers were $99.7 million for the quarter and $222.1 million for the six months ended June 30, 2001 while sales of rubber products were $13.1 million for the quarter and $24.4 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.

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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

(4) Segment information (Con’t)

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

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

RESULTS OF OPERATIONS

     Net sales for the quarter ended June 30, 2002 were $153.1 million, a slight increase from the $152.7 million reported in the second quarter of 2001. Sales in the manufacturing segment increased $1.6 million or one percent as higher unit volumes offset the impact of competitive pricing conditions currently prevailing in most industrial markets served by the Company. Sales in the distribution segment decreased 2 percent based on a continuation of weak demand, particularly for capital equipment. The translation effect of foreign currencies, primarily the euro, had only a minor impact by increasing sales in the manufacturing segment, and total sales, approximately one percent.

     For the six months ended June 30, 2002, net sales were $302.0 million, a decrease of $16 million or 5 percent compared with the prior year. On a segment basis, sales in the distribution segment decreased approximately one percent reflecting slightly lower unit volumes while manufacturing segment sales were down 6 percent based on reductions in both pricing and unit volumes. For the six month period the translation effect of foreign currencies had virtually no impact on reported sales.

     Cost of sales decreased slightly for the quarter compared with the prior year period and, consequently, gross profit expressed as a percentage of sales rose to 33.8 percent compared with 32.9 percent last 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, which increased compared with the first quarter, were lower than the prior year period and offset the decreased absorption of fixed manufacturing costs resulting from lower production levels.

     For the six months ended June 30, 2002, cost of sales decreased 6 percent and gross profit, expressed as a percentage of sales, improved to 35.2 percent from 34.3 percent in the prior year. In the distribution segment, favorable sales mix resulted in a slightly higher gross margin for the current six month period while lower raw material costs also led to a slight improvement in margins for the manufacturing segment.

     Total operating expenses decreased $2.0 million or 5 percent for the quarter and $7.0 million or 9 percent for the six months ended June 30, 2002 compared with the prior year periods. The reduction in operating expense includes $2.3 million for the quarter and $4.6 million year to date, related to goodwill amortization in the prior year periods which did not impact the current year. In addition, cost control efforts further reduced operating expenses by $2.4 million for the six months ended June 30, 2002. Excluding the impact of goodwill amortization, operating expenses expressed as a percentage of sales were virtually unchanged at 24.5 percent for the quarter and 23.9 percent for the six month period in the current year compared to 24.4 percent and 23.4 percent in the same periods a year ago.

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PART I — FINANCIAL INFORMATION

MYERS INDUSTRIES, INC.

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

Results of Operations (Con’t)

     Net interest expense decreased $2.0 million or 40 percent for the quarter and $4.6 million or 43 percent for the six month period ended June 30, 2002, compared with the prior year. 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.

     The effective income tax rate for the quarter ended June 30, 2002 was reduced to 39.4 percent from 44.8 percent in the prior year. For the six months ended June 30, 2002, the effective tax rate was 40.0 percent compared with 42.6 percent in the prior year. This decrease is primarily attributable to the elimination of non-deductible goodwill amortization.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities was $40.3 million for the six months ended June 30, 2002 compared with $37.9 million for same period in the prior year. Long-term debt was reduced $17.3 million from December 31, 2001 and debt as a percentage of total capitalization was 50 percent at June 30, 2002. Working capital increased from $91.7 million at December 31, 2001 to $94.8 million at June 30, 2002.

     Capital expenditures for the six months ended June 30, 2002 were approximately $12 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 con-tracts 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.

Item 4. Submission of Matters to a Vote of Security Holders.

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PART II — OTHER INFORMATION

MYERS INDUSTRIES INC.

Item 6. Exhibits and Reports on Form 8-K

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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