Myers Industries, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. Myers Industries manufactures polymer and rubber products and distributes tire-service tools, equipment, and supplies. Continuing operations comprise Material Handling and Distribution; the Brazil business, sold in December 2017, is reported as discontinued operations.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net sales | $547.0 million | $534.4 million |
| Gross profit / margin | $157.5 million / 28.8% | $161.9 million / 30.3% |
| Operating income | $24.9 million | $27.4 million |
| Continuing-operations income | $10.8 million | $11.3 million |
| Net income (loss) | $(9.9) million | $1.1 million |
| Operating cash flow, continuing operations | $49.1 million | $34.0 million |
| Capital expenditures | $5.8 million | $12.5 million |
| Year-end debt, net of financing costs | $151.0 million | $189.5 million |
| Working capital | $51.4 million | $61.8 million |
- Sales grew 2%. Material Handling sales rose 8% to $391.3 million, supported by volume, pricing, and favorable currency; Distribution sales fell 8% to $156.4 million, principally because of lower volume and the deliberate exit of a low-margin product line.
- Gross margin declined 1.5 percentage points, reflecting higher raw-material costs, operating inefficiencies, and $7.5 million of Material Handling restructuring costs, partly offset by pricing and mix.
- Continuing-operations pretax income was $15.7 million versus $18.7 million. The effective tax rate fell to 31.0% from 39.5%, including a $3.0 million deferred-tax benefit from U.S. tax reform, partly offset by $1.8 million of transition-tax expense.
- The net loss primarily reflects a $35.0 million pretax loss on the Brazil sale, partly offset by a roughly $15 million tax benefit recorded in discontinued operations. Continuing operations remained profitable.
- Operating cash flow from continuing operations increased by $15.1 million, mainly from working-capital contributions, including higher accounts payable. Total operating cash flow, including discontinued operations, was $44.4 million.
- Year-end current assets were $150.0 million and current liabilities $98.7 million; cash was $2.5 million and restricted cash $8.7 million. The $200 million revolving facility had $121.0 million available. The company reported covenant compliance, with a 2.40 leverage ratio against a 3.25 maximum and 7.58 interest coverage against a 3.00 minimum.
- Dividends were $0.54 per share, unchanged from 2016. No shares were repurchased in 2017.
Material changes, outlook, and risks
- A 2017 Material Handling restructuring, substantially completed by year-end, incurred $7.6 million in restructuring charges and $1.1 million of associated costs. Management expects approximately $10 million in annual savings, including $8 million in 2018. A Sandusky plant closure was expected in the first quarter of 2018. No formal revenue or earnings guidance is provided.
- The company refinanced its revolving facility in March 2017, reducing capacity from $300 million to $200 million while extending maturity to March 2022. It also repaid $22 million face value of senior notes for approximately $23.8 million, recording a $1.9 million extinguishment loss.
- The Brazil business was sold for $1, with the buyer assuming its liabilities. The company guaranteed up to $7 million of the buyer’s factoring obligations through December 31, 2019; management recorded no liability for the guarantee. International sales represented approximately 10% of continuing-operations sales.
- Environmental matters include a $3.6 million reserve for the New Idria mine and a $1.5 million reserve for New Almaden. The company had not accrued for potential New Idria remediation costs because they could not be estimated; it expected to provide $2 million of financial assurance for the planned investigation and feasibility study.
- Approximately $8.6 million of escrow proceeds from the earlier Lawn and Garden sale remained tied to indemnification litigation. A December 2017 non-final court opinion favored the buyer’s entitlement to the escrow on technical grounds; Myers intended to appeal and said it would defend its claims.
- U.S. tax-reform accounting amounts were provisional and could be adjusted as the company completed its analysis. The company also disclosed that the IRS could challenge the tax benefit associated with the Brazil divestiture.
- Principal operating risks include volatile resin and rubber costs, competitive and cyclical markets, manufacturing or supply interruptions, access to credit and compliance with debt covenants, environmental and product-liability matters, cybersecurity, and execution of restructuring and growth initiatives.
Key facts for investors to verify
- Whether restructuring savings are realized as expected and whether margins recover from 2017’s decline.
- Whether the Distribution Segment’s demand and pricing improvement in the second half of 2017 continues.
- Cash-flow quality and sustainability, particularly the contribution from increased accounts payable and working capital.
- Available borrowing, debt maturities, interest-rate exposure, and continued covenant headroom.
- Final Tax Act accounting and the defensibility of the Brazil-related tax benefit and guarantee exposure.
- Potential outcomes and additional costs for the Brazil guarantee, environmental matters, and Lawn and Garden escrow litigation.