Business Context and Reporting Period
Company: Myers Industries, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Headquarters: Akron, Ohio
Myers Industries is an international manufacturing and distribution enterprise operating in four segments: Lawn and Garden, Material Handling, Engineered Products, and Distribution. The company manufactures plastic and rubber products for industrial, agricultural, automotive, and consumer markets, and distributes tools and supplies for the tire and wheel service industry. As of March 7, 2011, the company operated 16 manufacturing facilities and 39 distribution branches with approximately 3,300 employees.
Key Financial Metrics (2010)
| Metric | 2010 Value | 2009 Value |
|---|---|---|
| Net Sales | $737.6 million | $701.8 million |
| Gross Profit | $164.5 million | $170.9 million |
| Gross Margin | 22.3% | 24.3% |
| Operating Loss | $(47.6) million | $17.1 million |
| Net Loss (Continuing Ops) | $(42.8) million | $7.0 million |
| EPS (Basic & Diluted) | $(1.21) | $0.20 |
| Cash from Operations | $45.6 million | $73.2 million |
| Total Debt | $83.8 million | $104.3 million |
| Working Capital | $107.5 million | $37.5 million |
| Total Assets | $432.4 million | $510.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 5% to $737.6 million, driven by improved volumes across all segments, higher selling prices ($9.1 million impact), and favorable foreign currency translation ($11.5 million impact).
- Segment Performance:
- Engineered Products: Sales surged 22% ($104.8 million) due to volume increases in automotive and recreational vehicle markets.
- Distribution: Sales rose 7% ($175.0 million) on higher volumes and prices.
- Lawn & Garden: Sales increased 2% ($223.8 million), though volume and price declines were offset by currency gains.
- Material Handling: Sales grew 1% ($257.8 million) due to price increases, offset by lower volumes in custom pallets.
- Profitability Decline: Gross margin compressed to 22.3% from 24.3% due to raw material costs (polypropylene up 47%, polyethylene up 29%) and reduced LIFO inventory liquidation benefits.
- Impairment Charges: A non-cash goodwill impairment charge of $72.0 million was recorded in the Lawn and Garden segment, reversing prior profitability and resulting in a net loss for the year.
- Debt Reduction: Total debt decreased by $20.5 million to $83.8 million following the repayment of $65 million in Senior Notes at maturity.
Outlook, Risks, and Unusual Items
- Unusual Items:
- Goodwill Impairment: $72.0 million charge in Q4 2010 related to the Lawn and Garden segment due to persistently high raw material costs and weak demand.
- Claims Settlement: A non-operating gain of $3.8 million was recorded in Q4 2010.
- Management Commentary: Management emphasizes sustainable growth through innovation, cost control, and strategic acquisitions. The company is focused on converting customers from cardboard/wood to reusable plastic systems and expanding in emerging markets.
- Key Risks:
- Raw Material Volatility: Significant exposure to plastic resin and rubber prices, which are tied to crude oil and natural gas markets.
- Weather Dependence: Lawn and Garden segment demand is highly sensitive to weather conditions during peak gardening seasons.
- Foreign Operations: Approximately 15% of sales are international, exposing the company to currency fluctuations and regulatory risks.
- Environmental Liabilities: Potential cleanup costs related to historical mining operations in the Guadalupe River Watershed (California) remain uncertain.
- Liquidity: The company maintains a $180 million credit facility with $132.7 million available as of year-end. It is in compliance with all debt covenants (Interest Coverage: 4.18; Leverage Ratio: 1.42).
Investor Verification Checklist
- Impairment Validity: Verify the assumptions used in the $72.0 million goodwill impairment test for the Lawn and Garden segment, specifically regarding future cash flow projections and discount rates.
- Raw Material Hedging: Confirm the company's strategy for mitigating rising resin costs, as margins are highly sensitive to commodity price fluctuations.
- Debt Covenant Compliance: Monitor the leverage and interest coverage ratios to ensure continued compliance with the $180 million credit facility.
- Environmental Contingency: Track developments regarding the California Regional Water Quality Control Board planning document and potential remediation costs.
- Segment Mix: Assess the sustainability of the 22% sales growth in the Engineered Products segment, which relies heavily on automotive and recreational vehicle markets.