MYE

Business Context and Reporting Period

Company: Myers Industries, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2006
Headquarters: Akron, Ohio

Myers Industries is a diversified manufacturer and distributor of polymer products and tire service equipment. The company operates four primary segments: North American Material Handling, Lawn and Garden, Automotive and Custom, and Distribution. During 2006, the company classified its European Material Handling segment as discontinued operations following a decision to divest the business, which was completed in February 2007.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales from continuing operations increased 6% to $780.0 million, driven by 15% growth in North American Material Handling and 5% growth in Automotive and Custom segments. This was partially offset by a 6% decline in the Lawn and Garden segment due to weather-related volume issues and retailer timing shifts.
• Profitability: Income from continuing operations before taxes rose 40% to $45.1 million. Gross margin improved to 27% from 25% in 2005, aided by price increases and product mix improvements that offset higher raw material costs (plastic resins were ~3% higher).
• Discontinued Operations Impact: The company recorded a net loss of $97.7 million from discontinued operations (European Material Handling), primarily due to a non-cash goodwill impairment charge of $109.8 million. This resulted in a consolidated net loss for the year despite strong performance in continuing operations.
• Debt Reduction: Total debt decreased by $51.3 million to $201.5 million, reflecting a focus on deleveraging.

Guidance, Outlook, and Risks

Strategic Initiatives: Management is executing a "Strategic Business Evolution" focused on sustainable growth through innovation, cost control, and selective acquisitions. Notable subsequent events include the acquisition of ITML Horticultural Products Inc. (January 2007) to strengthen the Lawn and Garden segment and the sale of the European Material Handling business (February 2007).

Outlook: Capital expenditures are expected to range around $15 million annually for the next five years. Management believes cash flows from operations and available credit facilities ($156 million available under a $250 million credit agreement) are sufficient to meet business requirements.

Risks and Contingencies:

• Raw Material Costs: Exposure to fluctuations in commodity prices for plastic resins and rubber, though the company attempts to pass costs through via pricing.
• Legal Proceedings: The company is voluntarily cooperating with the Office of Foreign Asset Control (OFAC) regarding past international business practices. While the DOJ and BIS have closed their investigations, potential fines or penalties from OFAC remain uncertain, though management does not expect a material adverse effect.
• Goodwill Impairment: Significant judgment is required in annual goodwill testing; the 2006 impairment in the European segment highlights the risk of asset write-downs in non-core businesses.

Investor Verification Checklist

• Discontinued Operations: Verify the final sale price and gain/loss recognition for the European Material Handling divestiture in Q1 2007 filings.
• Acquisition Integration: Monitor the integration progress and financial impact of the ITML Horticultural Products acquisition completed in January 2007.
• Legal Resolution: Track the status of the ongoing OFAC investigation regarding international sales practices to assess potential future liabilities.
• Raw Material Hedging: Review future strategies for managing plastic resin and rubber cost volatility, as the company currently has no derivative contracts to hedge these risks.
• Debt Covenants: Confirm continued compliance with the amended credit agreement covenants, specifically leverage and interest coverage ratios.