MYE

Business Context and Reporting Period

Company: Myers Industries, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Myers Industries is an international manufacturer and distributor of polymer products and tire service equipment. Operations are divided into four segments: Lawn and Garden (horticultural containers), North American Material Handling (reusable containers/pallets), Automotive and Custom (rubber/plastic OEM parts), and Distribution (tire service tools/supplies).
Key Event: The Company entered into a Merger Agreement in April 2007 to be acquired by a private equity group led by GS Capital Partners. The closing date was extended to April 30, 2008, resulting in a $35 million termination fee payment to Myers in Q4 2007.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 18% to $918.8 million, driven primarily by the acquisition of ITML Horticultural Products ($151 million in sales) and Schoeller Arca Systems assets ($28 million in sales).
• Segment Performance:
  • Lawn & Garden: Sales surged 88% due to ITML acquisition, though profitability dropped 89% due to restructuring costs and foreign currency losses.
  • Material Handling: Sales rose 11% and income before taxes increased 15%.
  • Automotive & Custom: Sales declined 17% and income dropped 36% due to weakness in the automotive market and strategic discontinuation of unprofitable lines.
  • Distribution: Sales grew 3% despite softness in tire service markets.
• Non-Operating Income: A significant $26.8 million gain (net of expenses) was recorded from the $35 million termination fee paid by the acquirer for extending the merger deadline.
• Discontinued Operations: The European Material Handling business was sold in February 2007, generating a $17.8 million gain. This contrasts with a $97.7 million loss in 2006 related to a goodwill impairment charge for the same unit.
• Debt Reduction: Total debt decreased by $30.6 million to $170.9 million, utilizing cash from operations and the sale of discontinued operations.

Guidance, Outlook, and Risks

• Merger Status: The Company remains in the process of being acquired by a Goldman Sachs-led consortium. The transaction is subject to closing conditions, with the deadline extended to April 30, 2008.
• Capital Expenditures: Expected to range between $15 million and $25 million annually for the next five years.
• Key Risks:
  • Raw Material Costs: Significant exposure to fluctuations in plastic resin and rubber prices, which are tied to crude oil and natural gas costs.
  • Foreign Currency: Increased exposure due to Canadian operations (ITML) and Brazilian subsidiaries; a hedging program was initiated in Q4 2007.
  • Weather: The Lawn and Garden segment is highly sensitive to weather conditions during peak gardening seasons.
  • Automotive Cycle: Approximately 5% of sales are to North American automotive OEMs, making the company vulnerable to cyclical downturns in vehicle demand.
• Legal Proceedings: The Company is negotiating a fine with the Office of Foreign Asset Control (OFAC) regarding past international business practices; the DOJ and SEC investigations have been closed without formal action against the company.

Investor Verification Checklist

• Merger Completion: Verify the status of the acquisition by GS Capital Partners and the likelihood of closing by the April 30, 2008 deadline.
• ITML Integration: Assess the realization of synergies and the impact of foreign currency fluctuations on the newly acquired Canadian operations.
• Raw Material Hedging: Review the effectiveness of the new hedging program initiated in Q4 2007 against rising resin costs.
• Dividend Sustainability: Confirm the ability to maintain the dividend policy ($0.50 per share in 2007, including a special dividend) given the reduced working capital and current ratio.
• Automotive Exposure: Monitor the health of the North American automotive sector, as a downturn would directly impact the Automotive and Custom segment.