MYE

Myers Industries Inc. 10-Q Summary

Business Context and Reporting Period

This filing covers the quarterly period ended September 30, 2006. Myers Industries, Inc. is a manufacturer of plastic and rubber products operating through five reportable segments: Distribution, Material Handling - North America, Material Handling - Europe (Discontinued), Automotive and Custom, and Lawn and Garden. The company is an accelerated filer incorporated in Ohio.

Key Financial Metrics

Material Changes vs. Prior Period

• Discontinued Operations Impact: The significant net loss of $83.1 million for the nine months ended September 30, 2006, is primarily driven by a $109.8 million non-cash goodwill impairment charge recorded in the second quarter related to the Material Handling - Europe segment, which the company decided to divest.
• Continuing Operations Growth: Excluding discontinued operations, the company reported strong performance. Net sales increased 7% year-over-year. Income from continuing operations rose 59% to $21.4 million, driven by volume increases and price hikes that offset higher raw material costs (HDPE and PP prices were up 20-25%).
• Segment Performance:
  • Material Handling - North America: Sales up 18% and pre-tax income up 122% due to volume and pricing.
  • Lawn and Garden: Sales down 4% and pre-tax income down 37% due to weather-related volume declines and production relocation costs.
  • Automotive and Custom: Sales flat for the quarter but up 5% for the nine months; income improved 34% due to margin expansion.
• Liquidity: Total debt decreased by $27.7 million to $225.1 million. Cash provided by operating activities of continuing operations was $37.8 million, down slightly from the prior year due to working capital changes.

Outlook, Risks, and Unusual Items

• Divestiture: The company entered a definitive agreement on October 20, 2006, to sell the Material Handling - Europe business. Closing is expected in Q4 2006, subject to EU competition review.
• Capital Resources: In October 2006, the company amended its credit facility, increasing the maximum borrowing capacity from $225 million to $250 million and extending the maturity to October 2011. Approximately $133 million was available under the facility as of September 30, 2006.
• Capital Expenditures: Expected to range between $15 million and $20 million for the full year 2006.
• Market Risks:
  • Interest Rate: Floating rate debt exposes the company to rate volatility; a 1% increase in rates would increase interest expense by approximately $1.2 million.
  • Commodities: Costs are sensitive to plastic resin prices, though the company has no hedging contracts.
  • Foreign Currency: Operations in Europe and Canada expose results to exchange rate fluctuations.
• Contingencies: The company is voluntarily working with the SEC and OFAC regarding business practices reported in 2004. While the DOJ and BIS have closed their investigations, the company cannot estimate potential liability from the SEC matter but believes it will not be material.

Investor Verification Checklist

• Verify the final closing date and sale price of the Material Handling - Europe divestiture.
• Monitor the impact of the $109.8 million goodwill impairment on future tax positions and asset valuations.
• Track raw material costs (HDPE and PP) and the company's ability to pass these costs to customers in the Lawn and Garden segment.
• Review the effectiveness of the new credit facility terms and the company's leverage ratios post-divestiture.
• Assess the resolution of the ongoing SEC/OFAC enforcement discussions regarding 2004 business practices.